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 811-4149
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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
(Address of principal executive offices) (Zip code)
Murray L. Simpson, 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: 2/29/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
FEBRUARY 29, 2004
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Franklin Florida Insured
Tax-Free Income Fund
Franklin Insured
Tax-Free Income Fund
Franklin Massachusetts Insured
Tax-Free Income Fund
Franklin Michigan Insured
Tax-Free Income Fund
Franklin Minnesota Insured
Tax-Free Income Fund
Franklin Ohio Insured
Tax-Free Income Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER | TAX-FREE INCOME
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WANT TO RECEIVE
THIS DOCUMENT
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FRANKLIN TAX-FREE TRUST Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO]
FRANKLIN[R] TEMPLETON[R]
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
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 leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
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
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style
of value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios 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 account services that have helped us become one of the most trusted
names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ................. 1
SPECIAL FEATURE:
Understanding Your
Tax-Free Income Fund ............... 4
ANNUAL REPORT
Municipal Bond Market
Overview ........................... 7
Investment Strategy and
Manager's Discussion ............... 9
Franklin Florida Insured
Tax-Free Income Fund ............... 10
Franklin Insured Tax-Free
Income Fund ........................ 14
Franklin Massachusetts Insured
Tax-Free Income Fund ............... 20
Franklin Michigan Insured
Tax-Free Income Fund ............... 26
Franklin Minnesota Insured
Tax-Free Income Fund ............... 33
Franklin Ohio Insured
Tax-Free Income Fund ............... 39
Financial Highlights and
Statements of Investments .......... 46
Financial Statements ............... 111
Notes to
Financial Statements ............... 120
Independent
Auditors' Report ................... 131
Tax Designation .................... 132
Board Members
and Officers ....................... 133
Proxy Voting Policies
and Procedures ..................... 138
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Shareholder Letter
Dear Shareholder:
During the fiscal year ended February 29, 2004, the U.S. economy grew. With
benign inflation, improving economic data and positive corporate earnings
reports, investors seemed to gain confidence in the stock markets. The Dow Jones
Industrial Average reported a 37.20% 12-month gain. In particular, technology
stocks rallied strongly, with the Nasdaq Composite Index posting a 52.54% total
return for the year ended February 29, 2004. 1
U.S. bond markets, on the other hand, were volatile. The yield on the 10-year
Treasury note began the fiscal year at 3.71% and reached a low of 3.13% on June
13. From there, the bond market entered the most rapid sell-off since 1987, and
as bond prices fell the yield on the 10-year Treasury rose to 3.99% on February
29, 2004. Many investors sold long-term bonds fearing inflation would climb as
the economy improves. Many institutional investors, particularly in the mortgage
business, sold large blocks of longer-term Treasury bonds as they adjusted their
1. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price-weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. The Nasdaq Composite Index
measures all domestic and international common stocks listed on The Nasdaq Stock
Market. The index is market value-weighted and includes over 3,000 companies.
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EDELIVERY DETAILS
Log in at franklintempleton.com and click on eDelivery. Shareholders who are
registered at franklintempleton.com can receive these reports via email. Not all
accounts are eligible for eDelivery.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Not part of the annual report | 1
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STATEMENT ON CURRENT INDUSTRY ISSUES
In our efforts to fulfill our ongoing commitment to provide you with timely
and accurate information, we have prepared a statement on current industry
issues as they pertain to Franklin Resources, Inc. and our subsidiary
companies (Franklin Templeton Investments). You can find the most updated
"Statement on Current Industry Issues" and a detailed Q&A at
franklintempleton.com, or call us at 1-800/632-2301.
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portfolios. Other investors simply reacted negatively to Federal Reserve Board
(Fed) comments about prospects for interest rates and the Fed's potential
strategies.
We believe that inflation and its prospects remain tame. Although the economy
seems to be growing, we think concerns about inflation may be exaggerated at
this point. As long as productivity remains strong, the economy can grow without
inordinate inflationary pressures. That happened throughout most of the 1990s,
when the economy was very powerful and grew rapidly; yet inflation -- and
interest rates -- came down to decades-low levels.
At times of such volatility, we continue to recommend investors consult their
financial advisors and review their portfolios to design a strategy and
portfolio allocation that meet their individual needs and goals. Municipal bonds
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.
In the enclosed annual report, you will find an overview of the municipal bond
market, the manager's investment strategy and a discussion about how we managed
funds within Franklin Tax-Free Trust. You can also find specific performance
data and financial information about your fund. Please remember that all
securities markets move up and down, as do mutual fund share prices.
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely commentary
from portfolio managers, and find helpful financial planning tools. We hope you
will take advantage of these online services.
2 | Not part of the annual report
We appreciate your confidence in us 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 & Co-Directors
Franklin Municipal Bond Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 29, 2004. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES
CONSIDERED RELIABLE.
Not part of the annual report | 3
Special Feature
UNDERSTANDING YOUR TAX-FREE INCOME FUND--
WHAT CAUSES DIVIDENDS AND FUND PRICES TO FLUCTUATE
DID YOU EVER WONDER WHY YOUR TAX-FREE INCOME FUND SHARE PRICE FLUCTUATES? OR WHY
THE DIVIDENDS YOU RECEIVE FROM YOUR TAX-FREE INCOME FUND AREN'T ALWAYS THE SAME?
AT FRANKLIN TEMPLETON INVESTMENTS, MAXIMIZING TAX-FREE INCOME AND PRESERVING OUR
SHAREHOLDERS' CAPITAL ARE OUR TOP PRIORITIES. EVEN SO, CHANGES IN THE ECONOMY
AND INTEREST RATES CAN HAVE AN IMPACT ON YOUR FUND'S SHARE PRICE AND DIVIDENDS.
BELOW, YOU'LL FIND ANSWERS TO COMMONLY ASKED QUESTIONS ABOUT THE RELATIONSHIP
BETWEEN MUNICIPAL BONDS AND INTEREST RATES. UNDERSTANDING WHAT AFFECTS YOUR
TAX-FREE INCOME FUND MAY HELP YOU BECOME A MORE EFFECTIVE INVESTOR.
Q&A
Q. WHAT IS THE DIFFERENCE BETWEEN SHORT- AND LONG-TERM INTEREST RATES?
A. The Federal Reserve Board controls the Federal funds target rate (Fed funds
rate), which in turn influences the market for shorter-term securities. The
Fed closely monitors the economy and has the power to raise or lower the Fed
funds rate in order to keep inflation in check or to help stimulate the
economy. The Fed funds rate is the rate that banks charge other banks for
overnight loans.
Long-term interest rates, as represented by yields of the 10-year or 30-year
Treasury bond, are market-driven and tend to move in anticipation of changes
in the economy and inflation.
Q. WHAT CAUSES INTEREST RATES TO RISE AND FALL?
A. Interest rate trends are primarily determined by economic factors such as
inflation, the strength of the U.S. dollar and the pace of economic growth.
For example, strong economic growth can lead to inflation. If the Fed becomes
concerned about inflation, it may attempt to cool the economy by raising the
Fed funds rate, as it did in 2000. On the other hand, if the economy slows
down, the Fed may lower the Fed funds rate to stimulate economic growth, as
we witnessed from January 2001 to June 2003. Over the summer of 2003,
long-term interest rates rose from historic lows in response to indications
of the beginning of an economic recovery.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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4 | Not part of the annual report
Q&A
Q. HOW DO CHANGES IN INTEREST RATES AFFECT BOND PRICES?
A. Typically, bond prices move in the opposite direction of interest rates. So,
when interest rates rise, bond prices fall, and conversely, when rates
decline, bond prices tend to rise in value.
When rates go up, newly issued bonds, with their new, higher yields become
more attractive than comparable existing bonds with lower yields. So,
investors who want to sell their existing bonds have to reduce their prices
to make them equally attractive.
[GRAPHIC OMITTED]
Generally, tax-free income fund portfolios comprising municipal bonds with
longer maturities are more sensitive to changes in long-term interest rates
than portfolios with shorter-term municipal bonds. Similarly funds with
shorter-term municipal bonds are typically more influenced by short-term rate
changes than funds with longer-term municipal bonds.
But, while tax-free income fund prices will fluctuate with interest rate
changes, it's important to remember that price movement is only part of the
picture. As a tax-free income fund investor, you also receive monthly
tax-free income1, which has historically been the largest component of total
return for municipal bonds.2 Total return includes price movement (capital
appreciation or depreciation) and income. And since bonds generally pay
interest whether prices move up or down, the interest from municipal bonds
can help cushion a fund's overall total return, especially when rates are
rising.
Q. HOW DO INTEREST RATES AFFECT MY TAX-FREE DIVIDENDS?
A. When interest rates decline, municipal bond issuers often "call" or redeem
existing higher-yielding bonds and replace them with new, lower-yielding
bonds to reduce the amount of interest they pay on the debt. As funds then
have to reinvest proceeds from the called bonds into new lower-yielding
bonds, their investment earnings decline, and the dividends paid out to
shareholders also decline.
1. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Source: Lehman Brothers Municipal Bond Index, 12/31/03. Total return includes
compounded income and capital appreciation over the 20-year period ending
12/31/03. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Not part of the annual report | 5
Q&A
Higher interest rates may lead to higher dividends. When interest rates rise,
fewer bonds are called and fund managers may have the opportunity to invest
in new, higher-yielding bonds. As a result, the funds' investment earnings
can increase, and they are able to pay out higher dividends to shareholders
over time.
Q. WHAT IS THE BENEFIT OF FRANKLIN'S INVESTMENT APPROACH WHEN INTEREST RATES ARE
VOLATILE?
A. Since 1977, Franklin has consistently adhered to a strategy of investing for
high, current, tax-free income while working to preserve shareholders'
capital. 1
Our straightforward, "plain-vanilla" approach to investing means we do not
use leverage or invest in speculative derivatives or futures, which could
increase the level of risk for our fund portfolios, especially when interest
rates are volatile. Similarly, we do not try to time the market and predict
interest rate movements. Instead, we carefully select bonds for our fund
portfolios that we believe should provide a high level of stable income until
maturity.
We generally invest in current coupon securities to maximize tax-free income.
Over time, as we invest in different interest rate climates, the portfolios
become well diversified with a broad range of securities. As a result of this
strategy, we own many older securities with higher coupons, which are
generally less sensitive to interest rate movements and help to provide
stability to our fund portfolios.
Our tax-free income fund investment strategy cannot eliminate interest rate
risk, but it can help to reduce this risk.
Q. HOW DO STATE BUDGET DEFICITS AND CREDIT RATING DOWNGRADES AFFECT MY TAX-FREE
INCOME FUND?
A. Many states have been facing budget challenges, as the recent economic
slowdown has had an impact on virtually every tax-related revenue source. As
finances for state governments have deteriorated, independent rating agencies
have downgraded debt ratings or issued negative outlooks for some states'
general obligation debt. Rating downgrades may lead to increased price
volatility for certain fund holdings over the short term. However, over the
long term, because of our income-focused strategy, lower-rated bonds may also
present an attractive investment opportunity. Lower ratings on state debt can
translate into higher yields paid to bondholders and potentially higher
dividends to shareholders over time.
Q. WHAT ARE THE KEY BENEFITS OF INVESTING IN TAX-FREE INCOME FUNDS?
A. It's important to remember the reasons to own tax-free income funds don't
change when market conditions change. For long-term investors seeking
monthly, tax-free income and portfolio diversification, we believe tax-free
income funds are an attractive investment option. At Franklin, we will
continue to serve our shareholders by seeking to provide a high level of
tax-free income consistent with prudent investment management and the
preservation of shareholders' capital.
[LOGO]
FRANKLIN[R] TEMPLETON[R]
INVESTMENTS
6 | Not part of the annual report
Annual Report
Municipal Bond Market Overview
During the fiscal year ended February 29, 2004, the municipal bond market
received support from investors, resulting in a broad-based municipal bond price
increase. Consequently, the Lehman Brothers Municipal Bond Index rose 6.30% for
the 12-month period.1 Several factors contributed to bond market strength.
Rising unemployment, excess production capacity, the Federal Reserve Board's
(the Fed's) decision to lower the federal funds target rate to 1.00% in June
2003, and many foreign governments' strong demand for Treasury bonds each played
a role in driving fixed income prices higher. Persistently low inflation was
also important because it can reassure fixed income investors that the value of
their cash flow is more likely to retain its purchasing power. Inflation as
measured by the Consumer Price Index (CPI) rose a modest 1.93% for the 12 months
under review.
Bond prices and borrowing rates for issuers are generally inversely related;
thus borrowing costs for most municipalities declined during the period under
review. According to Municipal Market Data, the yield for 30-year AAA bonds
declined from 4.71% at the beginning of the year under review to 4.44% on
February 29, 2004.2 Declining yields provided some municipalities with the
opportunity to refinance their outstanding debt at lower interest rates. During
calendar year 2003, municipalities issued $94 billion of bonds to refund their
outstanding debt. Refunding debt combined with new-issue bonds totaled $384
billion in 2003, surpassing the $358 billion record set in 2002.3
Another trend in the municipal bond market was greater short-term borrowing,
largely because of the need to smooth annual revenues and fill budget gaps, and
the unusually wide spread between short- and long-term rates. In 2003 municipal
note issuance reached the second-highest level of the past decade. Despite the
abundance of short-term notes, the difference between short- and long-term
rates, illustrated by the yield curve, was wider on average for the year ended
February 29, 2004, than for the 10 prior years. Although the yield curve was
steep, which can reflect fear of rising rates on the long end, long-term
interest rates remained near four-decade lows during the year under review.
1. Source: Standard & Poors Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
2. Source: Thomson Financial.
3. Source: THE BOND BUYER online, www.bondbuyer.com, "A Decade of Municipal Bond
Finance," 3/4/04.
Annual Report | 7
The path toward higher municipal bond prices was unsteady at times during the
year under review as significant events affected the market. Globally, triumphs
and setbacks in Iraq and the Middle East, tension with North Korea, outbreaks of
contagious diseases, and worldwide terrorist activity made headlines.
Domestically, changing tax policies, burgeoning budget deficits, dollar
devaluation, national health care reform, and several financial scandals were
prominent news stories over the past 12 months. Such events seemed to be
reflected in the Lehman Brothers Municipal Bond Index's volatility. The index
returned 4.13% between February 28 and June 15, 2003, then fell 4.80% from June
15 through August 15, and rose 7.22% from August 15 through fiscal year-end.1
The municipal bond market, however, experienced less volatility than the 10-year
Treasury bond or the Standard & Poor's 500 Composite Index (S&P 500).4
Many states coped with financial challenges and budget deficits during the year
under review. According to the Center on Budget and Policy Priorities, a
non-partisan organization that researches and analyzes a range of government
policies and programs, in January 2003 the projected budget shortfall for fiscal
year 2004 for all states totaled between $70 billion and $85 billion. However,
in January 2004, Moody's Investors Service, an independent credit rating agency,
released a report entitled "State Credit Cycle Approaches the Bottom; Lessons
from the Early 1990s," which cited several factors that Moody's suggests could
contribute to eventual restoration of fiscal balance. Even with large budgetary
swings, overall municipal debt credit quality remained high, which resulted in
Moody's credit upgrades surpassing downgrades by 415 to 306 for 2003.
4. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
8 | Annual Report
Investment Strategy and
Manager's Discussion
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, our portfolios become well
diversified with a broad range of coupons, calls and maturities. This broad
diversification helps stabilize Fund share prices. We generally stay fully
invested to support income distribution.
The record amount of new issuance nationally during the Funds' fiscal year
provided us with ample opportunity to keep the portfolios fully invested,
improve the structure of existing portfolios, or execute tax losses. The mixture
of our value-oriented philosophy of investing primarily for income, a large
supply of municipal bonds, and a steep yield curve favored the use of
longer-term bonds within the parameters of each specific fund. Consequently, we
sought to remain fully invested in bonds that ranged from 15 to 30 years in
maturity with good call features.
We invite you to read your Fund report for more detailed performance and
portfolio information. Thank you for your participation in Franklin Tax-Free
Trust. We look forward to serving your future investment needs.
Annual Report | 9
Franklin Florida Insured
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Florida Insured Tax-Free
Income Fund seeks to provide high, current income exempt from federal income tax
through a portfolio consisting mainly of insured Florida municipal securities.1,
2 In addition, the Fund's shares are free from Florida's annual intangibles tax.
PORTFOLIO BREAKDOWN
Franklin Florida Insured
Tax-Free Income Fund
2/29/04
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% OF TOTAL
LONG-TERM INVESTMENTS
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Utilities* 27.0%
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Other Revenue 20.7%
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Subject to Government
Appropriations 13.4%
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Tax-Supported 12.0%
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Prerefunded 7.3%
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Transportation 6.9%
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Housing 5.3%
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Higher Education 4.8%
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General Obligation 1.4%
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Hospital & Health Care 1.2%
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*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.
We are pleased to bring you Franklin Florida Insured Tax-Free Income Fund's
annual report, covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $10.76 on February
28, 2003, to $10.97 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 45.15 cents per share for the Fund's fiscal year.3 The
Performance Summary beginning on page 12 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.98%. An investor in
the 2004 maximum federal income tax bracket of 35.00% would need to earn a
distribution rate of 6.12% from a taxable investment to match the Fund's Class A
tax-free distribution rate.
STATE UPDATE
Florida's economy performed reasonably well given the state's significant
tourism sector. Although the unemployment rate increased to 4.6% in February
2004, from a low of 3.8% in 2000, it remained below the 5.6% national rate.4
Unemployment was less cyclical than in prior economic downturns, and was
relatively stable throughout 2003. Labor force gains continued, and employment
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. The insurance relates only to the payment of principal and interest on the
portfolio's insured securities. No representation is made as to any insurer's
ability to meet its commitments.
3. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
4. Source: Bureau of Labor Statistics.
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 47.
10 | Annual Report
growth resumed at a more normal pace. The state's service-based economy
continued to outpace the national economy as measured by employment, population
and gross state product, and the state appeared to have solid long-term growth
prospects.
Florida's revenue base, dominated by sales tax receipts, remained relatively
stable, in contrast to most other states. Unlike much of the nation, the state
ended fiscal year 2003 with a surplus and a fully funded budget stabilization
reserve, which is also expected to be the case in fiscal year 2004. The state
did not appropriate $948 million of federal aid monies, and those funds are now
included in the working capital fund.5 Combined reserves are projected to total
$2.3 billion in June 2004, and monthly reports indicated that overall general
fund revenues performed close to estimates.5 However, the state's tax-supported
debt grew significantly over the past decade, and totaled $16 billion, which
represented an above-national-average $1,001 per capita and 3.4% of personal
income. 5
Florida's strong and growing financial reserve levels, stable revenue
performance, and service-based economy supported the state's AA+ credit rating
from Standard & Poor's, an independent credit rating agency.6 The outlook for
the state is stable, based on Florida's strong track record of active budget
management and solid budgetary reserves. However, the state may face challenges
managing the budget given recently approved constitutional amendments regarding
education spending.
MANAGER'S DISCUSSION
We used various strategies during the year under review as we sought to maximize
tax-free income for shareholders. Please read the discussion beginning on page 9
for details.
Thank you for your participation in Franklin Florida 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.
DIVIDEND DISTRIBUTIONS 3
Franklin Florida Insured
Tax-Free Income Fund - Class A
3/1/03-2/29/04
- --------------------------------------
MONTH DIVIDEND PER SHARE
- --------------------------------------
March 3.75 cents
- --------------------------------------
April 3.75 cents
- --------------------------------------
May 3.75 cents
- --------------------------------------
June 3.75 cents
- --------------------------------------
July 3.75 cents
- --------------------------------------
August 3.75 cents
- --------------------------------------
September 3.75 cents
- --------------------------------------
October 3.75 cents
- --------------------------------------
November 3.75 cents
- --------------------------------------
December 3.80 cents
- --------------------------------------
January 3.80 cents
- --------------------------------------
February 3.80 cents
- --------------------------------------
TOTAL 45.15 CENTS
- --------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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, "Summary: Florida; Tax-Secured, General
Obligation," RATINGSDIRECT, 11/26/03.
6. This does not indicate Standard & Poor's rating of the Fund.
Annual Report | 11
Performance Summary as of 2/29/04
FRANKLIN FLORIDA 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. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table and graph do not reflect any taxes due on Fund
dividends, capital gain distributions, if any, or any realized gains on the sale
of Fund shares. Total return reflects the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- ------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $10.97 $10.76
- ------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ------------------------------------------------------------------------------------
Dividend Income $0.4515
- ------------------------------------------------------------------------------------
PERFORMANCE
- ------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.29% +30.93% +78.46%
- ------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.75% +4.62% +5.50%
- ------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.19% +4.51% +6.17%
- ------------------------------------------------------------------------------------
Distribution Rate 4 3.98%
- ------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.12%
- ------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.12%
- ------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.80%
- ------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
12 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvested interest. It differs from the Fund in composition and does not pay
management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/31/94-2/29/04)
[LINE CHART]
PLOTS POINTS:
Franklin Florida Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,572 $10,000 $10,000
3/31/94 $8,961 $9,593 $10,034
4/30/94 $9,031 $9,674 $10,048
5/31/94 $9,094 $9,758 $10,055
6/30/94 $9,009 $9,698 $10,089
7/31/94 $9,273 $9,876 $10,116
8/31/94 $9,211 $9,910 $10,157
9/30/94 $9,020 $9,765 $10,184
10/31/94 $8,720 $9,592 $10,191
11/30/94 $8,514 $9,418 $10,204
12/31/94 $8,856 $9,625 $10,204
1/31/95 $9,242 $9,900 $10,245
2/28/95 $9,593 $10,188 $10,286
3/31/95 $9,682 $10,305 $10,320
4/30/95 $9,692 $10,318 $10,354
5/31/95 $10,054 $10,647 $10,375
6/30/95 $9,906 $10,554 $10,395
7/31/95 $9,973 $10,654 $10,395
8/31/95 $10,099 $10,789 $10,423
9/30/95 $10,175 $10,857 $10,443
10/31/95 $10,369 $11,015 $10,477
11/30/95 $10,591 $11,198 $10,470
12/31/95 $10,740 $11,305 $10,464
1/31/96 $10,766 $11,391 $10,525
2/29/96 $10,644 $11,314 $10,559
3/31/96 $10,913 $11,169 $10,613
4/30/96 $10,866 $11,138 $10,654
5/31/96 $10,875 $11,133 $10,675
6/30/96 $11,028 $11,255 $10,682
7/31/96 $11,144 $11,357 $10,702
8/31/96 $11,128 $11,354 $10,723
9/30/96 $11,354 $11,513 $10,757
10/31/96 $11,447 $11,643 $10,791
11/30/96 $11,661 $11,856 $10,811
12/31/96 $11,592 $11,806 $10,811
1/31/97 $11,074 $11,828 $10,845
2/28/97 $11,188 $11,937 $10,879
3/31/97 $11,004 $11,778 $10,907
4/30/97 $11,118 $11,876 $10,920
5/31/97 $11,284 $12,055 $10,913
6/30/97 $11,414 $12,184 $10,927
7/31/97 $11,793 $12,521 $10,941
8/31/97 $11,658 $12,404 $10,961
9/30/97 $11,790 $12,551 $10,988
10/31/97 $11,902 $12,632 $11,016
11/30/97 $11,984 $12,706 $11,009
12/31/97 $12,177 $12,891 $10,995
1/31/98 $12,311 $13,024 $11,016
2/28/98 $12,303 $13,028 $11,036
3/31/98 $12,322 $13,040 $11,057
4/30/98 $12,286 $12,981 $11,077
5/31/98 $12,455 $13,186 $11,097
6/30/98 $12,504 $13,238 $11,111
7/31/98 $12,561 $13,271 $11,125
8/31/98 $12,745 $13,476 $11,138
9/30/98 $12,866 $13,644 $11,152
10/31/98 $12,886 $13,644 $11,179
11/30/98 $12,976 $13,692 $11,179
12/31/98 $12,990 $13,726 $11,172
1/31/99 $13,104 $13,890 $11,200
2/28/99 $13,044 $13,829 $11,213
3/31/99 $13,078 $13,848 $11,247
4/30/99 $13,091 $13,883 $11,329
5/31/99 $13,011 $13,802 $11,329
6/30/99 $12,813 $13,604 $11,329
7/31/99 $12,835 $13,653 $11,363
8/31/99 $12,662 $13,544 $11,391
9/30/99 $12,596 $13,549 $11,445
10/31/99 $12,376 $13,403 $11,466
11/30/99 $12,508 $13,545 $11,472
12/31/99 $12,393 $13,444 $11,472
1/31/00 $12,327 $13,386 $11,506
2/29/00 $12,494 $13,541 $11,575
3/31/00 $12,844 $13,837 $11,670
4/30/00 $12,725 $13,755 $11,677
5/31/00 $12,601 $13,684 $11,691
6/30/00 $12,995 $14,046 $11,752
7/31/00 $13,220 $14,242 $11,779
8/31/00 $13,420 $14,461 $11,779
9/30/00 $13,296 $14,386 $11,840
10/31/00 $13,474 $14,543 $11,861
11/30/00 $13,608 $14,653 $11,868
12/31/00 $14,023 $15,015 $11,861
1/31/01 $14,054 $15,164 $11,936
2/28/01 $14,131 $15,212 $11,984
3/31/01 $14,257 $15,348 $12,011
4/30/01 $14,068 $15,182 $12,059
5/31/01 $14,180 $15,345 $12,113
6/30/01 $14,286 $15,448 $12,134
7/31/01 $14,555 $15,677 $12,100
8/31/01 $14,806 $15,935 $12,100
9/30/01 $14,744 $15,882 $12,154
10/31/01 $14,931 $16,071 $12,113
11/30/01 $14,803 $15,936 $12,093
12/31/01 $14,649 $15,785 $12,045
1/31/02 $14,848 $16,059 $12,072
2/28/02 $15,000 $16,252 $12,120
3/31/02 $14,727 $15,934 $12,188
4/30/02 $14,949 $16,245 $12,256
5/31/02 $15,051 $16,344 $12,256
6/30/02 $15,159 $16,516 $12,263
7/31/02 $15,338 $16,729 $12,277
8/31/02 $15,524 $16,930 $12,318
9/30/02 $15,947 $17,301 $12,338
10/31/02 $15,640 $17,014 $12,359
11/30/02 $15,590 $16,943 $12,359
12/31/02 $15,918 $17,301 $12,331
1/31/03 $15,888 $17,257 $12,386
2/28/03 $16,074 $17,498 $12,481
3/31/03 $16,121 $17,509 $12,556
4/30/03 $16,267 $17,624 $12,529
5/31/03 $16,651 $18,037 $12,509
6/30/03 $16,603 $17,960 $12,522
7/31/03 $15,917 $17,332 $12,536
8/31/03 $16,014 $17,461 $12,584
9/30/03 $16,426 $17,975 $12,624
10/31/03 $16,347 $17,884 $12,611
11/30/03 $16,537 $18,070 $12,577
12/31/03 $16,681 $18,220 $12,563
1/31/04 $16,801 $18,324 $12,624
2/29/04 $17,083 $18,600 $12,693
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
CONDITIONS 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a higher initial sales charge; thus actual
total returns would be lower.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current maximum sales
charge.
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 $11.46 per share on
2/29/04.
5. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 13
Franklin Insured Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Insured Tax-Free Income Fund
seeks to provide high, current income exempt from federal income tax through a
portfolio consisting mainly of insured municipal securities.1, 2
PORTFOLIO BREAKDOWN
Franklin Insured Tax-Free Income Fund
2/29/04
- --------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------
Hospital & Health Care 17.2%
- --------------------------------------
Utilities 17.0%
- --------------------------------------
General Obligation 16.6%
- --------------------------------------
Prerefunded 16.6%
- --------------------------------------
Transportation 13.4%
- --------------------------------------
Subject to Government
Appropriations 5.6%
- --------------------------------------
Tax-Supported 5.6%
- --------------------------------------
Higher Education 5.4%
- --------------------------------------
Housing 1.2%
- --------------------------------------
Other Revenue 1.1%
- --------------------------------------
Corporate-Backed 0.3%
- --------------------------------------
We are pleased to bring you Franklin Insured Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.37 on February
28, 2003, to $12.62 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 55.46 cents per share for the Fund's fiscal year.3 The
Performance Summary beginning on page 16 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.17%, based on an
annualization of the current 4.58 cent ($0.0458) per share dividend and the
maximum offering price of $13.18 on February 29, 2004. An investor in the 2004
maximum federal income tax bracket of 35.00% 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. For the Fund's Class B and C shares' performance, please see
the Performance Summary.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decrease
slightly, as shown in the dividend distributions table.
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. The insurance relates only to the payment of principal and interest on the
portfolio's insured securities. No representation is made as to any insurer's
ability to meet its commitments.
3. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 53.
14 | Annual Report
DIVIDEND DISTRIBUTIONS 3
Franklin Insured Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------------------
MONTH CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
March 4.72 cents 4.15 cents 4.20 cents
- --------------------------------------------------------------------------------
April 4.72 cents 4.15 cents 4.20 cents
- --------------------------------------------------------------------------------
May 4.72 cents 4.15 cents 4.20 cents
- --------------------------------------------------------------------------------
June 4.62 cents 4.04 cents 3.96 cents
- --------------------------------------------------------------------------------
July 4.62 cents 4.04 cents 3.96 cents
- --------------------------------------------------------------------------------
August 4.58 cents 3.98 cents 3.94 cents
- --------------------------------------------------------------------------------
September 4.58 cents 3.98 cents 3.94 cents
- --------------------------------------------------------------------------------
October 4.58 cents 3.98 cents 3.94 cents
- --------------------------------------------------------------------------------
November 4.58 cents 3.98 cents 3.94 cents
- --------------------------------------------------------------------------------
December 4.58 cents 4.07 cents 4.03 cents
- --------------------------------------------------------------------------------
January 4.58 cents 4.07 cents 4.03 cents
- --------------------------------------------------------------------------------
February 4.58 cents 4.07 cents 4.03 cents
- --------------------------------------------------------------------------------
TOTAL 55.46 CENTS 48.66 CENTS 48.37 CENTS
MANAGER'S DISCUSSION
We used various strategies during the year under review as we sought to maximize
tax-free income for shareholders. Please read the discussion beginning on page 9
for details.
Thank you for your 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 15
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.25 $12.62 $12.37
- -----------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------
Dividend Income $0.5546
- -----------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.25 $12.67 $12.42
- -----------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------
Dividend Income $0.4866
- -----------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.25 $12.72 $12.47
- -----------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------
Dividend Income $0.4837
16 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.65% +31.78% +75.16%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.11% +4.77% +5.31%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.44% +4.63% +5.62%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.17%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.42%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.25%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.00%
- -----------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.04% +19.52% +35.37%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.04% +5.23% +7.32%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.36% +4.81% +7.06%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.80%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.84%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.84%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.37%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.99% +28.24% +62.45%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.99% +5.10% +5.65%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.39% +4.97% +5.55%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.79%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.83%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.84%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.37%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 17
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 2/29/04
- --------------------------------------
1-Year +2.11%
- --------------------------------------
5-Year +4.77%
- --------------------------------------
10-Year +5.31%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS A (3/1/94-2/29/04)
Franklin Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,577 $10,000 $10,000
3/31/94 $9,273 $9,593 $10,034
4/30/94 $9,311 $9,674 $10,048
5/31/94 $9,376 $9,758 $10,055
6/30/94 $9,342 $9,698 $10,089
7/31/94 $9,490 $9,876 $10,116
8/31/94 $9,514 $9,910 $10,157
9/30/94 $9,427 $9,765 $10,184
10/31/94 $9,306 $9,592 $10,191
11/30/94 $9,150 $9,418 $10,204
12/31/94 $9,334 $9,625 $10,204
1/31/95 $9,553 $9,900 $10,245
2/28/95 $9,774 $10,188 $10,286
3/31/95 $9,859 $10,305 $10,320
4/30/95 $9,878 $10,318 $10,354
5/31/95 $10,103 $10,647 $10,375
6/30/95 $10,054 $10,554 $10,395
7/31/95 $10,104 $10,654 $10,395
8/31/95 $10,194 $10,789 $10,423
9/30/95 $10,242 $10,857 $10,443
10/31/95 $10,371 $11,015 $10,477
11/30/95 $10,513 $11,198 $10,470
12/31/95 $10,604 $11,305 $10,464
1/31/96 $10,665 $11,391 $10,525
2/29/96 $10,622 $11,314 $10,559
3/31/96 $10,515 $11,169 $10,613
4/30/96 $10,488 $11,138 $10,654
5/31/96 $10,508 $11,133 $10,675
6/30/96 $10,609 $11,255 $10,682
7/31/96 $10,680 $11,357 $10,702
8/31/96 $10,696 $11,354 $10,723
9/30/96 $10,828 $11,513 $10,757
10/31/96 $10,924 $11,643 $10,791
11/30/96 $11,073 $11,856 $10,811
12/31/96 $11,047 $11,806 $10,811
1/31/97 $11,061 $11,828 $10,845
2/28/97 $11,140 $11,937 $10,879
3/31/97 $11,037 $11,778 $10,907
4/30/97 $11,115 $11,876 $10,920
5/31/97 $11,245 $12,055 $10,913
6/30/97 $11,345 $12,184 $10,927
7/31/97 $11,611 $12,521 $10,941
8/31/97 $11,511 $12,404 $10,961
9/30/97 $11,630 $12,551 $10,988
10/31/97 $11,704 $12,632 $11,016
11/30/97 $11,782 $12,706 $11,009
12/31/97 $11,944 $12,891 $10,995
1/31/98 $12,047 $13,024 $11,016
2/28/98 $12,042 $13,028 $11,036
3/31/98 $12,070 $13,040 $11,057
4/30/98 $12,032 $12,981 $11,077
5/31/98 $12,203 $13,186 $11,097
6/30/98 $12,262 $13,238 $11,111
7/31/98 $12,300 $13,271 $11,125
8/31/98 $12,465 $13,476 $11,138
9/30/98 $12,606 $13,644 $11,152
10/31/98 $12,612 $13,644 $11,179
11/30/98 $12,656 $13,692 $11,179
12/31/98 $12,669 $13,726 $11,172
1/31/99 $12,784 $13,890 $11,200
2/28/99 $12,733 $13,829 $11,213
3/31/99 $12,774 $13,848 $11,247
4/30/99 $12,795 $13,883 $11,329
5/31/99 $12,727 $13,802 $11,329
6/30/99 $12,563 $13,604 $11,329
7/31/99 $12,582 $13,653 $11,363
8/31/99 $12,429 $13,544 $11,391
9/30/99 $12,406 $13,549 $11,445
10/31/99 $12,231 $13,403 $11,466
11/30/99 $12,355 $13,545 $11,472
12/31/99 $12,237 $13,444 $11,472
1/31/00 $12,162 $13,386 $11,506
2/29/00 $12,323 $13,541 $11,575
3/31/00 $12,619 $13,837 $11,670
4/30/00 $12,541 $13,755 $11,677
5/31/00 $12,459 $13,684 $11,691
6/30/00 $12,782 $14,046 $11,752
7/31/00 $12,984 $14,242 $11,779
8/31/00 $13,176 $14,461 $11,779
9/30/00 $13,083 $14,386 $11,840
10/31/00 $13,234 $14,543 $11,861
11/30/00 $13,347 $14,653 $11,868
12/31/00 $13,707 $15,015 $11,861
1/31/01 $13,791 $15,164 $11,936
2/28/01 $13,832 $15,212 $11,984
3/31/01 $13,939 $15,348 $12,011
4/30/01 $13,778 $15,182 $12,059
5/31/01 $13,919 $15,345 $12,113
6/30/01 $14,032 $15,448 $12,134
7/31/01 $14,238 $15,677 $12,100
8/31/01 $14,452 $15,935 $12,100
9/30/01 $14,385 $15,882 $12,154
10/31/01 $14,558 $16,071 $12,113
11/30/01 $14,470 $15,936 $12,093
12/31/01 $14,339 $15,785 $12,045
1/31/02 $14,554 $16,059 $12,072
2/28/02 $14,717 $16,252 $12,120
3/31/02 $14,458 $15,934 $12,188
4/30/02 $14,693 $16,245 $12,256
5/31/02 $14,765 $16,344 $12,256
6/30/02 $14,891 $16,516 $12,263
7/31/02 $15,067 $16,729 $12,277
8/31/02 $15,210 $16,930 $12,318
9/30/02 $15,544 $17,301 $12,338
10/31/02 $15,307 $17,014 $12,359
11/30/02 $15,274 $16,943 $12,359
12/31/02 $15,578 $17,301 $12,331
1/31/03 $15,550 $17,257 $12,386
2/28/03 $15,731 $17,498 $12,481
3/31/03 $15,784 $17,509 $12,556
4/30/03 $15,921 $17,624 $12,529
5/31/03 $16,299 $18,037 $12,509
6/30/03 $16,256 $17,960 $12,522
7/31/03 $15,645 $17,332 $12,536
8/31/03 $15,764 $17,461 $12,584
9/30/03 $16,179 $17,975 $12,624
10/31/03 $16,124 $17,884 $12,611
11/30/03 $16,295 $18,070 $12,577
12/31/03 $16,428 $18,220 $12,563
1/31/04 $16,540 $18,324 $12,624
2/29/04 $16,775 $18,600 $12,693
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 2/29/04
- --------------------------------------
1-Year +2.04%
- --------------------------------------
3-Year +5.23%
- --------------------------------------
Since Inception (2/1/00) +7.32%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS B (2/1/00-2/29/04)
Franklin Insured Tax-Free Lehman Brothers Municipal
Income Fund Bond Index 7 CPI 7
2/1/00 $10,000 $10,000 $10,000
2/29/00 $10,131 $10,116 $10,059
3/31/00 $10,369 $10,337 $10,142
4/30/00 $10,309 $10,276 $10,148
5/31/00 $10,237 $10,223 $10,160
6/30/00 $10,497 $10,494 $10,213
7/31/00 $10,657 $10,640 $10,237
8/31/00 $10,810 $10,804 $10,237
9/30/00 $10,737 $10,747 $10,290
10/31/00 $10,847 $10,865 $10,308
11/30/00 $10,943 $10,947 $10,314
12/31/00 $11,235 $11,217 $10,308
1/31/01 $11,297 $11,328 $10,373
2/28/01 $11,327 $11,364 $10,415
3/31/01 $11,417 $11,466 $10,438
4/30/01 $11,282 $11,342 $10,480
5/31/01 $11,391 $11,464 $10,527
6/30/01 $11,478 $11,541 $10,545
7/31/01 $11,650 $11,712 $10,515
8/31/01 $11,819 $11,905 $10,515
9/30/01 $11,761 $11,865 $10,563
10/31/01 $11,895 $12,006 $10,527
11/30/01 $11,819 $11,905 $10,509
12/31/01 $11,706 $11,792 $10,468
1/31/02 $11,876 $11,997 $10,492
2/28/02 $12,003 $12,141 $10,533
3/31/02 $11,787 $11,903 $10,592
4/30/02 $11,972 $12,136 $10,652
5/31/02 $12,034 $12,210 $10,652
6/30/02 $12,132 $12,339 $10,658
7/31/02 $12,258 $12,498 $10,669
8/31/02 $12,379 $12,648 $10,705
9/30/02 $12,644 $12,925 $10,723
10/31/02 $12,446 $12,711 $10,741
11/30/02 $12,415 $12,658 $10,741
12/31/02 $12,654 $12,925 $10,717
1/31/03 $12,627 $12,892 $10,764
2/28/03 $12,768 $13,072 $10,847
3/31/03 $12,805 $13,080 $10,912
4/30/03 $12,910 $13,167 $10,889
5/31/03 $13,209 $13,475 $10,871
6/30/03 $13,179 $13,418 $10,883
7/31/03 $12,669 $12,948 $10,895
8/31/03 $12,759 $13,045 $10,936
9/30/03 $13,087 $13,428 $10,972
10/31/03 $13,036 $13,361 $10,960
11/30/03 $13,168 $13,500 $10,930
12/31/03 $13,269 $13,612 $10,918
1/31/04 $13,354 $13,690 $10,972
2/29/04 $13,337 $13,896 $11,031
18 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 2/29/04
- --------------------------------------
1-Year +4.99%
- --------------------------------------
5-Year +5.10%
- --------------------------------------
Since Inception (5/1/95) +5.65%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS C (5/1/95-2/29/04)
Franklin Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,238 $10,319 $10,020
6/30/95 $10,192 $10,229 $10,039
7/31/95 $10,238 $10,326 $10,039
8/31/95 $10,324 $10,457 $10,066
9/30/95 $10,376 $10,523 $10,086
10/31/95 $10,501 $10,676 $10,118
11/30/95 $10,630 $10,853 $10,112
12/31/95 $10,725 $10,957 $10,105
1/31/96 $10,780 $11,040 $10,165
2/29/96 $10,733 $10,966 $10,197
3/31/96 $10,620 $10,825 $10,250
4/30/96 $10,597 $10,795 $10,290
5/31/96 $10,612 $10,791 $10,309
6/30/96 $10,708 $10,908 $10,316
7/31/96 $10,784 $11,007 $10,336
8/31/96 $10,788 $11,004 $10,355
9/30/96 $10,916 $11,158 $10,388
10/31/96 $11,007 $11,285 $10,421
11/30/96 $11,151 $11,491 $10,441
12/31/96 $11,118 $11,443 $10,441
1/31/97 $11,127 $11,464 $10,474
2/28/97 $11,210 $11,569 $10,507
3/31/97 $11,092 $11,415 $10,533
4/30/97 $11,173 $11,511 $10,546
5/31/97 $11,297 $11,684 $10,540
6/30/97 $11,392 $11,808 $10,553
7/31/97 $11,653 $12,136 $10,566
8/31/97 $11,548 $12,022 $10,586
9/30/97 $11,660 $12,164 $10,612
10/31/97 $11,729 $12,243 $10,639
11/30/97 $11,800 $12,315 $10,632
12/31/97 $11,967 $12,494 $10,619
1/31/98 $12,054 $12,623 $10,639
2/28/98 $12,053 $12,627 $10,658
3/31/98 $12,065 $12,638 $10,678
4/30/98 $12,021 $12,581 $10,698
5/31/98 $12,195 $12,780 $10,718
6/30/98 $12,247 $12,831 $10,731
7/31/98 $12,279 $12,863 $10,744
8/31/98 $12,437 $13,062 $10,757
9/30/98 $12,572 $13,224 $10,770
10/31/98 $12,572 $13,224 $10,797
11/30/98 $12,609 $13,270 $10,797
12/31/98 $12,616 $13,304 $10,790
1/31/99 $12,724 $13,462 $10,816
2/28/99 $12,668 $13,403 $10,829
3/31/99 $12,701 $13,422 $10,862
4/30/99 $12,716 $13,455 $10,941
5/31/99 $12,644 $13,377 $10,941
6/30/99 $12,476 $13,185 $10,941
7/31/99 $12,489 $13,233 $10,974
8/31/99 $12,342 $13,127 $11,001
9/30/99 $12,304 $13,132 $11,053
10/31/99 $12,115 $12,990 $11,073
11/30/99 $12,243 $13,128 $11,080
12/31/99 $12,121 $13,030 $11,080
1/31/00 $12,041 $12,974 $11,113
2/29/00 $12,196 $13,124 $11,178
3/31/00 $12,481 $13,411 $11,271
4/30/00 $12,399 $13,332 $11,277
5/31/00 $12,313 $13,263 $11,290
6/30/00 $12,625 $13,614 $11,350
7/31/00 $12,816 $13,803 $11,376
8/31/00 $12,998 $14,016 $11,376
9/30/00 $12,913 $13,943 $11,435
10/31/00 $13,044 $14,095 $11,455
11/30/00 $13,149 $14,202 $11,461
12/31/00 $13,508 $14,553 $11,455
1/31/01 $13,571 $14,697 $11,527
2/28/01 $13,605 $14,744 $11,573
3/31/01 $13,714 $14,876 $11,600
4/30/01 $13,551 $14,715 $11,646
5/31/01 $13,670 $14,873 $11,698
6/30/01 $13,774 $14,973 $11,718
7/31/01 $13,979 $15,194 $11,685
8/31/01 $14,180 $15,445 $11,685
9/30/01 $14,109 $15,393 $11,738
10/31/01 $14,270 $15,576 $11,698
11/30/01 $14,179 $15,445 $11,679
12/31/01 $14,044 $15,299 $11,633
1/31/02 $14,259 $15,564 $11,659
2/28/02 $14,399 $15,752 $11,705
3/31/02 $14,141 $15,443 $11,771
4/30/02 $14,363 $15,745 $11,837
5/31/02 $14,438 $15,841 $11,837
6/30/02 $14,555 $16,008 $11,843
7/31/02 $14,706 $16,214 $11,856
8/31/02 $14,850 $16,409 $11,896
9/30/02 $15,168 $16,768 $11,916
10/31/02 $14,932 $16,490 $11,935
11/30/02 $14,894 $16,422 $11,935
12/31/02 $15,182 $16,768 $11,909
1/31/03 $15,148 $16,726 $11,962
2/28/03 $15,330 $16,960 $12,054
3/31/03 $15,362 $16,970 $12,126
4/30/03 $15,488 $17,082 $12,100
5/31/03 $15,846 $17,482 $12,080
6/30/03 $15,810 $17,407 $12,093
7/31/03 $15,199 $16,798 $12,107
8/31/03 $15,307 $16,924 $12,153
9/30/03 $15,711 $17,421 $12,192
10/31/03 $15,650 $17,333 $12,179
11/30/03 $15,808 $17,514 $12,146
12/31/03 $15,928 $17,659 $12,133
1/31/04 $16,029 $17,760 $12,192
2/29/04 $16,245 $18,028 $12,258
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 19
Franklin Massachusetts Insured
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Massachusetts Insured
Tax-Free Income Fund seeks to provide high, current income exempt from federal
and Massachusetts state income taxes through a portfolio consisting mainly of
insured Massachusetts municipal securities. 1, 2
PORTFOLIO BREAKDOWN
Franklin Massachusetts Insured
Tax-Free Income Fund
2/29/04
- ---------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ---------------------------------------
Higher Education 24.5%
- ---------------------------------------
Hospital & Health Care 17.8%
- ---------------------------------------
General Obligation 14.1%
- ---------------------------------------
Transportation 13.5%
- ---------------------------------------
Utilities 11.1%
- ---------------------------------------
Other Revenue 10.4%
- ---------------------------------------
Prerefunded 6.7%
- ---------------------------------------
Housing 1.4%
- ---------------------------------------
Subject to Government
Appropriations 0.5%
- ---------------------------------------
We are pleased to bring you Franklin Massachusetts Insured Tax-Free Income
Fund's annual report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.91 on February
28, 2003, to $12.11 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 51.85 cents per share for the Fund's fiscal year.3 The
Performance Summary beginning on page 23 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.08%, based on an
annualization of the current 4.30 cent ($0.0430) per share dividend and the
maximum offering price of $12.65 on February 29, 2004. An investor in the 2004
maximum combined federal and Massachusetts state personal income tax bracket of
38.25% would need to earn a distribution rate of 6.61% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decrease
slightly, as shown in the dividend distributions table.
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. The insurance relates only to the payment of principal and interest on the
portfolio's insured securities. No representation is made as to any insurer's
ability to meet its commitments.
3. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 72.
20 | Annual Report
COMMONWEALTH UPDATE
While still experiencing the effects of the economic slowdown, Massachusetts
showed early signs of stabilization. The commonwealth's diverse economy remained
fundamentally sound, and its combination of research laboratories and venture
capital has given the commonwealth a leading edge in emerging industries, such
as biotechnology, software, communications equipment and surgical instruments.
The increasing role of services in the economy is reflected in growth in
research labs, computer software, management consulting and other business
services, as well as health care.
Fiscal year 2003 closed with a consolidated net surplus of $150 million, which
though small, reverses a trend of annual deficits in recent years.4 The surplus
resulted largely from actions taken in the second half of fiscal year 2003, when
the commonwealth closed a $650 million projected structural imbalance through a
combination of $350 million of spending reductions and $300 million in revenue
enhancements.4 Expenditure adjustments included reductions in department
allotments and local aid, as well as the elimination of local water and sewage
rate relief. Revenue enhancements included closing tax loopholes, a tax amnesty
program and revising tax fee structures. For the first time since 1997, the
balanced fiscal year 2004 budget was adopted before the start of the fiscal
year, at nearly the same spending level as fiscal year 2003. The commonwealth
reduced its reliance on one-time revenue sources to $551 million in fiscal year
2004, down from roughly $1 billion in fiscal year 2003, and enacted cuts in all
major spending categories except Medicaid.4 The approaching balance between
ongoing revenue and expenditures creates a stronger position from which the
commonwealth should be better suited to weather future fiscal stress.
Massachusetts' general obligation debt is rated AA- by Standard & Poor's, an
independent credit rating agency.5 This rating reflects the commonwealth's
fundamentally sound economy and decade-long track record of financial discipline
and professional management, which was helpful in managing through a difficult
economic climate. Despite its many strengths, the commonwealth has a high and
growing debt burden, which is above the national average at $2,309 per capita.4
Debt increases in recent years were partly due to the commonwealth's sharing
costs of the Central Artery/Tunnel project. Given this debt burden, the slow
pace of economic recovery and the significant spending pressure associated with
rising Medicaid and pharmacy costs, it is likely that Massachusetts will
continue to face fiscal challenges over the near term.
4. Source: Standard & Poor's, "State Review: Massachusetts," RATINGSDIRECT,
2/4/04.
5. This does not indicate Standard & Poor's rating of the Fund.
Annual Report | 21
DIVIDEND DISTRIBUTIONS*
Franklin Massachusetts Insured Tax-Free Income Fund
3/1/03-2/29/04
- ------------------------------------------------------
DIVIDEND PER SHARE
------------------------
MONTH CLASS A CLASS C
- ------------------------------------------------------
March 4.35 cents 3.81 cents
- ------------------------------------------------------
April 4.35 cents 3.81 cents
- ------------------------------------------------------
May 4.35 cents 3.81 cents
- ------------------------------------------------------
June 4.35 cents 3.76 cents
- ------------------------------------------------------
July 4.35 cents 3.76 cents
- ------------------------------------------------------
August 4.30 cents 3.72 cents
- ------------------------------------------------------
September 4.30 cents 3.72 cents
- ------------------------------------------------------
October 4.30 cents 3.72 cents
- ------------------------------------------------------
November 4.30 cents 3.72 cents
- ------------------------------------------------------
December 4.30 cents 3.77 cents
- ------------------------------------------------------
January 4.30 cents 3.77 cents
- ------------------------------------------------------
February 4.30 cents 3.77 cents
- ------------------------------------------------------
TOTAL 51.85 CENTS 45.14 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
MANAGER'S DISCUSSION
We used various strategies during the year under review as we sought to maximize
tax-free income for shareholders. Please read the discussion beginning on page 9
for details.
Thank you for your participation in Franklin Massachusetts 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
22 | Annual Report
Performance Summary as of 2/29/04
FRANKLIN MASSACHUSETTS 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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $12.11 $11.91
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5185
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.19 $11.98
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4514
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.16% +31.52% +74.53%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.64% +4.72% +5.27%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.30% +4.65% +5.62%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.08%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.61%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.18%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.15%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.62% +28.07% +61.89%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.62% +5.07% +5.61%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.27% +4.99% +5.54%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.68%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.96%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.78%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.50%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 23
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 2/29/04
- --------------------------------------
1-Year +1.64%
- --------------------------------------
5-Year +4.72%
- --------------------------------------
10-Year +5.27%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS A (3/1/94-2/29/04)
Franklin Massachusetts Insured Lehman Brothers Municipal
Insured Tax-Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,578 $10,000 $10,000
3/31/94 $9,263 $9,593 $10,034
4/30/94 $9,282 $9,674 $10,048
5/31/94 $9,338 $9,758 $10,055
6/30/94 $9,315 $9,698 $10,089
7/31/94 $9,450 $9,876 $10,116
8/31/94 $9,472 $9,910 $10,157
9/30/94 $9,378 $9,765 $10,184
10/31/94 $9,274 $9,592 $10,191
11/30/94 $9,123 $9,418 $10,204
12/31/94 $9,289 $9,625 $10,204
1/31/95 $9,526 $9,900 $10,245
2/28/95 $9,757 $10,188 $10,286
3/31/95 $9,835 $10,305 $10,320
4/30/95 $9,870 $10,318 $10,354
5/31/95 $10,068 $10,647 $10,375
6/30/95 $10,030 $10,554 $10,395
7/31/95 $10,098 $10,654 $10,395
8/31/95 $10,180 $10,789 $10,423
9/30/95 $10,246 $10,857 $10,443
10/31/95 $10,369 $11,015 $10,477
11/30/95 $10,496 $11,198 $10,470
12/31/95 $10,597 $11,305 $10,464
1/31/96 $10,649 $11,391 $10,525
2/29/96 $10,617 $11,314 $10,559
3/31/96 $10,977 $11,169 $10,613
4/30/96 $10,937 $11,138 $10,654
5/31/96 $10,956 $11,133 $10,675
6/30/96 $11,051 $11,255 $10,682
7/31/96 $11,133 $11,357 $10,702
8/31/96 $11,147 $11,354 $10,723
9/30/96 $11,274 $11,513 $10,757
10/31/96 $11,371 $11,643 $10,791
11/30/96 $11,535 $11,856 $10,811
12/31/96 $11,494 $11,806 $10,811
1/31/97 $11,027 $11,828 $10,845
2/28/97 $11,114 $11,937 $10,879
3/31/97 $10,973 $11,778 $10,907
4/30/97 $11,059 $11,876 $10,920
5/31/97 $11,219 $12,055 $10,913
6/30/97 $11,341 $12,184 $10,927
7/31/97 $11,646 $12,521 $10,941
8/31/97 $11,537 $12,404 $10,961
9/30/97 $11,666 $12,551 $10,988
10/31/97 $11,730 $12,632 $11,016
11/30/97 $11,806 $12,706 $11,009
12/31/97 $11,978 $12,891 $10,995
1/31/98 $12,060 $13,024 $11,016
2/28/98 $12,060 $13,028 $11,036
3/31/98 $12,072 $13,040 $11,057
4/30/98 $12,047 $12,981 $11,077
5/31/98 $12,210 $13,186 $11,097
6/30/98 $12,279 $13,238 $11,111
7/31/98 $12,304 $13,271 $11,125
8/31/98 $12,461 $13,476 $11,138
9/30/98 $12,595 $13,644 $11,152
10/31/98 $12,554 $13,644 $11,179
11/30/98 $12,607 $13,692 $11,179
12/31/98 $12,623 $13,726 $11,172
1/31/99 $12,731 $13,890 $11,200
2/28/99 $12,707 $13,829 $11,213
3/31/99 $12,745 $13,848 $11,247
4/30/99 $12,774 $13,883 $11,329
5/31/99 $12,711 $13,802 $11,329
6/30/99 $12,536 $13,604 $11,329
7/31/99 $12,552 $13,653 $11,363
8/31/99 $12,376 $13,544 $11,391
9/30/99 $12,317 $13,549 $11,445
10/31/99 $12,131 $13,403 $11,466
11/30/99 $12,268 $13,545 $11,472
12/31/99 $12,153 $13,444 $11,472
1/31/00 $12,081 $13,386 $11,506
2/29/00 $12,280 $13,541 $11,575
3/31/00 $12,574 $13,837 $11,670
4/30/00 $12,478 $13,755 $11,677
5/31/00 $12,367 $13,684 $11,691
6/30/00 $12,735 $14,046 $11,752
7/31/00 $12,965 $14,242 $11,779
8/31/00 $13,138 $14,461 $11,779
9/30/00 $13,036 $14,386 $11,840
10/31/00 $13,214 $14,543 $11,861
11/30/00 $13,339 $14,653 $11,868
12/31/00 $13,759 $15,015 $11,861
1/31/01 $13,819 $15,164 $11,936
2/28/01 $13,870 $15,212 $11,984
3/31/01 $13,965 $15,348 $12,011
4/30/01 $13,771 $15,182 $12,059
5/31/01 $13,902 $15,345 $12,113
6/30/01 $14,040 $15,448 $12,134
7/31/01 $14,250 $15,677 $12,100
8/31/01 $14,493 $15,935 $12,100
9/30/01 $14,420 $15,882 $12,154
10/31/01 $14,595 $16,071 $12,113
11/30/01 $14,488 $15,936 $12,093
12/31/01 $14,336 $15,785 $12,045
1/31/02 $14,532 $16,059 $12,072
2/28/02 $14,686 $16,252 $12,120
3/31/02 $14,428 $15,934 $12,188
4/30/02 $14,633 $16,245 $12,256
5/31/02 $14,769 $16,344 $12,256
6/30/02 $14,872 $16,516 $12,263
7/31/02 $15,052 $16,729 $12,277
8/31/02 $15,237 $16,930 $12,318
9/30/02 $15,582 $17,301 $12,338
10/31/02 $15,304 $17,014 $12,359
11/30/02 $15,240 $16,943 $12,359
12/31/02 $15,565 $17,301 $12,331
1/31/03 $15,545 $17,257 $12,386
2/28/03 $15,742 $17,498 $12,481
3/31/03 $15,792 $17,509 $12,556
4/30/03 $15,930 $17,624 $12,529
5/31/03 $16,304 $18,037 $12,509
6/30/03 $16,244 $17,960 $12,522
7/31/03 $15,618 $17,332 $12,536
8/31/03 $15,739 $17,461 $12,584
9/30/03 $16,138 $17,975 $12,624
10/31/03 $16,077 $17,884 $12,611
11/30/03 $16,251 $18,070 $12,577
12/31/03 $16,386 $18,220 $12,563
1/31/04 $16,499 $18,324 $12,624
2/29/04 $16,717 $18,600 $12,693
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 2/29/04
- --------------------------------------
1-Year +4.62%
- --------------------------------------
5-Year +5.07%
- --------------------------------------
Since Inception (5/1/95) +5.61%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS C (5/1/95-2/29/04)
Franklin Massachusetts Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,212 $10,319 $10,020
6/30/95 $10,177 $10,229 $10,039
7/31/95 $10,239 $10,326 $10,039
8/31/95 $10,326 $10,457 $10,066
9/30/95 $10,378 $10,523 $10,086
10/31/95 $10,495 $10,676 $10,118
11/30/95 $10,630 $10,853 $10,112
12/31/95 $10,726 $10,957 $10,105
1/31/96 $10,772 $11,040 $10,165
2/29/96 $10,736 $10,966 $10,197
3/31/96 $10,725 $10,825 $10,250
4/30/96 $10,689 $10,795 $10,290
5/31/96 $10,710 $10,791 $10,309
6/30/96 $10,790 $10,908 $10,316
7/31/96 $10,876 $11,007 $10,336
8/31/96 $10,876 $11,004 $10,355
9/30/96 $11,006 $11,158 $10,388
10/31/96 $11,088 $11,285 $10,421
11/30/96 $11,236 $11,491 $10,441
12/31/96 $11,197 $11,443 $10,441
1/31/97 $11,097 $11,464 $10,474
2/28/97 $11,189 $11,569 $10,507
3/31/97 $11,043 $11,415 $10,533
4/30/97 $11,114 $11,511 $10,546
5/31/97 $11,270 $11,684 $10,540
6/30/97 $11,397 $11,808 $10,553
7/31/97 $11,688 $12,136 $10,566
8/31/97 $11,574 $12,022 $10,586
9/30/97 $11,707 $12,164 $10,612
10/31/97 $11,764 $12,243 $10,639
11/30/97 $11,835 $12,315 $10,632
12/31/97 $11,990 $12,494 $10,619
1/31/98 $12,076 $12,623 $10,639
2/28/98 $12,070 $12,627 $10,658
3/31/98 $12,076 $12,638 $10,678
4/30/98 $12,046 $12,581 $10,698
5/31/98 $12,202 $12,780 $10,718
6/30/98 $12,266 $12,831 $10,731
7/31/98 $12,294 $12,863 $10,744
8/31/98 $12,434 $13,062 $10,757
9/30/98 $12,561 $13,224 $10,770
10/31/98 $12,526 $13,224 $10,797
11/30/98 $12,562 $13,270 $10,797
12/31/98 $12,583 $13,304 $10,790
1/31/99 $12,683 $13,462 $10,816
2/28/99 $12,642 $13,403 $10,829
3/31/99 $12,684 $13,422 $10,862
4/30/99 $12,707 $13,455 $10,941
5/31/99 $12,639 $13,377 $10,941
6/30/99 $12,460 $13,185 $10,941
7/31/99 $12,471 $13,233 $10,974
8/31/99 $12,292 $13,127 $11,001
9/30/99 $12,215 $13,132 $11,053
10/31/99 $12,027 $12,990 $11,073
11/30/99 $12,167 $13,128 $11,080
12/31/99 $12,048 $13,030 $11,080
1/31/00 $11,961 $12,974 $11,113
2/29/00 $12,163 $13,124 $11,178
3/31/00 $12,446 $13,411 $11,271
4/30/00 $12,346 $13,332 $11,277
5/31/00 $12,230 $13,263 $11,290
6/30/00 $12,585 $13,614 $11,350
7/31/00 $12,806 $13,803 $11,376
8/31/00 $12,970 $14,016 $11,376
9/30/00 $12,866 $13,943 $11,435
10/31/00 $13,034 $14,095 $11,455
11/30/00 $13,152 $14,202 $11,461
12/31/00 $13,570 $14,553 $11,455
1/31/01 $13,611 $14,697 $11,527
2/28/01 $13,668 $14,744 $11,573
3/31/01 $13,754 $14,876 $11,600
4/30/01 $13,557 $14,715 $11,646
5/31/01 $13,678 $14,873 $11,698
6/30/01 $13,794 $14,973 $11,718
7/31/01 $14,004 $15,194 $11,685
8/31/01 $14,222 $15,445 $11,685
9/30/01 $14,158 $15,393 $11,738
10/31/01 $14,310 $15,576 $11,698
11/30/01 $14,212 $15,445 $11,679
12/31/01 $14,045 $15,299 $11,633
1/31/02 $14,241 $15,564 $11,659
2/28/02 $14,372 $15,752 $11,705
3/31/02 $14,115 $15,443 $11,771
4/30/02 $14,320 $15,745 $11,837
5/31/02 $14,446 $15,841 $11,837
6/30/02 $14,541 $16,008 $11,843
7/31/02 $14,721 $16,214 $11,856
8/31/02 $14,882 $16,409 $11,896
9/30/02 $15,221 $16,768 $11,916
10/31/02 $14,934 $16,490 $11,935
11/30/02 $14,866 $16,422 $11,935
12/31/02 $15,173 $16,768 $11,909
1/31/03 $15,145 $16,726 $11,962
2/28/03 $15,330 $16,960 $12,054
3/31/03 $15,370 $16,970 $12,126
4/30/03 $15,496 $17,082 $12,100
5/31/03 $15,851 $17,482 $12,080
6/30/03 $15,797 $17,407 $12,093
7/31/03 $15,186 $16,798 $12,107
8/31/03 $15,295 $16,924 $12,153
9/30/03 $15,673 $17,421 $12,192
10/31/03 $15,605 $17,333 $12,179
11/30/03 $15,754 $17,514 $12,146
12/31/03 $15,889 $17,659 $12,133
1/31/04 $15,978 $17,760 $12,192
2/29/04 $16,189 $18,028 $12,258
24 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
CONDITIONS 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of investment. Prior
to 1/1/04, these shares were offered with an initial sales charge; thus actual
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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Massachusetts state personal
income tax bracket of 38.25%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 25
Franklin Michigan Insured
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Michigan Insured Tax-Free
Income Fund seeks to provide high, current income exempt from federal and
Michigan state income taxes through a portfolio consisting mainly of insured
Michigan municipal securities. 1, 2
PORTFOLIO BREAKDOWN
Franklin Michigan Insured
Tax-Free Income Fund
2/29/04
- --------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------
General Obligation 27.1%
- --------------------------------------
Prerefunded 23.7%
- --------------------------------------
Hospital & Health Care 13.7%
- --------------------------------------
Utilities 13.2%
- --------------------------------------
Transportation 8.2%
- --------------------------------------
Higher Education 5.4%
- --------------------------------------
Subject to Government
Appropriations 5.0%
- --------------------------------------
Tax-Supported 2.0%
- --------------------------------------
Other Revenue 1.6%
- --------------------------------------
Housing 0.1%
- --------------------------------------
We are pleased to bring you Franklin Michigan Insured Tax-Free Income Fund's
annual report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.46 on February
28, 2003, to $12.58 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 54.70 cents per share for the Fund's fiscal year.3 The
Performance Summary beginning on 29 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.11%, based on an
annualization of the current 4.50 cent ($0.0450) per share dividend and the
maximum offering price of $13.14 on February 29, 2004. An investor in the 2004
maximum combined federal and Michigan state personal income tax bracket of
37.54% would need to earn a distribution rate of 6.58% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decrease
slightly, as shown in the dividend distributions table.
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. The insurance relates only to the payment of principal and interest on the
portfolio's insured securities. No representation is made as to any insurer's
ability to meet its commitments.
3. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 79.
26 | Annual Report
STATE UPDATE
Similar to many other manufacturing-dependent states, Michigan entered the
economic decline early and has faced prolonged revenue deterioration. Continued
employment losses, coupled with slow income growth, suggest that Michigan may
lag the nation in its economic recovery, given reduced demand for automobiles,
ongoing market share losses by local automakers and an uncertain near-term
outlook for the office furniture industry. Ongoing shortfalls in tax
collections, a fiscal year 2004 budget gap that was significantly larger than
expected, and the depletion of reserves in the state's budget stabilization fund
at fiscal year-end 2003, have all put meaningful fiscal pressure on the state.
Based on these conditions, on November 14, 2003, Moody's Investors Service, an
independent credit rating agency, lowered Michigan's long-term general
obligation rating from Aaa with a negative outlook to Aa1 with a stable
outlook.4 On December 30, 2003, Standard & Poor's, another independent credit
rating agency, also lowered its ratings on Michigan's general obligation debt to
AA+ from AAA.5 Standard & Poor's removed the ratings from CreditWatch, initiated
on November 3, 2003, and assigned a stable outlook to the bonds.
In the face of economic weakness and significant revenue shortfalls, Michigan
has made strong and determined efforts to balance its budgets in recent years.
Based on the state's history of strong and active fiscal management, Moody's
believes state leaders will take the necessary steps to restore structural
balance in the near term. Michigan benefits from a number of constitutional and
statutory management controls that enhance its effectiveness and control over
budgeting and spending. These include a balanced budget requirement, the
governor's constitutional line-item veto authority and spending reduction
requirements when revenues are lower than estimates. Michigan's combined direct
general obligation and appropriation debt burden remained low at $536 per capita
and 1.8% of personal income.6 Although only mild economic recovery is
anticipated for 2004, Standard & Poor's expects that the state will promptly
address any further fiscal imbalances in a prudent manner given its limited
liquidity position.
MANAGER'S DISCUSSION
We used various strategies during the year under review as we sought to maximize
tax-free income for shareholders. Please read the discussion beginning on page 9
for details.
4. This does not indicate Moody's rating of the Fund.
5. This does not indicate Standard & Poor's rating of the Fund.
6. Source: Standard & Poor's, "Summary: Michigan; Appropriation, Appropriation,
Tax Secured, General Obligation," RATINGSDIRECT, 12/30/03.
Annual Report | 27
DIVIDEND DISTRIBUTIONS*
Franklin Michigan Insured Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------------------
MONTH CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
March 4.70 cents 4.12 cents 4.15 cents
- --------------------------------------------------------------------------------
April 4.70 cents 4.12 cents 4.15 cents
- --------------------------------------------------------------------------------
May 4.70 cents 4.12 cents 4.15 cents
- --------------------------------------------------------------------------------
June 4.55 cents 3.98 cents 3.90 cents
- --------------------------------------------------------------------------------
July 4.55 cents 3.98 cents 3.90 cents
- --------------------------------------------------------------------------------
August 4.50 cents 3.91 cents 3.86 cents
- --------------------------------------------------------------------------------
September 4.50 cents 3.91 cents 3.86 cents
- --------------------------------------------------------------------------------
October 4.50 cents 3.91 cents 3.86 cents
- --------------------------------------------------------------------------------
November 4.50 cents 3.91 cents 3.86 cents
- --------------------------------------------------------------------------------
December 4.50 cents 3.96 cents 3.96 cents
- --------------------------------------------------------------------------------
January 4.50 cents 3.96 cents 3.96 cents
- --------------------------------------------------------------------------------
February 4.50 cents 3.96 cents 3.96 cents
- --------------------------------------------------------------------------------
TOTAL 54.70 CENTS 47.84 CENTS 47.57 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
Thank you for your participation in Franklin Michigan 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
28 | Annual Report
Performance Summary as of 2/29/04
FRANKLIN MICHIGAN 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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.12 $12.58 $12.46
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.5470
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0706
- --------------------------------------------------------------------------------------------------
TOTAL $0.6176
- --------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.12 $12.63 $12.51
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.4784
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0706
- --------------------------------------------------------------------------------------------------
TOTAL $0.5490
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.13 $12.69 $12.56
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.4757
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0706
- --------------------------------------------------------------------------------------------------
TOTAL $0.5463
- --------------------------------------------------------------------------------------------------
Franklin Michigan Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains totaling 7.06 cents ($0.0706) per share in July and
December 2003. The Fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852(b)(3).
Annual Report | Past performance does not guarantee future results. | 29
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.06% +31.72% +76.48%
- ---------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.58% +4.74% +5.39%
- ---------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.91% +4.61% +5.69%
- ---------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.11%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.58%
- ---------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.99%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.79%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.46% +19.00% +33.89%
- ---------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.46% +5.07% +7.02%
- ---------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.86% +4.66% +6.78%
- ---------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.72%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.96%
- ---------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.58%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.13%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.50% +28.16% +63.94%
- ---------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.50% +5.09% +5.76%
- ---------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.81% +4.94% +5.64%
- ---------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.71%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.93%
- ---------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.58%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.13%
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
30 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[LINE CHART]
PLOT POINTS:
CLASS A (3/1/94-2/29/04)
Franklin Michigan Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,577 $10,000 $10,000
3/31/94 $9,274 $9,593 $10,034
4/30/94 $9,334 $9,674 $10,048
5/31/94 $9,381 $9,758 $10,055
6/30/94 $9,345 $9,698 $10,089
7/31/94 $9,485 $9,876 $10,116
8/31/94 $9,509 $9,910 $10,157
9/30/94 $9,403 $9,765 $10,184
10/31/94 $9,280 $9,592 $10,191
11/30/94 $9,129 $9,418 $10,204
12/31/94 $9,315 $9,625 $10,204
1/31/95 $9,529 $9,900 $10,245
2/28/95 $9,761 $10,188 $10,286
3/31/95 $9,846 $10,305 $10,320
4/30/95 $9,864 $10,318 $10,354
5/31/95 $10,098 $10,647 $10,375
6/30/95 $10,038 $10,554 $10,395
7/31/95 $10,096 $10,654 $10,395
8/31/95 $10,186 $10,789 $10,423
9/30/95 $10,242 $10,857 $10,443
10/31/95 $10,371 $11,015 $10,477
11/30/95 $10,522 $11,198 $10,470
12/31/95 $10,603 $11,305 $10,464
1/31/96 $10,672 $11,391 $10,525
2/29/96 $10,625 $11,314 $10,559
3/31/96 $10,972 $11,169 $10,613
4/30/96 $10,961 $11,138 $10,654
5/31/96 $10,953 $11,133 $10,675
6/30/96 $11,071 $11,255 $10,682
7/31/96 $11,160 $11,357 $10,702
8/31/96 $11,147 $11,354 $10,723
9/30/96 $11,300 $11,513 $10,757
10/31/96 $11,396 $11,643 $10,791
11/30/96 $11,584 $11,856 $10,811
12/31/96 $11,538 $11,806 $10,811
1/31/97 $11,054 $11,828 $10,845
2/28/97 $11,141 $11,937 $10,879
3/31/97 $11,007 $11,778 $10,907
4/30/97 $11,083 $11,876 $10,920
5/31/97 $11,231 $12,055 $10,913
6/30/97 $11,329 $12,184 $10,927
7/31/97 $11,607 $12,521 $10,941
8/31/97 $11,494 $12,404 $10,961
9/30/97 $11,612 $12,551 $10,988
10/31/97 $11,688 $12,632 $11,016
11/30/97 $11,756 $12,706 $11,009
12/31/97 $11,953 $12,891 $10,995
1/31/98 $12,055 $13,024 $11,016
2/28/98 $12,076 $13,028 $11,036
3/31/98 $12,080 $13,040 $11,057
4/30/98 $12,058 $12,981 $11,077
5/31/98 $12,227 $13,186 $11,097
6/30/98 $12,309 $13,238 $11,111
7/31/98 $12,345 $13,271 $11,125
8/31/98 $12,499 $13,476 $11,138
9/30/98 $12,649 $13,644 $11,152
10/31/98 $12,653 $13,644 $11,179
11/30/98 $12,706 $13,692 $11,179
12/31/98 $12,726 $13,726 $11,172
1/31/99 $12,841 $13,890 $11,200
2/28/99 $12,829 $13,829 $11,213
3/31/99 $12,869 $13,848 $11,247
4/30/99 $12,888 $13,883 $11,329
5/31/99 $12,819 $13,802 $11,329
6/30/99 $12,662 $13,604 $11,329
7/31/99 $12,692 $13,653 $11,363
8/31/99 $12,557 $13,544 $11,391
9/30/99 $12,533 $13,549 $11,445
10/31/99 $12,410 $13,403 $11,466
11/30/99 $12,523 $13,545 $11,472
12/31/99 $12,437 $13,444 $11,472
1/31/00 $12,381 $13,386 $11,506
2/29/00 $12,498 $13,541 $11,575
3/31/00 $12,761 $13,837 $11,670
4/30/00 $12,693 $13,755 $11,677
5/31/00 $12,634 $13,684 $11,691
6/30/00 $12,956 $14,046 $11,752
7/31/00 $13,135 $14,242 $11,779
8/31/00 $13,326 $14,461 $11,779
9/30/00 $13,254 $14,386 $11,840
10/31/00 $13,383 $14,543 $11,861
11/30/00 $13,473 $14,653 $11,868
12/31/00 $13,811 $15,015 $11,861
1/31/01 $13,905 $15,164 $11,936
2/28/01 $13,969 $15,212 $11,984
3/31/01 $14,099 $15,348 $12,011
4/30/01 $13,973 $15,182 $12,059
5/31/01 $14,102 $15,345 $12,113
6/30/01 $14,189 $15,448 $12,134
7/31/01 $14,393 $15,677 $12,100
8/31/01 $14,594 $15,935 $12,100
9/30/01 $14,550 $15,882 $12,154
10/31/01 $14,720 $16,071 $12,113
11/30/01 $14,608 $15,936 $12,093
12/31/01 $14,477 $15,785 $12,045
1/31/02 $14,729 $16,059 $12,072
2/28/02 $14,867 $16,252 $12,120
3/31/02 $14,584 $15,934 $12,188
4/30/02 $14,846 $16,245 $12,256
5/31/02 $14,918 $16,344 $12,256
6/30/02 $15,044 $16,516 $12,263
7/31/02 $15,233 $16,729 $12,277
8/31/02 $15,389 $16,930 $12,318
9/30/02 $15,710 $17,301 $12,338
10/31/02 $15,509 $17,014 $12,359
11/30/02 $15,464 $16,943 $12,359
12/31/02 $15,780 $17,301 $12,331
1/31/03 $15,751 $17,257 $12,386
2/28/03 $15,932 $17,498 $12,481
3/31/03 $15,972 $17,509 $12,556
4/30/03 $16,097 $17,624 $12,529
5/31/03 $16,477 $18,037 $12,509
6/30/03 $16,421 $17,960 $12,522
7/31/03 $15,844 $17,332 $12,536
8/31/03 $15,938 $17,461 $12,584
9/30/03 $16,315 $17,975 $12,624
10/31/03 $16,271 $17,884 $12,611
11/30/03 $16,442 $18,070 $12,577
12/31/03 $16,562 $18,220 $12,563
1/31/04 $16,675 $18,324 $12,624
2/29/04 $16,902 $18,600 $12,693
[LINE CHART]
PLOT POINTS:
CLASS B (2/1/00-2/29/04)
Franklin Michigan Insured Tax-Free Lehman Brothers Municipal
Income Fund Bond Index 7 CPI 7
2/1/00 $10,000 $10,000 $10,000
2/29/00 $10,111 $10,116 $10,059
3/31/00 $10,309 $10,337 $10,142
4/30/00 $10,249 $10,276 $10,148
5/31/00 $10,204 $10,223 $10,160
6/30/00 $10,459 $10,494 $10,213
7/31/00 $10,599 $10,640 $10,237
8/31/00 $10,748 $10,804 $10,237
9/30/00 $10,694 $10,747 $10,290
10/31/00 $10,793 $10,865 $10,308
11/30/00 $10,860 $10,947 $10,314
12/31/00 $11,127 $11,217 $10,308
1/31/01 $11,207 $11,328 $10,373
2/28/01 $11,253 $11,364 $10,415
3/31/01 $11,342 $11,466 $10,438
4/30/01 $11,244 $11,342 $10,480
5/31/01 $11,342 $11,464 $10,527
6/30/01 $11,408 $11,541 $10,545
7/31/01 $11,566 $11,712 $10,515
8/31/01 $11,721 $11,905 $10,515
9/30/01 $11,691 $11,865 $10,563
10/31/01 $11,812 $12,006 $10,527
11/30/01 $11,718 $11,905 $10,509
12/31/01 $11,607 $11,792 $10,468
1/31/02 $11,802 $11,997 $10,492
2/28/02 $11,908 $12,141 $10,533
3/31/02 $11,677 $11,903 $10,592
4/30/02 $11,879 $12,136 $10,652
5/31/02 $11,931 $12,210 $10,652
6/30/02 $12,026 $12,339 $10,658
7/31/02 $12,180 $12,498 $10,669
8/31/02 $12,299 $12,648 $10,705
9/30/02 $12,549 $12,925 $10,723
10/31/02 $12,374 $12,711 $10,741
11/30/02 $12,343 $12,658 $10,741
12/31/02 $12,587 $12,925 $10,717
1/31/03 $12,558 $12,892 $10,764
2/28/03 $12,696 $13,072 $10,847
3/31/03 $12,722 $13,080 $10,912
4/30/03 $12,815 $13,167 $10,889
5/31/03 $13,120 $13,475 $10,871
6/30/03 $13,068 $13,418 $10,883
7/31/03 $12,595 $12,948 $10,895
8/31/03 $12,663 $13,045 $10,936
9/30/03 $12,956 $13,428 $10,972
10/31/03 $12,914 $13,361 $10,960
11/30/03 $13,045 $13,500 $10,930
12/31/03 $13,134 $13,612 $10,918
1/31/04 $13,227 $13,690 $10,972
2/29/04 $13,189 $13,896 $11,031
Annual Report | Past performance does not guarantee future results. | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 2/29/04
- --------------------------------------
1-Year +4.50%
- --------------------------------------
5-Year +5.09%
- --------------------------------------
Since Inception (5/1/95) +5.76%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS C (5/1/95-2/29/04)
Franklin Michigan Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,258 $10,319 $10,020
6/30/95 $10,201 $10,229 $10,039
7/31/95 $10,254 $10,326 $10,039
8/31/95 $10,340 $10,457 $10,066
9/30/95 $10,400 $10,523 $10,086
10/31/95 $10,524 $10,676 $10,118
11/30/95 $10,672 $10,853 $10,112
12/31/95 $10,749 $10,957 $10,105
1/31/96 $10,813 $11,040 $10,165
2/29/96 $10,758 $10,966 $10,197
3/31/96 $10,738 $10,825 $10,250
4/30/96 $10,719 $10,795 $10,290
5/31/96 $10,614 $10,791 $10,309
6/30/96 $10,710 $10,908 $10,316
7/31/96 $10,792 $11,007 $10,336
8/31/96 $10,792 $11,004 $10,355
9/30/96 $10,930 $11,158 $10,388
10/31/96 $11,020 $11,285 $10,421
11/30/96 $11,192 $11,491 $10,441
12/31/96 $11,147 $11,443 $10,441
1/31/97 $11,145 $11,464 $10,474
2/28/97 $11,234 $11,569 $10,507
3/31/97 $11,086 $11,415 $10,533
4/30/97 $11,158 $11,511 $10,546
5/31/97 $11,301 $11,684 $10,540
6/30/97 $11,402 $11,808 $10,553
7/31/97 $11,675 $12,136 $10,566
8/31/97 $11,548 $12,022 $10,586
9/30/97 $11,670 $12,164 $10,612
10/31/97 $11,730 $12,243 $10,639
11/30/97 $11,801 $12,315 $10,632
12/31/97 $11,992 $12,494 $10,619
1/31/98 $12,087 $12,623 $10,639
2/28/98 $12,103 $12,627 $10,658
3/31/98 $12,100 $12,638 $10,678
4/30/98 $12,073 $12,581 $10,698
5/31/98 $12,236 $12,780 $10,718
6/30/98 $12,321 $12,831 $10,731
7/31/98 $12,351 $12,863 $10,744
8/31/98 $12,498 $13,062 $10,757
9/30/98 $12,641 $13,224 $10,770
10/31/98 $12,640 $13,224 $10,797
11/30/98 $12,687 $13,270 $10,797
12/31/98 $12,703 $13,304 $10,790
1/31/99 $12,811 $13,462 $10,816
2/28/99 $12,795 $13,403 $10,829
3/31/99 $12,825 $13,422 $10,862
4/30/99 $12,838 $13,455 $10,941
5/31/99 $12,764 $13,377 $10,941
6/30/99 $12,603 $13,185 $10,941
7/31/99 $12,626 $13,233 $10,974
8/31/99 $12,487 $13,127 $11,001
9/30/99 $12,458 $13,132 $11,053
10/31/99 $12,321 $12,990 $11,073
11/30/99 $12,437 $13,128 $11,080
12/31/99 $12,335 $13,030 $11,080
1/31/00 $12,274 $12,974 $11,113
2/29/00 $12,396 $13,124 $11,178
3/31/00 $12,649 $13,411 $11,271
4/30/00 $12,565 $13,332 $11,277
5/31/00 $12,511 $13,263 $11,290
6/30/00 $12,823 $13,614 $11,350
7/31/00 $12,992 $13,803 $11,376
8/31/00 $13,174 $14,016 $11,376
9/30/00 $13,098 $13,943 $11,435
10/31/00 $13,217 $14,095 $11,455
11/30/00 $13,309 $14,202 $11,461
12/31/00 $13,623 $14,553 $11,455
1/31/01 $13,720 $14,697 $11,527
2/28/01 $13,776 $14,744 $11,573
3/31/01 $13,885 $14,876 $11,600
4/30/01 $13,767 $14,715 $11,646
5/31/01 $13,875 $14,873 $11,698
6/30/01 $13,966 $14,973 $11,718
7/31/01 $14,159 $15,194 $11,685
8/31/01 $14,347 $15,445 $11,685
9/30/01 $14,310 $15,393 $11,738
10/31/01 $14,457 $15,576 $11,698
11/30/01 $14,342 $15,445 $11,679
12/31/01 $14,207 $15,299 $11,633
1/31/02 $14,445 $15,564 $11,659
2/28/02 $14,574 $15,752 $11,705
3/31/02 $14,293 $15,443 $11,771
4/30/02 $14,540 $15,745 $11,837
5/31/02 $14,604 $15,841 $11,837
6/30/02 $14,721 $16,008 $11,843
7/31/02 $14,909 $16,214 $11,856
8/31/02 $15,054 $16,409 $11,896
9/30/02 $15,359 $16,768 $11,916
10/31/02 $15,158 $16,490 $11,935
11/30/02 $15,108 $16,422 $11,935
12/31/02 $15,406 $16,768 $11,909
1/31/03 $15,372 $16,726 $11,962
2/28/03 $15,541 $16,960 $12,054
3/31/03 $15,572 $16,970 $12,126
4/30/03 $15,686 $17,082 $12,100
5/31/03 $16,058 $17,482 $12,080
6/30/03 $15,995 $17,407 $12,093
7/31/03 $15,418 $16,798 $12,107
8/31/03 $15,499 $16,924 $12,153
9/30/03 $15,868 $17,421 $12,192
10/31/03 $15,805 $17,333 $12,179
11/30/03 $15,975 $17,514 $12,146
12/31/03 $16,082 $17,659 $12,133
1/31/04 $16,184 $17,760 $12,192
2/29/04 $16,394 $18,028 $12,258
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
CONDITIONS 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Michigan state personal income
tax bracket of 37.54%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
32 | Past performance does not guarantee future results. | Annual Report
Franklin Minnesota Insured
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Minnesota Insured Tax-Free
Income Fund seeks to provide high, current income exempt from federal and
Minnesota state income taxes through a portfolio consisting mainly of insured
Minnesota municipal securities. 1, 2
PORTFOLIO BREAKDOWN
Franklin Minnesota Insured
Tax-Free Income Fund
2/29/04
- ---------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ---------------------------------------
General Obligation 41.6%
- ---------------------------------------
Hospital & Health Care 15.6%
- ---------------------------------------
Housing 12.2%
- ---------------------------------------
Utilities 9.9%
- ---------------------------------------
Transportation 8.0%
- ---------------------------------------
Prerefunded 3.7%
- ---------------------------------------
Other Revenue 3.0%
- ---------------------------------------
Higher Education 2.7%
- ---------------------------------------
Subject to Government
Appropriations 1.7%
- ---------------------------------------
Tax-Supported 1.6%
- ---------------------------------------
We are pleased to bring you Franklin Minnesota Insured Tax-Free Income Fund's
annual report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.23 on February
28, 2003, to $12.39 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 53.55 cents per share for the Fund's fiscal year.3 The
Performance Summary beginning on page 36 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.03%, based on an
annualization of the current 4.35 cent ($0.0435) per share dividend and the
maximum offering price of $12.94 on February 29, 2004. An investor in the 2004
maximum combined federal and Minnesota state personal income tax bracket of
40.10% would need to earn a distribution rate of 6.73% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decrease
slightly, as shown in the dividend distributions table.
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. The insurance relates only to the payment of principal and interest on the
portfolio's insured securities. No representation is made as to any insurer's
ability to meet its commitments.
3. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 89.
Annual Report | 33
STATE UPDATE
Minnesota's deep, diverse economy weathered the national recession of recent
years, supported by several regional economic centers, steady demographic
trends, high personal income levels, relative employment diversity and
performance, and relatively low unemployment. The state's wealth levels ranked
seventh in the nation with per capita income at about 108% of the national
average.4 Further-more, state unemployment in February 2004, at 4.7%, remained
well below the national unemployment rate of 5.6%.5 The structure of Minnesota's
employment base continues to change, though a dependence on the manufacturing
sector endures.
When planning the 2004-2005 biennial budget, Minnesota policymakers confronted a
large deficit and nearly depleted its reserves. However, better-than-expected
2003 fiscal year-end results reduced the deficit. Early in 2004, estimates for
greater-than-expected corporate tax receipts somewhat offset projections of
reduced revenues, mostly from lower income and sales taxes. The state hopes to
close the deficit, mainly through ongoing spending cuts, and rebuild reserves
while closely monitoring liquidity levels.
Overall, the state's debt burden, at $663 per capita, is relatively moderate and
manageable.6 The 2004 capital budget includes major bond initiatives, primarily
for education, economic development, transportation and environmental purposes.
Reflecting the state's modest debt levels, adequate remaining liquidity, broad
economy and an administration focused squarely on short- and long-term
structural budget solutions, independent credit rating agency Standard & Poor's
maintained its AAA rating and stable outlook for Minnesota.7
MANAGER'S DISCUSSION
We used various strategies during the year under review as we sought to maximize
tax-free income for shareholders. Please read the discussion beginning on page 9
for details.
4. Source: Moody's Investors Service, "New Issue: Minnesota (State of),"
7/18/03.
5. Source: Bureau of Labor Statistics.
6. Source: Standard & Poor's, "State Review: Minnesota," RATINGSDIRECT, 1/29/04.
7. This does not indicate Standard & Poor's rating of the Fund.
34 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Minnesota Insured Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.50 cents 3.99 cents
- --------------------------------------------------------------------------------
April 4.50 cents 3.99 cents
- --------------------------------------------------------------------------------
May 4.50 cents 3.99 cents
- --------------------------------------------------------------------------------
June 4.45 cents 3.75 cents
- --------------------------------------------------------------------------------
July 4.45 cents 3.75 cents
- --------------------------------------------------------------------------------
August 4.45 cents 3.78 cents
- --------------------------------------------------------------------------------
September 4.45 cents 3.78 cents
- --------------------------------------------------------------------------------
October 4.45 cents 3.78 cents
- --------------------------------------------------------------------------------
November 4.45 cents 3.78 cents
- --------------------------------------------------------------------------------
December 4.45 cents 3.93 cents
- --------------------------------------------------------------------------------
January 4.45 cents 3.93 cents
- --------------------------------------------------------------------------------
February 4.45 cents 3.93 cents
- --------------------------------------------------------------------------------
TOTAL 53.55 CENTS 46.38 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
Thank you for your participation in Franklin Minnesota 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 35
Performance Summary as of 2/29/04
FRANKLIN MINNESOTA 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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.16 $12.39 $12.23
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ------------------------------------------------------------------------------------------------------
Dividend Income $0.5355
- ------------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $12.47 $12.30
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ------------------------------------------------------------------------------------------------------
Dividend Income $0.4638
- ------------------------------------------------------------------------------------------------------
PERFORMANCE
- ------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.81% +30.00% +69.77%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.33% +4.47% +4.98%
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.98% +4.34% +5.26%
- ------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.03%
- ------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.73%
- ------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.39%
- ------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.66%
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.25% +26.59% +57.17%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.25% +4.83% +5.25%
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.81% +4.68% +5.16%
- ------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.69%
- ------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.15%
- ------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.00%
- ------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.01%
- ------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
36 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[LINE CHART]
PLOT POINTS:
CLASS A (3/1/94-2/29/04)
Franklin Minnesota Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,573 $10,000 $10,000
3/31/94 $9,304 $9,593 $10,034
4/30/94 $9,333 $9,674 $10,048
5/31/94 $9,405 $9,758 $10,055
6/30/94 $9,372 $9,698 $10,089
7/31/94 $9,503 $9,876 $10,116
8/31/94 $9,534 $9,910 $10,157
9/30/94 $9,437 $9,765 $10,184
10/31/94 $9,306 $9,592 $10,191
11/30/94 $9,147 $9,418 $10,204
12/31/94 $9,331 $9,625 $10,204
1/31/95 $9,558 $9,900 $10,245
2/28/95 $9,779 $10,188 $10,286
3/31/95 $9,862 $10,305 $10,320
4/30/95 $9,880 $10,318 $10,354
5/31/95 $10,086 $10,647 $10,375
6/30/95 $10,035 $10,554 $10,395
7/31/95 $10,091 $10,654 $10,395
8/31/95 $10,180 $10,789 $10,423
9/30/95 $10,243 $10,857 $10,443
10/31/95 $10,362 $11,015 $10,477
11/30/95 $10,485 $11,198 $10,470
12/31/95 $10,573 $11,305 $10,464
1/31/96 $10,624 $11,391 $10,525
2/29/96 $10,569 $11,314 $10,559
3/31/96 $10,450 $11,169 $10,613
4/30/96 $10,430 $11,138 $10,654
5/31/96 $10,438 $11,133 $10,675
6/30/96 $10,537 $11,255 $10,682
7/31/96 $10,623 $11,357 $10,702
8/31/96 $10,611 $11,354 $10,723
9/30/96 $10,741 $11,513 $10,757
10/31/96 $10,835 $11,643 $10,791
11/30/96 $10,973 $11,856 $10,811
12/31/96 $10,944 $11,806 $10,811
1/31/97 $10,965 $11,828 $10,845
2/28/97 $11,049 $11,937 $10,879
3/31/97 $10,944 $11,778 $10,907
4/30/97 $11,018 $11,876 $10,920
5/31/97 $11,146 $12,055 $10,913
6/30/97 $11,243 $12,184 $10,927
7/31/97 $11,498 $12,521 $10,941
8/31/97 $11,425 $12,404 $10,961
9/30/97 $11,532 $12,551 $10,988
10/31/97 $11,596 $12,632 $11,016
11/30/97 $11,662 $12,706 $11,009
12/31/97 $11,788 $12,891 $10,995
1/31/98 $11,878 $13,024 $11,016
2/28/98 $11,890 $13,028 $11,036
3/31/98 $11,915 $13,040 $11,057
4/30/98 $11,895 $12,981 $11,077
5/31/98 $12,044 $13,186 $11,097
6/30/98 $12,097 $13,238 $11,111
7/31/98 $12,123 $13,271 $11,125
8/31/98 $12,256 $13,476 $11,138
9/30/98 $12,365 $13,644 $11,152
10/31/98 $12,400 $13,644 $11,179
11/30/98 $12,443 $13,692 $11,179
12/31/98 $12,459 $13,726 $11,172
1/31/99 $12,551 $13,890 $11,200
2/28/99 $12,508 $13,829 $11,213
3/31/99 $12,568 $13,848 $11,247
4/30/99 $12,578 $13,883 $11,329
5/31/99 $12,531 $13,802 $11,329
6/30/99 $12,359 $13,604 $11,329
7/31/99 $12,376 $13,653 $11,363
8/31/99 $12,212 $13,544 $11,391
9/30/99 $12,177 $13,549 $11,445
10/31/99 $11,980 $13,403 $11,466
11/30/99 $12,112 $13,545 $11,472
12/31/99 $11,993 $13,444 $11,472
1/31/00 $11,926 $13,386 $11,506
2/29/00 $12,095 $13,541 $11,575
3/31/00 $12,386 $13,837 $11,670
4/30/00 $12,295 $13,755 $11,677
5/31/00 $12,191 $13,684 $11,691
6/30/00 $12,519 $14,046 $11,752
7/31/00 $12,705 $14,242 $11,779
8/31/00 $12,915 $14,461 $11,779
9/30/00 $12,831 $14,386 $11,840
10/31/00 $12,979 $14,543 $11,861
11/30/00 $13,088 $14,653 $11,868
12/31/00 $13,420 $15,015 $11,861
1/31/01 $13,523 $15,164 $11,936
2/28/01 $13,585 $15,212 $11,984
3/31/01 $13,712 $15,348 $12,011
4/30/01 $13,575 $15,182 $12,059
5/31/01 $13,701 $15,345 $12,113
6/30/01 $13,798 $15,448 $12,134
7/31/01 $13,976 $15,677 $12,100
8/31/01 $14,162 $15,935 $12,100
9/30/01 $14,107 $15,882 $12,154
10/31/01 $14,262 $16,071 $12,113
11/30/01 $14,186 $15,936 $12,093
12/31/01 $14,056 $15,785 $12,045
1/31/02 $14,256 $16,059 $12,072
2/28/02 $14,380 $16,252 $12,120
3/31/02 $14,171 $15,934 $12,188
4/30/02 $14,379 $16,245 $12,256
5/31/02 $14,463 $16,344 $12,256
6/30/02 $14,563 $16,516 $12,263
7/31/02 $14,724 $16,729 $12,277
8/31/02 $14,852 $16,930 $12,318
9/30/02 $15,145 $17,301 $12,338
10/31/02 $14,933 $17,014 $12,359
11/30/02 $14,900 $16,943 $12,359
12/31/02 $15,173 $17,301 $12,331
1/31/03 $15,180 $17,257 $12,386
2/28/03 $15,370 $17,498 $12,481
3/31/03 $15,395 $17,509 $12,556
4/30/03 $15,515 $17,624 $12,529
5/31/03 $15,873 $18,037 $12,509
6/30/03 $15,816 $17,960 $12,522
7/31/03 $15,313 $17,332 $12,536
8/31/03 $15,391 $17,461 $12,584
9/30/03 $15,761 $17,975 $12,624
10/31/03 $15,666 $17,884 $12,611
11/30/03 $15,819 $18,070 $12,577
12/31/03 $15,962 $18,220 $12,563
1/31/04 $16,058 $18,324 $12,624
2/29/04 $16,252 $18,600 $12,693
[LINE CHART]
PLOT POINTS:
CLASS C (5/1/95-2/29/04)
Franklin Minnesota Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,220 $10,319 $10,020
6/30/95 $10,163 $10,229 $10,039
7/31/95 $10,215 $10,326 $10,039
8/31/95 $10,308 $10,457 $10,066
9/30/95 $10,358 $10,523 $10,086
10/31/95 $10,472 $10,676 $10,118
11/30/95 $10,600 $10,853 $10,112
12/31/95 $10,683 $10,957 $10,105
1/31/96 $10,728 $11,040 $10,165
2/29/96 $10,666 $10,966 $10,197
3/31/96 $10,542 $10,825 $10,250
4/30/96 $10,516 $10,795 $10,290
5/31/96 $10,528 $10,791 $10,309
6/30/96 $10,614 $10,908 $10,316
7/31/96 $10,696 $11,007 $10,336
8/31/96 $10,687 $11,004 $10,355
9/30/96 $10,805 $11,158 $10,388
10/31/96 $10,893 $11,285 $10,421
11/30/96 $11,027 $11,491 $10,441
12/31/96 $10,992 $11,443 $10,441
1/31/97 $11,006 $11,464 $10,474
2/28/97 $11,092 $11,569 $10,507
3/31/97 $10,980 $11,415 $10,533
4/30/97 $11,050 $11,511 $10,546
5/31/97 $11,173 $11,684 $10,540
6/30/97 $11,275 $11,808 $10,553
7/31/97 $11,514 $12,136 $10,566
8/31/97 $11,434 $12,022 $10,586
9/30/97 $11,536 $12,164 $10,612
10/31/97 $11,594 $12,243 $10,639
11/30/97 $11,654 $12,315 $10,632
12/31/97 $11,783 $12,494 $10,619
1/31/98 $11,868 $12,623 $10,639
2/28/98 $11,874 $12,627 $10,658
3/31/98 $11,893 $12,638 $10,678
4/30/98 $11,868 $12,581 $10,698
5/31/98 $12,011 $12,780 $10,718
6/30/98 $12,057 $12,831 $10,731
7/31/98 $12,078 $12,863 $10,744
8/31/98 $12,204 $13,062 $10,757
9/30/98 $12,306 $13,224 $10,770
10/31/98 $12,334 $13,224 $10,797
11/30/98 $12,370 $13,270 $10,797
12/31/98 $12,390 $13,304 $10,790
1/31/99 $12,475 $13,462 $10,816
2/28/99 $12,418 $13,403 $10,829
3/31/99 $12,470 $13,422 $10,862
4/30/99 $12,484 $13,455 $10,941
5/31/99 $12,421 $13,377 $10,941
6/30/99 $12,246 $13,185 $10,941
7/31/99 $12,268 $13,233 $10,974
8/31/99 $12,089 $13,127 $11,001
9/30/99 $12,049 $13,132 $11,053
10/31/99 $11,851 $12,990 $11,073
11/30/99 $11,974 $13,128 $11,080
12/31/99 $11,852 $13,030 $11,080
1/31/00 $11,781 $12,974 $11,113
2/29/00 $11,942 $13,124 $11,178
3/31/00 $12,233 $13,411 $11,271
4/30/00 $12,139 $13,332 $11,277
5/31/00 $12,030 $13,263 $11,290
6/30/00 $12,335 $13,614 $11,350
7/31/00 $12,523 $13,803 $11,376
8/31/00 $12,723 $14,016 $11,376
9/30/00 $12,635 $13,943 $11,435
10/31/00 $12,773 $14,095 $11,455
11/30/00 $12,864 $14,202 $11,461
12/31/00 $13,196 $14,553 $11,455
1/31/01 $13,291 $14,697 $11,527
2/28/01 $13,345 $14,744 $11,573
3/31/01 $13,463 $14,876 $11,600
4/30/01 $13,323 $14,715 $11,646
5/31/01 $13,439 $14,873 $11,698
6/30/01 $13,529 $14,973 $11,718
7/31/01 $13,707 $15,194 $11,685
8/31/01 $13,870 $15,445 $11,685
9/30/01 $13,811 $15,393 $11,738
10/31/01 $13,956 $15,576 $11,698
11/30/01 $13,876 $15,445 $11,679
12/31/01 $13,742 $15,299 $11,633
1/31/02 $13,941 $15,564 $11,659
2/28/02 $14,044 $15,752 $11,705
3/31/02 $13,847 $15,443 $11,771
4/30/02 $14,043 $15,745 $11,837
5/31/02 $14,104 $15,841 $11,837
6/30/02 $14,207 $16,008 $11,843
7/31/02 $14,357 $16,214 $11,856
8/31/02 $14,476 $16,409 $11,896
9/30/02 $14,754 $16,768 $11,916
10/31/02 $14,543 $16,490 $11,935
11/30/02 $14,505 $16,422 $11,935
12/31/02 $14,775 $16,768 $11,909
1/31/03 $14,764 $16,726 $11,962
2/28/03 $14,941 $16,960 $12,054
3/31/03 $14,958 $16,970 $12,126
4/30/03 $15,067 $17,082 $12,100
5/31/03 $15,406 $17,482 $12,080
6/30/03 $15,343 $17,407 $12,093
7/31/03 $14,849 $16,798 $12,107
8/31/03 $14,916 $16,924 $12,153
9/30/03 $15,263 $17,421 $12,192
10/31/03 $15,175 $17,333 $12,179
11/30/03 $15,316 $17,514 $12,146
12/31/03 $15,434 $17,659 $12,133
1/31/04 $15,520 $17,760 $12,192
2/29/04 $15,717 $18,028 $12,258
Annual Report | Past performance does not guarantee future results. | 37
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
CONDITIONS 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: No initial sales charge, but subject to 1% contingent deferred sales
charge for shares redeemed within 12 months of investment. Prior to 1/1/04,
these shares were offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Minnesota state personal income
tax bracket of 40.10%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
38 | Past performance does not guarantee future results. | Annual Report
Franklin Ohio Insured
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Ohio Insured Tax-Free Income
Fund seeks to provide high, current income exempt from federal and Ohio state
income taxes through a portfolio consisting mainly of insured Ohio municipal
securities. 1, 2
PORTFOLIO BREAKDOWN
Franklin Ohio Insured
Tax-Free Income Fund
2/29/04
- --------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------
General Obligation 46.6%
- --------------------------------------
Utilities 14.4%
- --------------------------------------
Prerefunded 9.1%
- --------------------------------------
Higher Education 8.5%
- --------------------------------------
Hospital & Health Care 5.7%
- --------------------------------------
Tax-Supported 5.7%
- --------------------------------------
Transportation 3.3%
- --------------------------------------
Corporate-Backed 2.4%
- --------------------------------------
Housing 2.0%
- --------------------------------------
Other Revenue 1.5%
- --------------------------------------
Subject to Government
Appropriations 0.8%
- --------------------------------------
We are pleased to bring you Franklin Ohio Insured Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.60 on February
28, 2003, to $12.81 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 54.78 cents per share for the Fund's fiscal year.3 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 4.03%, based on an
annualization of the current 4.49 cent ($0.0449) per share dividend and the
maximum offering price of $13.38 on February 29, 2004. An investor in the 2004
maximum combined federal and Ohio state personal income tax bracket of 39.88%
would need to earn a distribution rate of 6.70% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decrease
slightly, as shown in the dividend distributions table.
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. The insurance relates only to the payment of principal and interest on the
portfolio's insured securities. No representation is made as to any insurer's
ability to meet its commitments.
3. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 99.
Annual Report | 39
STATE UPDATE
Ohio continued to feel the impact of the broader national recession. Although
the state's employment base began to diversify away from manufacturing toward a
more balanced service- and trade-oriented economy, manufacturing continued to
dominate non-farm payroll and accounted for about 70% of the 235,000 jobs lost
over the past three years.4 Partly due to weakness in the manufacturing sector,
however, unemployment reached 5.9% in February 2004, higher than the 5.6%
national average.5 While a downward employment trend continued for most sectors,
some service sectors, such as education and health, made solid gains.
Facing weak economic conditions and significant revenue declines, state leaders
moved swiftly to address sizable shortfalls over the fiscal year 2002-2003
biennium, cumulatively amounting to more than $2.6 billion.4 Demonstrating the
state's willingness to take decisive action to regain fiscal stability, Ohio
adopted a two-year sales tax rate increase of one cent, which is expected to
generate $1.3 billion annually and expire on June 30, 2005.6 Although the budget
for the 2004-2005 biennium is balanced, it relies heavily on this sales tax, as
well as other one-time revenue sources, including $193 million of federal
windfall money resulting from the recently enacted federal tax cut package.4
Despite the scheduled expiration, precedent exists for permanent extension of
the sales tax rate increase, an option the state could revisit in later budget
deliberations. However, Ohio's secretary of state has spearheaded an initiative
to have the tax increase repealed, which may be put before the legislature.
Should the repeal succeed, the state would be facing an almost $800 million
budget gap for 2005.4
Ohio has a history of sound financial management and has maintained moderate
debt levels, at 2.2% of personal income and $623 per capita.6 Standard & Poor's,
an independent credit rating agency, assigned Ohio's general obligation debt an
AA+ rating, with a stable outlook, given the state's return to structural
balance for the fiscal year 2004-2005 biennium.7 However, Moody's Investors
Service, also an independent credit rating agency, assigned Ohio's general
obligation debt an Aa1 rating with a negative outlook, reflecting concerns that
continued economic uncertainty may result in significant fiscal stress
continuing in the current year and into the next biennium.8 There are also some
risks in the budget, such as the state's largely untested ability to cut
Medicaid eligibility and benefit levels. In addition,
4. Source: Moody's Investors Service, "New Issue: Ohio (State of)," 1/27/04.
5. Source: Bureau of Labor Statistics.
6. Source: Standard & Poor's, "Research: Ohio; Tax Secured, General Obligation,"
RATINGSDIRECT, 1/9/04.
7. This does not indicate Standard & Poor's rating of the Fund.
8. This does not indicate Moody's rating of the Fund.
40 | Annual Report
adequate education funding remains a challenge for the state since the Ohio
Supreme Court ruled in November 2002 that the state's education funding system
remains unconstitutional.
DIVIDEND DISTRIBUTIONS*
Franklin Ohio Insured Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
--------------------------------------
MONTH CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
March 4.75 cents 4.17 cents 4.20 cents
- --------------------------------------------------------------------------------
April 4.75 cents 4.17 cents 4.20 cents
- --------------------------------------------------------------------------------
May 4.75 cents 4.17 cents 4.20 cents
- --------------------------------------------------------------------------------
June 4.55 cents 3.97 cents 3.90 cents
- --------------------------------------------------------------------------------
July 4.55 cents 3.97 cents 3.90 cents
- --------------------------------------------------------------------------------
August 4.49 cents 3.90 cents 3.84 cents
- --------------------------------------------------------------------------------
September 4.49 cents 3.90 cents 3.84 cents
- --------------------------------------------------------------------------------
October 4.49 cents 3.90 cents 3.84 cents
- --------------------------------------------------------------------------------
November 4.49 cents 3.90 cents 3.84 cents
- --------------------------------------------------------------------------------
December 4.49 cents 3.92 cents 3.94 cents
- --------------------------------------------------------------------------------
January 4.49 cents 3.92 cents 3.94 cents
- --------------------------------------------------------------------------------
February 4.49 cents 3.92 cents 3.94 cents
- --------------------------------------------------------------------------------
TOTAL 54.78 CENTS 47.81 CENTS 47.58 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
MANAGER'S DISCUSSION
We used various strategies during the year under review as we sought to maximize
tax-free income for shareholders. Please read the discussion beginning on page 9
for details.
Thank you for your participation in Franklin Ohio 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 41
Performance Summary as of 2/29/04
FRANKLIN OHIO 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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.81 $12.60
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------------------------------
Dividend Income $0.5478
- --------------------------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0027
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $0.5505
- --------------------------------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.85 $12.64
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4781
- --------------------------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0027
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $0.4808
- --------------------------------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +0.21 $12.90 $12.69
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4758
- --------------------------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0027
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $0.4785
- --------------------------------------------------------------------------------------------------------------------------
Franklin Ohio Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains totaling 0.27 cents ($0.0027) per share in July and
December 2003. The Fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852(b)(3).
42 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.17% +30.70% +74.08%
- ---------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.65% +4.60% +5.24%
- ---------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.06% +4.43% +5.58%
- ---------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.03%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.70%
- ---------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.09%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.14%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.57% +18.76% +33.43%
- ---------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.57% +5.00% +6.93%
- ---------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.97% +4.56% +6.67%
- ---------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.64%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.05%
- ---------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.72%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.52%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.53% +27.14% +61.97%
- ---------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.53% +4.92% +5.61%
- ---------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.01% +4.76% +5.50%
- ---------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.65%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.07%
- ---------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.71%
- ---------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.51%
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 43
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 2/29/04
- --------------------------------------
1-Year +1.65%
- --------------------------------------
5-Year +4.60%
- --------------------------------------
10-Year +5.24%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS A (3/1/94-2/29/04)
Franklin Ohio Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,575 $10,000 $10,000
3/31/94 $9,238 $9,593 $10,034
4/30/94 $9,282 $9,674 $10,048
5/31/94 $9,354 $9,758 $10,055
6/30/94 $9,318 $9,698 $10,089
7/31/94 $9,465 $9,876 $10,116
8/31/94 $9,488 $9,910 $10,157
9/30/94 $9,368 $9,765 $10,184
10/31/94 $9,222 $9,592 $10,191
11/30/94 $9,072 $9,418 $10,204
12/31/94 $9,264 $9,625 $10,204
1/31/95 $9,507 $9,900 $10,245
2/28/95 $9,744 $10,188 $10,286
3/31/95 $9,828 $10,305 $10,320
4/30/95 $9,839 $10,318 $10,354
5/31/95 $10,086 $10,647 $10,375
6/30/95 $10,019 $10,554 $10,395
7/31/95 $10,067 $10,654 $10,395
8/31/95 $10,173 $10,789 $10,423
9/30/95 $10,219 $10,857 $10,443
10/31/95 $10,347 $11,015 $10,477
11/30/95 $10,496 $11,198 $10,470
12/31/95 $10,594 $11,305 $10,464
1/31/96 $10,653 $11,391 $10,525
2/29/96 $10,589 $11,314 $10,559
3/31/96 $10,462 $11,169 $10,613
4/30/96 $10,450 $11,138 $10,654
5/31/96 $10,475 $11,133 $10,675
6/30/96 $10,590 $11,255 $10,682
7/31/96 $10,676 $11,357 $10,702
8/31/96 $10,671 $11,354 $10,723
9/30/96 $10,829 $11,513 $10,757
10/31/96 $10,932 $11,643 $10,791
11/30/96 $11,107 $11,856 $10,811
12/31/96 $11,069 $11,806 $10,811
1/31/97 $11,073 $11,828 $10,845
2/28/97 $11,158 $11,937 $10,879
3/31/97 $11,026 $11,778 $10,907
4/30/97 $11,110 $11,876 $10,920
5/31/97 $11,257 $12,055 $10,913
6/30/97 $11,364 $12,184 $10,927
7/31/97 $11,646 $12,521 $10,941
8/31/97 $11,535 $12,404 $10,961
9/30/97 $11,661 $12,551 $10,988
10/31/97 $11,714 $12,632 $11,016
11/30/97 $11,789 $12,706 $11,009
12/31/97 $11,972 $12,891 $10,995
1/31/98 $12,082 $13,024 $11,016
2/28/98 $12,075 $13,028 $11,036
3/31/98 $12,081 $13,040 $11,057
4/30/98 $12,052 $12,981 $11,077
5/31/98 $12,219 $13,186 $11,097
6/30/98 $12,267 $13,238 $11,111
7/31/98 $12,303 $13,271 $11,125
8/31/98 $12,443 $13,476 $11,138
9/30/98 $12,600 $13,644 $11,152
10/31/98 $12,624 $13,644 $11,179
11/30/98 $12,665 $13,692 $11,179
12/31/98 $12,686 $13,726 $11,172
1/31/99 $12,788 $13,890 $11,200
2/28/99 $12,758 $13,829 $11,213
3/31/99 $12,807 $13,848 $11,247
4/30/99 $12,828 $13,883 $11,329
5/31/99 $12,751 $13,802 $11,329
6/30/99 $12,595 $13,604 $11,329
7/31/99 $12,613 $13,653 $11,363
8/31/99 $12,462 $13,544 $11,391
9/30/99 $12,460 $13,549 $11,445
10/31/99 $12,298 $13,403 $11,466
11/30/99 $12,409 $13,545 $11,472
12/31/99 $12,304 $13,444 $11,472
1/31/00 $12,249 $13,386 $11,506
2/29/00 $12,398 $13,541 $11,575
3/31/00 $12,667 $13,837 $11,670
4/30/00 $12,591 $13,755 $11,677
5/31/00 $12,544 $13,684 $11,691
6/30/00 $12,839 $14,046 $11,752
7/31/00 $13,025 $14,242 $11,779
8/31/00 $13,213 $14,461 $11,779
9/30/00 $13,143 $14,386 $11,840
10/31/00 $13,258 $14,543 $11,861
11/30/00 $13,368 $14,653 $11,868
12/31/00 $13,700 $15,015 $11,861
1/31/01 $13,782 $15,164 $11,936
2/28/01 $13,822 $15,212 $11,984
3/31/01 $13,938 $15,348 $12,011
4/30/01 $13,804 $15,182 $12,059
5/31/01 $13,920 $15,345 $12,113
6/30/01 $14,008 $15,448 $12,134
7/31/01 $14,198 $15,677 $12,100
8/31/01 $14,409 $15,935 $12,100
9/30/01 $14,391 $15,882 $12,154
10/31/01 $14,538 $16,071 $12,113
11/30/01 $14,465 $15,936 $12,093
12/31/01 $14,350 $15,785 $12,045
1/31/02 $14,574 $16,059 $12,072
2/28/02 $14,711 $16,252 $12,120
3/31/02 $14,483 $15,934 $12,188
4/30/02 $14,704 $16,245 $12,256
5/31/02 $14,776 $16,344 $12,256
6/30/02 $14,900 $16,516 $12,263
7/31/02 $15,049 $16,729 $12,277
8/31/02 $15,191 $16,930 $12,318
9/30/02 $15,482 $17,301 $12,338
10/31/02 $15,275 $17,014 $12,359
11/30/02 $15,244 $16,943 $12,359
12/31/02 $15,543 $17,301 $12,331
1/31/03 $15,517 $17,257 $12,386
2/28/03 $15,708 $17,498 $12,481
3/31/03 $15,734 $17,509 $12,556
4/30/03 $15,868 $17,624 $12,529
5/31/03 $16,225 $18,037 $12,509
6/30/03 $16,170 $17,960 $12,522
7/31/03 $15,596 $17,332 $12,536
8/31/03 $15,686 $17,461 $12,584
9/30/03 $16,028 $17,975 $12,624
10/31/03 $15,985 $17,884 $12,611
11/30/03 $16,177 $18,070 $12,577
12/31/03 $16,310 $18,220 $12,563
1/31/04 $16,432 $18,324 $12,624
2/29/04 $16,669 $18,600 $12,693
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 2/29/04
- --------------------------------------
1-Year +1.57%
- --------------------------------------
3-Year +5.00%
- --------------------------------------
Since Inception (2/1/00) +6.93%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS B (2/1/00-2/29/04)
Franklin Ohio Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
2/1/00 $10,000 $10,000 $10,000
2/29/00 $10,119 $10,116 $10,059
3/31/00 $10,334 $10,337 $10,142
4/30/00 $10,276 $10,276 $10,148
5/31/00 $10,231 $10,223 $10,160
6/30/00 $10,475 $10,494 $10,213
7/31/00 $10,613 $10,640 $10,237
8/31/00 $10,770 $10,804 $10,237
9/30/00 $10,709 $10,747 $10,290
10/31/00 $10,798 $10,865 $10,308
11/30/00 $10,892 $10,947 $10,314
12/31/00 $11,148 $11,217 $10,308
1/31/01 $11,209 $11,328 $10,373
2/28/01 $11,237 $11,364 $10,415
3/31/01 $11,326 $11,466 $10,438
4/30/01 $11,211 $11,342 $10,480
5/31/01 $11,309 $11,464 $10,527
6/30/01 $11,375 $11,541 $10,545
7/31/01 $11,524 $11,712 $10,515
8/31/01 $11,688 $11,905 $10,515
9/30/01 $11,670 $11,865 $10,563
10/31/01 $11,782 $12,006 $10,527
11/30/01 $11,718 $11,905 $10,509
12/31/01 $11,618 $11,792 $10,468
1/31/02 $11,803 $11,997 $10,492
2/28/02 $11,899 $12,141 $10,533
3/31/02 $11,719 $11,903 $10,592
4/30/02 $11,882 $12,136 $10,652
5/31/02 $11,934 $12,210 $10,652
6/30/02 $12,030 $12,339 $10,658
7/31/02 $12,154 $12,498 $10,669
8/31/02 $12,252 $12,648 $10,705
9/30/02 $12,491 $12,925 $10,723
10/31/02 $12,317 $12,711 $10,741
11/30/02 $12,287 $12,658 $10,741
12/31/02 $12,520 $12,925 $10,717
1/31/03 $12,493 $12,892 $10,764
2/28/03 $12,640 $13,072 $10,847
3/31/03 $12,655 $13,080 $10,912
4/30/03 $12,758 $13,167 $10,889
5/31/03 $13,048 $13,475 $10,871
6/30/03 $12,988 $13,418 $10,883
7/31/03 $12,523 $12,948 $10,895
8/31/03 $12,590 $13,045 $10,936
9/30/03 $12,857 $13,428 $10,972
10/31/03 $12,816 $13,361 $10,960
11/30/03 $12,963 $13,500 $10,930
12/31/03 $13,062 $13,612 $10,918
1/31/04 $13,153 $13,690 $10,972
2/29/04 $13,143 $13,896 $11,031
44 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 2/29/04
- --------------------------------------
1-Year +4.53%
- --------------------------------------
5-Year +4.92%
- --------------------------------------
Since Inception (5/1/95) +5.61%
- --------------------------------------
[LINE CHART]
PLOT POINTS:
CLASS C (5/1/95-2/29/04)
Franklin Ohio Insured Lehman Brothers Municipal
Tax-Free Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,255 $10,319 $10,020
6/30/95 $10,181 $10,229 $10,039
7/31/95 $10,234 $10,326 $10,039
8/31/95 $10,336 $10,457 $10,066
9/30/95 $10,379 $10,523 $10,086
10/31/95 $10,512 $10,676 $10,118
11/30/95 $10,658 $10,853 $10,112
12/31/95 $10,752 $10,957 $10,105
1/31/96 $10,815 $11,040 $10,165
2/29/96 $10,745 $10,966 $10,197
3/31/96 $10,611 $10,825 $10,250
4/30/96 $10,593 $10,795 $10,290
5/31/96 $10,614 $10,791 $10,309
6/30/96 $10,717 $10,908 $10,316
7/31/96 $10,815 $11,007 $10,336
8/31/96 $10,805 $11,004 $10,355
9/30/96 $10,950 $11,158 $10,388
10/31/96 $11,056 $11,285 $10,421
11/30/96 $11,227 $11,491 $10,441
12/31/96 $11,183 $11,443 $10,441
1/31/97 $11,182 $11,464 $10,474
2/28/97 $11,262 $11,569 $10,507
3/31/97 $11,125 $11,415 $10,533
4/30/97 $11,205 $11,511 $10,546
5/31/97 $11,346 $11,684 $10,540
6/30/97 $11,448 $11,808 $10,553
7/31/97 $11,736 $12,136 $10,566
8/31/97 $11,619 $12,022 $10,586
9/30/97 $11,730 $12,164 $10,612
10/31/97 $11,787 $12,243 $10,639
11/30/97 $11,858 $12,315 $10,632
12/31/97 $12,036 $12,494 $10,619
1/31/98 $12,139 $12,623 $10,639
2/28/98 $12,127 $12,627 $10,658
3/31/98 $12,137 $12,638 $10,678
4/30/98 $12,092 $12,581 $10,698
5/31/98 $12,253 $12,780 $10,718
6/30/98 $12,304 $12,831 $10,731
7/31/98 $12,324 $12,863 $10,744
8/31/98 $12,468 $13,062 $10,757
9/30/98 $12,619 $13,224 $10,770
10/31/98 $12,637 $13,224 $10,797
11/30/98 $12,672 $13,270 $10,797
12/31/98 $12,676 $13,304 $10,790
1/31/99 $12,782 $13,462 $10,816
2/28/99 $12,745 $13,403 $10,829
3/31/99 $12,789 $13,422 $10,862
4/30/99 $12,804 $13,455 $10,941
5/31/99 $12,722 $13,377 $10,941
6/30/99 $12,562 $13,185 $10,941
7/31/99 $12,574 $13,233 $10,974
8/31/99 $12,417 $13,127 $11,001
9/30/99 $12,400 $13,132 $11,053
10/31/99 $12,245 $12,990 $11,073
11/30/99 $12,348 $13,128 $11,080
12/31/99 $12,238 $13,030 $11,080
1/31/00 $12,169 $12,974 $11,113
2/29/00 $12,310 $13,124 $11,178
3/31/00 $12,570 $13,411 $11,271
4/30/00 $12,490 $13,332 $11,277
5/31/00 $12,437 $13,263 $11,290
6/30/00 $12,733 $13,614 $11,350
7/31/00 $12,911 $13,803 $11,376
8/31/00 $13,091 $14,016 $11,376
9/30/00 $13,016 $13,943 $11,435
10/31/00 $13,123 $14,095 $11,455
11/30/00 $13,225 $14,202 $11,461
12/31/00 $13,545 $14,553 $11,455
1/31/01 $13,620 $14,697 $11,527
2/28/01 $13,654 $14,744 $11,573
3/31/01 $13,762 $14,876 $11,600
4/30/01 $13,624 $14,715 $11,646
5/31/01 $13,743 $14,873 $11,698
6/30/01 $13,823 $14,973 $11,718
7/31/01 $14,002 $15,194 $11,685
8/31/01 $14,201 $15,445 $11,685
9/30/01 $14,178 $15,393 $11,738
10/31/01 $14,314 $15,576 $11,698
11/30/01 $14,237 $15,445 $11,679
12/31/01 $14,116 $15,299 $11,633
1/31/02 $14,328 $15,564 $11,659
2/28/02 $14,455 $15,752 $11,705
3/31/02 $14,227 $15,443 $11,771
4/30/02 $14,435 $15,745 $11,837
5/31/02 $14,498 $15,841 $11,837
6/30/02 $14,614 $16,008 $11,843
7/31/02 $14,765 $16,214 $11,856
8/31/02 $14,884 $16,409 $11,896
9/30/02 $15,173 $16,768 $11,916
10/31/02 $14,964 $16,490 $11,935
11/30/02 $14,928 $16,422 $11,935
12/31/02 $15,211 $16,768 $11,909
1/31/03 $15,179 $16,726 $11,962
2/28/03 $15,359 $16,960 $12,054
3/31/03 $15,366 $16,970 $12,126
4/30/03 $15,501 $17,082 $12,100
5/31/03 $15,841 $17,482 $12,080
6/30/03 $15,779 $17,407 $12,093
7/31/03 $15,203 $16,798 $12,107
8/31/03 $15,296 $16,924 $12,153
9/30/03 $15,619 $17,421 $12,192
10/31/03 $15,569 $17,333 $12,179
11/30/03 $15,748 $17,514 $12,146
12/31/03 $15,867 $17,659 $12,133
1/31/04 $15,979 $17,760 $12,192
2/29/04 $16,197 $18,028 $12,258
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
CONDITIONS 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Ohio state personal income tax
bracket of 39.88%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 45
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $10.76 $10.50 $10.36 $ 9.61 $10.53
-----------------------------------------------------------
Income from investment operations:
Net investment income a ........................... .46 .46 .48 .49 .48
Net realized and unrealized gains (losses) ........ .20 .27 .14 .74 (.92)
-----------------------------------------------------------
Total from investment operations ................... .66 .73 .62 1.23 (.44)
-----------------------------------------------------------
Less distributions from net investment income ...... (.45) (.47) (.48) (.48) (.48)
-----------------------------------------------------------
Net asset value, end of year ....................... $10.97 $10.76 $10.50 $10.36 $ 9.61
===========================================================
Total return b ..................................... 6.29% 7.14% 6.14% 13.10% (4.22)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $156,033 $156,973 $127,595 $116,581 $108,831
Ratios to average net assets:
Expenses .......................................... .75% .76% .78% .78% .76%
Expenses excluding waiver and payments by affiliate .75% .76% .78% .78% .77%
Net investment income ............................. 4.27% 4.39% 4.58% 4.87% 4.79%
Portfolio turnover rate ............................ 11.38% 10.83% 23.17% 29.18% 23.92%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
46 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.1%
Alachua County Public Improvement Revenue, AMBAC Insured, 5.25%, 8/01/29 .................. $ 2,500,000 $ 2,645,750
Alachua County School Board COP, AMBAC Insured, 5.00%, 7/01/20 ............................ 1,000,000 1,075,680
Bay Medical Center Hospital Revenue, Bay Medical Center Project, AMBAC Insured,
5.00%, 10/01/27 ......................................................................... 1,025,000 1,062,125
Broward County HFAR, FSA Insured,
5.65%, 11/01/22 ........................................................................ 405,000 418,000
5.70%, 11/01/29 ........................................................................ 225,000 232,024
Broward County School Board COP, Series A, FSA Insured, 5.00%,
7/01/22 ................................................................................ 2,000,000 2,111,340
7/01/26 ................................................................................ 2,850,000 2,986,202
Canaveral Port Authority Revenue, Refunding, Series B, FGIC Insured, 5.625%, 6/01/21 ...... 1,000,000 1,095,470
Dade County HFA, MFMR, Siesta Pointe Apartments, Series A, FSA Insured, 5.75%, 9/01/29 .... 1,890,000 1,956,415
Dade County Water and Sewer System Revenue, FGIC Insured, 5.25%, 10/01/21 ................. 1,000,000 1,072,760
Daytona Beach Utility System Revenue, Refunding, Series B, FGIC Insured, 5.00%, 11/15/32 .. 1,000,000 1,050,930
Destin Capital Improvement Revenue, MBIA Insured, 5.00%, 8/01/27 .......................... 1,315,000 1,385,576
Escambia County HFA, SFMR, Multi County Program, Series A, MBIA Insured, 6.40%,
10/01/30 ................................................................................ 790,000 840,054
Escambia County Utilities Authority Utility System Revenue,
FGIC Insured, 5.00%, 1/01/31 ........................................................... 1,775,000 1,843,480
Refunding, Series B, FGIC Insured, 5.00%, 1/01/22 ...................................... 2,000,000 2,116,640
Florida HFAR, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 .......... 1,600,000 1,688,848
Florida HFC Revenue,
Housing Logans Pointe Apartments, Series F-1, FSA Insured, 5.90%, 12/01/19 ............. 1,205,000 1,288,916
Marina Bay Apartments, Series S, FSA Insured, 5.85%, 2/01/41 ........................... 1,070,000 1,158,232
Florida Intergovernmental Finance Commission Capital Revenue, Series A, AMBAC Insured,
5.00%, 8/01/32 .......................................................................... 3,570,000 3,731,864
Florida State Board of Education GO, Series F, MBIA Insured, 5.00%, 6/01/28 ............... 2,000,000 2,113,560
Florida State Board Regent Housing Revenue, University of Florida, FGIC Insured,
5.25%, 7/01/30 .......................................................................... 2,000,000 2,120,800
Florida State Department Environmental Protection Preservation Revenue, Florida Forever,
Series A, MBIA Insured, 5.00%, 7/01/21 .................................................. 3,000,000 3,207,360
Florida State Department of General Services Division Facilities Management Revenue, Florida
Facilities Pool, Series B, FSA Insured, 5.50%, 9/01/28 .................................. 550,000 606,194
Gulf Breeze Revenue,
FGIC Insured, 5.80%, 12/01/20 .......................................................... 1,250,000 1,470,763
Local Government Loan Program, FGIC Insured, 6.05%, 12/01/15 ........................... 1,915,000 2,160,082
Hillsborough County IDAR, PCR, Tampa Electric Co. Project, Refunding, MBIA Insured,
6.25%, 12/01/34 ......................................................................... 1,500,000 1,585,665
Hillsborough County School Board COP, MBIA Insured, 5.375%, 7/01/26 ....................... 2,000,000 2,140,560
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 ................. 1,250,000 1,342,750
Indian Trail Water Control District Improvement Revenue Bonds, MBIA Insured,
5.75%, 8/01/16 ......................................................................... 1,090,000 1,217,813
5.50%, 8/01/22 ......................................................................... 500,000 550,225
Jacksonville Capital Improvement Revenue, Refunding, Series C, AMBAC Insured,
5.00%, 10/01/25 ........................................................................ 4,000,000 4,213,640
Jacksonville Guaranteed Entitlement Revenue, Refunding and Improvement, FGIC Insured,
5.00%, 10/01/32 ......................................................................... 1,000,000 1,046,090
Jacksonville Transportation Revenue, MBIA Insured, 5.00%, 10/01/26 ........................ 2,000,000 2,092,280
Annual Report | 47
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Jacksonville Water and Sewer Revenue, United Water Project, AMBAC Insured, 6.35%,
8/01/25 ................................................................................. $ 1,000,000 $ 1,083,330
Lake Clarke Shores Utility Systems Revenue, Refunding and Improvement, FGIC Insured,
5.80%, 10/01/18 ......................................................................... 1,415,000 1,480,458
Lee County Airport Revenue, Series B, FSA Insured, 5.75%, 10/01/33 ........................ 4,000,000 4,521,200
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding,
MBIA Insured, 6.05%,
11/01/15 ............................................................................... 2,000,000 2,223,380
11/01/20 ............................................................................... 1,500,000 1,652,700
Lynn Haven Capital Improvement Revenue,
MBIA Insured, 5.50%, 12/01/32 .......................................................... 2,000,000 2,224,840
Series A, MBIA Insured, 5.75%, 12/01/16 ................................................ 1,000,000 1,095,120
Marion County Utility System Revenue,
FGIC Insured, 5.00%, 12/01/31 .......................................................... 1,500,000 1,571,310
Series A, MBIA Insured, 5.00%, 12/01/33 ................................................ 1,000,000 1,051,110
Martin County Consolidated Utilities System Revenue, Refunding, FGIC Insured, Pre-Refunded,
6.00%, 10/01/24 ......................................................................... 215,000 225,580
Miami Beach Water and Sewer Revenue, AMBAC Insured, 5.00%, 9/01/30 ........................ 3,000,000 3,135,450
Miami-Dade County Aviation Revenue, Miami International Airport, Series B, FGIC Insured,
5.75%, 10/01/29 ......................................................................... 2,500,000 2,850,925
Miami-Dade County Educational Facilities Authority Revenue, University of Miami, Series A,
AMBAC Insured, 5.00%, 4/01/31 ........................................................... 5,000,000 5,266,900
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, Pre-Refunded,
6.75%, 10/01/25 ......................................................................... 2,000,000 2,087,160
Nassau County Public Improvement Revenue, MBIA Insured, 5.00%, 5/01/31 .................... 5,000,000 5,200,950
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26 ..................... 4,220,000 4,588,533
Orange County Health Facilities Authority Revenue, MBIA Insured, 6.00%, 11/01/24 .......... 700,000 710,073
Orange County Public Services Tax Revenue, FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 .... 1,000,000 1,096,420
Orange County School Board COP, AMBAC Insured, 5.50%, 8/01/25 ............................. 1,000,000 1,109,690
Orange County Tourist Development Tax Revenue, AMBAC Insured, 5.50%,
10/01/22 ............................................................................... 1,000,000 1,116,610
10/01/31 ............................................................................... 2,500,000 2,771,325
10/01/32 ............................................................................... 2,000,000 2,179,340
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, FSA Insured,
5.70%, 12/01/17 ......................................................................... 480,000 495,854
Osceola County Tourist Development Tax Revenue, FGIC Insured, 5.00%, 10/01/32 ............. 3,000,000 3,138,270
Palm Beach County IDR, South Florida Fair Project, AMBAC Insured, 5.50%, 6/01/31 .......... 2,000,000 2,191,960
Palm Beach County Public Improvement Revenue, Convention Center Project, FGIC Insured,
Pre-Refunded, 5.125%, 11/01/30 .......................................................... 2,000,000 2,335,060
Palm Beach County School Board COP,
Refunding, Series D, FSA Insured, 5.00%, 8/01/28 ....................................... 4,500,000 4,707,270
Series A, AMBAC Insured, 5.125%, 8/01/24 ............................................... 5,000,000 5,324,700
Series A, FGIC Insured, Pre-Refunded, 6.00%, 8/01/22 ................................... 3,000,000 3,653,910
Palm Coast Utility System Revenue, MBIA Insured, 5.00%, 10/01/33 .......................... 2,700,000 2,836,188
Panama City Beach Utility Revenue, Refunding, AMBAC Insured, 5.00%, 6/01/32 ............... 2,000,000 2,097,960
Pinellas County Sewer Revenue, FSA Insured, 5.00%, 10/01/32 ............................... 3,000,000 3,151,320
Polk County Capital Improvement Revenue, Special Tax, FSA Insured, 5.75%, 12/01/21 ........ 1,000,000 1,166,910
Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/26 ....................... 1,000,000 1,045,370
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/27 ....... 3,000,000 3,175,020
48 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, Pre-Refunded,
5.50%, 7/01/25 .......................................................................... $ 1,000,000 $ 1,074,970
Sarasota County Utilities System Revenue, FGIC Insured, 5.75%, 10/01/27 ................... 520,000 579,400
St. Lucie West Services District Special Assessment Revenue, Port St. Lucie, Water Management
Benefit, Refunding, senior lien, Series A, MBIA Insured, 5.25%, 5/01/25 ................. 5,000,000 5,338,600
St. Lucie West Services District Utility Revenue, senior lien, MBIA Insured,
6.125%, 10/01/32 ........................................................................ 2,240,000 2,668,064
Tavares Water and Sewer Revenue, AMBAC Insured, 5.50%, 10/01/30 ........................... 1,000,000 1,103,600
Titusville Water and Sewer Revenue, MBIA Insured, Pre-Refunded, 6.20%, 10/01/14 ........... 490,000 514,676
Tohopekaliga Water Authority Utility System Revenue, Series A, FSA Insured, 5.00%, 10/01/28 1,060,000 1,116,858
West Melbourne Water and Sewer Revenue, FGIC Insured,
6.75%, 10/01/14 ........................................................................ 315,000 328,161
Pre-Refunded, 6.75%, 10/01/14 .......................................................... 185,000 193,062
-------------
TOTAL LONG TERM INVESTMENTS (COST $140,018,518) 153,107,675
-------------
SHORT TERM INVESTMENTS (COST $500,000) .3%
a Orange County School Board COP, Series B, AMBAC Insured, Daily VRDN and Put, .98%,
8/01/25 ................................................................................. 500,000 500,000
-------------
TOTAL INVESTMENTS (COST $140,518,518) 98.4% ............................................... 153,607,675
OTHER ASSETS, LESS LIABILITIES 1.6% ....................................................... 2,424,908
-------------
NET ASSETS 100.0% ......................................................................... $156,032,583
============
<FN>
See glossary of terms on page 110.
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.
</FN>
Annual Report | See notes to financial statements. | 49
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN INSURED TAX-FREE INCOME FUND
--------------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004C 2003 2002 2001 2000 C
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $12.37 $12.13 $11.98 $11.24 $12.26
--------------------------------------------------------------------
Income from investment operations:
Net investment income a ............................... .55 .58 .59 .60 .61
Net realized and unrealized gains (losses) ............ .25 .24 .16 .74 (1.00)
--------------------------------------------------------------------
Total from investment operations ....................... .80 .82 .75 1.34 (.39)
--------------------------------------------------------------------
Less distributions from:
Net investment income ................................. (.55) (.58) (.60) (.60) (.61)
Net realized gains .................................... -- -- -- -- (.02)
--------------------------------------------------------------------
Total distributions .................................... (.55) (.58) (.60) (.60) (.63)
--------------------------------------------------------------------
Net asset value, end of year ........................... $12.62 $12.37 $12.13 $11.98 $11.24
====================================================================
Total return b ......................................... 6.65% 6.90% 6.39% 12.24% (3.21)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $1,696,913 $1,646,355 $1,554,245 $1,472,089 $1,445,546
Ratios to average net assets:
Expenses .............................................. .63% .62% .63% .62% .62%
Net investment income ................................. 4.45% 4.73% 4.90% 5.23% 5.23%
Portfolio turnover rate ................................ 9.41% 11.74% 8.48% 10.40% 13.29%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
50 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C,D
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $12.42 $12.17 $12.00 $11.24 $11.14
------------------------------------------------------------
Income from investment operations:
Net investment income a ........................................ .49 .51 .53 .55 .05
Net realized and unrealized gains (losses) ..................... .24 .25 .17 .75 .10
------------------------------------------------------------
Total from investment operations ................................ .73 .76 .70 1.30 .15
------------------------------------------------------------
Less distributions from net investment income ................... (.48) (.51) (.53) (.54) (.05)
------------------------------------------------------------
Net asset value, end of year .................................... $12.67 $12.42 $12.17 $12.00 $11.24
============================================================
Total return b .................................................. 6.04% 6.37% 5.96% 11.80% 1.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $108,518 $82,062 $38,158 $6,291 $63
Ratios to average net assets:
Expenses ....................................................... 1.18% 1.18% 1.18% 1.18% 1.18%e
Net investment income .......................................... 3.90% 4.17% 4.35% 4.68% 5.23%e
Portfolio turnover rate ......................................... 9.41% 11.74% 8.48% 10.40% 13.29%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d For the period February 1, 2000 (effective date) to February 29, 2000.
e Annualized.
</FN>
Annual Report | 51
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $12.47 $12.21 $12.05 $11.31 $12.33
------------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .48 .52 .53 .55 .55
Net realized and unrealized gains (losses) ...................... .25 .25 .16 .73 (1.00)
------------------------------------------------------------
Total from investment operations ................................. .73 .77 .69 1.28 (.45)
------------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.48) (.51) (.53) (.54) (.55)
Net realized gains .............................................. -- -- -- -- (.02)
------------------------------------------------------------
Total distributions .............................................. (.48) (.51) (.53) (.54) (.57)
------------------------------------------------------------
Net asset value, end of year ..................................... $12.72 $12.47 $12.21 $12.05 $11.31
============================================================
Total return b ................................................... 5.99% 6.45% 5.84% 11.55% (3.74)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $152,833 $129,608 $90,403 $62,212 $56,627
Ratios to average net assets:
Expenses ........................................................ 1.20% 1.15% 1.18% 1.18% 1.18%
Net investment income ........................................... 3.88% 4.20% 4.35% 4.67% 4.66%
Portfolio turnover rate .......................................... 9.41% 11.74% 8.48% 10.40% 13.29%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
</FN>
52 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
BONDS 97.5%
ALABAMA 4.7%
Alabama Drinking Water Finance Authority Revenue, Revolving Fund Loan, Series A,
AMBAC Insured, 5.25%, 8/15/21 .......................................................... $ 2,700,000 $ 2,945,133
Anniston Regional Medical Center Board Revenue, Series A, AMBAC Insured, 5.25%, 6/01/18 .. 5,000,000 5,484,650
Bessemer Governmental Utility Services Corp. Water Supply Revenue, MBIA Insured,
5.25%, 6/01/32 ......................................................................... 5,000,000 5,249,000
Daphne Utilities Board Water Gas and Sewer Revenue, Series B, AMBAC Insured,
5.50%, 6/01/30 ......................................................................... 1,670,000 1,850,393
East Alabama Health Care Authority Health Care Facilities Revenue, Tax Anticipation Bond,
Series A, MBIA Insured, 5.25%, 9/01/28 ................................................. 7,000,000 7,306,740
Helena Utilities Board Water and Sewer Revenue, MBIA Insured, 5.25%,
4/01/27 ............................................................................... 3,260,000 3,490,612
4/01/33 ............................................................................... 4,890,000 5,224,574
Jefferson County Sewer Revenue,
Capital Improvement, wts., Series A, FGIC Insured, Pre-Refunded, 5.125%, 2/01/29 ...... 22,050,000 25,101,720
Series D, FGIC Insured, Pre-Refunded, 5.00%, 2/01/32 .................................. 14,690,000 16,930,078
wts., Series D, FGIC Insured, Pre-Refunded, 5.75%, 2/01/22 ............................ 5,000,000 5,641,700
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson Hospital and Clinic,
Refunding, AMBAC Insured, 6.00%, 3/01/26 ............................................... 4,000,000 4,380,720
Muscle Shoals GO, wts., MBIA Insured, 5.50%, 8/01/30 ..................................... 2,000,000 2,220,780
University of Alabama University Revenues, FGIC Insured, 5.25%, 10/01/27 ................. 5,975,000 6,338,579
---------------
92,164,679
---------------
ALASKA .7%
Alaska Energy Authority Power Revenue, Bradley Lake Project, MBIA Insured, 6.25%,
7/01/21 ................................................................................ 5,000 5,016
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured, 5.20%, 7/01/17 ........ 3,000,000 3,238,050
Alaska Industrial Development and Export Authority Revenue, Revolving Fund, Refunding,
Series A, MBIA Insured, 6.125%, 4/01/27 ................................................ 5,000,000 5,596,050
Alaska State HFC Revenue, Refunding, Series A, MBIA Insured,
6.00%, 6/01/27 ........................................................................ 5,000,000 5,246,150
5.875%, 12/01/30 ...................................................................... 215,000 221,556
---------------
14,306,822
---------------
ARIZONA 2.6%
Arizona State Municipal Financing Program COP, Series 1986-20, MBIA Insured,
ETM, 7.70%, 8/01/10 .................................................................... 6,000,000 7,514,940
Cochise County USD No. 68, GO, Sierra Vista, Refunding, FGIC Insured, 7.50%, 7/01/10 ..... 500,000 643,760
Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Services, Refunding,
Series A, MBIA Insured, ETM, 7.00%, 12/01/16 ........................................... 300,000 397,443
Mesa IDAR, Discovery Health System, Series A, MBIA Insured,
5.75%, 1/01/25 ........................................................................ 18,000,000 20,123,100
5.625%, 1/01/29 ....................................................................... 12,655,000 13,946,063
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 ... 3,000,000 3,069,000
Tucson Water Revenue, Series 1994-A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 .......... 5,000,000 5,594,150
---------------
51,288,456
---------------
Annual Report | 53
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ARKANSAS 1.0%
Arkansas State Development Finance Authority Water Revenue, Refunding, Series A,
MBIA Insured, 6.50%, 7/01/10 ........................................................... $ 2,000,000 $ 2,426,300
Little Rock School District GO,
Refunding, Series B, FSA Insured, 5.50%, 2/01/33 ...................................... 3,970,000 4,328,571
Series C, FSA Insured, 5.25%, 2/01/33 ................................................. 7,790,000 8,242,443
Paragould Water and Electric Revenue, AMBAC Insured, 5.65%, 12/01/25 ..................... 1,000,000 1,130,030
University of Arkansas University Revenues, Various Facility, Fayetteville Campus,
FGIC Insured, 5.00%, 12/01/32 .......................................................... 4,000,000 4,169,440
---------------
20,296,784
---------------
CALIFORNIA 5.9%
California State GO,
AMBAC Insured, 5.00%, 2/01/33 ......................................................... 7,000,000 7,293,160
FSA Insured, 5.00%, 2/01/29 ........................................................... 7,000,000 7,309,540
Refunding, AMBAC Insured, 5.00%, 2/01/32 .............................................. 4,750,000 4,938,480
Refunding, MBIA Insured, 5.00%, 2/01/31 ............................................... 30,000,000 31,224,000
Refunding, MBIA Insured, 5.00%, 10/01/32 .............................................. 1,910,000 1,991,079
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ............. 15,000,000 20,855,550
Los Angeles County MTA Sales Tax Revenue, Refunding Proposition A First Tier Senior, Series B,
MBIA Insured, 4.50%, 7/01/21 ........................................................... 35,000,000 35,964,950
Oakland RDA Tax Allocation, Central District Redevelopment, Refunding, AMBAC Insured,
5.50%, 2/01/14 ......................................................................... 250,000 291,333
San Francisco BART, District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/20 ............. 1,035,000 1,103,186
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A,
MBIA Insured, 5.25%, 1/15/30 ........................................................... 4,000,000 4,221,040
---------------
115,192,318
---------------
COLORADO 2.8%
Broomfield COP, AMBAC Insured, 6.00%, 12/01/29 ........................................... 3,000,000 3,481,800
Centennial Water and Sanitation District Water and Sewer Revenue, Refunding, Series A,
FSA Insured, 5.125%, 12/01/17 .......................................................... 5,000,000 5,394,150
Colorado Health Facilities Authority Revenue, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.25%, 7/15/17 .................................................. 205,000 205,701
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Senior Series A,
MBIA Insured, 5.00%, 9/01/21 ........................................................... 5,000,000 5,267,000
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 .............. 2,455,000 2,689,526
Denver City and County Airport Revenue,
Series C, MBIA Insured, ETM, 6.125%, 11/15/25 ......................................... 8,000,000 8,831,236
Series E, MBIA Insured, 5.50%, 11/15/25 ............................................... 5,000,000 5,418,750
Garfield, Pitkin and Eagle Counties Reorganized School District No. 1 GO, MBIA Insured,
Pre-Refunded, 6.60%, 12/15/14 .......................................................... 3,600,000 3,693,780
Morgan County PCR, first mortgage, Public Service Co., Refunding, Series A,
MBIA Insured, 5.50%, 6/01/12 ........................................................... 1,000,000 1,011,060
Mountain College Residence Hall Authority Revenue, MBIA Insured,
5.625%, 6/01/12 ....................................................................... 1,900,000 2,086,656
5.75%, 6/01/23 ........................................................................ 3,000,000 3,259,740
54 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
COLORADO (CONT.)
University of Colorado Hospital Authority Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 ....................................................................... $ 5,425,000 $ 5,891,008
5.25%, 11/15/22 ....................................................................... 7,800,000 8,398,182
---------------
55,628,589
---------------
CONNECTICUT .3%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 .............................. 335,000 336,129
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 ................................ 2,450,000 2,515,366
Trinity College, Series D, FGIC Insured, Pre-Refunded, 6.125%, 7/01/24 ................ 2,000,000 2,073,980
---------------
4,925,475
---------------
DELAWARE .2%
Delaware State Health Facilities Authority Revenue, Medical Center, MBIA Insured,
Pre-Refunded, 7.00%, 10/01/15 .......................................................... 2,900,000 2,913,746
---------------
FLORIDA 7.6%
Celebration CDD, Special Assessment, Series B, MBIA Insured, 5.50%, 5/01/19 .............. 265,000 294,889
Clearwater Water and Sewer Revenue, FGIC Insured, 5.00%,
12/01/28 .............................................................................. 11,050,000 11,599,848
12/01/32 .............................................................................. 13,665,000 14,304,385
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 .......... 200,000 251,740
Florida State Board of Education Capital Outlay GO, Public Education,
Refunding, Series E, FGIC Insured, 5.00%, 6/01/24 ..................................... 5,000,000 5,276,000
Series B, FGIC Insured, 5.00%, 6/01/23 ................................................ 5,395,000 5,735,263
Florida State Board of Education GO,
Public Education, Refunding, Series B, MBIA Insured, 4.75%, 6/01/22 ................... 1,000,000 1,040,160
Series C, MBIA Insured, 5.00%, 6/01/27 ................................................ 4,245,000 4,489,342
Greater Orlando Aviation Authority Orlando Airport Facilities Revenue, Series B, FGIC Insured,
5.25%, 10/01/28 ........................................................................ 2,500,000 2,633,275
Hillsborough County IDAR,
PCR, Tampa Electric Co. Project, Refunding, MBIA Insured, 6.25%, 12/01/34 ............. 1,000,000 1,057,110
University Community Hospital, MBIA Insured, 5.80%, 8/15/24 ........................... 3,000,000 3,114,420
Jacksonville Sales Tax Revenue, AMBAC Insured, 5.00%, 10/01/30 ........................... 5,000,000 5,214,300
Jacksonville Transportation Revenue, MBIA Insured, 5.25%, 10/01/29 ....................... 11,000,000 11,691,240
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding,
MBIA Insured, 6.05%,
11/01/15 .............................................................................. 1,000,000 1,111,690
11/01/20 .............................................................................. 1,000,000 1,101,800
Lee County Solid Waste System Revenue, MBIA Insured, 5.375%, 10/01/15 .................... 2,000,000 2,139,800
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ............. 5,000,000 5,657,050
Opa-Locka Capital Improvement Revenue, FGIC Insured, 6.125%, 1/01/24 ..................... 1,000,000 1,025,780
Orange County Health Facilities Authority Revenue, MBIA Insured, 6.00%, 11/01/24 ......... 260,000 263,741
Orange County School Board COP, Series A, MBIA Insured, 5.00%, 8/01/27 ................... 10,000,000 10,453,400
Orange County Tourist Development Tax Revenue, AMBAC Insured,
5.25%, 10/01/27 ....................................................................... 10,000,000 10,684,400
5.50%, 10/01/31 ....................................................................... 1,000,000 1,108,530
Annual Report | 55
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Orlando and Orange County Expressway Authority Expressway Revenue,
junior lien, FGIC Insured, 6.50%, 7/01/10 ............................................. $ 100,000 $ 122,746
junior lien, FGIC Insured, 6.50%, 7/01/12 ............................................. 225,000 281,509
Series B, AMBAC Insured, 5.00%, 7/01/35 ............................................... 9,000,000 9,465,210
Osceola County School Board COP, Series A, AMBAC Insured, 5.25%, 6/01/27 ................. 13,000,000 13,943,280
Pasco County Guaranteed Entitlement Revenue, Refunding, FSA Insured, 5.00%, 12/01/33 ..... 2,185,000 2,296,675
Pinellas County Health Facilities Authority Revenue, Baycare Health System,
FSA Insured, 5.00%, 11/15/30 ........................................................... 4,000,000 4,160,360
Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 9/01/15 .......... 895,000 911,307
Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/24 ...................... 5,000,000 5,194,100
Reedy Creek ID, Utilities Revenue, Refunding, Series 1, MBIA Insured,
Pre-Refunded, 5.00%, 10/01/19 .......................................................... 3,500,000 3,546,235
Sumter County School District Revenue, Multi-District Loan Program,
FSA Insured, 7.15%, 11/01/15 ........................................................... 245,000 329,724
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 .............. 2,000,000 2,211,720
Tampa Bay Water Utility System Revenue, FGIC Insured, Pre-Refunded, 5.75%, 10/01/29 ...... 2,000,000 2,416,980
Volusia County Educational Facility Authority Revenue, Embry Riddle Aeronautical
University, Refunding, Series B, AMBAC Insured, 5.25%, 10/15/19 ........................ 3,500,000 3,840,410
---------------
148,968,419
---------------
GEORGIA 6.9%
Athens Housing Authority Student Housing Lease Revenue, University of Georgia, East Campus,
Refunding, AMBAC Insured, 5.00%, 12/01/33 .............................................. 6,000,000 6,262,980
Atlanta Airport Facilities Revenue, Refunding, Series A, FGIC Insured,
Pre-Refunded, 5.50%, 1/01/26 ........................................................... 13,750,000 16,133,425
Atlanta GO, Refunding, FGIC Insured, 5.00%, 12/01/20 ..................................... 3,775,000 4,010,182
Atlanta Water and Wastewater Revenue, Series A, FGIC Insured,
5.00%, 11/01/29 ....................................................................... 4,750,000 4,922,425
Pre-Refunded, 5.00%, 11/01/29 ......................................................... 5,250,000 6,004,687
Brunswick Water and Sewer Revenue, Refunding and Improvement, MBIA Insured,
6.10%, 10/01/14 ........................................................................ 1,535,000 1,922,342
Burke County Development Authority PCR, Georgia Power Co. Plant Vogtle, Refunding,
2nd Series, AMBAC Insured, 5.25%, 5/01/34 .............................................. 5,000,000 5,111,700
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 8/01/27 .......................................................... 1,500,000 1,557,390
MBIA Insured, 6.90%, 8/01/18 .......................................................... 15,000 15,048
Columbus Building Authority Lease Revenue, Series A, FGIC Insured, 5.00%, 1/01/31 ........ 3,500,000 3,682,210
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A,
MBIA Insured, 6.50%, 7/01/24 ........................................................... 985,000 987,472
Fulton County Development Authority Revenue, Georgia Tech Athletic Association,
Refunding, AMBAC Insured, 5.125%, 10/01/32 ............................................. 8,000,000 8,396,000
Georgia Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional Healthcare Systems, MBIA Insured, 5.50%, 8/01/19 .............................. 15,000,000 16,794,450
Henry County Water and Sewer Authority Revenue, FGIC Insured, 5.625%, 2/01/30 ............ 3,500,000 3,855,390
Macon-Bibb County Urban Development Authority Revenue, MFH, Refunding, Series A,
MBIA Insured, 5.55%, 1/01/24 ........................................................... 1,590,000 1,640,896
56 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
GEORGIA (CONT.)
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Second Indenture Series,
MBIA Insured, 5.00%,
7/01/27 ............................................................................... $13,470,000 $ 14,095,277
7/01/28 ............................................................................... 14,175,000 14,811,883
7/01/32 ............................................................................... 8,575,000 8,953,844
Rockdale County Water and Sewer Authority Revenue, Refunding, Series A, MBIA Insured,
5.375%, 7/01/29 ........................................................................ 6,350,000 6,788,404
South Fulton Municipal Regional Water & Sewer Authority, Water Revenue, MBIA Insured,
5.00%, 1/01/33 ......................................................................... 8,000,000 8,353,440
---------------
134,299,445
---------------
HAWAII .9%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 ............................................................................... 1,000,000 1,180,580
5/01/13 ............................................................................... 1,000,000 1,187,470
Hawaii State Department of Budget and Finance Special Purpose Mortgage Revenue, St. Francis
Medical Centers, Refunding, FSA Insured, 6.50%, 7/01/22 ................................ 4,000,000 4,053,440
Hawaii State Department of Budget and Finance Special Purpose Revenue, Hawaiian Electric Co.
Project, Series B, MBIA Insured, 5.875%, 12/01/26 ...................................... 2,000,000 2,173,280
Honolulu City and County GO, Series C, FGIC Insured, 5.00%, 7/01/20 ...................... 6,250,000 6,678,188
Kauai County GO, Series A, FGIC Insured, Pre-Refunded, 6.125%, 8/01/23 ................... 1,755,000 2,135,466
---------------
17,408,424
---------------
IDAHO .1%
Boise State University Revenues, Student Fee, MBIA Insured, Pre-Refunded, 6.50%, 4/01/19 . 1,000,000 1,014,370
---------------
ILLINOIS 1.3%
Chicago Board of Education GO, Chicago School Reform, Series A, AMBAC Insured,
5.25%, 12/01/30 ........................................................................ 2,000,000 2,094,620
Chicago Board of Education Lease COP, Refunding, Series A, MBIA Insured, 6.25%, 1/01/09 .. 320,000 376,470
Cook County Community College District No. 508 COP, FGIC Insured, 8.75%, 1/01/05 ......... 5,000,000 5,314,200
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 ......... 2,730,000 2,739,282
Michael Reese Hospital, Series A, FSA Insured, ETM, 7.60%, 2/15/05 .................... 850,000 903,074
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%, 11/15/28 ... 5,000,000 5,149,850
Series 1990, FSA Insured, 7.75%, 8/15/10 .............................................. 2,178,000 2,185,797
Series 1990, FSA Insured, ETM, 7.75%, 8/15/10 ......................................... 50,000 65,721
Macon County and Decatur COP, Decatur Public Building Commission, FGIC Insured,
6.50%, 1/01/06 ......................................................................... 300,000 328,482
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 4,398,141
Onterie Center HFC, Mortgage Revenue, Refunding, MBIA Insured, 7.05%, 7/01/27 ............ 2,000,000 2,035,000
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%, 11/01/20 ...... 300,000 397,323
---------------
25,987,960
---------------
IOWA .1%
Greater Iowa Housing Assistance Corp. Mortgage Revenue, Logan Park Project, Refunding,
Series B, MBIA Insured, 6.50%, 1/01/24 ................................................. 2,055,000 2,060,158
---------------
Annual Report | 57
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
KANSAS .3%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding, MBIA Insured, 7.00%,
6/01/31 ................................................................................ $ 3,350,000 $ 3,534,250
Cowley and Shawnee Counties SFMR, GNMA Secured, 7.35%, 12/01/11 .......................... 240,000 242,014
Kansas State Development Finance Authority Health Facility Revenue, MBIA Insured,
5.80%, 11/15/21 ........................................................................ 1,330,000 1,458,837
---------------
5,235,101
---------------
KENTUCKY .6%
Jefferson County Capital Projects Corp. Revenue, Lease, MBIA Insured,
5.375%, 6/01/22 ....................................................................... 2,000,000 2,157,400
5.50%, 6/01/28 ........................................................................ 750,000 819,180
Kenton County Water District No. 1 Waterworks Revenue, Series B, FGIC Insured, Pre-Refunded,
5.70%, 2/01/20 ......................................................................... 1,250,000 1,357,125
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drain System Revenue,
Series A,
AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 ........................................... 2,000,000 2,121,180
MBIA Insured, 5.50%, 5/15/34 .......................................................... 5,000,000 5,553,950
---------------
12,008,835
---------------
LOUISIANA .8%
Louisiana Local Government Environmental Facilities CDA Revenue, Parking Facilities Corp.
Garage Project, Series A, AMBAC Insured, 5.375%, 10/01/31 .............................. 5,485,000 5,884,692
Louisiana State Gas and Fuels Tax Revenue, Series A, AMBAC Insured, 5.00%, 6/01/27 ....... 10,000,000 10,375,400
---------------
16,260,092
---------------
MAINE .2%
Maine State Health and Higher Educational Facilities Authority Revenue,
Series B, FSA Insured, Pre-Refunded, 7.00%, 7/01/24 ................................... 2,000,000 2,079,680
Series C, FSA Insured, 6.20%, 7/01/25 ................................................. 2,015,000 2,177,087
---------------
4,256,767
---------------
MARYLAND 1.0%
Baltimore Project Revenue, Wastewater Project, Refunding, FGIC Insured, 5.125%, 7/01/42 .. 11,000,000 11,597,410
Baltimore Revenue, Wastewater Project, Series A, FSA Insured, Pre-Refunded, 5.75%,
7/01/30 ................................................................................ 5,880,000 7,010,783
Maryland State CDA, Department of Housing and Community Development Revenue,
Infrastructure Financing, Series A, AMBAC Insured, 6.625%, 6/01/12 ..................... 230,000 233,174
Maryland State Health and Higher Educational Facilities Authority Revenue, University of
Maryland Medical System, Series B, FGIC Insured, 7.00%, 7/01/22 ........................ 200,000 264,160
---------------
19,105,527
---------------
MASSACHUSETTS 3.7%
Central Berkshire Religious School District GO, Series B, FSA Insured, 5.125%, 3/01/18 ... 1,125,000 1,211,996
Massachusetts State GO, MBIA Insured, 5.00%, 8/01/27 ..................................... 4,390,000 4,548,347
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ....................... 10,000,000 11,025,600
Caregroup Issue, Series A, MBIA Insured, 5.00%, 7/01/25 ............................... 4,250,000 4,379,795
Caregroup Issue, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/25 ................. 750,000 836,077
Central New England Health, Series B, AMBAC Insured, 5.20%, 8/01/28 ................... 5,000,000 5,197,150
58 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MASSACHUSETTS (CONT.)
Massachusetts State Health and Educational Facilities Authority Revenue, (cont.)
Harvard Pilgrim Health, Series A, FSA Insured, 5.00%, 7/01/18 ......................... $ 3,000,000 $ 3,197,460
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .................. 1,000,000 1,022,750
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ................... 9,700,000 10,280,254
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 ............................. 8,000,000 8,320,240
Massachusetts State Industrial Finance Agency Revenue, Suffolk University, AMBAC Insured,
5.25%, 7/01/17 ......................................................................... 3,000,000 3,316,980
Massachusetts State Port Authority Revenue, Special Facilities, Bosfuel Project,
MBIA Insured, 5.625%,
7/01/20 ............................................................................... 1,590,000 1,709,950
7/01/21 ............................................................................... 1,560,000 1,675,144
7/01/23 ............................................................................... 2,155,000 2,300,053
7/01/24 ............................................................................... 2,910,000 3,105,872
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, sub. lien,
Refunding, Series B, MBIA Insured, 5.125%, 1/01/37 ..................................... 2,100,000 2,160,837
Massachusetts State Water Resource Authority Revenue, Refunding, Series J, FSA Insured,
5.00%, 8/01/32 ......................................................................... 8,500,000 8,873,235
---------------
73,161,740
---------------
MICHIGAN 9.0%
Central Michigan University Revenue, Series A, AMBAC Insured, 5.05%, 10/01/32 ............ 8,650,000 9,112,948
Chippewa Valley Schools GO, Refunding, AMBAC Insured, 5.00%, 5/01/27 ..................... 1,000,000 1,027,890
Detroit City School District GO, Series A, FSA Insured, 5.125%, 5/01/31 .................. 6,500,000 6,842,550
Detroit Public Improvements GO, Series A-1, MBIA Insured, 5.00%, 4/01/21 ................. 12,390,000 13,184,323
Detroit Sewage Disposal Revenue,
Refunding, senior lien, Series A, FGIC Insured, 5.125%, 7/01/31 ....................... 6,000,000 6,288,720
Series A, MBIA Insured, 5.00%, 7/01/25 ................................................ 4,395,000 4,441,411
Detroit Water Supply System Revenue,
senior lien, Series A, FGIC Insured, 5.25%, 7/01/33 ................................... 9,815,000 10,420,487
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ..................... 10,185,000 11,908,200
senior lien, Series A, MBIA Insured, 5.00%, 7/01/34 ................................... 4,500,000 4,700,970
Series B, MBIA Insured, 5.00%, 7/01/34 ................................................ 5,450,000 5,693,397
Ecorse Public School District GO, FGIC Insured, 5.50%, 5/01/27 ........................... 7,250,000 7,822,533
Jackson County Hospital Finance Authority Revenue, W.A. Foote Memorial Hospital, Series A,
AMBAC Insured, 5.25%, 6/01/17 .......................................................... 500,000 549,320
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Bronson Methodist Hospital,
Refunding and Improvement,
MBIA Insured, 5.875%, 5/15/26 ......................................................... 5,500,000 6,159,780
Series A, MBIA Insured, Pre-Refunded, 6.375%, 5/15/17 ................................. 495,000 509,018
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital, Refunding,
Series D, FSA Insured, 6.10%, 4/01/19 .................................................. 5,000,000 5,517,550
Michigan Municipal Bond Authority Revenue, Clean Water Revolving, MBIA Insured,
5.00%, 10/01/23 ........................................................................ 5,095,000 5,370,589
Michigan State Building Authority Revenue, Facilities Program, Refunding, Series II,
MBIA Insured, 5.00%, 10/15/29 .......................................................... 14,000,000 14,730,800
Annual Report | 59
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MICHIGAN (CONT.)
Michigan State Hospital Finance Authority Revenue,
Hospital Botsford Obligation, Refunding, Series A, MBIA Insured, 5.25%, 2/15/22 ....... $ 2,000,000 $ 2,124,680
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ............ 10,000,000 10,342,700
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 6.00%, 5/15/13 .......... 2,500,000 2,547,375
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co. Pollution
Project, Refunding, Series BB, AMBAC Insured, 7.00%, 5/01/21 ........................... 250,000 334,608
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 10,605,500
Michigan State Trunk Line Revenue, Series A, FSA Insured, 5.25%, 11/01/30 ................ 20,000,000 21,308,400
Royal Oak Hospital Finance Authority Revenue, William Beaumont Hospital, Series M,
MBIA Insured, 5.25%, 11/15/31 .......................................................... 4,000,000 4,233,160
Saginaw Valley State University Revenue, Refunding, AMBAC Insured, 5.30%, 7/01/28 ........ 3,400,000 3,607,366
Yale Public Schools District GO, FSA Insured, 5.375%, 5/01/27 ............................ 3,845,000 4,050,515
Zeeland Public Schools GO, Refunding, MBIA Insured, 5.25%, 5/01/24 ....................... 3,180,000 3,346,950
---------------
176,781,740
---------------
MINNESOTA 3.9%
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 ...... 2,000,000 2,084,320
Medford ISD No. 763, GO, Series A, FSA Insured, 5.125%, 2/01/26 .......................... 2,475,000 2,618,599
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue, Series C,
FGIC Insured, 5.25%, 1/01/26 ........................................................... 8,000,000 8,479,040
Minneapolis and St. Paul Metropolitan Apartments Community Apartment Revenue, Series C,
FGIC Insured, 5.25%, 1/01/32 ........................................................... 4,500,000 4,755,780
Minneapolis Special School District No. 001 COP, Refunding, Series B, FGIC Insured,
4.625%, 2/01/17 ........................................................................ 1,635,000 1,735,651
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 .................. 12,280,000 13,650,694
Minnesota State HFAR, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 .. 1,415,000 1,457,662
Robbinsdale ISD No. 281, GO, MBIA Insured, 5.00%, 2/01/22 ................................ 7,340,000 7,714,193
Sauk Rapids ISD No. 47, GO, Series A, MBIA Insured, 5.75%, 2/01/26 ....................... 11,850,000 13,434,938
South Washington County ISD No. 833, GO, Series B, FSA Insured, 5.00%,
2/01/22 ............................................................................... 10,970,000 11,669,008
2/01/23 ............................................................................... 6,000,000 6,349,020
Woodbury COP, Series A, AMBAC Insured, 5.35%, 2/01/21 .................................... 2,915,000 3,173,007
---------------
77,121,912
---------------
MISSISSIPPI
Harrison County Wastewater Management District Revenue, Wastewater Treatment Facilities,
Refunding, Series A, FGIC Insured, 8.50%, 2/01/13 ...................................... 200,000 278,776
---------------
MISSOURI .3%
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 ......................... 35,000 35,083
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Series A, AMBAC Insured, Pre-Refunded, 5.95%, 2/15/16 ............ 2,000,000 2,220,380
Refunding and Improvement, FGIC Insured, Pre-Refunded, 6.25%, 2/15/12 ................. 2,025,000 2,120,114
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 .................... 1,485,000 1,490,806
---------------
5,866,383
---------------
60 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MONTANA .6%
Montana State Board Workers Compensation Investment Program Revenue, MBIA Insured,
ETM, 6.875%, 6/01/20 ................................................................... $ 8,500,000 $ 9,852,605
Montana State University Revenue, Higher Education Facilities, Acquisition and Improvement,
Series C, MBIA Insured, Pre-Refunded, 6.00%, 11/15/14 .................................. 1,000,000 1,035,490
---------------
10,888,095
---------------
NEBRASKA .2%
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1,
MBIA Insured, ETM, 6.70%, 6/01/22 ...................................................... 2,500,000 3,212,700
Nebraska Educational Finance Authority Revenue, Creighton University Project, AMBAC Insured,
5.95%, 1/01/11 ......................................................................... 1,000,000 1,088,880
---------------
4,301,580
---------------
NEVADA .9%
Carson City Hospital Revenue, Series B, AMBAC Insured, Pre-Refunded, 5.40%, 3/01/17 ...... 1,000,000 1,121,460
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 ................................. 250,000 321,837
Clark County School District GO, Series A, MBIA Insured, 7.00%, 6/01/10 .................. 4,000,000 4,976,880
Director of State Department of Business and Industry Revenue, Las Vegas Monorail Project,
First Tier, AMBAC Insured, 5.625%, 1/01/34 ............................................. 5,000,000 5,536,350
Truckee Meadows Water Authority Revenue, Series A, FSA Insured, 5.125%, 7/01/30 .......... 5,000,000 5,243,800
---------------
17,200,327
---------------
NEW HAMPSHIRE .4%
New Hampshire Higher Education and Health Facilities Authority Revenue, Mary Hitchcock
Memorial Hospital, FGIC Insured, Pre-Refunded, 5.75%, 8/15/23 .......................... 6,750,000 7,031,070
---------------
NEW JERSEY 2.0%
Essex County Improvement Authority Revenue,
Garden State Cancer Center Project, AMBAC Insured, 6.00%, 12/01/20 .................... 2,525,000 2,766,743
Jail and Youth House Projects, AMBAC Insured, Pre-Refunded, 7.00%, 12/01/24 ........... 3,000,000 3,195,030
Middlesex County COP, MBIA Insured, 5.30%, 6/15/29 ....................................... 3,575,000 3,784,388
Mount Laurel Township Municipal Utility Authority, Utility System Revenue, Series A,
MBIA Insured, Pre-Refunded, 6.00%, 7/01/15 ............................................. 1,215,000 1,235,218
New Jersey EDA Revenue,
Municipal Rehabilitation, Series A, AMBAC Insured, 5.00%, 4/01/28 ..................... 5,000,000 5,268,300
School Facilities Construction, Series C, MBIA Insured, 4.75%, 6/15/25 ................ 22,000,000 22,543,620
New Jersey State Turnpike Authority Turnpike Revenue,
Refunding, Series C, AMBAC Insured, 6.50%, 1/01/16 .................................... 70,000 88,121
Series C, AMBAC Insured, Pre-Refunded, 6.50%, 1/01/16 ................................. 230,000 288,480
---------------
39,169,900
---------------
NEW MEXICO .1%
Gallup PCR, Plains Electric Generation, Refunding, MBIA Insured, 6.65%, 8/15/17 .......... 2,000,000 2,026,120
---------------
Annual Report | 61
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK 7.3%
Central Square GO, Central School District, FGIC Insured, ETM, 6.50%, 6/15/10 ............ $ 900,000 $ 1,113,993
Dutchess County IDA, Civic Facilities Revenue, Bard College Project, AMBAC Insured,
5.375%, 6/01/27 ........................................................................ 3,945,000 4,225,134
MTA Revenue, Series B, MBIA Insured, 5.00%, 11/15/28 ..................................... 20,000,000 21,115,800
MTA Service Contract Revenue, Series B, MBIA Insured, 5.00%, 1/01/31 ..................... 7,000,000 7,329,560
Nassau Health Care Corp. Health System Revenue, Nassau County Guaranteed, FSA Insured,
5.75%, 8/01/29 ......................................................................... 5,000,000 5,617,050
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Refunding, Series B, FGIC Insured, 5.25%, 6/15/29 ..................................... 10,405,000 10,826,923
Series B, AMBAC Insured, 5.25%, 6/15/29 ............................................... 5,000,000 5,202,750
New York City Transitional Finance Authority Revenue, Future Tax Secured, Series A,
FGIC Insured, 5.125%, 8/01/33 .......................................................... 14,590,000 15,478,239
New York City Trust Cultural Resources Revenue, New York Botanical Garden, MBIA Insured,
5.80%, 7/01/26 ......................................................................... 2,000,000 2,210,900
New York State Dormitory Authority Revenue,
Mental Health Services Facilities Improvement, Series B, MBIA Insured, 5.25%, 8/15/31 . 9,065,000 9,596,934
Mental Health Services Facilities Improvement, Series B, MBIA Insured, Pre-Refunded,
5.25%, 8/15/31 ....................................................................... 5,935,000 6,954,455
Pace University, MBIA Insured, 5.70%, 7/01/22 ......................................... 7,500,000 8,464,125
Pace University, Refunding, MBIA Insured, 5.75%, 7/01/26 .............................. 2,500,000 2,808,125
St. John's University, MBIA Insured, 5.70%, 7/01/26 ................................... 15,000,000 16,447,800
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 ................................ 4,000,000 4,247,240
New York State Energy Research and Development Authority PCR, Rochester Gas and Electric
Project, Refunding, Series B, MBIA Insured, 6.50%, 5/15/32 ............................. 5,000,000 5,055,200
Niagara Frontier Transportation Authority Airport Revenue, Greater Buffalo International
Airport, Series A, AMBAC Insured, 6.25%, 4/01/24 ....................................... 9,000,000 9,211,590
Triborough Bridge and Tunnel Authority Revenues, Refunding, MBIA Insured, 5.00%,
11/15/32 ............................................................................... 5,000,000 5,258,900
Upper Mohawk Valley Regional Water Finance Authority Water Systems Revenue, Refunding,
Series A, FSA Insured, 5.125%, 10/01/26 ................................................ 1,495,000 1,549,792
---------------
142,714,510
---------------
NORTH CAROLINA .8%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ............................. 1,000,000 1,099,200
North Carolina Medical Care Commission Hospital Revenue, Rex Healthcare Project,
AMBAC Insured, 5.00%, 6/01/17 .......................................................... 5,000,000 5,358,850
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, MBIA Insured, ETM,
6.50%, 1/01/10 ......................................................................... 20,000 23,628
Raleigh Durham Airport Authority Airport Revenue, Series A, FGIC Insured, 5.00%,
11/01/25 .............................................................................. 5,000,000 5,242,000
11/01/31 .............................................................................. 4,000,000 4,160,040
---------------
15,883,718
---------------
62 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NORTH DAKOTA .3%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group, MBIA Insured,
5.625%, 8/15/27 ........................................................................ $ 5,390,000 $ 5,851,061
---------------
OHIO 6.3%
Akron Income Tax Revenue, Community Learning Centers, Series A, FGIC Insured,
5.00%, 12/01/33 ........................................................................ 5,000,000 5,271,850
Cleveland Airport System Revenue, Series A, FSA Insured,
5.125%, 1/01/27 ....................................................................... 4,000,000 4,107,720
5.00%, 1/01/31 ........................................................................ 15,405,000 15,907,357
Cleveland Waterworks Revenue, Refunding and Improvement, Series I, FSA Insured,
5.00%, 1/01/23 ......................................................................... 2,750,000 2,859,257
Columbus City School District GO, School Facilities Construction and Improvement,
FGIC Insured, 5.00%,
12/01/28 .............................................................................. 8,000,000 8,441,680
12/01/31 .............................................................................. 10,295,000 10,839,297
Elyria GO, FGIC Insured, 5.40%, 12/01/17 ................................................. 2,400,000 2,651,736
Hamilton County Sales Tax, Hamilton County Football, Project B, MBIA Insured,
5.00%, 12/01/27 ........................................................................ 3,250,000 3,369,502
Hamilton County Sewer System Revenue, Metropolitan Sewer District Improvement, Refunding,
Series A, MBIA Insured, 5.00%, 12/01/28 ................................................ 6,000,000 6,345,780
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.15%, 10/15/17 ............... 3,015,000 3,294,129
Licking Heights Local School District GO, School Facilities Construction and Improvements,
Series A, FGIC Insured, 5.625%, 12/01/28 ............................................... 3,465,000 3,881,632
Lucas County Hospital Revenue, Promedica Healthcare Obligation Group, Refunding,
AMBAC Insured, 5.375%, 11/15/29 ........................................................ 5,000,000 5,326,350
Medina City School District GO, FGIC Insured, 5.25%, 12/01/28 ............................ 7,500,000 7,948,800
Ohio State GO, Common Schools, FSA Insured, 5.00%, 9/15/21 ............................... 3,230,000 3,423,154
Ohio State Turnpike Commission Turnpike Revenue, Series A, MBIA Insured, Pre-Refunded,
5.50%, 2/15/26 ......................................................................... 12,000,000 13,206,240
Springfield City School District GO, FGIC Insured, 5.20%, 12/01/23 ....................... 3,860,000 4,206,203
Streetsboro City School District GO, School Improvement, MBIA Insured, 5.125%, 12/01/21 .. 3,700,000 3,984,863
Sugarcreek Local School District GO, Refunding, School Improvement, MBIA Insured,
5.00%, 12/01/31 ........................................................................ 8,000,000 8,441,440
Toledo City School District GO, School Facilities Improvement, Series B, FGIC Insured,
5.00%, 12/01/32 ........................................................................ 4,000,000 4,217,480
University of Cincinnati COP, University Center Project, MBIA Insured, 5.125%, 6/01/24 ... 2,950,000 3,061,687
West Holmes Local School District GO, MBIA Insured, 5.375%, 12/01/17 ..................... 3,100,000 3,419,920
---------------
124,206,077
---------------
OKLAHOMA .3%
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 ........................ 300,000 371,100
Okmulgee County Governmental Building Authority Sales Tax Revenue, first mortgage,
MBIA Insured, 6.20%, 3/01/20 ........................................................... 1,625,000 1,883,668
Tulsa Industrial Authority Revenue, Holland Hall School Project, FSA Insured, Pre-Refunded,
6.75%, 12/01/14 ........................................................................ 3,270,000 3,476,533
---------------
5,731,301
---------------
Annual Report | 63
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OREGON 1.9%
Chemeketa Community College District GO, FGIC Insured, Pre-Refunded, 5.95%, 6/01/16 ...... $ 3,000,000 $ 3,312,450
Clackamas Community College District Revenue, MBIA Insured, Pre-Refunded, 5.80%,
6/01/26 ................................................................................ 2,500,000 2,752,100
Josephine County School District No. 7 GO, FGIC Insured, 5.70%, 6/01/13 .................. 5,000,000 5,652,250
Northern Wasco County Peoples Utilities District Electric Revenue, FGIC Insured,
5.625%, 12/01/22 ....................................................................... 1,000,000 1,080,480
Ontario Catholic Health Revenue, Holy Rosary Medical Center, MBIA Insured, 5.50%,
11/15/12 ............................................................................... 700,000 759,836
Oregon Health Sciences University Revenue,
Series A, MBIA Insured, 5.00%, 7/01/32 ................................................ 8,000,000 8,401,280
Series B, MBIA Insured, 5.25%, 7/01/15 ................................................ 1,500,000 1,644,375
Oregon State Department of Administrative Services COP, Series A,
AMBAC Insured, Pre-Refunded, 5.80%, 5/01/24 ........................................... 5,000,000 5,698,900
MBIA Insured, Pre-Refunded, 5.70%, 5/01/17 ............................................ 1,000,000 1,104,760
Port of Portland International Airport Revenue, Portland International Airport, Series 11,
FGIC Insured, 5.625%, 7/01/26 .......................................................... 1,000,000 1,062,720
Washington County Unified Sewer Agency Revenue, senior lien,
FGIC Insured, 5.50%, 10/01/16 ......................................................... 1,845,000 2,044,186
Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ............................... 1,000,000 1,030,030
Western Lane Hospital District Hospital Facilities Authority Revenue, Sisters of St. Joseph
of Peace Health and Hospital Services, Refunding, MBIA Insured, 5.875%, 8/01/12 ........ 3,000,000 3,114,450
---------------
37,657,817
---------------
PENNSYLVANIA 1.6%
Allegheny County Hospital Development Authority Revenue, Health System, Series A, MBIA
Insured, 6.50%, 11/15/30 ............................................................... 10,000,000 12,015,800
Beaver County GO, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 .................. 2,000,000 2,229,760
Pennsylvania Convention Center Authority Revenue, Series A, FGIC Insured, ETM,
6.00%, 9/01/19 ......................................................................... 500,000 626,890
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured,
6.10%, 6/15/25 ......................................................................... 4,000,000 4,295,280
Philadelphia Gas Works Revenue, 1998 General Ordinance, 4th Series, FSA Insured,
5.00%, 8/01/32 ......................................................................... 4,000,000 4,183,160
Philadelphia Water and Wastewater Revenue, Series A, FGIC Insured, 5.25%, 11/01/24 ....... 2,000,000 2,163,120
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset District
Sales Tax, AMBAC Insured, 5.25%, 2/01/31 ............................................... 6,000,000 6,316,200
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured, ETM,
7.25%, 9/01/14 ......................................................................... 90,000 113,613
---------------
31,943,823
---------------
RHODE ISLAND 1.0%
Kent County Water Authority General Revenue, Series A, MBIA Insured, 6.35%, 7/15/14 ...... 2,100,000 2,181,228
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 ..................................... 3,000,000 3,387,630
Rhode Island Clean Water Financing Agency Revenue, Cranston Wastewater Treatment System,
MBIA Insured, 5.80%, 9/01/22 ........................................................... 7,785,000 8,599,467
64 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
RHODE ISLAND (CONT.)
Rhode Island Port Authority and EDC Revenue, Shepard Building Project, Series B,
AMBAC Insured, Pre-Refunded, 6.75%, 6/01/25 ............................................ $ 2,000,000 $ 2,068,380
Rhode Island State Health and Educational Building Corp. Revenue,
Higher Educational Facilities, Roger Williams Facility, Connie Lee Insured, Pre-Refunded,
7.25%, 11/15/24 ....................................................................... 2,000,000 2,128,140
Hospital Financing, Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ............ 1,750,000 1,930,372
---------------
20,295,217
---------------
SOUTH CAROLINA .5%
Piedmont Municipal Power Agency Electric Revenue, Refunding, FGIC Insured, 6.25%,
1/01/21 ................................................................................ 200,000 250,212
Richland County Hospital Facilities Revenue, Community Provider, Pooled Loan Program,
Series A, FSA Insured, ETM, 7.125%, 7/01/17 ............................................ 3,000,000 3,847,020
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 5,337,150
Spartanburg Sanitation Sewer District Sewer System Revenue, MBIA Insured,
Pre-Refunded, 5.50%, 6/01/27 ........................................................... 500,000 566,830
---------------
10,001,212
---------------
SOUTH DAKOTA .8%
Brookings COP, AMBAC Insured, 5.10%, 12/01/18 ............................................ 5,000,000 5,376,700
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 ................................ 4,800,000 4,905,648
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 ........................ 1,245,000 1,285,027
South Dakota Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 ....................... 2,720,000 3,387,026
South Dakota State University Revenue, Housing and Auxiliary Facilities, Refunding, Series A,
MBIA Insured, 5.50%, 4/01/17 ........................................................... 20,000 20,066
---------------
14,974,467
---------------
TENNESSEE .6%
Johnson City Health and Educational Facilities Board Hospital Revenue, Series 2000 A,
MBIA Insured, Pre-Refunded, 5.125%, 7/01/25 ............................................ 2,780,000 2,969,179
Johnson City Health and Educational Revenue, Medical Center Hospital, Refunding and
Improvement, MBIA Insured, ETM, 5.25%, 7/01/28 ......................................... 8,500,000 9,047,400
---------------
12,016,579
---------------
TEXAS 10.4%
Austin Hotel Occupancy Tax Revenue, Refunding, sub. lien, AMBAC Insured,
5.625%, 11/15/21 ...................................................................... 2,355,000 2,645,065
5.80%, 11/15/29 ....................................................................... 13,750,000 15,544,925
Austin Water and Wastewater System Revenue, Refunding, Series B, FSA Insured,
5.125%, 5/15/27 ....................................................................... 11,125,000 11,645,316
5.25%, 5/15/31 ........................................................................ 5,000,000 5,291,100
Bell County Health Facilities Development Corporate Revenue, Hospital Cook Children's Medical,
Refunding, FSA Insured, 5.30%, 12/01/23 ................................................ 5,000,000 5,336,250
Coastal Bend Health Facilities Development Corp. Revenue, Series B, AMBAC Insured, ETM,
6.30%, 1/01/17 ......................................................................... 12,230,000 14,724,186
Annual Report | 65
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
Dallas-Fort Worth International Airport Revenue,
Joint Series A, FGIC Insured, 6.00%, 11/01/21 ......................................... $ 2,210,000 $ 2,463,774
Refunding and Improvement, Joint Series A, FGIC Insured, 5.625%, 11/01/21 ............. 12,000,000 13,019,520
Fort Bend County Levee ID No. 011, GO, AMBAC Insured, 6.00%,
9/01/21 ............................................................................... 1,395,000 1,490,655
9/01/22 ............................................................................... 1,495,000 1,597,512
9/01/23 ............................................................................... 1,610,000 1,720,398
Grand Prairie Health Facilities Revenue, Dallas/Fort Worth Medical Center Project, Refunding,
AMBAC Insured, 6.875%, 11/01/10 ........................................................ 2,700,000 2,826,279
Harris County Health Facilities Development Corp. Revenue, Christus Health, Refunding,
Series A, MBIA Insured, 5.375%, 7/01/29 ................................................ 22,000,000 23,257,080
Harris County Hospital District Mortgage Revenue, AMBAC Insured,
7.40%, 2/15/10 ........................................................................ 1,200,000 1,390,284
ETM, 7.40%, 2/15/10 ................................................................... 875,000 973,079
Harris County Houston Sports Authority Revenue, senior lien, Series G, MBIA Insured,
5.25%, 11/15/30 ........................................................................ 21,325,000 22,496,595
Houston Airport System Revenue, sub. lien, Series B, FSA Insured, 5.50%, 7/01/30 ......... 4,700,000 5,052,359
Houston Water and Sewer System Revenue, junior lien,
Series B, FGIC Insured, 5.75%, 12/01/30 ............................................... 10,000,000 11,353,500
Series C, FGIC Insured, 5.375%, 12/01/27 .............................................. 6,800,000 7,298,168
Matagorda County Navigation District No. 1 Revenue, Houston Industries Inc. Project, Refunding,
Series A, MBIA Insured, 5.25%, 11/01/29 ............................................... 3,185,000 3,306,126
Series B, MBIA Insured, 5.15%, 11/01/29 ............................................... 2,750,000 2,858,157
Palo Duro River Authority GO, Refunding, FSA Insured, 6.375%, 8/01/08 .................... 6,000,000 6,647,700
Pflugerville GO, FGIC Insured,
5.25%, 8/01/27 ........................................................................ 3,320,000 3,540,514
5.20%, 8/01/32 ........................................................................ 3,000,000 3,177,900
Portland Community Center Complex Development Corp. Sales Tax Revenue, Refunding,
AMBAC Insured, 5.45%, 2/15/25 .......................................................... 1,450,000 1,544,076
San Antonio Water Revenue,
MBIA Insured, Pre-Refunded, 6.50%, 5/15/10 ............................................ 180,000 182,025
Refunding and Improvement, MBIA Insured, 5.60%, 5/15/21 ............................... 3,250,000 3,542,695
San Marcos Waterworks and Sewer Systems Revenue, Series 1998, FSA Insured,
5.125%, 8/15/20 ........................................................................ 2,870,000 3,013,615
Smithville HDC, Mortgage Revenue, Smithville Retirement, Refunding, Series A, MBIA Insured,
6.40%, 1/01/22 ......................................................................... 945,000 982,762
Southeast HDC, Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 ...... 1,010,000 1,052,097
Tarrant County Health Facilities Development Corp. Health Systems Revenue, Harris Methodist
Health System, MBIA Insured, ETM, 6.00%, 9/01/24 ....................................... 3,250,000 3,966,658
Tarrant County Health Facilities Development Corp. Hospital Revenue, Fort Worth Osteopathic
Hospital, MBIA Insured, 5.125%, 5/15/21 ................................................ 2,905,000 3,065,879
66 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical Center Project,
Series B, FSA Insured, 5.50%, 11/01/17 ................................................ $ 1,000,000 $ 1,115,080
Series C, FSA Insured, 5.60%, 11/01/27 ................................................ 1,430,000 1,550,764
Series D, FSA Insured, 5.375%, 11/01/27 ............................................... 9,200,000 9,802,784
United ISD, GO, 5.125%, 8/15/26 .......................................................... 3,000,000 3,165,030
---------------
202,639,907
---------------
U.S. TERRITORIES
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 ............... 295,000 297,213
---------------
UTAH .7%
Intermountain Power Agency Power Supply Revenue, Refunding, Series B, MBIA Insured,
5.75%, 7/01/19 ......................................................................... 3,250,000 3,701,230
Provo Electric System Revenue, Refunding, Series A, AMBAC Insured, ETM,
10.375%, 9/15/15 ....................................................................... 40,000 58,220
Utah County Hospital Revenue, IHC Health Services Inc., MBIA Insured, ETM, 5.25%,
8/15/21 ............................................................................... 5,000,000 5,331,350
8/15/26 ............................................................................... 5,000,000 5,264,550
---------------
14,355,350
---------------
VERMONT .2%
Vermont HFAR, Home Mortgage Purchase, Series B, MBIA Insured, 7.60%, 12/01/24 ............ 3,950,000 3,953,674
---------------
VIRGINIA 1.2%
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured,
6.00%, 6/01/12 ......................................................................... 5,000,000 5,158,000
Danville IDA, Hospital Revenue, Danville Regional Medical Center, FGIC Insured, Pre-Refunded,
6.50%, 10/01/24 ........................................................................ 1,000,000 1,042,140
Middle River Regional Jail Authority Jail Facility Revenue, MBIA Insured, 5.00%, 5/15/28 . 3,510,000 3,710,351
Southwest Regional Jail Authority Revenue, MBIA Insured, 5.00%, 9/01/35 .................. 5,680,000 5,937,645
Spotsylvania County Water and Sewer System Revenue, MBIA Insured, 5.40%, 6/01/27 ......... 3,850,000 4,126,315
Winchester IDA, Educational Facilities Revenue, first mortgage, Shenandoah University Project,
MBIA Insured,
5.00%, 10/01/18 ....................................................................... 1,000,000 1,073,360
5.25%, 10/01/28 ....................................................................... 1,420,000 1,509,843
---------------
22,557,654
---------------
WASHINGTON 2.8%
Douglas County PUD No. 1, Electric Systems Revenue, MBIA Insured, 6.00%, 1/01/15 ......... 900,000 954,999
King County Sewer Revenue, MBIA Insured, Pre-Refunded, 6.125%, 1/01/33 ................... 3,000,000 3,186,420
Klickitat County PUD No. 1 Electric Revenue, FGIC Insured, Pre-Refunded,
5.65%, 10/01/15 ....................................................................... 1,000,000 1,081,120
5.75%, 10/01/27 ....................................................................... 1,000,000 1,082,680
Mason County GO, School District No. 402, Pioneer, MBIA Insured, Pre-Refunded,
6.60%, 12/01/11 ........................................................................ 1,040,000 1,083,867
Annual Report | 67
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WASHINGTON (CONT.)
Pierce County GO, School District No. 003 Puyallup, FGIC Insured, 5.70%, 12/01/15 ........ $ 1,000,000 $ 1,146,050
Port of Longview GO, MBIA Insured, 6.00%, 11/01/15 ....................................... 2,000,000 2,210,640
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 .............................. 2,000,000 2,210,620
Snohomish County PUD, No. 1, Electric Revenue, Generation System, FGIC Insured, ETM,
6.65%, 1/01/16 ......................................................................... 4,250,000 5,347,392
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 ...................................... 3,400,000 3,764,548
Thurston and Pierce Counties Community Schools GO, Series B, AMBAC Insured, Pre-Refunded,
6.65%, 12/01/09 ........................................................................ 1,305,000 1,360,528
Washington State GO, Various Purpose, Series C, FSA Insured, 5.25%, 1/01/26 .............. 6,000,000 6,377,580
Washington State Health Care Facilities Authority Revenue,
Providence Services, MBIA Insured, 5.50%, 12/01/26 .................................... 5,000,000 5,445,200
Swedish Health Services, Refunding, AMBAC Insured, 5.50%, 11/15/28 .................... 13,000,000 13,808,600
Washington State University Revenues, Housing and Dining System, MBIA Insured,
Pre-Refunded, 6.40%, 10/01/24 .......................................................... 6,130,000 6,384,763
---------------
55,445,007
---------------
WEST VIRGINIA .9%
Harrison County Community Solid Waste Disposal Revenue, Potomac Edison Co., Series C,
AMBAC Insured, 6.75%, 8/01/24 .......................................................... 11,560,000 12,029,914
West Virginia State GO, Series A, FGIC Insured, 5.00%, 11/01/21 .......................... 5,000,000 5,279,700
---------------
17,309,614
---------------
WISCONSIN .2%
Superior Limited Obligation Revenue, Midwest Energy Resources, Refunding, Series E,
FGIC Insured, 6.90%, 8/01/21 ........................................................... 3,000,000 4,056,090
---------------
WYOMING .6%
Natrona County Hospital Revenue, Wyoming Medical Center Projects, Refunding, AMBAC Insured,
Pre-Refunded, 6.00%, 9/15/24 ........................................................... 9,885,000 10,925,396
---------------
TOTAL BONDS .............................................................................. 1,909,965,297
---------------
ZERO COUPON BONDS 1.3%
Kentucky Economic Development Finance Authority Revenue, Norton Healthcare Inc., Series C,
MBIA Insured, zero cpn. to 10/01/05,
6.05% thereafter, 10/01/20 ............................................................ 12,760,000 13,310,849
6.15% thereafter, 10/01/26 ............................................................ 12,195,000 12,349,145
---------------
TOTAL ZERO COUPON BONDS .................................................................. 25,659,994
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,782,472,831) ........................................ 1,935,625,291
---------------
SHORT TERM INVESTMENTS .3%
GEORGIA .2%
a Atlanta Water and Wastewater Revenue, Series C, FSA Insured, Daily VRDN and Put,
.98%, 11/01/41 ......................................................................... 3,050,000 3,050,000
---------------
68 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
LOUISIANA
a Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc. Project,
First Stage, ACES, Refunding, Daily VRDN and Put, .98%, 9/01/17 ........................ $ 500,000 $ 500,000
---------------
NEW YORK .1%
a Long Island Power Authority Electric Systems Revenue, Sub Series 2, Daily VRDN and Put,
.98%, 5/01/33 .......................................................................... 200,000 200,000
a Port Authority of New York and New Jersey Special Obligation Revenue, Versatile Structure,
Series 2, Daily VRDN and Put, .97%, 5/01/19 ............................................ 1,100,000 1,100,000
---------------
1,300,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $4,850,000) ........................................... 4,850,000
---------------
TOTAL INVESTMENTS (COST $1,787,322,831) 99.1% ............................................ 1,940,475,291
OTHER ASSETS, LESS LIABILITIES .9% ....................................................... 17,789,888
---------------
NET ASSETS 100.0% ........................................................................ $1,958,265,179
===============
<FN>
See glossary of terms on page 110.
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.
</FN>
Annual Report | See notes to financial statements. | 69
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $11.91 $11.64 $11.54 $10.75 $11.71
-----------------------------------------------------------
Income from investment operations:
Net investment income a ............................. .52 .54 .55 .57 .58
Net realized and unrealized gains (losses) .......... .20 .27 .11 .79 (.96)
-----------------------------------------------------------
Total from investment operations ..................... .72 .81 .66 1.36 (.38)
-----------------------------------------------------------
Less distributions from net investment income ........ (.52) (.54) (.56) (.57) (.58)
-----------------------------------------------------------
Net asset value, end of year ......................... $12.11 $11.91 $11.64 $11.54 $10.75
===========================================================
Total return b ....................................... 6.16% 7.19% 5.87% 12.94% (3.34)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $432,467 $426,319 $382,300 $327,650 $306,531
Ratios to average net assets:
Expenses ............................................ .67% .67% .69% .70% .68%
Net investment income ............................... 4.36% 4.59% 4.79% 5.12% 5.16%
Portfolio turnover rate .............................. 10.99% 16.23% 6.31% 15.69% 25.75%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
70 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND (CONTINUED)
----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $11.98 $11.70 $11.61 $10.81 $11.76
----------------------------------------------------------
Income from investment operations:
Net investment income a ............................... .46 .48 .49 .51 .52
Net realized and unrealized gains (losses) ............ .20 .28 .09 .80 (.96)
----------------------------------------------------------
Total from investment operations ....................... .66 .76 .58 1.31 (.44)
----------------------------------------------------------
Less distributions from net investment income .......... (.45) (.48) (.49) (.51) (.51)
----------------------------------------------------------
Net asset value, end of year ........................... $12.19 $11.98 $11.70 $11.61 $10.81
==========================================================
Total return b ......................................... 5.62% 6.66% 5.16% 12.35% (3.78)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $48,268 $43,002 $32,354 $28,397 $27,253
Ratios to average net assets:
Expenses .............................................. 1.23% 1.21% 1.24% 1.25% 1.24%
Net investment income ................................. 3.80% 4.05% 4.24% 4.57% 4.60%
Portfolio turnover rate ................................ 10.99% 16.23% 6.31% 15.69% 25.75%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
</FN>
Annual Report | See notes to financial statements. | 71
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.5%
Attleboro GO, AMBAC Insured, Pre-Refunded, 6.00%,
7/01/11 ............................................................................... $ 1,045,000 $ 1,083,226
7/01/12 ............................................................................... 1,045,000 1,083,226
7/01/13 ............................................................................... 685,000 710,057
7/01/14 ............................................................................... 755,000 782,618
Boston Convention Center Act 1997, Special Obligation, Series A, AMBAC Insured,
5.00%, 5/01/27 ......................................................................... 3,970,000 4,139,916
Boston GO,
MBIA Insured, 5.00%, 2/01/21 .......................................................... 3,000,000 3,201,630
Series A, MBIA Insured, 5.00%, 2/01/22 ................................................ 2,940,000 3,115,077
Chelsea GO, State Qualified, Refunding, AMBAC Insured, 5.125%, 6/15/16 ................... 1,750,000 1,918,210
Dudley Charleston Regional School District GO, Series B, FGIC Insured, 5.25%, 5/01/19 .... 3,140,000 3,625,475
Foxborough Stadium Infrastructure Improvement Revenue, 5.75%, 6/01/25 .................... 4,000,000 4,559,440
Greater Lawrence Sanitary District GO, MBIA Insured, 5.625%, 6/15/20 ..................... 1,000,000 1,145,180
Holyoke Gas and Electric Department Revenue, Series A, MBIA Insured, 5.00%, 12/01/26 ..... 9,805,000 10,263,776
Hudson GO, MBIA Insured, Pre-Refunded, 6.00%,
5/15/13 ............................................................................... 250,000 257,555
5/15/14 ............................................................................... 240,000 247,253
Kingston GO, FGIC Insured, 5.50%, 11/15/19 ............................................... 2,055,000 2,339,576
Lawrence GO, AMBAC Insured, 5.00%, 2/01/21 ............................................... 1,000,000 1,063,550
Lowell GO,
FGIC Insured, 5.85%, 2/15/20 .......................................................... 1,595,000 1,854,347
State Qualified, AMBAC Insured, 5.00%, 2/01/21 ........................................ 1,330,000 1,432,862
State Qualified, AMBAC Insured, 5.00%, 2/01/22 ........................................ 1,405,000 1,498,545
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07 ....................................................................... 210,000 251,647
7.30%, 11/01/08 ....................................................................... 210,000 258,764
7.40%, 11/01/09 ....................................................................... 210,000 266,026
Lynn Water and Sewer Commission General Revenue, Series A, FSA Insured, 5.125%,
12/01/17 ............................................................................... 3,000,000 3,270,990
Mansfield GO, Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17 ...................... 1,685,000 1,824,215
Marthas Vineyard Land Bank Revenue, AMBAC Insured,
4.875%, 5/01/22 ....................................................................... 2,000,000 2,107,900
5.00%, 5/01/32 ........................................................................ 2,000,000 2,086,500
Massachusetts Bay Transportation Authority COP, MBIA Insured, 7.75%, 1/15/06 ............. 1,015,000 1,099,722
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series C, FGIC Insured, 5.25%, 3/01/15 ................................................ 2,000,000 2,307,260
Series D, MBIA Insured, 5.00%, 3/01/27 ................................................ 5,000,000 5,134,250
Massachusetts Bay Transportation Authority Sales Tax Revenue, Refunding, Senior Series A,
FGIC Insured, 5.00%, 7/01/27 ........................................................... 5,000,000 5,217,600
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured, 7.25%,
1/01/09 ................................................................................ 365,000 368,887
Massachusetts State College Building Authority Project Revenue,
Capital Assurance, Refunding, Series A, XLCA Insured, 5.00%, 5/01/43 .................. 7,645,000 7,934,745
Refunding, Series B, XLCA Insured, 5.50%, 5/01/39 ..................................... 5,000,000 5,770,550
Series 1, MBIA Insured, 5.375%, 5/01/23 ............................................... 5,000,000 5,525,650
Series A, MBIA Insured, 5.00%, 5/01/23 ................................................ 2,000,000 2,124,320
72 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Massachusetts State Development Finance Agency Revenue,
Brandeis University, Series K, FGIC Insured, 4.75%, 10/01/28 .......................... $ 2,000,000 $ 2,036,920
Massachusetts/Saltonstall Redevelopment Building Corp., Series A, MBIA Insured,
5.125%, 2/01/34 ...................................................................... 22,400,000 23,367,680
MBIA Insured, 5.20%, 7/01/32 .......................................................... 2,250,000 2,383,897
Series A, AMBAC Insured, 5.375%, 1/01/42 .............................................. 4,000,000 4,295,080
Series A, GNMA Secured, 6.90%, 10/20/41 ............................................... 2,090,000 2,471,613
Western New England College, AMBAC Insured, 5.25%, 7/01/20 ............................ 1,500,000 1,649,340
Massashusetts State GO, Consolidated Loan, Series C, FGIC Insured, 5.25%, 11/01/30 ....... 9,645,000 10,258,133
Massachusetts State GO, MBIA Insured, 5.00%,
8/01/22 ............................................................................... 4,100,000 4,312,462
8/01/27 ............................................................................... 4,395,000 4,553,528
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ....................... 1,500,000 1,653,840
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19 ...................... 5,500,000 5,987,300
Boston College, Refunding, Series L, MBIA Insured, 4.75%, 6/01/31 ..................... 5,500,000 5,553,020
Brandeis University, Refunding, Series I, MBIA Insured, 4.75%, 10/01/20 ............... 3,000,000 3,108,000
Brandeis University, Refunding, Series I, MBIA Insured, 4.75%, 10/01/28 ............... 1,000,000 1,013,490
Cable Housing and Health Services, Series A, MBIA Insured, 5.25%, 7/01/23 ............. 1,000,000 1,008,870
Catholic Health East, Series A, AMBAC Insured, 5.00%, 11/15/28 ........................ 6,575,000 6,775,801
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18 ................... 3,500,000 3,765,090
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25 ................... 7,720,000 8,136,957
Dana-Farber Cancer Institute, Refunding, Series F, FGIC Insured, 6.00%, 12/01/15 ...... 1,000,000 1,025,580
Harvard University, Series FF, 5.125%, 7/15/37 ........................................ 8,000,000 8,407,600
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .................. 21,730,000 22,224,358
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24 ......................... 6,500,000 6,769,945
New England Medical Center Hospital, Series H, FGIC Insured, 5.00%, 5/15/22 ........... 10,000,000 10,464,700
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18 ..................... 1,300,000 1,401,179
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25 ..................... 6,750,000 7,275,353
Northeastern University, Series I, MBIA Insured, 5.00%, 10/01/29 ...................... 1,250,000 1,297,125
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ................... 5,000,000 5,299,100
Series F, 5.00%, 10/01/27 ............................................................. 2,710,000 2,842,356
Series F, 5.00%, 10/01/33 ............................................................. 5,000,000 5,224,300
Springfield College, AMBAC Insured, 5.00%, 10/15/27 ................................... 2,500,000 2,577,650
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26 ............................ 1,690,000 1,829,746
Tufts University, Series I, 5.25%, 2/15/30 ............................................ 4,000,000 4,226,120
University of Massachusetts Project, Series A, FGIC Insured, 5.875%, 10/01/29 ......... 4,000,000 4,641,840
University of Massachusetts Project, Series C, MBIA Insured, 5.25%, 10/01/31 .......... 1,500,000 1,600,170
University of Massachusetts, Series C, FGIC Insured, 5.125%, 10/01/34 ................. 3,000,000 3,151,710
University of Massachusetts, Worcester Campus, Series B, FGIC Insured, 5.25%, 10/01/31 3,500,000 3,710,630
Wellesley College, Series F, 5.125%, 7/01/39 .......................................... 7,500,000 7,800,225
Wheelock College, Series B, MBIA Insured, 5.625%, 10/01/30 ............................ 1,770,000 1,929,512
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26 .............................. 2,500,000 2,673,825
Massachusetts State HFA,
Housing Revenue, Rental, Series A, AMBAC Insured, 5.95%, 7/01/30 ...................... 2,000,000 2,122,840
MFHR, Section 8 Assisted, Series A, GNMA Secured, ETM, 7.00%, 4/01/21 ................. 430,000 579,223
SFHR, Series 53, MBIA Insured, 6.15%, 12/01/29 ........................................ 1,130,000 1,178,093
SFHR, Series 57, MBIA Insured, 5.55%, 6/01/25 ......................................... 2,685,000 2,756,233
SFHR, Series 59, AMBAC Insured, 5.50%, 12/01/30 ....................................... 590,000 607,948
Annual Report | 73
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Massachusetts State Industrial Finance Agency Electrical Utility Revenue, Nantucket
Electric Co., Series A, AMBAC Insured, 5.875%, 7/01/17 ................................. $ 4,000,000 $ 4,436,800
Massachusetts State Industrial Finance Agency Revenue,
Simons Rock College, AMBAC Insured, 5.50%, 6/01/27 .................................... 1,560,000 1,703,894
St. Marks School Issue, MBIA Insured, 5.375%, 1/01/21 ................................. 2,665,000 2,844,941
Suffolk University, AMBAC Insured, 5.25%, 7/01/27 ..................................... 4,000,000 4,210,120
Trustees Deerfield Academy, 5.25%, 10/01/27 ........................................... 2,800,000 2,934,820
Tufts University, Refunding, Series H, MBIA Insured, 4.75%, 2/15/28 ................... 4,520,000 4,559,550
Western New England College, AMBAC Insured, 5.00%, 7/01/28 ............................ 4,000,000 4,135,520
WGBH Educational Foundation, Refunding, AMBAC Insured, 5.00%, 3/01/28 ................. 2,500,000 2,580,950
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.125%, 9/01/17 ............. 3,720,000 4,050,038
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21 ... 2,000,000 2,232,660
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.125%, 9/01/27 .. 4,000,000 4,161,960
Massachusetts State Port Authority Revenue,
Series A, FSA Insured, 5.125%, 7/01/17 ................................................ 2,000,000 2,152,020
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/19 .................... 2,215,000 2,392,975
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/22 .................... 2,310,000 2,472,971
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/29 ..................... 7,450,000 7,992,286
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/39 ..................... 1,000,000 1,081,610
US Airways Project, MBIA Insured, 6.00%, 9/01/21 ...................................... 4,700,000 5,019,835
US Airways Project, Series A, MBIA Insured, 5.875%, 9/01/23 ........................... 4,500,000 4,720,635
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue,
Series A, MBIA Insured, 5.00%, 1/01/37 ................................................ 9,000,000 9,204,570
sub. lien, Refunding, Series B, MBIA Insured, 5.125%, 1/01/37 ......................... 10,000,000 10,289,700
sub. lien, Series B, MBIA Insured, 5.25%, 1/01/29 ..................................... 4,600,000 4,876,322
Massachusetts State Water Pollution Abatement Trust Revenue,
Pool Program Bonds, Series 6, 5.50%, 8/01/30 ........................................... 3,695,000 4,122,992
Pool Program Bonds, Series 7, 5.125%, 2/01/31 ......................................... 6,000,000 6,299,400
Water Revenue Authority Program, Refunding, Sub Series A, 5.75%, 8/01/29 .............. 5,000,000 5,689,550
Massachusetts State Water Pollution Abatement Trust Water Pollution Abatement Revenue,
New Bedford Program, Refunding, Series A, FGIC Insured, 4.75%, 2/01/26 ................. 5,000,000 5,069,250
Massachusetts State Water Resource Authority Revenue, Refunding, Series A, FGIC Insured,
5.75%, 8/01/39 ......................................................................... 9,275,000 10,595,482
Melrose GO, MBIA Insured,
6.00%, 8/15/11 ........................................................................ 200,000 208,272
6.05%, 8/15/12 ........................................................................ 200,000 208,598
6.10%, 8/15/13 ........................................................................ 200,000 208,642
6.10%, 8/15/14 ........................................................................ 200,000 208,642
Monson GO, AMBAC Insured, 5.25%, 11/01/23 ................................................ 1,675,000 1,831,596
New Bedford GO, Municipal Purpose Loan, FGIC Insured, 5.00%, 5/01/21 ..................... 3,685,000 3,959,127
Plymouth County COP, Correctional Facility Project, Refunding, AMBAC Insured, 5.125%,
10/01/18 ............................................................................... 2,000,000 2,176,640
Route 3 North Transportation Improvement Association Lease Revenue, MBIA Insured,
Pre-Refunded, 5.375%, 6/15/33 .......................................................... 15,475,000 18,095,537
Salisbury GO, MBIA Insured, 5.30%, 3/15/27 ............................................... 2,795,000 3,016,811
Shrewsbury GO, Municipal Purpose Loan, 5.00%, 8/15/20 .................................... 2,075,000 2,231,289
74 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
South Essex Sewer District GO,
AMBAC Insured, 6.25%, 11/01/11 ........................................................ $ 330,000 $ 334,085
Series B, MBIA Insured, Pre-Refunded, 7.00%, 6/01/24 .................................. 2,800,000 2,897,440
Springfield GO, Municipal Purpose Loan,
FGIC Insured, 5.00%, 8/01/21 .......................................................... 5,000,000 5,381,750
FSA Insured, 5.00%, 11/15/18 .......................................................... 1,500,000 1,619,565
Springfield Water and Sewer Commission Revenue, Series A, AMBAC Insured, 5.00%,
11/01/21 ............................................................................... 2,775,000 2,984,513
University Building Authority Project Revenue, Refunding, Senior, Series 1,
AMBAC Insured, 5.25%,
11/01/23 .............................................................................. 2,155,000 2,334,835
11/01/28 .............................................................................. 5,035,000 5,397,268
Whitman Hanson Regional School District GO, Refunding, FGIC Insured, 5.00%, 6/15/21 ...... 1,960,000 2,107,647
Winthrop GO, AMBAC Insured, 5.00%, 11/01/20 .............................................. 1,230,000 1,334,759
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 ......................... 1,335,000 1,457,713
-------------
TOTAL LONG TERM INVESTMENTS (COST $436,545,890) .......................................... 473,644,507
SHORT TERM INVESTMENTS .6%
a Massachusetts State Health and Educational Facilities Authority Revenue, Capital Assets Program,
Series D, MBIA Insured, Daily VRDN and Put, .97%, 1/01/35 .............................. 1,850,000 1,850,000
a Massachusetts State Water Resource Authority Revenue, Multi-Modal, Refunding, Sub Series D,
Daily VRDN and Put, .98%, 8/01/17 ...................................................... 300,000 300,000
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 .................................................... 700,000 700,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $2,850,000) ........................................... 2,850,000
-------------
TOTAL INVESTMENTS (COST $439,395,890) 99.1% .............................................. 476,494,507
OTHER ASSETS, LESS LIABILITIES .9% ....................................................... 4,240,934
-------------
NET ASSETS 100.0% ........................................................................ $480,735,441
=============
<FN>
See glossary of terms on page 110.
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.
</FN>
Annual Report | See notes to financial statements. | 75
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
--------------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $12.46 $12.25 $12.08 $11.37 $12.28
Income from investment operations:
Net investment income a ................................ .55 .57 .58 .60 .60
Net realized and unrealized gains (losses) ............. .18 .28 .18 .70 (.91)
--------------------------------------------------------------------
Total from investment operations ........................ .73 .85 .76 1.30 (.31)
--------------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.54) (.57) (.59) (.59) (.60)
Net realized gains ..................................... (.07) (.07) -- -- -- d
--------------------------------------------------------------------
Total distributions ..................................... (.61) (.64) (.59) (.59) (.60)
--------------------------------------------------------------------
Net asset value, end of year ............................ $12.58 $12.46 $12.25 $12.08 $11.37
====================================================================
Total return b .......................................... 6.06% 7.17% 6.44% 11.74% (2.57)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $1,248,975 $1,253,847 $1,185,152 $1,084,743 $1,057,787
Ratios to average net assets:
Expenses ............................................... .64% .64% .64% .64% .63%
Net investment income .................................. 4.42% 4.62% 4.81% 5.10% 5.10%
Portfolio turnover rate ................................. 11.29% 13.22% 8.86% 10.34% 13.73%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0003.
</FN>
76 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C,D
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $12.51 $12.29 $12.12 $11.38 $11.31
-----------------------------------------------------------
Income from investment operations:
Net investment income a .......................... .48 .50 .52 .54 .05
Net realized and unrealized gains (losses) ....... .19 .30 .17 .73 .07
-----------------------------------------------------------
Total from investment operations .................. .67 .80 .69 1.27 .12
-----------------------------------------------------------
Less distributions from:
Net investment income ............................ (.48) (.51) (.52) (.53) (.05)
Net realized gains ............................... (.07) (.07) -- -- --
-----------------------------------------------------------
Total distributions ............................... (.55) (.58) (.52) (.53) (.05)
-----------------------------------------------------------
Net asset value, end of year ...................... $12.63 $12.51 $12.29 $12.12 $11.38
===========================================================
Total return b .................................... 5.46% 6.64% 5.81% 11.28% 1.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $58,687 $49,931 $30,225 $7,818 $228
Ratios to average net assets:
Expenses ......................................... 1.19% 1.19% 1.19% 1.20% 1.19%e
Net investment income ............................ 3.87% 4.07% 4.25% 4.52% 4.88%e
Portfolio turnover rate ........................... 11.29% 13.22% 8.86% 10.34% 13.73%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
d For the period February 1, 2000 (effective date) to February 29, 2000.
e Annualized.
</FN>
Annual Report | 77
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $12.56 $12.34 $12.17 $11.45 $12.36
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................... .48 .51 .52 .54 .54
Net realized and unrealized gains (losses) ....... .19 .29 .17 .71 (.92)
-----------------------------------------------------------
Total from investment operations .................. .67 .80 .69 1.25 (.38)
-----------------------------------------------------------
Less distributions from:
Net investment income ............................ (.47) (.51) (.52) (.53) (.53)
Net realized gains ............................... (.07) (.07) -- -- --d
-----------------------------------------------------------
Total distributions ............................... (.54) (.58) (.52) (.53) (.53)
-----------------------------------------------------------
Net asset value, end of year ...................... $12.69 $12.56 $12.34 $12.17 $11.45
===========================================================
Total return b .................................... 5.50% 6.63% 5.80% 11.14% (3.11)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $116,544 $110,159 $77,514 $53,620 $49,038
Ratios to average net assets:
Expenses ......................................... 1.22% 1.16% 1.19% 1.20% 1.19%
Net investment income ............................ 3.84% 4.10% 4.26% 4.54% 4.54%
Portfolio turnover rate ........................... 11.29% 13.22% 8.86% 10.34% 13.73%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0003.
</FN>
78 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
Allegan Public School GO, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 .................... $ 4,165,000 $ 4,701,119
Allendale Public School District GO,
MBIA Insured, Pre-Refunded, 6.00%, 5/01/24 ............................................ 3,750,000 3,818,400
School Building and Site, FGIC Insured, 5.125%, 5/01/27 ............................... 6,450,000 6,808,104
School Building and Site, FGIC Insured, 5.125%, 5/01/32 ............................... 5,490,000 5,775,480
Almont Community Schools GO, FGIC Insured, 5.50%, 5/01/26 ................................ 1,925,000 2,099,732
Alpena Public Schools GO, MBIA Insured, Pre-Refunded, 5.625%, 5/01/22 .................... 166,500 1,872,925
Anchor Bay School District GO, School Building and Site,
Series I, FGIC Insured, Pre-Refunded, 6.00%, 5/01/29 .................................. 2,000,000 2,366,660
Series II, FGIC Insured, Pre-Refunded, 5.70%, 5/01/25 ................................. 5,000,000 5,923,850
Series II, FGIC Insured, Pre-Refunded, 5.75%, 5/01/30 ................................. 3,750,000 4,453,537
Avondale School District GO,
AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 ........................................... 4,000,000 4,514,880
School Building and Site, FSA Insured, 5.00%, 5/01/29 ................................. 9,000,000 9,451,530
Battle Creek Downtown Development Authority Tax Allocation, Refunding, MBIA Insured,
5.125%, 5/01/20 ........................................................................ 4,500,000 4,777,065
Berkley City School District GO, FGIC Insured, Pre-Refunded, 6.00%, 1/01/19 .............. 2,125,000 2,233,779
Brandon School District GO, FGIC Insured, Pre-Refunded, 5.875%, 5/01/26 .................. 7,000,000 7,759,360
Brown City Community School District GO, Building and Site, FGIC Insured, 5.00%,
5/01/26 ............................................................................... 4,445,000 4,648,981
5/01/31 ............................................................................... 3,200,000 3,334,112
Byron Center Public Schools GO, Refunding, MBIA Insured, 5.875%, 5/01/24 ................. 135,000 143,340
Caledonia Community Schools GO, MBIA Insured, Pre-Refunded, 5.85%, 5/01/22 ............... 4,500,000 5,093,100
Calumet, Laurium and Keweenah Public Schools GO, FSA Insured, Pre-Refunded, 5.875%,
5/01/20 ............................................................................... 875,000 895,160
Carmen-Ainmworth Community School District GO, FGIC Insured, 5.00%, 5/01/27 .............. 2,950,000 3,088,620
Central Michigan University Revenue,
FGIC Insured, 5.00%, 10/01/27 ......................................................... 500,000 515,225
FGIC Insured, Pre-Refunded, 5.625%, 10/01/22 .......................................... 2,500,000 2,823,975
Series A, AMBAC Insured, 5.05%, 10/01/32 .............................................. 10,000,000 10,535,200
Central Montcalm Public School GO, MBIA Insured, 6.00%, 5/01/29 .......................... 1,400,000 1,603,700
Charles Stewart Mott Community College GO, FGIC Insured, 5.50%, 5/01/21 .................. 3,550,000 3,961,090
Charlotte Public School District GO, FGIC Insured, 5.375%, 5/01/29 ....................... 5,000,000 5,274,500
Coldwater Community Schools GO, MBIA Insured, Pre-Refunded,
6.20%, 5/01/15 ........................................................................ 1,100,000 1,131,405
6.30%, 5/01/23 ........................................................................ 1,700,000 1,748,807
De Witt Public Schools GO, AMBAC Insured, Pre-Refunded, 5.70%, 5/01/21 ................... 6,905,000 7,783,247
Dearborn EDC, Hospital Revenue, Oakwood Obligation Group,
Refunding, Series A, MBIA Insured, 5.25%, 8/15/21 ..................................... 1,000,000 1,028,000
Series A, FGIC Insured, 5.75%, 11/15/15 ............................................... 100,000 108,965
Detroit City School District GO,
School Building and Site Improvements, Series A, FGIC Insured, 5.00%, 5/01/23 ......... 2,650,000 2,817,983
School Building and Site Improvements, Series B, FGIC Insured, 5.00%, 5/01/25 ......... 10,650,000 11,233,726
Series A, FSA Insured, 5.125%, 5/01/31 ................................................ 38,330,000 40,349,991
Detroit Public Improvements GO, Series A-1, MBIA Insured, 5.00%, 4/01/20 ................. 10,610,000 11,354,610
Annual Report | 79
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Detroit Sewage Disposal Revenue,
Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 ..................................... $12,585,000 $ 13,266,100
Series A, MBIA Insured, 5.50%, 7/01/20 ................................................ 110,000 122,418
Series A, MBIA Insured, 5.00%, 7/01/27 ................................................ 22,000,000 22,655,600
Series A, MBIA Insured, Pre-Refunded, 5.50%, 7/01/20 .................................. 105,000 118,362
Detroit Water Supply System Revenue,
Refunding, FGIC Insured, ETM, 6.25%, 7/01/12 .......................................... 1,455,000 1,478,338
second lien, Series B, FGIC Insured, 5.50%, 7/01/33 ................................... 20,000,000 22,145,200
senior lien, Series A, FGIC Insured, 5.00%, 7/01/30 ................................... 11,400,000 11,867,286
senior lien, Series A, FGIC Insured, 5.25%, 7/01/33 ................................... 4,745,000 5,037,719
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.875%, 7/01/29 .................... 1,500,000 1,790,385
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ..................... 4,880,000 5,705,647
Series A, MBIA Insured, 5.00%, 7/01/27 ................................................ 5,750,000 5,904,790
Series B, MBIA Insured, 5.00%, 7/01/34 ................................................ 10,000,000 10,446,600
Detroit/Wayne County Stadium Authority Revenue, FGIC Insured, 5.25%, 2/01/27 ............. 5,500,000 5,760,150
East Detroit School District GO, FGIC Insured,
6.10%, 5/01/16 ........................................................................ 1,025,000 1,131,774
Pre-Refunded, 6.10%, 5/01/16 .......................................................... 4,975,000 5,538,468
East Grand Rapids Public School District GO, FSA Insured, Pre-Refunded, 6.00%, 5/01/29 ... 4,775,000 5,650,401
Eastern Michigan University Revenues, Refunding, Series A, FGIC Insured, 5.00%,
6/01/28 ............................................................................... 6,730,000 7,049,204
6/01/33 ............................................................................... 14,700,000 15,408,540
Ecorse Public School District GO, FGIC Insured, 5.50%, 5/01/17 ........................... 5,000,000 5,596,250
Farmington Hills EDC Revenue, Botsford Continuing Care, Series A, MBIA Insured, 5.75%,
2/15/25 ................................................................................ 100,000 105,718
Ferndale School District GO, Unrefunded, FGIC Insured, 5.375%, 5/01/21 ................... 2,805,000 2,958,826
Ferris State University Revenue,
AMBAC Insured, Pre-Refunded, 5.75%, 10/01/17 .......................................... 2,500,000 2,837,375
AMBAC Insured, Pre-Refunded, 5.85%, 10/01/22 .......................................... 2,500,000 2,844,875
AMBAC Insured, Pre-Refunded, 5.90%, 10/01/26 .......................................... 6,840,000 7,793,770
FGIC Insured, 5.25%, 10/01/26 ......................................................... 1,500,000 1,601,190
FGIC Insured, 5.25%, 10/01/31 ......................................................... 3,255,000 3,452,058
Gladstone Area Public Schools GO, AMBAC Insured,
5.50%, 5/01/26 ........................................................................ 695,000 749,613
Pre-Refunded, 5.50%, 5/01/26 .......................................................... 805,000 902,437
Gogebic-Iron Wastewater Authority Wastewater Treatment System Revenue, Refunding,
MBIA Insured, Pre-Refunded, 5.95%, 1/01/15 ............................................. 1,015,000 1,056,473
Grand Ledge Public School District GO, MBIA Insured, Pre-Refunded, 6.60%, 5/01/24 ........ 10,000,000 10,291,900
Grand Rapids Building Authority GO, AMBAC Insured, 5.50%, 8/01/20 ........................ 2,000,000 2,258,480
Grand Rapids Building Authority Revenue, AMBAC Insured, 5.00%, 10/01/28 .................. 6,000,000 6,289,680
Grand Rapids Downtown Development Authority Tax Increment Revenue, MBIA Insured,
6.875%, 6/01/24 ........................................................................ 7,500,000 7,752,900
Grosse-Ile Township School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 ....... 5,250,000 5,966,152
Hamilton Community School District GO, Refunding, FGIC Insured, 5.00%, 5/01/24 ........... 2,000,000 2,082,080
Hancock Hospital Finance Authority Revenue, Portage Health, MBIA Insured, 5.45%,
8/01/47 ................................................................................ 4,400,000 4,653,660
Harrison Community Schools GO, AMBAC Insured, Pre-Refunded, 6.25%, 5/01/13 ............... 4,715,000 4,849,990
Hartland Consolidated School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/29 ..... 30,000,000 36,054,900
80 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Haslett Public School District GO, MBIA Insured, Pre-Refunded, 5.70%, 5/01/26 ............ $ 3,900,000 $ 4,396,041
Hazel Park Building Authority Revenue, Ice Arena, AMBAC Insured, 4.70%, 4/01/24 .......... 700,000 707,567
Hazel Park School District GO, FSA Insured, 5.00%,
5/01/27 ............................................................................... 9,000,000 9,422,910
5/01/32 ............................................................................... 12,475,000 13,017,662
Hopkins Public Schools GO, FGIC Insured, Pre-Refunded,
5.70%, 5/01/21 ........................................................................ 2,025,000 2,282,560
5.50%, 5/01/26 ........................................................................ 1,000,000 1,121,040
Howell Public Schools GO, MBIA Insured, Pre-Refunded,
5.875%, 5/01/22 ....................................................................... 2,000,000 2,354,540
6.00%, 5/01/25 ........................................................................ 1,600,000 1,818,256
Hudsonville Public Schools GO, Series B, FGIC Insured, Pre-Refunded,
6.05%, 5/01/19 ........................................................................ 2,000,000 2,056,620
6.10%, 5/01/24 ........................................................................ 2,000,000 2,056,780
Huron Michigan School District GO, FSA Insured,
5.25%, 5/01/21 ........................................................................ 1,500,000 1,624,410
5.375%, 5/01/26 ....................................................................... 2,500,000 2,689,500
Huron Valley School District GO, FGIC Insured, Pre-Refunded,
5.875%, 5/01/16 ....................................................................... 100,000 113,256
5.75%, 5/01/22 ........................................................................ 2,450,000 2,765,364
Jackson Brownfield RDAR, FGIC Insured,
5.125%, 6/01/22 ....................................................................... 2,290,000 2,452,659
5.125%, 6/01/24 ....................................................................... 1,215,000 1,295,178
5.25%, 6/01/26 ........................................................................ 2,820,000 3,036,576
5.375%, 6/01/30 ....................................................................... 5,830,000 6,328,173
Jenison Public Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 .................... 130,000 143,757
Kalamazoo City School District GO, Building and Site, FSA Insured, 5.00%, 5/01/21 ........ 4,000,000 4,244,160
Kalamazoo Hospital Finance Authority Hospital Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, ETM, 5.625%, 6/01/14 ................. 3,805,000 4,189,571
Bronson Methodist Hospital, Refunding and Improvement, MBIA Insured, 5.875%,
5/15/26 .............................................................................. 26,165,000 29,303,753
Bronson Methodist Hospital, Refunding and Improvement, Series A, MBIA Insured,
Pre-Refunded, 6.25%, 5/15/12 ......................................................... 1,445,000 1,485,185
Bronson Methodist Hospital, Refunding and Improvement, Series A, MBIA Insured,
Pre-Refunded, 6.375%, 5/15/17 ........................................................ 720,000 740,390
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.25%, 5/15/18 ................... 250,000 271,242
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.50%, 5/15/28 ................... 10,000,000 10,610,900
Kenowa Hills Public Schools GO, MBIA Insured, 5.875%,
5/01/21 ............................................................................... 1,510,000 1,646,881
5/01/26 ............................................................................... 7,000,000 7,618,940
Kent County Building Authority GO, 5.00%, 6/01/26 ........................................ 21,885,000 22,497,780
Kentwood Public Schools GO, MBIA Insured, 4.125%, 5/01/19 ................................ 5,550,000 5,585,575
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 ........ 2,200,000 2,326,456
Lake Shore Public Schools GO, Macomb County, FSA Insured, 5.50%, 5/01/20 ................. 2,000,000 2,203,640
Lake St. Clair Shores Drain District GO, Series A, MBIA Insured, 5.125%, 10/01/29 ........ 1,000,000 1,045,050
Lake Superior State University Revenue,
AMBAC Insured, Pre-Refunded, 6.375%, 11/15/15 ......................................... 1,500,000 1,586,970
Refunding, AMBAC Insured, 5.25%, 11/15/31 ............................................. 3,320,000 3,535,866
Annual Report | 81
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Lakeview Community Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 ................ $ 100,000 $ 112,872
Lakewood Public Schools GO, MBIA Insured, Pre-Refunded, 5.75%, 5/01/22 ................... 800,000 876,864
Lansing Building Authority Revenue, Refunding, MBIA Insured, 5.60%, 6/01/19 .............. 1,470,000 1,561,258
Lenawee County Hospital Finance Authority Hospital Revenue, Lenawee Health Alliance,
Refunding, Series A, AMBAC Insured, 5.20%, 7/01/19 ..................................... 2,115,000 2,296,192
Leslie Public Schools GO, Ingham and Jackson Counties, AMBAC Insured, Pre-Refunded,
6.00%, 5/01/25 ......................................................................... 3,500,000 3,736,915
Lincoln Consolidated School District GO,
FGIC Insured, Pre-Refunded, 5.85%, 5/01/21 ............................................ 130,000 133,639
FSA Insured, 5.00%, 5/01/28 ........................................................... 1,000,000 1,025,590
Refunding, FGIC Insured, 5.85%, 5/01/21 ............................................... 10,000 10,280
Lincoln Park School District GO,
FGIC Insured, Pre-Refunded, 5.90%, 5/01/26 ............................................ 6,050,000 6,709,510
Refunding, FGIC Insured, 5.00%, 5/01/26 ............................................... 900,000 925,794
Livonia Municipal Building Authority GO, FGIC Insured, 5.25%, 5/01/30 .................... 3,950,000 4,164,090
Lowell Area Schools GO, FGIC Insured, 5.625%,
5/01/25 ............................................................................... 3,125,000 3,486,344
5/01/30 ............................................................................... 3,250,000 3,618,192
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital, Refunding,
Series D, FSA Insured,
5.875%, 4/01/11 ....................................................................... 4,525,000 4,972,749
6.10%, 4/01/19 ........................................................................ 5,225,000 5,765,840
Merrill Community School District GO, FGIC Insured, Pre-Refunded, 5.60%, 5/01/26 ......... 4,000,000 4,496,480
Michigan Higher Education Student Loan Authority Revenue, Series XVII-E, AMBAC Insured,
5.40%, 6/01/19 ........................................................................ 5,000,000 5,214,600
5.50%, 6/01/25 ........................................................................ 5,000,000 5,222,650
Michigan Municipal Bond Authority Revenue,
Clean Water State Revolving Fund, 5.00%, 10/01/24 ..................................... 14,785,000 15,585,460
Local Government Loan Program, Series C, MBIA Insured, 6.00%, 11/01/10 ................ 3,790,000 3,946,982
Series B, AMBAC Insured, 6.75%, 11/01/14 .............................................. 1,010,000 1,066,823
Series B, AMBAC Insured, 6.80%, 11/01/14 .............................................. 1,135,000 1,199,230
Series B, AMBAC Insured, 6.80%, 11/01/23 .............................................. 280,000 295,845
Series G, AMBAC Insured, Pre-Refunded, 6.75%, 11/01/14 ................................ 5,480,000 5,799,703
Series G, AMBAC Insured, Pre-Refunded, 6.80%, 11/01/14 ................................ 515,000 545,215
Series G, AMBAC Insured, Pre-Refunded, 6.80%, 11/01/23 ................................ 545,000 576,975
Michigan State Building Authority Revenue, Facilities Program, Refunding,
Series I, FSA Insured, 4.75%, 10/15/18 ................................................ 3,000,000 3,128,940
Series I, FSA Insured, 5.00%, 10/15/24 ................................................ 5,000,000 5,251,550
Series II, MBIA Insured, 5.00%, 10/15/29 .............................................. 22,000,000 23,148,400
Series III, FSA Insured, 5.00%, 10/15/26 .............................................. 14,000,000 14,709,100
Michigan State COP, AMBAC Insured, 5.50%, 6/01/27 ........................................ 12,000,000 13,243,080
Michigan State HDA,
Rental Housing Revenue, Series A, AMBAC Insured, 6.00%, 4/01/16 ....................... 200,000 213,990
SFMR, Series A, AMBAC Insured, 5.95%, 6/01/17 ......................................... 1,250,000 1,307,012
SFMR, Series D, 5.95%, 12/01/16 ....................................................... 250,000 263,200
82 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Refunding, Series A, MBIA Insured,Pre-Refunded, 6.125%,
11/15/23 ............................................................................. $15,175,000 $ 18,328,517
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured, 5.50%,
8/15/24 .............................................................................. 15,000,000 16,320,000
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured, 5.25%,
8/15/27 .............................................................................. 10,000,000 10,501,500
Mercy Health Services, Refunding, Series T, MBIA Insured, 5.75%, 8/15/15 .............. 10,525,000 11,857,254
Mercy Health Services, Refunding, Series X, MBIA Insured, 6.00%, 8/15/34 .............. 11,000,000 12,538,570
Mercy Health Services, Series Q, AMBAC Insured, ETM, 5.375%, 8/15/26 .................. 6,000,000 6,318,360
Mercy Health Services, Series R, AMBAC Insured, ETM, 5.375%, 8/15/26 .................. 1,750,000 1,842,855
Mercy Health Services, Series U, ETM, 5.75%, 8/15/26 .................................. 300,000 328,617
Mercy Health Services, Series W, FSA Insured, ETM, 5.25%, 8/15/27 ..................... 8,605,000 9,068,809
Mercy Mount Clemens Corp., Refunding, Series A, MBIA Insured, 5.75%, 5/15/29 .......... 4,890,000 5,459,392
MidMichigan Health, AMBAC Insured, 5.00%, 4/15/24 ..................................... 7,065,000 7,415,283
MidMichigan Health, AMBAC Insured, 5.00%, 4/15/32 ..................................... 1,000,000 1,039,840
MidMichigan Obligation Group, Refunding, Series A, FSA Insured, 5.375%, 6/01/27 ....... 7,500,000 8,005,875
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 ........... 7,500,000 7,834,875
Sparrow Obligation Group, MBIA Insured, 5.90%, 11/15/26 ............................... 100,000 110,718
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 6.00%, 5/15/13 .......... 3,445,000 3,510,283
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 6.25%, 5/15/14 .......... 9,545,000 9,727,500
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 5.125%, 5/15/17 ......... 14,500,000 15,726,990
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co. Pollution Project,
Refunding,
Series AA, FGIC Insured, 6.95%, 5/01/11 ............................................... 5,000,000 6,315,500
Series BB, AMBAC Insured, 7.00%, 5/01/21 .............................................. 3,000,000 4,015,290
Series BB, MBIA Insured, 6.05%, 10/01/23 .............................................. 1,285,000 1,315,750
Series BB, MBIA Insured, 6.20%, 8/15/25 ............................................... 10,250,000 11,146,772
Series CC, MBIA Insured, 6.05%, 10/01/23 .............................................. 5,825,000 5,964,392
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 13,097,793
Michigan State Trunk Line Revenue,
Refunding, Series A, MBIA Insured, 4.75%, 11/01/20 .................................... 3,300,000 3,428,700
Refunding, Series A, MBIA Insured, 5.00%, 11/01/26 .................................... 3,050,000 3,165,473
Series A, FSA Insured, 5.00%, 11/01/25 ................................................ 16,265,000 17,033,033
Series A, FSA Insured, 5.25%, 11/01/30 ................................................ 34,680,000 36,948,766
Michigan Technological University Revenue, Series A, MBIA Insured, 5.00%,
10/01/29 .............................................................................. 1,850,000 1,946,274
10/01/34 .............................................................................. 1,400,000 1,469,496
Milan Area Schools GO, Series A, FGIC Insured, Pre-Refunded, 5.75%, 5/01/24 .............. 3,500,000 4,156,635
Monroe County PCR, Detroit Edison Co., Series CC, MBIA Insured, 6.55%, 6/01/24 ........... 1,150,000 1,175,392
Muskegon Public Schools GO, Series 95, FGIC Insured, 5.25%,
5/01/18 ............................................................................... 1,900,000 1,932,376
5/01/21 ............................................................................... 2,000,000 2,034,080
Northview Public Schools District GO,
MBIA Insured, 5.80%, 5/01/21 .......................................................... 235,000 258,202
Refunding, FGIC Insured, 5.00%, 5/01/21 ............................................... 3,450,000 3,633,575
Annual Report | 83
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Oakridge Public Schools GO, FSA Insured,
5.00%, 5/01/23 ........................................................................ $ 500,000 $ 521,695
5.125%, 5/01/28 ....................................................................... 500,000 515,150
Ovid Elsie Area Schools GO, School Building and Site, MBIA Insured, 5.00%, 5/01/32 ....... 7,775,000 8,113,213
Oxford Area Community School District GO, FSA Insured, 5.00%,
5/01/26 ............................................................................... 5,425,000 5,673,953
5/01/31 ............................................................................... 4,865,000 5,068,892
Pontiac General Building Authority GO, FGIC Insured, 5.375%,
6/01/23 ............................................................................... 1,620,000 1,773,835
6/01/27 ............................................................................... 2,635,000 2,856,340
Port Huron GO, Limited Tax, AMBAC Insured, 5.00%, 10/01/22 ............................... 1,600,000 1,692,928
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 ....................................................................... 770,000 841,972
6.20%, 10/01/20 ....................................................................... 670,000 733,670
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ........................................................... 1,810,000 1,962,655
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series D, FSA Insured, 5.00%, 7/01/32 ...................................... 20,000,000 21,084,600
Series B, MBIA Insured, 5.875%, 7/01/35 ............................................... 16,430,000 19,342,053
Series B, MBIA Insured, Pre-Refunded, 5.875%, 7/01/35 ................................. 8,570,000 10,382,041
Puerto Rico Electric Power Authority Revenue, Refunding, Series U, FSA Insured, 6.00%,
7/01/14 ................................................................................ 3,400,000 3,520,870
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ............... 8,700,000 8,751,330
Redford USD, GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 .............................. 14,090,000 15,655,963
River Rouge School District GO, Refunding, FGIC Insured, 5.00%, 5/01/22 .................. 6,575,000 7,002,375
Rockford Public Schools GO, Refunding, FGIC Insured, 5.25%,
5/01/22 ............................................................................... 1,250,000 1,325,250
5/01/27 ............................................................................... 3,000,000 3,140,100
Royal Oak Hospital Finance Authority Revenue, William Beaumont Hospital, Series M,
MBIA Insured, 5.25%,
11/15/31 .............................................................................. 12,750,000 13,493,198
11/15/35 .............................................................................. 17,600,000 18,614,112
Saginaw Hospital Finance Authority Revenue,
Covenant Medical Center, Refunding, Series E, MBIA Insured, 5.375%, 7/01/19 ........... 4,850,000 5,331,072
Covenant Medical Center, Refunding, Series E, MBIA Insured, 5.50%, 7/01/24 ............ 1,750,000 1,907,378
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.875%, 7/01/14 ....... 5,325,000 5,343,797
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.75%, 7/01/17 ........ 2,000,000 2,006,960
St. Luke's Hospital Project, Refunding, Series C, MBIA Inusred, 6.00%, 7/01/21 ........ 3,875,000 3,887,206
Saginaw Valley State University Revenue,
Refunding, AMBAC Insured, 5.25%, 7/01/19 .............................................. 2,540,000 2,761,742
Series A, MBIA Insured, 5.125%, 7/01/30 ............................................... 4,315,000 4,500,416
Schoolcraft Community School District GO, FGIC Insured, Pre-Refunded,
5.75%, 5/01/21 ........................................................................ 3,575,000 4,035,174
5.375%, 5/01/26 ....................................................................... 1,000,000 1,117,200
South Macomb Disposal Authority Revenue, AMBAC Insured, 5.25%, 9/01/20 ................... 2,000,000 2,163,120
South Redford School District GO, FGIC Insured, 5.50%, 5/01/22 ........................... 3,155,000 3,447,879
84 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
St. Clair County Building Authority GO, MBIA Insured, 5.25%,
4/01/18 ............................................................................... $ 2,065,000 $ 2,205,379
4/01/21 ............................................................................... 2,400,000 2,542,992
St. Clair County EDC, PCR, Detroit Edison Co., Refunding, Series AA, AMBAC
Insured,
6.40%, 8/01/24 ......................................................................... 10,000,000 11,743,000
Taylor Tax Increment Finance Authority Revenue, FSA Insured, 5.00%, 5/01/21 .............. 2,595,000 2,753,399
Tecumseh Public Schools GO, FGIC Insured, 5.50%,
5/01/25 ............................................................................... 5,925,000 6,500,614
5/01/30 ............................................................................... 4,500,000 4,921,650
Thornapple Kellog School GO, School Building and Site, Refunding, FSA Insured, 5.00%,
5/01/23 ............................................................................... 4,000,000 4,218,240
5/01/28 ............................................................................... 6,250,000 6,535,625
Three Rivers Community Schools GO, Building and Site, MBIA Insured, Pre-Refunded,
6.00%, 5/01/23 ......................................................................... 2,400,000 2,666,736
Warren Consolidated School District GO, FSA Insured,
4.875%, 5/01/22 ....................................................................... 11,850,000 12,368,675
5.00%, 5/01/26 ........................................................................ 14,450,000 15,113,111
Warren Water and Sewer Revenue, FSA Insured, 5.125%, 11/01/23 ............................ 2,450,000 2,603,615
Wayland USD, GO, FGIC Insured, Pre-Refunded, 6.75%, 5/01/24 .............................. 2,000,000 2,152,640
Wayne Charter County Airport Hotel GO, Detroit Metropolitan Airport, Series A, MBIA Insured,
5.25%, 12/01/25 ....................................................................... 17,000,000 18,127,270
5.00%, 12/01/30 ....................................................................... 10,750,000 11,181,613
Wayne Charter County Airport Revenue, Detroit Metropolitan Wayne County, Series A, MBIA
Insured, 5.25%, 12/01/18 ............................................................... 5,500,000 5,842,100
Wayne State University Revenue, FGIC Insured, 5.125%, 11/15/29 ........................... 17,900,000 18,718,746
West Bloomfield School District GO, FGIC Insured, Pre-Refunded, 6.00%,
5/01/19 ............................................................................... 2,100,000 2,523,843
5/01/20 ............................................................................... 2,000,000 2,403,660
West Branch Rose City Area School District GO, FGIC Insured, 5.50%, 5/01/24 .............. 1,400,000 1,544,998
West Ottawa Public School District GO, FGIC Insured,
5.60%, 5/01/21 ........................................................................ 695,000 767,878
5.60%, 5/01/26 ........................................................................ 3,575,000 3,883,558
Pre-Refunded, 5.60%, 5/01/26 .......................................................... 6,000,000 6,744,720
Western School District GO, Refunding, MBIA Insured, Pre-Refunded, 5.50%, 5/01/20 ........ 1,660,000 1,762,804
Western Townships Utilities Authority GO, Sewer Disposal System, FGIC Insured, 4.75%,
1/01/23 ................................................................................ 8,500,000 8,771,745
Whitmore Lake Public School District GO, FGIC Insured, 5.00%, 5/01/32 .................... 9,375,000 9,823,594
Willow Run Community Schools GO, FSA Insured, 5.00%, 5/01/31 ............................. 12,550,000 13,046,604
Wyoming Public Schools GO, FGIC Insured, 5.125%, 5/01/23 ................................. 5,750,000 6,049,460
Ypsilanti Community Utilities GO, Sanitation Sewer System No. 3, FGIC Insured, 5.00%,
5/01/32 ................................................................................ 6,065,000 6,328,828
Ypsilanti School District GO,
FGIC Insured, Pre-Refunded, 5.75%, 5/01/20 ............................................ 4,700,000 5,304,984
Refunding, FGIC Insured, 5.375%, 5/01/26 .............................................. 6,750,000 7,110,788
Ypsilanti Water and Sewer Disposal System Revenue, Series C, AMBAC Insured, 5.00%,
9/01/27 ................................................................................ 2,115,000 2,217,874
Zeeland Public Schools GO, Series B, MBIA Insured, Pre-Refunded, 6.10%, 5/01/24 .......... 4,000,000 4,113,560
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,289,236,007) ........................................ 1,406,527,218
---------------
Annual Report | 85
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS .2%
a Detroit Sewage Disposal Revenue, senior lien, Series B, Daily VRDN and Put,
.98%, 7/01/33 ........................................................................... $ 2,600,000 $ 2,600,000
a Michigan State University Revenues, Series A, Daily VRDN and Put, .98%, 8/15/32 .......... 300,000 300,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $2,900,000) ........................................... 2,900,000
---------------
TOTAL INVESTMENTS (COST $1,292,136,007) 99.0% ............................................ 1,409,427,218
OTHER ASSETS, LESS LIABILITIES 1.0% ...................................................... 14,779,164
---------------
NET ASSETS 100.0% ........................................................................ $1,424,206,382
===============
<FN>
See glossary of terms on page 110.
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.
</FN>
86 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $12.23 $11.99 $11.89 $11.13 $12.14
----------------------------------------------------------
Income from investment operations:
Net investment income a ............................ .54 .56 .58 .58 .59
Net realized and unrealized gains (losses) ......... .15 .25 .10 .76 (.99)
----------------------------------------------------------
Total from investment operations .................... .69 .81 .68 1.34 (.40)
----------------------------------------------------------
Less distributions from:
Net investment income .............................. (.53) (.57) (.58) (.58) (.59)
Net realized gains ................................. -- -- -- -- (.02)
----------------------------------------------------------
Total distributions ................................. (.53) (.57) (.58) (.58) (.61)
----------------------------------------------------------
Net asset value, end of year ........................ $12.39 $12.23 $11.99 $11.89 $11.13
==========================================================
Total return b ...................................... 5.81% 6.89% 5.84% 12.31% (3.30)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $528,609 $524,076 $485,818 $465,758 $451,142
Ratios to average net assets:
Expenses ........................................... .67% .67% .66% .67% .66%
Net investment income .............................. 4.39% 4.64% 4.81% 5.04% 5.05%
Portfolio turnover rate ............................. 10.77% 13.28% 4.86% 24.68% 15.79%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
Annual Report | 87
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND (CONTINUED)
---------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $12.30 $12.05 $11.95 $11.18 $12.19
---------------------------------------------------------
Income from investment operations:
Net investment incomea ........................... .47 .50 .51 .52 .52
Net realized and unrealized gains (losses) ....... .16 .25 .10 .76 (.98)
---------------------------------------------------------
Total from investment operations .................. .63 .75 .61 1.28 (.46)
---------------------------------------------------------
Less distributions from:
Net investment income ............................ (.46) (.50) (.51) (.51) (.53)
Net realized gains ............................... -- -- -- -- (.02)
---------------------------------------------------------
Total distributions ............................... (.46) (.50) (.51) (.51) (.55)
---------------------------------------------------------
Net asset value, end of year ...................... $12.47 $12.30 $12.05 $11.95 $11.18
=========================================================
Total return b .................................... 5.25% 6.38% 5.22% 11.74% (3.84)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $59,389 $54,704 $39,170 $24,738 $21,828
Ratios to average net assets:
Expenses ......................................... 1.26% 1.17% 1.22% 1.23% 1.22%
Net investment income ............................ 3.80% 4.14% 4.26% 4.49% 4.50%
Portfolio turnover rate ........................... 10.77% 13.28% 4.86% 24.68% 15.79%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
</FN>
88 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 99.3%
BONDS 94.9%
Anoka-Hennepin ISD No. 11, GO, School District Credit Enhancement Program, Series A,
FSA Insured, 5.00%, 2/01/20 ............................................................ $ 6,130,000 $ 6,561,675
Becker GO, Tax Increment, Refunding, Series D, MBIA Insured, 6.25%, 8/01/15 .............. 4,870,000 4,975,582
Bemidji Health Care Facilities First Mortgage Revenue, North Country Health Services,
Radian Insured, 5.00%, 9/01/24 ......................................................... 3,085,000 3,190,692
Bemidji Lease Revenue, Minnesota State Bureau of Criminal Apprehension, MBIA Insured,
5.70%, 12/01/17 ........................................................................ 120,000 137,248
Big Lake ISD No. 727, GO, MBIA Insured, 5.70%, 2/01/21 ................................... 3,085,000 3,413,552
Bloomington ISD No. 271, GO, Series A, FSA Insured, 5.125%, 2/01/24 ...................... 2,000,000 2,131,680
Bloomington Port Authority Lease Revenue, City Hall Lease Obligation, 5.00%, 2/01/18 ..... 1,045,000 1,121,212
Brainerd Health Care Facilities Revenue, Benedictine Health St. Joseph, Refunding, Series D,
MBIA Insured, 5.875%, 2/15/13 .......................................................... 3,500,000 3,553,200
Brooklyn Center ISD No. 286, GO, FGIC Insured, 5.00%, 2/01/22 ............................ 1,000,000 1,063,720
Buffalo GO, AMBAC Insured, 5.55%, 6/01/17 ................................................ 1,000,000 1,086,950
Buffalo ISD No. 877, GO, Refunding, MBIA Insured, 5.00%, 2/01/22 ......................... 4,255,000 4,471,920
Burnsville ISD No. 191, GO, Series A, FSA Insured, 6.20%, 2/01/17 ........................ 2,105,000 2,198,083
Burnsville MFR, Coventry Court, Refunding, Series A, GNMA Secured,
5.90%, 9/20/19 ........................................................................ 400,000 431,412
5.95%, 9/20/29 ........................................................................ 1,275,000 1,365,882
6.00%, 9/20/34 ........................................................................ 1,000,000 1,071,660
Cass Lake ISD No. 115, GO, Refunding, FGIC Insured, 5.00%, 2/01/22 ....................... 3,805,000 4,073,024
Centennial ISD No. 012, GO, Series A, FSA Insured, 5.00%, 2/01/21 ........................ 1,000,000 1,069,310
Champlin EDA, GO, Housing Development, MBIA Insured, 5.625%, 2/01/26 ..................... 250,000 267,880
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25 ................ 2,975,000 3,075,466
Columbia Heights ISD No. 013, GO, FSA Insured, 5.50%, 2/01/23 ............................ 4,500,000 4,871,385
Dakota County Housing and RDA,
Governmental Housing Revenue, Eagan Senior Housing Facility, MBIA Insured,
5.40%, 1/01/27 ....................................................................... 1,015,000 1,021,374
MFHR, Dakota Station Project, GNMA Secured, 5.65%, 1/20/24 ............................ 1,402,000 1,477,918
SFMR, GNMA Secured, 5.75%, 4/01/18 .................................................... 1,324,000 1,380,270
SFMR, GNMA Secured, 5.85%, 10/01/30 ................................................... 2,224,000 2,312,337
Deer River ISD No. 317, GO,
FSA Insured, 6.00%, 2/01/25 ............................................................ 1,325,000 1,565,554
School Building, Refunding, FSA Insured, 4.10%, 2/01/20 ............................... 445,000 447,510
School Building, Refunding, FSA Insured, 4.30%, 2/01/23 ............................... 745,000 746,170
Duluth EDA, Health Care Facilities Revenue, The Duluth Clinic Ltd., AMBAC Insured,
Pre-Refunded, 6.30%, 11/01/22 .......................................................... 2,125,000 2,200,437
Eagan GO, Recreational Facilities, Series A, MBIA Insured, 5.00%, 2/01/21 ................ 3,075,000 3,288,128
Eagan MFHR, Forest Ridge Apartments, Refunding, Series A, GNMA Secured,
5.95%, 9/20/29 ........................................................................ 1,700,000 1,820,496
6.00%, 9/20/34 ........................................................................ 1,480,000 1,583,067
Eden Prairie MFHR,
Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 ...................... 2,000,000 2,084,320
Parkway Apartments Project, Series A, GNMA Secured, 5.80%, 2/20/32 .................... 7,380,000 7,744,055
Annual Report | 89
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Edina ISD No. 273, GO, MBIA Insured,
4.00%, 2/01/18 ........................................................................ $ 2,060,000 $ 2,095,514
4.25%, 2/01/21 ........................................................................ 2,700,000 2,735,937
Eveleth EDA, GO, Housing Development, MBIA Insured, 5.80%, 7/01/25 ....................... 1,000,000 1,086,930
Faribault ISD No. 656, GO, FSA Insured, 5.75%, 6/01/15 ................................... 1,500,000 1,516,980
Farmington ISD No.192, GO, MBIA Insured, 5.25%, 2/01/24 .................................. 5,915,000 6,342,654
Ham Lake GO, Anoka County Housing, Senior Housing Project, Series B, MBIA Insured,
6.10%, 1/01/26 ......................................................................... 2,180,000 2,231,535
Hibbing Health Care Facilities Revenue, The Duluth Clinic, Ltd., FSA Insured, Pre-Refunded,
5.00%, 11/01/25 ........................................................................ 8,000,000 9,231,440
Hopkins Elderly Housing Revenue, St. Therese Project, Refunding, Series A, GNMA Secured,
5.60%, 11/20/17 ....................................................................... 750,000 792,172
5.70%, 11/20/32 ....................................................................... 3,000,000 3,136,350
Hopkins ISD No. 270, GO, FGIC Insured, 5.125%, 2/01/22 ................................... 3,880,000 4,173,406
Hubbard County Housing and RDA, GO, Heritage Center Project, MBIA Insured,
5.50%, 8/01/27 ......................................................................... 1,085,000 1,203,363
Kenyon Wanamingo ISD No. 2172, GO, MBIA Insured, 6.00%, 2/01/22 .......................... 4,030,000 4,200,953
Lake Superior ISD No. 381, GO, Series A, FSA Insured, 5.00%, 4/01/23 ..................... 4,195,000 4,468,808
Lakeview ISD No. 2167, GO, MBIA Insured, 5.25%, 2/01/26 .................................. 3,705,000 3,959,015
Lakeville ISD No. 194, GO, Series A, FGIC Insured, 5.00%, 2/01/23 ........................ 10,180,000 10,834,370
Mahtomedi ISD No. 832, GO, FSA Insured, 5.00%, 2/01/18 ................................... 3,240,000 3,533,447
Maple Grove HDA Municipal Facility Lease Revenue, AMBAC Insured, 5.55%, 2/01/17 .......... 280,000 312,511
Medford ISD No. 763, GO, Series A, FSA Insured, 5.125%, 2/01/29 .......................... 2,700,000 2,851,686
Minneapolis and St. Paul Housing RDA, Health Care System Revenue, Children's Health Care,
Series A, FSA Insured,
5.70%, 8/15/16 ........................................................................ 1,005,000 1,082,998
5.50%, 8/15/25 ........................................................................ 9,000,000 9,502,380
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue,
Series A, AMBAC Insured, 5.20%, 1/01/24 ............................................... 5,000,000 5,257,300
Series A, FGIC Insured, 5.125%, 1/01/31 .................................................. 7,000,000 7,312,200
Series A, FGIC Insured, 5.25%, 1/01/32 ................................................ 7,000,000 7,397,880
Series C, FGIC Insured, 5.25%, 1/01/26 ................................................ 2,000,000 2,119,760
Minneapolis and St. Paul Metropolitan Apartments Community Apartment Revenue, Series C,
FGIC Insured, 5.25%, 1/01/32 ........................................................... 21,000,000 22,193,640
Minneapolis CDA, St. Paul Housing and RDA, Health Care Facilities Revenue, Carondelet
Community Hospitals Inc., Series B, MBIA Insured, Pre-Refunded, 8.875%, 11/01/15 ....... 780,000 1,022,572
Minneapolis GO,
Sports Arena Project, Refunding, 5.125%, 10/01/20 ..................................... 8,340,000 8,945,651
Sports Arena Project, Refunding, 5.20%, 10/01/24 ...................................... 3,750,000 3,956,625
Various Purpose, 5.125%, 12/01/28 ..................................................... 3,000,000 3,143,250
Minneapolis MFR, Riverside Plaza, Refunding, GNMA Secured, 5.20%, 12/20/30 ............... 5,000,000 5,090,000
Minneapolis Revenue, University Gateway Project, Series A, 5.25%, 12/01/24 ............... 3,000,000 3,173,940
90 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Minneapolis Special School District No. 001 COP, Series A,
FSA Insured, 5.00%, 2/01/21 ........................................................... $ 1,950,000 $ 2,085,154
MBIA Insured, Pre-Refunded, 5.90%, 2/01/17 ............................................ 5,000,000 5,439,650
Minnesota Agriculture and Economic Development Board Revenue,
Benedictine Health, Refunding, Series A, MBIA Insured, 5.125%, 2/15/29 ................ 14,625,000 15,342,941
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%, 12/01/22 .. 4,870,000 5,169,456
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, Pre-Refunded,
5.15%, 12/01/22 ...................................................................... 310,000 354,941
Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured,
5.75%, 11/15/26 ...................................................................... 18,000,000 20,009,160
Minnesota State HFA,
Rental Housing, Refunding, Series D, MBIA Insured, 5.90%, 8/01/15 ..................... 5,420,000 5,608,616
Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18 ..................... 2,015,000 2,078,674
Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 ..................... 2,270,000 2,338,440
SMF, Series B, 5.00%, 7/01/13 ......................................................... 95,000 100,213
SMF, Series D, 5.45%, 1/01/26 ......................................................... 3,650,000 3,758,368
SMF, Series E, AMBAC Insured, 5.40%, 1/01/25 .......................................... 6,130,000 6,289,073
SMF, Series F, MBIA Insured, 6.30%, 7/01/25 ........................................... 540,000 552,166
SMF, Series G, AMBAC Insured, 6.25%, 7/01/26 .......................................... 750,000 777,420
SMF, Series I, MBIA Insured, 6.25%, 1/01/15 ........................................... 1,175,000 1,190,052
Minnesota State Higher Education Facilities Authority Revenue,
Bethel, Refunding, 5.10%, 4/01/28 ..................................................... 7,700,000 7,861,469
St. Johns University, Series 5-I, MBIA Insured, 5.25%, 10/01/21 ....................... 1,750,000 1,916,880
St. Johns University, Series 5-I, MBIA Insured, 5.25%, 10/01/26 ....................... 1,500,000 1,609,320
University of St. Thomas, Series 4-A1, MBIA Insured, 5.625%, 10/01/16 ................. 1,000,000 1,101,500
Minnetonka MFHR,
Brier Creek Project, Refunding, Series A, GNMA Secured, 6.45%, 6/20/24 ................ 2,720,000 2,807,693
Cedar Hills Project, Refunding, Series A, GNMA Secured, 5.90%, 10/20/19 .................. 1,750,000 1,885,082
Cedar Hills Project, Refunding, Series A, GNMA Secured, 5.95%, 10/20/29 ............... 5,955,000 6,389,358
Moorhead EDA, GO, Tax Increment, Series A, MBIA Insured, 5.25%, 2/01/28 .................. 1,890,000 2,017,235
New Hope MFR, North Ridge, Refunding, Series A, GNMA Secured,
6.05%, 1/01/17 ........................................................................ 450,000 470,696
6.20%, 1/01/31 ........................................................................ 5,470,000 5,703,350
Nobles County Housing and RDA, Public Project Revenue, Annual Appropriate Lease Obligation,
AMBAC Insured, 5.625%, 2/01/22 ......................................................... 1,230,000 1,373,307
North St. Paul Maplewood ISD No. 622, GO,
Refunding, Series A, 5.125%, 2/01/25 .................................................. 2,275,000 2,352,191
Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/01/19 .................................. 2,000,000 2,110,720
Northeast Metropolitan ISD No. 916, GO, FSA Insured, 5.80%, 1/01/16 ...................... 5,320,000 5,514,127
Northern Municipal Power Agency Electric System Revenue, Refunding, FSA Insured,
5.00%, 1/01/12 ......................................................................... 1,030,000 1,138,140
Osseo ISD No. 279, GO, Series A, FSA Insured, 5.00%, 2/01/20 ............................. 3,000,000 3,226,920
Annual Report | 91
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Park Rapids ISD No. 309, GO, MBIA Insured,
4.75%, 2/01/21 ........................................................................ $ 2,500,000 $ 2,597,450
5.00%, 2/01/25 ........................................................................ 3,000,000 3,129,750
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16 ........................................................................ 1,600,000 1,650,496
6.125%, 6/01/24 ....................................................................... 1,815,000 1,871,737
Princeton ISD No. 477, GO, Mille Lacs County, FSA Insured, 5.125%, 2/01/24 ............... 1,190,000 1,240,028
Prior Lake ISD No. 719, GO,
FGIC Insured, 5.125%, 2/01/19 ......................................................... 1,140,000 1,248,049
FSA Insured, 5.50%, 2/01/20 ........................................................... 2,255,000 2,532,252
FSA Insured, 5.50%, 2/01/21 ........................................................... 2,590,000 2,893,652
Series C, MBIA Insured, 5.00%, 2/01/21 ................................................ 2,000,000 2,146,020
Series C, MBIA Insured, 5.00%, 2/01/23 ................................................ 6,025,000 6,394,031
Puerto Rico Commonwealth GO, Public Improvement,
FSA Insured, 5.00%, 7/01/23 ........................................................... 2,500,000 2,662,200
Refunding, FSA Insured, 5.125%, 7/01/30 .................................................. 1,000,000 1,061,010
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/27 ...... 4,675,000 4,947,740
Puerto Rico PBA Revenue, Government Facilities, Refunding, Series F, XLCA Insured,
5.25%, 7/01/25 ......................................................................... 2,500,000 2,894,300
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ............... 1,300,000 1,307,670
Puerto Rico Public Finance Corp. Commonwealth Revenue, Series E, AMBAC Insured,
5.50%, 8/01/27 ......................................................................... 1,000,000 1,197,540
Robbinsdale GO, Housing Development, Senior Housing Project, Series B, FGIC Insured,
5.875%, 1/01/31 ........................................................................ 2,160,000 2,278,908
Rochester Electric Utility Revenue, AMBAC Insured, 5.25%, 12/01/24 ....................... 3,000,000 3,226,920
Rochester Health Care Facilities Revenue, Mayo Foundation, Series B, 5.50%, 11/15/27 ..... 4,000,000 4,295,600
Roseville ISD No. 623, GO, Series A, FSA Insured, 6.00%, 2/01/25 ......................... 4,260,000 4,440,709
Rush City ISD No. 139, GO, School Building, MBIA Insured,
5.00%, 2/01/21 ........................................................................ 1,680,000 1,802,657
5.125%, 2/01/26 ....................................................................... 4,245,000 4,520,670
Sauk Rapids ISD No. 47, GO, Series A, MBIA Insured, 5.75%,
2/01/23 ............................................................................... 2,740,000 3,124,477
2/01/26 ............................................................................... 5,000,000 5,668,750
Scott County GO, MBIA Insured, 5.00%, 2/01/33 ............................................ 5,555,000 5,814,974
Scott County Housing and Redevelopment Authority Facilities Lease Revenue, AMBAC Insured,
5.70%, 2/01/29 ......................................................................... 1,380,000 1,500,074
Scott County Housing and Redevelopment Authority GO, Savage City, Hamilton Apartments
Project, AMBAC Insured, 5.70%, 2/01/33 ................................................. 2,285,000 2,380,764
Scott County Housing and Redevelopment Authority Housing Development Revenue GO, River City
Center Project, Series A, FSA Insured, 5.375%, 2/01/27 ................................. 1,520,000 1,610,166
Scott County Housing and Redevelopment Authority MFR, Highview Commons, Series A,
GNMA Secured,
6.20%, 1/20/41 ........................................................................ 2,820,000 3,115,846
6.50%, 7/20/41 ........................................................................ 1,300,000 1,448,954
92 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Scott County Housing and Redevelopment Authority Special Benefits Tax Revenue, River City
Centre Project, Series B, AMBAC Insured, 5.50%, 2/01/27 ................................ $ 675,000 $ 718,085
Scott County Housing and Redevelopment Authority Tax Increment Development Revenue,
River City Centre Project, Series E, FSA Insured, 5.375%, 2/01/25 ...................... 1,170,000 1,241,148
Shakopee Public Utilities Commission Public Utilities Revenue, MBIA Insured, 6.00%,
2/01/28 ................................................................................ 2,530,000 2,914,054
South Washington County ISD No. 833, GO, Series B, FSA Insured, 5.00%, 2/01/23 ........... 4,000,000 4,232,680
Southeastern Multi-County Housing and RDAR, Housing Development, Goodhue County
Apartments B, MBIA Insured, 5.75%, 1/01/31 ............................................. 2,415,000 2,541,522
Southern Minnesota Municipal Power Agency Power Supply System Revenue, Refunding,
Series A, MBIA Insured, ETM, 5.75%, 1/01/18 ............................................ 1,000,000 1,024,270
St. Clair ISD No. 75, GO, MBIA Insured, 5.70%, 4/01/22 ................................... 2,250,000 2,600,595
St. Cloud Health Care Revenue, St. Cloud Hospital Obligation, Group A, FSA Insured,
5.875%, 5/01/30 ........................................................................ 17,785,000 20,324,876
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, Refunding, Series A, AMBAC Insured,
5.00%, 7/01/15 ......................................................................... 1,165,000 1,231,615
St. Cloud Housing and RDA, Sales Tax Revenue, Paramount Theater Project, Refunding, Series A,
FGIC Insured, 5.00%, 3/01/22 ........................................................... 1,000,000 1,039,570
St. Francis ISD No.15, GO, Series A, FSA Insured,
6.35%, 2/01/13 ........................................................................ 1,500,000 1,637,430
6.375%, 2/01/16 ....................................................................... 5,465,000 5,968,272
St. Michael ISD No. 885, GO, FSA Insured, 5.00%, 2/01/23 ................................. 3,300,000 3,491,961
St. Paul Housing and RDA, Parking Revenue, Refunding, Series A, FSA Insured, 5.75%,
8/01/13 ................................................................................ 5,105,000 5,220,577
St. Paul ISD No. 625, GO,
Series A, FSA Insured, 5.75%, 2/01/16 .................................................. 3,500,000 3,638,950
Series C, FSA Insured, 6.00%, 2/01/20 ................................................. 1,600,000 1,850,048
St. Paul Port Authority IDR, Brown and Bigelow Co., Series K-1996, FGIC
Insured, 9.50%,
12/01/14 ............................................................................... 190,000 195,725
St. Peter GO, Hospital, Series A, MBIA Insured, 5.00%, 9/01/32 ........................... 6,805,000 7,107,686
Stillwater ISD No. 834, GO, MBIA Insured, 5.75%, 2/01/15 ................................. 2,990,000 3,110,078
Todd Morrisson and Stearns Counties ISD No. 2753, GO, MBIA Insured, 5.00%, 4/01/17 ....... 1,500,000 1,559,190
Upsala ISD No. 487, GO, School Building, FGIC Insured, 5.00%, 2/01/22 .................... 1,140,000 1,220,302
Virgin Islands PFAR, Gross Receipts Taxes Loan Note, FSA Insured, 5.25%,
10/01/20 .............................................................................. 1,160,000 1,306,427
10/01/21 .............................................................................. 1,000,000 1,118,830
Virginia Governmental Housing Project GO, Refunding, MBIA Insured, 5.90%, 2/01/26 ........ 2,915,000 3,186,678
Walker-Hakensack-Akeley ISD No. 113, GO, Series A, FSA Insured, 6.00%,
2/01/23 ............................................................................... 1,160,000 1,370,598
2/01/25 ............................................................................... 1,300,000 1,536,015
Washington County GO,
Capital Improvement Plan, Series A, 4.75%, 2/01/22 .................................... 3,200,000 3,380,768
Capital Improvement Plan, Series A, 4.75%, 2/01/23 .................................... 1,760,000 1,848,634
Capital Improvement, Series A, FGIC Insured, 4.75%, 2/01/24 ........................... 1,000,000 1,033,730
Annual Report | 93
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Washington County Housing and RDAR, Government Housing, Landfall Terrace Project, Refunding,
5.35%, 2/01/22 ........................................................................ $ 1,000,000 $ 1,065,910
5.40%, 8/01/27 ........................................................................ 2,015,000 2,131,830
Western Minnesota Municipal Power Agency Minnesota Power Supply Revenue, Series A,
MBIA Insured, 5.00%, 1/01/30 ........................................................... 5,000,000 5,269,600
Western Minnesota Municipal Power Agency Power Supply Revenue, Refunding, Series A,
AMBAC Insured, 5.50%,
1/01/12 ............................................................................... 2,745,000 2,990,870
1/01/13 ............................................................................... 4,500,000 4,903,065
Western Minnesota Municipal Power Agency Revenue,
MBIA Insured, 5.00%, 1/01/26 .......................................................... 8,565,000 9,052,605
Refunding, Series B, MBIA Insured, 5.00%, 1/01/15 ..................................... 2,000,000 2,270,280
White Bear Lake ISD No. 624, GO, Series 4-A, FSA Insured, 4.00%,
2/01/19 ............................................................................... 1,405,000 1,407,051
Willmar GO, Rice Memorial Hospital Project, FSA Insured, 5.00%,
2/01/19 ............................................................................... 2,000,000 2,172,040
2/01/22 ............................................................................... 2,550,000 2,715,852
2/01/25 ............................................................................... 3,000,000 3,156,240
2/01/32 ............................................................................... 1,500,000 1,567,950
Worthington ISD No. 518, GO, Series A, FSA Insured, 5.00%, 2/01/24 ....................... 5,000,000 5,223,050
-------------
TOTAL BONDS .............................................................................. 557,860,799
-------------
ZERO COUPON BONDS 4.4%
Southern Minnesota Municipal Power Agency Power Supply System Revenue,
Capital Appreciation, Refunding, Series A, MBIA Insured, 1/01/23 ...................... 6,000,000 2,515,860
Capital Appreciation, Refunding, Series A, MBIA Insured, 1/01/26 ...................... 5,000,000 1,783,100
Capital Appreciation, Refunding, Series A, MBIA Insured, 1/01/27 ...................... 7,600,000 2,573,740
Capital Appreciation, Series A, MBIA Insured, 1/01/19 ................................. 5,875,000 3,108,286
Capital Appreciation, Series A, MBIA Insured, 1/01/20 ................................. 14,035,000 7,004,027
Series A, AMBAC Insured, 1/01/18 ...................................................... 15,985,000 8,972,700
-------------
TOTAL ZERO COUPON BONDS .................................................................. 25,957,713
-------------
TOTAL LONG TERM INVESTMENTS (COST $545,819,177) .......................................... 583,818,512
-------------
SHORT TERM INVESTMENTS .1%
a Minneapolis GO,
Convention Center, Weekly VRDN and Put, .80%, 12/01/18 ................................ 110,000 110,000
Series B, Weekly VRDN and Put, .80%, 12/01/07 ............................................ 400,000 400,000
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 .................................................... 200,000 200,000
94 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
a Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 ...................................... $ 100,000 $ 100,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $810,000) ............................................. 810,000
-------------
TOTAL INVESTMENTS (COST $546,629,177) 99.4% .............................................. 584,628,512
OTHER ASSETS, LESS LIABILITIES .6% ....................................................... 3,369,890
-------------
NET ASSETS 100.0% ........................................................................ $587,998,402
=============
<FN>
See glossary of terms on page 110.
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.
</FN>
Annual Report | See notes to financial statements. | 95
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $12.60 $12.37 $12.21 $11.52 $12.49
----------------------------------------------------------
Income from investment operations:
Net investment income a ......................... .55 .57 .60 .61 .61
Net realized and unrealized gains (losses) ...... .20 .24 .16 .68 (.95)
----------------------------------------------------------
Total from investment operations ................. .75 .81 .76 1.29 (.34)
----------------------------------------------------------
Less distributions from:
Net investment income ........................... (.54) (.58) (.60) (.60) (.61)
Net realized gains .............................. --d -- -- -- (.02)
----------------------------------------------------------
Total distributions .............................. (.54) (.58) (.60) (.60) (.63)
----------------------------------------------------------
Net asset value, end of year ..................... $12.81 $12.60 $12.37 $12.21 $11.52
==========================================================
Total return b ................................... 6.17% 6.77% 6.41% 11.48% (2.80)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $852,182 $822,031 $752,423 $698,853 $689,084
Ratios to average net assets:
Expenses ........................................ .65% .65% .65% .66% .64%
Net investment income ........................... 4.38% 4.64% 4.86% 5.10% 5.07%
Portfolio turnover rate .......................... 14.89% 13.40% 9.62% 16.45% 9.61%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0027.
</FN>
96 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C,E
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $12.64 $12.40 $12.23 $11.52 $11.43
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................... .48 .51 .53 .55 .05
Net realized and unrealized gains (losses) ...... .21 .25 .17 .70 .09
-----------------------------------------------------------
Total from investment operations ................. .69 .76 .70 1.25 .14
-----------------------------------------------------------
Less distributions from:
Net investment income ........................... (.48) (.52) (.53) (.54) (.05)
Net realized gains .............................. --d -- -- -- --
-----------------------------------------------------------
Total distributions .............................. (.48) (.52) (.53) (.54) (.05)
-----------------------------------------------------------
Net asset value, end of year ..................... $12.85 $12.64 $12.40 $12.23 $11.52
===========================================================
Total return b ................................... 5.57% 6.24% 5.89% 11.04% 1.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $60,869 $44,222 $16,629 $3,649 $76
Ratios to average net assets:
Expenses ........................................ 1.20% 1.20% 1.20% 1.22% 1.20%f
Net investment income ........................... 3.83% 4.09% 4.31% 4.53% 5.02%f
Portfolio turnover rate .......................... 14.89% 13.40% 9.62% 16.45% 9.61%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0027.
e For the period February 1, 2000 (effective date) to February 29, 2000.
f Annualized.
</FN>
Annual Report | 97
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (CONTINUED)
----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $12.69 $12.45 $12.28 $11.58 $12.56
----------------------------------------------------------
Income from investment operations:
Net investment income a ........................ .48 .51 .53 .54 .54
Net realized and unrealized gains (losses) ..... .20 .25 .17 .69 (.96)
----------------------------------------------------------
Total from investment operations ................ .68 .76 .70 1.23 (.42)
----------------------------------------------------------
Less distributions from:
Net investment income .......................... (.47) (.52) (.53) (.53) (.54)
Net realized gains ............................. --d -- -- -- (.02)
----------------------------------------------------------
Total distributions ............................. (.47) (.52) (.53) (.53) (.56)
----------------------------------------------------------
Net asset value, end of year .................... $12.90 $12.69 $12.45 $12.28 $11.58
==========================================================
Total return b .................................. 5.53% 6.23% 5.87% 10.90% (3.41)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $108,062 $91,189 $59,305 $42,072 $40,181
Ratios to average net assets:
Expenses ....................................... 1.22% 1.17% 1.20% 1.22% 1.20%
Net investment income .......................... 3.81% 4.12% 4.31% 4.55% 4.52%
Portfolio turnover rate ......................... 14.89% 13.40% 9.62% 16.45% 9.61%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0027.
</FN>
98 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 99.1%
BONDS 99.0%
Akron Bath Copley Joint Township Hospital District Revenue, Hospital Improvement Childrens
Hospital Center, FSA Insured, 5.00%, 11/15/22 .......................................... $ 5,000,000 $ 5,326,200
Akron GO,
Improvement, FGIC Insured, 5.00%, 12/01/20 ............................................ 2,150,000 2,345,542
Improvement, FGIC Insured, 5.00%, 12/01/21 ............................................ 2,255,000 2,442,932
Improvement, FGIC Insured, 5.00%, 12/01/22 ............................................ 1,185,000 1,274,823
Limited Tax, FGIC Insured, 7.50%, 9/01/05 ............................................. 500,000 545,420
Akron Income Tax Revenue, Community Learning Centers, Series A, FGIC Insured, 5.00%,
12/01/22 .............................................................................. 2,460,000 2,646,468
12/01/24 .............................................................................. 3,200,000 3,410,688
12/01/25 .............................................................................. 4,300,000 4,565,439
12/01/33 .............................................................................. 5,000,000 5,271,850
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 ..................... 3,660,000 4,077,386
Anthony Wayne Local School District GO,
Refunding, FSA Insured, 5.00%, 12/01/24 ............................................... 3,200,000 3,392,736
School Facilities Construction and Improvement, FSA Insured, 5.65%, 12/01/21 .......... 2,490,000 2,852,917
School Facilities Construction and Improvement, FSA Insured, 5.70%, 12/01/25 .......... 2,335,000 2,649,034
School Facilities Construction and Improvement, FSA Insured, 5.125%, 12/01/30 ......... 2,535,000 2,673,056
Archbold Area Local School District GO, AMBAC Insured, 6.00%, 12/01/21 ................... 2,000,000 2,274,180
Athens City School District GO, School Facilities Construction and Improvement, FSA Insured,
6.00%, 12/01/24 ........................................................................ 2,345,000 2,789,143
Aurora City School District COP, MBIA Insured,
6.10%, 12/01/19 ....................................................................... 1,825,000 2,174,049
6.15%, 12/01/24 ....................................................................... 1,670,000 1,976,178
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%,
12/01/16 ............................................................................... 1,075,000 1,178,178
Avon Lake City School District GO, FGIC Insured, 5.50%, 12/01/26 ......................... 4,000,000 4,427,520
Avon Lake Water System Revenue, Series A, AMBAC Insured, 5.75%, 10/01/26 ................. 2,020,000 2,306,577
Avon Local School District GO,
AMBAC Insured, 6.00%, 12/01/20 ........................................................ 2,500,000 2,818,775
School Improvement, MBIA Insured, 5.25%, 12/01/23 ..................................... 1,000,000 1,094,920
School Improvement, MBIA Insured, 5.25%, 12/01/29 ..................................... 2,295,000 2,480,206
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 ...................... 8,125,000 9,072,537
Bluffton Exempted Village School District GO, Improvement, AMBAC Insured, 5.50%,
12/01/28 ............................................................................... 1,190,000 1,412,197
Bowling Green MFHR, Village Apartments, Refunding, Series A, GNMA Secured, 5.40%,
9/20/36 ................................................................................ 2,940,000 3,044,135
a Brecksville Building Improvement GO, Refunding, 5.00%, 12/01/23 .......................... 500,000 534,720
Brookville Local School District GO, FSA Insured,
5.25%, 12/01/22 ....................................................................... 1,075,000 1,182,489
5.00%, 12/01/31 ....................................................................... 3,000,000 3,165,540
Buckeye Local School District GO, Construction and Improvement Bonds, FGIC Insured,
5.50%, 12/01/25 ........................................................................ 750,000 836,040
Butler County GO,
AMBAC Insured, 5.75%, 12/01/16 ........................................................ 1,000,000 1,120,830
Judgment Bonds, FSA Insured, 4.75%, 12/01/26 .......................................... 9,660,000 9,901,886
Annual Report | 99
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Cardington and Lincoln Local School District GO , Facilities and Construction, FSA Insured,
4.75%, 12/01/25 ........................................................................ $ 1,000,000 $ 1,029,830
Central Local School District GO, Classroom Facilities, FSA Insured, 5.75%, 12/01/22 ..... 1,555,000 1,816,613
Cincinnati City School District GO,
Classroom Facilities Construction and Improvement, FSA Insured, 5.00%, 12/01/27 ....... 2,500,000 2,646,125
Classroom Facilities Construction and Improvement, FSA Insured, 5.00%, 12/01/31 ....... 23,000,000 24,269,140
FSA Insured, 5.00%, 12/01/22 .......................................................... 9,510,000 10,215,452
Cincinnati Tech College Revenue, AMBAC Insured,
5.25%, 10/01/23 ....................................................................... 2,510,000 2,744,986
5.00%, 10/01/28 ....................................................................... 5,715,000 6,039,955
Circleville GO, Capital Facilities Improvement, AMBAC Insured, 5.625%, 12/01/20 .......... 2,035,000 2,302,501
Cleveland GO, Series 1994, MBIA Insured, Pre-Refunded, 6.70%, 11/15/18 ................... 2,000,000 2,120,480
Cleveland Ohio State University General Receipt Revenue, Series A, FGIC Insured,
5.00%, 6/01/33 ......................................................................... 2,350,000 2,472,411
Cleveland Waterworks Revenue,
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/28 ...................... 11,500,000 11,890,770
Refunding, Series K, FGIC Insured, 5.00%, 1/01/25 ..................................... 8,150,000 8,569,562
Series H, MBIA Insured, Pre-Refunded, 5.75%, 1/01/26 .................................. 1,000,000 1,100,980
Series K, FGIC Insured, 5.00%, 1/01/22 ................................................ 2,075,000 2,205,995
Series K, FGIC Insured, 5.00%, 1/01/23 ................................................ 4,285,000 4,537,815
Clinton-Massie Local School District GO, School Improvement, MBIA Insured, 5.00%,
12/01/25 ............................................................................... 1,185,000 1,248,717
Clyde-Green Springs Exempt Village School District GO, Refunding and Improvement, School
Facilities Construction, MBIA Insured, 5.125%, 12/01/32 ................................ 1,000,000 1,068,330
Columbus City School District GO, Linden Elementary Construction, FSA Insured, 5.00%,
12/01/28 ............................................................................... 900,000 942,876
Columbus Municipal Airport Authority Revenue, Airport Improvement, Port Columbus
International, Series B, AMBAC Insured, 5.00%, 1/01/18 ................................. 3,565,000 3,765,032
Columbus Tax Increment Financing Revenue, Easton Project, AMBAC Insured, 5.30%,
12/01/19 ............................................................................... 1,500,000 1,641,510
Crawford County GO, Refunding, AMBAC Insured, 5.25%, 12/01/31 ............................ 1,330,000 1,431,240
Cuyahoga Community College District General Receipts Revenue, Series A,
AMBAC Insured, 5.00%,
12/01/22 .............................................................................. 1,000,000 1,075,800
12/01/32 .............................................................................. 3,000,000 3,163,110
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 .......................... 100,000 104,769
Cuyahoga County Hospital Revenue, University Hospitals Health System Inc., AMBAC Insured,
5.40%, 1/15/19 ........................................................................ 1,500,000 1,651,500
5.50%, 1/15/30 ........................................................................ 1,760,000 1,918,312
Cuyahoga County MFHR, Rockefeller Park Project, Series A, GNMA Secured, 5.75%,
1/20/29 ................................................................................ 1,000,000 1,057,790
Cuyahoga County Utility System Revenue,
AMBAC Insured, 5.125%, 2/15/28 ........................................................ 1,000,000 1,044,480
Medical Center Co. Project, Refunding, Series B, MBIA Insured, 6.10%, 8/15/15 ......... 2,945,000 3,181,012
Darke County GO, Real Estate Acquisition and Improvement, FGIC Insured, 5.125%,
12/01/27 ............................................................................... 1,020,000 1,083,781
100 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Deerefield Township Tax Increment Revenue, Refunding, Series B, MBIA Insured, 5.00%,
12/01/25 ............................................................................... $ 1,000,000 $ 1,056,480
Defiance GO, MBIA Insured,
6.10%, 12/01/14 ....................................................................... 1,000,000 1,056,010
6.20%, 12/01/20 ....................................................................... 750,000 792,562
Delaware City School District GO, FGIC Insured, 5.75%, 12/01/15 .......................... 1,640,000 1,779,974
Dover City School District GO, AMBAC Insured, 6.25%, 12/01/16 ............................ 2,000,000 2,008,080
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19 ................... 1,625,000 1,770,681
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13 ......................... 1,100,000 1,163,371
Eastlake GO, Capital Facilities, MBIA Insured, 5.00%, 12/01/27 ........................... 1,950,000 2,054,305
Eaton City School District GO, FGIC Insured, 5.00%, 12/01/25 ............................. 1,250,000 1,327,162
Edgerton Local School District GO, School Improvement, FGIC Insured, 4.75%, 12/01/27 ..... 2,000,000 2,048,760
Fairfield City School District GO, FGIC Insured, Pre-Refunded, 6.00%, 12/01/20 ........... 1,000,000 1,084,780
Fairfield County GO, FGIC Insured, 5.00%, 12/01/20 ....................................... 1,600,000 1,739,296
Finneytown Local School District GO, FGIC Insured, 5.80%, 12/01/24 ....................... 1,980,000 2,240,528
Franklin County Hospital Revenue,
Childrens Hospital Project, AMBAC Insured, 5.50%, 5/01/21 ............................. 3,365,000 3,755,205
Childrens Hospital Project, AMBAC Insured, 5.50%, 5/01/28 ............................. 4,265,000 4,700,243
Holy Cross Health Systems, AMBAC Insured, 5.875%, 6/01/21 ............................. 2,500,000 2,759,900
Ohiohealth Corp., Refunding, Series C, MBIA Insured, 5.00%, 5/15/33 ................... 7,250,000 7,570,160
Refunding, Series C, MBIA Insured, 5.00%, 5/15/28 .................................... 11,575,000 12,121,803
Franklin GO, MBIA Insured, 5.25%, 12/01/27 ............................................... 1,500,000 1,618,725
Garfield Heights GO, Various Purpose, Improvement, Refunding, FGIC Insured, 5.00%,
12/01/27 ............................................................................... 2,655,000 2,822,796
Grand Valley Ohio Local School District GO, Classroom Facilities Improvement, FGIC Insured,
5.00%, 12/01/24 ........................................................................ 1,300,000 1,378,299
Greater Cleveland Regional Transit Authority GO, Capital Improvement, Series A, MBIA Insured,
5.125%, 12/01/21 ....................................................................... 1,750,000 1,884,732
Green Local School District GO, Summit County, FGIC Insured, Pre-Refunded,
5.875%, 12/01/14 ...................................................................... 2,800,000 2,958,704
5.90%, 12/01/19 ....................................................................... 5,150,000 5,442,880
Greene County GO, AMBAC Insured, 5.00%,
12/01/22 .............................................................................. 1,475,000 1,577,232
12/01/28 .............................................................................. 2,620,000 2,758,179
Greene County Sewer System Revenue, Governmental Enterprise,
AMBAC Insured, 5.625%, 12/01/25 ....................................................... 1,890,000 2,147,928
MBIA Insured, 5.25%, 12/01/25 ......................................................... 5,000,000 5,323,300
Greene County Water System Revenue,
Governmental Enterprise, MBIA Insured, 5.25%, 12/01/21 ................................ 5,400,000 5,919,156
Series A, FGIC Insured, 6.125%, 12/01/21 .............................................. 2,100,000 2,454,102
Guernsey County GO, Refunding, FGIC Insured, 5.00%, 12/01/23 ............................. 2,690,000 2,864,204
a Hamilton County Convention Facilities Authority Revenue, FGIC Insured, 5.00%, 12/01/24 ... 2,795,000 2,955,545
Hamilton County Sales Tax, Series B, AMBAC Insured,
5.25%, 12/01/32 ....................................................................... 27,420,000 29,494,049
5.60%, 12/01/32 ....................................................................... 1,200,000 1,345,560
Annual Report | 101
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Hamilton County Sewer System Revenue, Refunding,
MBIA Insured, 5.25%, 12/01/21 ......................................................... $ 1,000,000 $ 1,088,730
Series A, FGIC Insured, 6.05%, 12/01/15 ............................................... 3,010,000 3,326,863
Hamilton GO, One Renaissance Center, Series A, AMBAC Insured, 5.25%,
11/01/18 .............................................................................. 1,010,000 1,125,473
11/01/19 .............................................................................. 1,015,000 1,123,869
11/01/20 .............................................................................. 1,120,000 1,233,837
11/01/21 .............................................................................. 1,180,000 1,292,513
Hamilton Wastewater System Revenue, Series A, FSA Insured,
5.90%, 10/15/21 ....................................................................... 3,040,000 3,389,448
5.20%, 10/15/23 ....................................................................... 7,275,000 7,760,242
Heath City School District GO, School Improvement, Series A, FGIC Insured,
5.60%, 12/01/21 ....................................................................... 1,000,000 1,141,250
5.50%, 12/01/27 ....................................................................... 1,170,000 1,297,565
Highland Local School District GO, School Improvement, FSA Insured, 5.00%,
12/01/23 .............................................................................. 3,680,000 3,895,133
12/01/26 .............................................................................. 3,675,000 3,857,500
Hilliard School District GO,
Refunding, FGIC Insured, 6.55%, 12/01/05 .............................................. 500,000 546,215
School Improvement, FGIC Insured, 5.75%, 12/01/28 ..................................... 4,000,000 4,599,160
School Improvement, Series A, FGIC Insured, 5.25%, 12/01/28 ........................... 3,010,000 3,234,546
Independence Local School District GO, FGIC Insured, 5.25%, 12/01/21 ..................... 1,390,000 1,533,253
Jackson Center Local School District Shelby County GO, Facilities Construction and
Improvements, MBIA Insured, 5.00%, 12/01/28 ............................................ 1,175,000 1,236,969
Jackson Local School District GO, Stark and Summit Counties Local School District,
FSA Insured, 5.50%, 12/01/20 .......................................................... 4,000,000 4,540,920
FSA Insured, 5.625%, 12/01/25 ......................................................... 3,500,000 3,938,690
MBIA Insured, 5.50%, 12/01/21 ......................................................... 3,060,000 3,355,627
a Jefferson Local School District Madison County School Construction GO, FGIC Insured,
5.00%, 12/01/25 ........................................................................ 1,200,000 1,280,112
Jonathan Alder Local School District GO, School Facilities Construction and Improvement,
MBIA Insured,
4.75%, 12/01/22 ....................................................................... 1,105,000 1,149,023
5.00%, 12/01/27 ....................................................................... 6,195,000 6,526,371
5.00%, 12/01/30 ....................................................................... 3,320,000 3,490,150
Kenston Local School District GO, School Improvement, MBIA Insured, 5.00%,
12/01/24 .............................................................................. 2,380,000 2,530,107
12/01/25 .............................................................................. 2,500,000 2,647,825
Lake County Hospital Facilities Revenue, Lake Hospital System Inc., AMBAC Insured,
5.00%, 8/15/23 ......................................................................... 1,500,000 1,566,270
Lake Ohio Local School District GO, MBIA Insured,
5.30%, 12/01/21 ....................................................................... 1,575,000 1,737,193
5.375%, 12/01/25 ...................................................................... 1,900,000 2,077,080
Lakota Local District GO, AMBAC Insured, Pre-Refunded, 6.125%, 12/01/17 .................. 3,200,000 3,478,176
Lebanon City School District GO, FSA Insured, 5.00%, 12/01/29 ............................ 6,250,000 6,543,562
102 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Licking County Joint Vocational School District GO, School Facilities Construction and
Improvement, MBIA Insured,
5.00%, 12/01/21 ....................................................................... $ 2,200,000 $ 2,367,596
4.75%, 12/01/23 ....................................................................... 2,230,000 2,308,942
Licking Heights Local School District GO, School Facilities Construction and Improvements,
Series A, FGIC Insured, 5.625%, 12/01/28 ............................................... 4,000,000 4,480,960
Logan Hocking Local School District GO, Construction and Improvement, MBIA Insured, 5.00%,
12/01/22 .............................................................................. 1,200,000 1,275,060
12/01/29 .............................................................................. 1,000,000 1,046,970
London City School District GO, School Facilities Construction and Improvement, FGIC Insured,
5.00%,
12/01/22 .............................................................................. 700,000 743,785
12/01/29 .............................................................................. 1,500,000 1,570,455
Lorain County GO, Sewer System Improvement, MBIA Insured, 5.00%, 12/01/19 ................ 1,640,000 1,784,271
Lorain County Health Facilities Revenue, Catholic Healthcare Partners, Series A, AMBAC
Insured, 5.50%, 9/01/29 ................................................................ 6,250,000 6,887,187
Lorain County Hospital Revenue, Catholic Healthcare Partners, Refunding, Series B, MBIA
Insured, 5.50%, 9/01/27 ................................................................ 5,000,000 5,401,050
Lorain GO, Urban Renewal, MBIA Insured, 5.70%, 12/01/28 .................................. 1,050,000 1,188,316
Louisville City School District GO, FGIC Insured, 5.00%, 12/01/24 ........................ 3,500,000 3,690,365
Loveland City School District GO, Refunding, Series A, MBIA Insured, 5.00%, 12/01/24 ..... 4,000,000 4,193,200
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06 .............................................................................. 120,000 140,466
12/01/08 .............................................................................. 110,000 138,249
12/01/09 .............................................................................. 120,000 154,660
12/01/10 .............................................................................. 220,000 290,008
Lucas County Hospital Revenue, Promedica Healthcare Obligation Group,
MBIA Insured, 5.75%, 11/15/14 ......................................................... 300,000 335,610
Refunding, AMBAC Insured, 5.375%, 11/15/29 ............................................ 750,000 798,953
Refunding, MBIA Insured, ETM, 5.75%, 11/15/14 ......................................... 4,460,000 4,857,921
Mad River Local School District GO, Classroom Facilities, FGIC Insured, 5.125%, 12/01/24 . 4,180,000 4,469,716
Madison Local School District Butler County GO,
MBIA Insured, 5.75%, 12/01/26 ......................................................... 1,000,000 1,140,550
School Improvement, FGIC Insured, 5.60%, 12/01/26 ..................................... 1,120,000 1,261,098
Mahoning County Hospital Facilities Revenue, Western Reserve Care, MBIA Insured, ETM,
5.50%, 10/15/25 ........................................................................ 4,750,000 5,017,853
Mahoning County Sewer System Revenue, AMBAC Insured, 5.375%, 12/01/18 .................... 1,905,000 2,121,960
Marietta Water Revenue, AMBAC Insured, Pre-Refunded, 5.95%, 12/01/21 ..................... 3,875,000 4,390,918
Marion County City School District GO, School Facilities Construction and Improvement Project,
FSA Insured,
5.55%, 12/01/20 ....................................................................... 1,000,000 1,143,020
5.625%, 12/01/22 ...................................................................... 1,100,000 1,260,116
Marion County GO, AMBAC Insured, 5.05%, 12/01/31 ......................................... 1,500,000 1,581,180
Annual Report | 103
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Marysville Exempted Village School District GO,
FSA Insured, 5.30%, 12/01/21 .......................................................... $ 2,000,000 $ 2,184,920
FSA Insured, 5.35%, 12/01/25 .......................................................... 2,010,000 2,169,433
FSA Insured, 5.375%, 12/01/29 ......................................................... 2,465,000 2,655,052
Refunding, MBIA Insured, 5.00%, 12/01/29 .............................................. 1,000,000 1,052,000
School Improvement, AMBAC Insured, Pre-Refunded, 6.00%, 12/01/29 ...................... 2,890,000 3,548,631
Mason City School District GO, Refunding, MBIA Insured, 5.00%, 12/01/20 .................. 5,495,000 5,865,088
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19 ............................... 1,935,000 2,022,772
Maumee City School District GO, School Facilities Construction and Improvements,
FSA Insured, 5.00%, 12/01/27 ........................................................... 3,610,000 3,821,005
Maumee Hospital Revenue, St. Luke's Hospital Project, Refunding, AMBAC Insured,
5.80%, 12/01/14 ........................................................................ 2,755,000 2,898,921
Medina GO, 5.00%, 12/01/22 ............................................................... 1,100,000 1,173,733
Miami University General Receipts Revenue, Refunding, AMBAC Insured, 5.00%, 12/01/22 ..... 1,675,000 1,801,965
Milford Exempted Village School District GO, School Improvement, FSA Insured,
5.00%, 12/01/22 ....................................................................... 2,000,000 2,125,100
5.125%, 12/01/30 ...................................................................... 7,325,000 7,723,920
Minerva Local School District GO, Classroom Facilities, MBIA Insured, 5.30%, 12/01/29 .... 1,300,000 1,405,638
Minster School District School Facilities and Construction GO, FSA Insured,
5.70%, 12/01/23 ....................................................................... 3,190,000 3,635,484
5.75%, 12/01/27 ....................................................................... 3,260,000 3,731,331
Monroe Local School District GO, AMBAC Insured, 5.00%, 12/01/23 .......................... 1,000,000 1,064,760
Montgomery County Revenue, Sisters of Charity Health Care, Series A, MBIA Insured, 6.625%,
5/15/21 ................................................................................ 450,000 451,944
Morley Library District GO, Lake County District Library, Library Improvement, AMBAC Insured,
4.75%, 12/01/21 ........................................................................ 1,000,000 1,046,550
New Albany Community Authority Community Facilities Revenue, Refunding, Series B,
AMBAC Insured,
5.125%, 10/01/21 ...................................................................... 3,000,000 3,239,520
5.20%, 10/01/24 ....................................................................... 5,000,000 5,367,700
New Lexington HDC, Mortgage Revenue, Lincoln Park, Refunding, Series A, MBIA Insured,
5.85%, 1/01/21 ......................................................................... 930,000 966,038
New Philadelphia City School District GO, School Improvement, AMBAC Insured, 6.25%,
12/01/17 ............................................................................... 2,000,000 2,008,080
Nordonia Hills Local School District GO, School Improvement, AMBAC Insured, 5.45%,
12/01/25 ............................................................................... 3,035,000 3,302,778
Oak Hills Local School District GO, MBIA Insured, 5.45%, 12/01/21 ........................ 5,000,000 5,509,000
Ohio Capital Corp. HMR,
Refunding, Series G, MBIA Insured, 6.35%, 7/01/22 ..................................... 2,000,000 2,079,700
Refunding, Series H, MBIA Insured, 6.90%, 7/01/24 ..................................... 1,465,000 1,468,633
Westview Apartments, Refunding, Series A, MBIA Insured, 6.125%, 1/01/15 ............... 1,625,000 1,681,063
Westview Apartments, Refunding, Series A, MBIA Insured, 6.25%, 1/01/23 ................ 2,565,000 2,645,849
Ohio Center Local Government Capital Asset Financing Program Fractionalized Institute GO,
FSA Insured,
4.875%, 12/01/18 ...................................................................... 1,255,000 1,365,013
5.25%, 12/01/23 ....................................................................... 1,410,000 1,550,986
104 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Ohio HFA,
MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%, 5/01/32 ............ $ 2,035,000 $ 2,115,627
RMR, Series C, GNMA Secured, 5.75%, 9/01/30 ........................................... 5,475,000 5,661,971
Ohio Municipal Electric Generation Agency Revenue, Joint Venture 5, CBI, Refunding, AMBAC
Insured, 5.00%, 2/15/23 ................................................................ 3,000,000 3,203,550
Ohio State Air Quality Development Authority Revenue,
Cincinnati Gas and Electric, Refunding, Series B, MBIA Insured, 5.45%, 1/01/24 ........ 3,500,000 3,586,555
Columbus and Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 ................. 4,000,000 4,056,360
JMG Funding LP Project, AMBAC Insured, 5.625%, 10/01/22 ............................... 6,875,000 7,387,600
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 1/01/29 ..................... 1,230,000 1,288,364
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 4/01/29 ..................... 15,245,000 15,968,375
Ohio Power Co., Refunding, Series C, AMBAC Insured, 5.15%, 5/01/26 .................... 9,075,000 9,548,352
PCR, Ohio Edison, Refunding, Series B, AMBAC Insured, 5.625%, 11/15/29 ................ 5,400,000 5,540,184
Ohio State Building Authority Revenue,
Adult Correctional Facilities, Series A, AMBAC Insured, Pre-Refunded, 5.60%, 4/01/16 .. 2,000,000 2,260,920
Adult Correctional Facilities, Series A, MBIA Insured, Pre-Refunded, 6.125%, 10/01/13 . 10,000,000 10,499,300
State Facilities, Administration Building Fund Project, Refunding, Series A, FSA Insured,
5.00%, 4/01/22 ....................................................................... 3,100,000 3,301,066
Ohio State Department of Transportation COP, Panhandle Rail Line Project, FSA Insured,
6.50%, 4/15/12 ......................................................................... 1,020,000 1,026,569
Ohio State Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 ............ 5,000,000 5,270,700
Ohio State GO, Series B, 4.625%, 9/15/22 ................................................. 5,000,000 5,123,000
Ohio State Higher Educational Facility Commission Revenue,
FGIC Insured, 5.00%, 5/01/23 .......................................................... 8,460,000 9,029,527
Higher Educational Facility Oberlin College, AMBAC Insured, 5.00%, 10/01/26 ........... 8,000,000 8,345,520
University Dayton Project, FGIC Insured, 5.80%, 12/01/14 .............................. 1,300,000 1,369,927
Xavier University Higher Educational Facility, MBIA Insured, 5.375%, 5/15/22 .......... 3,500,000 3,761,695
Ohio State Turnpike Commission Turnpike Revenue, AMBAC Insured, 5.25%, 2/15/31 ........... 16,425,000 17,404,094
Ohio State University General Receipts Athens Revenue, FSA Insured, 5.00%, 12/01/24 ...... 3,025,000 3,183,450
Ohio State University General Receipts Revenue,
Series A, 5.125%, 12/01/31 ............................................................ 2,500,000 2,637,650
State University Ohio, Series B, MBIA Insured, 5.00%, 6/01/33 ......................... 5,755,000 6,054,778
Ohio State Water Development Authority PCR, Facilities Revenue,
Pennsylvania Power Co. Project, Refunding, AMBAC Insured, 6.15%, 8/01/23 .............. 3,420,000 3,557,245
Water Control Loan Fund, Water Quality Series, MBIA Insured, 5.125%, 6/01/19 .......... 5,000,000 5,355,600
Ohio State Water Development Authority Revenue,
Community Assistance, MBIA Insured, 5.00%, 12/01/30 ................................... 5,230,000 5,522,880
Dayton Power, Refunding, Series A, AMBAC Insured, 6.40%, 8/15/27 ...................... 5,000,000 5,067,500
Drinking Water Fund Leverage, 5.00%, 6/01/23 .......................................... 2,255,000 2,394,224
Fresh Water Service, AMBAC Insured, Pre-Refunded, 5.90%, 12/01/21 ..................... 8,750,000 9,453,938
Pure Water, Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/11 ................. 270,000 273,794
Pure Water, Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/18 ................. 1,385,000 1,404,459
Pure Water, Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 ............................. 2,000,000 2,337,740
Annual Report | 105
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Olentangy Local School District GO,
FSA Insured, 5.00%, 12/01/25 .......................................................... $ 1,835,000 $ 1,933,668
FSA Insured, 5.00%, 12/01/30 .......................................................... 4,000,000 4,195,200
MBIA Insured, 7.75%, 12/01/08 ......................................................... 375,000 469,605
MBIA Insured, 7.75%, 12/01/09 ......................................................... 375,000 482,501
MBIA Insured, 7.75%, 12/01/10 ......................................................... 375,000 493,200
School Facilities Construction and Improvement, FSA Insured, 5.625%, 12/01/27 ......... 4,500,000 5,043,960
Olmsted Falls Local School District GO, FGIC Insured, Pre-Refunded, 5.85%, 12/15/17 ...... 1,500,000 1,587,600
Orrville Water Systems Improvement Revenue, MBIA Insured, Pre-Refunded, 6.125%,
12/01/18 ............................................................................... 1,150,000 1,217,310
Ottawa and Glandorf Local School District GO, School Facilities Construction and Improvement,
MBIA Insured, 5.25%, 12/01/23 .......................................................... 2,175,000 2,372,142
Perrysburg Exempted Village School District GO, Series B, FSA Insured, 5.00%, 12/01/25 ... 5,000,000 5,226,550
Pickerington Local School District GO,
AMBAC Insured, 5.00%, 12/01/25 ........................................................ 7,000,000 7,317,170
School Facilities Construction and Improvement, FGIC Insured, 5.00%, 12/01/28 ......... 3,000,000 3,142,920
Plain Local School District GO, FGIC Insured,
6.00%, 12/01/25 ....................................................................... 800,000 935,320
5.00%, 12/01/30 ....................................................................... 5,000,000 5,267,500
Pre-Refunded, 6.00%, 12/01/25 ......................................................... 3,700,000 4,501,087
Princeton City School District GO, MBIA Insured,
5.00%, 12/01/25 ....................................................................... 1,700,000 1,804,941
5.00%, 12/01/26 ....................................................................... 2,725,000 2,888,745
4.75%, 12/01/27 ....................................................................... 2,680,000 2,751,368
5.00%, 12/01/30 ....................................................................... 7,500,000 7,920,000
Puerto Rico Commonwealth GO,
MBIA Insured, Pre-Refunded, 5.75%, 7/01/24 ............................................ 2,000,000 2,156,520
Public Improvement, Series A, FGIC Insured, 5.00%, 7/01/32 ............................ 10,000,000 10,542,300
Puerto Rico Electric Power Authority Revenue, Series DD, MBIA Insured, 5.00%, 7/01/28 .... 2,000,000 2,089,280
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/27 ...... 6,200,000 6,561,708
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, Pre-Refunded,
5.50%, 7/01/21 ......................................................................... 4,000,000 4,299,880
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ............... 11,000,000 11,034,650
Ridgewood Local School District GO, School Facilities Improvement, FSA Insured,
6.00%, 12/01/24 ........................................................................ 1,730,000 2,057,662
Riverside Local School District GO, School Facilities Construction and Improvement, MBIA
Insured, 5.75%, 12/01/22 ............................................................... 1,000,000 1,168,240
Rural Lorain County Water Authority Water Resource Revenue, AMBAC Insured, 5.875%,
10/01/24 ............................................................................... 3,100,000 3,587,723
Salem GO, AMBAC Insured, 6.50%, 12/01/06 ................................................. 1,200,000 1,305,720
Shaker Heights GO, Urban Renewal, Refunding, AMBAC Insured,
5.00%, 12/01/21 ....................................................................... 1,225,000 1,327,092
5.25%, 12/01/26 ....................................................................... 725,000 782,906
Sidney City School District GO, School Improvement,
FGIC Insured, 5.125%, 12/01/28 ........................................................ 1,425,000 1,513,037
Refunding, Series B, FGIC Insured, 5.25%, 12/01/23 .................................... 1,780,000 1,932,475
Refunding, Series B, FGIC Insured, 5.25%, 12/01/28 .................................... 1,000,000 1,074,600
South Range Local School District GO, MBIA Insured, 6.15%, 12/01/18 ...................... 415,000 425,670
106 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
South-Western City School District of Ohio Franklin and Pickway Counties GO, FGIC Insured,
ETM, 7.875%,
12/01/04 .............................................................................. $ 550,000 $ 578,386
12/01/06 .............................................................................. 600,000 705,114
12/01/07 .............................................................................. 600,000 733,590
Southwest Regional Water District Revenue, MBIA Insured, Pre-Refunded, 6.00%,
12/01/15 .............................................................................. 1,000,000 1,094,590
12/01/20 .............................................................................. 700,000 766,213
St. Henry Local Consolidated School District GO, MBIA Insured, 5.75%, 12/01/22 ........... 1,515,000 1,774,929
St. Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 .............. 600,000 602,538
St. Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 ............................ 750,000 753,173
Steubenville City School District GO, School Facilities and Implementation, MBIA Insured,
5.60%, 12/01/22 ........................................................................ 1,500,000 1,716,090
Streetsboro City School District GO, School Improvement, MBIA Insured, 5.00%, 12/01/25 ... 2,500,000 2,627,525
Struthers City School District GO, Refunding, AMBAC Insured, 5.50%, 12/01/22 ............. 1,950,000 2,200,322
Summit County GO, Sanitary Sewer System Improvement, FGIC Insured, 5.25%, 12/01/21 ....... 4,505,000 4,938,111
Swanton Local School District GO, School Improvement, FGIC Insured, 5.25%, 12/01/25 ...... 1,895,000 2,049,443
Sycamore Community City School District COP, Blue Ash Elementary School Project,
AMBAC Insured, 5.125%, 12/01/25 ........................................................ 1,000,000 1,062,590
Sylvania City School District GO,
FGIC Insured, Pre-Refunded, 5.75%, 12/01/22 ........................................... 1,500,000 1,635,420
Refunding, FGIC Insured, 5.00%, 12/01/22 .............................................. 1,550,000 1,657,431
Various Purpose, FGIC Insured, 5.30%, 12/01/20 ........................................ 2,225,000 2,460,427
Toledo City School District GO, School Facilities Improvement, FSA Insured, 5.00%,
12/01/23 ............................................................................... 1,500,000 1,606,215
Toledo GO, Limited Tax,
AMBAC Insured, Pre-Refunded, 5.95%, 12/01/15 .......................................... 3,715,000 4,099,651
AMBAC Insured, Pre-Refunded, 6.00%, 12/01/16 .......................................... 1,000,000 1,144,120
FGIC Insured, 7.375%, 12/01/04 ........................................................ 650,000 680,492
FGIC Insured, 7.375%, 12/01/05 ........................................................ 650,000 718,705
FGIC Insured, 7.375%, 12/01/06 ........................................................ 625,000 719,325
Toledo Sewer System Revenue, AMBAC Insured, 5.00%,
11/15/22 .............................................................................. 1,000,000 1,075,520
11/15/23 .............................................................................. 1,000,000 1,070,550
11/15/28 .............................................................................. 2,000,000 2,114,840
Tri-Valley Local School District GO, FGIC Insured, 5.25%, 12/01/29 ....................... 8,530,000 9,160,452
Trotwood-Madison City School District GO, School Improvement, FGIC Insured,
5.375%, 12/01/22 ...................................................................... 1,685,000 1,867,553
5.00%, 12/01/30 ....................................................................... 11,500,000 12,089,375
Trumbull County GO, Refunding, MBIA Insured, 5.20%, 12/01/20 ............................. 1,475,000 1,627,028
Twinsburg GO,
Golf Course, Refunding, FGIC Insured, 5.00%, 12/01/21 ................................. 1,000,000 1,068,720
Park Land and Conservation, FGIC Insured, 5.00%, 12/01/21 ............................. 1,000,000 1,068,720
Union County GO, MBIA Insured, 5.00%, 12/01/33 ........................................... 2,895,000 3,040,619
University of Akron General Receipts Revenue, FGIC Insured,
5.70%, 1/01/24 ........................................................................ 7,050,000 7,946,337
5.75%, 1/01/29 ........................................................................ 1,500,000 1,703,145
Annual Report | 107
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
University of Cincinnati COP, Jefferson Avenue Residence Hall, MBIA Insured, 5.125%,
6/01/28 ................................................................................ $ 7,400,000 $ 7,766,892
University of Cincinnati General Receipts Revenue,
AMBAC Insured, 5.00%, 6/01/31 ......................................................... 1,350,000 1,418,189
Series A, AMBAC Insured, 5.00%, 6/01/22 ............................................... 1,610,000 1,737,110
Series A, AMBAC Insured, 5.00%, 6/01/24 ............................................... 1,940,000 2,073,006
Series A, AMBAC Insured, 5.00%, 6/01/25 ............................................... 2,005,000 2,133,861
Series AD, MBIA Insured, 5.125%, 6/01/20 .............................................. 1,500,000 1,573,125
Series W, MBIA Insured, 5.85%, 6/01/16 ................................................ 1,630,000 1,798,183
University of Puerto Rico Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 ............... 6,000,000 6,268,980
Upper Arlington County School District GO, MBIA Insured, 5.25%, 12/01/22 ................. 5,000,000 5,333,250
Upper Scioto Valley Local School District GO, School Facilities Construction and Improvement,
FGIC Insured, 5.25%, 12/01/25 .......................................................... 1,160,000 1,250,770
Van Wert City School District GO, School Improvement, FGIC Insured, 5.00%,
12/01/27 .............................................................................. 4,805,000 5,062,019
12/01/30 .............................................................................. 2,500,000 2,628,125
Wadsworth City School District GO, FGIC Insured, 5.75%, 12/01/22 ......................... 1,200,000 1,394,316
Warrensville Heights City School District GO, School Improvement, FGIC Insured,
5.625%, 12/01/20 ...................................................................... 3,500,000 4,027,765
5.75%, 12/01/24 ....................................................................... 2,750,000 3,176,305
Waterville GO, Refunding, MBIA Insured, 5.05%, 12/01/26 .................................. 1,085,000 1,148,581
Wausen Exempted Village School District GO, Refunding and School Improvements, MBIA
Insured, 5.50%, 12/01/17 ............................................................... 1,800,000 2,010,744
Wayne Local School District GO, Warren County, AMBAC Insured, Pre-Refunded, 6.10%,
12/01/24 ............................................................................... 1,800,000 2,046,906
West Chester Township GO, AMBAC Insured, 5.00%, 12/01/25 ................................. 1,500,000 1,576,515
West Muskingum Local School District School Facilities GO, FGIC Insured, 5.00%, 12/01/24 . 2,750,000 2,931,060
Westfall Local School District GO, School Facilities Construction Improvement, FGIC Insured,
6.00%, 12/01/22 ........................................................................ 2,850,000 3,349,377
Wilmington Water Revenue, First Mortgage System, AMBAC Insured,
6.00%, 6/15/21 ........................................................................ 2,510,000 2,781,381
5.25%, 6/15/29 ........................................................................ 3,320,000 3,478,928
Woodmore Local School District GO, Refunding, AMBAC Insured, 5.65%, 12/01/08 ............. 500,000 515,375
Youngstown State University General Receipts Revenue, AMBAC Insured, Pre-Refunded,
6.00%, 12/15/16 ........................................................................ 2,250,000 2,384,010
Zanesville City School District GO, School Improvement, MBIA Insured,
4.75%, 12/01/22 ....................................................................... 5,500,000 5,757,400
4.75%, 12/01/26 ....................................................................... 3,250,000 3,349,158
5.05%, 12/01/29 ....................................................................... 3,500,000 3,718,820
---------------
TOTAL BONDS .............................................................................. 1,010,977,044
---------------
ZERO COUPON BONDS .1%
Marysville Exempted Village School District GO, Capital Appreciation, Refunding, MBIA Insured,
12/01/20 .............................................................................. 1,000,000 482,500
12/01/21 .............................................................................. 1,000,000 454,790
---------------
TOTAL ZERO COUPON BONDS .................................................................. 937,290
---------------
TOTAL LONG TERM INVESTMENTS (COST $938,415,353) .......................................... 1,011,914,334
---------------
108 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS .1%
b Cuyahoga County Hospital Revenue, University Hospitals of Cleveland, Daily VRDN and Put,
.94%, 1/01/16 .......................................................................... $ 1,400,000 $ 1,400,000
b Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 .................................................... 100,000 100,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $1,500,000) ........................................... 1,500,000
---------------
TOTAL INVESTMENTS (COST $939,915,353) 99.2% .............................................. 1,013,414,334
OTHER ASSETS, LESS LIABILITIES .8% ....................................................... 7,698,607
---------------
NET ASSETS 100.0% ........................................................................ $1,021,112,941
===============
<FN>
See glossary of terms on page 110.
a See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
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.
</FN>
Annual Report | See notes to financial statements. | 109
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
GLOSSARY OF TERMS
AD - Assessment District
ACES - Adjustable Convertible Exempt Securities
AMBAC - American Municipal Bond Assurance Corp.
BART - Bay Area Rapid Transit
CBI - Certificate of Beneficial Interest
CDA - Community Development Authority/Agency
CDD - Community Development District
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority/Agency Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDR - Industrial Development Revenue
ISD - Independent School District
LP - Limited Partnership
MBIA - Municipal Bond Investors Assurance Corp.
MFH - Multi-Family Housing
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
PBA - Public Building Authority
PCR - Pollution Control Revenue
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
110 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
February 29, 2004
--------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------
Assets:
Investments in securities:
Cost ............................................. $140,518,518 $1,787,322,831 $439,395,890 $1,292,136,007
===================================================================
Value ............................................ 153,607,675 1,940,475,291 476,494,507 1,409,427,218
Cash .............................................. 42,173 43,612 67,613 15,654
Receivables:
Capital shares sold .............................. 642,265 2,103,426 925,396 1,033,647
Interest ......................................... 2,098,156 21,801,733 5,409,776 19,626,048
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Total assets ................................. 156,390,269 1,964,424,062 482,897,292 1,430,102,567
--------------------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed .......................... 31,530 1,752,628 1,089,217 2,480,649
Affiliates ....................................... 90,471 1,074,951 272,937 795,548
Shareholders ..................................... 66,140 1,244,669 289,922 1,113,158
Distributions to shareholders ..................... 148,083 1,921,248 462,997 1,382,728
Other liabilities ................................. 21,462 165,387 46,778 124,102
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Total liabilities ............................ 357,686 6,158,883 2,161,851 5,896,185
--------------------------------------------------------------------
Net assets, at value ....................... $156,032,583 $1,958,265,179 $480,735,441 $1,424,206,382
===================================================================
Net assets consist of:
Undistributed net investment income ............... $ 84,156 $ (1,611,240) $ (292,322) $ (789,199)
Net unrealized appreciation (depreciation) ........ 13,089,157 153,152,460 37,098,617 117,291,211
Accumulated net realized gain (loss) .............. (1,232,347) 1,421,910 (964,118) (438,750)
Capital shares .................................... 144,091,617 1,805,302,049 444,893,264 1,308,143,120
--------------------------------------------------------------------
Net assets, at value ....................... $156,032,583 $1,958,265,179 $480,735,441 $1,424,206,382
===================================================================
Annual Report | 111
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
--------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------
CLASS A:
Net assets, at value .................... $156,032,583 $1,696,913,319 $432,467,439 $1,248,974,964
====================================================================
Shares outstanding ...................... 14,225,565 134,474,625 35,710,273 99,311,046
====================================================================
Net asset value per share a ............. $10.97 $12.62 $12.11 $12.58
====================================================================
Maximum offering price per share
(net asset value per share / 95.75%) .... $11.46 $13.18 $12.65 $13.14
====================================================================
CLASS B:
Net assets, at value .................... -- $ 108,518,477 -- $ 58,687,103
====================================================================
Shares outstanding ...................... -- 8,564,178 -- 4,646,142
====================================================================
Net asset value and maximum offering
price per share a ....................... -- $12.67 -- $12.63
====================================================================
CLASS C:
Net assets, at value .................... -- $ 152,833,383 $ 48,268,002 $ 116,544,315
====================================================================
Shares outstanding ...................... -- 12,016,873 3,959,716 9,186,809
====================================================================
Net asset value and maximum offering
price per share a ....................... -- $12.72 $12.19 $12.69
====================================================================
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</FN>
112 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
----------------------------------
FRANKLIN FRANKLIN
MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
----------------------------------
Assets:
Investments in securities:
Cost .......................................... $546,629,177 $ 939,915,353
==================================
Value ......................................... 584,628,512 1,013,414,334
Cash ........................................... 49,516 100,136
Receivables:
Capital shares sold ........................... 360,618 1,833,834
Interest ...................................... 4,883,717 13,378,663
----------------------------------
Total assets .............................. 589,922,363 1,028,726,967
----------------------------------
Liabilities:
Payables:
Investment securities purchased ............... -- 4,734,858
Capital shares redeemed ....................... 750,168 739,653
Affiliates .................................... 331,341 593,350
Shareholders .................................. 220,157 485,173
Distributions to shareholders .................. 561,633 962,687
Other liabilities .............................. 60,662 98,305
----------------------------------
Total liabilities ......................... 1,923,961 7,614,026
----------------------------------
Net assets, at value .................... $587,998,402 $1,021,112,941
==================================
Net assets consist of:
Undistributed net investment income ............ $ (452,601) $ (347,619)
Net unrealized appreciation (depreciation) ..... 37,999,335 73,498,981
Accumulated net realized gain (loss) ........... (2,100,215) 965,951
Capital shares ................................. 552,551,883 946,995,628
----------------------------------
Net assets, at value ................... $587,998,402 $1,021,112,941
==================================
Annual Report | 113
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
----------------------------------
FRANKLIN FRANKLIN
MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
----------------------------------
CLASS A:
Net assets, at value .................................................. $528,609,120 $852,181,875
==================================
Shares outstanding .................................................... 42,658,373 66,537,268
==================================
Net asset value per share a ........................................... $12.39 $12.81
==================================
Maximum offering price per share (net asset value per share / 95.75%) . $12.94 $13.38
==================================
CLASS B:
Net assets, at value .................................................. -- $ 60,869,353
==================================
Shares outstanding .................................................... -- 4,736,230
==================================
Net asset value and maximum offering price per share a................. -- $12.85
==================================
CLASS C:
Net assets, at value .................................................. $ 59,389,282 $108,061,713
==================================
Shares outstanding .................................................... 4,763,331 8,374,997
==================================
Net asset value and maximum offering price per share a ................ $12.47 $12.90
==================================
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</FN>
114 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended February 29, 2004
---------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------
Investment income:
Interest .......................................... $7,695,945 $ 97,236,076 $23,892,673 $71,657,186
---------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 890,289 8,871,303 2,388,658 6,629,662
Distribution fees: (Note 3)
Class A .......................................... 153,563 1,627,837 431,108 1,254,153
Class B .......................................... -- 646,709 -- 362,060
Class C .......................................... -- 973,882 304,035 777,025
Transfer agent fees (Note 3) ...................... 51,006 840,605 200,803 708,765
Custodian fees .................................... 1,509 23,187 4,782 14,035
Reports to shareholders ........................... 7,997 82,819 22,540 71,290
Registration and filing fees ...................... 7,140 123,491 17,592 32,460
Professional fees ................................. 13,643 37,861 19,495 34,440
Trustees' fees and expenses ....................... 1,313 16,330 4,065 12,171
Other ............................................. 21,973 171,002 45,015 124,133
---------------------------------------------------------------------
Total expenses ............................... 1,148,433 13,415,026 3,438,093 10,020,194
---------------------------------------------------------------------
Net investment income ...................... 6,547,512 83,821,050 20,454,580 61,636,992
---------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ......... 235,864 2,048,055 (7,930) 3,996,146
Net unrealized appreciation (depreciation) on
investments ....................................... 2,531,290 34,955,520 7,601,007 15,657,907
---------------------------------------------------------------------
Net realized and unrealized gain (loss) ............ 2,767,154 37,003,575 7,593,077 19,654,053
---------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... $9,314,666 $120,824,625 $28,047,657 $81,291,045
=====================================================================
Annual Report | 115
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 29, 2004
---------------------------------
FRANKLIN FRANKLIN
MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
---------------------------------
Investment income:
Interest .............................................................. $29,480,023 $49,681,662
---------------------------------
Expenses:
Management fees (Note 3) .............................................. 2,872,413 4,708,280
Distribution fees: (Note 3)
Class A .............................................................. 525,173 836,005
Class B .............................................................. -- 350,048
Class C .............................................................. 398,443 677,456
Transfer agent fees (Note 3) .......................................... 310,855 507,579
Custodian fees ........................................................ 6,970 9,856
Reports to shareholders ............................................... 30,387 49,757
Registration and filing fees .......................................... 16,226 28,928
Professional fees ..................................................... 21,851 31,888
Trustees' fees and expenses ........................................... 4,970 8,421
Other ................................................................. 61,952 101,256
---------------------------------
Total expenses ................................................... 4,249,240 7,309,474
---------------------------------
Net investment income .......................................... 25,230,783 42,372,188
---------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............................. 1,040,597 1,111,175
Net unrealized appreciation (depreciation) on investments ............. 6,244,375 14,805,264
---------------------------------
Net realized and unrealized gain (loss) ................................ 7,284,972 15,916,439
---------------------------------
Net increase (decrease) in net assets resulting from operations ........ $32,515,755 $58,288,627
=================================
116 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended February 29, 2004 and February 28, 2003
--------------------------------------------------------------------
FRANKLIN FLORIDA FRANKLIN
INSURED TAX-FREE INCOME FUND INSURED TAX-FREE INCOME FUND
--------------------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 6,547,512 $ 6,103,732 $ 83,821,050 $ 81,716,497
Net realized gain (loss) from investments ....... 235,864 96,379 2,048,055 2,539,109
Net unrealized appreciation (depreciation)
on investments ................................. 2,531,290 3,609,352 34,955,520 33,267,879
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ...................... 9,314,666 9,809,463 120,824,625 117,523,485
Distributions to shareholders from:
Net investment income:
Class A ........................................ (6,401,032) (6,179,083) (74,296,016) (74,650,933)
Class B ........................................ -- -- (3,831,684) (2,405,752)
Class C ........................................ -- -- (5,555,656) (4,472,326)
--------------------------------------------------------------------
Total distributions to shareholders ............ (6,401,032) (6,179,083) (83,683,356) (81,529,011)
Capital share transactions: (Note 2)
Class A ........................................ (3,854,378) 25,748,091 18,066,931 60,037,260
Class B ........................................ -- -- 24,494,078 42,419,525
Class C ........................................ -- -- 20,537,476 36,767,985
--------------------------------------------------------------------
Total capital share transactions ............... (3,854,378) 25,748,091 63,098,485 139,224,770
Net increase (decrease) in net assets ........... (940,744) 29,378,471 100,239,754 175,219,244
Net assets:
Beginning of year .............................. 156,973,327 127,594,856 1,858,025,425 1,682,806,181
--------------------------------------------------------------------
End of year .................................... $156,032,583 $156,973,327 $1,958,265,179 $1,858,025,425
====================================================================
Undistributed net investment income included in
net assets:
End of year ................................... $ 84,156 $ (62,270) $ (1,611,240) $ (1,574,558)
====================================================================
Annual Report | 117
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004 and February 28, 2003
------------------------------------------------------------------
FRANKLIN MASSACHUSETTS FRANKLIN MICHIGAN
INSURED TAX-FREE INCOME FUND INSURED TAX-FREE INCOME FUND
------------------------------------------------------------------
2004 2003 2004 2003
------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 20,454,580 $ 20,049,336 $ 61,636,992 $ 61,682,010
Net realized gain (loss) from investments ....... (7,930) 642,820 3,996,146 10,182,945
Net unrealized appreciation (depreciation)
on investments ................................. 7,601,007 10,046,040 15,657,907 21,840,689
------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ...................... 28,047,657 30,738,196 81,291,045 93,705,644
Distributions to shareholders from:
Net investment income:
Class A ........................................ (18,589,297) (18,757,560) (54,613,690) (56,704,350)
Class B ........................................ -- -- (2,116,930) (1,632,164)
Class C ........................................ (1,713,691) (1,531,681) (4,333,371) (3,844,298)
Net realized gains:
Class A ........................................ -- -- (7,079,499) (6,964,625)
Class B ........................................ -- -- (320,983) (254,882)
Class C ........................................ -- -- (658,685) (575,866)
------------------------------------------------------------------
Total distributions to shareholders ............ (20,302,988) (20,289,241) (69,123,158) (69,976,185)
Capital share transactions: (Note 2)
Class A ........................................ (869,166) 34,483,823 (15,548,539) 47,595,604
Class B ........................................ -- -- 8,232,491 18,902,428
Class C ........................................ 4,538,779 9,734,804 5,417,148 30,819,698
------------------------------------------------------------------
Total capital share transactions ............... 3,669,613 44,218,627 (1,898,900) 97,317,730
Net increase (decrease) in net assets ........... 11,414,282 54,667,582 10,268,987 121,047,189
Net assets:
Beginning of year .............................. 469,321,159 414,653,577 1,413,937,395 1,292,890,206
------------------------------------------------------------------
End of year .................................... $480,735,441 $469,321,159 $1,424,206,382 $1,413,937,395
==================================================================
Undistributed net investment income included in
net assets:
End of year ................................... $ (292,322) $ (423,334) $ (789,199) $ (1,329,842)
==================================================================
118 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29,
2004 and February 28, 2003
--------------------------------------------------------------
FRANKLIN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INCOME FUND INSURED TAX-FREE INCOME FUND
--------------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 25,230,783 $ 25,042,944 $ 42,372,188 $ 40,466,786
Net realized gain (loss) from investments .......... 1,040,597 1,242,451 1,111,175 3,508,325
Net unrealized appreciation (depreciation)
on investments .................................... 6,244,375 10,210,971 14,805,264 13,984,286
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ......................... 32,515,755 36,496,366 58,288,627 57,959,397
Distributions to shareholders from:
Net investment income:
Class A ........................................... (22,886,588) (23,330,267) (36,083,275) (36,776,898)
Class B ........................................... -- -- (2,012,492) (1,193,468)
Class C ........................................... (2,166,431) (1,908,284) (3,753,007) (3,064,984)
Net realized gains:
Class A ........................................... -- -- (178,907) --
Class B ........................................... -- -- (12,199) --
Class C ........................................... -- -- (22,112) --
--------------------------------------------------------------
Total distributions to shareholders ............... (25,053,019) (25,238,551) (42,061,992) (41,035,350)
Capital share transactions: (Note 2)
Class A ........................................... (2,172,190) 28,073,962 16,612,998 54,992,636
Class B ........................................... -- -- 15,671,766 26,872,028
Class C ........................................... 3,927,617 14,460,013 15,159,555 30,296,547
--------------------------------------------------------------
Total capital share transactions .................. 1,755,427 42,533,975 47,444,319 112,161,211
Net increase (decrease) in net assets .............. 9,218,163 53,791,790 63,670,954 129,085,258
Net assets:
Beginning of year ................................. 578,780,239 524,988,449 957,441,987 828,356,729
--------------------------------------------------------------
End of year ....................................... $587,998,402 $578,780,239 $1,021,112,941 $957,441,987
==============================================================
Undistributed net investment income included in
net assets:
End of year ...................................... $ (452,601) $ (561,673) $ (347,619) $ (852,669)
==============================================================
Annual Report | See notes to financial statements. | 119
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-five
separate series. All funds included in this report (the Funds) are diversified
except the Franklin Florida Insured Tax-Free Income Fund. The investment
objective of the Funds is to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market. The Trust
utilizes independent pricing services to perform any of the pricing functions
under procedures approved by the Board of Trustees. Tax-free bonds may be valued
by the pricing services using matrix pricing which considers such factors as
prices of comparable quality issues, yield, maturity, coupon, and credit
ratings. If events occur that materially affect the values of securities after
the prices are determined, or if market quotations are not readily available,
the securities will be valued at fair value as determined following procedures
approved by the Board of Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Funds may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Funds will generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
C. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its income.
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. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders. Other distributions are recorded on the
ex-dividend date.
120 | 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)
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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, a
portfolio insurance policy, or a secondary insurance policy. Some municipal
securities in the Funds are secured by collateral guaranteed by an agency of the
U.S. government.
Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security, included as an expense of the fund, 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. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
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. However, based on experience, the Trust
expects the risk of loss to be remote.
Annual Report | 121
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the funds are indicated below. 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 Florida Insured Tax-Free Franklin Massachusetts Insured Tax-Free Franklin Insured Tax-Free
Income Fund Income Fund Income Fund
Franklin Minnesota Insured Tax-Free Franklin Michigan Insured
Income Fund Tax-Free Income Fund
Franklin Ohio Insured Tax-Free
Income Fund
At February 29, 2004, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' shares were as follows:
------------------------------------------------------------
FRANKLIN FLORIDA FRANKLIN
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ........................ 2,966,219 $ 32,001,922 16,368,935 $ 203,090,532
Shares issued in reinvestment of
distributions ...................... 280,966 3,030,130 3,103,906 38,561,258
Shares redeemed .................... (3,611,141) (38,886,430) (18,062,233) (223,584,859)
------------------------------------------------------------
Net increase (decrease) ............ (363,956) $ (3,854,378) 1,410,608 $ 18,066,931
============================================================
Year ended February 28, 2003
Shares sold ........................ 4,236,064 $ 44,889,373 18,578,670 $ 226,230,311
Shares issued in reinvestment of
distributions ...................... 272,021 2,870,893 2,962,112 36,027,867
Shares redeemed .................... (2,076,197) (22,012,175) (16,642,710) (202,220,918)
------------------------------------------------------------
Net increase (decrease) ............ 2,431,888 $ 25,748,091 4,898,072 $ 60,037,260
============================================================
CLASS B SHARES:
Year ended February 29, 2004
Shares sold ........................ 2,783,981 $ 34,717,366
Shares issued in reinvestment of
distributions ...................... 180,756 2,255,619
Shares redeemed .................... (1,006,485) (12,478,907)
---------------------------
Net increase (decrease) ............ 1,958,252 $ 24,494,078
===========================
Year ended February 28, 2003
Shares sold ........................ 3,853,699 $ 47,104,779
Shares issued in reinvestment of
distributions ...................... 119,464 1,461,175
Shares redeemed .................... (502,965) (6,146,429)
---------------------------
Net increase (decrease) ............ 3,470,198 $ 42,419,525
===========================
122 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
--------------------------
FRANKLIN
INSURED TAX-FREE
INCOME FUND
--------------------------
SHARES AMOUNT
--------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold ........................ 3,892,315 $ 48,794,934
Shares issued in reinvestment of
distributions ...................... 278,005 3,480,399
Shares redeemed .................... (2,549,948) (31,737,857)
--------------------------
Net increase (decrease) ............ 1,620,372 $ 20,537,476
==========================
Year ended February 28, 2003
Shares sold ........................ 4,346,155 $ 53,376,352
Shares issued in reinvestment of
distributions ...................... 221,864 2,720,314
Shares redeemed .................... (1,574,521) (19,328,681)
--------------------------
Net increase (decrease) ............ 2,993,498 $ 36,767,985
==========================
------------------------------------------------------------
FRANKLIN MASSACHUSETTS FRANKLIN MICHIGAN
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ........................ 4,128,170 $ 49,322,423 9,500,511 $ 118,289,564
Shares issued in reinvestment of
distributions ...................... 835,054 9,970,016 2,921,569 36,368,267
Shares redeemed .................... (5,057,026) (60,161,605) (13,736,589) (170,206,370)
------------------------------------------------------------
Net increase (decrease) ............ (93,802) $ (869,166) (1,314,509) $ (15,548,539)
============================================================
Year ended February 28, 2003
Shares sold ........................ 5,851,549 $ 68,509,085 11,213,101 $ 137,693,460
Shares issued in reinvestment of
distributions ...................... 820,193 9,584,883 2,935,600 36,054,644
Shares redeemed .................... (3,722,856) (43,610,145) (10,276,746) (126,152,500)
------------------------------------------------------------
Net increase (decrease) ............ 2,948,886 $ 34,483,823 3,871,955 $ 47,595,604
============================================================
CLASS B SHARES:
Year ended February 29, 2004
Shares sold ........................ 1,050,924 $ 13,140,992
Shares issued in reinvestment of
distributions ...................... 135,395 1,692,739
Shares redeemed .................... (530,914) (6,601,240)
--------------------------
Net increase (decrease) ............ 655,405 $ 8,232,491
==========================
Year ended February 28, 2003
Shares sold ........................ 1,679,060 $ 20,710,644
Shares issued in reinvestment of
distributions ...................... 105,208 1,298,647
Shares redeemed .................... (251,934) (3,106,863)
--------------------------
Net increase (decrease) ............ 1,532,334 $ 18,902,428
==========================
Annual Report | 123
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------------------------------------
FRANKLIN MASSACHUSETTS FRANKLIN MICHIGAN
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold ........................ 1,041,675 $ 12,537,307 2,123,775 $ 26,729,976
Shares issued in reinvestment of
distributions ...................... 96,536 1,160,098 275,268 3,456,052
Shares redeemed .................... (767,480) (9,158,626) (1,979,889) (24,768,880)
------------------------------------------------------------
Net increase (decrease) ............. 370,731 $ 4,538,779 419,154 $ 5,417,148
============================================================
Year ended February 28, 2003
Shares sold ........................ 1,309,170 $ 15,441,387 3,338,563 $ 41,394,593
Shares issued in reinvestment of
distributions ...................... 88,314 1,038,702 240,690 2,982,834
Shares redeemed .................... (572,791) (6,745,285) (1,091,544) (13,557,729)
------------------------------------------------------------
Net increase (decrease) ............ 824,693 $ 9,734,804 2,487,709 $ 30,819,698
============================================================
------------------------------------------------------------
FRANKLIN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ........................ 4,190,260 $ 51,183,196 8,513,022 $ 107,348,240
Shares issued in reinvestment of
distributions ...................... 1,094,576 13,397,894 1,586,103 19,995,754
Shares redeemed .................... (5,474,646) (66,753,280) (8,813,292) (110,730,996)
------------------------------------------------------------
Net increase (decrease) ............ (189,810) $ (2,172,190) 1,285,833 $ 16,612,998
============================================================
Year ended February 28, 2003
Shares sold ....................... 5,322,975 $ 64,165,739 9,304,389 $ 115,452,779
Shares issued in reinvestment of
distributions ...................... 1,085,740 13,046,718 1,576,166 19,534,679
Shares redeemed .................... (4,093,237) (49,138,495) (6,451,171) (79,994,822)
------------------------------------------------------------
Net increase (decrease) ............ 2,315,478 $ 28,073,962 4,429,384 $ 54,992,636
============================================================
CLASS B SHARES:
Year ended February 29, 2004
Shares sold ........................ 1,546,614 $ 19,557,073
Shares issued in reinvestment of
distributions ...................... 111,911 1,415,364
Shares redeemed .................... (421,263) (5,300,671)
---------------------------
Net increase (decrease) ............ 1,237,262 $ 15,671,766
==========================
Year ended February 28, 2003
Shares sold ........................ 2,234,803 $ 27,818,591
Shares issued in reinvestment of
distributions ...................... 66,476 828,072
Shares redeemed .................... (142,933) (1,774,635)
---------------------------
Net increase (decrease) ............ 2,158,346 $ 26,872,028
==========================
124 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------------------------------------
FRANKLIN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold ........................... 1,040,412 $ 12,796,366 2,277,644 $ 28,934,342
Shares issued in reinvestment of
distributions ......................... 107,297 1,321,263 182,034 2,311,111
Shares redeemed ....................... (830,344) (10,190,012) (1,272,289) (16,085,898)
---------------------------------------------------------
Net increase (decrease) ............... 317,365 $ 3,927,617 1,187,389 $ 15,159,555
=========================================================
Year ended February 28, 2003
Shares sold ........................... 1,532,692 $ 18,513,956 2,912,029 $ 36,372,920
Shares issued in reinvestment of
distributions ......................... 93,226 1,127,084 152,169 1,900,285
Shares redeemed ....................... (430,122) (5,181,027) (639,623) (7,976,658)
---------------------------------------------------------
Net increase (decrease) ............... 1,195,796 $ 14,460,013 2,424,575 $ 30,296,547
=========================================================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
- ---------------------------------------------------------------------------------------------
ENTITY 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
The Funds pay an investment management fee to Advisers based on the month-end
net assets of the Funds as follows:
- ---------------------------------------------------------------------------
ANNUALIZED FEE RATE MONTH-END NET ASSETS
- ---------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
The Funds reimburse Distributors up to .10%, .65%, and .65% per year of their
average daily net assets of Class A, Class B, and Class C, respectively, for
costs incurred in marketing the Funds' shares under a Rule 12b-1 plan.
Annual Report | 125
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Distributors has advised the Funds it received (paid) net commissions (from) on
sales of the Funds' shares, and received contingent deferred sales charges for
the year as follows:
--------------------------------------------------
FRANKLIN FRANKLIN
FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Net commissions received (paid) ................. $43,133 $(1,164,267) $(42,663)
Contingent deferred sales charges ............... $ 2,418 $ 292,451 $ 18,442
--------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Net commissions received (paid) ................. $(420,276) $(43,546) $(676,594)
Contingent deferred sales charges ............... $ 122,211 $ 30,788 $ 135,797
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were paid to Investor Services:
--------------------------------------------------
FRANKLIN FRANKLIN
FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Transfer agent fees ............................. $ 33,505 $595,565 $139,733
--------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Transfer agent fees ............................. $514,651 $213,750 $348,790
126 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
At February 29, 2004, the following funds had tax basis capital losses which may
be carried over to offset future capital gains. Such losses expire as follows:
--------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
FLORIDA MASSACHUSETTS MINNESOTA
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Capital loss carryovers expiring in:
2008 ............................................. $ 429,186 $337,078 $ --
2009 ............................................. 546,752 608,972 1,311,454
2010 ............................................. 256,409 -- 788,761
2012 ............................................. -- 18,068 --
--------------------------------------------------
$1,232,347 $964,118 $2,100,215
==================================================
At February 29, 2004, the Franklin Michigan Insured Tax-Free Income Fund has
deferred capital losses occurring subsequent to October 31, 2003 of $438,750.
For tax purposes, such losses will be reflected in the year ending February 28,
2005.
The tax character of distributions paid during the years ended February 29, 2004
and February 28, 2003, was as follows:
---------------------------------------------------------
FRANKLIN FLORIDA FRANKLIN
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
Distributions paid from -
tax exempt income .................. $6,401,032 $ 6,179,083 $83,683,356 $81,529,011
=========================================================
---------------------------------------------------------
FRANKLIN MASSACHUSETTS FRANKLIN MICHIGAN
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
Distributions paid from:
Tax exempt income .................. $20,302,988 $20,289,241 $61,063,991 $62,180,812
Long term capital gain ............. -- -- 8,059,167 7,795,373
---------------------------------------------------------
$20,302,988 $20,289,241 $69,123,158 $69,976,185
=========================================================
Annual Report | 127
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
----------------------------------------------------------
FRANKLIN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
----------------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------------
Distributions paid from:
Tax exempt income ................ $25,053,019 $25,238,551 $41,848,774 $41,035,350
Long term capital gain ........... -- -- 213,218 --
----------------------------------------------------------
$25,053,019 $25,238,551 $42,061,992 $41,035,350
==========================================================
Distributions of income to shareholders may not equal net investment income due
to differing treatments of dividend distributions for book and tax purposes.
Net investment income (loss) 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.
At February 29, 2004, 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
FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Cost of investments ............................ $140,516,549 $1,787,094,222 $439,285,039
===================================================
Unrealized appreciation ........................ 13,091,126 153,381,069 37,209,468
Unrealized depreciation ........................ -- -- --
---------------------------------------------------
Net unrealized appreciation (depreciation) ..... $ 13,091,126 $ 153,381,069 $ 37,209,468
===================================================
Undistributed tax exempt income ................ $ 230,271 $ 78,280 $ 59,823
Undistributed long term capital gains .......... -- 1,425,029 --
---------------------------------------------------
Distributable earnings ......................... $ 230,271 $ 1,503,309 $ 59,823
===================================================
128 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Cost of investments ............................. $1,292,026,021 $546,530,166 $939,772,975
===================================================
Unrealized appreciation ......................... 117,401,197 38,101,511 73,641,359
Unrealized depreciation ......................... -- (3,165) --
---------------------------------------------------
Net unrealized appreciation (depreciation) ...... $ 117,401,197 $ 38,098,346 $ 73,641,359
===================================================
Undistributed tax exempt income ................. $ 483,545 $ 10,022 $ 472,691
Undistributed long term capital gains ........... -- -- 965,951
---------------------------------------------------
Distributable earnings .......................... $ 483,545 $ 10,022 $ 1,438,642
===================================================
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended February 29, 2004, were as follows:
---------------------------------------------------
FRANKLIN FRANKLIN
FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Purchases ....................................... $ 17,259,634 $ 247,545,154 $ 51,741,789
Sales ........................................... $ 17,023,441 $ 178,045,894 $ 51,596,060
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Purchases ....................................... $ 157,612,717 $ 66,044,276 $ 193,852,912
Sales ........................................... $ 170,466,876 $ 62,009,118 $ 146,129,201
6. REGULATORY MATTERS
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company"),
alleging violations of the Massachusetts Uniform Securities Act. The complaint
arises from activity that occurred in 2001 during which time an officer of a
Company subsidiary was negotiating an agreement with an investor relating to
investments in a mutual fund and a hedge fund.
Annual Report | 129
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REGULATORY MATTERS (CONTINUED)
The Funds, in addition to other entities within Franklin Templeton Investments,
including the Company and other funds, have been named in shareholder class and
derivative lawsuits related to the matter described above, as well as actions
seeking the return of certain management and other fees to the Funds. The Funds'
management believes that the claims made in the lawsuits are without merit and
they intend to defend vigorously against the allegations. It is anticipated that
the Funds may be named in additional similar civil actions related to the matter
described above.
In addition, as part of ongoing investigations by the U.S. Securities and
Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of
California, the New York Attorney General, the California Attorney General, the
U.S. Attorney for the District of Massachusetts, the Florida Department of
Financial Services, and the Commissioner of Securities and the Attorney General
of the State of West Virginia, relating to certain practices in the mutual fund
industry, including late trading, market timing and sales compensation
arrangements, the Company and its subsidiaries, as well as certain current or
former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company and
its current employees are providing documents and information in response to
these requests and subpoenas. In addition, the Company has responded to requests
for similar kinds of information from regulatory authorities in some of the
foreign countries where the Company conducts its global asset management
business.
The Staff of the SEC has informed the Company that it intends to recommend that
the Commission authorize an action against the Funds' investment adviser
relating to the frequent trading issues that are the subject of the SEC's
investigation. These issues were previously disclosed as being under
investigation by government authorities and the subject of an internal inquiry
by the Company in its Annual Report on Form 10-K and on its public website. The
Company currently is in discussions with the SEC Staff in an effort to resolve
the issues raised in their investigation. The Funds' management has been advised
that the Company cannot predict the likelihood of whether those discussions will
result in a settlement and, if so, the terms of such settlement. The impact, if
any, of these matters on the Funds is uncertain at this time. If the Company
finds that it bears responsibility for any unlawful or improper conduct, it is
committed to making the Funds or their shareholders whole, as appropriate.
130 | Annual Report
Franklin Tax-Free Trust
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TAX-FREE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting the Franklin Tax-Free Trust (hereafter referred to as the
"Funds") at February 29, 2004, the results of each of their operations, the
changes in each of their net assets and 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 auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at February 29, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 12, 2004
Annual Report | 131
Franklin Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code (Code), the Funds hereby
designate 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 29, 2004. A portion
of the Funds' exempt-interest dividends may be subject to the federal
alternative minimum tax. In January 2005, shareholders will be notified of
amounts for use in preparing their 2004 income tax returns.
Under Section 852(b)(3)(C) of the Code, the funds hereby designate the following
amounts as capital gain dividends for the fiscal year ended February 29, 2004.
------------------------------------------------------------
FRANKLIN FRANKLIN
FRANKLIN MICHIGAN OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------
$1,425,029 $4,467,254 $1,129,539
132 | Annual Report
Board Members and Officers
The name, age 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. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (82) Trustee Since 1984 113 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (71) Trustee Since 1984 143 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
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).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (71) Trustee Since 1989 134 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 1998 82 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil
San Mateo, CA 94403-1906 and gas); Beverly Enterprises, Inc.
(health care); H.J. Heinz Company
(processed foods and allied
products); RTI International
Metals, Inc. (manufacture and
distribution of titanium); and
Canadian National Railway
(railroad).
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 (74) Trustee Since 1984 115 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
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 | 133
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (75) Trustee Since 1992 142 Director, White Mountains Insurance
One Franklin Parkway Group, Ltd. (holding company); Martek
San Mateo, CA 94403-1906 Biosciences Corporation; MedImmune,
Inc. (biotechnology); and
Overstock.com (Internet services);
and FORMERLY, Director, MCI
Communication Corporation
(subsequently known as MCI WorldCom,
Inc. and WorldCom, Inc.)
(communications services) (1988-2002)
and Spacehab, Inc. (aerospace
services) (1994-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation
(financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association
of Securities Dealers, Inc. (1970-1987).
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee and Since 1984 142 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.; Vice President, Franklin
Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (63) Trustee, Trustee and 125 None
One Franklin Parkway President and President since
San Mateo, CA 94403-1906 Chief 1984 and Chief
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.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
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 49 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
134 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
SHEILA AMOROSO (44) Vice President Since 2000 Not Applicable None
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.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (58) Vice President Since 1986 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of most of the other subsidiaries
of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RAFAEL R. COSTAS, JR. (39) Vice President Since 2000 Not Applicable None
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.
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (43) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.;
Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin
Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor
Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton 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
49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL Officer -
33394-3091 Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 135
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President,
Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory
Services, Inc., Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor
Services, LLC, Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC,
and Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of
Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel
and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
DIOMEDES LOO-TAM (65) Treasurer and Since March 2004 Not Applicable None
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; and Consultant, MyVest Corporation (software
development company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees,
Runkel Funds, Inc. (2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments
(1985-2000); and Senior Vice President, Franklin Templeton Services, LLC (1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (66) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch
600 5th Avenue Chemicals, Inc. and Lingnan
Rockefeller Center Foundation
New York, NY 10048-0772
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the
case may be of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (66) Vice President Since 2000 Not Applicable None
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the
subsidiaries of Franklin Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited
(until 2000) and Director, Templeton Asset Management Ltd. (until 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
136 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS WALSH (42) Vice President Since 2000 Not Applicable None
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 adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc., which
is the parent company of the Trust's adviser and distributor. Note: Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers.
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 OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
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. LAHAYE IS AN INDEPENDENT TRUSTEE
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 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 137
Franklin Tax-Free Trust
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund'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 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group.
138 | Annual Report
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This page intentionally left blank.
Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5,6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC7
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 10
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
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. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
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. Portfolio of insured municipal securities.
9. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
10.The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 Not part of the annual report
[LOGO]
FRANKLIN[R] TEMPLETON[R] One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign
up for eDelivery at franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TAX-FREE TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a current
Franklin Tax-Free Trust prospectus. Investors should carefully consider a fund's
investment goals, risks, charges and expenses before investing. To obtain a
prospectus, which contains this and other information, talk to your financial
advisor, call us at 1-800/DIAL BEN(R) (1-800/342-5236) or visit
franklintempleton.com. Please read the prospectus 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 A2004 04/04
February 29, 2004
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
[GRAPHIC OMITTED]
Girl and Chalkboard
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
- --------------------------------------------------------------------------------
Want to receive
this document
FASTER via email?
Franklin Tax-Free Trust Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Buildings
[GRAPHIC OMITTED]
Franklin Templeton Logo
Franklin o Templeton o Mutual Series
Franklin Templeton Investments
Gain From Our Perspective
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 leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
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
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style
of value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios 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 account services that have helped us become one of the most trusted
names in financial services.
- --------------------------------------------------------------------------------
Mutual Funds | Retirement Plans | 529 College Savings Plans | Separate Accounts
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Buildings
Not part of the annual report
Contents
SHAREHOLDER LETTER ................. 1
Special Feature:
Understanding Your
Tax-Free Income Fund ............... 4
ANNUAL REPORT
Municipal Bond
Market Overview .................... 7
Investment Strategy and
Manager's Discussion ............... 9
Franklin Alabama
Tax-Free Income Fund ............... 10
Franklin Florida
Tax-Free Income Fund ............... 17
Franklin Georgia
Tax-Free Income Fund ............... 24
Franklin Kentucky
Tax-Free Income Fund ............... 30
Franklin Louisiana
Tax-Free Income Fund ............... 36
Franklin Maryland
Tax-Free Income Fund ............... 42
Franklin Missouri
Tax-Free Income Fund ............... 48
Franklin North Carolina
Tax-Free Income Fund ............... 54
Franklin Virginia
Tax-Free Income Fund ............... 61
Financial Highlights and
Statements of Investments .......... 68
Financial Statements ...............126
Notes to
Financial Statements ...............137
Independent Auditors'
Report .............................149
Tax Designation ....................150
Board Members and
Officers ...........................151
Proxy Voting Policies
and Procedures .....................156
- ---------------------------------------
Annual Report
Municipal Bond Market Overview
During the fiscal year ended February 29, 2004, the municipal bond market
received support from investors, resulting in a broad-based municipal bond price
increase. Consequently, the Lehman Brothers Municipal Bond Index rose 6.30% for
the 12-month period. 1 Several factors contributed to bond market strength.
Rising unemployment, excess production capacity, the Federal Reserve Board's
(the Fed's) decision to lower the federal funds target rate to 1.00% in June
2003, and many foreign governments' strong demand for Treasury bonds each played
a role in driving fixed income prices higher. Persistently low inflation was
also important because it can reassure fixed income investors that the value of
their cash flow is more likely to retain its purchasing power. Inflation as
measured by the Consumer Price Index (CPI) rose a modest 1.93% for the 12 months
under review.
Bond prices and borrowing rates for issuers are generally inversely related;
thus borrowing costs for most municipalities declined during the period under
review. According to Municipal Market Data, the yield for 30-year AAA bonds
declined from 4.71% at the beginning of the year under review to 4.44% on
February 29, 2004. 2 Declining yields provided some municipalities with the
opportunity to refinance their outstanding debt at lower interest rates. During
calendar year 2003, municipalities issued $94 billion of bonds to refund their
outstanding debt. Refunding debt combined with new-issue bonds totaled $384
billion in 2003, surpassing the $358 billion record set in 2002. 3
Another trend in the municipal bond market was greater short-term borrowing,
largely because of the need to smooth annual revenues and fill budget gaps, and
the unusually wide spread between short- and long-term rates. In 2003 municipal
note issuance reached the second-highest level of the past decade. Despite the
abundance of short-term notes, the difference between short- and long-term
rates, illustrated by the yield curve, was wider on average for the year ended
February 29, 2004, than for the 10 prior years. Although the yield curve was
steep, which can reflect fear of rising rates on the long end, long-term
interest rates remained near four-decade lows during the year under review.
1. Source: Standard & Poors Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
2. Source: Thomson Financial.
3. Source: The Bond Buyer online, www.bondbuyer.com, "A Decade of Municipal Bond
Finance," 3/4/04.
Annual Report | 7
The path toward higher municipal bond prices was unsteady at times during the
year under review as significant events affected the market. Globally, triumphs
and setbacks in Iraq and the Middle East, tension with North Korea, outbreaks of
contagious diseases, and worldwide terrorist activity made headlines.
Domestically, changing tax policies, burgeoning budget deficits, dollar
devaluation, national health care reform, and several financial scandals were
prominent news stories over the past 12 months. Such events seemed to be
reflected in the Lehman Brothers Municipal Bond Index's volatility. The index
returned 4.13% between February 28 and June 15, 2003, then fell 4.80% from June
15 through August 15, and rose 7.22% from August 15 through fiscal year-end. 1
The municipal bond market, however, experienced less volatility than the 10-year
Treasury bond or the Standard & Poor's 500 Composite Index (S&P 500). 4
Many states coped with financial challenges and budget deficits during the year
under review. According to the Center on Budget and Policy Priorities, a
non-partisan organization that researches and analyzes a range of government
policies and programs, in January 2003 the projected budget shortfall for fiscal
year 2004 for all states totaled between $70 billion and $85 billion. However,
in January 2004, Moody's Investors Service, an independent credit rating agency,
released a report entitled "State Credit Cycle Approaches the Bottom; Lessons
from the Early 1990s," which cited several factors that Moody's suggests could
contribute to eventual restoration of fiscal balance. Even with large budgetary
swings, overall municipal debt credit quality remained high, which resulted in
Moody's credit upgrades surpassing downgrades by 415 to 306 for 2003.
4. Source: Standard & Poors Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
8 | Annual Report
Investment Strategy and
Manager's Discussion
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, our portfolios become well
diversified with a broad range of coupons, calls and maturities. This broad
diversification helps stabilize Fund share prices. We generally stay fully
invested to support income distribution.
The record amount of new issuance nationally during the Funds' fiscal year
provided us with ample opportunity to keep the portfolios fully invested,
improve the structure of existing portfolios, or execute tax losses. The mixture
of our value- oriented philosophy of investing primarily for income, a large
supply of municipal bonds, and a steep yield curve favored the use of
longer-term bonds within the parameters of each specific fund. Consequently, we
sought to remain fully invested in bonds that ranged from 15 to 30 years in
maturity with good call features.
We invite you to read your Fund report for more detailed performance and
portfolio information. Thank you for your participation in Franklin Tax-Free
Trust. We look forward to serving your future investment needs.
Annual Report | 9
Franklin Alabama Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Alabama Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Alabama state
personal income taxes through a portfolio consisting mainly of Alabama municipal
bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Alabama Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 84.8%
A ........................... 5.8%
BBB ......................... 8.6%
Below Investment Grade ...... 0.8%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Alabama Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.50 on February
28, 2003, to $11.76 on February 29, 2004. The Fund's Class A shares paid
dividends
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
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 70.
10 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Alabama Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.42 cents 3.91 cents
- --------------------------------------------------------------------------------
April 4.42 cents 3.91 cents
- --------------------------------------------------------------------------------
May 4.42 cents 3.91 cents
- --------------------------------------------------------------------------------
June 4.35 cents 3.75 cents
- --------------------------------------------------------------------------------
July 4.35 cents 3.75 cents
- --------------------------------------------------------------------------------
August 4.35 cents 3.77 cents
- --------------------------------------------------------------------------------
September 4.35 cents 3.77 cents
- --------------------------------------------------------------------------------
October 4.35 cents 3.77 cents
- --------------------------------------------------------------------------------
November 4.35 cents 3.77 cents
- --------------------------------------------------------------------------------
December 4.17 cents 3.59 cents
- --------------------------------------------------------------------------------
January 4.17 cents 3.59 cents
- --------------------------------------------------------------------------------
February 4.17 cents 3.59 cents
- --------------------------------------------------------------------------------
TOTAL 51.87 CENTS 45.08 CENTS
- --------------------------------------------------------------------------------
totaling 51.87 cents per share for the Fund's fiscal year. 2 The Performance
Summary beginning on page 14 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 4.17 cent ($0.0417) per share dividend and the maximum offering
price of $12.28 on February 29, 2004. An investor in the 2004 maximum combined
federal and Alabama state personal income tax bracket of 38.25% 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 C shares' performance,
please see the Performance Summary.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
Annual Report | 11
PORTFOLIO BREAKDOWN
Franklin Alabama Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
General Obligation 31.4%
- --------------------------------------------------
Hospital & Health Care 17.2%
- --------------------------------------------------
Utilities 13.6%
- --------------------------------------------------
Prerefunded 10.9%
- --------------------------------------------------
Higher Education 6.4%
- --------------------------------------------------
Corporate-Backed 5.7%
- --------------------------------------------------
Tax-Supported 5.1%
- --------------------------------------------------
Subject to Government Appropriations 4.4%
- --------------------------------------------------
Transportation 4.1%
- --------------------------------------------------
Housing 1.2%
- --------------------------------------------------
STATE UPDATE
Alabama continued to be affected by the national economy's modest recovery.
Despite historically conservative fiscal policies and a long tradition of
prudent debt management, the state faced meaningful challenges in maintaining
fiscal balance in the face of rising unemployment and decreasing capital
spending. A steady manufacturing sector decline helped push unemployment to 6.0%
in January 2004, before ending the Fund's fiscal year at 5.6%, matching the
national average of 5.6%. 3 While the state's economic base expanded in recent
years, with aggressive development fueling growth in high technology, health
care and business services, manufacturing remained vital to Alabama's economy,
representing about 16% of total state employment versus the 13% national
average. 4 Recent and planned openings of several automotive plants and
automotive-related suppliers provided a boost for the state's economy but were
not able to fully offset other employment and production declines.
Through a combination of significant spending reductions and revenue increases,
the state has successfully maintained a balanced budget as required by the
Alabama constitution. However, stagnation in sales and income tax receipts
placed significant pressure on the budgetary general fund and the special
education trust. The state's receipt of federal relief funds and expenditure
reductions related to increased federal medical assistance should provide enough
funding for its financial position to remain positive through fiscal year 2004.
However, about 15% of the general fund budget consists of non-recurring
revenues, which could present significant challenges to the state in fiscal year
2005 as those revenues disappear and if other costs, primarily Medicare driven,
continue to rise. 4 The state may be forced to address the continuing weak
revenue growth, requiring significant expenditure cuts or revenue enhancements.
Alabama's state government is constitutionally prohibited from incurring debt,
allowing general obligation debt to be issued only through constitutional
amendments. Consequently, the state has only $535 million in general obligation
debt outstanding. 4 Although the state does use limited-obligation debt, the
state's total debt level remained low at roughly $500 per capita. 4 Alabama's
conservative fiscal policies have helped it maintain its AA credit rating from
independent credit rating agency Standard & Poor's. 5 However, the debt is
assigned a negative outlook, reflecting concerns associated with the state's
weakening financial condition and
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "Alabama: Tax Secured, General Obligation,"
RATINGSDIRECT, 11/20/03.
5. This does not indicate Standard & Poor's rating of the Fund.
12 | Annual Report
ongoing structural imbalance. Without a long-term solution or strong economic
rebound to generate significant revenues, state leaders will likely continue to
face challenges to restore fiscal balance and move away from reliance on
non-recurring revenues.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 13
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $11.76 $11.50
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5187
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $11.84 $11.58
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4508
- -----------------------------------------------------------------------------------------------------
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.92% +29.53% +71.58%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.38% +4.40% +5.09%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.92% +4.29% +5.44%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.07%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.60%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.08%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.99%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.25% +25.99% +59.12%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.25% +4.73% +5.40%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.88% +4.62% +5.33%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.76%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.09%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.67%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.32%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
14 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Alabama Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
3/1/94 $ 9,578 $10,000 $10,000
3/31/94 9,252 9,593 10,034
4/30/94 9,286 9,674 10,048
5/31/94 9,347 9,758 10,055
6/30/94 9,317 9,698 10,089
7/31/94 9,468 9,876 10,116
8/31/94 9,506 9,910 10,157
9/30/94 9,402 9,765 10,184
10/31/94 9,239 9,592 10,191
11/30/94 9,046 9,418 10,204
12/31/94 9,244 9,625 10,204
1/31/95 9,495 9,900 10,245
2/28/95 9,728 10,188 10,286
3/31/95 9,822 10,305 10,320
4/30/95 9,865 10,318 10,354
5/31/95 10,096 10,647 10,375
6/30/95 10,049 10,554 10,395
7/31/95 10,106 10,654 10,395
8/31/95 10,197 10,789 10,423
9/30/95 10,260 10,857 10,443
10/31/95 10,389 11,015 10,477
11/30/95 10,556 11,198 10,470
12/31/95 10,656 11,305 10,464
1/31/96 10,707 11,391 10,525
2/29/96 10,675 11,314 10,559
3/31/96 10,568 11,169 10,613
4/30/96 10,564 11,138 10,654
5/31/96 10,581 11,133 10,675
6/30/96 10,693 11,255 10,682
7/31/96 10,773 11,357 10,702
8/31/96 10,786 11,354 10,723
9/30/96 10,922 11,513 10,757
10/31/96 11,043 11,643 10,791
11/30/96 11,207 11,856 10,811
12/31/96 11,184 11,806 10,811
1/31/97 11,211 11,828 10,845
2/28/97 11,301 11,937 10,879
3/31/97 11,201 11,778 10,907
4/30/97 11,290 11,876 10,920
5/31/97 11,415 12,055 10,913
6/30/97 11,536 12,184 10,927
7/31/97 11,814 12,521 10,941
8/31/97 11,728 12,404 10,961
9/30/97 11,872 12,551 10,988
10/31/97 11,952 12,632 11,016
11/30/97 12,033 12,706 11,009
12/31/97 12,197 12,891 10,995
1/31/98 12,292 13,024 11,016
2/28/98 12,294 13,028 11,036
3/31/98 12,321 13,040 11,057
4/30/98 12,300 12,981 11,077
5/31/98 12,261 13,186 11,097
6/30/98 12,246 13,238 11,111
7/31/98 12,287 13,271 11,125
8/31/98 12,438 13,476 11,138
9/30/98 12,552 13,644 11,152
10/31/98 12,547 13,644 11,179
11/30/98 12,592 13,692 11,179
12/31/98 12,614 13,726 11,172
1/31/99 12,722 13,890 11,200
2/28/99 12,689 13,829 11,213
3/31/99 12,740 13,848 11,247
4/30/99 12,760 13,883 11,329
5/31/99 12,713 13,802 11,329
6/30/99 12,559 13,604 11,329
7/31/99 12,578 13,653 11,363
8/31/99 12,405 13,544 11,391
9/30/99 12,402 13,549 11,445
10/31/99 12,232 13,403 11,466
11/30/99 12,293 13,545 11,472
12/31/99 12,158 13,444 11,472
1/31/00 12,044 13,386 11,506
2/29/00 12,191 13,541 11,575
3/31/00 12,477 13,837 11,670
4/30/00 12,407 13,755 11,677
5/31/00 12,355 13,684 11,691
6/30/00 12,647 14,046 11,752
7/31/00 12,791 14,242 11,779
8/31/00 12,980 14,461 11,779
9/30/00 12,883 14,386 11,840
10/31/00 13,012 14,543 11,861
11/30/00 13,115 14,653 11,868
12/31/00 13,348 15,015 11,861
1/31/01 13,371 15,164 11,936
2/28/01 13,426 15,212 11,984
3/31/01 13,510 15,348 12,011
4/30/01 13,375 15,182 12,059
5/31/01 13,506 15,345 12,113
6/30/01 13,636 15,448 12,134
7/31/01 13,847 15,677 12,100
8/31/01 14,092 15,935 12,100
9/30/01 14,034 15,882 12,154
10/31/01 14,211 16,071 12,113
11/30/01 14,129 15,936 12,093
12/31/01 13,983 15,785 12,045
1/31/02 14,140 16,059 12,072
2/28/02 14,297 16,252 12,120
3/31/02 14,074 15,934 12,188
4/30/02 14,253 16,245 12,256
5/31/02 14,364 16,344 12,256
6/30/02 14,483 16,516 12,263
7/31/02 14,665 16,729 12,277
8/31/02 14,800 16,930 12,318
9/30/02 15,135 17,301 12,338
10/31/02 14,947 17,014 12,359
11/30/02 14,913 16,943 12,359
12/31/02 15,199 17,301 12,331
1/31/03 15,204 17,257 12,386
2/28/03 15,380 17,498 12,481
3/31/03 15,429 17,509 12,556
4/30/03 15,568 17,624 12,529
5/31/03 15,898 18,037 12,509
6/30/03 15,862 17,960 12,522
7/31/03 15,283 17,332 12,536
8/31/03 15,448 17,461 12,584
9/30/03 15,891 17,975 12,624
10/31/03 15,791 17,884 12,611
11/30/03 15,954 18,070 12,577
12/31/03 16,097 18,220 12,563
1/31/04 16,212 18,324 12,624
2/29/04 16,433 18,600 12,693
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/05)
Date Franklin Alabama Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- ----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,237 10,319 10,020
6/30/95 10,192 10,229 10,039
7/31/95 10,253 10,326 10,039
8/31/95 10,330 10,457 10,066
9/30/95 10,398 10,523 10,086
10/31/95 10,524 10,676 10,118
11/30/95 10,687 10,853 10,112
12/31/95 10,793 10,957 10,105
1/31/96 10,839 11,040 10,165
2/29/96 10,801 10,966 10,197
3/31/96 10,689 10,825 10,250
4/30/96 10,679 10,795 10,290
5/31/96 10,691 10,791 10,309
6/30/96 10,799 10,908 10,316
7/31/96 10,875 11,007 10,336
8/31/96 10,882 11,004 10,355
9/30/96 11,013 11,158 10,388
10/31/96 11,129 11,285 10,421
11/30/96 11,287 11,491 10,441
12/31/96 11,258 11,443 10,441
1/31/97 11,279 11,464 10,474
2/28/97 11,373 11,569 10,507
3/31/97 11,268 11,415 10,533
4/30/97 11,351 11,511 10,546
5/31/97 11,470 11,684 10,540
6/30/97 11,586 11,808 10,553
7/31/97 11,859 12,136 10,566
8/31/97 11,768 12,022 10,586
9/30/97 11,907 12,164 10,612
10/31/97 11,980 12,243 10,639
11/30/97 12,055 12,315 10,632
12/31/97 12,223 12,494 10,619
1/31/98 12,302 12,623 10,639
2/28/98 12,310 12,627 10,658
3/31/98 12,321 12,638 10,678
4/30/98 12,305 12,581 10,698
5/31/98 12,249 12,780 10,718
6/30/98 12,239 12,831 10,731
7/31/98 12,272 12,863 10,744
8/31/98 12,416 13,062 10,757
9/30/98 12,524 13,224 10,770
10/31/98 12,513 13,224 10,797
11/30/98 12,552 13,270 10,797
12/31/98 12,567 13,304 10,790
1/31/99 12,668 13,462 10,816
2/28/99 12,630 13,403 10,829
3/31/99 12,673 13,422 10,862
4/30/99 12,699 13,455 10,941
5/31/99 12,635 13,377 10,941
6/30/99 12,487 13,185 10,941
7/31/99 12,490 13,233 10,974
8/31/99 12,311 13,127 11,001
9/30/99 12,315 13,132 11,053
10/31/99 12,119 12,990 11,073
11/30/99 12,185 13,128 11,080
12/31/99 12,046 13,030 11,080
1/31/00 11,928 12,974 11,113
2/29/00 12,067 13,124 11,178
3/31/00 12,344 13,411 11,271
4/30/00 12,270 13,332 11,277
5/31/00 12,213 13,263 11,290
6/30/00 12,494 13,614 11,350
7/31/00 12,640 13,803 11,376
8/31/00 12,810 14,016 11,376
9/30/00 12,708 13,943 11,435
10/31/00 12,829 14,095 11,455
11/30/00 12,924 14,202 11,461
12/31/00 13,159 14,553 11,455
1/31/01 13,163 14,697 11,527
2/28/01 13,211 14,744 11,573
3/31/01 13,287 14,876 11,600
4/30/01 13,148 14,715 11,646
5/31/01 13,282 14,873 11,698
6/30/01 13,391 14,973 11,718
7/31/01 13,602 15,194 11,685
8/31/01 13,835 15,445 11,685
9/30/01 13,773 15,393 11,738
10/31/01 13,939 15,576 11,698
11/30/01 13,853 15,445 11,679
12/31/01 13,692 15,299 11,633
1/31/02 13,851 15,564 11,659
2/28/02 13,998 15,752 11,705
3/31/02 13,774 15,443 11,771
4/30/02 13,940 15,745 11,837
5/31/02 14,041 15,841 11,837
6/30/02 14,150 16,008 11,843
7/31/02 14,333 16,214 11,856
8/31/02 14,445 16,409 11,896
9/30/02 14,774 16,768 11,916
10/31/02 14,572 16,490 11,935
11/30/02 14,531 16,422 11,935
12/31/02 14,814 16,768 11,909
1/31/03 14,799 16,726 11,962
2/28/03 14,977 16,960 12,054
3/31/03 15,005 16,970 12,126
4/30/03 15,133 17,082 12,100
5/31/03 15,457 17,482 12,080
6/30/03 15,414 17,407 12,093
7/31/03 14,846 16,798 12,107
8/31/03 14,998 16,924 12,153
9/30/03 15,431 17,421 12,192
10/31/03 15,312 17,333 12,179
11/30/03 15,462 17,514 12,146
12/31/03 15,592 17,659 12,133
1/31/04 15,694 17,760 12,192
2/29/04 15,912 18,028 12,258
Annual Report | Past performance does not guarantee future results. | 15
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Alabama state personal income
tax bracket of 38.25%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
16 | Past performance does not guarantee future results. | Annual Report
Franklin Florida Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Florida Tax-Free Income Fund
seeks to provide high, current income exempt from federal income tax through a
portfolio consisting mainly of Florida municipal bonds. 1 In addition, the
Fund's shares are free from Florida's annual intangibles tax.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Florida Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ........................ 69.6%
AA ......................... 7.7%
A .......................... 14.4%
BBB ........................ 8.3%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Florida Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.97 on February
28, 2003, to $12.17 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 55.62 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date your purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 76.
Annual Report | 17
DIVIDEND DISTRIBUTIONS*
Franklin Florida Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
-----------------------------------------------
MONTH CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
March 4.65 cents 4.11 cents 4.15 cents
- --------------------------------------------------------------------------------
April 4.65 cents 4.11 cents 4.15 cents
- --------------------------------------------------------------------------------
May 4.65 cents 4.11 cents 4.15 cents
- --------------------------------------------------------------------------------
June 4.63 cents 4.06 cents 3.98 cents
- --------------------------------------------------------------------------------
July 4.63 cents 4.06 cents 3.98 cents
- --------------------------------------------------------------------------------
August 4.63 cents 4.05 cents 4.00 cents
- --------------------------------------------------------------------------------
September 4.63 cents 4.05 cents 4.00 cents
- --------------------------------------------------------------------------------
October 4.63 cents 4.05 cents 4.00 cents
- --------------------------------------------------------------------------------
November 4.63 cents 4.05 cents 4.00 cents
- --------------------------------------------------------------------------------
December 4.63 cents 4.13 cents 4.15 cents
- --------------------------------------------------------------------------------
January 4.63 cents 4.13 cents 4.15 cents
- --------------------------------------------------------------------------------
February 4.63 cents 4.13 cents 4.15 cents
- --------------------------------------------------------------------------------
TOTAL 55.62 CENTS 49.04 CENTS 48.86 CENTS
- --------------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
on page 20 shows that at the end of this reporting period the Fund's Class
A shares' distribution rate was 4.34%, based on an annualization of the current
4.60 cent ($0.0460) per share dividend and the maximum offering price of $12.71
on February 29, 2004. An investor in the 2004 maximum federal income tax bracket
of 35.00% would need to earn a distribution rate of 6.68% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline,
as shown in the dividend distributions table.
STATE UPDATE
Florida's economy performed reasonably well given the state's significant
tourism sector. Although the unemployment rate increased to 4.6% in February
2004, from a
18 | Annual Report
low of 3.8% in 2000, it remained below the 5.6% national rate. 3 Unemployment
was less cyclical than in prior economic downturns, and was relatively stable
throughout 2003. Labor force gains continued, and employment growth resumed at a
more normal pace. The state's service-based economy continued to outpace the
national economy as measured by employment, population and gross state product,
and the state appeared to have solid long-term growth prospects.
Florida's revenue base, dominated by sales tax receipts, remained relatively
stable, in contrast to most other states. Unlike much of the nation, the state
ended fiscal year 2003 with a surplus and a fully funded budget stabilization
reserve, which is also expected to be the case in fiscal year 2004. The state
did not appropriate $948 million of federal aid monies, and those funds are now
included in the working capital fund. 4 Combined reserves are projected to total
$2.3 billion in June 2004, and monthly reports indicated that overall general
revenue fund revenues performed close to estimates. 4 However, the state's
tax-supported debt grew significantly over the past decade and totaled $16
billion, which represented an above-national-average $1,001 per capita and 3.4%
of personal income. 4
Florida's strong and growing financial reserve levels, stable revenue
performance, and service-based economy supported the state's AA+ credit rating
from Standard & Poor's, an independent credit rating agency. 5 The outlook for
the state is stable, based on Florida's strong track record of active budget
management and solid budgetary reserves. However, the state may face challenges
managing the budget given recently approved constitutional amendments regarding
education spending.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "Summary: Florida: Tax-Secured, General
Obligation," RATINGSDIRECT, 11/26/03.
5. This does not indicate Standard & Poor's rating of the Fund.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 Florida Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Hospital & Health Care 18.8%
- --------------------------------------------------
Utilities 16.0%
- --------------------------------------------------
Prerefunded 13.7%
- --------------------------------------------------
Transportation 13.4%
- --------------------------------------------------
Tax-Supported 9.0%
- --------------------------------------------------
Other Revenue 7.6%
- --------------------------------------------------
Subject to Government Appropriations 7.4%
- --------------------------------------------------
General Obligation 6.5%
- --------------------------------------------------
Housing 4.9%
- --------------------------------------------------
Higher Education 2.7%
- --------------------------------------------------
Annual Report | 19
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $12.17 $11.97
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5562
- -----------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.25 $12.04
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4904
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.30 $12.09
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4886
-----------------------------------------------------------------------------------------------------
20 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.47% +31.59% +77.50%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.95% +4.73% +5.45%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.44% +4.64% +5.75%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.34%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.68%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.46%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.32%
- -----------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.94% +20.34% +35.52%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.94% +5.48% +7.35%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.42% +5.07% +7.11%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.97%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.10%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.06%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.71%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.90% +28.02% +64.19%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.90% +5.06% +5.77%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.38% +4.99% +5.68%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.04%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.21%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.03%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.66%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 21
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Florida Lehman Brothers
Tax-Free Income Municipal
Fund Bond Index 7 CPI 7
- -----------------
3/1/94 $ 9,577 $10,000 $10,000
3/31/94 9,285 9,593 10,034
4/30/94 9,328 9,674 10,048
5/31/94 9,382 9,758 10,055
6/30/94 9,370 9,698 10,089
7/31/94 9,507 9,876 10,116
8/31/94 9,531 9,910 10,157
9/30/94 9,445 9,765 10,184
10/31/94 9,333 9,592 10,191
11/30/94 9,157 9,418 10,204
12/31/94 9,333 9,625 10,204
1/31/95 9,580 9,900 10,245
2/28/95 9,807 10,188 10,286
3/31/95 9,887 10,305 10,320
4/30/95 9,925 10,318 10,354
5/31/95 10,160 10,647 10,375
6/30/95 10,142 10,554 10,395
7/31/95 10,201 10,654 10,395
8/31/95 10,286 10,789 10,423
9/30/95 10,344 10,857 10,443
10/31/95 10,468 11,015 10,477
11/30/95 10,610 11,198 10,470
12/31/95 10,705 11,305 10,464
1/31/96 10,758 11,391 10,525
2/29/96 10,718 11,314 10,559
3/31/96 10,631 11,169 10,613
4/30/96 10,610 11,138 10,654
5/31/96 10,620 11,133 10,675
6/30/96 10,744 11,255 10,682
7/31/96 10,808 11,357 10,702
8/31/96 10,804 11,354 10,723
9/30/96 10,952 11,513 10,757
10/31/96 11,047 11,643 10,791
11/30/96 11,204 11,856 10,811
12/31/96 11,174 11,806 10,811
1/31/97 11,183 11,828 10,845
2/28/97 11,276 11,937 10,879
3/31/97 11,148 11,778 10,907
4/30/97 11,249 11,876 10,920
5/31/97 11,377 12,055 10,913
6/30/97 11,493 12,184 10,927
7/31/97 11,765 12,521 10,941
8/31/97 11,680 12,404 10,961
9/30/97 11,764 12,551 10,988
10/31/97 11,842 12,632 11,016
11/30/97 11,914 12,706 11,009
12/31/97 12,080 12,891 10,995
1/31/98 12,207 13,024 11,016
2/28/98 12,221 13,028 11,036
3/31/98 12,246 13,040 11,057
4/30/98 12,224 12,981 11,077
5/31/98 12,370 13,186 11,097
6/30/98 12,412 13,238 11,111
7/31/98 12,461 13,271 11,125
8/31/98 12,622 13,476 11,138
9/30/98 12,737 13,644 11,152
10/31/98 12,754 13,644 11,179
11/30/98 12,810 13,692 11,179
12/31/98 12,849 13,726 11,172
1/31/99 12,947 13,890 11,200
2/28/99 12,925 13,829 11,213
3/31/99 12,943 13,848 11,247
4/30/99 12,974 13,883 11,329
5/31/99 12,905 13,802 11,329
6/30/99 12,745 13,604 11,329
7/31/99 12,753 13,653 11,363
8/31/99 12,646 13,544 11,391
9/30/99 12,599 13,549 11,445
10/31/99 12,418 13,403 11,466
11/30/99 12,524 13,545 11,472
12/31/99 12,424 13,444 11,472
1/31/00 12,344 13,386 11,506
2/29/00 12,467 13,541 11,575
3/31/00 12,740 13,837 11,670
4/30/00 12,670 13,755 11,677
5/31/00 12,595 13,684 11,691
6/30/00 12,908 14,046 11,752
7/31/00 13,096 14,242 11,779
8/31/00 13,273 14,461 11,779
9/30/00 13,210 14,386 11,840
10/31/00 13,344 14,543 11,861
11/30/00 13,449 14,653 11,868
12/31/00 13,780 15,015 11,861
1/31/01 13,866 15,164 11,936
2/28/01 13,935 15,212 11,984
3/31/01 14,059 15,348 12,011
4/30/01 13,928 15,182 12,059
5/31/01 14,063 15,345 12,113
6/30/01 14,159 15,448 12,134
7/31/01 14,398 15,677 12,100
8/31/01 14,633 15,935 12,100
9/30/01 14,590 15,882 12,154
10/31/01 14,783 16,071 12,113
11/30/01 14,654 15,936 12,093
12/31/01 14,515 15,785 12,045
1/31/02 14,739 16,059 12,072
2/28/02 14,888 16,252 12,120
3/31/02 14,630 15,934 12,188
4/30/02 14,863 16,245 12,256
5/31/02 14,950 16,344 12,256
6/30/02 15,085 16,516 12,263
7/31/02 15,270 16,729 12,277
8/31/02 15,460 16,930 12,318
9/30/02 15,835 17,301 12,338
10/31/02 15,520 17,014 12,359
11/30/02 15,449 16,943 12,359
12/31/02 15,776 17,301 12,331
1/31/03 15,772 17,257 12,386
2/28/03 15,977 17,498 12,481
3/31/03 16,017 17,509 12,556
4/30/03 16,145 17,624 12,529
5/31/03 16,531 18,037 12,509
6/30/03 16,484 17,960 12,522
7/31/03 15,869 17,332 12,536
8/31/03 15,969 17,461 12,584
9/30/03 16,389 17,975 12,624
10/31/03 16,308 17,884 12,611
11/30/03 16,502 18,070 12,577
12/31/03 16,639 18,220 12,563
1/31/04 16,773 18,324 12,624
2/29/04 16,999 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 2/29/04
- ------------------------------------
1-Year +1.95%
- ------------------------------------
5-Year +4.73%
- ------------------------------------
10-Year +5.45%
- ------------------------------------
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class B (2/1/00-2/29/04)
Date Franklin Florida Lehman Brothers
Tax-Free Income Municipal
Fund Bond Index 7 CPI 7
- -----------------
2/1/00 $10,000 $10,000 $10,000
2/29/00 10,107 10,116 10,059
3/31/00 10,333 10,337 10,142
4/30/00 10,272 10,276 10,148
5/31/00 10,207 10,223 10,160
6/30/00 10,464 10,494 10,213
7/31/00 10,611 10,640 10,237
8/31/00 10,749 10,804 10,237
9/30/00 10,695 10,747 10,290
10/31/00 10,797 10,865 10,308
11/30/00 10,887 10,947 10,314
12/31/00 11,139 11,217 10,308
1/31/01 11,213 11,328 10,373
2/28/01 11,265 11,364 10,415
3/31/01 11,359 11,466 10,438
4/30/01 11,257 11,342 10,480
5/31/01 11,350 11,464 10,527
6/30/01 11,422 11,541 10,545
7/31/01 11,618 11,712 10,515
8/31/01 11,802 11,905 10,515
9/30/01 11,763 11,865 10,563
10/31/01 11,902 12,006 10,527
11/30/01 11,814 11,905 10,509
12/31/01 11,697 11,792 10,468
1/31/02 11,871 11,997 10,492
2/28/02 11,985 12,141 10,533
3/31/02 11,763 11,903 10,592
4/30/02 11,943 12,136 10,652
5/31/02 12,018 12,210 10,652
6/30/02 12,122 12,339 10,658
7/31/02 12,264 12,498 10,669
8/31/02 12,410 12,648 10,705
9/30/02 12,715 12,925 10,723
10/31/02 12,447 12,711 10,741
11/30/02 12,384 12,658 10,741
12/31/02 12,651 12,925 10,717
1/31/03 12,630 12,892 10,764
2/28/03 12,800 13,072 10,847
3/31/03 12,825 13,080 10,912
4/30/03 12,921 13,167 10,889
5/31/03 13,222 13,475 10,871
6/30/03 13,180 13,418 10,883
7/31/03 12,674 12,948 10,895
8/31/03 12,759 13,045 10,936
9/30/03 13,086 13,428 10,972
10/31/03 13,014 13,361 10,960
11/30/03 13,163 13,500 10,930
12/31/03 13,266 13,612 10,918
1/31/04 13,367 13,690 10,972
2/29/04 13,352 13,896 11,031
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS B 2/29/04
- ------------------------------------
1-Year +1.94%
- ------------------------------------
3-Year +5.48%
- ------------------------------------
Since Inception (2/1/00) +7.35%
- ------------------------------------
22 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/04)
Date Franklin Florida Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,275 10,319 10,020
6/30/95 10,260 10,229 10,039
7/31/95 10,306 10,326 10,039
8/31/95 10,394 10,457 10,066
9/30/95 10,456 10,523 10,086
10/31/95 10,565 10,676 10,118
11/30/95 10,712 10,853 10,112
12/31/95 10,801 10,957 10,105
1/31/96 10,850 11,040 10,165
2/29/96 10,805 10,966 10,197
3/31/96 10,704 10,825 10,250
4/30/96 10,677 10,795 10,290
5/31/96 10,681 10,791 10,309
6/30/96 10,810 10,908 10,316
7/31/96 10,858 11,007 10,336
8/31/96 10,848 11,004 10,355
9/30/96 11,000 11,158 10,388
10/31/96 11,099 11,285 10,421
11/30/96 11,250 11,491 10,441
12/31/96 11,214 11,443 10,441
1/31/97 11,219 11,464 10,474
2/28/97 11,308 11,569 10,507
3/31/97 11,176 11,415 10,533
4/30/97 11,272 11,511 10,546
5/31/97 11,395 11,684 10,540
6/30/97 11,506 11,808 10,553
7/31/97 11,781 12,136 10,566
8/31/97 11,680 12,022 10,586
9/30/97 11,768 12,164 10,612
10/31/97 11,840 12,243 10,639
11/30/97 11,905 12,315 10,632
12/31/97 12,065 12,494 10,619
1/31/98 12,184 12,623 10,639
2/28/98 12,191 12,627 10,658
3/31/98 12,211 12,638 10,678
4/30/98 12,184 12,581 10,698
5/31/98 12,323 12,780 10,718
6/30/98 12,368 12,831 10,731
7/31/98 12,401 12,863 10,744
8/31/98 12,564 13,062 10,757
9/30/98 12,661 13,224 10,770
10/31/98 12,671 13,224 10,797
11/30/98 12,731 13,270 10,797
12/31/98 12,754 13,304 10,790
1/31/99 12,854 13,462 10,816
2/28/99 12,826 13,403 10,829
3/31/99 12,838 13,422 10,862
4/30/99 12,863 13,455 10,941
5/31/99 12,790 13,377 10,941
6/30/99 12,626 13,185 10,941
7/31/99 12,629 13,233 10,974
8/31/99 12,506 13,127 11,001
9/30/99 12,455 13,132 11,053
10/31/99 12,272 12,990 11,073
11/30/99 12,381 13,128 11,080
12/31/99 12,277 13,030 11,080
1/31/00 12,181 12,974 11,113
2/29/00 12,297 13,124 11,178
3/31/00 12,570 13,411 11,271
4/30/00 12,485 13,332 11,277
5/31/00 12,405 13,263 11,290
6/30/00 12,716 13,614 11,350
7/31/00 12,894 13,803 11,376
8/31/00 13,060 14,016 11,376
9/30/00 12,994 13,943 11,435
10/31/00 13,117 14,095 11,455
11/30/00 13,226 14,202 11,461
12/31/00 13,532 14,553 11,455
1/31/01 13,621 14,697 11,527
2/28/01 13,682 14,744 11,573
3/31/01 13,796 14,876 11,600
4/30/01 13,662 14,715 11,646
5/31/01 13,774 14,873 11,698
6/30/01 13,872 14,973 11,718
7/31/01 14,097 15,194 11,685
8/31/01 14,318 15,445 11,685
9/30/01 14,271 15,393 11,738
10/31/01 14,450 15,576 11,698
11/30/01 14,332 15,445 11,679
12/31/01 14,179 15,299 11,633
1/31/02 14,401 15,564 11,659
2/28/02 14,539 15,752 11,705
3/31/02 14,272 15,443 11,771
4/30/02 14,490 15,745 11,837
5/31/02 14,569 15,841 11,837
6/30/02 14,692 16,008 11,843
7/31/02 14,876 16,214 11,856
8/31/02 15,052 16,409 11,896
9/30/02 15,419 16,768 11,916
10/31/02 15,095 16,490 11,935
11/30/02 15,020 16,422 11,935
12/31/02 15,341 16,768 11,909
1/31/03 15,316 16,726 11,962
2/28/03 15,508 16,960 12,054
3/31/03 15,539 16,970 12,126
4/30/03 15,668 17,082 12,100
5/31/03 16,019 17,482 12,080
6/30/03 15,979 17,407 12,093
7/31/03 15,367 16,798 12,107
8/31/03 15,454 16,924 12,153
9/30/03 15,861 17,421 12,192
10/31/03 15,774 17,333 12,179
11/30/03 15,953 17,514 12,146
12/31/03 16,078 17,659 12,133
1/31/04 16,200 17,760 12,192
2/29/04 16,419 18,028 12,258
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS C 2/29/04
- -------------------------------------
1-Year +4.90%
- -------------------------------------
5-Year +5.06%
- -------------------------------------
Since Inception (5/1/95) +5.77%
- -------------------------------------
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 23
Franklin Georgia Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Georgia Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Georgia state
personal income taxes through a portfolio consisting mainly of Georgia municipal
bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Georgia Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 66.8%
AA .......................... 20.2%
A ........................... 5.4%
BBB ......................... 6.7%
Below Investment Grade ...... 0.9%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Georgia Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.99 on February
28, 2003, to $12.27 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 54.12 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 27 shows that at the end of this reporting
period the
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 87.
24 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Georgia Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.65 cents 4.12 cents
- --------------------------------------------------------------------------------
April 4.65 cents 4.12 cents
- --------------------------------------------------------------------------------
May 4.65 cents 4.12 cents
- --------------------------------------------------------------------------------
June 4.50 cents 3.90 cents
- --------------------------------------------------------------------------------
July 4.50 cents 3.90 cents
- --------------------------------------------------------------------------------
August 4.50 cents 3.89 cents
- --------------------------------------------------------------------------------
September 4.50 cents 3.89 cents
- --------------------------------------------------------------------------------
October 4.50 cents 3.89 cents
- --------------------------------------------------------------------------------
November 4.50 cents 3.89 cents
- --------------------------------------------------------------------------------
December 4.39 cents 3.86 cents
- --------------------------------------------------------------------------------
January 4.39 cents 3.86 cents
- --------------------------------------------------------------------------------
February 4.39 cents 3.86 cents
- --------------------------------------------------------------------------------
TOTAL 54.12 CENTS 47.30 CENTS
- --------------------------------------------------------------------------------
Fund's Class A shares' distribution rate was 4.11%, based on an annualization of
the current 4.39 cent ($0.0439) per share dividend and the maximum offering
price of $12.81 on February 29, 2004. An investor in the 2004 maximum combined
federal and Georgia state personal income tax bracket of 38.90% would need to
earn a distribution rate of 6.73% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
STATE UPDATE
Georgia's economy is well diversified and boasts the presence of many major
corporate headquarters. However, employment declines in retail, public
utilities, information/telecommunications and other services contributed to lost
jobs between 2002 and 2003. With this stagnation, the state's unemployment rate
rose
Annual Report | 25
PORTFOLIO BREAKDOWN
Franklin Georgia Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Hospital & Health Care 21.4%
- --------------------------------------------------
Utilities 18.6%
- --------------------------------------------------
Higher Education 17.0%
- --------------------------------------------------
Housing 13.4%
- --------------------------------------------------
Prerefunded 12.3%
- --------------------------------------------------
General Obligation 5.0%
- --------------------------------------------------
Corporate-Backed 3.8%
- --------------------------------------------------
Other Revenue 3.6%
- --------------------------------------------------
Tax-Supported 2.6%
- --------------------------------------------------
Subject to Government Appropriations 2.3%
- --------------------------------------------------
in the early part of the Fund's fiscal year before falling to 3.8% in February
2004, well below the 5.6% national average. 3
Consequently, income taxes, Georgia's primary revenue source, declined in fiscal
year 2003. General revenues followed suit and fell 4.7%, the first decline in
state revenues since 1953. 4 Revenue growth increased 4.2% in the first quarter
of fiscal year 2004 but remained insufficient to meet the budgeted 8.7% growth
in fiscal year 2004 revenue. 4 To cover revenue gaps and balance the fiscal year
2004 budget, the state tapped shortfall reserves, generated new revenue sources
such as tobacco taxes and fees, and implemented greater revenue collection
enforcement. The governor also directed state agencies to reduce spending by
2.5%. 4
Despite recent budget stresses, Georgia's credit outlook is stable. The state's
economy could benefit from a pickup in national economic activity and consumer
and business spending, which would spur income and sales tax revenue growth.
Georgia's historically conservative financial management, low debt burden and
commitment to strong reserve levels should also help bolster its credit
standing. Thus, independent credit rating agency Standard & Poor's ascribed its
highest rating of AAA to the state's general obligation debt. 5
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "State Review: Georgia," RATINGSDIRECT, 1/5/04.
5. This does not indicate Standard & Poor's rating of the Fund.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
26 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.28 $12.27 $11.99
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5412
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.29 $12.37 $12.08
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4730
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.00% +29.79% +72.22%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.47% +4.44% +5.13%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +2.10% +4.35% +5.46%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.11%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.73%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.34%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.47%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.44% +26.25% +59.73%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.44% +4.77% +5.44%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +5.07% +4.67% +5.35%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.73%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.11%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.90%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.75%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 27
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Georgia Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
3/1/94 $ 9,577 $10,000 $10,000
3/31/94 9,258 9,593 10,034
4/30/94 9,293 9,674 10,048
5/31/94 9,356 9,758 10,055
6/30/94 9,317 9,698 10,089
7/31/94 9,475 9,876 10,116
8/31/94 9,513 9,910 10,157
9/30/94 9,420 9,765 10,184
10/31/94 9,276 9,592 10,191
11/30/94 9,095 9,418 10,204
12/31/94 9,308 9,625 10,204
1/31/95 9,558 9,900 10,245
2/28/95 9,759 10,188 10,286
3/31/95 9,853 10,305 10,320
4/30/95 9,879 10,318 10,354
5/31/95 10,108 10,647 10,375
6/30/95 10,070 10,554 10,395
7/31/95 10,119 10,654 10,395
8/31/95 10,217 10,789 10,423
9/30/95 10,255 10,857 10,443
10/31/95 10,385 11,015 10,477
11/30/95 10,519 11,198 10,470
12/31/95 10,618 11,305 10,464
1/31/96 10,659 11,391 10,525
2/29/96 10,628 11,314 10,559
3/31/96 10,532 11,169 10,613
4/30/96 10,537 11,138 10,654
5/31/96 10,563 11,133 10,675
6/30/96 10,664 11,255 10,682
7/31/96 10,725 11,357 10,702
8/31/96 10,738 11,354 10,723
9/30/96 10,871 11,513 10,757
10/31/96 10,966 11,643 10,791
11/30/96 11,107 11,856 10,811
12/31/96 11,113 11,806 10,811
1/31/97 11,134 11,828 10,845
2/28/97 11,211 11,937 10,879
3/31/97 11,111 11,778 10,907
4/30/97 11,197 11,876 10,920
5/31/97 11,317 12,055 10,913
6/30/97 11,417 12,184 10,927
7/31/97 11,659 12,521 10,941
8/31/97 11,582 12,404 10,961
9/30/97 11,701 12,551 10,988
10/31/97 11,767 12,632 11,016
11/30/97 11,845 12,706 11,009
12/31/97 11,987 12,891 10,995
1/31/98 12,080 13,024 11,016
2/28/98 12,083 13,028 11,036
3/31/98 12,108 13,040 11,057
4/30/98 12,097 12,981 11,077
5/31/98 12,248 13,186 11,097
6/30/98 12,284 13,238 11,111
7/31/98 12,311 13,271 11,125
8/31/98 12,456 13,476 11,138
9/30/98 12,597 13,644 11,152
10/31/98 12,571 13,644 11,179
11/30/98 12,623 13,692 11,179
12/31/98 12,664 13,726 11,172
1/31/99 12,757 13,890 11,200
2/28/99 12,714 13,829 11,213
3/31/99 12,743 13,848 11,247
4/30/99 12,784 13,883 11,329
5/31/99 12,714 13,802 11,329
6/30/99 12,547 13,604 11,329
7/31/99 12,555 13,653 11,363
8/31/99 12,409 13,544 11,391
9/30/99 12,374 13,549 11,445
10/31/99 12,196 13,403 11,466
11/30/99 12,288 13,545 11,472
12/31/99 12,178 13,444 11,472
1/31/00 12,067 13,386 11,506
2/29/00 12,241 13,541 11,575
3/31/00 12,528 13,837 11,670
4/30/00 12,470 13,755 11,677
5/31/00 12,398 13,684 11,691
6/30/00 12,723 14,046 11,752
7/31/00 12,869 14,242 11,779
8/31/00 13,072 14,461 11,779
9/30/00 12,975 14,386 11,840
10/31/00 13,138 14,543 11,861
11/30/00 13,249 14,653 11,868
12/31/00 13,566 15,015 11,861
1/31/01 13,649 15,164 11,936
2/28/01 13,701 15,212 11,984
3/31/01 13,829 15,348 12,011
4/30/01 13,690 15,182 12,059
5/31/01 13,806 15,345 12,113
6/30/01 13,918 15,448 12,134
7/31/01 14,124 15,677 12,100
8/31/01 14,348 15,935 12,100
9/30/01 14,244 15,882 12,154
10/31/01 14,452 16,071 12,113
11/30/01 14,337 15,936 12,093
12/31/01 14,203 15,785 12,045
1/31/02 14,382 16,059 12,072
2/28/02 14,544 16,252 12,120
3/31/02 14,294 15,934 12,188
4/30/02 14,481 16,245 12,256
5/31/02 14,552 16,344 12,256
6/30/02 14,666 16,516 12,263
7/31/02 14,842 16,729 12,277
8/31/02 14,972 16,930 12,318
9/30/02 15,297 17,301 12,338
10/31/02 14,981 17,014 12,359
11/30/02 14,946 16,943 12,359
12/31/02 15,253 17,301 12,331
1/31/03 15,224 17,257 12,386
2/28/03 15,418 17,498 12,481
3/31/03 15,432 17,509 12,556
4/30/03 15,596 17,624 12,529
5/31/03 15,964 18,037 12,509
6/30/03 15,997 17,960 12,522
7/31/03 15,338 17,332 12,536
8/31/03 15,472 17,461 12,584
9/30/03 15,930 17,975 12,624
10/31/03 15,807 17,884 12,611
11/30/03 15,978 18,070 12,577
12/31/03 16,138 18,220 12,563
1/31/04 16,262 18,324 12,624
2/29/04 16,494 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS A 2/29/04
- -------------------------------------
1-Year +2.47%
- -------------------------------------
5-Year +4.44%
- -------------------------------------
10-Year +5.13%
- -------------------------------------
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/04)
Date Franklin Georgia Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,234 10,319 10,020
6/30/95 10,208 10,229 10,039
7/31/95 10,260 10,326 10,039
8/31/95 10,347 10,457 10,066
9/30/95 10,389 10,523 10,086
10/31/95 10,505 10,676 10,118
11/30/95 10,645 10,853 10,112
12/31/95 10,740 10,957 10,105
1/31/96 10,776 11,040 10,165
2/29/96 10,741 10,966 10,197
3/31/96 10,640 10,825 10,250
4/30/96 10,640 10,795 10,290
5/31/96 10,660 10,791 10,309
6/30/96 10,756 10,908 10,316
7/31/96 10,818 11,007 10,336
8/31/96 10,824 11,004 10,355
9/30/96 10,960 11,158 10,388
10/31/96 11,050 11,285 10,421
11/30/96 11,177 11,491 10,441
12/31/96 11,187 11,443 10,441
1/31/97 11,194 11,464 10,474
2/28/97 11,276 11,569 10,507
3/31/97 11,171 11,415 10,533
4/30/97 11,241 11,511 10,546
5/31/97 11,365 11,684 10,540
6/30/97 11,458 11,808 10,553
7/31/97 11,694 12,136 10,566
8/31/97 11,612 12,022 10,586
9/30/97 11,726 12,164 10,612
10/31/97 11,785 12,243 10,639
11/30/97 11,857 12,315 10,632
12/31/97 12,002 12,494 10,619
1/31/98 12,079 12,623 10,639
2/28/98 12,086 12,627 10,658
3/31/98 12,095 12,638 10,678
4/30/98 12,078 12,581 10,698
5/31/98 12,223 12,780 10,718
6/30/98 12,263 12,831 10,731
7/31/98 12,284 12,863 10,744
8/31/98 12,423 13,062 10,757
9/30/98 12,557 13,224 10,770
10/31/98 12,524 13,224 10,797
11/30/98 12,571 13,270 10,797
12/31/98 12,605 13,304 10,790
1/31/99 12,703 13,462 10,816
2/28/99 12,655 13,403 10,829
3/31/99 12,677 13,422 10,862
4/30/99 12,703 13,455 10,941
5/31/99 12,629 13,377 10,941
6/30/99 12,459 13,185 10,941
7/31/99 12,461 13,233 10,974
8/31/99 12,310 13,127 11,001
9/30/99 12,270 13,132 11,053
10/31/99 12,088 12,990 11,073
11/30/99 12,182 13,128 11,080
12/31/99 12,058 13,030 11,080
1/31/00 11,944 12,974 11,113
2/29/00 12,110 13,124 11,178
3/31/00 12,387 13,411 11,271
4/30/00 12,325 13,332 11,277
5/31/00 12,249 13,263 11,290
6/30/00 12,562 13,614 11,350
7/31/00 12,712 13,803 11,376
8/31/00 12,895 14,016 11,376
9/30/00 12,795 13,943 11,435
10/31/00 12,949 14,095 11,455
11/30/00 13,054 14,202 11,461
12/31/00 13,370 14,553 11,455
1/31/01 13,443 14,697 11,527
2/28/01 13,488 14,744 11,573
3/31/01 13,606 14,876 11,600
4/30/01 13,451 14,715 11,646
5/31/01 13,570 14,873 11,698
6/30/01 13,673 14,973 11,718
7/31/01 13,867 15,194 11,685
8/31/01 14,080 15,445 11,685
9/30/01 13,972 15,393 11,738
10/31/01 14,168 15,576 11,698
11/30/01 14,050 15,445 11,679
12/31/01 13,912 15,299 11,633
1/31/02 14,081 15,564 11,659
2/28/02 14,233 15,752 11,705
3/31/02 13,984 15,443 11,771
4/30/02 14,171 15,745 11,837
5/31/02 14,222 15,841 11,837
6/30/02 14,339 16,008 11,843
7/31/02 14,504 16,214 11,856
8/31/02 14,624 16,409 11,896
9/30/02 14,944 16,768 11,916
10/31/02 14,618 16,490 11,935
11/30/02 14,567 16,422 11,935
12/31/02 14,869 16,768 11,909
1/31/03 14,835 16,726 11,962
2/28/03 15,017 16,960 12,054
3/31/03 15,023 16,970 12,126
4/30/03 15,175 17,082 12,100
5/31/03 15,536 17,482 12,080
6/30/03 15,548 17,407 12,093
7/31/03 14,905 16,798 12,107
8/31/03 15,025 16,924 12,153
9/30/03 15,472 17,421 12,192
10/31/03 15,332 17,333 12,179
11/30/03 15,504 17,514 12,146
12/31/03 15,650 17,659 12,133
1/31/04 15,750 17,760 12,192
2/29/04 15,973 18,028 12,258
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS C 2/29/04
- ------------------------------------
1-Year +5.44%
- ------------------------------------
5-Year +4.77%
- ------------------------------------
Since Inception (5/1/95) +5.44%
- ------------------------------------
28 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Georgia state personal income
tax bracket of 38.90%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 29
Franklin Kentucky Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Kentucky Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Kentucky state
personal income taxes through a portfolio consisting mainly of Kentucky
municipal bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Kentucky Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 52.3%
AA .......................... 27.2%
A ........................... 13.0%
BBB ......................... 4.9%
Below Investment Grade ...... 2.6%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Kentucky Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.30 on February
28, 2003, to $11.51 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 49.95 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 33 shows that at the end of this reporting
period the
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 91.
30 | Annual Report
Fund's Class A shares' distribution rate was 4.14%. An investor in the 2004
maximum combined federal and Kentucky state personal income tax bracket of
38.90% would need to earn a distribution rate of 6.78% from a taxable investment
to match the Fund's Class A tax-free distribution rate.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
COMMONWEALTH UPDATE
Kentucky's economic recovery remained sluggish but showed initial signs of
improvement. Although manufacturing was the commonwealth's weakest segment, this
was more than offset by significant service sector expansion. The employment
landscape benefited from relative stability within consumer durables companies,
especially automobile makers, and Kentucky's emerging role as a leader in
agricultural science research. The commonwealth witnessed resurgence in its
coal-mining industry over the past year, indicative of the country's increased
demand for energy. Total employment grew modestly and unemployment fell to 5.3%
in February 2004, lower than the 5.6% national average. 3
Kentucky has a continuing structural budget imbalance, which anticipates
elimination of all reserves by fiscal year-end 2004, and has deferred corrective
action regarding an estimated $400 million gap to the next biennial budget
(2005-2006). 4 In light of diminished reserves, the use of most available
off-balance sheet reserves and ongoing weak economic conditions, the
commonwealth's administrators have limited options at their disposal to handle
future shortfalls or imbalances. One of Kentucky's aims is to address revenue
shortfalls and budget gaps while trying to make sure education, Medicaid
benefits and debt service are unaffected by the necessary cuts that are likely
to come.
To its credit, the commonwealth maintained a manageable debt burden while
meeting infrastructure needs, with debt levels at roughly $800 per capita and
less than 2% of its budget. 4 Independent credit rating agency Standard & Poor's
DIVIDEND DISTRIBUTIONS 2
Franklin Kentucky Tax-Free
Income Fund - Class A
3/1/03-2/29/04
- -------------------------------------
MONTH DIVIDEND PER SHARE
- -------------------------------------
March 4.20 cents
- -------------------------------------
April 4.20 cents
- -------------------------------------
May 4.20 cents
- -------------------------------------
June 4.15 cents
- -------------------------------------
July 4.15 cents
- -------------------------------------
August 4.15 cents
- -------------------------------------
September 4.15 cents
- -------------------------------------
October 4.15 cents
- -------------------------------------
November 4.15 cents
- -------------------------------------
December 4.15 cents
- -------------------------------------
January 4.15 cents
- -------------------------------------
February 4.15 cents
- -------------------------------------
TOTAL 49.95 CENTS
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "Kentucky State Property and Building Commission:
Kentucky; Appropriation, Appropriation," RATINGSDIRECT, 9/9/03.
Annual Report | 31
PORTFOLIO BREAKDOWN
Franklin Kentucky Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Utilities 24.2%
- --------------------------------------------------
Subject to Government Appropriations 22.0%
- --------------------------------------------------
Other Revenue 13.2%
- --------------------------------------------------
General Obligation 9.9%
- --------------------------------------------------
Transportation 9.4%
- --------------------------------------------------
Hospital & Health Care 6.7%
- --------------------------------------------------
Prerefunded 5.4%
- --------------------------------------------------
Higher Education 5.1%
- --------------------------------------------------
Tax-Supported 1.8%
- --------------------------------------------------
Corporate-Backed 1.3%
- --------------------------------------------------
Housing 1.0%
- --------------------------------------------------
assigned a stable outlook for Kentucky, based on general creditworthiness and
reflecting expectations that revenue could stabilize given recent economic
improvement, fiscal year 2004 operations may return largely balanced results,
and the commonwealth should begin to address its structural budgetary imbalance
when developing its 2005-2006 biennial budget.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
32 | Annual Report
Performance Summary as of 2/29/04
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 due on Fund
dividends, capital gain distributions, if any, or any realized gains on the sale
of Fund shares. Total return reflects the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $11.51 $11.30
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4995
PERFORMANCE 1
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.43% +28.56% +74.34%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +1.92% +4.24% +5.25%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +1.91% +4.17% +5.86%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 5 4.14%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 6 6.78%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 7 3.95%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 6 6.46%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 33
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvested interest. It differs from the Fund in composition and does not pay
management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Kentucky Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 8 CPI 8
- -----------------
3/1/94 $ 9,572 $10,000 $10,000
3/31/94 9,032 9,593 10,034
4/30/94 9,103 9,674 10,048
5/31/94 9,203 9,758 10,055
6/30/94 9,116 9,698 10,089
7/31/94 9,326 9,876 10,116
8/31/94 9,355 9,910 10,157
9/30/94 9,137 9,765 10,184
10/31/94 8,872 9,592 10,191
11/30/94 8,647 9,418 10,204
12/31/94 8,916 9,625 10,204
1/31/95 9,269 9,900 10,245
2/28/95 9,594 10,188 10,286
3/31/95 9,699 10,305 10,320
4/30/95 9,706 10,318 10,354
5/31/95 10,058 10,647 10,375
6/30/95 9,912 10,554 10,395
7/31/95 9,969 10,654 10,395
8/31/95 10,100 10,789 10,423
9/30/95 10,183 10,857 10,443
10/31/95 10,364 11,015 10,477
11/30/95 10,565 11,198 10,470
12/31/95 10,686 11,305 10,464
1/31/96 10,737 11,391 10,525
2/29/96 10,623 11,314 10,559
3/31/96 10,469 11,169 10,613
4/30/96 10,460 11,138 10,654
5/31/96 10,474 11,133 10,675
6/30/96 10,609 11,255 10,682
7/31/96 10,680 11,357 10,702
8/31/96 10,680 11,354 10,723
9/30/96 10,849 11,513 10,757
10/31/96 10,982 11,643 10,791
11/30/96 11,171 11,856 10,811
12/31/96 11,143 11,806 10,811
1/31/97 11,147 11,828 10,845
2/28/97 11,248 11,937 10,879
3/31/97 11,099 11,778 10,907
4/30/97 11,198 11,876 10,920
5/31/97 11,357 12,055 10,913
6/30/97 11,482 12,184 10,927
7/31/97 11,792 12,521 10,941
8/31/97 11,709 12,404 10,961
9/30/97 11,846 12,551 10,988
10/31/97 11,914 12,632 11,016
11/30/97 12,007 12,706 11,009
12/31/97 12,189 12,891 10,995
1/31/98 12,296 13,024 11,016
2/28/98 12,307 13,028 11,036
3/31/98 12,343 13,040 11,057
4/30/98 12,296 12,981 11,077
5/31/98 12,490 13,186 11,097
6/30/98 12,542 13,238 11,111
7/31/98 12,570 13,271 11,125
8/31/98 12,747 13,476 11,138
9/30/98 12,888 13,644 11,152
10/31/98 12,858 13,644 11,179
11/30/98 12,903 13,692 11,179
12/31/98 12,934 13,726 11,172
1/31/99 13,058 13,890 11,200
2/28/99 12,989 13,829 11,213
3/31/99 13,029 13,848 11,247
4/30/99 13,049 13,883 11,329
5/31/99 12,974 13,802 11,329
6/30/99 12,793 13,604 11,329
7/31/99 12,799 13,653 11,363
8/31/99 12,639 13,544 11,391
9/30/99 12,611 13,549 11,445
10/31/99 12,409 13,403 11,466
11/30/99 12,506 13,545 11,472
12/31/99 12,387 13,444 11,472
1/31/00 12,277 13,386 11,506
2/29/00 12,452 13,541 11,575
3/31/00 12,759 13,837 11,670
4/30/00 12,624 13,755 11,677
5/31/00 12,482 13,684 11,691
6/30/00 12,831 14,046 11,752
7/31/00 13,050 14,242 11,779
8/31/00 13,268 14,461 11,779
9/30/00 13,163 14,386 11,840
10/31/00 13,324 14,543 11,861
11/30/00 13,444 14,653 11,868
12/31/00 13,812 15,015 11,861
1/31/01 13,874 15,164 11,936
2/28/01 13,906 15,212 11,984
3/31/01 14,045 15,348 12,011
4/30/01 13,867 15,182 12,059
5/31/01 14,017 15,345 12,113
6/30/01 14,151 15,448 12,134
7/31/01 14,370 15,677 12,100
8/31/01 14,586 15,935 12,100
9/30/01 14,423 15,882 12,154
10/31/01 14,633 16,071 12,113
11/30/01 14,521 15,936 12,093
12/31/01 14,367 15,785 12,045
1/31/02 14,579 16,059 12,072
2/28/02 14,754 16,252 12,120
3/31/02 14,520 15,934 12,188
4/30/02 14,756 16,245 12,256
5/31/02 14,842 16,344 12,256
6/30/02 15,004 16,516 12,263
7/31/02 15,176 16,729 12,277
8/31/02 15,314 16,930 12,318
9/30/02 15,592 17,301 12,338
10/31/02 15,272 17,014 12,359
11/30/02 15,220 16,943 12,359
12/31/02 15,555 17,301 12,331
1/31/03 15,488 17,257 12,386
2/28/03 15,695 17,498 12,481
3/31/03 15,688 17,509 12,556
4/30/03 15,772 17,624 12,529
5/31/03 16,154 18,037 12,509
6/30/03 16,099 17,960 12,522
7/31/03 15,452 17,332 12,536
8/31/03 15,593 17,461 12,584
9/30/03 16,121 17,975 12,624
10/31/03 16,028 17,884 12,611
11/30/03 16,196 18,070 12,577
12/31/03 16,359 18,220 12,563
1/31/04 16,448 18,324 12,624
2/29/04 16,688 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 2/29/04
- ------------------------------------
1-Year +1.92%
- ------------------------------------
5-Year +4.24%
- ------------------------------------
10-Year +5.25%
- ------------------------------------
34 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
1. The Fund's manager has agreed in advance to waive a portion of its management
fees, which reduces operating expenses and increases distribution rate, yield
and total return to shareholders. Without this waiver, the Fund's distribution
rate and total return would have been lower, and yield for the period would have
been 3.73%. The fee waiver may be discontinued at any time upon notice to the
Fund's Board of Trustees.
2. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current maximum
sales charge.
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 4.15 cent per share
current monthly dividend and the maximum offering price of $12.02 per share on
2/29/04.
6. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Kentucky state personal income
tax bracket of 38.90%, based on the federal income tax rate of 35.00%.
7. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
8. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 35
Franklin Louisiana Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Louisiana Tax-Free Income
Fund seeks to provide high, current income exempt from federal and Louisiana
state personal income taxes through a portfolio consisting mainly of Louisiana
municipal bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Lousiana Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 79.2%
AA .......................... 0.4%
A ........................... 4.0%
BBB ......................... 13.1%
Below Investment Grade ...... 3.3%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Louisiana Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.55 on February
28, 2003, to $11.81 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 53.07 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 39 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.18%, based on an
annualization of
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 96.
36 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Louisiana Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.53 cents 4.04 cents
- -------------------------------------------------------------------------------
April 4.53 cents 4.04 cents
- -------------------------------------------------------------------------------
May 4.53 cents 4.04 cents
- -------------------------------------------------------------------------------
June 4.48 cents 3.87 cents
- -------------------------------------------------------------------------------
July 4.48 cents 3.87 cents
- -------------------------------------------------------------------------------
August 4.36 cents 3.76 cents
- -------------------------------------------------------------------------------
September 4.36 cents 3.76 cents
- -------------------------------------------------------------------------------
October 4.36 cents 3.76 cents
- -------------------------------------------------------------------------------
November 4.36 cents 3.76 cents
- -------------------------------------------------------------------------------
December 4.36 cents 3.81 cents
- -------------------------------------------------------------------------------
January 4.36 cents 3.81 cents
- -------------------------------------------------------------------------------
February 4.36 cents 3.81 cents
- -------------------------------------------------------------------------------
TOTAL 53.07 CENTS 46.33 CENTS
- -------------------------------------------------------------------------------
the current 4.30 cent ($0.0430) per share dividend and the maximum offering
price of $12.33 on February 29, 2004. An investor in the 2004 maximum combined
federal and Louisiana state personal income tax bracket of 38.90% would need to
earn a distribution rate of 6.85% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
STATE UPDATE
Louisiana residents, like those in the rest of the U.S., endured general
economic malaise in recent years. Unemployment jumped sharply to 7.1% in July
2003,
Annual Report | 37
PORTFOLIO BREAKDOWN
Franklin Louisiana Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Tax-Supported 18.2%
- --------------------------------------------------
Higher Education 17.4%
- --------------------------------------------------
Utilities 12.1%
- --------------------------------------------------
Subject to Government Appropriations 10.1%
- --------------------------------------------------
Hospital & Health Care 9.4%
- --------------------------------------------------
Prerefunded 8.1%
- --------------------------------------------------
General Obligation 7.0%
- --------------------------------------------------
Housing 6.4%
- --------------------------------------------------
Other Revenue 4.8%
- --------------------------------------------------
Corporate-Backed 3.4%
- --------------------------------------------------
Transportation 3.1%
- --------------------------------------------------
before ending the Fund's fiscal year at 5.8%, above the 5.6% national average. 3
Overall, growth in service employment allowed for slightly more economic
diversity, but the state was still highly dependent on oil, gas and related
petrochemical industries for jobs and income. Personal income levels slowly
increased, but at just 81% of the national average, the state lagged by a wide
margin. 4
Louisiana's finances are governed by constitutional mandates for balanced
budgets, expenditure limitations and other controls. Tax reform measures passed
in November 2002 further increased budget stability by raising taxes on higher
incomes, limiting certain federal income tax deductions, and eliminating sales
taxes on food, prescription drugs and residential utilities. Several remaining
budget issues will likely challenge the state's favorable and improving credit
factors. These issues include health care, social services and education costs;
continued dependence on the volatile oil and gas industry; declines in state
tourism; and repayment of a $290 million federal Medicaid overpayment to the
state's Department of Health and Hospitals. 4
Nevertheless, Louisiana's diligent management increased its financial stability
over the past few years. The state's administration improved its capacity to
react to and contain fiscal deficits, largely due to efforts to match
expenditures to revenues, build a rainy day fund and reduce the overall debt
burden. Based on Louisiana's ongoing conservative approach toward budgeting and
debt management, strong cash position, and prudent establishment and use of
reserves, independent credit rating agency Moody's Investors Service upgraded
the state's debt rating to A1 from A2 during the reporting period and assigned a
stable outlook. 5
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "State Review: Louisiana," RATINGSDIRECT,
12/24/03.
5. This does not indicate Moody's rating of the Fund.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
38 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $11.81 $11.55
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5307
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $11.91 $11.65
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4633
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.01% +30.94% +74.19%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.48% +4.63% +5.25%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +2.19% +4.54% +5.62%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.18%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.85%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.43%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.61%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.34% +27.43% +63.35%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.34% +4.97% +5.71%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +5.04% +4.86% +5.64%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.77%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.17%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.04%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.98%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 39
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Louisiana Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
3/1/94 $ 9,577 $10,000 $10,000
3/31/94 9,236 9,593 10,034
4/30/94 9,244 9,674 10,048
5/31/94 9,323 9,758 10,055
6/30/94 9,284 9,698 10,089
7/31/94 9,437 9,876 10,116
8/31/94 9,466 9,910 10,157
9/30/94 9,385 9,765 10,184
10/31/94 9,242 9,592 10,191
11/30/94 9,027 9,418 10,204
12/31/94 9,203 9,625 10,204
1/31/95 9,469 9,900 10,245
2/28/95 9,688 10,188 10,286
3/31/95 9,741 10,305 10,320
4/30/95 9,767 10,318 10,354
5/31/95 10,003 10,647 10,375
6/30/95 9,937 10,554 10,395
7/31/95 10,005 10,654 10,395
8/31/95 10,097 10,789 10,423
9/30/95 10,171 10,857 10,443
10/31/95 10,303 11,015 10,477
11/30/95 10,454 11,198 10,470
12/31/95 10,547 11,305 10,464
1/31/96 10,590 11,391 10,525
2/29/96 10,538 11,314 10,559
3/31/96 10,447 11,169 10,613
4/30/96 10,433 11,138 10,654
5/31/96 10,468 11,133 10,675
6/30/96 10,573 11,255 10,682
7/31/96 10,654 11,357 10,702
8/31/96 10,685 11,354 10,723
9/30/96 10,813 11,513 10,757
10/31/96 10,917 11,643 10,791
11/30/96 11,083 11,856 10,811
12/31/96 11,059 11,806 10,811
1/31/97 11,075 11,828 10,845
2/28/97 11,166 11,937 10,879
3/31/97 11,073 11,778 10,907
4/30/97 11,143 11,876 10,920
5/31/97 11,270 12,055 10,913
6/30/97 11,395 12,184 10,927
7/31/97 11,648 12,521 10,941
8/31/97 11,579 12,404 10,961
9/30/97 11,715 12,551 10,988
10/31/97 11,793 12,632 11,016
11/30/97 11,864 12,706 11,009
12/31/97 12,034 12,891 10,995
1/31/98 12,120 13,024 11,016
2/28/98 12,113 13,028 11,036
3/31/98 12,140 13,040 11,057
4/30/98 12,107 12,981 11,077
5/31/98 12,266 13,186 11,097
6/30/98 12,307 13,238 11,111
7/31/98 12,326 13,271 11,125
8/31/98 12,489 13,476 11,138
9/30/98 12,625 13,644 11,152
10/31/98 12,597 13,644 11,179
11/30/98 12,642 13,692 11,179
12/31/98 12,683 13,726 11,172
1/31/99 12,792 13,890 11,200
2/28/99 12,746 13,829 11,213
3/31/99 12,785 13,848 11,247
4/30/99 12,816 13,883 11,329
5/31/99 12,744 13,802 11,329
6/30/99 12,580 13,604 11,329
7/31/99 12,576 13,653 11,363
8/31/99 12,410 13,544 11,391
9/30/99 12,395 13,549 11,445
10/31/99 12,199 13,403 11,466
11/30/99 12,305 13,545 11,472
12/31/99 12,191 13,444 11,472
1/31/00 12,085 13,386 11,506
2/29/00 12,243 13,541 11,575
3/31/00 12,542 13,837 11,670
4/30/00 12,458 13,755 11,677
5/31/00 12,381 13,684 11,691
6/30/00 12,696 14,046 11,752
7/31/00 12,863 14,242 11,779
8/31/00 13,063 14,461 11,779
9/30/00 12,998 14,386 11,840
10/31/00 13,154 14,543 11,861
11/30/00 13,295 14,653 11,868
12/31/00 13,616 15,015 11,861
1/31/01 13,676 15,164 11,936
2/28/01 13,720 15,212 11,984
3/31/01 13,831 15,348 12,011
4/30/01 13,694 15,182 12,059
5/31/01 13,840 15,345 12,113
6/30/01 13,920 15,448 12,134
7/31/01 14,158 15,677 12,100
8/31/01 14,367 15,935 12,100
9/30/01 14,308 15,882 12,154
10/31/01 14,537 16,071 12,113
11/30/01 14,443 15,936 12,093
12/31/01 14,285 15,785 12,045
1/31/02 14,484 16,059 12,072
2/28/02 14,645 16,252 12,120
3/31/02 14,408 15,934 12,188
4/30/02 14,654 16,245 12,256
5/31/02 14,714 16,344 12,256
6/30/02 14,861 16,516 12,263
7/31/02 15,032 16,729 12,277
8/31/02 15,155 16,930 12,318
9/30/02 15,468 17,301 12,338
10/31/02 15,225 17,014 12,359
11/30/02 15,177 16,943 12,359
12/31/02 15,469 17,301 12,331
1/31/03 15,436 17,257 12,386
2/28/03 15,603 17,498 12,481
3/31/03 15,628 17,509 12,556
4/30/03 15,742 17,624 12,529
5/31/03 16,104 18,037 12,509
6/30/03 16,043 17,960 12,522
7/31/03 15,459 17,332 12,536
8/31/03 15,626 17,461 12,584
9/30/03 16,089 17,975 12,624
10/31/03 15,973 17,884 12,611
11/30/03 16,124 18,070 12,577
12/31/03 16,273 18,220 12,563
1/31/04 16,489 18,324 12,624
2/29/04 16,683 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 2/29/04
- ------------------------------------
1-Year +2.48%
- ------------------------------------
5-Year +4.63%
- ------------------------------------
10-Year +5.25%
- ------------------------------------
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/04)
Date Franklin Louisiana Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,245 10,319 10,020
6/30/95 10,180 10,229 10,039
7/31/95 10,262 10,326 10,039
8/31/95 10,351 10,457 10,066
9/30/95 10,412 10,523 10,086
10/31/95 10,551 10,676 10,118
11/30/95 10,699 10,853 10,112
12/31/95 10,798 10,957 10,105
1/31/96 10,836 11,040 10,165
2/29/96 10,777 10,966 10,197
3/31/96 10,671 10,825 10,250
4/30/96 10,660 10,795 10,290
5/31/96 10,690 10,791 10,309
6/30/96 10,782 10,908 10,316
7/31/96 10,869 11,007 10,336
8/31/96 10,896 11,004 10,355
9/30/96 11,021 11,158 10,388
10/31/96 11,120 11,285 10,421
11/30/96 11,282 11,491 10,441
12/31/96 11,250 11,443 10,441
1/31/97 11,269 11,464 10,474
2/28/97 11,345 11,569 10,507
3/31/97 11,255 11,415 10,533
4/30/97 11,321 11,511 10,546
5/31/97 11,453 11,684 10,540
6/30/97 11,564 11,808 10,553
7/31/97 11,825 12,136 10,566
8/31/97 11,752 12,022 10,586
9/30/97 11,873 12,164 10,612
10/31/97 11,947 12,243 10,639
11/30/97 12,014 12,315 10,632
12/31/97 12,178 12,494 10,619
1/31/98 12,260 12,623 10,639
2/28/98 12,257 12,627 10,658
3/31/98 12,267 12,638 10,678
4/30/98 12,229 12,581 10,698
5/31/98 12,393 12,780 10,718
6/30/98 12,430 12,831 10,731
7/31/98 12,441 12,863 10,744
8/31/98 12,598 13,062 10,757
9/30/98 12,719 13,224 10,770
10/31/98 12,696 13,224 10,797
11/30/98 12,736 13,270 10,797
12/31/98 12,760 13,304 10,790
1/31/99 12,875 13,462 10,816
2/28/99 12,823 13,403 10,829
3/31/99 12,867 13,422 10,862
4/30/99 12,881 13,455 10,941
5/31/99 12,804 13,377 10,941
6/30/99 12,632 13,185 10,941
7/31/99 12,622 13,233 10,974
8/31/99 12,450 13,127 11,001
9/30/99 12,430 13,132 11,053
10/31/99 12,230 12,990 11,073
11/30/99 12,331 13,128 11,080
12/31/99 12,211 13,030 11,080
1/31/00 12,101 12,974 11,113
2/29/00 12,254 13,124 11,178
3/31/00 12,545 13,411 11,271
4/30/00 12,456 13,332 11,277
5/31/00 12,373 13,263 11,290
6/30/00 12,681 13,614 11,350
7/31/00 12,839 13,803 11,376
8/31/00 13,045 14,016 11,376
9/30/00 12,962 13,943 11,435
10/31/00 13,112 14,095 11,455
11/30/00 13,245 14,202 11,461
12/31/00 13,570 14,553 11,455
1/31/01 13,623 14,697 11,527
2/28/01 13,659 14,744 11,573
3/31/01 13,762 14,876 11,600
4/30/01 13,620 14,715 11,646
5/31/01 13,758 14,873 11,698
6/30/01 13,843 14,973 11,718
7/31/01 14,059 15,194 11,685
8/31/01 14,271 15,445 11,685
9/30/01 14,196 15,393 11,738
10/31/01 14,414 15,576 11,698
11/30/01 14,326 15,445 11,679
12/31/01 14,153 15,299 11,633
1/31/02 14,341 15,564 11,659
2/28/02 14,505 15,752 11,705
3/31/02 14,264 15,443 11,771
4/30/02 14,498 15,745 11,837
5/31/02 14,550 15,841 11,837
6/30/02 14,687 16,008 11,843
7/31/02 14,847 16,214 11,856
8/31/02 14,961 16,409 11,896
9/30/02 15,259 16,768 11,916
10/31/02 15,015 16,490 11,935
11/30/02 14,974 16,422 11,935
12/31/02 15,239 16,768 11,909
1/31/03 15,213 16,726 11,962
2/28/03 15,370 16,960 12,054
3/31/03 15,387 16,970 12,126
4/30/03 15,492 17,082 12,100
5/31/03 15,837 17,482 12,080
6/30/03 15,769 17,407 12,093
7/31/03 15,192 16,798 12,107
8/31/03 15,333 16,924 12,153
9/30/03 15,789 17,421 12,192
10/31/03 15,654 17,333 12,179
11/30/03 15,809 17,514 12,146
12/31/03 15,945 17,659 12,133
1/31/04 16,148 17,760 12,192
2/29/04 16,335 18,028 12,258
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS C 2/29/04
- ------------------------------------
1-Year +5.34%
- ------------------------------------
5-Year +4.97%
- ------------------------------------
Since Inception (5/1/95) +5.71%
- ------------------------------------
40 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Louisiana state personal income
tax bracket of 38.90%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 41
Franklin Maryland Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Maryland Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Maryland state
personal income taxes through a portfolio consisting mainly of Maryland
municipal bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Maryland Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 54.2%
AA .......................... 21.8%
A ........................... 18.6%
BBB ......................... 5.4%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Maryland Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.78 on February
28, 2003, to $11.93 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 52.89 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 45 shows that at the end of this reporting
period the
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 101.
42 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Maryland Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.48 cents 3.95 cents
- -------------------------------------------------------------------------------
April 4.48 cents 3.95 cents
- -------------------------------------------------------------------------------
May 4.48 cents 3.95 cents
- -------------------------------------------------------------------------------
June 4.40 cents 3.91 cents
- -------------------------------------------------------------------------------
July 4.40 cents 3.91 cents
- -------------------------------------------------------------------------------
August 4.40 cents 3.85 cents
- -------------------------------------------------------------------------------
September 4.40 cents 3.85 cents
- -------------------------------------------------------------------------------
October 4.40 cents 3.85 cents
- -------------------------------------------------------------------------------
November 4.40 cents 3.85 cents
- -------------------------------------------------------------------------------
December 4.35 cents 3.73 cents
- -------------------------------------------------------------------------------
January 4.35 cents 3.73 cents
- -------------------------------------------------------------------------------
February 4.35 cents 3.73 cents
- -------------------------------------------------------------------------------
TOTAL 52.89 CENTS 46.26 CENTS
- -------------------------------------------------------------------------------
Fund's Class A shares' distribution rate was 4.14%, based on an annualization of
the current 4.30 cent ($0.0430) per share dividend and the maximum offering
price of $12.46 on February 29, 2004. An investor in the 2004 maximum combined
federal and Maryland state and local personal income tax bracket of 40.14% 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 shares'
performance, please see the Performance Summary.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
STATE UPDATE
The strength of Maryland's diverse, broad-based economy and the state's history
of sound financial management continued to earn the highest-quality credit
ratings of AAA and Aaa, assigned by independent credit rating agencies Standard
&
Annual Report | 43
PORTFOLIO BREAKDOWN
Franklin Maryland Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Hospital & Health Care 23.0%
- --------------------------------------------------
Utilities 14.9%
- --------------------------------------------------
Prerefunded 14.7%
- --------------------------------------------------
General Obligation 12.2%
- --------------------------------------------------
Higher Education 12.2%
- --------------------------------------------------
Transportation 8.0%
- --------------------------------------------------
Housing 6.8%
- --------------------------------------------------
Subject to Government Appropriations 5.7%
- --------------------------------------------------
Tax-Supported 1.4%
- --------------------------------------------------
Other Revenue 0.6%
- --------------------------------------------------
Corporate-Backed 0.5%
- --------------------------------------------------
Poor's and Moody's Investors Service. 3 Although Maryland was not immune to
national economic challenges, the broader slowdown hit Maryland later than other
states. Maryland's employment growth in services offset declines in
manufacturing, business services and telecommunications. Unemployment, at 4.0%
in February 2004, remained below the 5.6% national rate, and per capita income
levels remained fifth highest in the nation. 4, 5 The government sector was a
stabilizing factor for Maryland during the recession, growing by 2% in 2002. 5
Steady economic expansion through fiscal year 2001 enabled the state to build
significant reserves, which were used, as anticipated, to help balance
operations as the economy and revenues weakened. Although the state successfully
balanced operations in 2003, it used $750 million of one-time revenues and $188
million of appropriations to help meet expenditures, which increased by 8.1%. 5
These increases reflected Maryland's legislative commitment to the Thorton plan,
providing double-digit growth in K-12 education spending, as well as increases
to higher education, social services, welfare, Medicare, inmate services,
housing, foster care and other areas.
The fiscal year 2004 budget was balanced assuming 5.6% revenue growth over
fiscal year 2003 estimates with the amount of one-time revenues declining to
$328 million. 5 The budget included a mix of fee increases totaling $163
million, fund transfers totaling $328 million and various budget reductions
worth about $200 million. 6 Revenue increases were composed primarily of fee
increases, including a corporate filing fee, and tax compliance items.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
3. These do not indicate ratings of the Fund.
4. Source: Bureau of Labor Statistics.
5. Source: Standard & Poor's, "Summary: Maryland; Tax Secured, General
Obligation," RATINGSDIRECT, 1/5/04.
6. Source: Moody's Investors Service, "New Issue: Maryland (State of)," 11/7/03.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
44 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.15 $11.93 $11.78
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5289
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV)* +$0.16 $12.06 $11.90
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4626
*NAV does not agree to NAV disclosed in the accompanying Financial Statements
due to financial statement adjusting entries posted as of period-end.
PERFORMANCE
- ---------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.89% +30.57% +76.31%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.42% +4.56% +5.38%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.05% +4.48% +5.77%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.14%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.92%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.33%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.56%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.33% +27.14% +64.31%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.33% +4.92% +5.78%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.97% +4.82% +5.69%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.69%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.17%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.90%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.84%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 45
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Maryland Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
3/1/94 $ 9,578 $10,000 $10,000
3/31/94 9,212 9,593 10,034
4/30/94 9,219 9,674 10,048
5/31/94 9,306 9,758 10,055
6/30/94 9,264 9,698 10,089
7/31/94 9,427 9,876 10,116
8/31/94 9,464 9,910 10,157
9/30/94 9,345 9,765 10,184
10/31/94 9,164 9,592 10,191
11/30/94 8,943 9,418 10,204
12/31/94 9,181 9,625 10,204
1/31/95 9,468 9,900 10,245
2/28/95 9,752 10,188 10,286
3/31/95 9,848 10,305 10,320
4/30/95 9,854 10,318 10,354
5/31/95 10,120 10,647 10,375
6/30/95 10,042 10,554 10,395
7/31/95 10,181 10,654 10,395
8/31/95 10,301 10,789 10,423
9/30/95 10,384 10,857 10,443
10/31/95 10,507 11,015 10,477
11/30/95 10,668 11,198 10,470
12/31/95 10,769 11,305 10,464
1/31/96 10,810 11,391 10,525
2/29/96 10,747 11,314 10,559
3/31/96 10,624 11,169 10,613
4/30/96 10,617 11,138 10,654
5/31/96 10,622 11,133 10,675
6/30/96 10,726 11,255 10,682
7/31/96 10,816 11,357 10,702
8/31/96 10,807 11,354 10,723
9/30/96 10,964 11,513 10,757
10/31/96 11,067 11,643 10,791
11/30/96 11,243 11,856 10,811
12/31/96 11,197 11,806 10,811
1/31/97 11,212 11,828 10,845
2/28/97 11,311 11,937 10,879
3/31/97 11,176 11,778 10,907
4/30/97 11,264 11,876 10,920
5/31/97 11,409 12,055 10,913
6/30/97 11,521 12,184 10,927
7/31/97 11,803 12,521 10,941
8/31/97 11,720 12,404 10,961
9/30/97 11,853 12,551 10,988
10/31/97 11,918 12,632 11,016
11/30/97 11,997 12,706 11,009
12/31/97 12,153 12,891 10,995
1/31/98 12,247 13,024 11,016
2/28/98 12,245 13,028 11,036
3/31/98 12,269 13,040 11,057
4/30/98 12,254 12,981 11,077
5/31/98 12,422 13,186 11,097
6/30/98 12,476 13,238 11,111
7/31/98 12,513 13,271 11,125
8/31/98 12,674 13,476 11,138
9/30/98 12,799 13,644 11,152
10/31/98 12,812 13,644 11,179
11/30/98 12,844 13,692 11,179
12/31/98 12,870 13,726 11,172
1/31/99 12,977 13,890 11,200
2/28/99 12,939 13,829 11,213
3/31/99 12,964 13,848 11,247
4/30/99 13,014 13,883 11,329
5/31/99 12,951 13,802 11,329
6/30/99 12,769 13,604 11,329
7/31/99 12,796 13,653 11,363
8/31/99 12,602 13,544 11,391
9/30/99 12,573 13,549 11,445
10/31/99 12,371 13,403 11,466
11/30/99 12,499 13,545 11,472
12/31/99 12,380 13,444 11,472
1/31/00 12,293 13,386 11,506
2/29/00 12,439 13,541 11,575
3/31/00 12,726 13,837 11,670
4/30/00 12,685 13,755 11,677
5/31/00 12,581 13,684 11,691
6/30/00 12,897 14,046 11,752
7/31/00 13,098 14,242 11,779
8/31/00 13,322 14,461 11,779
9/30/00 13,278 14,386 11,840
10/31/00 13,410 14,543 11,861
11/30/00 13,525 14,653 11,868
12/31/00 13,822 15,015 11,861
1/31/01 13,907 15,164 11,936
2/28/01 13,986 15,212 11,984
3/31/01 14,084 15,348 12,011
4/30/01 13,970 15,182 12,059
5/31/01 14,090 15,345 12,113
6/30/01 14,207 15,448 12,134
7/31/01 14,407 15,677 12,100
8/31/01 14,629 15,935 12,100
9/30/01 14,582 15,882 12,154
10/31/01 14,760 16,071 12,113
11/30/01 14,663 15,936 12,093
12/31/01 14,529 15,785 12,045
1/31/02 14,727 16,059 12,072
2/28/02 14,887 16,252 12,120
3/31/02 14,634 15,934 12,188
4/30/02 14,867 16,245 12,256
5/31/02 15,017 16,344 12,256
6/30/02 15,137 16,516 12,263
7/31/02 15,322 16,729 12,277
8/31/02 15,472 16,930 12,318
9/30/02 15,771 17,301 12,338
10/31/02 15,514 17,014 12,359
11/30/02 15,478 16,943 12,359
12/31/02 15,769 17,301 12,331
1/31/03 15,775 17,257 12,386
2/28/03 15,955 17,498 12,481
3/31/03 15,979 17,509 12,556
4/30/03 16,107 17,624 12,529
5/31/03 16,442 18,037 12,509
6/30/03 16,393 17,960 12,522
7/31/03 15,821 17,332 12,536
8/31/03 15,960 17,461 12,584
9/30/03 16,327 17,975 12,624
10/31/03 16,253 17,884 12,611
11/30/03 16,419 18,070 12,577
12/31/03 16,569 18,220 12,563
1/31/04 16,658 18,324 12,624
2/29/04 16,888 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 2/29/04
- ------------------------------------
1-Year +1.42%
- ------------------------------------
5-Year +4.56%
- ------------------------------------
10-Year +5.38%
- ------------------------------------
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/04)
Date Franklin Maryland Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- ----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,281 10,319 10,020
6/30/95 10,196 10,229 10,039
7/31/95 10,340 10,326 10,039
8/31/95 10,456 10,457 10,066
9/30/95 10,525 10,523 10,086
10/31/95 10,663 10,676 10,118
11/30/95 10,820 10,853 10,112
12/31/95 10,917 10,957 10,105
1/31/96 10,962 11,040 10,165
2/29/96 10,906 10,966 10,197
3/31/96 10,787 10,825 10,250
4/30/96 10,765 10,795 10,290
5/31/96 10,773 10,791 10,309
6/30/96 10,864 10,908 10,316
7/31/96 10,948 11,007 10,336
8/31/96 10,944 11,004 10,355
9/30/96 11,087 11,158 10,388
10/31/96 11,195 11,285 10,421
11/30/96 11,357 11,491 10,441
12/31/96 11,315 11,443 10,441
1/31/97 11,323 11,464 10,474
2/28/97 11,417 11,569 10,507
3/31/97 11,274 11,415 10,533
4/30/97 11,358 11,511 10,546
5/31/97 11,509 11,684 10,540
6/30/97 11,616 11,808 10,553
7/31/97 11,894 12,136 10,566
8/31/97 11,804 12,022 10,586
9/30/97 11,932 12,164 10,612
10/31/97 11,992 12,243 10,639
11/30/97 12,065 12,315 10,632
12/31/97 12,225 12,494 10,619
1/31/98 12,302 12,623 10,639
2/28/98 12,295 12,627 10,658
3/31/98 12,323 12,638 10,678
4/30/98 12,292 12,581 10,698
5/31/98 12,464 12,780 10,718
6/30/98 12,513 12,831 10,731
7/31/98 12,543 12,863 10,744
8/31/98 12,697 13,062 10,757
9/30/98 12,817 13,224 10,770
10/31/98 12,823 13,224 10,797
11/30/98 12,849 13,270 10,797
12/31/98 12,869 13,304 10,790
1/31/99 12,970 13,462 10,816
2/28/99 12,926 13,403 10,829
3/31/99 12,954 13,422 10,862
4/30/99 12,986 13,455 10,941
5/31/99 12,918 13,377 10,941
6/30/99 12,733 13,185 10,941
7/31/99 12,753 13,233 10,974
8/31/99 12,556 13,127 11,001
9/30/99 12,520 13,132 11,053
10/31/99 12,316 12,990 11,073
11/30/99 12,436 13,128 11,080
12/31/99 12,313 13,030 11,080
1/31/00 12,223 12,974 11,113
2/29/00 12,361 13,124 11,178
3/31/00 12,650 13,411 11,271
4/30/00 12,593 13,332 11,277
5/31/00 12,496 13,263 11,290
6/30/00 12,801 13,614 11,350
7/31/00 12,982 13,803 11,376
8/31/00 13,197 14,016 11,376
9/30/00 13,148 13,943 11,435
10/31/00 13,284 14,095 11,455
11/30/00 13,391 14,202 11,461
12/31/00 13,677 14,553 11,455
1/31/01 13,752 14,697 11,527
2/28/01 13,823 14,744 11,573
3/31/01 13,924 14,876 11,600
4/30/01 13,793 14,715 11,646
5/31/01 13,916 14,873 11,698
6/30/01 14,025 14,973 11,718
7/31/01 14,214 15,194 11,685
8/31/01 14,424 15,445 11,685
9/30/01 14,372 15,393 11,738
10/31/01 14,539 15,576 11,698
11/30/01 14,439 15,445 11,679
12/31/01 14,302 15,299 11,633
1/31/02 14,488 15,564 11,659
2/28/02 14,637 15,752 11,705
3/31/02 14,384 15,443 11,771
4/30/02 14,602 15,745 11,837
5/31/02 14,742 15,841 11,837
6/30/02 14,866 16,008 11,843
7/31/02 15,025 16,214 11,856
8/31/02 15,177 16,409 11,896
9/30/02 15,461 16,768 11,916
10/31/02 15,204 16,490 11,935
11/30/02 15,163 16,422 11,935
12/31/02 15,438 16,768 11,909
1/31/03 15,436 16,726 11,962
2/28/03 15,603 16,960 12,054
3/31/03 15,618 16,970 12,126
4/30/03 15,734 17,082 12,100
5/31/03 16,064 17,482 12,080
6/30/03 15,997 17,407 12,093
7/31/03 15,437 16,798 12,107
8/31/03 15,565 16,924 12,153
9/30/03 15,912 17,421 12,192
10/31/03 15,834 17,333 12,179
11/30/03 15,988 17,514 12,146
12/31/03 16,122 17,659 12,133
1/31/04 16,214 17,760 12,192
2/29/04 16,431 18,028 12,258
- ------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS C 2/29/04
- ------------------------------------
1-Year +4.33%
- ------------------------------------
5-Year +4.92%
- ------------------------------------
Since Inception (5/1/95) +5.78%
- ------------------------------------
46 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Maryland state and local
personal income tax bracket of 40.14%, based on the federal income tax rate of
35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 47
Franklin Missouri Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Missouri Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Missouri state
personal income taxes through a portfolio consisting mainly of Missouri
municipal bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Missouri Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 51.6%
AA .......................... 20.4%
A ........................... 18.2%
BBB ......................... 9.1%
Below Investment Grade ...... 0.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Missouri Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.23 on February
28, 2003, to $12.44 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 55.21 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 51 shows that at the end of this reporting
period the
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 107.
48 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Missouri Tax-Free Income Fund
3/1/03-2/29/04
- -------------------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------------
MONTH CLASS A CLASS C
- -------------------------------------------------------------------------------
March 4.68 cents 4.14 cents
- -------------------------------------------------------------------------------
April 4.68 cents 4.14 cents
- -------------------------------------------------------------------------------
May 4.68 cents 4.14 cents
- -------------------------------------------------------------------------------
June 4.63 cents 4.12 cents
- -------------------------------------------------------------------------------
July 4.63 cents 4.12 cents
- -------------------------------------------------------------------------------
August 4.60 cents 3.94 cents
- -------------------------------------------------------------------------------
September 4.60 cents 3.94 cents
- -------------------------------------------------------------------------------
October 4.60 cents 3.94 cents
- -------------------------------------------------------------------------------
November 4.60 cents 3.94 cents
- -------------------------------------------------------------------------------
December 4.52 cents 3.97 cents
- -------------------------------------------------------------------------------
January 4.52 cents 3.97 cents
- -------------------------------------------------------------------------------
February 4.47 cents 3.92 cents
- -------------------------------------------------------------------------------
TOTAL 55.21 CENTS 48.28 CENTS
- -------------------------------------------------------------------------------
Fund's Class A shares' distribution rate was 4.13%, based on an annualization of
the current 4.47 cent ($0.0447) per share dividend and the maximum offering
price of $12.99 on February 29, 2004. An investor in the 2004 maximum combined
federal and Missouri state personal income tax bracket of 38.90% 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 shares' performance,
please see the Performance Summary.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
STATE UPDATE
Missouri's job growth remained sluggish mainly due to manufacturing layoffs.
However, unemployment improved somewhat to 5.1% in February 2004, below
Annual Report | 49
PORTFOLIO BREAKDOWN
Franklin Missouri Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Hospital & Health Care 21.7%
- --------------------------------------------------
Transportation 17.5%
- --------------------------------------------------
Higher Education 14.3%
- --------------------------------------------------
Utilities 9.2%
- --------------------------------------------------
Other Revenue 7.7%
- --------------------------------------------------
Prerefunded 7.6%
- --------------------------------------------------
General Obligation 4.7%
- --------------------------------------------------
Subject to Government Appropriations 4.7%
- --------------------------------------------------
Tax-Supported 4.6%
- --------------------------------------------------
Housing 4.5%
- --------------------------------------------------
Corporate-Backed 3.5%
- --------------------------------------------------
the nation's. 3 The state's personal income levels were also below the national
average, with median household and per capita effective buying income at 91% and
95% of U.S. 2001 levels. 4
Missouri's general revenues decreased due to the cooling economy in fiscal years
2002 and 2003. State revenues for fiscal year 2003 dropped about 3% from the
previous year. 4 Because the governor withheld about $300 million in spending
throughout the year, however, Missouri achieved break-even operations for 2003.
4 The budget reserve fund, including cash and rainy day funds, was fully funded
at $462 million in 2003. 4 The state's fiscal year 2004 budget, enacted June 30,
2003, called for balanced operations with no major tax increases.
Standard & Poor's, an independent credit rating agency, assigned Missouri the
highest AAA rating, citing reasons such as the state's diverse economic base,
very low debt burden of about $320 per capita, strong budget reserve fund, and
excellent financial management that appears prepared to make deep midyear budget
cuts to preserve balanced operations. 4, 5 Despite the specter of continued
economic doldrums and tempered revenue collections, Missouri's outlook is
stable, reflecting Standard & Poor's expectation that the state should remain
well positioned given its reserves and conservative fiscal policy.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "State Review: Missouri," RATINGSDIRECT, 12/19/03.
5. This does not indicate Standard & Poor's rating of the Fund.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
50 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.44 $12.23
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5521
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.50 $12.29
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4828
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.38% +30.73% +76.73%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.88% +4.60% +5.40%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.44% +4.46% +5.75%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.13%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.76%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.55%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.81%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.75% +27.16% +64.26%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.75% +4.92% +5.78%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.40% +4.81% +5.68%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.75%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.14%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.15%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.16%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 51
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Missouri Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- ----------------
3/1/94 $ 9,575 $10,000 $10,000
3/31/94 9,230 9,593 10,034
4/30/94 9,256 9,674 10,048
5/31/94 9,334 9,758 10,055
6/30/94 9,297 9,698 10,089
7/31/94 9,440 9,876 10,116
8/31/94 9,478 9,910 10,157
9/30/94 9,350 9,765 10,184
10/31/94 9,195 9,592 10,191
11/30/94 9,012 9,418 10,204
12/31/94 9,207 9,625 10,204
1/31/95 9,471 9,900 10,245
2/28/95 9,717 10,188 10,286
3/31/95 9,800 10,305 10,320
4/30/95 9,833 10,318 10,354
5/31/95 10,095 10,647 10,375
6/30/95 10,038 10,554 10,395
7/31/95 10,094 10,654 10,395
8/31/95 10,200 10,789 10,423
9/30/95 10,243 10,857 10,443
10/31/95 10,371 11,015 10,477
11/30/95 10,534 11,198 10,470
12/31/95 10,650 11,305 10,464
1/31/96 10,754 11,391 10,525
2/29/96 10,713 11,314 10,559
3/31/96 10,580 11,169 10,613
4/30/96 10,557 11,138 10,654
5/31/96 10,554 11,133 10,675
6/30/96 10,664 11,255 10,682
7/31/96 10,742 11,357 10,702
8/31/96 10,762 11,354 10,723
9/30/96 10,913 11,513 10,757
10/31/96 11,022 11,643 10,791
11/30/96 11,182 11,856 10,811
12/31/96 11,152 11,806 10,811
1/31/97 11,168 11,828 10,845
2/28/97 11,256 11,937 10,879
3/31/97 11,148 11,778 10,907
4/30/97 11,263 11,876 10,920
5/31/97 11,404 12,055 10,913
6/30/97 11,514 12,184 10,927
7/31/97 11,787 12,521 10,941
8/31/97 11,701 12,404 10,961
9/30/97 11,852 12,551 10,988
10/31/97 11,918 12,632 11,016
11/30/97 11,997 12,706 11,009
12/31/97 12,173 12,891 10,995
1/31/98 12,266 13,024 11,016
2/28/98 12,318 13,028 11,036
3/31/98 12,334 13,040 11,057
4/30/98 12,302 12,981 11,077
5/31/98 12,466 13,186 11,097
6/30/98 12,507 13,238 11,111
7/31/98 12,525 13,271 11,125
8/31/98 12,682 13,476 11,138
9/30/98 12,826 13,644 11,152
10/31/98 12,800 13,644 11,179
11/30/98 12,835 13,692 11,179
12/31/98 12,876 13,726 11,172
1/31/99 12,993 13,890 11,200
2/28/99 12,950 13,829 11,213
3/31/99 12,989 13,848 11,247
4/30/99 13,010 13,883 11,329
5/31/99 12,932 13,802 11,329
6/30/99 12,734 13,604 11,329
7/31/99 12,753 13,653 11,363
8/31/99 12,572 13,544 11,391
9/30/99 12,548 13,549 11,445
10/31/99 12,338 13,403 11,466
11/30/99 12,464 13,545 11,472
12/31/99 12,321 13,444 11,472
1/31/00 12,198 13,386 11,506
2/29/00 12,351 13,541 11,575
3/31/00 12,664 13,837 11,670
4/30/00 12,584 13,755 11,677
5/31/00 12,498 13,684 11,691
6/30/00 12,838 14,046 11,752
7/31/00 13,023 14,242 11,779
8/31/00 13,252 14,461 11,779
9/30/00 13,168 14,386 11,840
10/31/00 13,308 14,543 11,861
11/30/00 13,423 14,653 11,868
12/31/00 13,757 15,015 11,861
1/31/01 13,841 15,164 11,936
2/28/01 13,896 15,212 11,984
3/31/01 14,005 15,348 12,011
4/30/01 13,875 15,182 12,059
5/31/01 14,005 15,345 12,113
6/30/01 14,109 15,448 12,134
7/31/01 14,341 15,677 12,100
8/31/01 14,643 15,935 12,100
9/30/01 14,564 15,882 12,154
10/31/01 14,762 16,071 12,113
11/30/01 14,635 15,936 12,093
12/31/01 14,449 15,785 12,045
1/31/02 14,729 16,059 12,072
2/28/02 14,887 16,252 12,120
3/31/02 14,586 15,934 12,188
4/30/02 14,838 16,245 12,256
5/31/02 14,924 16,344 12,256
6/30/02 15,069 16,516 12,263
7/31/02 15,276 16,729 12,277
8/31/02 15,434 16,930 12,318
9/30/02 15,774 17,301 12,338
10/31/02 15,492 17,014 12,359
11/30/02 15,448 16,943 12,359
12/31/02 15,731 17,301 12,331
1/31/03 15,714 17,257 12,386
2/28/03 15,915 17,498 12,481
3/31/03 15,928 17,509 12,556
4/30/03 16,052 17,624 12,529
5/31/03 16,429 18,037 12,509
6/30/03 16,358 17,960 12,522
7/31/03 15,732 17,332 12,536
8/31/03 15,881 17,461 12,584
9/30/03 16,289 17,975 12,624
10/31/03 16,208 17,884 12,611
11/30/03 16,398 18,070 12,577
12/31/03 16,557 18,220 12,563
1/31/04 16,659 18,324 12,624
2/29/04 16,922 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 2/29/04
- ------------------------------------
1-Year +1.88%
- ------------------------------------
5-Year +4.60%
- ------------------------------------
10-Year +5.40%
- ------------------------------------
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/05)
Date Franklin Missouri Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- ----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,277 10,319 10,020
6/30/95 10,214 10,229 10,039
7/31/95 10,265 10,326 10,039
8/31/95 10,368 10,457 10,066
9/30/95 10,417 10,523 10,086
10/31/95 10,540 10,676 10,118
11/30/95 10,700 10,853 10,112
12/31/95 10,812 10,957 10,105
1/31/96 10,911 11,040 10,165
2/29/96 10,866 10,966 10,197
3/31/96 10,718 10,825 10,250
4/30/96 10,698 10,795 10,290
5/31/96 10,690 10,791 10,309
6/30/96 10,796 10,908 10,316
7/31/96 10,871 11,007 10,336
8/31/96 10,887 11,004 10,355
9/30/96 11,025 11,158 10,388
10/31/96 11,138 11,285 10,421
11/30/96 11,292 11,491 10,441
12/31/96 11,237 11,443 10,441
1/31/97 11,247 11,464 10,474
2/28/97 11,336 11,569 10,507
3/31/97 11,231 11,415 10,533
4/30/97 11,341 11,511 10,546
5/31/97 11,477 11,684 10,540
6/30/97 11,581 11,808 10,553
7/31/97 11,860 12,136 10,566
8/31/97 11,769 12,022 10,586
9/30/97 11,915 12,164 10,612
10/31/97 11,976 12,243 10,639
11/30/97 12,050 12,315 10,632
12/31/97 12,220 12,494 10,619
1/31/98 12,307 12,623 10,639
2/28/98 12,353 12,627 10,658
3/31/98 12,363 12,638 10,678
4/30/98 12,326 12,581 10,698
5/31/98 12,484 12,780 10,718
6/30/98 12,530 12,831 10,731
7/31/98 12,541 12,863 10,744
8/31/98 12,693 13,062 10,757
9/30/98 12,820 13,224 10,770
10/31/98 12,788 13,224 10,797
11/30/98 12,826 13,270 10,797
12/31/98 12,851 13,304 10,790
1/31/99 12,961 13,462 10,816
2/28/99 12,922 13,403 10,829
3/31/99 12,955 13,422 10,862
4/30/99 12,959 13,455 10,941
5/31/99 12,886 13,377 10,941
6/30/99 12,673 13,185 10,941
7/31/99 12,686 13,233 10,974
8/31/99 12,511 13,127 11,001
9/30/99 12,471 13,132 11,053
10/31/99 12,269 12,990 11,073
11/30/99 12,377 13,128 11,080
12/31/99 12,230 13,030 11,080
1/31/00 12,102 12,974 11,113
2/29/00 12,250 13,124 11,178
3/31/00 12,554 13,411 11,271
4/30/00 12,470 13,332 11,277
5/31/00 12,391 13,263 11,290
6/30/00 12,710 13,614 11,350
7/31/00 12,898 13,803 11,376
8/31/00 13,107 14,016 11,376
9/30/00 13,029 13,943 11,435
10/31/00 13,162 14,095 11,455
11/30/00 13,269 14,202 11,461
12/31/00 13,593 14,553 11,455
1/31/01 13,669 14,697 11,527
2/28/01 13,718 14,744 11,573
3/31/01 13,829 14,876 11,600
4/30/01 13,684 14,715 11,646
5/31/01 13,806 14,873 11,698
6/30/01 13,902 14,973 11,718
7/31/01 14,123 15,194 11,685
8/31/01 14,412 15,445 11,685
9/30/01 14,339 15,393 11,738
10/31/01 14,527 15,576 11,698
11/30/01 14,397 15,445 11,679
12/31/01 14,208 15,299 11,633
1/31/02 14,464 15,564 11,659
2/28/02 14,623 15,752 11,705
3/31/02 14,322 15,443 11,771
4/30/02 14,561 15,745 11,837
5/31/02 14,638 15,841 11,837
6/30/02 14,773 16,008 11,843
7/31/02 14,966 16,214 11,856
8/31/02 15,116 16,409 11,896
9/30/02 15,441 16,768 11,916
10/31/02 15,158 16,490 11,935
11/30/02 15,108 16,422 11,935
12/31/02 15,376 16,768 11,909
1/31/03 15,353 16,726 11,962
2/28/03 15,541 16,960 12,054
3/31/03 15,546 16,970 12,126
4/30/03 15,661 17,082 12,100
5/31/03 16,020 17,482 12,080
6/30/03 15,957 17,407 12,093
7/31/03 15,330 16,798 12,107
8/31/03 15,468 16,924 12,153
9/30/03 15,855 17,421 12,192
10/31/03 15,780 17,333 12,179
11/30/03 15,955 17,514 12,146
12/31/03 16,088 17,659 12,133
1/31/04 16,192 17,760 12,192
2/29/04 16,426 18,028 12,258
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS C 2/29/04
- ------------------------------------
1-Year +4.75%
- ------------------------------------
5-Year +4.92%
- ------------------------------------
Since Inception (5/1/95) +5.78%
- ------------------------------------
52 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Missouri state personal income
tax bracket of 38.90%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 53
Franklin North Carolina Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin North Carolina Tax-Free
Income Fund seeks to provide high, current income exempt from federal and North
Carolina state personal income taxes through a portfolio consisting mainly of
North Carolina municipal bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin North Carolina Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 55.9%
AA .......................... 13.8%
A ........................... 16.7%
BBB ......................... 13.6%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin North Carolina Tax-Free Income Fund's
annual report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.24 on February
28, 2003, to $12.42 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 54.91 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 58 shows that at the end of this reporting
period
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 114.
54 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin North Carolina Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.64 cents 4.09 cents
- -------------------------------------------------------------------------------
April 4.64 cents 4.09 cents
- -------------------------------------------------------------------------------
May 4.64 cents 4.09 cents
- -------------------------------------------------------------------------------
June 4.64 cents 4.11 cents
- -------------------------------------------------------------------------------
July 4.64 cents 4.11 cents
- -------------------------------------------------------------------------------
August 4.53 cents 3.88 cents
- -------------------------------------------------------------------------------
September 4.53 cents 3.88 cents
- -------------------------------------------------------------------------------
October 4.53 cents 3.88 cents
- -------------------------------------------------------------------------------
November 4.53 cents 3.88 cents
- -------------------------------------------------------------------------------
December 4.53 cents 3.93 cents
- -------------------------------------------------------------------------------
January 4.53 cents 3.93 cents
- -------------------------------------------------------------------------------
February 4.53 cents 3.93 cents
- -------------------------------------------------------------------------------
TOTAL 54.91 CENTS 47.80 CENTS
- -------------------------------------------------------------------------------
the Fund's Class A shares' distribution rate was 4.19%, based on an
annualization of the current 4.53 cent ($0.0453) per share dividend and the
maximum offering price of $12.97 on February 29, 2004. An investor in the 2004
maximum combined federal and North Carolina state personal income tax bracket of
40.36% would need to earn a distribution rate of 7.03% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline,
as shown in the dividend distributions table.
STATE UPDATE
Like many states, North Carolina has suffered an economic slowdown as a result
of the national recession. Unemployment remained relatively high through 2003
Annual Report | 55
PORTFOLIO BREAKDOWN
Franklin North Carolina Tax-Free
Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Hospital & Health Care 17.3%
- --------------------------------------------------
Utilities 16.4%
- --------------------------------------------------
Transportation 11.5%
- --------------------------------------------------
Subject to Government Appropriations 10.9%
- --------------------------------------------------
Prerefunded 9.7%
- --------------------------------------------------
General Obligation 8.7%
- --------------------------------------------------
Higher Education 7.6%
- --------------------------------------------------
Housing 5.5%
- --------------------------------------------------
Other Revenue 5.5%
- --------------------------------------------------
Corporate-Backed 5.0%
- --------------------------------------------------
Tax-Supported 1.9%
- --------------------------------------------------
and reached 6.0% in February 2004, compared with the 5.6% national average. 3
The state's labor force continued to show weakness, particularly in the
manufacturing sector, which has declined for the past five years but still
accounts for a significant 20% of North Carolina's employment and an even larger
share of income. 4 The state has also suffered employment losses in high
technology and telecommunications, areas that previously had helped propel job
growth.
North Carolina has needed to tap into its available balances over the last
several years to address major one-time expenditures and replace lost revenue.
The state suffered a series of adverse economic and fiscal events, including
costly legal judgments, hurricanes and floods, and lost revenue resulting from
the national economic recession. State leaders have a history of taking swift
action to balance the budget, including revenue and spending revisions. Despite
several revenue enhancement measures in fiscal years 2002 and 2003, the state
had a revenue shortfall in fiscal year 2003 of $243.5 million. 4 Governor Easley
identified spending reduction measures to restore balance. North Carolina's
fiscal year 2004-2005 budget was signed into law on June 30, 2003, and was
balanced largely by continuing revenue enhancements authorized in fiscal years
2001-2003, including sales and income tax increases. The state has begun to
restore reserves, with a $150 million transfer to its savings reserve account. 4
North Carolina's Aa1 rating from Moody's Investors Service, an independent
credit rating agency, reflected the state's diverse, yet slowing economy,
conservative debt policy and its history of effective financial management. 5
Strong executive management and budget controls have enabled the state to avoid
deep deficits, although it has incurred negative general fund operations. The
state's debt burden is relatively low at $533 per capita and 1.9% of personal
income. 4 Debt levels will increase as $2.6 billion of authorized debt is
gradually issued, but the overall debt burden is expected to remain manageable.
4 Continued stability is contingent upon the state's progress in restoring
structural balance and rebuilding financial reserves.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 for details.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "Summary: North Carolina; Tax Secured, General
Obligation," RATINGSDIRECT, 11/18/03.
5. This does not indicate Moody's rating of the Fund.
56 | Annual Report
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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 57
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.18 $12.42 $12.24
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5491
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.19 $12.54 $12.35
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4780
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.10% +30.51% +74.38%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.62% +4.56% +5.26%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.59% +4.51% +5.67%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.19%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 7.03%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.37%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.65%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.52% +27.08% +63.17%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.52% +4.91% +5.70%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.52% +4.85% +5.63%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.78%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.34%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.97%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.98%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
58 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin North Lehman Brothers
Carolina Tax-Free Municipal Bond
Income Fund Index 7 CPI 7
- ----------------
3/1/94 $ 9,574 $10,000 $10,000
3/31/94 9,203 9,593 10,034
4/30/94 9,253 9,674 10,048
5/31/94 9,323 9,758 10,055
6/30/94 9,253 9,698 10,089
7/31/94 9,418 9,876 10,116
8/31/94 9,456 9,910 10,157
9/30/94 9,328 9,765 10,184
10/31/94 9,149 9,592 10,191
11/30/94 8,916 9,418 10,204
12/31/94 9,128 9,625 10,204
1/31/95 9,411 9,900 10,245
2/28/95 9,675 10,188 10,286
3/31/95 9,794 10,305 10,320
4/30/95 9,802 10,318 10,354
5/31/95 10,056 10,647 10,375
6/30/95 9,984 10,554 10,395
7/31/95 10,032 10,654 10,395
8/31/95 10,130 10,789 10,423
9/30/95 10,184 10,857 10,443
10/31/95 10,339 11,015 10,477
11/30/95 10,503 11,198 10,470
12/31/95 10,602 11,305 10,464
1/31/96 10,652 11,391 10,525
2/29/96 10,575 11,314 10,559
3/31/96 10,469 11,169 10,613
4/30/96 10,464 11,138 10,654
5/31/96 10,480 11,133 10,675
6/30/96 10,589 11,255 10,682
7/31/96 10,665 11,357 10,702
8/31/96 10,666 11,354 10,723
9/30/96 10,807 11,513 10,757
10/31/96 10,914 11,643 10,791
11/30/96 11,063 11,856 10,811
12/31/96 11,038 11,806 10,811
1/31/97 11,051 11,828 10,845
2/28/97 11,146 11,937 10,879
3/31/97 11,045 11,778 10,907
4/30/97 11,138 11,876 10,920
5/31/97 11,268 12,055 10,913
6/30/97 11,386 12,184 10,927
7/31/97 11,638 12,521 10,941
8/31/97 11,570 12,404 10,961
9/30/97 11,689 12,551 10,988
10/31/97 11,773 12,632 11,016
11/30/97 11,851 12,706 11,009
12/31/97 12,023 12,891 10,995
1/31/98 12,125 13,024 11,016
2/28/98 12,126 13,028 11,036
3/31/98 12,151 13,040 11,057
4/30/98 12,128 12,981 11,077
5/31/98 12,289 13,186 11,097
6/30/98 12,338 13,238 11,111
7/31/98 12,375 13,271 11,125
8/31/98 12,531 13,476 11,138
9/30/98 12,683 13,644 11,152
10/31/98 12,676 13,644 11,179
11/30/98 12,709 13,692 11,179
12/31/98 12,738 13,726 11,172
1/31/99 12,853 13,890 11,200
2/28/99 12,799 13,829 11,213
3/31/99 12,827 13,848 11,247
4/30/99 12,846 13,883 11,329
5/31/99 12,778 13,802 11,329
6/30/99 12,579 13,604 11,329
7/31/99 12,587 13,653 11,363
8/31/99 12,449 13,544 11,391
9/30/99 12,424 13,549 11,445
10/31/99 12,238 13,403 11,466
11/30/99 12,341 13,545 11,472
12/31/99 12,199 13,444 11,472
1/31/00 12,099 13,386 11,506
2/29/00 12,241 13,541 11,575
3/31/00 12,538 13,837 11,670
4/30/00 12,458 13,755 11,677
5/31/00 12,395 13,684 11,691
6/30/00 12,709 14,046 11,752
7/31/00 12,902 14,242 11,779
8/31/00 13,096 14,461 11,779
9/30/00 13,024 14,386 11,840
10/31/00 13,175 14,543 11,861
11/30/00 13,288 14,653 11,868
12/31/00 13,608 15,015 11,861
1/31/01 13,702 15,164 11,936
2/28/01 13,758 15,212 11,984
3/31/01 13,867 15,348 12,011
4/30/01 13,705 15,182 12,059
5/31/01 13,835 15,345 12,113
6/30/01 13,951 15,448 12,134
7/31/01 14,218 15,677 12,100
8/31/01 14,432 15,935 12,100
9/30/01 14,354 15,882 12,154
10/31/01 14,540 16,071 12,113
11/30/01 14,439 15,936 12,093
12/31/01 14,279 15,785 12,045
1/31/02 14,506 16,059 12,072
2/28/02 14,686 16,252 12,120
3/31/02 14,411 15,934 12,188
4/30/02 14,672 16,245 12,256
5/31/02 14,743 16,344 12,256
6/30/02 14,871 16,516 12,263
7/31/02 15,060 16,729 12,277
8/31/02 15,240 16,930 12,318
9/30/02 15,588 17,301 12,338
10/31/02 15,332 17,014 12,359
11/30/02 15,288 16,943 12,359
12/31/02 15,604 17,301 12,331
1/31/03 15,561 17,257 12,386
2/28/03 15,746 17,498 12,481
3/31/03 15,744 17,509 12,556
4/30/03 15,828 17,624 12,529
5/31/03 16,200 18,037 12,509
6/30/03 16,156 17,960 12,522
7/31/03 15,589 17,332 12,536
8/31/03 15,710 17,461 12,584
9/30/03 16,114 17,975 12,624
10/31/03 16,046 17,884 12,611
11/30/03 16,233 18,070 12,577
12/31/03 16,377 18,220 12,563
1/31/04 16,479 18,324 12,624
2/29/04 16,696 18,600 12,693
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/04)
Date Franklin North Lehman Brothers
Carolina Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- -----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,262 10,319 10,020
6/30/95 10,200 10,229 10,039
7/31/95 10,252 10,326 10,039
8/31/95 10,348 10,457 10,066
9/30/95 10,407 10,523 10,086
10/31/95 10,559 10,676 10,118
11/30/95 10,720 10,853 10,112
12/31/95 10,824 10,957 10,105
1/31/96 10,860 11,040 10,165
2/29/96 10,779 10,966 10,197
3/31/96 10,666 10,825 10,250
4/30/96 10,656 10,795 10,290
5/31/96 10,665 10,791 10,309
6/30/96 10,779 10,908 10,316
7/31/96 10,843 11,007 10,336
8/31/96 10,839 11,004 10,355
9/30/96 10,985 11,158 10,388
10/31/96 11,078 11,285 10,421
11/30/96 11,234 11,491 10,441
12/31/96 11,202 11,443 10,441
1/31/97 11,210 11,464 10,474
2/28/97 11,300 11,569 10,507
3/31/97 11,192 11,415 10,533
4/30/97 11,282 11,511 10,546
5/31/97 11,417 11,684 10,540
6/30/97 11,521 11,808 10,553
7/31/97 11,779 12,136 10,566
8/31/97 11,696 12,022 10,586
9/30/97 11,819 12,164 10,612
10/31/97 11,888 12,243 10,639
11/30/97 11,970 12,315 10,632
12/31/97 12,127 12,494 10,619
1/31/98 12,234 12,623 10,639
2/28/98 12,230 12,627 10,658
3/31/98 12,248 12,638 10,678
4/30/98 12,220 12,581 10,698
5/31/98 12,386 12,780 10,718
6/30/98 12,430 12,831 10,731
7/31/98 12,461 12,863 10,744
8/31/98 12,610 13,062 10,757
9/30/98 12,746 13,224 10,770
10/31/98 12,735 13,224 10,797
11/30/98 12,772 13,270 10,797
12/31/98 12,795 13,304 10,790
1/31/99 12,904 13,462 10,816
2/28/99 12,844 13,403 10,829
3/31/99 12,865 13,422 10,862
4/30/99 12,878 13,455 10,941
5/31/99 12,804 13,377 10,941
6/30/99 12,588 13,185 10,941
7/31/99 12,600 13,233 10,974
8/31/99 12,448 13,127 11,001
9/30/99 12,429 13,132 11,053
10/31/99 12,228 12,990 11,073
11/30/99 12,323 13,128 11,080
12/31/99 12,177 13,030 11,080
1/31/00 12,072 12,974 11,113
2/29/00 12,217 13,124 11,178
3/31/00 12,506 13,411 11,271
4/30/00 12,423 13,332 11,277
5/31/00 12,344 13,263 11,290
6/30/00 12,660 13,614 11,350
7/31/00 12,845 13,803 11,376
8/31/00 13,030 14,016 11,376
9/30/00 12,953 13,943 11,435
10/31/00 13,097 14,095 11,455
11/30/00 13,203 14,202 11,461
12/31/00 13,513 14,553 11,455
1/31/01 13,612 14,697 11,527
2/28/01 13,661 14,744 11,573
3/31/01 13,761 14,876 11,600
4/30/01 13,582 14,715 11,646
5/31/01 13,715 14,873 11,698
6/30/01 13,823 14,973 11,718
7/31/01 14,079 15,194 11,685
8/31/01 14,283 15,445 11,685
9/30/01 14,202 15,393 11,738
10/31/01 14,377 15,576 11,698
11/30/01 14,272 15,445 11,679
12/31/01 14,107 15,299 11,633
1/31/02 14,336 15,564 11,659
2/28/02 14,494 15,752 11,705
3/31/02 14,218 15,443 11,771
4/30/02 14,467 15,745 11,837
5/31/02 14,542 15,841 11,837
6/30/02 14,662 16,008 11,843
7/31/02 14,839 16,214 11,856
8/31/02 15,010 16,409 11,896
9/30/02 15,355 16,768 11,916
10/31/02 15,086 16,490 11,935
11/30/02 15,036 16,422 11,935
12/31/02 15,339 16,768 11,909
1/31/03 15,290 16,726 11,962
2/28/03 15,476 16,960 12,054
3/31/03 15,456 16,970 12,126
4/30/03 15,544 17,082 12,100
5/31/03 15,898 17,482 12,080
6/30/03 15,849 17,407 12,093
7/31/03 15,279 16,798 12,107
8/31/03 15,401 16,924 12,153
9/30/03 15,770 17,421 12,192
10/31/03 15,696 17,333 12,179
11/30/03 15,883 17,514 12,146
12/31/03 16,015 17,659 12,133
1/31/04 16,105 17,760 12,192
2/29/04 16,317 18,028 12,258
Annual Report | Past performance does not guarantee future results. | 59
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and North Carolina state personal
income tax bracket of 40.36%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
60 | Past performance does not guarantee future results. | Annual Report
Franklin Virginia Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Virginia Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Virginia state
personal income taxes through a portfolio consisting mainly of Virginia
municipal bonds. 1
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Credit Quality Breakdown*
Franklin Virginia Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
AAA ......................... 57.4%
AA .......................... 18.4%
A ........................... 15.7%
BBB ......................... 6.3%
Below Investment Grade ...... 2.2%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Virginia Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.64 on February
28, 2003, to $11.94 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 51.96 cents per share for the Fund's fiscal year. 2 The
Performance
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 121.
Annual Report | 61
DIVIDEND DISTRIBUTIONS*
Franklin Virginia Tax-Free Income Fund
3/1/03-2/29/04
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
March 4.37 cents 3.85 cents
- -------------------------------------------------------------------------------
April 4.37 cents 3.85 cents
- -------------------------------------------------------------------------------
May 4.37 cents 3.85 cents
- -------------------------------------------------------------------------------
June 4.35 cents 3.81 cents
- -------------------------------------------------------------------------------
July 4.35 cents 3.81 cents
- -------------------------------------------------------------------------------
August 4.35 cents 3.80 cents
- -------------------------------------------------------------------------------
September 4.35 cents 3.80 cents
- -------------------------------------------------------------------------------
October 4.35 cents 3.80 cents
- -------------------------------------------------------------------------------
November 4.35 cents 3.80 cents
- -------------------------------------------------------------------------------
December 4.25 cents 3.66 cents
- -------------------------------------------------------------------------------
January 4.25 cents 3.66 cents
- -------------------------------------------------------------------------------
February 4.25 cents 3.66 cents
- -------------------------------------------------------------------------------
TOTAL 51.96 CENTS 45.35 CENTS
- -------------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
Summary beginning on page 65 shows that at the end of this reporting period the
Fund's Class A shares' distribution rate was 4.09%, based on an annualization of
the current 4.25 cent ($0.0425) per share dividend and the maximum offering
price of $12.47 on February 29, 2004. An investor in the 2004 maximum combined
federal and Virginia state personal income tax bracket of 38.74% would need to
earn a distribution rate of 6.68% 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.
The Fund was subject to bond calls during the year under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline,
as shown in the dividend distributions table.
62 | Annual Report
COMMONWEALTH UPDATE
Like most states, Virginia has felt the effects of the national recession. Job
growth has remained flat since 2001, with the construction, manufacturing and
information/telecommunications sectors all experiencing weakness. However,
continued strength in service industries, particularly education and health
services, helped keep state unemployment levels relatively low at 3.4% in
February 2004, substantially below the 5.6% national average. 3 Local and
federal government hiring continued to expand, offsetting declines at state
levels, and increased federal spending through procurement, contractors and
military bases, coupled with increased homeland security spending, helped
stabilize Virginia's employment base and income levels.
Virginia took aggressive actions to balance operations in the fiscal 2002-2004
biennium, relying on recurring measures, such as spending reductions and fee
increases, and non-recurring measures, such as drawing down reserve funds.
Virginia's primary revenue sources, individual income tax withholding and sales
tax revenues, which account for approximately 84% of revenues, continued to lag
revised projections. 4 To help address shortfalls, state leaders adopted a
budget that included $1.2 billion of reductions and resulted in layoffs at many
state agencies. 4 The state also used stabilization reserves to help cover the
immediate budget gap. In fact, over the past several years, the Reserve
Stabilization Fund has been drawn down significantly, declining from $940
million in fiscal year 2001 to an estimated $130 million by the end of fiscal
year 2004. 5
Standard & Poor's, an independent credit rating agency, maintained its AAA
credit rating on Virginia's outstanding debt. 6 However, Moody's Investors
Service, a second independent credit rating agency, placed Virginia's general
obligation bond rating, currently rated Aaa with a negative outlook, on a
watchlist for possible downgrade. 6 This action reflected concerns prompted by
fiscal pressures brought on by a weak economy and a significant revenue
shortfall experienced since the recession began, especially affecting the
technology and telecommunications sectors. The initial phase-out of a tax on
automobiles introduced prior to the recession further exacerbated Virginia's
fiscal challenges. Slow economic and fiscal recovery combined with increasing
spending requirements for Medicaid and other programs will likely compete with
the need to replenish reserves and restore structural balance in the near term.
PORTFOLIO BREAKDOWN
Franklin Virginia Tax-Free Income Fund
2/29/04
- --------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------
Utilities 20.8%
- --------------------------------------------------
Transportation 18.5%
- --------------------------------------------------
General Obligation 13.5%
- --------------------------------------------------
Hospital & Health Care 9.8%
- --------------------------------------------------
Other Revenue 8.0%
- --------------------------------------------------
Housing 6.8%
- --------------------------------------------------
Higher Education 5.7%
- --------------------------------------------------
Subject to Government Appropriations 5.0%
- --------------------------------------------------
Corporate-Backed 4.6%
- --------------------------------------------------
Tax-Supported 4.5%
- --------------------------------------------------
Prerefunded 2.8%
- --------------------------------------------------
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "Summary: Virginia, Tax Secured, General
Obligation," RATINGSDIRECT, 6/4/03.
5. Source: Moody's Investors Service, "Rating Update: Virginia (Commonwealth
of)," 9/4/03.
6. These do not indicate ratings of the Fund.
Annual Report | 63
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.30 $11.94 $11.64
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.5196
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.30 $12.04 $11.74
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.4535
PERFORMANCE
- -----------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.20% +28.40% +71.67%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.61% +4.21% +5.10%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +2.25% +4.14% +5.45%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 4.09%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.68%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.45%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.63%
- -----------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.54% +25.01% +59.88%
- -----------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.54% +4.57% +5.46%
- -----------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +5.17% +4.48% +5.38%
- -----------------------------------------------------------------------------------------------------
Distribution Rate 4 3.67%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.99%
- -----------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.07%
- -----------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.01%
- -----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 65
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class A (3/1/94-2/29/04)
Date Franklin Virginia Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- ------------------
3/1/94 $ 9,579 $10,000 $10,000
3/31/94 9,255 9,593 10,034
4/30/94 9,289 9,674 10,048
5/31/94 9,341 9,758 10,055
6/30/94 9,287 9,698 10,089
7/31/94 9,438 9,876 10,116
8/31/94 9,484 9,910 10,157
9/30/94 9,372 9,765 10,184
10/31/94 9,208 9,592 10,191
11/30/94 8,998 9,418 10,204
12/31/94 9,221 9,625 10,204
1/31/95 9,498 9,900 10,245
2/28/95 9,730 10,188 10,286
3/31/95 9,824 10,305 10,320
4/30/95 9,842 10,318 10,354
5/31/95 10,081 10,647 10,375
6/30/95 10,034 10,554 10,395
7/31/95 10,117 10,654 10,395
8/31/95 10,216 10,789 10,423
9/30/95 10,270 10,857 10,443
10/31/95 10,399 11,015 10,477
11/30/95 10,547 11,198 10,470
12/31/95 10,646 11,305 10,464
1/31/96 10,696 11,391 10,525
2/29/96 10,646 11,314 10,559
3/31/96 10,548 11,169 10,613
4/30/96 10,551 11,138 10,654
5/31/96 10,567 11,133 10,675
6/30/96 10,670 11,255 10,682
7/31/96 10,739 11,357 10,702
8/31/96 10,741 11,354 10,723
9/30/96 10,875 11,513 10,757
10/31/96 10,967 11,643 10,791
11/30/96 11,119 11,856 10,811
12/31/96 11,090 11,806 10,811
1/31/97 11,106 11,828 10,845
2/28/97 11,195 11,937 10,879
3/31/97 11,085 11,778 10,907
4/30/97 11,173 11,876 10,920
5/31/97 11,316 12,055 10,913
6/30/97 11,411 12,184 10,927
7/31/97 11,678 12,521 10,941
8/31/97 11,581 12,404 10,961
9/30/97 11,712 12,551 10,988
10/31/97 11,788 12,632 11,016
11/30/97 11,876 12,706 11,009
12/31/97 12,036 12,891 10,995
1/31/98 12,141 13,024 11,016
2/28/98 12,153 13,028 11,036
3/31/98 12,179 13,040 11,057
4/30/98 12,125 12,981 11,077
5/31/98 12,311 13,186 11,097
6/30/98 12,370 13,238 11,111
7/31/98 12,407 13,271 11,125
8/31/98 12,566 13,476 11,138
9/30/98 12,699 13,644 11,152
10/31/98 12,671 13,644 11,179
11/30/98 12,714 13,692 11,179
12/31/98 12,741 13,726 11,172
1/31/99 12,858 13,890 11,200
2/28/99 12,813 13,829 11,213
3/31/99 12,840 13,848 11,247
4/30/99 12,859 13,883 11,329
5/31/99 12,800 13,802 11,329
6/30/99 12,605 13,604 11,329
7/31/99 12,623 13,653 11,363
8/31/99 12,449 13,544 11,391
9/30/99 12,434 13,549 11,445
10/31/99 12,230 13,403 11,466
11/30/99 12,345 13,545 11,472
12/31/99 12,220 13,444 11,472
1/31/00 12,105 13,386 11,506
2/29/00 12,260 13,541 11,575
3/31/00 12,610 13,837 11,670
4/30/00 12,527 13,755 11,677
5/31/00 12,439 13,684 11,691
6/30/00 12,771 14,046 11,752
7/31/00 12,933 14,242 11,779
8/31/00 13,141 14,461 11,779
9/30/00 13,055 14,386 11,840
10/31/00 13,197 14,543 11,861
11/30/00 13,252 14,653 11,868
12/31/00 13,532 15,015 11,861
1/31/01 13,616 15,164 11,936
2/28/01 13,707 15,212 11,984
3/31/01 13,828 15,348 12,011
4/30/01 13,684 15,182 12,059
5/31/01 13,815 15,345 12,113
6/30/01 13,908 15,448 12,134
7/31/01 14,118 15,677 12,100
8/31/01 14,311 15,935 12,100
9/30/01 14,217 15,882 12,154
10/31/01 14,404 16,071 12,113
11/30/01 14,324 15,936 12,093
12/31/01 14,132 15,785 12,045
1/31/02 14,350 16,059 12,072
2/28/02 14,493 16,252 12,120
3/31/02 14,247 15,934 12,188
4/30/02 14,462 16,245 12,256
5/31/02 14,546 16,344 12,256
6/30/02 14,663 16,516 12,263
7/31/02 14,842 16,729 12,277
8/31/02 14,974 16,930 12,318
9/30/02 15,265 17,301 12,338
10/31/02 14,949 17,014 12,359
11/30/02 14,901 16,943 12,359
12/31/02 15,222 17,301 12,331
1/31/03 15,161 17,257 12,386
2/28/03 15,347 17,498 12,481
3/31/03 15,382 17,509 12,556
4/30/03 15,532 17,624 12,529
5/31/03 15,923 18,037 12,509
6/30/03 15,874 17,960 12,522
7/31/03 15,302 17,332 12,536
8/31/03 15,438 17,461 12,584
9/30/03 15,795 17,975 12,624
10/31/03 15,778 17,884 12,611
11/30/03 15,953 18,070 12,577
12/31/03 16,096 18,220 12,563
1/31/04 16,211 18,324 12,624
2/29/04 16,444 18,600 12,693
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 2/29/04
- ------------------------------------
1-Year +2.61%
- ------------------------------------
5-Year +4.21%
- ------------------------------------
10-Year +5.10%
- ------------------------------------
[GRAPHIC OMITTED]
PLOT POINTS FOLLOW:
Class C (5/1/95-2/29/04)
Date Franklin Virginia Lehman Brothers
Tax-Free Municipal
Income Fund Bond Index 7 CPI 7
- ----------------
5/1/95 $10,000 $10,000 $10,000
5/31/95 10,273 10,319 10,020
6/30/95 10,228 10,229 10,039
7/31/95 10,298 10,326 10,039
8/31/95 10,402 10,457 10,066
9/30/95 10,452 10,523 10,086
10/31/95 10,578 10,676 10,118
11/30/95 10,722 10,853 10,112
12/31/95 10,817 10,957 10,105
1/31/96 10,862 11,040 10,165
2/29/96 10,806 10,966 10,197
3/31/96 10,711 10,825 10,250
4/30/96 10,700 10,795 10,290
5/31/96 10,711 10,791 10,309
6/30/96 10,809 10,908 10,316
7/31/96 10,884 11,007 10,336
8/31/96 10,872 11,004 10,355
9/30/96 11,011 11,158 10,388
10/31/96 11,097 11,285 10,421
11/30/96 11,246 11,491 10,441
12/31/96 11,211 11,443 10,441
1/31/97 11,221 11,464 10,474
2/28/97 11,305 11,569 10,507
3/31/97 11,199 11,415 10,533
4/30/97 11,282 11,511 10,546
5/31/97 11,421 11,684 10,540
6/30/97 11,500 11,808 10,553
7/31/97 11,772 12,136 10,566
8/31/97 11,669 12,022 10,586
9/30/97 11,785 12,164 10,612
10/31/97 11,865 12,243 10,639
11/30/97 11,948 12,315 10,632
12/31/97 12,102 12,494 10,619
1/31/98 12,202 12,623 10,639
2/28/98 12,208 12,627 10,658
3/31/98 12,227 12,638 10,678
4/30/98 12,168 12,581 10,698
5/31/98 12,358 12,780 10,718
6/30/98 12,411 12,831 10,731
7/31/98 12,433 12,863 10,744
8/31/98 12,584 13,062 10,757
9/30/98 12,721 13,224 10,770
10/31/98 12,687 13,224 10,797
11/30/98 12,724 13,270 10,797
12/31/98 12,744 13,304 10,790
1/31/99 12,854 13,462 10,816
2/28/99 12,792 13,403 10,829
3/31/99 12,823 13,422 10,862
4/30/99 12,846 13,455 10,941
5/31/99 12,770 13,377 10,941
6/30/99 12,571 13,185 10,941
7/31/99 12,582 13,233 10,974
8/31/99 12,404 13,127 11,001
9/30/99 12,373 13,132 11,053
10/31/99 12,177 12,990 11,073
11/30/99 12,284 13,128 11,080
12/31/99 12,145 13,030 11,080
1/31/00 12,037 12,974 11,113
2/29/00 12,173 13,124 11,178
3/31/00 12,524 13,411 11,271
4/30/00 12,437 13,332 11,277
5/31/00 12,345 13,263 11,290
6/30/00 12,666 13,614 11,350
7/31/00 12,821 13,803 11,376
8/31/00 13,021 14,016 11,376
9/30/00 12,930 13,943 11,435
10/31/00 13,064 14,095 11,455
11/30/00 13,114 14,202 11,461
12/31/00 13,383 14,553 11,455
1/31/01 13,459 14,697 11,527
2/28/01 13,544 14,744 11,573
3/31/01 13,667 14,876 11,600
4/30/01 13,520 14,715 11,646
5/31/01 13,630 14,873 11,698
6/30/01 13,727 14,973 11,718
7/31/01 13,926 15,194 11,685
8/31/01 14,097 15,445 11,685
9/30/01 14,011 15,393 11,738
10/31/01 14,188 15,576 11,698
11/30/01 14,103 15,445 11,679
12/31/01 13,908 15,299 11,633
1/31/02 14,114 15,564 11,659
2/28/02 14,259 15,752 11,705
3/31/02 14,001 15,443 11,771
4/30/02 14,216 15,745 11,837
5/31/02 14,278 15,841 11,837
6/30/02 14,387 16,008 11,843
7/31/02 14,554 16,214 11,856
8/31/02 14,676 16,409 11,896
9/30/02 14,965 16,768 11,916
10/31/02 14,652 16,490 11,935
11/30/02 14,599 16,422 11,935
12/31/02 14,891 16,768 11,909
1/31/03 14,839 16,726 11,962
2/28/03 15,014 16,960 12,054
3/31/03 15,041 16,970 12,126
4/30/03 15,180 17,082 12,100
5/31/03 15,552 17,482 12,080
6/30/03 15,497 17,407 12,093
7/31/03 14,938 16,798 12,107
8/31/03 15,062 16,924 12,153
9/30/03 15,399 17,421 12,192
10/31/03 15,375 17,333 12,179
11/30/03 15,538 17,514 12,146
12/31/03 15,668 17,659 12,133
1/31/04 15,770 17,760 12,192
2/29/04 15,988 18,028 12,258
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS C 2/29/04
- ------------------------------------
1-Year +5.54%
- ------------------------------------
5-Year +4.57%
- ------------------------------------
Since Inception (5/1/95) +5.46%
- ------------------------------------
66 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior
to 7/1/94, Fund shares were offered at a lower initial sales charge;
thus actual total returns may differ. Effective 5/1/94, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of
investment. Prior to 1/1/04, these shares were offered with an
initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Virginia state personal income
tax bracket of 38.74%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 67
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ALABAMA TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.50 $11.22 $11.08 $10.62 $11.68
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .52 .54 .56 .58 .61
Net realized and unrealized gains (losses) ........... .26 .28 .14 .47 (1.06)
------------------------------------------------------------
Total from investment operations ...................... .78 .82 .70 1.05 (.45)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.52) (.54) (.56) (.59) (.60)
Net realized gains ................................... -- -- -- -- (.01)
------------------------------------------------------------
Total distributions ................................... (.52) (.54) (.56) (.59) (.61)
------------------------------------------------------------
Net asset value, end of year .......................... $11.76 $11.50 $11.22 $11.08 $10.62
============================================================
Total return b ........................................ 6.92% 7.55% 6.49% 10.11% (3.92)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $236,225 $228,746 $215,649 $210,198 $203,256
Ratios to average net assets:
Expenses ............................................. .72% .73% .73% .73% .72%
Net investment income ................................ 4.47% 4.81% 5.05% 5.32% 5.46%
Portfolio turnover rate ............................... 12.53% 17.10% 9.94% 11.12% 20.99%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
68 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALABAMA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.58 $11.29 $11.14 $10.68 $11.74
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .45 .49 .50 .52 .55
Net realized and unrealized gains (losses) ........... .26 .28 .15 .47 (1.06)
------------------------------------------------------------
Total from investment operations ...................... .71 .77 .65 .99 (.51)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.45) (.48) (.50) (.53) (.54)
Net realized gains ................................... -- -- -- -- (.01)
------------------------------------------------------------
Total distributions ................................... (.45) (.48) (.50) (.53) (.55)
------------------------------------------------------------
Net asset value, end of year .......................... $11.84 $11.58 $11.29 $11.14 $10.68
============================================================
Total return b ........................................ 6.25% 7.01% 5.96% 9.46% (4.46)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $30,504 $25,258 $18,462 $14,475 $14,056
Ratios to average net assets:
Expenses ............................................. 1.29% 1.26% 1.28% 1.28% 1.27%
Net investment income ................................ 3.90% 4.28% 4.50% 4.77% 4.91%
Portfolio turnover rate ............................... 12.53% 17.10% 9.94% 11.12% 20.99%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
Annual Report | See notes to financial statements. | 69
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ALABAMA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.7%
Alabama Building Renovation Finance Authority Revenue, Refunding, AMBAC Insured,
5.625%, 9/01/24 ......................................................................... $ 2,500,000 $ 2,784,800
Alabama Drinking Water Finance Authority Revenue, Revolving Fund Loan, Series A, AMBAC
Insured, 5.25%, 8/15/24 ................................................................. 1,805,000 1,929,419
Alabama HFA, SFMR,
Series A-2, GNMA Secured, 6.80%, 4/01/25 ............................................... 755,000 770,885
Series D-2, GNMA Secured, 5.75%, 10/01/23 .............................................. 1,195,000 1,239,275
Alabama State Docks Department Docks Facilities Revenue,
MBIA Insured, 6.30%, 10/01/21 .......................................................... 4,500,000 5,052,150
Refunding, MBIA Insured, 5.50%, 10/01/22 ............................................... 1,000,000 1,107,240
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., 6.45%, 12/01/23 ..... 2,000,000 2,028,700
Alabama Water Pollution Control Authority Revenue, Fund Loan, Series A, AMBAC Insured,
5.00%, 8/15/23 .......................................................................... 4,435,000 4,680,389
Alabaster GO, wts., AMBAC Insured, 5.00%,
9/01/24 ................................................................................ 3,470,000 3,636,282
9/01/27 ................................................................................ 1,500,000 1,563,210
Alabaster Water and Gas Board Revenue, AMBAC Insured, 6.35%, 9/01/14 ...................... 2,215,000 2,315,096
Athens Electric Revenue, wts., MBIA Insured, 6.00%, 6/01/25 ............................... 1,000,000 1,076,570
Auburn GO, FSA Insured, 5.00%, 1/01/24 .................................................... 1,500,000 1,559,670
Baldwin County Eastern Shore Health Care Authority Hospital Revenue, 5.75%, 4/01/27 ....... 1,000,000 967,710
Birmingham Baptist Medical Center Special Care Facilities Financing Authority Revenue,
Baptist Health System Inc., Refunding, MBIA Insured, 5.875%,
11/15/19 ............................................................................... 3,500,000 3,902,220
11/15/26 ............................................................................... 2,000,000 2,207,500
Birmingham GO, Refunding and Capital Improvement, Series B, AMBAC Insured,
5.00%, 12/01/32 ......................................................................... 2,000,000 2,081,780
Birmingham Southern College Private Educational Building Authority Tuition Revenue,
Refunding, 5.35%, 12/01/19 .............................................................. 1,000,000 1,027,280
Clarke and Mobile Counties Gas District Revenue, AMBAC Insured, 5.875%, 12/01/23 .......... 4,000,000 4,633,000
Coffee County PBA, Building Revenue,
MBIA Insured, 5.00%, 9/01/27 ........................................................... 2,145,000 2,243,992
wts., FSA Insured, Pre-Refunded, 6.10%, 9/01/16 ........................................ 1,000,000 1,135,470
Courtland IDBR,
Environmental Improvement Revenue, Champion International Corp. Project, Refunding,
6.40%, 11/01/26 ....................................................................... 2,000,000 2,087,540
Solid Waste Disposal Revenue, Champion International Corp. Project, Series A,
6.50%, 9/01/25 ........................................................................ 5,000,000 5,200,300
Culman and Jefferson County Gas District Gas Revenue, MBIA Insured, 5.85%, 7/01/24 ........ 2,000,000 2,315,280
Etowah County Board Education GO, Special Tax School wts., FSA Insured, 5.00%,
9/01/24 ................................................................................ 4,235,000 4,457,337
9/01/28 ................................................................................ 2,000,000 2,090,720
9/01/33 ................................................................................ 2,500,000 2,609,475
Fairfield IDB, Environmental Improvement Revenue, USX Corp. Project, Refunding,
5.45%, 9/01/14 ......................................................................... 2,000,000 2,107,440
Series A, 6.70%, 12/01/24 .............................................................. 3,500,000 3,591,105
Florence Electric Revenue, wts., FSA Insured, 5.25%, 6/01/19 .............................. 1,415,000 1,547,274
Florence wts. GO, Series B, FGIC Insured, 5.00%, 9/01/23 .................................. 2,500,000 2,645,225
70 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ALABAMA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Franklin County wts., Series B, AMBAC Insured, 5.125%, 10/01/33 ........................... $ 2,000,000 $ 2,105,860
Gulf Shores GO, wts., Refunding, AMBAC Insured, 6.00%, 9/01/21 ............................ 1,935,000 2,141,406
Houston County Health Care Authority Revenue, AMBAC Insured,
6.125%, 10/01/25 ....................................................................... 1,000,000 1,161,130
6.25%, 10/01/30 ........................................................................ 3,150,000 3,681,121
Huntsville Capital Improvement GO, Series A, AMBAC Insured, 5.00%, 2/01/23 ................ 1,000,000 1,055,120
Huntsville Capital Improvement wts., GO, Series C, AMBAC Insured, 4.625%, 11/01/22 ........ 2,000,000 2,060,420
Huntsville Health Care Authority Revenue, Series A, MBIA Insured,
5.40%, 6/01/22 ......................................................................... 4,000,000 4,413,080
5.50%, 6/01/27 ......................................................................... 3,820,000 4,201,465
Huntsville PBA, Lease Revenue, Municipal Justice and Public Safety Center,
MBIA Insured, 5.00%,
10/01/25 ............................................................................... 5,000,000 5,248,200
10/01/29 ............................................................................... 4,000,000 4,182,600
Jacksonville State University Revenue, Tuition and Fee, MBIA Insured, 5.00%, 12/01/22 ..... 3,000,000 3,174,180
Jasper County Waterworks and Sewer Board Water and Sewer Revenue, AMBAC Insured,
Pre-Refunded, 6.15%, 6/01/14 ............................................................ 1,000,000 1,032,730
Jefferson County Sewer Revenue,
Capital Improvement, wts., Series A, FGIC Insured, Pre-Refunded, 5.00%, 2/01/33 ........ 2,615,000 2,961,827
Capital Improvement, wts., Series A, FGIC Insured, Pre-Refunded, 5.00%, 2/01/33 ........ 2,385,000 2,713,248
Capital Improvement, wts., Series A, FGIC Insured, Pre-Refunded, 5.375%, 2/01/36 ....... 6,000,000 6,914,760
Series D, FGIC Insured, Pre-Refunded, 5.00%, 2/01/32 ................................... 4,000,000 4,609,960
wts., ETM, 7.50%, 9/01/13 .............................................................. 200,000 231,864
wts., Series D, FGIC Insured, Pre-Refunded, 5.75%, 2/01/27 ............................. 6,000,000 6,770,040
Lauderdale County and Florence Health Care Authority Revenue, Coffee Health Group,
Series A, MBIA Insured,
5.625%, 7/01/21 ........................................................................ 3,000,000 3,332,730
5.375%, 7/01/29 ........................................................................ 3,095,000 3,290,078
Pre-Refunded, 5.375%, 7/01/29 .......................................................... 1,905,000 2,222,316
Madison GO, wts.,
AMBAC Insured, 5.35%, 2/01/26 .......................................................... 2,410,000 2,580,773
MBIA Insured, 6.00%, 4/01/23 ........................................................... 2,000,000 2,138,580
Marshall County Health Care Authority Hospital Revenue, Series A, 5.75%, 1/01/32 .......... 2,170,000 2,253,458
Mobile County Board School Commissioners GO, Capital Outlay wts., Series B,
AMBAC Insured,
5.10%, 3/01/22 ......................................................................... 2,265,000 2,393,063
5.125%, 3/01/31 ........................................................................ 8,230,000 8,575,825
Mobile Housing Assistance Corp. MFHR, Refunding, Series A, FSA Insured, 7.625%, 2/01/21 .. 1,260,000 1,265,040
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson Hospital
and Clinic, Refunding, AMBAC Insured, 6.00%, 3/01/26 .................................... 6,000,000 6,571,080
Morgan County Decatur Health Care Authority Hospital Revenue, Decatur General Hospital,
Refunding, Connie Lee Insured, 6.375%, 3/01/24 .......................................... 5,750,000 5,892,600
Moulton Water Works Board Water Revenue, MBIA Insured, 5.375%, 1/01/32 .................... 1,935,000 2,063,407
Muscle Shoals GO,
Refunding, wts., MBIA Insured, 5.80%, 8/01/16 .......................................... 1,725,000 1,894,619
Refunding, wts., MBIA Insured, 5.90%, 8/01/25 .......................................... 7,000,000 7,687,330
wts., MBIA Insured, 5.50%, 8/01/30 ..................................................... 2,150,000 2,387,338
Oneonta Utilities Board Utility Revenue, FSA Insured, 6.90%, 11/01/24 ..................... 230,000 243,165
Oxford GO, School wts., AMBAC Insured, 6.00%, 5/01/30 ..................................... 4,275,000 4,970,542
Annual Report | 71
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ALABAMA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth GO, Public Improvement,
Refunding, FSA Insured, 5.25%, 7/01/27 ................................................. $ 2,500,000 $ 2,685,150
Refunding, FSA Insured, 5.125%, 7/01/30 ................................................ 3,000,000 3,183,030
Series A, 5.125%, 7/01/31 .............................................................. 5,000,000 5,202,400
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Refunding,
Series H, 5.00%, 7/01/28 ................................................................ 3,000,000 3,115,380
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series G, 5.00%, 7/01/33 ................................................................ 1,500,000 1,553,055
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Revenue, Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 .............................................. 25,000 25,134
Puerto Rico Electric Power Authority Revenue, Series II, FSA Insured, 5.125%, 7/01/26 ..... 5,000,000 5,373,600
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.25%, 7/01/27 .................. 3,065,000 3,249,207
Russellville GO, wts., Refunding, MBIA Insured, 5.75%, 12/01/26 ........................... 2,500,000 2,751,650
Sheffield GO, wts., 5.125%, 5/01/33 ....................................................... 2,610,000 2,745,224
St. Clair County Board of Education, School Tax Anticipation wts., Series C,
FSA Insured, 5.85%, 2/01/29 ............................................................. 4,815,000 5,476,388
Sylacauga GO, wts., AMBAC Insured, 5.50%, 6/01/25 ......................................... 1,700,000 1,879,061
Tallahassee GO, Water, Gas and Sewer Waste, AMBAC Insured, 5.25%, 5/01/31 ................. 1,135,000 1,206,880
Troy State University Student Fee Revenue, MBIA Insured, 5.00%, 11/01/21 .................. 2,215,000 2,365,642
University of Montavello Revenue, FSA Insured, 5.30%, 5/01/22 ............................. 1,940,000 2,108,935
University of North Alabama Revenue, General Fee, Series A, FSA Insured, 5.375%, 11/01/17 . 4,395,000 4,876,912
University of Northern Alabama Revenue, Student Housing, FGIC Insured, 5.00%, 11/01/29 .... 2,995,000 3,132,620
Valley Special Care Facilities Financing Authority Revenue, Lanier Memorial Hospital,
Series A, 5.65%, 11/01/22 ............................................................... 3,465,000 3,259,318
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ............................................................................... 1,700,000 1,839,111
10/01/22 ............................................................................... 2,300,000 2,390,597
Warrior River Water Authority Water Revenue, FSA Insured,
5.40%, 8/01/29 ......................................................................... 4,250,000 4,531,605
5.50%, 8/01/34 ......................................................................... 4,735,000 5,184,494
--------------
TOTAL LONG TERM INVESTMENTS (COST $242,061,068) ........................................... 263,150,682
--------------
SHORT TERM INVESTMENTS
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ..................................................... 100,000 100,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $100,000) .............................................. 100,000
--------------
TOTAL INVESTMENTS (COST $242,161,068) 98.7% ............................................... 263,250,682
OTHER ASSETS, LESS LIABILITIES 1.3% ....................................................... 3,478,980
--------------
NET ASSETS 100.0% ......................................................................... $266,729,662
--------------
See Glossary of Terms on page 125.
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.
72 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FLORIDA TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.97 $11.71 $11.54 $10.89 $11.91
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .56 .57 .59 .61 .61
Net realized and unrealized gains (losses) ........... .20 .26 .18 .64 (1.02)
------------------------------------------------------------
Total from investment operations ...................... .76 .83 .77 1.25 (.41)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.56) (.57) (.60) (.60) (.61)
Net realized gains ................................... -- -- -- -- -- d
------------------------------------------------------------
Total distributions ................................... (.56) (.57) (.60) (.60) (.61)
------------------------------------------------------------
Net asset value, end of year .......................... $12.17 $11.97 $11.71 $11.54 $10.89
============================================================
Total return b ........................................ 6.47% 7.32% 6.83% 11.77% 3.54)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................$1,594,007 $1,624,544 $1,609,946 $1,538,593 $1,509,624
Ratios to average net assets:
Expenses ............................................. .62% .61% .62% .62% .62%
Net investment income ................................ 4.65% 4.87% 5.05% 5.41% 5.37%
Portfolio turnover rate ............................... 6.89% 16.84% 13.91% 12.05% 26.39%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The Fund made a capital gain distribution of $.0009.
Annual Report | 73
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 c 2003 2002 2001 2000 c, d
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.04 $11.77 $11.58 $10.90 $10.83
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .50 .51 .52 .55 .05
Net realized and unrealized gains (losses) ........... .20 .27 .20 .67 .07
------------------------------------------------------------
Total from investment operations ...................... .70 .78 .72 1.22 .12
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.49) (.51) (.53) (.54) (.05)
------------------------------------------------------------
Total distributions ................................... (.49) (.51) (.53) (.54) (.05)
------------------------------------------------------------
Net asset value, end of year .......................... $12.25 $12.04 $11.77 $11.58 $10.90
============================================================
Total return b ........................................ 5.94% 6.78% 6.38% 11.42% 1.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $76,208 $55,167 $30,875 $7,412 $304
Ratios to average net assets:
Expenses ............................................. 1.17% 1.16% 1.17% 1.17% 1.17% e
Net investment income ................................ 4.10% 4.32% 4.50% 4.81% 5.32% e
Portfolio turnover rate ............................... 6.89% 16.84% 13.91% 12.05% 26.39%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d For the period February 1, 2000 (effective date) to February 29, 2000.
e Annualized.
74 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.09 $11.83 $11.65 $10.98 $12.01
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .50 .51 .53 .55 .55
Net realized and unrealized gains (losses) ........... .20 .26 .18 .66 (1.04)
------------------------------------------------------------
Total from investment operations ...................... .70 .77 .71 1.21 (.49)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.49) (.51) (.53) (.54) (.54)
Net realized gains ................................... -- -- -- -- -- d
------------------------------------------------------------
Total distributions ................................... (.49) (.51) (.53) (.54) (.54)
------------------------------------------------------------
Net asset value, end of year .......................... $12.30 $12.09 $11.83 $11.65 $10.98
============================================================
Total return b ........................................ 5.90% 6.66% 6.26% 11.26% (4.14)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $124,727 $113,644 $90,895 $74,194 $72,135
Ratios to average net assets:
Expenses ............................................. 1.17% 1.16% 1.17% 1.17% 1.17%
Net investment income ................................ 4.10% 4.32% 4.51% 4.86% 4.83%
Portfolio turnover rate ............................... 6.89% 16.84% 13.91% 12.05% 26.39%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
d The Fund made a capital gain distribution of $.0009.
Annual Report | See notes to financial statements. | 75
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.5%
BONDS 92.4%
Alachua County Health Facilities Authority Revenue, Shands Teaching Hospital,
Series A, MBIA Insured, 5.80%, 12/01/26 ................................................ $ 10,000,000 $ 10,988,800
Alachua County School Board COP, AMBAC Insured, 5.00%, 7/01/21 ........................... 2,000,000 2,128,700
Bay County Hospital System Revenue, Bay Medical Center Project, Pre-Refunded,
8.00%, 10/01/12 ........................................................................ 8,865,000 9,256,567
Brevard County Health Facilities Authority Health Care Facilities Revenue,
Health First Inc. Project, 5.00%, 4/01/26 .............................................. 5,000,000 5,226,150
Brevard County Housing Finance Authority SFMR, Multi-County Program, GNMA Secured,
6.40%, 9/01/30 ......................................................................... 1,150,000 1,212,180
Brevard County School Board COP, Refunding, Series A, AMBAC Insured, 5.40%, 7/01/11 ...... 4,415,000 5,154,601
Brevard County School Board COP, AMBAC Insured, 5.00%, 7/01/26 ........................... 10,000,000 10,477,900
Broward County Educational Facilities Authority Revenue, Nova Southeastern
University Project, Refunding, Connie Lee Insured, 6.125%, 4/01/17 ..................... 2,250,000 2,303,505
Broward County Health Facilities Authority Revenue, Catholic Health Services,
Refunding, 5.50%, 8/15/20 .............................................................. 9,360,000 9,884,347
Broward County HFA,
MFHR, Bridgewater Place Apartments Project, Series A, 5.45%, 10/01/34 ................. 3,000,000 3,014,640
MFHR, Cross Keys Apartments Project, Series A, 5.80%, 10/01/33 ........................ 1,990,000 2,046,775
MFHR, Cross Keys Apartments Project, Series A, 5.85%, 4/01/39 ......................... 5,775,000 5,942,706
MFHR, Stirling Apartments Phase II, Series A, 5.35%, 10/01/29 ......................... 1,000,000 1,009,880
MFHR, Stirling Apartments Phase II, Series A, 5.40%, 4/01/39 .......................... 2,000,000 2,018,620
Series D, 6.90%, 6/01/09 .............................................................. 60,000 60,224
Series D, 7.375%, 6/01/21 ............................................................. 255,000 255,719
Broward County Professional Sports Facilities Tax Revenue, Civic Arena Project,
Series A, MBIA Insured,
5.75%, 9/01/21 ........................................................................ 5,000,000 5,537,850
5.625%, 9/01/28 ....................................................................... 10,000,000 10,847,700
Broward County School Board COP, Series A, FSA Insured, 5.00%, 7/01/26 ................... 21,500,000 22,527,485
Cape Canaveral Hospital District Revenue COP, Refunding, 5.25%, 1/01/28 .................. 3,500,000 3,564,750
Celebration CDD, Special Assessment,
MBIA Insured, 6.00%, 5/01/10 .......................................................... 3,005,000 3,058,068
MBIA Insured, 6.10%, 5/01/16 .......................................................... 2,185,000 2,223,937
Series A, MBIA Insured, 5.50%, 5/01/18 ................................................ 1,470,000 1,640,608
Citrus County Hospital Board Revenue, Citrus Memorial Hospital, Refunding, 6.25%,
8/15/23 ................................................................................ 10,245,000 10,659,513
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A,
FHA Insured, 6.50%, 10/01/25 ........................................................... 2,600,000 2,625,064
Clermont Water and Sewer Revenue, Refunding, FSA Insured, 5.375%, 12/01/30 ............... 5,000,000 5,302,000
Crossing At Fleming Island CDD, Florida Special Assessment Revenue, Refunding,
Series B, MBIA Insured, 5.80%, 5/01/16 ................................................. 5,980,000 7,050,061
Dade County Aviation Revenue, Miami International Airport,
Series B, FSA Insured, 5.125%, 10/01/22 ............................................... 4,750,000 4,938,100
Series C, FSA Insured, 5.125%, 10/01/27 ............................................... 9,550,000 9,924,933
Dade County Special Obligation, Courthouse Center Project, Pre-Refunded,
6.10%, 4/01/20 ......................................................................... 5,000,000 5,369,850
76 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Dade County Water and Sewer System Revenue, FGIC Insured,
5.75%, 10/01/22 ....................................................................... $ 5,000,000 $ 5,423,600
5.50%, 10/01/25 ....................................................................... 11,500,000 12,344,790
5.25%, 10/01/26 ....................................................................... 13,000,000 13,578,240
Daytona Beach Utility System Revenue, Refunding, Series B, FGIC Insured, 5.00%,
11/15/32 ............................................................................... 3,250,000 3,415,522
Deltona Utilities System Revenue, MBIA Insured, 5.00%, 10/01/33 .......................... 9,000,000 9,453,960
Dovera CDD, Special Assessment Revenue, 7.875%, 5/01/12 .................................. 615,000 617,251
Duval County HFA,
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.60%, 7/01/17 ............ 1,000,000 1,052,510
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.70%, 7/01/27 ............ 2,000,000 2,078,340
SFMR, Series 1988, GNMA Secured, 8.625%, 12/01/19 ..................................... 10,000 10,098
Enterprise CDD, Water and Sewer Revenue, MBIA Insured, 5.50%, 5/01/26 .................... 3,000,000 3,306,000
Escambia County Capital Improvement Revenue, MBIA Insured, 5.00%, 10/01/27 ............... 3,000,000 3,149,220
Escambia County Health Facilities Authority Health Facility Revenue,
Baptist Hospital and Baptist Manor, 5.125%, 10/01/19 .................................. 8,750,000 8,829,800
Florida Health Care Facility Loan VHA Project, AMBAC Insured, 5.95%, 7/01/20 .......... 10,000,000 10,749,000
Escambia County Health Facilities Authority Revenue, Ascension Health Credit,
Refunding, Series A-2, AMBAC Insured, Pre-Refunded, 5.75%, 11/15/29 .................... 25,000,000 29,551,250
Escambia County HFA, SFMR,
Multi County Program, Series A, MBIA Insured, 6.40%, 10/01/30 ......................... 3,895,000 4,141,787
Multi-County Program, Series C, GNMA Secured, 5.80%, 10/01/19 ......................... 245,000 245,909
First Florida Governmental Financing Commission Revenue, AMBAC Insured,
Pre-Refunded, 5.75%, 7/01/16 ........................................................... 3,700,000 4,118,507
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 ................................. 1,410,000 1,427,625
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17 ........................... 3,740,000 3,947,233
MFH, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 ............................. 3,330,000 3,342,021
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37 .......................... 5,000,000 5,192,300
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37 ........................ 2,000,000 2,081,120
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37 ........................ 1,300,000 1,376,167
SFMR, Series A, 8.60%, 7/01/16 ........................................................ 45,000 45,533
Florida HFC Revenue,
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.80%, 12/01/38 ................... 4,965,000 5,247,459
Homeowner Mortgage, Series 4, FSA Insured, 6.25%, 7/01/22 ............................. 3,130,000 3,333,544
Housing Brenwood Trace Apartments, Series E-1, FSA Insured, 5.65%, 6/01/19 ............ 1,245,000 1,321,381
Housing-Waverly Apartments, Series C-1, FSA Insured, 6.50%, 7/01/40 ................... 3,000,000 3,263,220
Florida Housing Finance Corp. Revenue, Deer Meadows Apartments, Series R,
FNMA Insured, 6.00%, 5/01/32 ........................................................... 3,505,000 3,748,422
Florida Intergovernmental Finance Commission Capital Revenue, Series C-1,
AMBAC Insured, 5.00%, 2/01/21 .......................................................... 1,355,000 1,431,869
Florida Municipal Loan Council Revenue, Series B,
MBIA Insured, 5.00%, 12/01/28 ......................................................... 3,770,000 3,974,975
MBIA Insured, 5.75%, 11/01/29 ......................................................... 1,500,000 1,708,245
Florida Ports Financing Commission Revenue, State Transportation Trust Fund-Intermodal
Program, FGIC Insured, 5.50%, 10/01/23 ................................................. 7,000,000 7,705,180
Annual Report | 77
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Florida State Board of Education Capital Outlay GO, Public Education,
Refunding, Series D, 5.75%, 6/01/22 ................................................... $ 25,900,000 $ 29,949,724
Refunding, Series D, 6.00%, 6/01/23 ................................................... 15,000,000 18,538,500
Refunding, Series G, FGIC Insured, 5.00%, 6/01/31 ..................................... 5,000,000 5,248,750
Series B, Pre-Refunded, 5.875%, 6/01/24 ............................................... 5,000,000 5,351,300
Series C, FGIC Insured, 5.75%, 6/01/29 ................................................ 5,000,000 5,732,750
Series F, FGIC Insured, 5.50%, 6/01/26 ................................................ 10,000,000 10,708,600
Florida State Board of Education GO,
Series C, MBIA Insured, 5.00%, 6/01/27 ................................................ 5,000,000 5,287,800
Series F, MBIA Insured, 5.00%, 6/01/28 ................................................ 20,000,000 21,135,600
Florida State Board of Education Lottery Revenue, Series A, FGIC Insured, 5.00%, 7/01/20 . 7,000,000 7,557,130
Florida State Board Regent Housing Revenue,
University of Central Florida, AMBAC Insured, 5.75%, 10/01/29 ......................... 8,650,000 9,836,088
University of Florida, FGIC Insured, 5.75%, 7/01/25 ................................... 3,400,000 3,891,300
University of Florida, FGIC Insured, 5.25%, 7/01/30 ................................... 2,060,000 2,184,424
Florida State Correctional Privatization Commission COP, Correctional Facility
Bay Project, MBIA Insured, Pre-Refunded, 6.00%, 8/01/15 ................................ 6,000,000 6,244,800
Florida State Department Environmental Protection Preservation Revenue,
Florida Forever, Series A, MBIA Insured, 5.00%, 7/01/21 ................................ 4,000,000 4,276,480
Florida State Department of Corrections COP, Okeechobee Correctional Facility,
AMBAC Insured, 6.25%, 3/01/15 .......................................................... 2,960,000 3,161,191
Florida State Department of General Services Division Facilities Management Revenue,
Florida Facilities Pool, Series B, FSA Insured, 5.50%, 9/01/28 ......................... 10,000,000 11,021,700
Florida State Department of Transportation GO, Right of Way, Series A, 4.75%, 7/01/24 .... 8,000,000 8,256,800
Florida State Mid-Bay Bridge Authority Revenue,
Exchangeable, 6.05%, 10/01/22 ......................................................... 7,000,000 7,320,390
Exchangeable, Series A, 5.95%, 10/01/13 ............................................... 12,590,000 13,806,194
Exchangeable, Series D, 6.10%, 10/01/22 ............................................... 17,240,000 18,143,204
Series A, ETM, 6.875%, 10/01/22 ....................................................... 6,000,000 7,950,300
Florida State Municipal Power Agency Revenue, Stanton II Project, Refunding,
AMBAC Insured, 5.00%, 10/01/26 ......................................................... 5,000,000 5,256,000
Florida State Turnpike Authority Turnpike Revenue, Department of Transportation,
Series A, FGIC Insured, Pre-Refunded, 5.50%, 7/01/21 .................................. 5,000,000 5,346,700
Series B, 5.00%, 7/01/30 .............................................................. 3,455,000 3,594,409
Fort Pierce Utilities Authority Revenue, AMBAC Insured, 5.00%, 10/01/27 .................. 7,000,000 7,331,170
Gainesville Utilities Systems Revenue, Series A, 5.20%, 10/01/26 ......................... 7,590,000 7,959,253
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.75%,
5/01/14 ................................................................................ 4,185,000 4,288,244
Hialeah Housing Authority Revenue, Affordable Housing Program, Refunding,
GNMA Secured, 5.30%, 12/20/18 .......................................................... 1,240,000 1,319,447
Highlands County Health Facilities Authority Revenue, Adventist Health Systems,
5.25%, 11/15/20 ....................................................................... 10,000,000 10,283,300
Series A, 6.00%, 11/15/31 ............................................................. 16,000,000 17,162,560
Hillsborough County Assessment Revenue, Capacity Assesment Special, FSA Insured,
5.125%, 3/01/20 ........................................................................ 1,000,000 1,080,450
Hillsborough County Aviation Authority Revenue, Tampa International Airport,
Series B, FGIC Insured, 5.875%, 10/01/23 ............................................... 5,000,000 5,560,500
78 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Hillsborough County HFA Mortgage Revenue, SF, Series A, GNMA Secured, 5.875%,
4/01/30 ................................................................................ $ 2,900,000 $ 3,022,206
Hillsborough County IDA,
PCR, Tampa Electric Co. Project, Refunding, 5.50%, 10/01/23 ........................... 16,000,000 16,228,480
Colonial Penn Insurance Project, 7.35%, 8/01/13 ....................................... 5,300,000 5,423,967
Refunding, Series B, 5.40%, 10/01/28 .................................................. 7,000,000 7,226,870
Hillsborough County School Board COP,
Master Lease Program, Series A, MBIA Insured, 5.375%, 7/01/21 ......................... 5,000,000 5,479,600
Master Lease Program, Series A, MBIA Insured, 5.25%, 7/01/22 .......................... 5,000,000 5,414,400
MBIA Insured, 5.375%, 7/01/26 ......................................................... 8,000,000 8,562,240
MBIA Insured, 5.00%, 7/01/29 .......................................................... 10,000,000 10,493,400
Series B, MBIA Insured, 5.125%, 7/01/26 ............................................... 5,000,000 5,285,900
Indian River County Hospital District Revenue, Refunding, FSA Insured, 5.70%, 10/01/15 ... 1,000,000 1,113,110
Jacksonville Capital Improvement Revenue Certificates, Gator Bowl Project,
AMBAC Insured, 5.875%, 10/01/25 ........................................................ 5,000,000 5,360,800
Jacksonville Capital Improvement Revenue,
Refunding, Series C, AMBAC Insured, 5.00%, 10/01/25 ................................... 4,460,000 4,698,209
Series A, AMBAC Insured, 5.00%, 10/01/30 .............................................. 10,000,000 10,475,500
Jacksonville Electric Authority Revenue, Water and Sewer,
Series A, 6.125%, 10/01/39 ............................................................ 20,330,000 21,504,057
Series B, FGIC Insured, 5.40%, 10/01/20 ............................................... 3,000,000 3,264,450
Jacksonville Guaranteed Entitlement Revenue, Refunding and Improvement, FGIC Insured,
5.00%, 10/01/32 ........................................................................ 17,250,000 18,045,052
Jacksonville Sales Tax Revenue, AMBAC Insured, 5.00%, 10/01/23 ........................... 5,000,000 5,263,800
Jacksonville Transportation Revenue, MBIA Insured,
5.25%, 10/01/29 ....................................................................... 17,955,000 19,083,292
5.00%, 10/01/31 ....................................................................... 25,000,000 26,055,000
Kissimmee Water and Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15 ............. 5,000,000 5,068,500
Lakeland Hospital System Revenue, Lakeland Regional Health System,
5.75%, 11/15/27 ....................................................................... 6,925,000 7,303,451
5.50%, 11/15/32 ....................................................................... 12,070,000 12,425,582
Series A, MBIA Insured, 5.50%, 11/15/26 ............................................... 10,000,000 10,927,800
Lakeland Utilities Tax Revenue, Series A, FGIC Insured, Pre-Refunded, 6.00%, 10/01/17 .... 4,500,000 4,721,445
Lee County Airport Revenue, Series A, FSA Insured, 6.00%, 10/01/32 ....................... 11,405,000 12,906,240
Lee County Hospital Board of Directors Hospital Revenue, Lee Memorial Health System,
Series A, MBIA Insured, 5.875%, 4/01/24 ................................................ 18,000,000 19,782,540
Lee County IDA Health Care Facilities Revenue, Shell Point Village Project,
Refunding, Series A, 5.50%, 11/15/29 ................................................... 4,000,000 3,929,440
Lee County IDA, Health Care Facilities Revenue, Shell Point Village Project,
Series A, 5.50%, 11/15/21 .............................................................. 7,500,000 7,532,025
Lee County Transportation Facilities Revenue, MBIA Insured, 5.75%, 10/01/27 .............. 5,000,000 5,403,000
Lessburg Hospital Revenue, Leesburg Regional Medical Center Project, 5.50%, 7/01/32 ...... 4,150,000 4,247,027
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ............. 5,575,000 6,307,611
Marion County Utility System Revenue,
FGIC Insured, 5.00%, 12/01/31 ......................................................... 5,000,000 5,237,700
MBIA Insured, 5.00%, 12/01/28 ......................................................... 5,000,000 5,271,850
Martin County Consolidated Utilities System Revenue, Refunding, FGIC Insured,
Pre-Refunded, 6.00%, 10/01/24 .......................................................... 735,000 771,169
Annual Report | 79
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Melbourne Water and Sewer Revenue, FGIC Insured, 5.25%, 10/01/30 ......................... $ 6,000,000 $ 6,373,080
Miami Beach Special Obligation, Subordinated, FGIC Insured, ETM, 7.375%, 12/01/08 ........ 1,380,000 1,398,092
Miami Beach Water and Sewer Revenue, AMBAC Insured, 5.00%, 9/01/30 ....................... 7,000,000 7,316,050
Miami Dade County Aviation Revenue,
Miami International Airport, FGIC Insured, 5.375%, 10/01/27 ........................... 5,000,000 5,326,600
Miami International Airport, FGIC Insured, 5.375%, 10/01/32 ........................... 5,000,000 5,308,300
Miami-Dade County Educational Facilities Authority Revenue,
Series A, AMBAC Insured, 5.75%, 4/01/29 ............................................... 10,000,000 11,420,900
University of Miami, Series A, AMBAC Insured, 5.00%, 4/01/29 .......................... 2,500,000 2,637,625
University of Miami, Series A, AMBAC Insured, 5.00%, 4/01/31 .......................... 8,035,000 8,463,908
Miami-Dade County HFA,
MFHR, Cedar Grove Apartments, FSA Insured, 5.50%, 8/01/27 ............................. 2,015,000 2,089,293
MFMR, Villa Esperanza Apartments Project, 5.25%, 10/01/19 ............................. 430,000 436,910
MFMR, Villa Esperanza Apartments Project, 5.40%, 10/01/33 ............................. 1,500,000 1,519,800
Miami-Dade County IDAR, Airis Miami ll LLC Project, AMBAC Insured, 6.00%, 10/15/25 ....... 4,500,000 5,113,350
Miami-Dade County School Board COP, Series A, MBIA Insured, Pre-Refunded, 5.00%,
5/01/31 ................................................................................ 5,000,000 5,788,900
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, Pre-Refunded, 6.75%,
10/01/25 ............................................................................... 6,500,000 6,783,270
North Broward Hospital District Revenue,
Improvement, 6.00%, 1/15/31 ........................................................... 25,530,000 27,206,044
Refunding and Improvement, MBIA Insured, 5.375%, 1/15/24 .............................. 10,000,000 10,532,800
Refunding and Improvement, MBIA Insured, 5.75%, 1/15/27 ............................... 19,370,000 20,971,899
North Miami Health Facilities Authority Revenue, Catholic Health Services Obligation
Group, 6.00%,
8/15/16 ............................................................................... 2,000,000 2,117,140
8/15/24 ............................................................................... 1,750,000 1,831,585
Orange County Health Facilities Authority Revenue,
Adventist Health System, 6.375%, 11/15/20 ............................................. 3,000,000 3,304,050
Adventist Health System, 6.25%, 11/15/24 .............................................. 5,500,000 6,102,580
Adventist Health System, 6.50%, 11/15/30 .............................................. 10,750,000 11,850,800
Hospital Adventist Health System, 5.625%, 11/15/32 .................................... 15,000,000 15,903,900
Hospital Orlando Regional Healthcare, 6.00%, 12/01/29 ................................. 6,000,000 6,482,040
MBIA Insured, 6.00%, 11/01/24 ......................................................... 285,000 289,101
Regional Healthcare System, Series E, 6.00%, 10/01/26 ................................. 12,000,000 12,626,520
Orange County HFA, Homeowner Revenue, Series C-1, GNMA Secured, 5.70%, 9/01/26 ........... 1,735,000 1,799,698
Orange County Public Services Tax Revenue, FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 ... 5,050,000 5,536,921
Orange County School Board COP, Series A, MBIA Insured, 5.00%, 8/01/27 ................... 12,000,000 12,544,080
Orange County Tourist Development Tax Revenue,
AMBAC Insured, 5.50%, 10/01/31 ........................................................ 10,500,000 11,639,565
AMBAC Insured, 5.50%, 10/01/32 ........................................................ 20,000,000 21,793,400
Refunding, MBIA Insured, 5.125%, 10/01/20 ............................................. 10,000,000 10,630,100
Subordinate, AMBAC Insured, 5.125%, 10/01/25 .......................................... 5,500,000 5,810,530
Subordinate, AMBAC Insured, 5.125%, 10/01/30 .......................................... 10,000,000 10,522,800
80 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Orlando and Orange County Expressway Authority Expressway Revenue,
junior lien, FGIC Insured, 5.00%, 7/01/28 ............................................. $ 8,000,000 $ 8,281,840
senior lien, AMBAC Insured, ETM, 7.625%, 7/01/18 ...................................... 265,000 311,311
Series B, AMBAC Insured, 5.00%, 7/01/35 ............................................... 4,000,000 4,206,760
Osceola County IDAR, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.75%, 7/01/10 ................................................. 2,704,000 2,714,600
Series C, FSA Insured, 7.60%, 7/01/10 ................................................. 645,000 647,483
Osceola County Sales Tax Revenue, FSA Insured, 5.00%, 4/01/24 ............................ 10,000,000 10,419,400
Osceola County Tourist Development Tax Revenue, FGIC Insured, 5.00%, 10/01/32 ............ 10,000,000 10,460,900
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, Pre-Refunded,
6.00%, 6/01/15 ......................................................................... 5,000,000 5,161,800
Palm Beach County Financing Authority MFR, Housing Windsor Park Apartment Project,
Series A, 5.90%, 6/01/38 ............................................................... 1,000,000 1,032,520
Palm Beach County HFAR, Acts Retirement-Life Communities, 5.125%, 11/15/29 ............... 3,650,000 3,545,647
Palm Beach County IDR,
Lourdes-Noreen McKeen Residence, Geriatric Care Inc. Project, Pre-Refunded,
6.55%, 12/01/16 ....................................................................... 1,755,000 2,031,237
Lourdes-Noreen McKeen Residence, Geriatric Care Inc. Project, Pre-Refunded,
6.625%, 12/01/26 ..................................................................... 4,000,000 4,637,680
South Florida Fair Project, AMBAC Insured, 5.50%, 6/01/31 ............................. 5,000,000 5,479,900
Palm Beach County Public Improvement Revenue, Convention Center Project, FGIC Insured,
Pre-Refunded, 5.125%, 11/01/30 ......................................................... 10,000,000 11,675,300
Palm Beach County School Board COP,
Refunding, Series D, FSA Insured, 5.00%, 8/01/28 ...................................... 3,000,000 3,138,180
Series A, AMBAC Insured, 5.125%, 8/01/24 .............................................. 15,000,000 15,974,100
Series A, FGIC Insured, Pre-Refunded, 6.00%, 8/01/22 .................................. 5,000,000 6,089,850
Series C, FSA Insured, 5.00%, 8/01/27 ................................................. 10,000,000 10,453,400
Panama City Beach Utility Revenue, Refunding,
AMBAC Insured, 5.00%, 6/01/27 ......................................................... 4,450,000 4,685,272
AMBAC Insured, 5.00%, 6/01/32 ......................................................... 2,795,000 2,931,899
Pensacola Airport Revenue, Series A, MBIA Insured, 5.75%, 10/01/27 ....................... 5,615,000 6,205,586
Pinellas County Health Facilities Authority Revenue, Baycare Health System, FSA Insured,
5.00%, 11/15/30 ........................................................................ 11,500,000 11,961,035
Polk County Capital Improvement Revenue, Special Tax, FSA Insured, 5.75%, 12/01/21 ....... 2,350,000 2,742,239
Polk County IDAR, Solid Waste Disposal Facility, Tampa Electric Co. Project, 5.85%,
12/01/30 ............................................................................... 15,000,000 15,127,950
Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/26 ...................... 4,000,000 4,181,480
Port Everglades Authority Port Improvement Revenue, Series 1986, ETM, 7.50%, 11/01/06 .... 355,000 389,510
Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.00%, 7/01/33 ................ 13,000,000 13,459,810
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series G,
FGIC Insured, 5.00%, 7/01/22 ........................................................... 3,615,000 3,920,323
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, MBIA Insured, 5.00%, 7/01/38 ................................................ 12,800,000 13,323,008
Series B, Pre-Refunded, 6.00%, 7/01/39 ................................................ 5,000,000 6,093,700
Series D, 5.375%, 7/01/36 ............................................................. 5,000,000 5,361,750
Series G, 5.00%, 7/01/33 .............................................................. 10,000,000 10,353,700
Annual Report | 81
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Puerto Rico Electric Power Authority Revenue, Series II, 5.25%, 7/01/31 .................. $ 15,000,000 $ 15,942,300
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Revenue, Cogen Facilities, AES, Puerto Rico Project, 6.625%, 6/01/26 ........ 5,900,000 6,275,358
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ................ 5,000,000 5,361,750
Santa Rosa County IDR, Refunding, Holley Navarre Water System Project, 6.75%, 5/01/24 .... 4,290,000 4,390,987
Sarasota County Solid Waste System Revenue, AMBAC Insured, 5.50%, 10/01/16 ............... 5,250,000 5,867,190
Sarasota County Utilities System Revenue,
FGIC Insured, 5.75%, 10/01/27 ......................................................... 18,000,000 20,056,140
Refunding, Series A, FGIC Insured, 5.25%, 10/01/25 .................................... 9,000,000 9,607,050
Seminole County School Board COP, Series B, MBIA Insured, Pre-Refunded, 6.50%,
7/01/21 ................................................................................ 5,000,000 5,141,200
South Broward Hospital District Revenue,
5.60%, 5/01/27 ........................................................................ 5,000,000 5,308,550
5.625%, 5/01/32 ....................................................................... 16,250,000 17,307,550
South Florida Water Management District Special Obligation, Land Acquisition Bonds,
AMBAC Insured, Pre-Refunded, 6.00%, 10/01/15 ........................................... 1,000,000 1,013,980
St. Lucie West Services District Utility Revenue, senior lien, MBIA Insured, 6.125%,
10/01/32 ............................................................................... 10,000,000 11,911,000
Sunrise Lakes Recreation District GO, Phase 4,
Refunding, AMBAC Insured, 5.25%, 8/01/24 .............................................. 4,320,000 4,547,966
Series A, Pre-Refunded, 6.75%, 8/01/15 ................................................ 3,080,000 3,384,550
Series A, Pre-Refunded, 6.75%, 8/01/24 ................................................ 6,120,000 6,734,326
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 .............. 2,550,000 2,819,943
Tamarac Sales Tax Revenue, FGIC Insured, 5.00%, 4/01/22 .................................. 2,490,000 2,630,411
Tampa Allegheny Health System Revenue, St. Joseph, MBIA Insured, Pre-Refunded,
6.50%, 12/01/23 ........................................................................ 7,000,000 7,429,170
Tampa Bay Water Utility System Revenue,
FGIC Insured, Pre-Refunded, 5.75%, 10/01/29 ........................................... 15,000,000 18,127,350
Series B, FGIC Insured, 5.00%, 10/01/31 ............................................... 10,000,000 10,415,400
Tampa Sports Authority Revenue,
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.00%, 10/01/15 ............ 1,000,000 1,235,200
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.05%, 10/01/20 ............ 1,715,000 2,142,790
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.10%, 10/01/26 ............ 2,695,000 3,386,780
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.125%, 10/01/26 .......... 6,800,000 7,308,708
Sales Tax Payments, Stadium Project, 5.25%, 1/01/27 ................................... 5,860,000 6,101,256
Tampa Water and Sewer Revenue, sub. lien, Series A, AMBAC Insured, 7.25%, 10/01/16 ....... 1,330,000 1,336,211
Tampa-Hillsborough County Expressway Authority Revenue, AMBAC Insured, 5.00%,
7/01/22 ................................................................................ 5,000,000 5,210,600
Titusville Water and Sewer Revenue, MBIA Insured, Pre-Refunded, 6.20%, 10/01/14 .......... 6,000,000 6,302,160
Viera East CDD Revenue, Special Assessment, Series B,
6.75%, 5/01/14 ........................................................................ 300,000 303,105
ETM, 6.75%, 5/01/14 ................................................................... 7,190,000 8,622,967
Viera East CDD,
Special Assessment, Refunding, 7.00%, 5/01/26 ......................................... 7,225,000 7,877,129
Special Assessment, Water Management, Refunding, Series A, 6.50%, 5/01/22 ............. 11,340,000 11,759,807
Special Assessment, Water Management, Series B, 6.50%, 5/01/05 ........................ 465,000 472,124
Special Assessment, Water Management, Series B, 6.50%, 5/01/22 ........................ 4,580,000 4,749,552
Water and Sewer Revenue, 6.75%, 5/01/09 ............................................... 1,990,000 2,083,132
82 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Village Center CDD, Recreational Revenue, Series A, MBIA Insured, 5.20%, 11/01/25 ........ $ 10,000,000 $ 10,607,400
Virgin Islands PFAR, Gross Receipts Taxes, Loan Note, 5.00%, 10/01/33 .................... 10,000,000 10,459,700
Volusia County Educational Facility Authority Revenue, Educational Facilities,
Embry Riddle University, Refunding, Series B, AMBAC Insured, 5.25%, 10/15/22 .......... 2,000,000 2,136,400
Stetson University Inc. Project, AMBAC Insured, 5.25%, 6/01/29 ........................ 5,000,000 5,284,700
Volusia County School Board COP, Master Lease Program, FSA Insured, 5.50%, 8/01/24 ....... 5,000,000 5,543,400
West Lake CDD, Special Assessment Revenue, MBIA Insured, 5.75%, 5/01/17 .................. 1,910,000 2,203,815
West Orange Healthcare District Revenue, Series A, 5.65%, 2/01/22 ........................ 10,850,000 11,233,982
West Palm Beach Utility System Revenue, FGIC Insured, 5.50%, 10/01/29 .................... 5,000,000 5,460,550
---------------
TOTAL BONDS .............................................................................. 1,658,648,522
---------------
ZERO COUPON BONDS 6.1%
Broward County HFAR, SFMR, Refunding, Series B, FHA Insured, 4/01/29 ..................... 3,245,000 591,661
Broward County Water and Sewer Utility Revenue, Refunding, Series A, AMBAC Insured,
10/01/08 ............................................................................... 3,670,000 2,984,701
Clay County HFAR, SFMR, GNMA Secured, 4/01/33 ............................................ 1,160,000 161,565
Dade County Guaranteed Entitlement Revenue, Capital Appreciation, AMBAC Insured,
Pre-Refunded, 8/01/18 .................................................................. 17,020,000 6,692,434
Duval County Housing Finance Authority SFMR, Capital Appreciation, GNMA Secured,
10/01/32 ............................................................................... 840,000 121,901
Florida HFC Revenue,
Capital Appreciation, Homeowner Mortgage, Series 4, FSA Insured, 7/01/30 .............. 5,615,000 946,296
Deferred Interest, Homeowner Mortgage, Series 1, MBIA Insured, 7/01/17 ................ 2,630,000 1,328,544
Deferred Interest, Homeowner Mortgage, Series 2, MBIA Insured, 1/01/29 ................ 45,995,000 11,681,810
Florida State Mid-Bay Bridge Authority Revenue, Series A, AMBAC Insured,
10/01/25 .............................................................................. 9,845,000 3,234,476
10/01/26 .............................................................................. 2,500,000 774,450
Fort Pierce Utilities Authority Revenue, Capital Appreciation, Series B, AMBAC Insured,
10/01/20 .............................................................................. 3,090,000 1,482,427
10/01/21 .............................................................................. 2,585,000 1,166,197
10/01/22 .............................................................................. 3,090,000 1,305,958
10/01/23 .............................................................................. 3,060,000 1,215,952
10/01/24 .............................................................................. 2,560,000 956,851
Hillsborough County HFA Mortgage Revenue, SF, Series A, GNMA Secured, 4/01/32 ............ 1,840,000 334,365
Lakeland Electric and Water Revenue, Capital Appreciation, ETM, 10/01/14 ................. 5,770,000 3,890,884
Melbourne Water and Sewer Revenue, Capital Appreciation,
FGIC Insured, ETM, 10/01/26 ........................................................... 1,500,000 497,310
Refunding, Series B, FGIC Insured, 10/01/22 ........................................... 1,785,000 746,237
Refunding, Series B, FGIC Insured, 10/01/26 ........................................... 4,500,000 1,469,115
Miami-Dade County Special Obligation,
Sub Series B, MBIA Insured, 10/01/36 .................................................. 5,635,000 935,241
Sub Series C, MBIA Insured, 10/01/28 .................................................. 8,305,000 2,176,907
sub. lien, Refunding, Series A, MBIA Insured, 10/01/25 ................................ 22,365,000 7,029,319
Palm Beach County HFAR, Capital Appreciation, Refunding, Series A-1, FNMA Insured,
4/01/32 ................................................................................ 615,000 102,287
Pinellas County HFA, SFHMR, Multi County B-1, GNMA Secured, 9/01/31 ...................... 1,300,000 213,720
Annual Report | 83
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
Port Everglades Authority Port Improvement Revenue,
Capital Appreciation, 9/01/10 ......................................................... $ 24,525,000 $ 19,955,747
Capital Appreciation, ETM, 9/01/10 .................................................... 25,475,000 21,130,239
Refunding, Series A, 9/01/04 .......................................................... 3,550,000 3,529,233
Port Saint Lucie Utility Revenue, MBIA Insured, 9/01/29 .................................. 20,000,000 4,788,200
Sarasota Special Obligated Revenue, Refunding, AMBAC Insured,
11/01/09 .............................................................................. 1,365,000 1,169,450
11/01/12 .............................................................................. 1,780,000 1,316,862
11/01/15 .............................................................................. 2,180,000 1,387,875
St Johns County Water and Sewer Revenue, Capital Appreciation, AMBAC Insured,
6/01/23 ............................................................................... 4,255,000 1,597,072
6/01/24 ............................................................................... 1,500,000 529,245
6/01/25 ............................................................................... 2,130,000 707,479
St. Johns County Water and Sewer Revenue, Capital Appreciation, AMBAC Insured,
ETM, 6/01/22 ........................................................................... 4,000,000 1,602,000
---------------
TOTAL ZERO COUPON BONDS .................................................................. 109,754,010
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,611,243,785) ........................................ 1,768,402,532
---------------
SHORT TERM INVESTMENTS .1%
a Brevard County Health Facilities Authority Revenue, Wuesthoff Memorial Hospital Project,
Weekly VRDN and Put, .96%, 8/01/31 ..................................................... 310,000 310,000
a Jacksonville Educational Facilities Revenue, Jacksonville University Project,
Weekly VRDN and Put, .96%, 10/01/22 .................................................... 200,000 200,000
a Jacksonville Health Facilities Authority Hospital Revenue, Baptist Medical Center
Project, Daily VRDN and Put, .93%, 8/15/21 ............................................. 300,000 300,000
a Jacksonville Health Facilities Authority Revenue, River Garden Project, Weekly
VRDN and Put, .96%, 2/01/18 ............................................................ 100,000 100,000
a Orange County School Board COP, Series B, MBIA Insured, Daily VRDN and Put, .98%,
8/01/27 ................................................................................ 1,000,000 1,000,000
a Pinellas County Health Facilities Authority Revenue, Health Care Facilities,
Mease, Series A, Weekly VRDN and Put, .96%, 11/01/15 ................................... 165,000 165,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $2,075,000) ........................................... 2,075,000
---------------
TOTAL INVESTMENTS (COST $1,613,318,785) 98.6% ............................................ 1,770,477,532
OTHER ASSETS, LESS LIABILITIES 1.4% ...................................................... 24,464,761
---------------
NET ASSETS 100.0% ........................................................................ $1,794,942,293
===============
See Glossary of Terms on page 125.
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.
84 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN GEORGIA TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.99 $11.86 $11.73 $11.03 $12.07
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .54 .56 .57 .59 .59
Net realized and unrealized gains (losses) ........... .28 .13 .14 .70 (1.03)
------------------------------------------------------------
Total from investment operations ...................... .82 .69 .71 1.29 (.44)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.54) (.56) (.58) (.59) (.60)
Net realized gains ................................... -- -- -- -- -- d
------------------------------------------------------------
Total distributions ................................... (.54) (.56) (.58) (.59) (.60)
------------------------------------------------------------
Net asset value, end of year .......................... $12.27 $11.99 $11.86 $11.73 $11.03
============================================================
Total return b ........................................ 7.00% 6.02% 6.15% 11.93% (3.71)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $176,193 $171,381 $169,489 $163,352 $151,670
Ratios to average net assets:
Expenses ............................................. .75% .74% .75% .76% .75%
Net investment income ................................ 4.49% 4.76% 4.83% 5.15% 5.14%
Portfolio turnover rate ............................... 11.83% 10.56% 19.66% 18.67% 46.90%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The Fund made a capital gain distribution of $.002.
Annual Report | 85
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GEORGIA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.08 $11.94 $11.81 $11.10 $12.15
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .47 .50 .51 .53 .53
Net realized and unrealized gains (losses) ........... .29 .14 .13 .71 (1.05)
------------------------------------------------------------
Total from investment operations ...................... .76 .64 .64 1.24 (.52)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.47) (.50) (.51) (.53) (.53)
Net realized gains ................................... -- -- -- -- -- d
------------------------------------------------------------
Total distributions ................................... (.47) (.50) (.51) (.53) (.53)
------------------------------------------------------------
Net asset value, end of year .......................... $12.37 $12.08 $11.94 $11.81 $11.10
============================================================
Total return b ........................................ 6.44% 5.50% 5.52% 11.36% (4.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $35,645 $32,422 $24,672 $16,780 $14,811
Ratios to average net assets:
Expenses ............................................. 1.32% 1.27% 1.30% 1.31% 1.30%
Net investment income ................................ 3.92% 4.23% 4.29% 4.60% 4.58%
Portfolio turnover rate ............................... 11.83% 10.56% 19.66% 18.67% 46.90%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d The Fund made a capital gain distribution of $.002.
86 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.4%
Athens Housing Authority Student Housing Lease Revenue,
University of Georgia East Campus Housing, Refunding, AMBAC Insured, 5.00%, 12/01/27 ... $ 1,150,000 $ 1,202,957
University of Georgia, East Campus, Refunding, AMBAC Insured, 5.00%, 12/01/33 .......... 4,750,000 4,958,192
Atlanta Airport Facilities Revenue, Refunding, Series A, FGIC Insured, Pre-Refunded,
5.50%, 1/01/26 ......................................................................... 5,000,000 5,866,700
5.60%, 1/01/30 ......................................................................... 5,000,000 5,893,700
Atlanta and Fulton County Recreation Authority Revenue, AMBAC Insured, 5.50%, 12/01/20 .... 1,500,000 1,705,155
Atlanta Development Authority Revenue, Yamacraw Design Center Project, Series A,
MBIA Insured, 5.125%, 1/01/23 ........................................................... 4,150,000 4,400,743
Atlanta GO, Series A, Pre-Refunded, 6.125%, 12/01/23 ...................................... 2,000,000 2,117,060
Atlanta HDC, Mortgage Revenue, Oakland City/West, Refunding, Series A, FHA Insured,
6.375%, 3/01/23 ......................................................................... 1,480,000 1,500,513
Atlanta Urban Residential Finance Authority MFHR,
Defoors Ferry Manor Project, 5.90%, 10/01/18 ........................................... 1,700,000 1,788,842
Fulton Cotton Mill, GNMA Secured, 6.00%, 5/20/17 ....................................... 1,040,000 1,102,213
Fulton Cotton Mill, GNMA Secured, 6.125%, 5/20/27 ...................................... 1,560,000 1,640,371
Augusta Water and Sewer Revenue, FSA Insured, 5.00%, 10/01/32 ............................. 5,500,000 5,737,490
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center,
5.25%, 12/01/22 ........................................................................ 2,500,000 2,200,850
5.375%, 12/01/28 ....................................................................... 2,000,000 1,735,740
Brooks County Presbyterian Homes Revenue, GNMA Insured, 5.00%, 1/20/24 .................... 1,540,000 1,577,330
Brunswick and Glynn County Development Authority Revenue, Georgia Pacific Project,
Refunding, 5.55%, 3/01/26 ............................................................... 2,000,000 1,790,000
Bulloch County Development Authority Student Housing Lease Revenue, Southern University
Project, AMBAC Insured, 4.75%, 8/01/28 .................................................. 2,500,000 2,550,300
Cherokee County Water and Sewage Authority Revenue, MBIA Insured, 6.90%, 8/01/18 .......... 10,000 10,032
Clayton County Development Authority Revenue, Gateway Village Project, Series A,
6.00%, 8/01/23 ......................................................................... 3,500,000 4,074,595
Clayton County Housing Authority MFHR,
Southlake Cove Project A, GNMA Secured, 5.60%, 12/20/24 ................................ 1,990,000 2,132,882
Vineyard Pointe, Series A, GNMA Secured, 5.50%, 10/20/32 ............................... 1,475,000 1,560,093
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23 ......... 995,000 1,034,213
Cobb County Hospital Authority Revenue, AMBAC Insured, 5.00%, 4/01/28 ..................... 3,520,000 3,709,482
Cobb County Kennestone Hospital Authority Revenue, Series A, MBIA Insured, ETM,
7.75%, 2/01/07 .......................................................................... 50,000 55,104
College Park Business and IDAR, Civic Center Project, AMBAC Insured, 5.75%, 9/01/26 ....... 2,000,000 2,303,960
Columbia County GO, Courthouse/Detention Center Projects, 5.00%, 2/01/24 .................. 2,000,000 2,074,440
Conyers Water and Sewer Revenue, Series A, AMBAC Insured, ETM, 6.60%, 7/01/15 ............. 1,000,000 1,102,300
De Kalb County Housing Authority MFHR, Castaway Apartments, Series A, GNMA Insured,
5.40%, 2/20/29 .......................................................................... 1,980,000 2,086,623
De Kalb County Water and Sewer Revenue,
5.125%, 10/01/31 ....................................................................... 6,500,000 6,869,265
Refunding, Series A, 5.00%, 10/01/35 ................................................... 3,000,000 3,148,920
Fayette County PFAR, Criminal Justice Center Project, Refunding, 5.00%, 6/01/26 ........... 3,000,000 3,152,790
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A,
MBIA Insured, 6.50%, 7/01/24 ............................................................ 870,000 872,184
Floyd County Hospital Authority Revenue, Anticipation Certificates, Floyd Medical
Center Project, MBIA Insured, 5.00%, 7/01/33 ............................................ 5,000,000 5,224,200
Annual Report | 87
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Forsyth County GO, 5.75%, 2/01/19 ......................................................... $ 1,500,000 $ 1,743,480
Fulton County Development Authority Revenue,
Georgia Tech Foundation Funding, Series A, 5.00%, 11/01/31 ............................. 3,000,000 3,138,870
Georgia Tech Foundation, Sac II Project, Series A, 5.25%, 11/01/30 ..................... 5,000,000 5,337,200
Gainesville and Hall County Hospital Authority Revenue Anticipation Certificates,
Northeast Health System Inc. Project, Refunding, 5.50%, 5/15/31 ......................... 2,500,000 2,582,225
Georgia Municipal Association Inc. COP, City Court Atlanta Project, AMBAC Insured,
5.25%, 12/01/26 ......................................................................... 2,000,000 2,151,440
Georgia Municipal Electric Authority Power Revenue, Series W,
6.60%, 1/01/18 ......................................................................... 955,000 1,220,223
ETM, 6.60%, 1/01/18 .................................................................... 45,000 58,509
Georgia Municipal Gas Authority Gas Revenue, City of Toccoa Project, AMBAC Insured,
5.00%, 6/01/24 .......................................................................... 1,000,000 1,039,020
Georgia Private Colleges and Universities Authority Student Housing Revenue,
Mercer Housing Corp. Project, Series A, 6.00%, 6/01/24 .................................. 2,550,000 2,671,864
Georgia State HFAR,
MF, Club Candlewood Project, FSA Insured, Pre-Refunded, 7.15%, 1/01/25 ................. 1,000,000 1,149,510
MF, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27 ............... 1,000,000 1,049,660
SF, Sub Series C-2, 5.95%, 12/01/31 .................................................... 4,720,000 4,921,591
SFM, Series B, Sub Series B-2, 6.15%, 12/01/28 ......................................... 25,000 25,882
SFM, Sub Series B-2, 5.85%, 12/01/28 ................................................... 2,400,000 2,495,112
Gwinnett County Hospital Authority Revenue Anticipation Certificates, Gwinnett Hospital
Systems Inc. Project, Series B, MBIA Insured, 5.30%, 9/01/27 ............................ 3,750,000 4,031,962
Gwinnett County Water and Sewer Authority Revenue, 5.25%, 8/01/25 ......................... 2,795,000 3,025,755
Henry County Hospital Authority Revenue, Henry Medical Center Inc. Project, Refunding,
AMBAC Insured, 6.00%, 7/01/29 ........................................................... 5,000,000 5,765,500
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured,
6.00%, 10/01/23 ......................................................................... 3,300,000 4,015,836
Marietta Development Authority Revenue, First Mortgage, Life College Inc.,
Refunding, Series A, FSA Insured, 5.75%, 9/01/14 ....................................... 1,800,000 1,950,660
Refunding, Series A, FSA Insured, 5.80%, 9/01/19 ....................................... 1,100,000 1,192,015
Refunding, Series A, FSA Insured, 5.95%, 9/01/19 ....................................... 1,000,000 1,085,860
Series B, FSA Insured, 5.75%, 9/01/14 .................................................. 800,000 866,960
Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus Regional
Healthcare System, MBIA Insured, 5.50%, 8/01/25 ......................................... 6,000,000 6,527,580
Meriwether County PFAR, Meriwether County Schools Project, MBIA Insured, 5.85%,
10/01/26 ................................................................................ 1,000,000 1,128,520
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Series A, MBIA Insured,
Pre-Refunded, 6.90%, 7/01/20 ............................................................ 5,930,000 6,164,354
Monroe County Development Authority PCR, Oglethorpe Power Co., Scherer Project,
Refunding, Series A, 6.80%, 1/01/12 ..................................................... 1,500,000 1,845,525
Newton County Hospital Authority Revenue, Newton Health System Project 1999, AMBAC
Insured, 6.10%, 2/01/24 ................................................................. 4,500,000 5,205,960
Private Colleges and Universities Authority Revenue,
Emory University Project, Refunding, Series A, 5.50%, 11/01/25 ......................... 10,000,000 11,068,100
Mercer University Project, Refunding, Series A, 5.375%, 10/01/29 ....................... 2,000,000 2,037,900
Puerto Rico Commonwealth GO, Public Improvement, Refunding, Pre-Refunded,
5.375%, 7/01/25 ......................................................................... 2,000,000 2,246,440
88 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series A, 7.50%, 7/01/09 ................................................................ $ 5,000 $ 5,019
Puerto Rico Electric Power Authority Revenue,
Refunding, Series U, 6.00%, 7/01/14 .................................................... 1,000,000 1,031,710
Series T, Pre-Refunded, 6.00%, 7/01/16 ................................................. 1,000,000 1,036,410
Richmond County Development Authority, Solid Waste Disposal Revenue, International
Paper Co. Project, 5.80%, 12/01/20 ...................................................... 1,500,000 1,575,180
Rockdale County Water and Sewer Authority Revenue, Refunding, Series A, MBIA Insured,
5.375%, 7/01/29 ......................................................................... 5,000,000 5,345,200
Savannah Port Authority PCR, Union Carbide Plastic Co. Inc., Refunding, 7.55%, 8/01/04 .... 4,600,000 4,597,240
South Fulton Municipal Regional Water & Sewer Authority, Water Revenue, MBIA Insured,
5.00%, 1/01/33 .......................................................................... 3,000,000 3,132,540
Suwanee GO, MBIA Insured, 5.25%, 1/01/32 .................................................. 3,000,000 3,199,860
Tift County Hospital Authority Revenue, Antic Certificates, AMBAC Insured, 5.00%,
12/01/27 ................................................................................ 1,000,000 1,042,230
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27 .................. 1,550,000 1,638,645
Valdosta and Lowndes County Hospital Authority Revenue, Certificates, South Georgia
Medical Center Project, AMBAC Insured, 5.25%, 10/01/27 .................................. 3,000,000 3,207,120
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ........................................................................ 850,000 919,743
5.50%, 10/01/22 ........................................................................ 1,200,000 1,247,268
5.625%, 10/01/25 ....................................................................... 1,530,000 1,587,191
Walton County Water and Sewer Authority Revenue, Refunding and Improvement,
MBIA Insured, 6.00%, 2/01/21 ............................................................ 750,000 827,310
Ware County Hospital Authority Revenue, Anticipation Certificates, MBIA Insured,
5.25%, 3/01/25 .......................................................................... 3,000,000 3,206,100
-------------
TOTAL LONG TERM INVESTMENTS (COST $192,357,501) 208,521,518
-------------
SHORT TERM INVESTMENTS .3%
a Atlanta Water and Wastewater Revenue, Series C, FSA Insured, Daily VRDN and Put,
.98%, 11/01/41 .......................................................................... 400,000 400,000
a Hapeville IDAR, Hapeville Hotel Ltd., Daily VRDN and Put, .97%, 11/01/15 .................. 200,000 200,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $600,000) .............................................. 600,000
-------------
TOTAL INVESTMENTS (COST $192,957,501) 98.7% ............................................... 209,121,518
OTHER ASSETS, LESS LIABILITIES 1.3% ....................................................... 2,716,223
-------------
NET ASSETS 100.0% ......................................................................... $211,837,741
=============
See Glossary of Terms on page 125.
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.
Annual Report | See notes to financial statements. | 89
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.30 $11.13 $11.03 $10.42 $11.47
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .50 .52 .55 .57 .58
Net realized and unrealized gains (losses) ........... .21 .17 .10 .61 (1.04)
------------------------------------------------------------
Total from investment operations ...................... .71 .69 .65 1.18 (.46)
------------------------------------------------------------
Less distributions from net investment income ......... (.50) (.52) (.55) (.57) (.59)
------------------------------------------------------------
Net asset value, end of year .......................... $11.51 $11.30 $11.13 $11.03 $10.42
=============================================================
Total return b ........................................ 6.43% 6.38% 6.08% 11.65% (4.13)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $118,797 $114,541 $96,299 $76,369 $63,964
Ratios to average net assets:
Expenses ............................................. .60% .60% .52% .45% .45%
Expenses excluding waiver and payments
by affiliates ........................................ .78% .80% .82% .82% .81%
Net investment income ................................ 4.44% 4.67% 4.96% 5.34% 5.31%
Portfolio turnover rate ............................... 11.87% 7.34% 6.07% 12.80% 16.31%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
90 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
BONDS 97.6%
Boone County GO, Public Project, 5.00%,
4/01/20 ................................................................................ $ 1,310,000 $ 1,397,757
4/01/21 ................................................................................ 1,000,000 1,059,910
Boone County PCR, Dayton Power and Light Co., Collateralized, Refunding, Series A,
6.50%, 11/15/22 ......................................................................... 710,000 720,295
Boone Florence Water Commission Water Supply Systems Revenue, Refunding, FGIC Insured,
5.00%,
12/01/22 ............................................................................... 1,200,000 1,280,556
12/01/27 ............................................................................... 2,000,000 2,101,600
Bowling Green ISD, Finance Corp. School Building Revenue, 5.75%, 1/01/20 .................. 1,140,000 1,304,821
Campbell and Kenton Counties Sanitation District No.1 Sanitation District Revenue,
Series A, FSA Insured, 5.00%,
8/01/19 ................................................................................ 1,500,000 1,624,590
8/01/24 ................................................................................ 2,000,000 2,105,080
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding,
5.375%, 5/15/33 ......................................................................... 1,945,000 1,855,413
Christian County Hospital Revenue, Jennie Stuart Medical Center, Series A, 6.00%,
7/01/17 ................................................................................. 1,000,000 1,056,920
Christian County Public Courthouse Corp. Lease Revenue, District Court Facilities
Project, 5.125%, 8/01/20 ................................................................ 1,015,000 1,092,018
Danville Multi-City Lease Revenue, Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 . 1,500,000 1,554,060
Elizabethtown Public Properties Holding Inc. Revenue, First Mortgage, Administrative
Office of the Courts, Judicial Facilities Project, MBIA Insured, 5.20%, 4/01/22 ......... 2,000,000 2,135,380
Fayette County School District Finance Corp. School Building Revenue,
5.50%, 9/01/18 ......................................................................... 2,500,000 2,814,475
Series A, AMBAC Insured, 5.25%, 4/01/20 ................................................ 2,160,000 2,373,494
Florence GO, Public Project, Series A, FGIC Insured, 5.00%, 11/01/32 ...................... 1,000,000 1,041,400
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Section 8 Assisted Projects,
Refunding, Series A, MBIA Insured, 6.10%, 1/01/24 ....................................... 1,130,000 1,132,859
Hancock County Solid Waste Disposal Revenue, Willamette Industries Inc. Project,
6.60%, 5/01/26 .......................................................................... 1,000,000 1,053,230
Hardin County School District Finance Corp. School Building Revenue, 5.75%, 2/01/20 ....... 1,500,000 1,723,905
Hardin County Water District No. 2, Water System Revenue, Series A, AMBAC Insured,
5.00%, 1/01/31 .......................................................................... 2,620,000 2,714,163
Harlan County Justice Center GO, First Judicial Center Project, AMBAC Insured,
5.00%, 3/01/25 .......................................................................... 1,330,000 1,394,252
Henry County Water District No. 2 Water Revenue, Refunding, MBIA Insured, 4.75%, 1/01/28 .. 2,035,000 2,072,892
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services Inc.,
Refunding, AMBAC Insured, 5.75%, 1/01/26 ................................................ 1,000,000 1,086,650
Jefferson County PCR, DuPont, Series A, 6.30%, 7/01/12 .................................... 450,000 465,885
Jefferson County School District Financial Corp. School Building Revenue, Series A,
FSA Insured, 5.25%, 7/01/18 ............................................................. 1,500,000 1,642,005
Jessamine County School District Finance Corp. School Building Revenue, 5.50%, 1/01/21 .... 2,500,000 2,688,375
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport,
Series B, MBIA Insured, 5.75%, 3/01/13 .................................................. 1,230,000 1,348,757
Series B, MBIA Insured, 5.00%, 3/01/23 ................................................. 2,000,000 2,067,320
Special Facilities, Delta Airlines Inc. Project, Series A, 7.50%, 2/01/20 .............. 445,000 432,905
Special Facilities, Delta Airlines Inc. Project, Series A, 7.125%, 2/01/21 ............. 325,000 304,554
Special Facilities, Delta Airlines Inc. Project, Series B, 7.25%, 2/01/22 .............. 445,000 421,544
Annual Report | 91
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Kentucky Area Development Districts Financing Trust Lease Program Revenue,
City of Ewing,
6.00%, 6/01/30 ........................................................... $ 2,000,000 $ 2,171,320
Series C, 6.00%, 6/01/30 ............................................................... 1,285,000 1,465,697
Series E, 5.70%, 6/01/22 ............................................................... 1,000,000 1,112,790
Kentucky Economic Development Finance Authority College and University Revenue,
Centre College Project, Refunding and Improvement, FSA Insured, 5.00%, 4/01/32 .......... 3,855,000 4,021,459
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ............ 2,000,000 1,866,160
Kentucky Economic Development Finance Authority Revenue, Catholic Health Project,
Refunding and Improvement, Series A, 5.00%, 12/01/18 .................................... 2,000,000 2,057,800
Kentucky HFC Revenue, Series B, 6.25%, 7/01/28 ............................................ 45,000 46,994
Kentucky Infrastructure Authority Revenue,
Infrastructure Revolving Fund Program, Series J, Pre-Refunded, 6.375%, 6/01/14 ......... 500,000 543,155
Series A, 5.00%, 6/01/19 ............................................................... 1,140,000 1,222,126
Series A, 5.00%, 6/01/20 ............................................................... 1,250,000 1,331,913
Series A, 5.00%, 6/01/21 ............................................................... 1,190,000 1,261,055
Kentucky Rural Water Finance Corp. Public Project Revenue,
Flexible Term Program, Series A, 5.00%, 2/01/26 ........................................ 1,055,000 1,102,000
a Multimodal Flexible Term Program H, 5.00%, 2/01/34 ..................................... 3,610,000 3,748,335
Kentucky State Property and Buildings Commission Revenues,
Project No. 56, Pre-Refunded, 6.00%, 9/01/14 ........................................... 700,000 731,507
Project No. 62, Refunding, 2nd Series, 5.25%, 10/01/18 ................................. 3,540,000 3,890,389
Project No. 64, MBIA Insured, 5.50%, 5/01/17 ........................................... 1,535,000 1,796,948
Project No. 69, Refunding, Series A, FSA Insured, 5.00%, 8/01/21 ....................... 2,300,000 2,446,188
Project No. 77, Refunding, MBIA Insured, 5.00%, 8/01/23 ................................ 1,100,000 1,169,553
Lawrenceburg Water and Sewer Revenue, MBIA Insured, 5.00%, 10/01/28 ....................... 1,730,000 1,817,261
Lexington-Fayette Urban County Government Revenue, University of Kentucky
Library Project, MBIA Insured, Pre-Refunded,
6.625%, 11/01/13 ....................................................................... 500,000 528,760
6.75%, 11/01/24 ........................................................................ 750,000 793,755
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drain System
Revenue, Series A,
AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 ............................................ 300,000 318,177
FGIC Insured, 5.00%, 5/15/30 ........................................................... 2,750,000 2,838,578
Louisville Parking Authority of River City, MBIA Insured, 5.00%, 6/01/29 .................. 3,290,000 3,434,299
Louisville Waterworks Board Water System Revenue, Louisville Water Co.,
FSA Insured, 5.50%, 11/15/25 ........................................................... 2,000,000 2,221,800
Refunding, FSA Insured, 5.25%, 11/15/24 ................................................ 2,500,000 2,659,250
McCracken County Hospital Revenue, Mercy Health System, Refunding, Series A,
MBIA Insured, 6.40%, 11/01/07 ........................................................... 500,000 526,120
Northern Kentucky University COP, AMBAC Insured, 5.00%, 12/01/27 .......................... 1,500,000 1,572,420
Northern Kentucky Water Service District Revenue, MBIA Insured, 4.875%, 2/01/20 ........... 1,270,000 1,331,582
Pendleton County Multi-County Lease Revenue, Kentucky Association of Counties
Leasing Trust, Series A, 6.50%, 3/01/19 ................................................. 1,050,000 1,064,028
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ........................................................... 430,000 444,216
Public Improvement, Series A, 5.125%, 7/01/31 .......................................... 5,000,000 5,202,400
92 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
5.00%, 7/01/28 ......................................................................... $ 3,605,000 $ 3,743,648
Series D, 5.375%, 7/01/36 .............................................................. 2,500,000 2,680,875
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.25%, 7/01/36 .................. 1,450,000 1,531,969
Russell Health System Revenue,
Our Lady of Bellefonte, Pre-Refunded, 5.50%, 7/01/15 ................................... 800,000 916,992
Pre-Refunded, 8.10%, 7/01/15 ........................................................... 145,000 170,050
Pre-Refunded, 8.10%, 7/01/15 ........................................................... 140,000 157,234
University of Kentucky University Revenue, Construction of Educational Buildings,
Series Q, FGIC Insured, 5.00%, 5/01/18 .................................................. 1,785,000 1,907,647
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.625%, 10/01/25 .. 2,000,000 2,074,760
-------------
TOTAL BONDS ............................................................................... 115,988,275
-------------
ZERO COUPON BONDS 1.2%
Kentucky Economic Development Finance Authority Revenue, Norton Healthcare Inc.,
Series C, MBIA Insured, zero cpn. to 10/01/05, 6.15% thereafter,
10/01/24 ............................................................................... 405,000 414,359
10/01/25 ............................................................................... 935,000 949,820
-------------
TOTAL ZERO COUPON BONDS ................................................................... 1,364,179
-------------
TOTAL LONG TERM INVESTMENTS (COST $110,096,618) ........................................... 117,352,454
-------------
SHORT TERM INVESTMENTS 3.1%
b Berea Educational Facilities Revenue, Series A, Daily VRDN and Put, .98%, 6/01/32 ......... 3,500,000 3,500,000
b Kentucky Area Development Districts Financing Trust Lease Program Revenue,
Ewing Acquisition Project, Weekly VRDN and Put, 1.06%, 6/01/33 .......................... 210,000 210,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $3,710,000) ............................................ 3,710,000
-------------
TOTAL INVESTMENTS (COST $113,806,618) 101.9% .............................................. 121,062,454
OTHER ASSETS, LESS LIABILITIES (1.9)% ..................................................... (2,265,155)
-------------
NET ASSETS 100.0% ......................................................................... $118,797,299
=============
See Glossary of Terms on page 125.
a See Note 1 regarding securities purchased on a delayed delivery basis.
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.
Annual Report | See notes to financial statements. | 93
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.55 $11.38 $11.22 $10.55 $11.59
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .53 .55 .56 .58 .58
Net realized and unrealized gains (losses) ........... .26 .17 .16 .67 (1.03)
------------------------------------------------------------
Total from investment operations ...................... .79 .72 .72 1.25 (.45)
------------------------------------------------------------
Less distributions from net investment income ......... (.53) (.55) (.56) (.58) (.59)
------------------------------------------------------------
Net asset value, end of year .......................... $11.81 $11.55 $11.38 $11.22 $10.55
============================================================
Total return b ........................................ 7.01% 6.52% 6.73% 12.05% (3.93)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $185,987 $177,211 $167,909 $154,750 $144,299
Ratios to average net assets:
Expenses ............................................. .73% .74% .74% .74% .74%
Net investment income ................................ 4.56% 4.84% 4.99% 5.32% 5.29%
Portfolio turnover rate ............................... 16.35% 12.60% 10.05% 8.63% 27.31%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
94 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LOUISIANA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.65 $11.47 $11.29 $10.62 $11.66
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .46 .49 .51 .52 .53
Net realized and unrealized gains (losses) ........... .26 .18 .17 .67 (1.04)
------------------------------------------------------------
Total from investment operations ...................... .72 .67 .68 1.19 (.51)
------------------------------------------------------------
Less distributions from net investment income ......... (.46) (.49) (.50) (.52) (.53)
------------------------------------------------------------
Net asset value, end of year .......................... $11.91 $11.65 $11.47 $11.29 $10.62
Total return b ........................................ 6.34% 5.98% 6.18% 11.46% (4.45)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $20,768 $20,503 $16,047 $12,424 $10,730
Ratios to average net assets:
Expenses ............................................. 1.29% 1.28% 1.29% 1.29% 1.29%
Net investment income ................................ 4.00% 4.30% 4.44% 4.77% 4.74%
Portfolio turnover rate ............................... 16.35% 12.60% 10.05% 8.63% 27.31%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
Annual Report | See notes to financial statements. | 95
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.6%
Bossier City Public Improvement Sales and Use Tax Revenue,
FGIC Insured, 5.00%, 12/01/19 .......................................................... $ 1,145,000 $ 1,220,226
Refunding, FGIC Insured, 5.00%, 12/01/21 ............................................... 1,875,000 1,986,619
Refunding, FGIC Insured, 5.00%, 12/01/22 ............................................... 1,515,000 1,599,719
Bossier Parish Sales and Use Tax Revenue, AMBAC Insured, 5.00%, 7/01/20 ................... 1,900,000 2,055,249
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series B,
6.875%, 11/01/12 ........................................................................ 185,000 188,262
Calcasieu Parish Public Trust Authority SFMR, Series A, GNMA Secured, 6.40%, 4/01/32 ...... 75,000 78,389
Calcasieu Parish Public Trust Authority Student Lease Revenue, McNeese Student Housing
Project, MBIA Insured, 5.25%,
5/01/21 ................................................................................ 1,505,000 1,641,233
5/01/33 ................................................................................ 2,500,000 2,649,500
De Soto Parish Environmental Improvement Revenue, International Paper Co. Project,
Series A, 7.70%, 11/01/18 ............................................................... 1,500,000 1,586,565
5.65%, 12/01/21 ........................................................................ 1,000,000 1,032,530
De Soto Parish PCR, Cleco Utility Group Inc. Project, Refunding, AMBAC Insured,
5.875%, 9/01/29 ......................................................................... 11,500,000 13,007,420
Denham Spring Livingston Housing and Mortgage Finance Authority SFHMR, Series A,
FHA Insured, ETM, 7.20%, 8/01/10 ........................................................ 1,380,000 1,757,278
East Baton Rouge Mortgage Finance Authority Revenue, SFM Purchase, Refunding, Series A,
6.10%, 10/01/29 ......................................................................... 520,000 541,611
East Baton Rouge Parish Sales and Use Tax Revenue,
Public Improvement, Series ST, FGIC Insured, 5.00%, 2/01/20 ............................ 1,000,000 1,068,060
Series ST, FGIC Insured, Pre-Refunded, 5.90%, 2/01/18 .................................. 750,000 794,535
Ernest N. Morial New Orleans Exhibit Hall Authority Special Tax, senior sub. note,
Series A, AMBAC Insured, 5.00%, 7/15/33 ................................................. 10,000,000 10,401,500
Greater New Orleans Expressway Commission Revenue, Refunding, AMBAC Insured,
5.00%, 11/01/27 ......................................................................... 5,000,000 5,213,750
Jefferson Sales Tax District Special Sales Tax Revenue,
Refunding, FSA Insured, 5.00%, 12/01/22 ................................................ 3,000,000 3,185,250
Special Tax Bond, AMBAC Insured, 5.00%, 12/01/20 ....................................... 4,195,000 4,474,639
Lafayette Public Trust Financing Authority Revenue, Ragin Cajun Facilities Inc.
Project, MBIA Insured, 5.00%, 10/01/22 .................................................. 1,500,000 1,606,890
Lafayette Public Trust Financing Authority SFMR, Series A, ETM, 7.20%, 4/01/11 ............ 30,000 38,222
Lafourche Parish Home Mortgage Authority SFMR, ETM, 7.40%, 7/01/10 ........................ 85,000 99,087
Louisiana HFA Mortgage Revenue,
MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22 ................................... 1,945,000 1,952,099
MF, Westview Project, 7.80%, 4/01/30 ................................................... 750,000 758,077
SF, Series A-1, GNMA Secured, 5.45%, 12/01/20 .......................................... 1,480,000 1,534,494
Louisiana Local Government Environmental Facilities CDA Revenue,
Delgado Community College Foundation Project, AMBAC Insured, 6.00%, 10/01/29 ........... 1,000,000 1,167,120
Jefferson Parking Garage Project, AMBAC Insured, 5.00%, 9/01/21 ........................ 2,215,000 2,348,387
MBIA Insured, 5.00%, 12/01/26 .......................................................... 3,000,000 3,122,670
MBIA Insured, 5.00%, 12/01/32 .......................................................... 1,350,000 1,402,218
Parking Facilities Corp. Garage Project, Series A, AMBAC Insured, 5.375%, 10/01/26 ..... 2,000,000 2,147,080
Parking Facilities Corp. Garage Project, Series A, AMBAC Insured, 5.375%, 10/01/31 ..... 2,000,000 2,145,740
96 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Louisiana Local Government Environmental Facility Revenue, Baton Rouge Apartments,
Series A, MBIA Insured, 6.375%, 1/01/30 ................................................. $ 4,265,000 $ 4,646,803
Louisiana Public Facilities Authority Hospital Revenue,
Franciscan Missionaries, Series C, MBIA Insured, 5.00%, 7/01/19 ........................ 3,750,000 3,992,175
Pendleton Memorial Methodist, Refunded, 5.25%, 6/01/28 ................................. 4,500,000 5,090,220
Touro Infirmary Project, Series A, 5.625%, 8/15/29 ..................................... 6,000,000 6,115,020
Louisiana Public Facilities Authority Lease Revenue, Orleans Parish School
Board Project, FSA Insured, Pre-Refunded, 5.65%, 6/15/11 ................................ 1,230,000 1,271,008
Louisiana Public Facilities Authority Revenue,
Centenary College Project, Refunding, 5.75%, 2/01/29 ................................... 7,300,000 7,129,618
Dillard University Project, Refunding, AMBAC Insured, 5.00%, 2/01/18 ................... 1,500,000 1,608,300
Dillard University Project, Series A, AMBAC Insured, 5.30%, 8/01/26 .................... 1,540,000 1,649,910
HFA, Mortgage Purchase, FNMA Insured, 6.05%, 1/01/26 ................................... 1,200,000 1,231,236
Mortgage Purchase, HFA, Refunding, Series A, FNMA Insured, 6.40%, 7/20/20 .............. 1,900,000 1,971,820
Ochsner Clinic Foundation Project, Series A, MBIA Insured, 5.00%, 5/15/22 .............. 1,000,000 1,055,780
Ochsner Clinic Foundation Project, Series B, 5.75%, 5/15/23 ............................ 2,500,000 2,649,950
Tulane University, AMBAC Insured, 6.05%, 10/01/25 ...................................... 5,500,000 6,168,745
Tulane University, Refunding, Series A, AMBAC Insured, 5.125%, 7/01/27 ................. 3,000,000 3,150,090
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/17 ........ 1,000,000 1,106,250
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/27 ........ 6,015,000 6,322,006
Louisiana State Gas and Fuels Tax Revenue, Series A, AMBAC Insured, 5.00%, 6/01/27 ........ 3,500,000 3,631,390
Louisiana State Office Facilities Corp. Lease Revenue, Capital Complex Program,
AMBAC Insured, 5.00%, 5/01/21 .......................................................... 2,500,000 2,661,725
Series A, MBIA Insured, 5.375%, 3/01/19 ................................................ 3,000,000 3,282,360
Louisiana State University and Agricultural and Mechanical College Board Revenue,
AMBAC Insured, 5.00%, 7/01/22 ........................................................... 5,000,000 5,355,750
Louisiana State University and Agricultural and Mechanical College University Revenue,
Auxiliary, MBIA Insured, 5.50%, 7/01/26 ................................................. 1,500,000 1,604,940
Monroe Sales and Use Tax Revenue, FGIC Insured, 5.25%, 7/01/23 ............................ 1,535,000 1,674,578
New Orleans GO,
Drain Systems, AMBAC Insured, 5.00%, 12/01/18 .......................................... 1,000,000 1,069,960
Public Improvement, FGIC Insured, 5.25%, 12/01/21 ...................................... 1,295,000 1,422,402
Public Improvement, FGIC Insured, 5.125%, 12/01/26 ..................................... 2,000,000 2,096,840
Refunding, MBIA Insured, 5.125%, 9/01/21 ............................................... 2,000,000 2,159,200
Orleans Levee District Revenue, Levee Improvement, Refunding, FSA Insured,
5.95%, 11/01/14 ......................................................................... 725,000 803,532
Orleans Parish Parishwide School District GO, Refunding, Series B, FGIC Insured,
5.50%, 9/01/20 .......................................................................... 1,000,000 1,084,040
Orleans Parish School Board GO, Series 95, FGIC Insured, 5.375%, 9/01/18 .................. 1,950,000 2,065,732
Ouachita Parish Hospital Service District No. 1 Revenue, Glenwood Regional Medical
Center, Refunding, FSA Insured, 5.75%, 5/15/21 .......................................... 2,500,000 2,845,250
Ouachita Parish La West Ouachita Parish School District Sales and Use Tax Revenue,
FGIC Insured, 5.75%, 9/01/24 ............................................................ 1,410,000 1,565,706
Puerto Rico Commonwealth GO, Public Improvement,
MBIA Insured, Pre-Refunded, 5.75%, 7/01/26 ............................................. 4,500,000 5,336,415
Series A, 5.00%, 7/01/33 ............................................................... 4,000,000 4,141,480
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series G, 5.00%, 7/01/33 ................................................................ 1,000,000 1,035,370
Annual Report | 97
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Rapides Parish Housing and Mortgage Finance Authority Revenue, SFM Purchase, FHA Insured,
ETM, 7.25%, 8/01/10 ..................................................................... $ 965,000 $ 1,130,189
Shreveport Certificates of Indebtedness Revenue, Refunding, Series A, AMBAC Insured,
5.00%, 10/01/16 ......................................................................... 1,000,000 1,093,470
St. Bernard Home Mortgage Authority Revenue, SF, Series A, FGIC Insured, ETM,
7.50%, 9/01/10 .......................................................................... 435,000 566,152
St. Bernard Parish Exempt Facilities Revenue, Mobil Oil Corp. Project, 5.90%, 11/01/26 .... 1,500,000 1,579,440
St. Charles Parish PCR, Louisiana Power and Light Co. Project, 7.50%, 6/01/21 ............. 2,500,000 2,511,650
St. Charles Parish Solid Waste Disposal Revenue, Louisiana Power and Light Co. Project,
7.05%, 4/01/22 ......................................................................... 1,500,000 1,507,080
Series A, 7.00%, 12/01/22 .............................................................. 750,000 760,800
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 .............. 2,500,000 2,646,175
St. Tammany's Public Trust Financing Authority SFMR, Series A, ETM, 7.20%,
7/01/10 ................................................................................ 90,000 103,604
7/01/11 ................................................................................ 50,000 64,905
State Colleges and Universities Lease Revenue, University of Southwestern Louisiana,
Cajundome, MBIA Insured, 5.65%, 9/01/26 ................................................. 3,080,000 3,413,071
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 2,341,903
University of Louisiana Board of Supervisors Lease Revenue, LaFayette Cajundome
Convention, MBIA Insured, 6.25%, 9/01/29 ................................................ 1,200,000 1,420,608
University System Board of Supervisors Revenue, Northwestern State University
Wellness, AMBAC Insured, 5.10%, 4/01/24 ................................................. 1,000,000 1,047,100
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ... 3,000,000 3,172,740
West Feliciana Parish PCR, Gulf State Utility Co. Project, 7.70%, 12/01/14 ................ 6,500,000 6,681,675
-------------
TOTAL LONG TERM INVESTMENTS (COST $187,258,011) ........................................... 201,840,582
-------------
SHORT TERM INVESTMENTS 1.0%
a East Baton Rouge Parish PCR, Exxon Project, Refunding, Daily VRDN and Put,
.96%, 11/01/19 .......................................................................... 200,000 200,000
a Louisiana Public Facilities Authority Revenue, Kenner Hotel Ltd., Daily VRDN and Put,
.97%, 12/01/15 .......................................................................... 500,000 500,000
a Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc. Project,
First Stage, ACES, Refunding, Daily VRDN and Put, .98%, 9/01/17 ......................... 200,000 200,000
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ..................................................... 1,100,000 1,100,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $2,000,000) ............................................ 2,000,000
-------------
TOTAL INVESTMENTS (COST $189,258,011) 98.6% ............................................... 203,840,582
OTHER ASSETS, LESS LIABILITIES 1.4% ....................................................... 2,914,829
-------------
NET ASSETS 100.0% ......................................................................... $206,755,411
=============
See Glossary of Terms on page 125.
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.
98 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MARYLAND TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.78 $11.52 $11.36 $10.63 $11.66
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .52 .54 .55 .57 .56
Net realized and unrealized gains (losses) ........... .16 .26 .17 .72 (1.00)
------------------------------------------------------------
Total from investment operations ...................... .68 .80 .72 1.29 (.44)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.53) (.54) (.56) (.56) (.56)
Net realized gains ................................... -- -- -- -- (.03)
------------------------------------------------------------
Total distributions ................................... (.53) (.54) (.56) (.56) (.59)
------------------------------------------------------------
Net asset value, end of year .......................... $11.93 $11.78 $11.52 $11.36 $10.63
============================================================
Total return b ........................................ 5.89% 7.16% 6.44% 12.44% (3.86)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $340,237 $322,873 $281,141 $248,964 $221,176
Ratios to average net assets:
Expenses ............................................. .70% .70% .72% .73% .72%
Net investment income ................................ 4.43% 4.65% 4.81% 5.16% 5.07%
Portfolio turnover rate ............................... 10.56% 6.30% 6.39% 13.01% 11.78%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
Annual Report | 99
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MARYLAND TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.90 $11.63 $11.46 $10.72 $11.75
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .46 .48 .49 .51 .51
Net realized and unrealized gains (losses) ........... .15 .27 .17 .73 (1.01)
------------------------------------------------------------
Total from investment operations ...................... .61 .75 .66 1.24 (.50)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.46) (.48) (.49) (.50) (.50)
Net realized gains ................................... -- -- -- -- (.03)
------------------------------------------------------------
Total distributions ................................... (.46) (.48) (.49) (.50) (.53)
------------------------------------------------------------
Net asset value, end of year .......................... $12.05 $11.90 $11.63 $11.46 $10.72
============================================================
Total return b ........................................ 5.33% 6.59% 5.88% 11.83% (4.37)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $49,739 $48,305 $33,257 $22,547 $17,298
Ratios to average net assets:
Expenses ............................................. 1.28% 1.22% 1.27% 1.28% 1.27%
Net investment income ................................ 3.85% 4.13% 4.26% 4.61% 4.53%
Portfolio turnover rate ............................... 10.56% 6.30% 6.39% 13.01% 11.78%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
100 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.6%
Anne Arundel County GO, 4.625%, 3/01/32 ................................................... $ 3,000,000 $ 3,045,240
Anne Arundel County PCR, Baltimore Gas and Electric Co. Project, Refunding,
6.00%, 4/01/24 .......................................................................... 9,500,000 9,707,290
Baltimore Convention Center Revenue, FGIC Insured, Pre-Refunded, 6.15%, 9/01/19 ........... 4,250,000 4,359,820
Baltimore County Metropolitan 68th District GO, Refunding, 5.00%, 8/01/32 ................. 1,000,000 1,049,650
Baltimore County Mortgage Revenue, Old Orchard Apartments Project, Refunding, Series A,
MBIA Insured,
7.00%, 7/01/16 ......................................................................... 1,000,000 1,027,880
7.125%, 1/01/27 ........................................................................ 3,000,000 3,081,000
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding,
Series A, 7.00%, 8/01/11 ............................................................... 2,955,000 3,029,170
Baltimore GO, Consolidated Public Improvement,
Series A, FGIC Insured, 5.30%, 10/15/17 ................................................ 1,500,000 1,719,120
Series A, FSA Insured, 5.25%, 10/15/17 ................................................. 3,300,000 3,873,903
Series B, 7.15%, 10/15/08 .............................................................. 1,000,000 1,212,420
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11 ..... 1,850,000 1,876,436
Baltimore Project Revenue, Wastewater Project,
Refunding, FGIC Insured, 5.125%, 7/01/42 ............................................... 7,630,000 8,044,385
Series A, FGIC Insured, 5.00%, 7/01/33 ................................................. 13,950,000 14,703,998
Series B, FGIC Insured, Pre-Refunded, 5.00%, 7/01/28 ................................... 4,000,000 4,462,800
Baltimore Revenue, Wastewater Project, Series A,
FGIC Insured, Pre-Refunded, 5.80%, 7/01/15 ............................................. 5,000,000 5,894,600
FSA Insured, Pre-Refunded, 5.75%, 7/01/30 .............................................. 10,000,000 11,923,100
Carroll County Revenue, Fairhaven and Copper Ridge, Refunding, Series A, Asset Guaranteed,
5.375%, 1/01/16 ........................................................................ 2,000,000 2,199,840
5.50%, 1/01/19 ......................................................................... 1,000,000 1,097,000
5.625%, 1/01/25 ........................................................................ 2,000,000 2,159,620
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding and
Improvement, FSA Insured, 6.00%, 9/01/21 ................................................ 8,000,000 8,680,240
Harford County GO, Consolidated Public Improvement,
4.35%, 1/15/14 ......................................................................... 1,300,000 1,400,828
4.40%, 1/15/15 ......................................................................... 1,450,000 1,550,500
4.40%, 1/15/16 ......................................................................... 1,420,000 1,510,340
4.45%, 1/15/17 ......................................................................... 1,125,000 1,190,565
Harford County Mortgage Revenue, Greenbrier V Apartments Project, Refunding, FHA Insured,
6.50%, 11/01/26 ......................................................................... 3,000,000 3,115,890
Howard County Mortgage Revenue, Normandy Woods III Apartments Project, Refunding, Series A,
FHA Insured, 6.10%, 7/01/25 ............................................................. 2,000,000 2,089,580
Maryland Environmental Services COP, Water and Waste Facilities, Series A, 6.70%, 6/01/11 . 1,900,000 1,908,094
Maryland State CDA, Department of Housing and Community Development Revenue,
Housing, Series A, 6.00%, 7/01/32 ...................................................... 4,000,000 4,183,280
Residential, Series D, 5.25%, 9/01/29 .................................................. 4,460,000 4,548,843
Series B, 5.35%, 9/01/30 ............................................................... 2,240,000 2,296,470
SF Program, First Series, 5.00%, 4/01/17 ............................................... 220,000 226,877
SF Program, Second Series, 5.00%, 4/01/17 .............................................. 3,000,000 3,095,370
Annual Report | 101
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Maryland State EDC, Utility Infrastructure Revenue, University College Park Project,
AMBAC Insured, 5.00%, 7/01/19 ........................................................... $ 1,710,000 $ 1,836,694
Maryland State Energy Financing Administration Solid Waste Disposal Revenue, Limited
Obligation, Wheelabrator Water Projects, 6.45%, 12/01/16 ................................ 3,000,000 3,235,500
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Health System, Series A, FSA Insured, 5.00%, 7/01/34 ...................... 2,000,000 2,108,820
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/33 .............................. 8,365,000 8,690,482
Carroll County General Hospital, 6.00%, 7/01/26 ........................................ 2,000,000 2,137,520
Carroll County General Hospital, 5.80%, 7/01/32 ........................................ 5,000,000 5,255,450
Catholic Health Initiatives, Series A, 6.00%, 12/01/20 ................................. 2,920,000 3,351,401
Catholic Health Initiatives, Series A, 6.00%, 12/01/24 ................................. 2,025,000 2,318,038
Charity Obligation Group, Series A, 5.00%, 11/01/19 .................................... 1,515,000 1,568,464
Charity Obligation Group, Series A, 5.00%, 11/01/29 .................................... 2,250,000 2,314,688
Doctors Community Hospital, Refunding, 5.75%, 7/01/13 .................................. 3,000,000 3,036,000
Helix Health Issue, AMBAC Insured, ETM, 5.00%, 7/01/27 ................................. 11,000,000 11,940,060
Johns Hopkins University Issue, Pre-Refunded, 6.00%, 7/01/39 ........................... 5,000,000 5,989,000
Johns Hopkins, AMBAC Insured, 5.00%, 7/01/27 ........................................... 655,000 684,776
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24 .................................... 1,700,000 1,762,730
Maryland Institute College of Art, 5.625%, 6/01/36 ..................................... 3,600,000 3,763,944
Mercy Medical Center Project, Refunding, FSA Insured, 5.75%, 7/01/26 ................... 1,500,000 1,638,195
Mercy Medical Center, Refunding, 5.625%, 7/01/31 ....................................... 5,500,000 5,681,060
North Arundel Hospital, 6.50%, 7/01/26 ................................................. 1,000,000 1,124,770
North Arundel Hospital, 6.50%, 7/01/31 ................................................. 1,320,000 1,480,802
Roland Park Place Project, Refunding, 5.625%, 7/01/18 .................................. 2,500,000 2,506,925
Roland Park Place Project, Refunding, 5.625%, 7/01/24 .................................. 2,680,000 2,646,232
University of Maryland Medical System, 6.75%, 7/01/30 .................................. 11,000,000 12,661,330
University of Maryland Medical System, Series B, AMBAC Insured, 5.00%, 7/01/24 ......... 1,500,000 1,592,925
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.375%, 1/01/28 ..................... 5,000,000 5,268,050
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.125%, 1/01/33 ..................... 7,100,000 7,339,980
Maryland State Health And Higher Revenue, John Hopkins University, Series A,
5.00%, 7/01/32 .......................................................................... 29,000,000 30,365,320
Maryland State Stadium Authority Lease Revenue, Convention Center Expansion,
AMBAC Insured, 5.875%, 12/15/14 ......................................................... 4,655,000 4,916,285
Maryland State Stadium Authority Sports Facilities Lease Revenue, AMBAC Insured,
5.75%, 3/01/22 ......................................................................... 5,000,000 5,452,050
5.80%, 3/01/26 ......................................................................... 2,045,000 2,222,588
Maryland State Transportation Facilities Authority Revenue, Refunding, Series 1992,
5.75%, 7/01/13 .......................................................................... 5,400,000 5,426,028
Maryland Transportation Authority Revenue, AMBAC Insured, 5.00%, 3/01/27 .................. 8,000,000 8,415,760
Maryland Water Quality Financing Administration Revenue, Revolving Loan Fund, Series A,
6.55%, 9/01/14 .......................................................................... 970,000 978,138
Montgomery County GO, 4.75%, 2/01/17 ...................................................... 5,000,000 5,387,950
Montgomery County Housing Opportunities Commission MFHR, Series B, FHA Insured,
6.00%, 7/01/37 .......................................................................... 2,500,000 2,614,425
102 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Montgomery County Revenue Authority Golf Course System Revenue, Series A, Pre-Refunded,
6.125%, 10/01/22 ........................................................................ $ 1,000,000 $ 1,137,120
Morgan State University Maryland and Aux Facilities Fees Revenue, Series A,
FGIC Insured, 5.00%, 7/01/32 ............................................................ 6,450,000 6,783,401
Ocean City GO, Refunding, MBIA Insured, 5.75%,
3/15/12 ................................................................................ 1,880,000 1,920,646
3/15/13 ................................................................................ 1,120,000 1,144,214
3/15/14 ................................................................................ 1,180,000 1,205,512
Prince George's County COP, Real Estate Acquisition Program II, MBIA Insured,
6.00%, 9/15/14 .......................................................................... 2,050,000 2,142,886
Prince George's County GO, Consolidated Public Improvement,
4.40%, 9/15/22 ......................................................................... 10,000,000 10,202,900
MBIA Insured, 5.00%, 4/15/18 ........................................................... 2,100,000 2,255,484
Prince George's County IDA, Lease Revenue, Upper Marlboro Justice-B, MBIA Insured,
4.75%, 6/30/30 .......................................................................... 4,000,000 4,090,520
Prince George's County Parking Authority Revenue, Justice Center Facilities Project,
Refunding, 6.45%, 5/01/05 ............................................................... 500,000 504,405
Prince George's County PCR, Potomac Electric Project, Refunding,
6.00%, 9/01/22 ......................................................................... 1,200,000 1,217,040
6.375%, 1/15/23 ........................................................................ 2,975,000 3,013,824
Puerto Rico Commonwealth GO, Public Improvement,
Refunding, FSA Insured, 5.25%, 7/01/27 ................................................. 2,535,000 2,722,743
Refunding, FSA Insured, 5.125%, 7/01/30 ................................................ 7,230,000 7,671,102
Series A, FGIC Insured, 5.00%, 7/01/32 ................................................. 5,000,000 5,271,150
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series D, FSA Insured, 5.00%, 7/01/32 ....................................... 1,000,000 1,054,230
Series D, 5.25%, 7/01/38 ............................................................... 5,000,000 5,264,850
Series G, 5.00%, 7/01/33 ............................................................... 7,000,000 7,247,590
Series Y, FSA insured, 5.00%, 7/01/36 .................................................. 2,000,000 2,148,640
Puerto Rico Electric Power Authority Revenue,
Series HH, FSA Insured, 5.25%, 7/01/29 ................................................. 10,780,000 11,553,788
Series II, 5.25%, 7/01/31 .............................................................. 3,000,000 3,188,460
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.25%, 7/01/36 .................. 2,000,000 2,113,060
St. Mary's College Revenue, Academic Fees and Auxiliary Fees Project, Series A,
AMBAC Insured, 5.55%, 9/01/30 ........................................................... 2,000,000 2,185,140
University of Maryland Auxiliary Facilities System and Tuition Revenue, Series A,
5.60%, 4/01/16 .......................................................................... 1,000,000 1,069,190
Virgin Islands PFAR,
Gross Receipts Taxes, Loan Note, FSA Insured, 5.00%, 10/01/22 .......................... 2,000,000 2,169,260
senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ..................... 1,700,000 1,797,886
senior lien, Refunding, Series A, 5.50%, 10/01/14 ...................................... 3,300,000 3,559,908
Annual Report | 103
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Westminster Education Facility Revenue, McDaniel College, 5.50%,
4/01/27 ................................................................................ $ 425,000 $ 441,159
4/01/32 ................................................................................ 1,500,000 1,554,915
-------------
TOTAL LONG TERM INVESTMENTS (COST $360,153,645) ........................................... 384,607,552
------------
SHORT TERM INVESTMENTS .2%
a Baltimore County Revenue, Oak Crest Village Inc. Project, Series A, Weekly VRDN and Put,
.96%, 1/01/29 ........................................................................... 100,000 100,000
a Frederick County GO, BAN, Weekly VRDN and Put, .96%, 10/01/07 ............................. 585,000 585,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $685,000) .............................................. 685,000
------------
TOTAL INVESTMENTS (COST $360,838,645) 98.8% ............................................... 385,292,552
OTHER ASSETS, LESS LIABILITIES 1.2% ....................................................... 4,682,944
------------
NET ASSETS 100.0% ......................................................................... $389,975,496
============
See Glossary of Terms on page 125.
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.
104 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MISSOURI TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.23 $12.00 $11.77 $11.02 $12.19
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .55 .58 .58 .60 .60
Net realized and unrealized gains (losses) ........... .21 .23 .24 .75 (1.15)
------------------------------------------------------------
Total from investment operations ...................... .76 .81 .82 1.35 (.55)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.55) (.58) (.59) (.60) (.61)
Net realized gains ................................... -- -- -- -- (.01)
------------------------------------------------------------
Total distributions ................................... (.55) (.58) (.59) (.60) (.62)
------------------------------------------------------------
Net asset value, end of year .......................... $12.44 $12.23 $12.00 $11.77 $11.02
============================================================
Total return b ........................................ 6.38% 6.90% 7.13% 12.50% (4.62)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $499,238 $468,008 $425,795 $373,190 $346,649
Ratios to average net assets:
Expenses ............................................. .67% .67% .68% .69% .69%
Net investment income ................................ 4.50% 4.72% 4.91% 5.22% 5.16%
Portfolio turnover rate ............................... 25.04% 18.73% 22.80% 38.38% 18.43%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
Annual Report | 105
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.29 $12.06 $11.82 $11.06 $12.24
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .48 .51 .52 .54 .53
Net realized and unrealized gains (losses) ........... .21 .23 .24 .75 (1.16)
------------------------------------------------------------
Total from investment operations ...................... .69 .74 .76 1.29 (.63)
------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.48) (.51) (.52) (.53) (.54)
Net realized gains ................................... -- -- -- -- (.01)
------------------------------------------------------------
Total distributions ................................... (.48) (.51) (.52) (.53) (.55)
------------------------------------------------------------
Net asset value, end of year .......................... $12.50 $12.29 $12.06 $11.82 $11.06
============================================================
Total return b ........................................ 5.75% 6.29% 6.61% 11.94% (5.21)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $60,208 $55,608 $41,013 $28,695 $23,537
Ratios to average net assets:
Expenses ............................................. 1.25% 1.19% 1.23% 1.24% 1.24%
Net investment income ................................ 3.92% 4.20% 4.36% 4.67% 4.62%
Portfolio turnover rate ............................... 25.04% 18.73% 22.80% 38.38% 18.43%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
106 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 100.6%
BI State Development Agency Revenue, Missouri Illinois Metropolitan District,
a Metrolink Cross County Project, Series B, FSA Insured, 5.00%, 10/01/32 ................. $22,280,000 $ 23,475,099
St. Clair County Metrolink Extension, Series A, MBIA Insured, 5.00%, 7/01/28 ........... 1,750,000 1,820,087
Boone County IDA, Health Care Revenue, Retirement Center Project, GNMA Secured,
5.70%, 10/20/22 ......................................................................... 1,515,000 1,642,108
Cape Girardeau County IDA,
Health Care Facilities Revenue, St. Francis Medical Center, Series A, 5.50%, 6/01/27 ... 6,350,000 6,577,457
Health Care Facilities Revenue, St. Francis Medical Center, Series A, 5.50%, 6/01/32 ... 5,000,000 5,167,900
Solid Waste Disposal Revenue, Procter and Gamble Paper Products, 5.30%, 5/15/28 ........ 6,875,000 7,102,562
Childrens Trust Fund Tobacco Settlement Revenue, Pre-Refunded, 6.00%, 7/01/26 ............. 2,785,000 3,370,240
Curators University System Facilities Revenue, Series A, 5.00%, 11/01/31 .................. 17,845,000 18,779,721
Florissant COP, FGIC Insured, 5.00%, 8/01/22 .............................................. 1,285,000 1,375,965
Franklin County Public Water Supply District No. 3 COP, Series B, FGIC Insured,
5.00%, 12/01/32 ......................................................................... 3,715,000 3,899,858
Grandview COP, FGIC Insured, 5.00%, 1/01/23 ............................................... 2,410,000 2,567,325
Hazelwood IDA, MFHR, Lakes Apartments Project, Refunding, Series A, GNMA Secured,
6.10%, 9/20/26 .......................................................................... 1,745,000 1,828,376
Hickory County School District R-1 Skyline GO, Direct Deposit Program, 6.05%, 3/01/20 ..... 1,100,000 1,282,681
High Ridge Fire Protection District GO, FSA Insured, 5.375%, 11/01/20 ..................... 1,000,000 1,090,060
Howard Bend Levee District Special Tax,
5.65%, 3/01/13 ......................................................................... 1,000,000 1,090,770
5.85%, 3/01/19 ......................................................................... 4,000,000 4,284,120
Jackson County Consolidated School District No. 2 GO, Direct Deposit Program, 5.20%,
3/01/20 ................................................................................. 2,000,000 2,137,620
Jackson County Reorganized School District No. 7 Lees Summit GO, Direct Deposit,
Refunding and Improvement, FSA Insured, 5.00%, 3/01/21 .................................. 5,700,000 6,123,054
Jackson County Special Obligation Revenue, MBIA Insured, 5.00%, 12/01/27 .................. 4,605,000 4,851,321
Jasper County Reorganized School District No. R-7 GO, Direct Deposit Program, 6.00%,
3/01/20 ................................................................................. 1,025,000 1,198,071
Jefferson County Conservation Public Water Supply District No. C-1 Waterworks Revenue,
AMBAC Insured, 5.00%, 12/01/26 .......................................................... 4,500,000 4,698,495
Kansas City IDA, MFHR, Mews Apartments Project, Series A, FNMA Insured, 6.30%, 7/01/20 .... 3,345,000 3,474,853
Kansas City Land Clearance Redevelopment Authority Lease Revenue, Municipal Auditorium
and Muehlebach Hotel, Series A, FSA Insured, 5.90%, 12/01/18 ............................ 5,000,000 5,488,500
Kansas City MAC Revenue,
6.50%, 3/01/14 ......................................................................... 7,790,000 7,790,000
Leasehold Roe Bartle, Refunding, Series A, MBIA Insured, 5.00%, 4/15/20 ................ 10,000,000 10,391,800
Lake of the Ozarks Community Board Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 .......................................................... 2,000,000 2,301,660
Pre-Refunded, 6.40%, 12/01/25 .......................................................... 7,000,000 8,073,660
Refunding, 5.25%, 12/01/14 ............................................................. 750,000 753,742
Refunding, 5.25%, 12/01/26 ............................................................. 800,000 734,336
Annual Report | 107
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Lee's Summit IDAR,
John Knox Village Project, 6.55%, 8/15/10 .............................................. $ 1,000,000 $ 1,051,090
John Knox Village Project, 6.625%, 8/15/13 ............................................. 2,000,000 2,098,480
John Knox Village Project, 5.70%, 8/15/22 .............................................. 1,500,000 1,584,045
MFHR, Crossroads Apartment Project, Series A, FSA Insured, 6.15%, 10/01/29 ............. 2,695,000 2,850,825
Lee's Summit Water and Sewer Revenue, Series A, AMBAC Insured, 5.00%, 7/01/22 ............. 1,995,000 2,135,009
Missouri Development Finance Board Cultural Facilities Revenue, Nelson Gallery
Foundation, Series A, MBIA Insured, 5.00%, 12/01/30 ..................................... 9,500,000 9,971,770
Missouri School Board Association COP, Pooled Finance Program,
Series A-3, MBIA Insured, 7.875%, 3/01/06 .............................................. 5,000 5,150
Series A-5, MBIA Insured, 7.375%, 3/01/06 .............................................. 20,000 20,607
Missouri School Board Association Lease COP, Republic R-3 School District Project,
Refunding, FSA Insured, 6.00%, 3/01/16 .................................................. 2,220,000 2,413,739
Missouri Southern State College Revenue, Auxiliary Enterprise System, MBIA Insured,
5.50%, 4/01/23 .......................................................................... 1,200,000 1,331,016
Missouri State Board of Public Buildings State Office Building, Special Obligation,
Series A, 5.125%, 5/01/26 ............................................................... 3,960,000 4,174,276
Missouri State Board of Public Buildings, Special Obligation Revenue, Series A,
5.00%, 10/15/27 ........................................................................ 4,905,000 5,172,862
4.75%, 10/15/28 ........................................................................ 3,800,000 3,888,236
Missouri State Development Finance Board Infrastructure Facilities Revenue, Midtown
Redevelopment Project, Series A, MBIA Insured, 5.75%, 4/01/22 ........................... 10,000,000 11,398,000
Missouri State Development Finance Board Recreation Facilities Revenue, YMCA
Greater St. Louis Project, Series A, 5.40%, 9/01/18 ..................................... 7,420,000 8,001,580
Missouri State Development Finance Board Solid Waste Disposal Revenue, Procter and
Gamble Paper Product, 5.20%, 3/15/29 .................................................... 3,000,000 3,284,820
Missouri State Environmental Improvement and Energy Resources Authority PCR,
National Rural Association, Electric Project, Series G-6, AMBAC Insured, 5.85%,
2/01/13 ................................................................................. 2,100,000 2,252,229
Missouri State Environmental Improvement and Energy Resources Authority Water PCR,
Revolving Fund Program, Series A, 7.00%, 10/01/10 ...................................... 750,000 753,510
Revolving Fund Program, Series B, 7.125%, 12/01/10 ..................................... 330,000 331,475
Revolving Fund Program, Series B, Pre-Refunded, 7.20%, 7/01/16 ......................... 1,155,000 1,201,766
State Revolving Fund Program, Series B, 6.05%, 7/01/16 ................................. 485,000 502,324
State Revolving Fund Program, Series B, 5.50%, 7/01/21 ................................. 1,440,000 1,621,368
State Revolving Fund Program, Series B, FSA Insured, Pre-Refunded, 6.05%, 7/01/16 ...... 515,000 533,921
State Revolving Fund, Series A, 5.75%, 1/01/16 ......................................... 150,000 162,651
State Revolving, Series A, 6.55%, 7/01/14 .............................................. 890,000 901,908
State Revolving, Series B, 5.80%, 1/01/15 .............................................. 125,000 132,034
State Revolving, Series B, 7.20%, 7/01/16 .............................................. 845,000 878,344
Missouri State GO,
State Water Pollution Control, Series A, 5.00%, 6/01/26 ................................ 3,785,000 3,931,479
Stormwater Control, Series A, 5.00%, 6/01/26 ........................................... 1,895,000 1,968,336
Missouri State HDC,
MFHR, FHA Insured, 8.50%, 12/01/29 ..................................................... 75,000 76,007
SFMR, Homeowner Loan, Series D, GNMA Secured, 6.125%, 3/01/28 .......................... 590,000 612,733
SFMR, Series B, GNMA Secured, 6.10%, 9/01/14 ........................................... 780,000 811,403
SFMR, Series B, GNMA Secured, 6.45%, 9/01/27 ........................................... 520,000 542,558
108| Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Missouri State Health and Educational Facilities Authority Educational Facilities Revenue,
Maryville University of St. Louis Project, 6.50%, 6/15/22 .............................. $ 1,750,000 $ 1,920,502
Maryville University of St. Louis Project, 6.75%, 6/15/30 .............................. 4,500,000 4,947,705
Washington University, 5.00%, 11/15/37 ................................................. 9,150,000 9,478,485
Washington University, Refunding, Series B, 5.00%, 3/01/30 ............................. 14,000,000 14,569,380
Washington University, Series B, Pre-Refunded, 6.00%, 3/01/30 .......................... 13,550,000 16,291,707
Webster University, MBIA Insured, 5.30%, 4/01/27 ....................................... 8,000,000 8,579,280
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Children's Mercy Hospital, 5.30%, 5/15/28 .............................................. 12,420,000 12,715,223
Freeman Health Systems Project, 5.25%, 2/15/28 ......................................... 2,750,000 2,758,277
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11 ................................. 700,000 722,827
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14 ................................. 1,990,000 2,055,610
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15 ............................ 4,000,000 4,141,280
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 ............................ 3,250,000 3,356,275
Lake of the Ozarks General Hospital, 6.25%, 2/15/11 .................................... 410,000 432,415
Lake of the Ozarks General Hospital, Pre-Refunded, 6.25%, 2/15/11 ...................... 840,000 936,524
Lake of the Ozarks General Hospital, Pre-Refunded, 6.50%, 2/15/21 ...................... 670,000 750,903
Lake of the Ozarks General Hospital, Refunding, 6.50%, 2/15/21 ......................... 330,000 343,692
Lake Regional Health Systems Project, 5.60%, 2/15/25 ................................... 1,250,000 1,293,325
Lake Regional Health Systems Project, 5.70%, 2/15/34 ................................... 2,750,000 2,860,000
Lutheran Senior Services, Refunding, 5.875%, 2/01/23 ................................... 1,000,000 1,032,800
Lutheran Senior Services, Series A, 6.375%, 2/01/27 .................................... 4,000,000 4,145,600
St. Luke's Episcopal, Presbyterian Hospital, FSA Insured, 5.25%, 12/01/26 .............. 8,500,000 9,120,330
Missouri State Health and Educational Facilities Authority Revenue,
Series A, 5.00%, 2/15/33 ............................................................... 11,125,000 11,664,563
SSM Healthcare System, Series A, AMBAC Insured, 5.25%, 6/01/28 ......................... 16,385,000 17,431,346
Missouri State Highways and Transportation Commission State Road Revenue, Series A,
5.00%,
2/01/21 ................................................................................ 10,000,000 10,672,100
2/01/22 ................................................................................ 3,000,000 3,182,820
Missouri State Housing Development Commission Revenue, SF, Homeowner Loan,
Series C-1, GNMA Secured,
5.90%, 9/01/25 ......................................................................... 3,360,000 3,516,475
5.95%, 3/01/28 ......................................................................... 2,375,000 2,488,074
Moberly Water and Sewer Revenue, FGIC Insured, 5.00%, 7/01/28 ............................. 2,055,000 2,161,223
Monarch-Chesterfield Levee District Revenue, MBIA Insured, 5.75%, 3/01/19 ................. 1,920,000 2,224,915
North Kansas City Hospital Revenue,
North Kansas City Hospital, Series A, FSA Insured, 5.00%, 11/15/20 ..................... 1,000,000 1,078,020
Series A, FSA Insured, 5.00%, 11/15/21 ................................................. 1,000,000 1,070,550
Series A, FSA Insured, 5.00%, 11/15/22 ................................................. 1,000,000 1,063,140
Series A, FSA Insured, 5.00%, 11/15/28 ................................................. 1,965,000 2,061,894
Series A, FSA Insured, 5.125%, 11/15/33 ................................................ 2,755,000 2,920,080
Northeast State University Recreational Facility Revenue, Campus Recreational
Center Project, AMBAC Insured, 5.80%, 6/01/15 ........................................... 1,000,000 1,050,240
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ............................................................ 30,000 32,530
Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.375%, 7/01/28 ................ 3,000,000 3,212,370
Annual Report | 109
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Refunding,
Series AA, 5.00%, 7/01/35 .............................................................. $ 1,800,000 $ 1,863,666
Series Y, 5.50%, 7/01/36 ............................................................... 11,750,000 13,051,783
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series D, 5.375%, 7/01/36 .............................................................. 2,500,000 2,680,875
Series G, 5.00%, 7/01/33 ............................................................... 6,450,000 6,678,137
Series G, 5.00%, 7/01/42 ............................................................... 7,500,000 7,736,475
Puerto Rico Electric Power Authority Power Revenue, Series NN, 5.125%, 7/01/29 ............ 11,750,000 12,349,368
Puerto Rico Electric Power Authority Revenue, Series II, 5.25%, 7/01/31 ................... 10,000,000 10,628,200
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ....................... 165,000 165,964
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 2,605,850
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ................. 8,035,000 8,616,332
Pulaski County IDA, MFHR, St. Robert Project, Series A, GNMA Secured, 6.00%, 8/20/39 ...... 1,600,000 1,698,624
Springfield Missouri IDAR, Bethesda Living Centers, Refunding, Series A,
5.625%, 8/15/18 ........................................................................ 3,000,000 2,809,620
5.70%, 8/15/28 ......................................................................... 5,250,000 4,792,620
Springfield Public Building Corp. Leasehold Revenue, Springfield Recreational, Series B,
AMBAC Insured,
6.125%, 6/01/21 ........................................................................ 3,230,000 3,818,861
6.15%, 6/01/25 ......................................................................... 3,645,000 4,289,655
Springfield School District No. R 12 GO, Missouri Direct Deposit Program, 5.85%, 3/01/20 .. 1,500,000 1,740,090
St. Charles County Public Water Supply District No. 2, COP, Missouri Project,
Series A, MBIA Insured, 5.25%, 12/01/28 ................................................ 1,000,000 1,070,790
St. Louis Airport Revenue,
Airport Development Program, Series A, MBIA Insured, 5.00%, 7/01/26 .................... 5,000,000 5,208,150
Airport Development Program, Series A, MBIA Insured, 5.25%, 7/01/31 .................... 18,835,000 19,960,580
Capital Improvement Program, Series A, MBIA Insured, 5.00%, 7/01/32 .................... 2,540,000 2,650,541
St. Louis County Housing Authority MFHR, Kensington Square Apartments Project,
Refunding,
6.55%, 3/01/14 ......................................................................... 1,000,000 1,003,520
6.65%, 3/01/20 ......................................................................... 2,750,000 2,854,280
St. Louis County IDA,
Health Facilities Revenue, Jewish Center Healthcare, GNMA Secured, 5.40%, 2/20/31 ...... 1,000,000 1,036,360
Health Facilities Revenue, Jewish Center Healthcare, GNMA Secured, 5.50%, 2/20/36 ...... 10,460,000 11,181,845
Health Facilities Revenue, Mary Queen Healthcare, GNMA Secured, 5.375%, 9/20/31 ........ 3,310,000 3,505,952
Health Facilities Revenue, Mother of Perpetual Help, GNMA Secured, 6.40%, 8/01/35 ...... 1,895,000 2,053,214
MFHR, Lucas Hunt Village Project, GNMA Secured, 5.20%, 9/20/31 ......................... 1,095,000 1,127,500
MFHR, South Summit Apartments, Refunding, Series A, GNMA Secured, 6.10%, 4/20/32 ....... 1,250,000 1,317,800
St. Louis County IDAR, Bethesda Living Centers, Series B, 5.85%, 8/15/28 .................. 1,500,000 1,396,905
St. Louis IDA,
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.55%, 4/01/19 ........... 1,000,000 1,037,850
Sewer and Solid Waste Disposal Facilities Revenue, Anheuser-Busch Project, 5.875%,
11/01/26 .............................................................................. 1,100,000 1,136,212
St. Louis Municipal Finance Corp. Leasehold Revenue,
Carnahan Courthouse, Series A, FGIC Insured, 5.125%, 2/15/27 ........................... 4,750,000 5,024,503
City Justice Center, Series A, AMBAC Insured, 6.00%, 2/15/20 ........................... 1,000,000 1,176,100
110 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Taney County IDA, Hospital Revenue, The Skaggs Community Hospital Association,
5.30%, 5/15/18 ......................................................................... $ 3,000,000 $ 3,044,040
5.40%, 5/15/28 ......................................................................... 1,500,000 1,489,860
Taney County Reorganized School District GO, No. R-V Hollister, Refunding, FSA Insured,
5.00%, 3/01/20 .......................................................................... 1,300,000 1,410,682
University of Missouri Revenue,
System Facilities, Pre-Refunded, 5.80%, 11/01/27 ....................................... 1,000,000 1,153,920
System Facilities, Refunding, Series B, 5.00%, 11/01/27 ................................ 7,865,000 8,257,306
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ........................................................................ 2,500,000 2,705,125
5.50%, 10/01/22 ........................................................................ 2,500,000 2,598,475
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Refunding,
5.50%, 11/15/12 ........................................................................ 1,000,000 1,011,110
5.60%, 11/15/17 ........................................................................ 1,700,000 1,649,255
5.65%, 11/15/22 ........................................................................ 1,500,000 1,414,005
West Plains Waterworks System Revenue, AMBAC Insured, 5.625%, 3/01/21 ..................... 1,250,000 1,410,513
-------------
TOTAL LONG TERM INVESTMENTS (COST $524,873,454) ........................................... 562,661,985
-------------
SHORT TERM INVESTMENTS .4%
b Berkeley IDA, IDR, Flight Safety International Inc. Project, Weekly VRDN & Put, .94%,
9/01/04 ................................................................................. 900,000 900,000
b Kansas City IDAR, Ewing Marion Kauffmam, Series A, Daily VRDN and Put, .98%, 4/01/27 ...... 700,000 700,000
b Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ..................................................... 300,000 300,000
b Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 ............................. 400,000 400,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $2,300,000) ............................................ 2,300,000
-------------
TOTAL INVESTMENTS (COST $527,173,454) 101.0% .............................................. 564,961,985
OTHER ASSETS, LESS LIABILITIES (1.0)% ..................................................... (5,515,939)
-------------
NET ASSETS 100.0% ......................................................................... $559,446,046
=============
See Glossary of Terms on page 125.
a See Note 1 regarding securities purchased on a delayed delivery basis.
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.
Annual Report | See notes to financial statements. | 111
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.24 $11.96 $11.78 $11.04 $12.16
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .55 .56 .58 .60 .60
Net realized and unrealized gains (losses) ........... .18 .28 .19 .73 (1.12)
------------------------------------------------------------
Total from investment operations ...................... .73 .84 .77 1.33 (.52)
------------------------------------------------------------
Less distributions from net investment income ......... (.55) (.56) (.59) (.59) (.60)
------------------------------------------------------------
Net asset value, end of year .......................... $12.42 $12.24 $11.96 $11.78 $11.04
============================================================
Total return b ........................................ 6.10% 7.23% 6.74% 12.38% (4.37)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $413,438 $418,196 $388,400 $342,402 $315,101
Ratios to average net assets:
Expenses ............................................. .67% .66% .69% .69% .68%
Net investment income ................................ 4.49% 4.65% 4.89% 5.25% 5.18%
Portfolio turnover rate ............................... 7.67% 7.69% 10.85% 9.61% 21.07%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
112 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $12.35 $12.05 $11.87 $11.12 $12.24
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .48 .50 .52 .54 .54
Net realized and unrealized gains (losses) ........... .19 .30 .19 .74 (1.13)
------------------------------------------------------------
Total from investment operations ...................... .67 .80 .71 1.28 (.59)
------------------------------------------------------------
Less distributions from net investment income ......... (.48) (.50) (.53) (.53) (.53)
------------------------------------------------------------
Net asset value, end of year .......................... $12.54 $12.35 $12.05 $11.87 $11.12
============================================================
Total return b ........................................ 5.52% 6.76% 6.09% 11.79% (4.88)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $82,420 $76,400 $57,881 $43,476 $38,577
Ratios to average net assets:
Expenses ............................................. 1.25% 1.19% 1.24% 1.24% 1.23%
Net investment income ................................ 3.91% 4.12% 4.34% 4.70% 4.63%
Portfolio turnover rate ............................... 7.67% 7.69% 10.85% 9.61% 21.07%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
Annual Report | See notes to financial statements. | 113
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.8%
Appalachian State University Revenue, Teachers College Utility System,
MBIA Insured, Pre-Refunded, 6.10%, 5/15/13 ............................................. $ 1,075,000 $ 1,107,701
Refunding, MBIA Insured, 5.00%, 5/15/24 ................................................ 3,000,000 3,151,350
Asheville Water System Revenue,
FGIC Insured, 5.70%, 8/01/25 ........................................................... 4,000,000 4,396,800
FSA Insured, 5.00%, 8/01/25 ............................................................ 1,000,000 1,055,680
Broad River Water Authority Water System Revenue, MBIA Insured, 5.375%, 6/01/26 ........... 1,000,000 1,086,530
Buncombe County Metropolitan Sewer District Sewer System Revenue,
FSA Insured, 5.00%, 7/01/29 ............................................................ 5,000,000 5,233,850
MBIA Insured, 5.00%, 7/01/26 ........................................................... 1,000,000 1,053,820
Centennial Authority Hotel Tax Revenue, Arena Project, FSA Insured, 5.125%, 9/01/19 ....... 5,115,000 5,478,523
Charlotte Airport Revenue, Series B, MBIA Insured, 6.00%,
7/01/24 ................................................................................ 4,000,000 4,557,080
7/01/28 ................................................................................ 6,300,000 7,144,389
Charlotte COP,
Convention Facility Project, 5.625%, 12/01/25 .......................................... 7,230,000 7,964,351
Governmental Facilities Projects, Series G, 5.00%, 6/01/28 ............................. 3,000,000 3,128,370
Charlotte GO, Series C, 5.00%, 7/01/27 .................................................... 2,010,000 2,101,777
Charlotte Storm Water Fee Revenue, Refunding, 5.00%, 6/01/25 .............................. 1,000,000 1,059,130
Charlotte Water and Sewer GO, 5.00%, 2/01/21 .............................................. 4,000,000 4,270,560
Charlotte Water and Sewer System Revenue,
5.125%, 6/01/26 ........................................................................ 6,000,000 6,361,560
Pre-Refunded, 5.25%, 6/01/24 ........................................................... 3,000,000 3,474,300
Pre-Refunded, 5.25%, 6/01/25 ........................................................... 3,950,000 4,620,552
Charlotte-Mecklenberg Hospital Authority Health Care System Revenue,
5.90%, 1/15/16 ......................................................................... 3,465,000 3,718,084
Carolinas Healthcare System, Refunding, Series A, 5.00%, 1/15/31 ....................... 5,000,000 5,143,800
Carolinas Healthcare System, Series A, 5.125%, 1/15/22 ................................. 8,000,000 8,222,960
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding,
5.50%, 5/15/39 .......................................................................... 7,000,000 6,469,610
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 1,536,666
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 ......................................................................... 1,475,000 1,638,194
6.125%, 6/01/21 ........................................................................ 2,180,000 2,436,041
Cumberland County COP, Civic Center Project,
Refunding, AMBAC Insured, 5.00%, 12/01/18 .............................................. 3,000,000 3,228,630
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/19 ................................. 3,500,000 3,711,995
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/24 ................................. 3,765,000 3,993,046
Cumberland County Finance Corp. Installment Payment Revenue, Detention Center and Mental
Health, FSA Insured, Pre-Refunded, 5.625%, 6/01/24 ...................................... 5,000,000 5,959,900
Cumberland County Hospital Facilities Revenue, Cumberland County Hospital Systems Inc.,
Refunding, 5.25%, 10/01/29 .............................................................. 5,250,000 5,358,255
Dare County COP, AMBAC Insured,
5.125%, 6/01/21 ........................................................................ 650,000 711,347
5.00%, 6/01/23 ......................................................................... 3,000,000 3,205,650
Durham County Enterprise System Revenue, MBIA Insured, 5.00%, 6/01/23 ..................... 1,670,000 1,789,889
Durham County GO, Public Improvement, 5.00%, 6/01/22 ...................................... 2,000,000 2,131,920
114 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Franklin County COP, AMBAC Insured, 5.00%, 6/01/25 ........................................ $ 1,250,000 $ 1,311,425
Gastonia Combined Utilities System Revenue,
FSA Insured, 5.00%, 5/01/25 ............................................................ 1,000,000 1,054,040
MBIA Insured, 5.625%, 5/01/19 .......................................................... 1,000,000 1,145,220
Greensboro Enterprise Systems Revenue, Series A, 5.125%,
6/01/21 ................................................................................ 390,000 420,260
6/01/22 ................................................................................ 350,000 375,102
Greensboro HDC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.70%, 1/01/24 ....... 1,320,000 1,327,379
Halifax County Industrial Facilities and PCFA Revenue, Champion International
Corp. Project,
5.45%, 11/01/33 ........................................................................ 4,000,000 3,947,560
Refunding, 6.45%, 11/01/29 ............................................................. 3,900,000 4,167,228
Harnett County COP, FSA Insured, 5.125%, 12/01/23 ......................................... 1,000,000 1,084,710
Haywood County Industrial Facilities and PCFA, Environmental Improvement Revenue,
Champion International Project, 6.25%, 9/01/25 .......................................... 2,000,000 2,058,600
Henderson County COP, Henderson County School Project, AMBAC Insured, 5.00%, 3/01/21 ...... 1,000,000 1,076,950
Kinston Housing Authority Mortgage Revenue, Kinston Towers Project, Refunding, 6.75%,
12/01/18 ................................................................................ 3,155,000 3,243,151
Martin County Industrial Facilities and PCFA Revenue,
Pollution Control, Weyerhaeuser Co. Project, Refunding, 6.375%, 1/01/10 ................ 3,000,000 3,046,020
Solid Waste, Weyerhaeuser Co. Project, 5.65%, 12/01/23 ................................. 2,000,000 2,006,060
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25 ................................. 5,400,000 5,491,530
Mecklenburg County GO, Public Improvement, Series B, 4.70%, 2/01/20 ....................... 3,000,000 3,134,910
New Hanover County COP, New Hanover County Projects, AMBAC Insured, 5.00%, 12/01/22 ....... 5,000,000 5,384,000
North Carolina Capital Facilities Finance Agency Educational Facilities Revenue,
Meredith College,
5.00%, 4/01/33 ......................................................................... 3,000,000 3,142,560
AMBAC Insured, 4.875%, 6/01/24 ......................................................... 1,000,000 1,038,450
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 6.50%, 1/01/18 .................................................... 3,000,000 3,609,030
Refunding, Series A, 5.75%, 1/01/26 .................................................... 10,000,000 10,505,200
Refunding, Series D, 6.75%, 1/01/26 .................................................... 5,000,000 5,603,800
Series B, MBIA Insured, 5.875%, 1/01/21 ................................................ 5,000,000 5,631,900
North Carolina Educational Facilities Finance Agency Revenue, Duke University Project,
Series A, 5.25%, 7/01/42 ................................................................ 10,000,000 10,660,400
North Carolina HFA,
MF, Mortgage Loan Resolution, Refunding, Series H, 6.05%, 7/01/28 ...................... 2,230,000 2,316,546
MF, Refunding, Series A, AMBAC Insured, 5.90%, 7/01/20 ................................. 2,780,000 2,881,109
MF, Refunding, Series J, 5.45%, 7/01/17 ................................................ 2,175,000 2,276,725
Refunding, Series F, 6.70%, 1/01/27 .................................................... 3,945,000 4,061,259
SF, Refunding, Series DD, 6.20%, 9/01/27 ............................................... 1,805,000 1,857,471
SF, Series JJ, 6.45%, 9/01/27 .......................................................... 2,620,000 2,736,695
SFR, Series AA, 6.25%, 3/01/17 ......................................................... 505,000 521,261
SFR, Series RR, 5.85%, 9/01/28 ......................................................... 3,170,000 3,281,489
SFR, Series X, 6.65%, 9/01/19 .......................................................... 795,000 813,038
North Carolina Medical Care Commission Health Care Facilities Revenue,
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/18 .............. 1,000,000 1,069,690
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/24 .............. 5,500,000 5,745,520
Scotland Memorial Hospital Project, Asset Guaranteed, 5.50%, 10/01/19 .................. 630,000 685,478
Scotland Memorial Hospital Project, Asset Guaranteed, 5.50%, 10/01/29 .................. 1,220,000 1,303,973
Annual Report | 115
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
North Carolina Medical Care Commission Health Care Facilities Revenue, (cont.)
Wakemed Project, AMBAC Insured, 5.00%, 10/01/32 ........................................ $ 4,205,000 $ 4,411,087
North Carolina Medical Care Commission Health System Revenue, Catholic Health
East Project, Series C, AMBAC Insured, 5.00%, 11/15/18 .................................. 2,500,000 2,694,750
North Carolina Medical Care Commission Hospital Revenue,
Annie Penn Memorial Hospital Project, Pre-Refunded, 5.375%, 1/01/22 .................... 1,920,000 2,186,285
Annie Penn Memorial Hospital Project, Refunding, ETM, 5.25%, 1/01/12 ................... 1,940,000 2,201,822
Halifax Regional Medical Center Project, 5.00%, 8/15/18 ................................ 1,500,000 1,499,955
Halifax Regional Medical Center Project, 5.00%, 8/15/24 ................................ 2,800,000 2,642,416
Mission St. Joseph's Health System Project, MBIA Insured, 5.125%, 10/01/28 ............. 5,000,000 5,222,650
Northeast Medical Center, AMBAC Insured, 5.50%, 11/01/30 ............................... 1,580,000 1,746,026
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 .................................. 2,780,000 2,979,521
Southeastern Regional Medical Center, 6.25%, 6/01/29 ................................... 4,000,000 4,279,960
Southeastern Regional Medical Center, 5.375%, 6/01/32 .................................. 3,500,000 3,598,525
Transylvania Community Hospital Inc. Project, Refunding, 5.75%, 10/01/19 ............... 1,090,000 1,065,835
Wake County Hospital System Project, MBIA Insured, 5.375%, 10/01/26 .................... 10,825,000 11,571,708
Wilson Memorial Hospital Project, Refunding, AMBAC Insured, 5.625%, 11/01/18 ........... 5,000,000 5,552,500
North Carolina Medical Care Community Revenue, FHA Insured Betsy Johnson Project, FSA
Insured, 5.125%, 10/01/32 ............................................................... 4,500,000 4,767,030
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, Series A,
MBIA Insured,
5.00%, 1/01/20 .......................................................................... 2,000,000 2,120,020
5.25%, 1/01/19 .......................................................................... 5,000,000 5,523,350
North Carolina State COP, Western Carolina University Housing Project, AMBAC Insured,
5.00%, 6/01/33 .......................................................................... 1,500,000 1,578,135
North Carolina State Education Assistance Authority Revenue, Guaranteed, Student Loan,
sub. lien,
Series A, 6.05%, 7/01/10 ............................................................... 3,310,000 3,466,100
Series A, 6.30%, 7/01/15 ............................................................... 1,500,000 1,562,385
Series C, 6.35%, 7/01/16 ............................................................... 4,500,000 4,744,350
North Carolina University Revenue, 5.00%, 12/01/28 ........................................ 2,000,000 2,112,000
Onslow County Combined Enterprise System Revenue, MBIA Insured, 6.00%, 6/01/15 ............ 2,000,000 2,063,200
Piedmont Triad Airport Authority Airport Revenue, Refunding, Series A, FSA Insured,
6.00%, 7/01/24 .......................................................................... 5,745,000 6,596,754
Pitt County COP,
MBIA Insured, 5.85%, 4/01/17 ........................................................... 5,055,000 5,736,313
School Facilities Project, Series A, FSA Insured, 5.25%, 4/01/25 ....................... 1,670,000 1,797,521
School Facilities Project, Series B, FSA Insured, 5.50%, 4/01/25 ....................... 1,000,000 1,109,750
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ........................................................... 8,050,000 8,316,133
Public Improvement, Refunding, FSA Insured, 5.125%, 7/01/30 ............................ 8,750,000 9,283,837
Public Improvement, Series A, 5.00%, 7/01/27 ........................................... 5,000,000 5,178,750
Public Improvement, Series A, 5.375%, 7/01/28 .......................................... 7,330,000 7,848,891
Public Improvement, Series A, 5.125%, 7/01/31 .......................................... 5,000,000 5,202,400
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Refunding, Series D, FSA Insured, 5.00%, 7/01/32 ....................................... 5,000,000 5,271,150
Refunding, Series H, 5.00%, 7/01/35 .................................................... 4,280,000 4,431,384
116 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, (cont.)
Series A, MBIA Insured, 5.00%, 7/01/38 ................................................. $ 2,000,000 $ 2,081,720
Series D, 5.375%, 7/01/36 .............................................................. 5,000,000 5,361,750
Series D, 5.25%, 7/01/38 ............................................................... 3,000,000 3,158,910
Series G, 5.00%, 7/01/33 ............................................................... 2,000,000 2,070,740
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series A,
7.50%, 7/01/09 ......................................................................... 15,000 15,057
AMBAC Insured, 5.00%, 7/01/28 .......................................................... 10,000,000 10,372,100
Puerto Rico Electric Power Authority Revenue,
Series II, 5.25%, 7/01/31 .............................................................. 6,000,000 6,376,920
Series X, Pre-Refunded, 6.125%, 7/01/21 ................................................ 4,000,000 4,352,560
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ....................... 190,000 191,110
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ................. 7,000,000 7,506,450
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.70%,
8/01/25 ................................................................................. 5,000,000 5,484,700
Raeford HDC First Lien Revenue, Yadkin Trail, Refunding, Series A, FHA Insured, 6.00%,
7/15/22 ................................................................................. 1,340,000 1,344,985
Raleigh Durham Airport Authority Airport Revenue, Series A, FGIC Insured, 5.00%,
11/01/31 ............................................................................... 8,000,000 8,320,080
11/01/25 ............................................................................... 6,480,000 6,793,632
Randolph County COP, FSA Insured, 5.75%, 6/01/22 .......................................... 5,500,000 6,301,625
Robeson County Industrial Facilities and PCFA Revenue, Campbell Soup Co. Project,
Refunding, 6.40%, 12/01/06 .............................................................. 1,750,000 1,959,055
Rutherford County COP, Public Facilities Project, FGIC Insured, Pre-Refunded, 6.25%,
6/01/23 ................................................................................. 1,850,000 1,910,994
University of Greensboro Revenue, Housing and Dining System, Series G, MBIA Insured,
6.00%, 4/01/26 .......................................................................... 2,040,000 2,381,068
University of North Carolina Ashville Revenue, Refunding, Series A, AMBAC Insured, 5.00%,
6/01/27 ................................................................................. 1,300,000 1,375,478
University of North Carolina Greensboro Revenue, Series A, FSA Insured, 5.00%, 4/01/26 .... 4,940,000 5,228,990
University of North Carolina Revenue, Series A, 5.00%, 12/01/25 ........................... 4,000,000 4,202,960
University of North Carolina System Pool Revenue, Series A, AMBAC Insured, 5.00%, 4/01/27 . 2,100,000 2,218,335
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ........................................................................ 2,000,000 2,115,160
5.625%, 10/01/25 ....................................................................... 1,575,000 1,633,873
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and Light Company
Project, Refunding, 5.375%, 2/01/17 ..................................................... 8,000,000 8,735,280
Wilkes County COP, Public Improvements Project, FSA Insured, 5.375%, 12/01/20 ............. 1,000,000 1,115,160
Winston-Salem Water and Sewer System Revenue,
Refunding, 5.125%, 6/01/20 ............................................................. 2,500,000 2,918,775
Series B, Pre-Refunded, 5.70%, 6/01/17 ................................................. 2,250,000 2,425,455
-------------
TOTAL LONG TERM INVESTMENTS (COST $449,631,489) 484,833,464
-------------
Annual Report | 117
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 1.1%
a Charlotte-Mecklenberg Hospital Authority Health Care System Revenue, Series B,
Weekly VRDN and Put, .94%, 1/15/26 ...................................................... $ 200,000 $ 200,000
a North Carolina Medical Care Commission Hospital Revenue, Pooled Financing Project,
Series A, Daily VRDN and Put, .93%, 10/01/16 ............................................ 210,000 210,000
a North Carolina State GO, Series G, Weekly VRDN and Put, .86%, 5/01/21 ..................... 5,200,000 5,200,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $5,610,000) ............................................ 5,610,000
-------------
TOTAL INVESTMENTS (COST $455,241,489) 98.9% ............................................... 490,443,464
OTHER ASSETS, LESS LIABILITIES 1.1% ....................................................... 5,414,785
-------------
NET ASSETS 100.0% ......................................................................... $495,858,249
=============
See Glossary of Terms on page 125.
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.
118 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.64 $11.52 $11.45 $10.79 $11.88
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .52 .54 .56 .59 .59
Net realized and unrealized gains (losses) ........... .30 .12 .08 .65 (1.09)
------------------------------------------------------------
Total from investment operations ...................... .82 .66 .64 1.24 (.50)
------------------------------------------------------------
Less distributions from net investment income ......... (.52) (.54) (.57) (.58) (.59)
------------------------------------------------------------
Net asset value, end of year .......................... $11.94 $11.64 $11.52 $11.45 $10.79
============================================================
Total return b ........................................ 7.20% 5.90% 5.73% 11.80% (4.31)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $441,916 $426,371 $395,579 $356,599 $327,235
Ratios to average net assets:
Expenses ............................................. .68% .68% .69% .70% .68%
Net investment income ................................ 4.44% 4.67% 4.88% 5.27% 5.19%
Portfolio turnover rate ............................... 7.01% 12.94% 15.36% 8.89% 22.53%
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
Annual Report | 119
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 c 2003 2002 2001 2000 c
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.74 $11.62 $11.53 $10.86 $11.95
------------------------------------------------------------
Income from investment operations:
Net investment income a .............................. .45 .48 .50 .53 .53
Net realized and unrealized gains (losses) ........... .30 .12 .09 .66 (1.09)
------------------------------------------------------------
Total from investment operations ...................... .75 .60 .59 1.19 (.56)
------------------------------------------------------------
Less distributions from net investment income ......... (.45) (.48) (.50) (.52) (.53)
------------------------------------------------------------
Net asset value, end of year .......................... $12.04 $11.74 $11.62 $11.53 $10.86
============================================================
Total return b ........................................ 6.54% 5.28% 5.28% 11.23% (4.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $43,009 $41,802 $33,992 $24,766 $21,454
Ratios to average net assets:
Expenses ............................................. 1.25% 1.21% 1.24% 1.24% 1.23%
Net investment income ................................ 3.87% 4.14% 4.34% 4.72% 4.64%
Portfolio turnover rate ............................... 7.01% 12.94% 15.36% 8.89% 22.53%
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
120 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.4%
Abingdon IDA, Hospital Facilities Revenue, Johnston Memorial Hospital, Refunding,
5.375%, 7/01/28 ......................................................................... $ 5,000,000 $ 5,122,050
Alexandria IDA, Educational Facilities Revenue, Episcopal High School, 5.875%, 1/01/29 .... 2,500,000 2,730,200
Arlington County GO, Public Improvements, 5.00%, 2/01/22 .................................. 2,060,000 2,194,147
Bedford County IDA, IDR, Nekoosa Packaging Corp. Project, Refunding,
5.60%, 12/01/25 ........................................................................ 2,650,000 2,374,082
6.30%, 12/01/25 ........................................................................ 2,000,000 1,976,440
Series A, 6.55%, 12/01/25 .............................................................. 5,000,000 5,029,450
Bristol Utility System Revenue, Refunding, ETM, 5.00%, 7/15/21 ............................ 1,245,000 1,374,156
Caroline County IDA Lease Revenue, AMBAC Insured, 5.125%, 6/15/34 ......................... 1,000,000 1,062,790
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured,
6.00%, 6/01/12 .......................................................................... 3,940,000 4,064,504
Chesapeake Toll Road Revenue, Expressway, Series A, 5.625%,
7/15/19 ................................................................................ 3,250,000 3,537,137
7/15/32 ................................................................................ 8,000,000 8,378,240
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 6.65%, 9/01/18 .... 5,000,000 5,153,000
Danville IDA,
Hospital Revenue, Danville Regional Medical Center, FGIC Insured, Pre-Refunded,
6.50%, 10/01/24 ........................................................................ 5,000,000 5,210,700
Solid Waste Disposal Revenue, International Paper Co., 6.50%, 3/01/19 .................. 500,000 522,985
Fairfax County EDA Revenue, National Wildlife Federation, MBIA Insured, 5.375%, 9/01/29 ... 8,000,000 8,569,440
Fairfax County IDAR, Health Care,
Inova Health System Project, 6.00%, 8/15/26 ............................................ 5,000,000 5,437,200
Inova Health System Project, Refunding, Series A, 5.00%, 8/15/25 ....................... 5,000,000 5,098,600
Inova Health, Refunding, Series A, 5.00%, 8/15/18 ...................................... 2,100,000 2,186,709
Fairfax County Redevelopment and Housing Authority MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27 .................................. 4,700,000 4,851,716
Paul Spring Center, Refunding, Series A, FHA Insured, 5.90%, 6/15/17 ................... 1,000,000 1,064,030
Paul Spring Center, Refunding, Series A, FHA Insured, 6.00%, 12/15/28 .................. 1,000,000 1,059,550
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28 ............................... 5,000,000 5,562,000
Fairfax County Water Authority Water Revenue, Refunding, 5.00%, 4/01/27 ................... 14,250,000 15,013,657
Frederick County IDA, Lease Revenue, Government Complex
Facilities Project, MBIA Insured, Pre-Refunded, 6.50%, 12/01/09 ......................... 2,040,000 2,165,072
Fredericksburg IDA, Hospital Facilities Revenue, Medicorp Health System
Obligation, Refunding, AMBAC Insured, 5.25%, 6/15/23 .................................... 10,000,000 10,661,500
Gloucester County IDA, Lease Revenue, Courthouse Project, MBIA Insured, 5.50%, 11/01/30 ... 1,715,000 1,902,690
Greater Richmond Convention Center Authority Hotel Tax Revenue,
Convention Center Expansion Project,
6.125%, 6/15/29 ........................................................................ 8,000,000 8,974,400
6.25%, 6/15/32 ......................................................................... 8,175,000 9,334,378
Hampton Convention Center Revenue,
AMBAC Insured, 5.25%, 1/15/23 .......................................................... 3,000,000 3,263,460
Refunding, AMBAC Insured, 5.125%, 1/15/28 .............................................. 2,605,000 2,767,839
Refunding, AMBAC Insured, 5.00%, 1/15/35 ............................................... 3,000,000 3,151,050
Hampton Redevelopment and Housing Authority Senior Living Association Revenue, Refunding,
Series A, GNMA Secured, 6.00%, 1/20/26 .................................................. 1,060,000 1,114,982
Hampton Roads Regional Jail Authority Jail Facilities Revenue,
Series A, MBIA Insured,
5.00%, 7/01/28 .......................................................................... 10,000,000 10,305,000
Hanover County Water and Sewer System Revenue, MBIA Insured, 5.25%, 2/01/26 ............... 4,175,000 4,348,137
Harrisonburg GO, FSA Insured, 5.75%, 12/01/29 ............................................. 1,000,000 1,157,760
Annual Report | 121
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Henrico County IDAR, Solid Waste, Browning-Ferris Industries, South Atlantic Inc., Series A,
5.875%, 3/01/17 ......................................................................... $ 1,000,000 $ 940,710
Henry County IDA, Hospital Revenue, Memorial Hospital of Martinsville and Henry, Pre-Refunded,
6.00%, 1/01/27 .......................................................................... 1,250,000 1,413,012
Isle Wight County IDA,
Environmental Improvement Revenue, International Paper Company Project, Series A,
6.60%, 5/01/24 ......................................................................... 2,000,000 2,189,140
International Paper Co. Project, Series A, 5.85%, 1/01/18 .............................. 4,155,000 4,501,402
Leesburg Utilities System Revenue, Refunding, MBIA Insured, 5.125%, 7/01/22 ............... 3,000,000 3,175,950
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center, FSA Insured,
5.80%, 6/01/26 .......................................................................... 3,000,000 3,190,890
Loudoun County IDAR, Loudoun Hospital Center, Series A, 6.10%, 6/01/32 .................... 1,500,000 1,581,060
Loudoun County Sanitation Authority Water and Sewer Revenue,
Refunding, FGIC Insured, 5.125%, 1/01/26 ............................................... 3,795,000 3,948,432
Refunding, FGIC Insured, 5.125%, 1/01/30 ............................................... 5,250,000 5,450,602
Series 96, FGIC Insured, 5.25%, 1/01/26 ................................................ 6,500,000 6,890,455
Series 96, FGIC Insured, 5.25%, 1/01/30 ................................................ 1,000,000 1,047,090
Lynchburg IDA Healthcare Facilities Revenue, Central Health, Refunding, 5.20%, 1/01/28 .... 8,000,000 8,148,240
Lynchburg Redevelopment and Housing Authority Revenue, Walden Pond III, Refunding, Series A,
GNMA Secured, 6.20%, 7/20/27 ............................................................ 1,000,000 1,049,890
Metropolitan Washington D.C. Airports Authority General Airport Revenue, Refunding,
Series A, 5.375%, 10/01/23 ............................................................. 3,000,000 3,180,720
Series A, FGIC Insured, 5.00%, 10/01/27 ................................................ 5,000,000 5,149,150
Series B, 5.75%, 10/01/20 .............................................................. 6,000,000 6,448,560
Metropolitan Washington D.C. Airports Authority System,
Series A, FGIC Insured, 5.00%, 10/01/25 ................................................ 1,000,000 1,040,100
Series B, FGIC Insured, 5.25%, 10/01/32 ................................................ 6,655,000 7,069,939
Middle River Regional Jail Authority Jail Facility Revenue, MBIA Insured, 5.00%, 5/15/28 .. 3,820,000 4,038,046
Middlesex County IDA, Lease Revenue, School Facilities Project, MBIA Insured,
5.875%, 8/01/21 ........................................................................ 1,420,000 1,651,304
6.10%, 8/01/26 ......................................................................... 1,725,000 2,030,014
Montgomery County IDA, Lease Revenue, Series B, AMBAC Insured, 5.50%, 1/15/22 ............. 1,000,000 1,114,060
Newport News GO, General Improvement and Water, Series A, 5.00%, 7/01/22 .................. 1,250,000 1,335,400
Newport News IDA, Mortgage Revenue, Mennowood Communities Inc., Series A, GNMA Secured,
6.25%, 8/01/36 .......................................................................... 2,960,000 3,139,169
Newport News Redevelopment and Housing Authority Revenue, Refunding, Series A, GNMA
Secured, 5.85%, 12/20/30 ................................................................ 4,060,000 4,285,492
Norfolk Airport Authority Revenue, Series B, FGIC Insured, 5.125%, 7/01/31 ................ 1,440,000 1,488,298
Norfolk GO, Capital Improvements, Refunding, Series B, FSA Insured, 5.00%, 7/01/22 ........ 1,720,000 1,834,432
Norfolk IDAR, Health Care, Bon Secours Health, Series B, MBIA Insured, 5.25%, 8/15/26 ..... 3,000,000 3,158,070
Norfolk Parking System Revenue, MBIA Insured, 5.55%, 2/01/27 .............................. 2,000,000 2,176,020
Norfolk Water Revenue, MBIA Insured, 5.90%, 11/01/25 ...................................... 5,000,000 5,470,150
Orange County IDAR, Public Facility, Orange County Project, AMBAC Insured, 5.00%, 2/01/34 . 1,000,000 1,049,510
Peninsula Ports Authority Hospital Facilities Revenue, Whittaker Memorial Hospital Project,
Refunding, FHA Insured, 8.70%, 8/01/23 .................................................. 50,000 62,577
Port Authority Commonwealth Port Fidelity Revenue, MBIA Insured, 4.75%, 7/01/28 ........... 3,000,000 3,026,010
Powhatan Co. EDA, Lease Revenue, Virginia Capital Projects, AMBAC Insured,
5.25%, 7/15/33 .......................................................................... 1,000,000 1,083,390
122 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Prince William County IDA, MFHR, Remington Place Apartments Project,
Series A-1, AMBAC Insured, 6.00%, 12/01/33 .............................................. $ 2,340,000 $ 2,479,230
Prince William County Service Authority Water and Sewer
Systems Revenue, FGIC Insured, 5.50%, 7/01/29 ........................................... 5,000,000 5,536,350
Puerto Rico Commonwealth GO, Public Improvement, Series A,
5.125%, 7/01/31 ........................................................................ 5,000,000 5,202,400
5.00%, 7/01/33 ......................................................................... 2,000,000 2,070,740
FGIC Insured, 5.00%, 7/01/32 ........................................................... 16,000,000 16,867,680
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series D, 5.375%, 7/01/36 .............................................................. 3,000,000 3,158,910
Series D, 5.25%, 7/01/38 ............................................................... 5,000,000 5,361,750
Series G, 5.00%, 7/01/33 ............................................................... 5,000,000 5,176,850
Series Y, 5.50%, 7/01/36 ............................................................... 4,500,000 4,998,555
Series Y, Pre-Refunded, 6.00%, 7/01/22 ................................................. 2,000,000 2,249,860
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/28 ........................................................... 5,000,000 5,186,050
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Z, 5.25%, 7/01/21 .................................................... 1,500,000 1,553,295
Series HH, FSA Insured, 5.25%, 7/01/29 ................................................. 5,910,000 6,334,220
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................................. 1,150,000 1,156,716
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 ................. 20,000 20,313
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/27 ....... 4,780,000 5,058,865
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ................. 5,000,000 5,361,750
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
5.70%, 8/01/25 .......................................................................... 1,000,000 1,096,940
Richmond GO, FGIC Insured, 5.00%, 7/15/19 ................................................. 3,690,000 4,024,868
Richmond IDA, Student Housing Revenue, University
Real Estate Foundation, 5.55%, 1/01/31 .................................................. 4,400,000 4,741,748
Richmond Public Facilities COP, 800 Megahertz Project,
Series A, AMBAC Insured, 5.00%, 8/01/22 ................................................. 2,000,000 2,120,520
Richmond Public Utility Revenue, Refunding, FSA Insured, 5.00%, 1/15/33 ................... 8,500,000 8,887,345
Spotsylvania County Water and Sewer System Revenue, MBIA Insured,
5.25%, 6/01/22 ......................................................................... 6,500,000 6,997,250
5.40%, 6/01/27 ......................................................................... 6,800,000 7,288,036
University of Virginia Revenue, Series A, 5.00%, 6/01/33 .................................. 14,000,000 14,729,260
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ............................................................................... 1,500,000 1,608,330
10/01/18 ............................................................................... 1,500,000 1,586,370
Virginia Beach Water and Sewer Revenue, 5.25%, 8/01/21 .................................... 1,865,000 2,014,219
Virginia College Building Authority Educational Facilities Revenue,
21st Century College Program, 5.00%, 2/01/21 ........................................... 1,000,000 1,060,600
Hampton University Project, 6.00%, 4/01/20 ............................................. 1,500,000 1,716,690
Regent University Project, MBIA Insured, 5.125%, 10/01/21 .............................. 5,000,000 5,394,950
Regent University Project, MBIA Insured, 5.125%, 10/01/31 .............................. 4,050,000 4,264,002
Washington and Lee University, 5.75%, 1/01/19 .......................................... 50,000 51,249
Virginia Commonwealth Transportation Board Transportation Revenue,
Northern Virginia Transportation Program, Refunding, Series A, 5.00%, 5/15/27 .......... 8,920,000 9,372,244
U.S. Route 58 Corridor Development Program, Series B, 5.00%, 5/15/24 ................... 2,000,000 2,102,220
U.S. Route 58 Corridor Development Project, Series B, 5.00%, 5/15/26 ................... 10,000,000 10,466,700
Annual Report | 123
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Virginia State HDA Commonwealth Mortgage Revenue, Series J,
Sub Series J-1, MBIA Insured, 5.20%, 7/01/19 ............................................ $ 4,130,000 $ 4,277,193
Virginia State HDA,
MFHR, Series C, 5.30%, 11/01/16 ........................................................ 1,000,000 1,064,960
MFHR, Series H, 5.55%, 5/01/15 ......................................................... 1,000,000 1,063,890
Rental Housing Revenue, Series J, 5.80%, 2/01/19 ....................................... 2,000,000 2,114,420
Rental Housing Revenue, Series L, 5.75%, 2/01/15 ....................................... 1,000,000 1,079,810
Virginia State PBA, Public Facilities Revenue, Series A, 4.50%, 8/01/20 ................... 3,205,000 3,295,317
Virginia State Public School Authority GO, School Financing, Series A, 5.00%,
8/01/20 ................................................................................ 3,000,000 3,219,030
8/01/21 ................................................................................ 4,000,000 4,265,480
Virginia State Public School Authority Revenue, School Financing, Series C, 5.00%,
8/01/22 ................................................................................ 2,000,000 2,122,180
8/01/26 ................................................................................ 10,925,000 11,433,450
Virginia State Resources Authority Airport Revenue, Revolving Fund,
Series A, 5.00%, 8/01/27 ............................................................... 3,000,000 3,107,970
Virginia State Resources Authority Infrastructure Revenue,
Virginia Pooled Financing Program,
Senior Series, 5.00%, 11/01/33 .......................................................... 5,000,000 5,270,000
Virginia State Resources Authority Water and Sewer System Revenue,
Pooled Loan Program, Series A, ETM, 7.35%, 11/01/16 .................................... 45,000 46,836
Pooled Loan Program, Series A, ETM, 7.45%, 11/01/16 .................................... 10,000 10,848
Rapidan Service Authority, Refunding, 5.30%, 10/01/18 .................................. 1,610,000 1,781,063
Tuckahoe Service District Project, 5.00%, 11/01/35 ..................................... 2,000,000 2,112,580
Winchester IDA, Educational Facilities Revenue, First Mortgage,
Shenandoah University Project, Asset Guaranteed,
6.80%, 10/01/24 ........................................................................ 185,000 193,963
Pre-Refunded, 6.80%, 10/01/24 .......................................................... 1,000,000 1,053,810
York County Sewer Revenue, 5.875%,
6/01/24 ................................................................................ 500,000 566,755
6/01/29 ................................................................................ 1,500,000 1,692,525
-------------
TOTAL LONG TERM INVESTMENTS (COST $445,075,600) ........................................... 477,145,490
-------------
SHORT TERM INVESTMENTS .7%
a Alexandria Redevelopment and Housing Authority Residential
Care Facility Revenue, First Mortgage, Goodwin House Inc.,
Series B, Daily VRDN and Put, .93%, 10/01/06 ............................................ 395,000 395,000
a Puerto Rico Commonwealth Government Development Bank Revenue,
Refunding, MBIA Insured, Weekly VRDN and Put, .89%, 12/01/15 ............................ 1,300,000 1,300,000
a Roanoke IDA, Hospital Revenue, Carilion Health System,
Series C, Daily VRDN and Put, .93%, 7/01/27 ............................................. 1,500,000 1,500,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $3,195,000) ............................................ 3,195,000
-------------
TOTAL INVESTMENTS (COST $448,270,600) 99.1% ............................................... 480,340,490
OTHER ASSETS, LESS LIABILITIES .9% ........................................................ 4,584,661
-------------
NET ASSETS 100.0% ......................................................................... $484,925,151
=============
See Glossary of Terms on page 125.
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.
124 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
GLOSSARY OF TERMS
ACES - Adjustable Convertible Exempt Securities
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipation Notes
CDA - Community Development Authority/Agency
CDD - Community Development District
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corporation
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDB - Industrial Development Board
IDBR - Industrial Development Bond Insurance Revenue
IDR - Industrial Development Revenue
ISD - Independent School District
LLC - Limited Liability Corporation
MAC - Municipal Assistance Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFH - Multi-Family Housing
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
SF - Single Family
SFHMR - Single Family Housing Mortgage Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
VHA - Volunteer Hospital of America
Annual Report | 125
Franklin Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
February 29, 2004
---------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------
Assets:
Investments in securities:
Cost ............................................................. $242,161,068 $1,613,318,785 $192,957,501
=======================================================
Value ............................................................ 263,250,682 1,770,477,532 209,121,518
Cash .............................................................. 25,275 48,798 67,168
Receivables:
Capital shares sold .............................................. 391,828 3,941,208 435,556
Interest ......................................................... 3,806,359 25,755,951 2,740,307
-------------------------------------------------------
Total assets ................................................. 267,474,144 1,800,223,489 212,364,549
-------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed .......................................... 222,451 1,650,272 102,720
Affiliates ....................................................... 169,372 995,747 143,785
Shareholders ..................................................... 110,587 995,283 43,746
Distributions to shareholders ..................................... 210,565 1,507,483 203,866
Other liabilities ................................................. 31,507 132,411 32,691
-------------------------------------------------------
Total liabilities ............................................ 744,482 5,281,196 526,808
-------------------------------------------------------
Net assets, at value ........................................ $266,729,662 $1,794,942,293 $211,837,741
=======================================================
Net assets consist of:
Undistributed net investment income ............................... $ (169,406) $ (565,076) $ (165,457)
Net unrealized appreciation (depreciation) ........................ 21,089,614 157,158,747 16,164,017
Accumulated net realized gain (loss) .............................. (10,258,072) (6,780,783) (3,408,523)
Capital shares .................................................... 256,067,526 1,645,129,405 199,247,704
-------------------------------------------------------
Net assets, at value ........................................ $266,729,662 $1,794,942,293 $211,837,741
=======================================================
CLASS A:
Net assets, at value .............................................. $236,225,199 $1,594,007,262 $176,193,167
=======================================================
Shares outstanding ................................................ 20,095,198 130,964,423 14,357,579
=======================================================
Net asset value per share a ....................................... $11.76 $12.17 $12.27
=======================================================
Maximum offering price per share (net asset value
per share / 95.75%) .............................................. $12.28 $12.71 $12.81
=======================================================
CLASS B:
Net assets, at value .............................................. -- $ 76,207,612 --
=======================================================
Shares outstanding ................................................ -- 6,223,292 --
=======================================================
Net asset value and maximum offering price per share a ............ -- $12.25 --
=======================================================
CLASS C:
Net assets, at value .............................................. $ 30,504,463 $ 124,727,419 $ 35,644,574
=======================================================
Shares outstanding ................................................ 2,576,027 10,136,617 2,881,359
=======================================================
Net asset value and maximum offering price per share a ............ $11.84 $12.30 $12.37
=======================================================
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
126 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
----------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY TAX-FREE LOUISIANA TAX-FREE MARYLAND TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------
Assets:
Investments in securities:
Cost ............................................................. $113,806,618 $189,258,011 $360,838,645
=======================================================
Value ............................................................ 121,062,454 203,840,582 385,292,552
Cash .............................................................. 39,392 29,768 889,544
Receivables:
Capital shares sold .............................................. 244,388 305,673 880,828
Interest ......................................................... 1,527,494 2,995,866 4,735,873
-------------------------------------------------------
Total assets ................................................. 122,873,728 207,171,889 391,798,797
-------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................. 3,732,632 -- --
Capital shares redeemed .......................................... 70,532 35,338 1,101,105
Affiliates ....................................................... 34,825 131,583 244,897
Shareholders ..................................................... 118,905 55,344 125,514
Distributions to shareholders ..................................... 96,659 167,410 310,920
Other liabilities ................................................. 22,876 26,803 40,865
-------------------------------------------------------
Total liabilities ............................................ 4,076,429 416,478 1,823,301
-------------------------------------------------------
Net assets, at value ........................................ $118,797,299 $206,755,411 $389,975,496
=======================================================
Net assets consist of:
Undistributed net investment income ............................... $ (27,583) $ (126,883) $ (186,674)
Net unrealized appreciation (depreciation) ........................ 7,255,836 14,582,571 24,453,907
Accumulated net realized gain (loss) .............................. (2,278,452) (1,998,329) (970,237)
Capital shares .................................................... 113,847,498 194,298,052 366,678,500
-------------------------------------------------------
Net assets, at value ........................................ $118,797,299 $206,755,411 $389,975,496
=======================================================
CLASS A:
Net assets, at value .............................................. $118,797,299 $185,987,265 $340,236,817
=======================================================
Shares outstanding ................................................ 10,322,900 15,747,078 28,527,264
=======================================================
Net asset value per share a ....................................... $11.51 $11.81 $11.93
=======================================================
Maximum offering price per share (net asset value
per share / 95.75%) .............................................. $12.02 $12.33 $12.46
=======================================================
CLASS C:
Net assets, at value .............................................. -- $ 20,768,146 $ 49,738,679
=======================================================
Shares outstanding ................................................ -- 1,743,105 4,126,044
=======================================================
Net asset value and maximum offering price per share a ............ -- $11.91 $12.05
=======================================================
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
Annual Report | 127
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
-----------------------------------------------------------
FRANKLIN
FRANKLIN NORTH CAROLINA FRANKLIN
MISSOURI TAX-FREE TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------------
Assets:
Investments in securities:
Cost ............................................................. $527,173,454 $455,241,489 $448,270,600
=======================================================
Value ............................................................ 564,961,985 490,443,464 480,340,490
Cash .............................................................. 3,408,407 8,023 75,791
Receivables:
Capital shares sold .............................................. 1,170,828 518,463 407,603
Interest ......................................................... 7,908,763 6,124,606 5,326,945
-------------------------------------------------------
Total assets ................................................. 577,449,983 497,094,556 486,150,829
-------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................. 16,367,202 -- --
Capital shares redeemed .......................................... 557,607 357,701 260,381
Affiliates ....................................................... 331,308 312,126 290,504
Shareholders ..................................................... 250,411 122,811 240,142
Distributions to shareholders ..................................... 445,586 398,512 385,489
Other liabilities ................................................. 51,823 45,157 49,162
-------------------------------------------------------
Total liabilities ............................................ 18,003,937 1,236,307 1,225,678
-------------------------------------------------------
Net assets, at value ........................................ $559,446,046 $495,858,249 $484,925,151
=======================================================
Net assets consist of:
Undistributed net investment income ............................... $ (328,091) $ (163,357) $ (180,282)
Net unrealized appreciation (depreciation) ........................ 37,788,531 35,201,975 32,069,890
Accumulated net realized gain (loss) .............................. (3,777,041) (3,649,973) (6,118,902)
Capital shares .................................................... 525,762,647 464,469,604 459,154,445
-------------------------------------------------------
Net assets, at value ........................................ $559,446,046 $495,858,249 $484,925,151
=======================================================
CLASS A:
Net assets, at value .............................................. $499,237,534 $413,438,490 $441,915,926
=======================================================
Shares outstanding ................................................ 40,144,522 33,278,267 37,022,547
=======================================================
Net asset value per share a ....................................... $12.44 $12.42 $11.94
=======================================================
Maximum offering price per share (net asset value
per share / 95.75%) .............................................. $12.99 $12.97 $12.47
=======================================================
CLASS C:
Net assets, at value .............................................. $ 60,208,512 $ 82,419,759 $ 43,009,225
=======================================================
Shares outstanding ................................................ 4,815,636 6,574,862 3,571,848
=======================================================
Net asset value and maximum offering price per share a ............ $12.50 $12.54 $12.04
=======================================================
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
128 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended February 29, 2004
----------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------
Investment income:
Interest ........................................................... $13,470,332 $ 93,558,167 $10,733,043
=======================================================
Expenses:
Management fees (Note 3) ........................................... 1,421,078 8,230,031 1,151,422
Distribution fees (Note 3)
Class A ........................................................... 231,101 1,593,132 171,966
Class B ........................................................... -- 440,507 --
Class C ........................................................... 190,651 769,298 223,274
Transfer agent fees (Note 3) ....................................... 112,275 608,948 105,611
Custodian fees ..................................................... 2,600 17,697 2,033
Reports to shareholders ............................................ 16,140 72,569 15,631
Registration and filing fees ....................................... 8,479 24,637 7,057
Professional fees .................................................. 17,418 34,278 14,790
Trustees' fees and expenses ........................................ 2,436 16,308 1,909
Other .............................................................. 29,209 158,451 28,052
-------------------------------------------------------
Total expenses ................................................ 2,031,387 11,965,856 1,721,745
-------------------------------------------------------
Net investment income ....................................... 11,438,945 81,592,311 9,011,298
-------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .......................... (206,846) 834,841 (446,778)
Net unrealized appreciation (depreciation) on investments .......... 5,829,605 27,232,681 5,212,862
-------------------------------------------------------
Net realized and unrealized gain (loss) ............................. 5,622,759 28,067,522 4,766,084
-------------------------------------------------------
Net increase (decrease) in net assets resulting from operations ..... $17,061,704 $109,659,833 $13,777,382
=======================================================
Annual Report | 129
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 29, 2004
----------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY TAX-FREE LOUISIANA TAX-FREE MARYLAND TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------
Investment income:
Interest .......................................................... $5,900,759 $10,714,465 $19,476,677
=======================================================
Expenses:
Management fees (Note 3) .......................................... 711,079 1,136,650 1,962,155
Distribution fees (Note 3)
Class A .......................................................... 119,807 181,942 330,569
Class C .......................................................... -- 135,169 336,971
Transfer agent fees (Note 3) ...................................... 40,914 82,494 213,218
Custodian fees .................................................... 1,179 2,020 3,847
Reports to shareholders ........................................... 8,442 11,162 25,394
Registration and filing fees ...................................... 4,500 5,424 11,613
Professional fees ................................................. 15,615 16,007 16,786
Trustees' fees and expenses ....................................... 980 1,914 3,554
Other ............................................................. 17,653 26,143 37,739
-------------------------------------------------------
Total expenses ............................................... 920,169 1,598,925 2,941,846
Expenses waived/paid by affiliate (Note 3) ................... (214,309) -- --
-------------------------------------------------------
Net expenses ................................................ 705,860 1,598,925 2,941,846
-------------------------------------------------------
Net investment income ...................................... 5,194,899 9,115,540 16,534,831
-------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ......................... (194,210) (871,197) 844,841
Net unrealized appreciation (depreciation) on investments ......... 2,220,045 5,159,230 4,203,914
-------------------------------------------------------
Net realized and unrealized gain (loss) ............................ 2,025,835 4,288,033 5,048,755
-------------------------------------------------------
Net increase (decrease) in net assets resulting from operations .... $7,220,734 $13,403,573 $21,583,586
=======================================================
130 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 29, 2004
----------------------------------------------------------
FRANKLIN
FRANKLIN NORTH CAROLINA FRANKLIN
MISSOURI TAX-FREE TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------
Investment income:
Interest ........................................................... $27,751,998 $25,286,152 $24,203,831
=======================================================
Expenses:
Management fees (Note 3) ........................................... 2,672,259 2,459,882 2,380,400
Distribution fees (Note 3)
Class A ........................................................... 480,039 411,611 431,588
Class C ........................................................... 392,275 535,989 280,892
Transfer agent fees (Note 3) ....................................... 276,698 236,346 237,960
Custodian fees ..................................................... 5,404 4,950 4,905
Reports to shareholders ............................................ 28,089 27,395 25,993
Registration and filing fees ....................................... 14,657 10,261 11,274
Professional fees .................................................. 17,494 21,580 21,561
Trustees' fees and expenses ........................................ 5,030 4,597 4,418
Other .............................................................. 53,860 48,059 44,601
-------------------------------------------------------
Total expenses ................................................ 3,945,805 3,760,670 3,443,592
-------------------------------------------------------
Net investment income ....................................... 23,806,193 21,525,482 20,760,239
-------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .......................... (1,495,217) (338,443) 318,193
Net unrealized appreciation (depreciation) on investments .......... 10,569,681 7,113,032 11,519,624
-------------------------------------------------------
Net realized and unrealized gain (loss) ............................. 9,074,464 6,774,589 11,837,817
-------------------------------------------------------
Net increase (decrease) in net assets resulting from operations ..... $32,880,657 $28,300,071 $32,598,056
=======================================================
Annual Report | See notes to financial statements. | 131
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended February 29, 2004
and February 28, 2003
--------------------------------------------------------------------------
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 11,438,945 $ 11,552,439 $ 81,592,311 $ 84,578,918
Net realized gain (loss) from investments .... (206,846) (756,718) 834,841 5,298,092
Net unrealized appreciation (depreciation)
on investments .............................. 5,829,605 7,105,523 27,232,681 32,698,345
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............... 17,061,704 17,901,244 109,659,833 122,575,355
Distributions to shareholders from:
Net investment income:
Class A ..................................... (10,331,630) (10,637,243) (73,479,490) (78,381,899)
Class B ..................................... -- -- (2,734,894) (1,831,850)
Class C ..................................... (1,095,137) (907,623) (4,756,909) (4,283,469)
----------------------------------------------------------------------------
Total distributions to shareholders ........... (11,426,767) (11,544,866) (80,971,293) (84,497,218)
Capital share transactions: (Note 2)
Class A ..................................... 2,479,520 7,336,510 (56,001,257) (20,007,516)
Class B ..................................... -- -- 19,801,947 23,150,515
Class C ..................................... 4,611,111 6,200,540 9,097,122 20,418,312
----------------------------------------------------------------------------
Total capital share transactions .............. 7,090,631 13,537,050 (27,102,188) 23,561,311
Net increase (decrease) in
net assets .............................. 12,725,568 19,893,428 1,586,352 61,639,448
Net assets
Beginning of year ............................. 254,004,094 234,110,666 1,793,355,941 1,731,716,493
----------------------------------------------------------------------------
End of year ................................... $266,729,662 $254,004,094 $1,794,942,293 $1,793,355,941
============================================================================
Undistributed net investment income
included in net assets:
End of year ................................... $ (169,406) $ (170,614) $ (565,076) $ (1,142,635)
============================================================================
132 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004
and February 28, 2003
----------------------------------------------------------------------------
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 9,011,298 $ 9,183,798 $ 5,194,899 $ 4,855,435
Net realized gain (loss) from investments ... (446,778) (663,949) (194,210) (1,018,850)
Net unrealized appreciation (depreciation)
on investments ............................. 5,212,862 2,843,181 2,220,045 2,610,898
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .............. 13,777,382 11,363,030 7,220,734 6,447,483
Distributions to shareholders from:
Net investment income:
Class A .................................... (7,680,375) (7,995,364) (5,158,609) (4,845,554)
Class C .................................... (1,295,109) (1,192,259) -- --
----------------------------------------------------------------------------
Total distributions to shareholders .......... (8,975,484) (9,187,623) (5,158,609) (4,845,554)
Capital share transactions: (Note 2)
Class A .................................... 828,606 107,163 2,194,026 16,640,295
Class C .................................... 2,404,142 7,359,223 -- --
----------------------------------------------------------------------------
Total capital share transactions ............. 3,232,748 7,466,386 2,194,026 16,640,295
Net increase (decrease) in
net assets ............................. 8,034,646 9,641,793 4,256,151 18,242,224
Net assets
Beginning of year ............................ 203,803,095 194,161,302 114,541,148 96,298,924
----------------------------------------------------------------------------
End of year .................................. $211,837,741 $203,803,095 $118,797,299 $114,541,148
============================================================================
Undistributed net investment income
included in net assets:
End of year .................................. $ (165,457) $ (195,378) $ (27,583) $ (57,963)
============================================================================
Annual Report | 133
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004
and February 28, 2003
----------------------------------------------------------------------------
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 9,115,540 $ 9,128,231 $ 16,534,831 $ 15,666,187
Net realized gain (loss) from investments ... (871,197) (286,931) 844,841 240,920
Net unrealized appreciation (depreciation)
on investments ............................. 5,159,230 3,138,517 4,203,914 7,637,756
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .............. 13,403,573 11,979,817 21,583,586 23,544,863
Distributions to shareholders from:
Net investment income:
Class A .................................... (8,287,908) (8,331,261) (14,770,030) (14,087,275)
Class C .................................... (814,367) (778,551) (1,919,132) (1,677,457)
----------------------------------------------------------------------------
Total distributions to shareholders .......... (9,102,275) (9,109,812) (16,689,162) (15,764,732)
Capital share transactions: (Note 2)
Class A .................................... 4,910,431 6,723,781 13,088,801 34,936,729
Class C .................................... (170,476) 4,164,157 814,408 14,062,166
----------------------------------------------------------------------------
Total capital share transactions ............. 4,739,955 10,887,938 13,903,209 48,998,895
Net increase (decrease) in
net assets ............................. 9,041,253 13,757,943 18,797,633 56,779,026
Net assets
Beginning of year ............................ 197,714,158 183,956,215 371,177,863 314,398,837
----------------------------------------------------------------------------
End of year .................................. $206,755,411 $197,714,158 $389,975,496 $371,177,863
============================================================================
Undistributed net investment income
included in net assets:
End of year .................................. $ (126,883) $ (140,089) $ (186,674) $ (31,979)
============================================================================
134 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004
and February 28, 2003
--------------------------------------------------------------------------
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 23,806,193 $ 22,903,104 $ 21,525,482 $ 21,526,380
Net realized gain (loss) from investments ..... (1,495,217) (547,163) (338,443) 686,306
Net unrealized appreciation (depreciation)
on investments ............................... 10,569,681 10,366,635 7,113,032 10,659,052
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................ 32,880,657 32,722,576 28,300,071 32,871,738
Distributions to shareholders from:
Net investment income:
Class A ...................................... (21,508,601) (21,109,963) (18,428,670) (18,810,127)
Class C ...................................... (2,266,500) (2,035,845) (3,062,666) (2,765,733)
---------------------------------------------------------------------------
Total distributions to shareholders ............ (23,775,101) (23,145,808) (21,491,336) (21,575,860)
Capital share transactions: (Note 2)
Class A ...................................... 23,089,986 33,623,333 (10,377,974) 20,250,134
Class C ...................................... 3,635,035 13,606,971 4,831,266 16,768,980
---------------------------------------------------------------------------
Total capital share transactions ............... 26,725,021 47,230,304 (5,546,708) 37,019,114
Net increase (decrease) in
net assets ............................... 35,830,577 56,807,072 1,262,027 48,314,992
Net assets
Beginning of year .............................. 523,615,469 466,808,397 494,596,222 446,281,230
---------------------------------------------------------------------------
End of year .................................... $559,446,046 $523,615,469 $495,858,249 $494,596,222
===========================================================================
Undistributed net investment income
included in net assets:
End of year .................................... $ (328,091) $ (360,072) $ (163,357) $ (194,850)
===========================================================================
Annual Report | 135
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004
and February 28, 2003
----------------------------------
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
----------------------------------
2004 2003
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 20,760,239 $ 20,734,984
Net realized gain (loss) from investments ................................... 318,193 (1,547,708)
Net unrealized appreciation (depreciation) on investments ................... 11,519,624 6,208,600
----------------------------------
Net increase (decrease) in net assets resulting from operations ......... 32,598,056 25,395,876
Distributions to shareholders from:
Net investment income:
Class A .................................................................... (19,035,054) (19,304,187)
Class C .................................................................... (1,596,169) (1,537,328)
----------------------------------
Total distributions to shareholders .......................................... (20,631,223) (20,841,515)
Capital share transactions: (Note 2)
Class A .................................................................... 4,626,319 26,656,643
Class C .................................................................... 158,524 7,391,873
----------------------------------
Total capital share transactions ............................................. 4,784,843 34,048,516
Net increase (decrease) in net assets ................................... 16,751,676 38,602,877
Net assets
Beginning of year ............................................................ 468,173,475 429,570,598
----------------------------------
End of year .................................................................. $484,925,151 $468,173,475
==================================
Undistributed net investment income included in net assets:
End of year .................................................................. $ (180,282) $ (304,682)
==================================
136 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-five
separate series. All Funds included in this report (the Funds) are diversified
except the Franklin Maryland Tax-Free Income Fund. The investment objective of
the Funds is to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market. The Trust
utilizes independent pricing services to perform any of the pricing functions
under procedures approved by the Board Trustees. Tax-free bonds may be valued by
the pricing services using matrix pricing which considers such factors as prices
of comparable quality issues, yield, maturity, coupon, and credit ratings. If
events occur that materially affect the values of securities after the prices
are determined, or if market quotations are not readily available, the
securities will be valued at fair value as determined following procedures
approved by the Board of Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Funds may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Funds will generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
C. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
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. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders. Other distributions are recorded on the
ex-dividend date.
Annual Report | 137
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)
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. Other expenses are
charged to each Fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
E. 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.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
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. However, based on experience, the Trust
expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below. Each
class of shares differs by its initial sales load, 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
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
138 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
At February 29, 2004, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' shares were as follows:
----------------------------------------------------------------
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ........................... 2,263,954 $ 26,105,547 14,888,557 $ 178,197,604
Shares issued in reinvestment of
distributions ........................ 413,398 4,773,178 2,342,089 28,048,077
Shares redeemed ....................... (2,464,934) (28,399,205) (21,979,610) (262,246,938)
---------------------------------------------------------------
Net increase (decrease) ............... 212,418 $ 2,479,520 (4,748,964) $ (56,001,257)
===============================================================
Year ended February 28, 2003
Shares sold ........................... 2,720,475 $ 30,570,054 16,224,930 $ 190,925,054
Shares issued in reinvestment of
distributions ........................ 411,009 4,629,720 2,248,772 26,425,324
Shares redeemed ....................... (2,474,126) (27,863,264) (20,195,116) (237,357,894)
---------------------------------------------------------------
Net increase (decrease) ............... 657,358 $ 7,336,510 (1,721,414) $ (20,007,516)
===============================================================
CLASS B SHARES:
Year ended February 29, 2004
Shares sold ........................... 2,246,771 $ 27,088,183
Shares issued in reinvestment of
distributions ........................ 120,530 1,451,711
Shares redeemed ....................... (727,812) (8,737,947)
------------------------------
Net increase (decrease) ............... 1,639,489 $ 19,801,947
==============================
Year ended February 28, 2003
Shares sold ........................... 2,328,425 $ 27,512,309
Shares issued in reinvestment of
distributions ........................ 81,722 966,320
Shares redeemed ....................... (449,448) (5,328,114)
------------------------------
Net increase (decrease) ............... 1,960,699 $ 23,150,515
==============================
CLASS C SHARES:
Year ended February 29, 2004
Shares sold ........................... 615,117 $ 7,148,888 2,396,470 $ 29,074,616
Shares issued in reinvestment of
distributions ........................ 40,743 473,587 203,452 2,462,332
Shares redeemed ....................... (260,368) (3,011,364) (1,860,119) (22,439,826)
---------------------------------------------------------------
Net increase (decrease) ............... 395,492 $ 4,611,111 739,803 $ 9,097,122
===============================================================
Year ended February 28, 2003
Shares sold ........................... 791,454 $ 8,988,483 2,767,475 $ 32,935,996
Shares issued in reinvestment of
distributions ........................ 35,890 407,239 175,927 2,089,536
Shares redeemed ....................... (282,453) (3,195,182) (1,230,617) (14,607,220)
---------------------------------------------------------------
Net increase (decrease) ............... 544,891 $ 6,200,540 1,712,785 $ 20,418,312
===============================================================
Annual Report | 139
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
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold .......................... 1,660,253 $ 19,992,989 1,644,747 $ 18,576,555
Shares issued in reinvestment of
distributions ....................... 365,767 4,406,855 210,011 2,369,767
Shares redeemed ...................... (1,966,391) (23,571,238) (1,672,321) (18,752,296)
---------------------------------------------------------------
Net increase (decrease) .............. 59,629 $ 828,606 182,437 $ 2,194,026
===============================================================
Year ended February 28, 2003
Shares sold .......................... 2,043,821 $ 24,188,284 2,159,812 $ 24,173,500
Shares issued in reinvestment of
distributions ....................... 358,487 4,240,899 190,333 2,121,891
Shares redeemed ...................... (2,396,807) (28,322,020) (863,900) (9,655,096)
---------------------------------------------------------------
Net increase (decrease) .............. 5,501 $ 107,163 1,486,245 $ 16,640,295
===============================================================
CLASS C SHARES:
Year ended February 29, 2004
Shares sold .......................... 711,949 $ 8,634,883
Shares issued in reinvestment of
distributions ....................... 62,293 756,473
Shares redeemed ...................... (577,059) (6,987,214)
------------------------------
Net increase (decrease) .............. 197,183 $ 2,404,142
==============================
Year ended February 28, 2003
Shares sold .......................... 927,401 $ 11,066,459
Shares issued in reinvestment of
distributions ....................... 58,012 691,479
Shares redeemed ...................... (367,006) (4,398,715)
------------------------------
Net increase (decrease) .............. 618,407 $ 7,359,223
==============================
---------------------------------------------------------------
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold .......................... 1,992,894 $ 23,090,261 4,647,064 $ 54,623,543
Shares issued in reinvestment of
distributions ........................ 392,394 4,538,960 732,776 8,618,206
Shares redeemed ...................... (1,978,776) (22,718,790) (4,272,744) (50,152,948)
---------------------------------------------------------------
Net increase (decrease) .............. 406,512 $ 4,910,431 1,107,096 $ 13,088,801
===============================================================
Year ended February 28, 2003
Shares sold .......................... 1,667,975 $ 19,006,969 5,352,288 $ 62,077,239
Shares issued in reinvestment of
distributions ........................ 380,863 4,342,933 689,174 7,985,872
Shares redeemed ...................... (1,457,832) (16,626,121) (3,035,370) (35,126,382)
---------------------------------------------------------------
Net increase (decrease) .............. 591,006 $ 6,723,781 3,006,092 $ 34,936,729
===============================================================
140 | Annual Report
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 29, 2004
Shares sold .......................... 313,052 $ 3,651,038 946,909 $ 11,262,018
Shares issued in reinvestment of
distributions ....................... 36,055 420,614 101,326 1,204,169
Shares redeemed ...................... (366,588) (4,242,128) (981,755) (11,651,779)
---------------------------------------------------------------
Net increase (decrease) .............. (17,481) $ (170,476) 66,480 $ 814,408
===============================================================
Year ended February 28, 2003
Shares sold .......................... 469,109 $ 5,400,377 1,659,622 $ 19,451,359
Shares issued in reinvestment of
distributions ....................... 34,385 395,363 89,480 1,047,856
Shares redeemed ...................... (141,900) (1,631,583) (549,976) (6,437,049)
---------------------------------------------------------------
Net increase (decrease) .............. 361,594 $ 4,164,157 1,199,126 $ 14,062,166
===============================================================
---------------------------------------------------------------
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold .......................... 6,216,991 $ 76,004,841 4,241,562 $ 51,874,884
Shares issued in reinvestment of
distributions ....................... 904,776 11,052,586 856,817 10,468,046
Shares redeemed ...................... (5,255,100) (63,967,441) (5,976,256) (72,720,904)
---------------------------------------------------------------
Net increase (decrease) .............. 1,866,667 $ 23,089,986 (877,877) $(10,377,974)
===============================================================
Year ended February 28, 2003
Shares sold .......................... 5,750,975 $ 69,246,539 5,133,614 $ 61,721,118
Shares issued in reinvestment of
distributions ....................... 850,951 10,230,750 861,386 10,352,896
Shares redeemed ...................... (3,807,445) (45,853,956) (4,312,198) (51,823,880)
---------------------------------------------------------------
Net increase (decrease) .............. 2,794,481 $ 33,623,333 1,682,802 $ 20,250,134
===============================================================
CLASS C SHARES:
Year ended February 29, 2004
Shares sold .......................... 947,105 $ 11,655,629 1,207,157 $ 14,897,913
Shares issued in reinvestment of
distributions ....................... 115,205 1,414,442 149,255 1,839,541
Shares redeemed ...................... (771,237) (9,435,036) (968,584) (11,906,188)
---------------------------------------------------------------
Net increase (decrease) .............. 291,073 $ 3,635,035 387,828 $ 4,831,266
===============================================================
Annual Report | 141
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, 2003
Shares sold .......................... 1,534,768 $ 18,573,751 2,131,359 $ 25,773,944
Shares issued in reinvestment of
distributions ........................ 103,840 1,255,534 137,126 1,662,595
Shares redeemed ...................... (516,002) (6,222,314) (883,057) (10,667,559)
---------------------------------------------------------------
Net increase (decrease) .............. 1,122,606 $ 13,606,971 1,385,428 $ 16,768,980
===============================================================
----------------------------
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
----------------------------
SHARES AMOUNT
----------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ............................................................ 4,425,238 $ 51,817,464
Shares issued in reinvestment of distributions ......................... 901,659 10,552,449
Shares redeemed ........................................................ (4,941,087) (57,743,594)
----------------------------
Net increase (decrease) ................................................ 385,810 $ 4,626,319
============================
Year ended February 28, 2003
Shares sold ............................................................ 5,015,611 $ 57,798,594
Shares issued in reinvestment of distributions ......................... 887,130 10,210,584
Shares redeemed ........................................................ (3,592,895) (41,352,535)
----------------------------
Net increase (decrease) ................................................ 2,309,846 $ 26,656,643
============================
CLASS C SHARES:
Year ended February 29, 2004
Shares sold ............................................................ 658,051 $ 7,776,322
Shares issued in reinvestment of distributions ......................... 80,253 947,475
Shares redeemed ........................................................ (728,074) (8,565,273)
----------------------------
Net increase (decrease) ................................................ 10,230 $ 158,524
============================
Year ended February 28, 2003
Shares sold ............................................................ 1,035,218 $ 12,037,205
Shares issued in reinvestment of distributions ......................... 77,077 894,365
Shares redeemed ........................................................ (477,123) (5,539,697)
----------------------------
Net increase (decrease) ................................................ 635,172 $ 7,391,873
============================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
- -----------------------------------------------------------------------------------------
ENTITY 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
142 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Funds pay an investment management fee to Advisers based on the month-end
net assets of the Funds as follows:
- ------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- ------------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Advisers agreed in advance to waive a portion of the management fees for the
Franklin Kentucky Tax-Free Income Fund, as noted in the Statement of Operations.
The Funds reimburse Distributors up to .10%, .65%, and .65% per year of their
average daily net assets of Class A, Class B, and Class C, respectively, for
costs incurred in marketing the Funds' shares under a Rule 12b-1 plan.
Distributors has advised the Funds it received (paid) net commissions from (on)
sales of the Funds' shares, and received contingent deferred sales charges for
the year as follows:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------
Net commissions received (paid) ....... $(12,087) $(856,584) $(27,965)
Contingent deferred sales charges ..... $ 14,021 $ 187,142 $ 14,305
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------
Net commissions received (paid) ....... $40,864 $12,031 $27,668
Contingent deferred sales charges ..... $ -- $24,695 $21,983
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------
Net commissions received (paid) ....... $(52,887) $(38,150) $41,807
Contingent deferred sales charges ..... $ 39,354 $ 36,492 $18,426
Annual Report | 143
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were paid to Investor Services:
----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------
Transfer agent fees ....... $69,222 $384,726 $69,749
----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------
Transfer agent fees ....... $28,935 $52,116 $133,869
----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------
Transfer agent fees ....... $181,132 $143,568 $146,710
4. INCOME TAXES
At February 29, 2004, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------
Capital loss carryovers expiring in:
2008 ............................. $ 1,941,746 $ -- $1,387,542
2009 ............................. 135,955 6,535,414 833,999
2010 ............................. 7,179,861 245,369 --
2011 ............................. 804,634 -- --
2012 ............................. 195,876 -- 972,862
--------------------------------------------
$10,258,072 $6,780,783 $3,194,403
============================================
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------
Capital loss carryovers expiring in:
2005 ............................. $ 294,278 $ -- $ --
2008 ............................. 305,529 545,898 --
2009 ............................. -- 171,149 850,416
2010 ............................. 413,791 -- 119,821
2012 ............................. 1,264,854 1,281,282 --
--------------------------------------------
$2,278,452 $1,998,329 $970,237
============================================
144 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------------------------------
Capital loss carryovers expiring in:
2008 ............................. $ -- $ -- $2,286,114
2009 ............................. 1,738,727 3,314,184 1,407,973
2010 ............................. -- -- 1,188,255
2011 ............................. 316,094 -- --
2012 ............................. 1,619,914 335,790 1,236,561
------------------------------------------
$3,674,735 $3,649,974 $6,118,903
==========================================
At February 29, 2004, Franklin Kentucky Tax-Free Income Fund had expired capital
loss carryover of $65,389, which was reclassed to paid-in capital.
At February 29, 2004, Franklin Georgia Tax-Free Income Fund has deferred capital
losses of $201,460 occurring subsequent to October 31, 2003. For tax purposes,
such losses will be reflected in the year ending February 28, 2005.
Distributions of income to shareholders may not equal net investment income due
to differing treatments of dividend distributions for book and tax purposes.
Net investment income (loss) 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 bond discounts and wash sales.
At February 29, 2004, 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 ........................ $242,136,272 $1,613,113,637 $192,954,580
===================================================
Unrealized appreciation .................... 21,344,014 157,382,403 16,733,312
Unrealized depreciation .................... (229,604) (18,508) (566,374)
---------------------------------------------------
Net unrealized appreciation (depreciation) . $ 21,114,410 $ 157,363,895 $ 16,166,938
---------------------------------------------------
Distributable earnings - undistributed tax
exempt income ............................. $ 16,363 $ 737,262 $ 22,833
===================================================
Annual Report | 145
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
-------------------------------------------------------
Cost of investments ............................. $113,789,546 $189,217,483 $360,812,273
=======================================================
Unrealized appreciation ......................... 7,487,504 14,744,719 24,600,789
Unrealized depreciation ......................... (214,596) (121,620) (120,510)
-------------------------------------------------------
Net unrealized appreciation (depreciation) ...... $ 7,272,908 $ 14,623,099 $ 24,480,279
=======================================================
Distributable earnings - undistributed tax
exempt income .................................. $ 52,004 $ -- $ 97,874
=======================================================
-------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-------------------------------------------------------
Cost of investments ............................. $527,190,446 $455,209,045 $448,239,855
=======================================================
Unrealized appreciation ......................... 38,564,088 35,484,653 32,457,913
Unrealized depreciation ......................... (792,549) (250,234) (357,278)
-------------------------------------------------------
Net unrealized appreciation (depreciation) ...... $ 37,771,539 $ 35,234,419 $ 32,100,635
=======================================================
Distributable earnings - undistributed tax
exempt income .................................. $ 32,181 $ 202,711 $ 174,461
=======================================================
The tax character of distributions paid during the years ended February 29, 2004
and February 28, 2003, was as follows:
---------------------------------------------------------
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
Distributions paid from -
tax-exempt income ..................... $11,426,767 $11,544,866 $80,971,293 $84,497,218
---------------------------------------------------------
---------------------------------------------------------
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
Distributions paid from -
tax-exempt income ..................... $8,975,484 $9,187,623 $5,158,609 $4,845,554
---------------------------------------------------------
---------------------------------------------------------
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
Distributions paid from -
tax-exempt income ..................... $9,102,275 $9,109,812 $16,689,162 $15,764,732
---------------------------------------------------------
146 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
-------------------------------------------------------------
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------
Distributions paid from -
tax-exempt income ..................... $23,775,101 $23,145,808 $21,491,336 $21,575,860
-------------------------------------------------------------
----------------------------
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
----------------------------
2004 2003
----------------------------
Distributions paid from -
tax-exempt income ...................................................... $20,631,223 $20,841,515
----------------------------
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 29, 2004 were as follows:
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Purchases ............. $37,055,013 $120,086,744 $28,042,972
Sales ................. $32,153,878 $156,736,874 $23,901,789
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Purchases ............. $18,567,203 $36,719,930 $54,794,668
Sales ................. $13,458,885 $32,558,640 $39,706,231
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
Purchases ............. $178,339,715 $37,049,140 $38,936,583
Sales ................. $132,694,766 $47,587,187 $32,573,576
Annual Report | 147
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REGULATORY MATTERS
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company"),
alleging violations of the Massachusetts Uniform Securities Act. The complaint
arises from activity that occurred in 2001 during which time an officer of a
Company subsidiary was negotiating an agreement with an investor relating to
investments in a mutual fund and a hedge fund.
The Funds, in addition to other entities within Franklin Templeton Investments,
including the Company and other funds, have been named in shareholder class and
derivative lawsuits related to the matter described above, as well as actions
seeking the return of certain management fees to the Funds. The Funds'
management believes that the claims made in the lawsuits are without merit and
they intend to defend vigorously against the allegations. It is anticipated that
the Funds may be named in additional similar civil actions related to the matter
described above.
In addition, as part of ongoing investigations by the U.S. Securities and
Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of
California, the New York Attorney General, the California Attorney General, the
U.S. Attorney for the District of Massachusetts, the Florida Department of
Financial Services, and the Commissioner of Securities and the Attorney General
of the State of West Virginia, relating to certain practices in the mutual fund
industry, including late trading, market timing and sales compensation
arrangements, the Company and its subsidiaries, as well as certain current or
former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company and
its current employees are providing documents and information in response to
these requests and subpoenas. In addition, the Company has responded to requests
for similar kinds of information from regulatory authorities in some of the
foreign countries where the Company conducts its global asset management
business.
The Staff of the SEC has informed the Company that it intends to recommend that
the Commission authorize an action against the Funds' investment adviser
relating to the frequent trading issues that are the subject of the SEC's
investigation. These issues were previously disclosed as being under
investigation by government authorities and the subject of an internal inquiry
by the Company in its Annual Report on Form 10-K and on its public website. The
Company currently is in discussions with the SEC Staff in an effort to resolve
the issues raised in their investigation. The Fund's management has been advised
that the Company cannot predict the likelihood of whether those discussions will
result in a settlement and, if so, the terms of such settlements. The impact, if
any, of these matters on the Funds is uncertain at this time. If the Company
finds that it bears responsibility for any unlawful or improper conduct, it is
committed to making the Funds or their shareholders whole, as appropriate.
148 | Annual Report
Franklin Tax-Free Trust
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TAX-FREE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Tax-Free Trust (hereafter referred to
as the "Funds") at February 29, 2004, 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 auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 12, 2004
Annual Report | 149
Franklin Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Trust hereby
designates 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 29, 2004. A portion
of the Funds' exempt-interest dividends may be subject to the federal
alternative minimum tax. In January 2005, shareholders will be notified of
amounts for use in preparing their 2004 income tax returns.
150 | Annual Report
Board Members and Officers
The name, age 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. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (82) Trustee Since 1984 113 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (71) Trustee Since 1984 143 Director, Bar-S Foods
One Franklin Parkway (meat packing company).
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).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (71) Trustee Since 1989 134 None
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 1998 82 Director, Amerada Hess
One Franklin Parkway Corporation
San Mateo, CA 94403-1906 (exploration and
refining of oil and
gas); Beverly
Enterprises, Inc.
(health care); H.J.
Heinz Company
(processed foods and
allied products); RTI
International Metals,
Inc. (manufacture and
distribution of
titanium); and
Canadian National
Railway (railroad).
- ------------------------------------------------------------------------------------------------------------------------------------
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 (74) Trustee Since 1984 115 Director, The
One Franklin Parkway California Center for
San Mateo, CA 94403-1906 Land Recycling
(redevelopment).
- ------------------------------------------------------------------------------------------------------------------------------------
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 | 151
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (75) Trustee Since 1992 142 Director, White
One Franklin Parkway Mountains Insurance
San Mateo, CA 94403-1906 Group, Ltd. (holding
company); Martek
Biosciences
Corporation;
MedImmune, Inc.
(biotechnology); and
Overstock.com
(Internet services);
and FORMERLY,
Director, MCI
Communication
Corporation
(subsequently known as
MCI WorldCom, Inc. and
WorldCom, Inc.)
(communications
services) (1988-2002)
and Spacehab, Inc.
(aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation
(financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association
of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee and Since 1984 142 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.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be,
of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (63) Trustee, Trustee and 125 None
One Franklin Parkway President President since
San Mateo, CA 94403-1906 and Chief 1984 and Chief
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.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, 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 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
152 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
SHEILA AMOROSO (44) Vice Since 2000 Not Applicable None
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.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (58) Vice Since 1986 Not Applicable None
One Franklin Parkway President
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services,
Inc.; and officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc. and
of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RAFAEL R. COSTAS, JR. (39) Vice Since 2000 Not Applicable None
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.
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (43) Vice Since 1995 Not Applicable None
One Franklin Parkway President
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin
Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.;
Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief
Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton 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 49 of the investment companies
in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL Executive
33394-3091 Officer -
Finance and
Administration
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (56) Vice Since 2000 Not Applicable None
One Franklin Parkway President
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 153
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice Since 2000 Not Applicable None
One Franklin Parkway President
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc.,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
DIOMEDES LOO-TAM (65) Treasurer Since March 2004 Not Applicable None
One Franklin Parkway and Chief
San Mateo, CA 94403-1906 Financial
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; and Consultant, MyVest Corporation (software
development company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees, Runkel
Funds, Inc. (2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments (1985-2000);
and Senior Vice President, Franklin Templeton Services, LLC (1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (66) Vice Since 2002 Not Applicable Director, FTI Banque,
600 5th Avenue President Arch Chemicals, Inc.
Rockefeller Center and Lingnan Foundation
New York, NY 10048-0772
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the case
may be of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (66) Vice Since 2000 Not Applicable None
One Franklin Parkway President
San Mateo, CA 94403-1906 and
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of
Franklin Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, Chief
Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000) and Director, Templeton
Asset Management Ltd. (until 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
154 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS WALSH (42) Vice Since 2000 Not Applicable None
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 adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc., which
is the parent company of the Trust's adviser and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
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 OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
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. LAHAYE IS AN INDEPENDENT TRUSTEE
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 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 155
Franklin Tax-Free Trust
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund'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 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group.
156 | Annual Report
Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5,6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5,6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5,6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC 7
Alabama Michigan 8
Arizona Minnesota 8
California 9 Missouri
Colorado New Jersey
Connecticut New York 9
Florida 9 North Carolina
Georgia Ohio 8
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 8 Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 10
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
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. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
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. Portfolio of insured municipal securities.
9. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
10. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 Not part of the annual report
[GRAPHIC OMITTED]
Franklin Templeton Logo
One Franklin Parkway
San Mateo, CA 94403-1906
[ ] WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
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ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TAX-FREE TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a current
Franklin Tax-Free Trust prospectus. Investors should carefully consider a fund's
investment goals, risks, charges and expenses before investing. To obtain a
prospectus, which contains this and other information, talk to your financial
advisor, call us at 1-800/DIAL BEN(R) (1-800/342-5236) or visit
franklintempleton.com. Please read the prospectus 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 A2004 04/04
FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
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
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER | TAX-FREE INCOME
- --------------------------------------------------------------------------------
Franklin Tax-Free Trust
- --------------------------------------------------------------------------------
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. see inside for details.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
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 leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
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
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style
of value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios 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 account services that have helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ................ 1
SPECIAL FEATURE:
Understanding Your
Tax-Free Income Fund .............. 4
ANNUAL REPORT
Municipal Bond
Market Overview ................... 7
Investment Strategy and
Manager's Discussion .............. 9
Franklin Arizona
Tax-Free Income Fund .............. 10
Franklin Colorado
Tax-Free Income Fund .............. 17
Franklin Connecticut
Tax-Free Income Fund .............. 23
Franklin Double
Tax-Free Income Fund .............. 30
Franklin Federal
Intermediate-Term
Tax-Free Income Fund .............. 37
Franklin Federal
Limited-Term
Tax-Free Income Fund .............. 43
Franklin High Yield
Tax-Free Income Fund .............. 46
Franklin New Jersey
Tax-Free Income Fund .............. 53
Franklin Oregon
Tax-Free Income Fund .............. 61
Franklin Pennsylvania
Tax-Free Income Fund .............. 67
Financial Highlights and
Statements of Investments ......... 74
Financial Statements .............. 174
Notes to
Financial Statements .............. 188
Independent
Auditors' Report .................. 204
Tax Designation ................... 205
Board Members
and Officers ...................... 206
Proxy Voting Policies
and Procedures .................... 211
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Annual Report
Municipal Bond Market Overview
During the fiscal year ended February 29, 2004, the municipal bond market
received support from investors, resulting in a broad-based municipal bond price
increase. Consequently, the Lehman Brothers Municipal Bond Index rose 6.30% for
the 12-month period. 1 Several factors contributed to bond market strength.
Rising unemployment, excess production capacity, the Federal Reserve Board's
(the Fed's) decision to lower the federal funds target rate to 1.00% in June
2003, and many foreign governments' strong demand for Treasury bonds each played
a role in driving fixed income prices higher. Persistently low inflation was
also important because it can reassure fixed income investors that the value of
their cash flow is more likely to retain its purchasing power. Inflation as
measured by the Consumer Price Index (CPI) rose a modest 1.9% for the 12 months
under review.
Bond prices and borrowing rates for issuers are generally inversely related;
thus borrowing costs for most municipalities declined during the period under
review. According to Municipal Market Data, the yield for 30-year AAA bonds
declined from 4.71% at the beginning of the year under review to 4.44% on
February 29, 2004. 2 Declining yields provided some municipalities with the
opportunity to refinance their outstanding debt at lower interest rates. During
calendar year 2003, municipalities issued $94 billion of bonds to refund their
outstanding debt. Refunding debt combined with new-issue bonds totaled $384
billion in 2003, surpassing the $358 billion record set in 2002. 3
Another trend in the municipal bond market was greater short-term borrowing,
largely because of the need to smooth annual revenues and fill budget gaps, and
the unusually wide spread between short- and long-term rates. In 2003 municipal
note issuance reached the second-highest level of the past decade. Despite the
abundance of short-term notes, the difference between short- and long-term
rates, illustrated by the yield curve, was wider on average for the year ended
February 29, 2004 than for the 10 prior years. Although the yield curve was
steep, which can reflect fear of rising rates on the long end, long-term
interest rates remained near four-decade lows during the year under review.
1. Source: Standard & Poors Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
2. Source: Thomson Financial.
3. Source: THE BOND BUYER online, www.bondbuyer.com, "A Decade of Municipal Bond
Finance," 3/4/04.
Annual Report | 7
The path toward higher municipal bond prices was unsteady at times during the
year under review as significant events affected the market. Globally, triumphs
and setbacks in Iraq and the Middle East, tension with North Korea, outbreaks of
contagious diseases, and worldwide terrorist activity made headlines.
Domestically, changing tax policies, burgeoning budget deficits, dollar
devaluation, national health care reform, and several financial scandals were
prominent news stories over the past 12 months. Such events seemed to be
reflected in the Lehman Brothers Municipal Bond Index's volatility. The index
returned 4.13% between February 28 and June 15, 2003, then fell 4.80% from June
15 through August 15, and rose 7.22% from August 15 through fiscal year-end. 1
The municipal bond market, however, experienced less volatility than the 10-year
Treasury bond or the Standard & Poor's 500 Composite Index (S&P 500). 4
Many states coped with financial challenges and budget deficits during the year
under review. According to the Center on Budget and Policy Priorities, a
nonpartisan organization that researches and analyzes a range of government
policies and programs, in January 2003 the projected budget shortfall for fiscal
year 2004 for all states totaled between $70 billion and $85 billion. However,
in January 2004, Moody's Investors Service, an independent credit rating agency,
released a report entitled "State Credit Cycle Approaches the Bottom; Lessons
from the Early 1990s," which cited several factors that Moody's suggests could
contribute to eventual restoration of fiscal balance. Even with large budgetary
swings, overall municipal debt credit quality remained high, which resulted in
Moody's credit upgrades surpassing downgrades by 415 to 306 for 2003.
4. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
8 | Annual Report
Investment Strategy and
Manager's Discussion
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, our portfolios become well
diversified with a broad range of coupons, calls and maturities. This broad
diversification helps stabilize Fund share prices. We generally stay fully
invested to support income distribution.
The record amount of new issuance nationally during the Funds' fiscal year
provided us with ample opportunity to keep the portfolios fully invested,
improve the structure of existing portfolios, or execute tax losses. The mixture
of our value-oriented philosophy of investing primarily for income, a large
supply of municipal bonds, and a steep yield curve favored the use of
longer-term bonds within the parameters of each specific fund. Consequently, we
sought to remain fully invested in bonds that ranged from 15 to 30 years in
maturity with good call features for the long-term funds, invested in bonds
between 10 and 15 years in maturity for the intermediate-term funds, and 5 years
or less for the limited-term fund.
We invite you to read your Fund report for more detailed performance and
portfolio information. Thank you for your participation in Franklin Tax-Free
Trust. We look forward to serving your future investment needs.
Annual Report | 9
Franklin Arizona Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Arizona Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Arizona state
personal income taxes through a portfolio consisting mainly of Arizona municipal
bonds. 1
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CREDIT QUALITY BREAKDOWN*
Franklin Arizona Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA .................................. 60.3%
AA ................................... 7.3%
A .................................... 19.7%
BBB .................................. 11.3%
Below Investment Grade ............... 1.4%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
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We are pleased to bring you Franklin Arizona Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $10.88 on February
28, 2003, to $11.21 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 51.90 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 13 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.33%, based on an
annualization of the current 4.23 cent ($0.0423) per share dividend and the
maximum offering price of $11.71 on February 29, 2004. An investor in the 2004
maximum combined federal and Arizona
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 77.
10 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Arizona Tax-Free Income Fund
3/1/03-2/29/04
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DIVIDEND PER SHARE
------------------------------------------------
MONTH CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------
March 4.35 cents 3.85 cents 3.90 cents
- ----------------------------------------------------------------------
April 4.35 cents 3.85 cents 3.90 cents
- ----------------------------------------------------------------------
May 4.35 cents 3.85 cents 3.90 cents
- ----------------------------------------------------------------------
June 4.35 cents 3.84 cents 3.77 cents
- ----------------------------------------------------------------------
July 4.35 cents 3.84 cents 3.77 cents
- ----------------------------------------------------------------------
August 4.35 cents 3.86 cents 3.79 cents
- ----------------------------------------------------------------------
September 4.35 cents 3.86 cents 3.79 cents
- ----------------------------------------------------------------------
October 4.35 cents 3.86 cents 3.79 cents
- ----------------------------------------------------------------------
November 4.35 cents 3.86 cents 3.79 cents
- ----------------------------------------------------------------------
December 4.25 cents 3.75 cents 3.76 cents
- ----------------------------------------------------------------------
January 4.25 cents 3.75 cents 3.76 cents
- ----------------------------------------------------------------------
February 4.25 cents 3.75 cents 3.76 cents
- ----------------------------------------------------------------------
TOTAL 51.90 CENTS 45.92 CENTS 45.68 CENTS
- ----------------------------------------------------------------------
state personal income tax bracket of 38.28% would need to earn a distribution
rate of 7.02% 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.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
STATE UPDATE 3
Arizona's solid economic base continued to diversify away from its prior
dependence on natural resources, with particular growth seen in the high
technology and tourism sectors through the 1990s. Although manufacturing
employment was well below the national average at about 8% of the state's total
employment, over half
3. Source: Moody's Investors Service, "New Issue: Arizona School Facilities
Board," 2/18/04.
Annual Report | 11
PORTFOLIO BREAKDOWN
Franklin Arizona Tax-Free Income Fund
2/29/04
- --------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------------
Utilities 23.0%
- --------------------------------------------------------
Hospital & Health Care 20.1%
- --------------------------------------------------------
Prerefunded 10.7%
- --------------------------------------------------------
Transportation 9.4%
- --------------------------------------------------------
Higher Education 9.3%
- --------------------------------------------------------
General Obligation 7.8%
- --------------------------------------------------------
Subject to Government Appropriations 6.4%
- --------------------------------------------------------
Housing 4.0%
- --------------------------------------------------------
Other Revenue 3.9%
- --------------------------------------------------------
Tax-Supported 3.7%
- --------------------------------------------------------
Corporate-Backed 1.7%
- --------------------------------------------------------
of this was recently associated with high technology industries. Arizona's
population growth far outpaced the nation's from 1990 through 2000. Although
Arizona's personal income growth rate has exceeded the national rate in recent
years, poverty levels remain high, with the state ranked among the top 15 states
for percentage of persons living in poverty. Personal income levels remained at
about 85% of the national average.
Like many states, Arizona felt the impact of the general economic slowdown on
its revenues, particularly sales and income tax collection. High technology and
tourism sector weakness contributed to declining income tax revenues and job
growth in recent years. Decreasing revenues, coupled with expenditure needs
related to health care and welfare caseload growth, resulted in a shortfall of
close to $1 billion for fiscal year 2004. Various measures, mostly
non-recurring, were used to address the shortfall, including about $340 million
of federal fiscal relief and federal medical assistance funds. However,
year-to-date fiscal year 2004 general fund base revenue collections through
December 2003 were up 7.7% compared with the same period in fiscal year 2003 and
3.8% ahead of forecast.
Independent credit rating agency Moody's Investors Service revised Arizona's
credit outlook from negative to stable. The revised outlook reflects an
improvement in state economic conditions, which together with federal relief
funding helped stabilize fiscal deterioration earlier than expected. Although
the state experienced some economic and fiscal improvement, it will likely
continue to face education, health care, social services and corrections
expenditure pressures associated with its growing population and potential new
policy initiatives that may continue to strain finances over the next few years.
The governor is actively working with the legislature to propose various methods
of dealing with the anticipated 2005 budget gap.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
12 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.33 $11.21 $10.88
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.5190
- ---------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV)* +$0.32 $11.26 $10.94
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.4592
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.34 $11.31 $10.97
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.4568
- ---------------------------------------------------------------------------------------------------
*NAV does not agree to NAV disclosed in the accompanying Financial Statements
due to financial statement adjusting entries posted as of period-end.
Annual Report | Past performance does not guarantee future results. | 13
Performance Summary (CONTINUED)
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.00% +27.55% +69.84%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.44% +4.07% +4.99%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.14% +3.98% +5.32%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.33%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 7.02%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.48%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.64%
- ---------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.28% +18.26% +32.09%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.28% +4.85% +6.67%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.08% +4.51% +6.48%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.93%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.37%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.08%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.99%
- ---------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.42% +24.20% +57.77%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +6.42% +4.43% +5.30%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +6.12% +4.30% +5.22%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.95%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.39%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.08%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.99%
- ---------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
14 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Arizona Tax- Lehman Brothers
Date Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,578 $10,000 $10,000
3/31/94 $9,272 $9,593 $10,034
4/30/94 $9,315 $9,674 $10,048
5/31/94 $9,362 $9,758 $10,055
6/30/94 $9,336 $9,698 $10,089
7/31/94 $9,481 $9,876 $10,116
8/31/94 $9,519 $9,910 $10,157
9/30/94 $9,430 $9,765 $10,184
10/31/94 $9,296 $9,592 $10,191
11/30/94 $9,124 $9,418 $10,204
12/31/94 $9,300 $9,625 $10,204
1/31/95 $9,504 $9,900 $10,245
2/28/95 $9,738 $10,188 $10,286
3/31/95 $9,842 $10,305 $10,320
4/30/95 $9,869 $10,318 $10,354
5/31/95 $10,114 $10,647 $10,375
6/30/95 $10,048 $10,554 $10,395
7/31/95 $10,115 $10,654 $10,395
8/31/95 $10,216 $10,789 $10,423
9/30/95 $10,263 $10,857 $10,443
10/31/95 $10,406 $11,015 $10,477
11/30/95 $10,563 $11,198 $10,470
12/31/95 $10,657 $11,305 $10,464
1/31/96 $10,709 $11,391 $10,525
2/29/96 $10,639 $11,314 $10,559
3/31/96 $10,519 $11,169 $10,613
4/30/96 $10,504 $11,138 $10,654
5/31/96 $10,521 $11,133 $10,675
6/30/96 $10,645 $11,255 $10,682
7/31/96 $10,717 $11,357 $10,702
8/31/96 $10,726 $11,354 $10,723
9/30/96 $10,875 $11,513 $10,757
10/31/96 $10,974 $11,643 $10,791
11/30/96 $11,131 $11,856 $10,811
12/31/96 $11,106 $11,806 $10,811
1/31/97 $11,127 $11,828 $10,845
2/28/97 $11,217 $11,937 $10,879
3/31/97 $11,092 $11,778 $10,907
4/30/97 $11,181 $11,876 $10,920
5/31/97 $11,317 $12,055 $10,913
6/30/97 $11,422 $12,184 $10,927
7/31/97 $11,686 $12,521 $10,941
8/31/97 $11,604 $12,404 $10,961
9/30/97 $11,730 $12,551 $10,988
10/31/97 $11,798 $12,632 $11,016
11/30/97 $11,868 $12,706 $11,009
12/31/97 $12,023 $12,891 $10,995
1/31/98 $12,120 $13,024 $11,016
2/28/98 $12,132 $13,028 $11,036
3/31/98 $12,136 $13,040 $11,057
4/30/98 $12,112 $12,981 $11,077
5/31/98 $12,259 $13,186 $11,097
6/30/98 $12,295 $13,238 $11,111
7/31/98 $12,333 $13,271 $11,125
8/31/98 $12,485 $13,476 $11,138
9/30/98 $12,632 $13,644 $11,152
10/31/98 $12,622 $13,644 $11,179
11/30/98 $12,665 $13,692 $11,179
12/31/98 $12,677 $13,726 $11,172
1/31/99 $12,809 $13,890 $11,200
2/28/99 $12,761 $13,829 $11,213
3/31/99 $12,812 $13,848 $11,247
4/30/99 $12,831 $13,883 $11,329
5/31/99 $12,777 $13,802 $11,329
6/30/99 $12,589 $13,604 $11,329
7/31/99 $12,618 $13,653 $11,363
8/31/99 $12,459 $13,544 $11,391
9/30/99 $12,443 $13,549 $11,445
10/31/99 $12,215 $13,403 $11,466
11/30/99 $12,311 $13,545 $11,472
12/31/99 $12,191 $13,444 $11,472
1/31/00 $12,094 $13,386 $11,506
2/29/00 $12,230 $13,541 $11,575
3/31/00 $12,523 $13,837 $11,670
4/30/00 $12,447 $13,755 $11,677
5/31/00 $12,380 $13,684 $11,691
6/30/00 $12,677 $14,046 $11,752
7/31/00 $12,856 $14,242 $11,779
8/31/00 $13,060 $14,461 $11,779
9/30/00 $12,993 $14,386 $11,840
10/31/00 $13,129 $14,543 $11,861
11/30/00 $13,210 $14,653 $11,868
12/31/00 $13,449 $15,015 $11,861
1/31/01 $13,511 $15,164 $11,936
2/28/01 $13,553 $15,212 $11,984
3/31/01 $13,652 $15,348 $12,011
4/30/01 $13,525 $15,182 $12,059
5/31/01 $13,636 $15,345 $12,113
6/30/01 $13,767 $15,448 $12,134
7/31/01 $14,012 $15,677 $12,100
8/31/01 $14,187 $15,935 $12,100
9/30/01 $14,111 $15,882 $12,154
10/31/01 $14,176 $16,071 $12,113
11/30/01 $13,973 $15,936 $12,093
12/31/01 $13,853 $15,785 $12,045
1/31/02 $14,005 $16,059 $12,072
2/28/02 $14,179 $16,252 $12,120
3/31/02 $13,921 $15,934 $12,188
4/30/02 $14,134 $16,245 $12,256
5/31/02 $14,182 $16,344 $12,256
6/30/02 $14,302 $16,516 $12,263
7/31/02 $14,490 $16,729 $12,277
8/31/02 $14,655 $16,930 $12,318
9/30/02 $15,001 $17,301 $12,338
10/31/02 $14,710 $17,014 $12,359
11/30/02 $14,629 $16,943 $12,359
12/31/02 $14,912 $17,301 $12,331
1/31/03 $17,257 $12,386
2/28/03 $15,070 $17,498 $12,481
3/31/03 $15,094 $17,509 $12,556
4/30/03 $15,197 $17,624 $12,529
5/31/03 $15,561 $18,037 $12,509
6/30/03 $15,554 $17,960 $12,522
7/31/03 $15,011 $17,332 $12,536
8/31/03 $15,123 $17,461 $12,584
9/30/03 $15,573 $17,975 $12,624
10/31/03 $15,523 $17,884 $12,611
11/30/03 $15,706 $18,070 $12,577
12/31/03 $15,861 $18,220 $12,563
1/31/04 $16,037 $18,324 $12,624
2/29/04 $16,268 $18,600 $12,693
CLASS B (2/1/00-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Arizona Tax- Lehman Brothers
Date Free Income Fund Municipal Bond Index 7 CPI 7
02/01/2000 $10,000 $10,000 $10,000
2/29/00 $10,121 $10,116 $10,059
3/31/00 $10,359 $10,337 $10,142
4/30/00 $10,302 $10,276 $10,148
5/31/00 $10,240 $10,223 $10,160
6/30/00 $10,481 $10,494 $10,213
7/31/00 $10,633 $10,640 $10,237
8/31/00 $10,795 $10,804 $10,237
9/30/00 $10,735 $10,747 $10,290
10/31/00 $10,841 $10,865 $10,308
11/30/00 $10,914 $10,947 $10,314
12/31/00 $11,096 $11,217 $10,308
1/31/01 $11,142 $11,328 $10,373
2/28/01 $11,171 $11,364 $10,415
3/31/01 $11,257 $11,466 $10,438
4/30/01 $11,136 $11,342 $10,480
5/31/01 $11,232 $11,464 $10,527
6/30/01 $11,335 $11,541 $10,545
7/31/01 $11,530 $11,712 $10,515
8/31/01 $11,669 $11,905 $10,515
9/30/01 $11,601 $11,865 $10,563
10/31/01 $11,648 $12,006 $10,527
11/30/01 $11,489 $11,905 $10,509
12/31/01 $11,374 $11,792 $10,468
1/31/02 $11,492 $11,997 $10,492
2/28/02 $11,639 $12,141 $10,533
3/31/02 $11,412 $11,903 $10,592
4/30/02 $11,592 $12,136 $10,652
5/31/02 $11,615 $12,210 $10,652
6/30/02 $11,719 $12,339 $10,658
7/31/02 $11,867 $12,498 $10,669
8/31/02 $11,986 $12,648 $10,705
9/30/02 $12,272 $12,925 $10,723
10/31/02 $12,029 $12,711 $10,741
11/30/02 $11,958 $12,658 $10,741
12/31/02 $12,183 $12,925 $10,717
1/31/03 $12,137 $12,892 $10,764
2/28/03 $12,310 $13,072 $10,847
3/31/03 $12,313 $13,080 $10,912
4/30/03 $12,390 $13,167 $10,889
5/31/03 $12,681 $13,475 $10,871
6/30/03 $12,669 $13,418 $10,883
7/31/03 $12,223 $12,948 $10,895
8/31/03 $12,310 $13,045 $10,936
9/30/03 $12,668 $13,428 $10,972
10/31/03 $12,622 $13,361 $10,960
11/30/03 $12,765 $13,500 $10,930
12/31/03 $12,883 $13,612 $10,918
1/31/04 $13,020 $13,690 $10,972
2/29/04 $13,009 $13,896 $11,031
Annual Report | Past performance does not guarantee future results. | 15
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
Class C 2/29/04
- -------------------------------------------
1-Year +6.42%
- -------------------------------------------
5-Year +4.43%
- -------------------------------------------
Since Inception (5/1/95) +5.30%
- -------------------------------------------
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Arizona Tax- Lehman Brothers
Date Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,268 $10,319 $10,020
6/30/95 $10,195 $10,229 $10,039
7/31/95 $10,257 $10,326 $10,039
8/31/95 $10,364 $10,457 $10,066
9/30/95 $10,416 $10,523 $10,086
10/31/95 $10,545 $10,676 $10,118
11/30/95 $10,707 $10,853 $10,112
12/31/95 $10,788 $10,957 $10,105
1/31/96 $10,844 $11,040 $10,165
2/29/96 $10,759 $10,966 $10,197
3/31/96 $10,643 $10,825 $10,250
4/30/96 $10,623 $10,795 $10,290
5/31/96 $10,633 $10,791 $10,309
6/30/96 $10,744 $10,908 $10,316
7/31/96 $10,820 $11,007 $10,336
8/31/96 $10,822 $11,004 $10,355
9/30/96 $10,966 $11,158 $10,388
10/31/96 $11,069 $11,285 $10,421
11/30/96 $11,221 $11,491 $10,441
12/31/96 $11,191 $11,443 $10,441
1/31/97 $11,197 $11,464 $10,474
2/28/97 $11,286 $11,569 $10,507
3/31/97 $11,165 $11,415 $10,533
4/30/97 $11,249 $11,511 $10,546
5/31/97 $11,379 $11,684 $10,540
6/30/97 $11,469 $11,808 $10,553
7/31/97 $11,729 $12,136 $10,566
8/31/97 $11,652 $12,022 $10,586
9/30/97 $11,771 $12,164 $10,612
10/31/97 $11,832 $12,243 $10,639
11/30/97 $11,897 $12,315 $10,632
12/31/97 $12,045 $12,494 $10,619
1/31/98 $12,147 $12,623 $10,639
2/28/98 $12,153 $12,627 $10,658
3/31/98 $12,151 $12,638 $10,678
4/30/98 $12,111 $12,581 $10,698
5/31/98 $12,253 $12,780 $10,718
6/30/98 $12,293 $12,831 $10,731
7/31/98 $12,313 $12,863 $10,744
8/31/98 $12,469 $13,062 $10,757
9/30/98 $12,621 $13,224 $10,770
10/31/98 $12,593 $13,224 $10,797
11/30/98 $12,629 $13,270 $10,797
12/31/98 $12,635 $13,304 $10,790
1/31/99 $12,759 $13,462 $10,816
2/28/99 $12,705 $13,403 $10,829
3/31/99 $12,760 $13,422 $10,862
4/30/99 $12,773 $13,455 $10,941
5/31/99 $12,704 $13,377 $10,941
6/30/99 $12,513 $13,185 $10,941
7/31/99 $12,536 $13,233 $10,974
8/31/99 $12,373 $13,127 $11,001
9/30/99 $12,352 $13,132 $11,053
10/31/99 $12,122 $12,990 $11,073
11/30/99 $12,209 $13,128 $11,080
12/31/99 $12,086 $13,030 $11,080
1/31/00 $11,984 $12,974 $11,113
2/29/00 $12,114 $13,124 $11,178
3/31/00 $12,396 $13,411 $11,271
4/30/00 $12,317 $13,332 $11,277
5/31/00 $12,244 $13,263 $11,290
6/30/00 $12,530 $13,614 $11,350
7/31/00 $12,700 $13,803 $11,376
8/31/00 $12,894 $14,016 $11,376
9/30/00 $12,833 $13,943 $11,435
10/31/00 $12,949 $14,095 $11,455
11/30/00 $13,036 $14,202 $11,461
12/31/00 $13,265 $14,553 $11,455
1/31/01 $13,307 $14,697 $11,527
2/28/01 $13,342 $14,744 $11,573
3/31/01 $13,445 $14,876 $11,600
4/30/01 $13,302 $14,715 $11,646
5/31/01 $13,417 $14,873 $11,698
6/30/01 $13,539 $14,973 $11,718
7/31/01 $13,772 $15,194 $11,685
8/31/01 $13,937 $15,445 $11,685
9/30/01 $13,857 $15,393 $11,738
10/31/01 $13,914 $15,576 $11,698
11/30/01 $13,711 $15,445 $11,679
12/31/01 $13,588 $15,299 $11,633
1/31/02 $13,729 $15,564 $11,659
2/28/02 $13,905 $15,752 $11,705
3/31/02 $13,635 $15,443 $11,771
4/30/02 $13,848 $15,745 $11,837
5/31/02 $13,875 $15,841 $11,837
6/30/02 $14,000 $16,008 $11,843
7/31/02 $14,175 $16,214 $11,856
8/31/02 $14,330 $16,409 $11,896
9/30/02 $14,658 $16,768 $11,916
10/31/02 $14,369 $16,490 $11,935
11/30/02 $14,284 $16,422 $11,935
12/31/02 $14,552 $16,768 $11,909
1/31/03 $14,498 $16,726 $11,962
2/28/03 $14,691 $16,960 $12,054
3/31/03 $14,708 $16,970 $12,126
4/30/03 $14,801 $17,082 $12,100
5/31/03 $15,147 $17,482 $12,080
6/30/03 $15,132 $17,407 $12,093
7/31/03 $14,599 $16,798 $12,107
8/31/03 $14,702 $16,924 $12,153
9/30/03 $15,126 $17,421 $12,192
10/31/03 $15,070 $17,333 $12,179
11/30/03 $15,241 $17,514 $12,146
12/31/03 $15,383 $17,659 $12,133
1/31/04 $15,558 $17,760 $12,192
2/29/04 $15,777 $18,028 $12,258
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Arizona state personal income
tax bracket of 38.28%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
16 | Past performance does not guarantee future results. | Annual Report
Franklin Colorado Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Colorado Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Colorado state
personal income taxes through a portfolio consisting mainly of Colorado
municipal bonds. 1
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin Colorado Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ................ 67.4%
AA ................. 8.7%
A .................. 14.6%
BBB ................ 9.3%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Colorado Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.98 on February
28, 2003, to $12.19 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 53.61 cents per share for the Fund's fiscal year. 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 4.26%, based on an
annualization of the current 4.52 cent ($0.0452) per share dividend and the
maximum offering price of $12.73 on
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 85.
Annual Report | 17
DIVIDEND DISTRIBUTIONS*
Franklin Colorado Tax-Free Income Fund
3/1/03-2/29/04
- ------------------------------------------------------------------------
DIVIDEND PER SHARE
------------------------------
MONTH CLASS A CLASS C
- ------------------------------------------------------------------------
March 4.45 cents 3.94 cents
- ------------------------------------------------------------------------
April 4.45 cents 3.94 cents
- ------------------------------------------------------------------------
May 4.45 cents 3.94 cents
- ------------------------------------------------------------------------
June 4.45 cents 3.83 cents
- ------------------------------------------------------------------------
July 4.45 cents 3.83 cents
- ------------------------------------------------------------------------
August 4.45 cents 3.86 cents
- ------------------------------------------------------------------------
September 4.45 cents 3.86 cents
- ------------------------------------------------------------------------
October 4.45 cents 3.86 cents
- ------------------------------------------------------------------------
November 4.45 cents 3.86 cents
- ------------------------------------------------------------------------
December 4.52 cents 3.97 cents
- ------------------------------------------------------------------------
January 4.52 cents 3.97 cents
- ------------------------------------------------------------------------
February 4.52 cents 3.97 cents
- ------------------------------------------------------------------------
TOTAL 53.61 CENTS 46.83 CENTS
- ------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
February 29, 2004. An investor in the 2004 maximum combined federal and Colorado
state personal income tax bracket of 38.01% 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 C shares' performance, please see the
Performance Summary.
STATE UPDATE
Colorado has a diversified and growing economy, and is now home to over 4.5
million residents. 3 The state's population grew 30.6% between 1990 and 2000,
fueled in part by expansion in the high technology and telecommunications
sectors. 3 These same industries led the state to experience disproportionate
weakness during the recent national recession. However, the state's employment
base is well diversified with major sectors including government, professional
and business services, retail trade, accommodation and food services, health
care and social assistance, manufacturing, construction and financial
activities. Median household buying income remained at 115% of the national
average. 3
3. Source: Standard & Poor's, "Summary: Colorado; Appropriation, Appropriation,"
RATINGSDIRECT, 1/13/04.
18 | Annual Report
Softness in high technology and telecommunications during the recent recession
weakened state revenues, and forced the state to utilize significant one-time
general fund budget balancing measures in fiscal year 2003. Declining tax
revenues in fiscal years 2002 and 2003 also ended rebates of excess tax revenues
under the state constitution's Taxpayer Bill of Rights limit. However, the state
made significant cuts in ongoing appropriations, as well as temporary cuts and
revenue diversions that could be continued indefinitely. The state implemented
many fee increases, but did not reverse major cuts in income or sales tax. State
law requires the governor to take midyear corrective budget action when
quarterly revenue forecasts predict less than a 2% budget reserve, and Governor
Owens made numerous midyear budget-balancing actions during the state's revenue
downturn.
Standard & Poor's, an independent credit rating agency, revised its rating
outlook to stable from negative on Colorado's outstanding general fund lease
debt based on forecasts indicating improved revenues and higher budgetary basis
fund balances, as well as a fiscal year 2004 state budget that significantly
reduced reliance on one-time budget balancing measures. Also favorable for
Colorado's credit are the state's very low debt levels, with state-supported
debt consisting of general fund lease obligations totaling only about $13 per
capita. 3 However, large transportation needs and deferred capital maintenance
funding during the state's budget difficulties may increase the state's interest
in issuing additional lease obligation financing.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
PORTFOLIO BREAKDOWN
Franklin Colorado Tax-Free Income Fund
2/29/04
- --------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- --------------------------------------------------------
Transportation 15.8%
- --------------------------------------------------------
General Obligation 14.8%
- --------------------------------------------------------
Hospital & Health Care 14.7%
- --------------------------------------------------------
Utilities 10.5%
- --------------------------------------------------------
Prerefunded 10.0%
- --------------------------------------------------------
Housing 9.9%
- --------------------------------------------------------
Higher Education 7.7%
- --------------------------------------------------------
Subject to Government Appropriations 6.6%
- --------------------------------------------------------
Tax-Supported 6.2%
- --------------------------------------------------------
Corporate-Backed 2.6%
- --------------------------------------------------------
Other Revenue 1.2%
- --------------------------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.19 $11.98
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.5361
- -----------------------------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.27 $12.06
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4683
- -----------------------------------------------------------------------------------------------------------------------
PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.39% +29.67% +74.36%
- -----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.88% +4.43% +5.26%
- -----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.78% +4.30% +5.65%
- -----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.26%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.87%
- -----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.49%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.63%
- -----------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.75% +26.19% +63.03%
- -----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.75% +4.76% +5.69%
- -----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.76% +4.63% +5.60%
- -----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.88%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.26%
- -----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.10%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.00%
- -----------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
20 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Colorado Tax- Lehman Brothers Municipal
Date Free Income Fund Bond Index 7 CPI 7
3/1/94 $9,575 $10,000 $10,000
3/31/94 $9,199 $9,593 $10,034
4/30/94 $9,218 $9,674 $10,048
5/31/94 $9,282 $9,758 $10,055
6/30/94 $9,218 $9,698 $10,089
7/31/94 $9,392 $9,876 $10,116
8/31/94 $9,414 $9,910 $10,157
9/30/94 $9,296 $9,765 $10,184
10/31/94 $9,142 $9,592 $10,191
11/30/94 $8,969 $9,418 $10,204
12/31/94 $9,158 $9,625 $10,204
1/31/95 $9,443 $9,900 $10,245
2/28/95 $9,679 $10,188 $10,286
3/31/95 $9,764 $10,305 $10,320
4/30/95 $9,790 $10,318 $10,354
5/31/95 $10,046 $10,647 $10,375
6/30/95 $9,983 $10,554 $10,395
7/31/95 $10,039 $10,654 $10,395
8/31/95 $10,182 $10,789 $10,423
9/30/95 $10,229 $10,857 $10,443
10/31/95 $10,368 $11,015 $10,477
11/30/95 $10,530 $11,198 $10,470
12/31/95 $10,629 $11,305 $10,464
1/31/96 $10,680 $11,391 $10,525
2/29/96 $10,657 $11,314 $10,559
3/31/96 $10,561 $11,169 $10,613
4/30/96 $10,557 $11,138 $10,654
5/31/96 $10,564 $11,133 $10,675
6/30/96 $10,657 $11,255 $10,682
7/31/96 $10,737 $11,357 $10,702
8/31/96 $10,742 $11,354 $10,723
9/30/96 $10,887 $11,513 $10,757
10/31/96 $10,993 $11,643 $10,791
11/30/96 $11,156 $11,856 $10,811
12/31/96 $11,136 $11,806 $10,811
1/31/97 $11,149 $11,828 $10,845
2/28/97 $11,239 $11,937 $10,879
3/31/97 $11,112 $11,778 $10,907
4/30/97 $11,199 $11,876 $10,920
5/31/97 $11,333 $12,055 $10,913
6/30/97 $11,454 $12,184 $10,927
7/31/97 $11,738 $12,521 $10,941
8/31/97 $11,632 $12,404 $10,961
9/30/97 $11,792 $12,551 $10,988
10/31/97 $11,866 $12,632 $11,016
11/30/97 $11,943 $12,706 $11,009
12/31/97 $12,120 $12,891 $10,995
1/31/98 $12,243 $13,024 $11,016
2/28/98 $12,235 $13,028 $11,036
3/31/98 $12,261 $13,040 $11,057
4/30/98 $12,219 $12,981 $11,077
5/31/98 $12,402 $13,186 $11,097
6/30/98 $12,451 $13,238 $11,111
7/31/98 $12,477 $13,271 $11,125
8/31/98 $12,633 $13,476 $11,138
9/30/98 $12,775 $13,644 $11,152
10/31/98 $12,747 $13,644 $11,179
11/30/98 $12,801 $13,692 $11,179
12/31/98 $12,816 $13,726 $11,172
1/31/99 $12,933 $13,890 $11,200
2/28/99 $12,878 $13,829 $11,213
3/31/99 $12,929 $13,848 $11,247
4/30/99 $12,938 $13,883 $11,329
5/31/99 $12,856 $13,802 $11,329
6/30/99 $12,676 $13,604 $11,329
7/31/99 $12,684 $13,653 $11,363
8/31/99 $12,514 $13,544 $11,391
9/30/99 $12,490 $13,549 $11,445
10/31/99 $12,265 $13,403 $11,466
11/30/99 $12,392 $13,545 $11,472
12/31/99 $12,247 $13,444 $11,472
1/31/00 $12,123 $13,386 $11,506
2/29/00 $12,288 $13,541 $11,575
3/31/00 $12,613 $13,837 $11,670
4/30/00 $12,533 $13,755 $11,677
5/31/00 $12,448 $13,684 $11,691
6/30/00 $12,777 $14,046 $11,752
7/31/00 $12,937 $14,242 $11,779
8/31/00 $13,144 $14,461 $11,779
9/30/00 $13,047 $14,386 $11,840
10/31/00 $13,202 $14,543 $11,861
11/30/00 $13,305 $14,653 $11,868
12/31/00 $13,663 $15,015 $11,861
1/31/01 $13,771 $15,164 $11,936
2/28/01 $13,825 $15,212 $11,984
3/31/01 $13,934 $15,348 $12,011
4/30/01 $13,840 $15,182 $12,059
5/31/01 $13,961 $15,345 $12,113
6/30/01 $14,124 $15,448 $12,134
7/31/01 $14,359 $15,677 $12,100
8/31/01 $14,601 $15,935 $12,100
9/30/01 $14,483 $15,882 $12,154
10/31/01 $14,647 $16,071 $12,113
11/30/01 $14,532 $15,936 $12,093
12/31/01 $14,360 $15,785 $12,045
1/31/02 $14,594 $16,059 $12,072
2/28/02 $14,724 $16,252 $12,120
3/31/02 $14,520 $15,934 $12,188
4/30/02 $14,713 $16,245 $12,256
5/31/02 $14,800 $16,344 $12,256
6/30/02 $14,930 $16,516 $12,263
7/31/02 $15,113 $16,729 $12,277
8/31/02 $15,247 $16,930 $12,318
9/30/02 $15,604 $17,301 $12,338
10/31/02 $15,268 $17,014 $12,359
11/30/02 $15,195 $16,943 $12,359
12/31/02 $15,520 $17,301 $12,331
1/31/03 $15,477 $17,257 $12,386
2/28/03 $15,700 $17,498 $12,481
3/31/03 $15,671 $17,509 $12,556
4/30/03 $15,783 $17,624 $12,529
5/31/03 $16,143 $18,037 $12,509
6/30/03 $16,083 $17,960 $12,522
7/31/03 $15,517 $17,332 $12,536
8/31/03 $15,652 $17,461 $12,584
9/30/03 $16,092 $17,975 $12,624
10/31/03 $15,992 $17,884 $12,611
11/30/03 $16,166 $18,070 $12,577
12/31/03 $16,329 $18,220 $12,563
1/31/04 $16,458 $18,324 $12,624
2/29/04 $16,695 $18,600 $12,693
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Colorado Tax- Lehman Brothers Municipal
Date Free Income Fund Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,264 $10,319 $10,020
6/30/95 $10,202 $10,229 $10,039
7/31/95 $10,255 $10,326 $10,039
8/31/95 $10,396 $10,457 $10,066
9/30/95 $10,439 $10,523 $10,086
10/31/95 $10,584 $10,676 $10,118
11/30/95 $10,744 $10,853 $10,112
12/31/95 $10,839 $10,957 $10,105
1/31/96 $10,886 $11,040 $10,165
2/29/96 $10,857 $10,966 $10,197
3/31/96 $10,754 $10,825 $10,250
4/30/96 $10,745 $10,795 $10,290
5/31/96 $10,747 $10,791 $10,309
6/30/96 $10,846 $10,908 $10,316
7/31/96 $10,912 $11,007 $10,336
8/31/96 $10,922 $11,004 $10,355
9/30/96 $11,064 $11,158 $10,388
10/31/96 $11,166 $11,285 $10,421
11/30/96 $11,326 $11,491 $10,441
12/31/96 $11,300 $11,443 $10,441
1/31/97 $11,308 $11,464 $10,474
2/28/97 $11,393 $11,569 $10,507
3/31/97 $11,258 $11,415 $10,533
4/30/97 $11,342 $11,511 $10,546
5/31/97 $11,470 $11,684 $10,540
6/30/97 $11,596 $11,808 $10,553
7/31/97 $11,867 $12,136 $10,566
8/31/97 $11,767 $12,022 $10,586
9/30/97 $11,911 $12,164 $10,612
10/31/97 $11,980 $12,243 $10,639
11/30/97 $12,063 $12,315 $10,632
12/31/97 $12,235 $12,494 $10,619
1/31/98 $12,353 $12,623 $10,639
2/28/98 $12,349 $12,627 $10,658
3/31/98 $12,358 $12,638 $10,678
4/30/98 $12,311 $12,581 $10,698
5/31/98 $12,489 $12,780 $10,718
6/30/98 $12,532 $12,831 $10,731
7/31/98 $12,561 $12,863 $10,744
8/31/98 $12,711 $13,062 $10,757
9/30/98 $12,849 $13,224 $10,770
10/31/98 $12,814 $13,224 $10,797
11/30/98 $12,861 $13,270 $10,797
12/31/98 $12,872 $13,304 $10,790
1/31/99 $12,982 $13,462 $10,816
2/28/99 $12,921 $13,403 $10,829
3/31/99 $12,965 $13,422 $10,862
4/30/99 $12,969 $13,455 $10,941
5/31/99 $12,893 $13,377 $10,941
6/30/99 $12,697 $13,185 $10,941
7/31/99 $12,699 $13,233 $10,974
8/31/99 $12,523 $13,127 $11,001
9/30/99 $12,483 $13,132 $11,053
10/31/99 $12,253 $12,990 $11,073
11/30/99 $12,372 $13,128 $11,080
12/31/99 $12,233 $13,030 $11,080
1/31/00 $12,105 $12,974 $11,113
2/29/00 $12,263 $13,124 $11,178
3/31/00 $12,570 $13,411 $11,271
4/30/00 $12,485 $13,332 $11,277
5/31/00 $12,406 $13,263 $11,290
6/30/00 $12,727 $13,614 $11,350
7/31/00 $12,880 $13,803 $11,376
8/31/00 $13,080 $14,016 $11,376
9/30/00 $12,978 $13,943 $11,435
10/31/00 $13,124 $14,095 $11,455
11/30/00 $13,232 $14,202 $11,461
12/31/00 $13,580 $14,553 $11,455
1/31/01 $13,680 $14,697 $11,527
2/28/01 $13,716 $14,744 $11,573
3/31/01 $13,828 $14,876 $11,600
4/30/01 $13,718 $14,715 $11,646
5/31/01 $13,829 $14,873 $11,698
6/30/01 $13,995 $14,973 $11,718
7/31/01 $14,220 $15,194 $11,685
8/31/01 $14,452 $15,445 $11,685
9/30/01 $14,317 $15,393 $11,738
10/31/01 $14,484 $15,576 $11,698
11/30/01 $14,352 $15,445 $11,679
12/31/01 $14,187 $15,299 $11,633
1/31/02 $14,409 $15,564 $11,659
2/28/02 $14,530 $15,752 $11,705
3/31/02 $14,313 $15,443 $11,771
4/30/02 $14,507 $15,745 $11,837
5/31/02 $14,586 $15,841 $11,837
6/30/02 $14,708 $16,008 $11,843
7/31/02 $14,879 $16,214 $11,856
8/31/02 $15,005 $16,409 $11,896
9/30/02 $15,347 $16,768 $11,916
10/31/02 $15,013 $16,490 $11,935
11/30/02 $14,935 $16,422 $11,935
12/31/02 $15,257 $16,768 $11,909
1/31/03 $15,195 $16,726 $11,962
2/28/03 $15,418 $16,960 $12,054
3/31/03 $15,370 $16,970 $12,126
4/30/03 $15,472 $17,082 $12,100
5/31/03 $15,815 $17,482 $12,080
6/30/03 $15,763 $17,407 $12,093
7/31/03 $15,205 $16,798 $12,107
8/31/03 $15,330 $16,924 $12,153
9/30/03 $15,748 $17,421 $12,192
10/31/03 $15,644 $17,333 $12,179
11/30/03 $15,807 $17,514 $12,146
12/31/03 $15,944 $17,659 $12,133
1/31/04 $16,062 $17,760 $12,192
2/29/04 $16,303 $18,028 $12,258
Annual Report | Past performance does not guarantee future results. | 21
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of investment. Prior
to 1/1/04, these shares were offered with an initial sales charge; thus actual
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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 per share (NAV for Class
C) on 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Colorado state personal income
tax bracket of 38.01%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
22 | Past performance does not guarantee future results. | Annual Report
Franklin Connecticut Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Connecticut Tax-Free Income
Fund seeks to provide high, current income exempt from federal and Connecticut
state personal income taxes through a portfolio consisting mainly of Connecticut
municipal bonds. 1
- --------------------------------------------------------------------------------
Credit Quality Breakdown*
Franklin Connecticut Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA .................... 56.4%
AA ..................... 16.0%
A ...................... 12.4%
BBB .................... 12.0%
Below Investment Grade . 3.2%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Connecticut Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.10 on February
28, 2003, to $11.12 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 49.05 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 27 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.13%, based on an
annualization of the current 4.00 cent ($0.0400) per share dividend and the
maximum offering price of $11.61 on
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 91.
Annual Report | 23
DIVIDEND DISTRIBUTIONS*
Franklin Connecticut Tax-Free Income Fund
3/1/03-2/29/04
- ----------------------------------------------------------------------------
DIVIDEND PER SHARE
------------------------------
MONTH CLASS A CLASS C
- ----------------------------------------------------------------------------
March 4.15 cents 3.65 cents
- ----------------------------------------------------------------------------
April 4.15 cents 3.65 cents
- ----------------------------------------------------------------------------
May 4.15 cents 3.65 cents
- ----------------------------------------------------------------------------
June 4.12 cents 3.56 cents
- ----------------------------------------------------------------------------
July 4.12 cents 3.56 cents
- ----------------------------------------------------------------------------
August 4.09 cents 3.55 cents
- ----------------------------------------------------------------------------
September 4.09 cents 3.55 cents
- ----------------------------------------------------------------------------
October 4.09 cents 3.55 cents
- ----------------------------------------------------------------------------
November 4.09 cents 3.55 cents
- ----------------------------------------------------------------------------
December 4.00 cents 3.53 cents
- ----------------------------------------------------------------------------
January 4.00 cents 3.53 cents
- ----------------------------------------------------------------------------
February 4.00 cents 3.53 cents
- ----------------------------------------------------------------------------
TOTAL 49.05 CENTS 42.86 CENTS
- ----------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
February 29, 2004. An investor in the 2004 maximum combined federal and
Connecticut state personal income tax bracket of 38.25% would need to earn a
distribution rate of 6.70% 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.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline,
as shown in the dividend distributions table.
STATE UPDATE
The national economic slowdown continued to impact Connecticut. Although the
state suffered its third consecutive year of non-farm job losses in 2003,
unemployment levels appeared to stabilize at 4.7% as of February 2004, below the
5.6%
24 | Annual Report
national rate. 3 Like much of the nation, the state experienced weakness in
manufacturing, with more than half of state job losses occurring in this sector.
Connecticut also cut more than 4,000 government jobs in 2003, partially a
reflection of actions taken by the state to address its budget deficit. 4
In September 2003, Standard & Poor's, an independent credit rating agency,
revised its rating outlook on Connecticut's general obligation bonds from
negative to stable, due primarily to significant corrective actions taken by the
state administration and legislature to restore financial balance for fiscal
years 2003-2005. Staff reductions and the implementation of an early retirement
plan, coupled with a 0.5% increase in the state personal income tax rate, helped
eliminate what was once a projected $1 billion budget gap in fiscal year 2004
and $1.5 billion gap in fiscal year 2005. 4 Connecticut's fiscal year 2004
budget included revenue increases, expenditure reductions and one-time actions.
To help achieve fiscal balance, the state added recurring revenues, notably
income, sales and cigarette tax increases, and continued expenditure reductions
implemented in fiscal year 2003 to produce ongoing savings. However, further
revenue deterioration resulted in a fiscal year 2004 budget gap of $1.3 billion.
5 State leaders addressed this shortfall, but relied heavily on one-time revenue
that makes up nearly 5% of projected General Fund revenues. 4 They adopted
further spending cuts, targeting social services such as Medicaid benefits,
although education funding was essentially unchanged.
As the economy rebounds from the recent recession, state leaders must work to
maintain fiscal balance, rebuilding depleted reserves while simultaneously
managing already high debt levels. Connecticut's net tax-supported debt equaled
8.2% of total state personal income, while debt per capita equaled $3,440,
placing Connecticut first and third in the nation. 5 The state may also face
expenditure pressures from its large, unfunded accrued pension liability.
According to Standard & Poor's, Connecticut's fundamental economic strengths and
inherent wealth and high wage-earning base should help the state's revenues
rebound favorably assuming the national economic recovery continues.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's, "Summary: Connecticut; Tax Secured, General
Obligation," RATINGSDIRECT, 2/18/04.
5. Source: Moody's Investors Service, "New Issue: Connecticut (State of),"
2/17/04.
Annual Report | 25
PORTFOLIO BREAKDOWN
Franklin Connecticut Tax-Free Income Fund
2/29/04
- ------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ------------------------------------------------------
Higher Education 19.6%
- ------------------------------------------------------
Hospital & Health Care 18.5%
- ------------------------------------------------------
General Obligation 17.4%
- ------------------------------------------------------
Utilities 13.1%
- ------------------------------------------------------
Prerefunded 9.3%
- ------------------------------------------------------
Other Revenue 7.4%
- ------------------------------------------------------
Subject to Government Appropriations 5.2%
- ------------------------------------------------------
Housing 4.6%
- ------------------------------------------------------
Transportation 2.5%
- ------------------------------------------------------
Tax-Supported 1.7%
- ------------------------------------------------------
Corporate-Backed 0.7%
- ------------------------------------------------------
MANAGER'S DISCUSSION
Franklin Connecticut Tax-Free Income Fund underperformed during the year under
review. In the hospital and health care sector, escalating expenses and lower
state funding plagued the sector, and contributed to poor performance for
several Fund holdings. During this and the previous reporting period, Moody's
Investors Service, an independent credit rating agency, lowered ratings on two
health care holdings in the portfolio to below investment grade with negative
outlooks. Our research analysts continue to closely monitor these holdings.
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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
26 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.02 $11.12 $11.10
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4905
- ----------------------------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.02 $11.17 $11.15
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4286
- ----------------------------------------------------------------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.72% +26.23% +67.30%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +0.29% +3.86% +4.82%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.27% +3.81% +5.20%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.13%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.70%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.45%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.59%
- ----------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.12% +22.92% +57.50%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.12% +4.21% +5.28%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.10% +4.14% +5.21%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.75%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.07%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.05%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.94%
- ----------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 27
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
Class A 2/29/04
- -------------------------------------------
1-Year +0.29%
- -------------------------------------------
5-Year +3.86%
- -------------------------------------------
10-Year +4.82%
- -------------------------------------------
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Connecticut Tax- Lehman Brothers
Date Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,574 $10,000 $10,000
3/31/94 $9,238 $9,593 $10,034
4/30/94 $9,228 $9,674 $10,048
5/31/94 $9,315 $9,758 $10,055
6/30/94 $9,256 $9,698 $10,089
7/31/94 $9,421 $9,876 $10,116
8/31/94 $9,440 $9,910 $10,157
9/30/94 $9,329 $9,765 $10,184
10/31/94 $9,155 $9,592 $10,191
11/30/94 $8,922 $9,418 $10,204
12/31/94 $9,172 $9,625 $10,204
1/31/95 $9,407 $9,900 $10,245
2/28/95 $9,612 $10,188 $10,286
3/31/95 $9,680 $10,305 $10,320
4/30/95 $9,714 $10,318 $10,354
5/31/95 $9,945 $10,647 $10,375
6/30/95 $9,864 $10,554 $10,395
7/31/95 $9,922 $10,654 $10,395
8/31/95 $10,051 $10,789 $10,423
9/30/95 $10,133 $10,857 $10,443
10/31/95 $10,257 $11,015 $10,477
11/30/95 $10,391 $11,198 $10,470
12/31/95 $10,485 $11,305 $10,464
1/31/96 $10,536 $11,391 $10,525
2/29/96 $10,480 $11,314 $10,559
3/31/96 $10,385 $11,169 $10,613
4/30/96 $10,396 $11,138 $10,654
5/31/96 $10,421 $11,133 $10,675
6/30/96 $10,526 $11,255 $10,682
7/31/96 $10,598 $11,357 $10,702
8/31/96 $10,628 $11,354 $10,723
9/30/96 $10,737 $11,513 $10,757
10/31/96 $10,821 $11,643 $10,791
11/30/96 $10,959 $11,856 $10,811
12/31/96 $10,953 $11,806 $10,811
1/31/97 $10,977 $11,828 $10,845
2/28/97 $11,058 $11,937 $10,879
3/31/97 $10,971 $11,778 $10,907
4/30/97 $11,040 $11,876 $10,920
5/31/97 $11,188 $12,055 $10,913
6/30/97 $11,291 $12,184 $10,927
7/31/97 $11,546 $12,521 $10,941
8/31/97 $11,472 $12,404 $10,961
9/30/97 $11,597 $12,551 $10,988
10/31/97 $11,653 $12,632 $11,016
11/30/97 $11,733 $12,706 $11,009
12/31/97 $11,882 $12,891 $10,995
1/31/98 $11,978 $13,024 $11,016
2/28/98 $12,009 $13,028 $11,036
3/31/98 $12,023 $13,040 $11,057
4/30/98 $12,029 $12,981 $11,077
5/31/98 $12,177 $13,186 $11,097
6/30/98 $12,227 $13,238 $11,111
7/31/98 $12,273 $13,271 $11,125
8/31/98 $12,403 $13,476 $11,138
9/30/98 $12,518 $13,644 $11,152
10/31/98 $12,508 $13,644 $11,179
11/30/98 $12,551 $13,692 $11,179
12/31/98 $12,591 $13,726 $11,172
1/31/99 $12,723 $13,890 $11,200
2/28/99 $12,685 $13,829 $11,213
3/31/99 $12,722 $13,848 $11,247
4/30/99 $12,717 $13,883 $11,329
5/31/99 $12,663 $13,802 $11,329
6/30/99 $12,457 $13,604 $11,329
7/31/99 $12,484 $13,653 $11,363
8/31/99 $12,300 $13,544 $11,391
9/30/99 $12,270 $13,549 $11,445
10/31/99 $12,043 $13,403 $11,466
11/30/99 $12,137 $13,545 $11,472
12/31/99 $11,982 $13,444 $11,472
1/31/00 $11,836 $13,386 $11,506
2/29/00 $11,935 $13,541 $11,575
3/31/00 $12,249 $13,837 $11,670
4/30/00 $12,159 $13,755 $11,677
5/31/00 $12,077 $13,684 $11,691
6/30/00 $12,385 $14,046 $11,752
7/31/00 $12,552 $14,242 $11,779
8/31/00 $12,754 $14,461 $11,779
9/30/00 $12,685 $14,386 $11,840
10/31/00 $12,818 $14,543 $11,861
11/30/00 $12,911 $14,653 $11,868
12/31/00 $13,162 $15,015 $11,861
1/31/01 $13,233 $15,164 $11,936
2/28/01 $13,301 $15,212 $11,984
3/31/01 $13,435 $15,348 $12,011
4/30/01 $13,293 $15,182 $12,059
5/31/01 $13,451 $15,345 $12,113
6/30/01 $13,556 $15,448 $12,134
7/31/01 $13,822 $15,677 $12,100
8/31/01 $14,070 $15,935 $12,100
9/30/01 $13,968 $15,882 $12,154
10/31/01 $14,184 $16,071 $12,113
11/30/01 $14,044 $15,936 $12,093
12/31/01 $13,905 $15,785 $12,045
1/31/02 $14,129 $16,059 $12,072
2/28/02 $14,301 $16,252 $12,120
3/31/02 $14,028 $15,934 $12,188
4/30/02 $14,275 $16,245 $12,256
5/31/02 $14,345 $16,344 $12,256
6/30/02 $14,477 $16,516 $12,263
7/31/02 $14,687 $16,729 $12,277
8/31/02 $14,848 $16,930 $12,318
9/30/02 $15,203 $17,301 $12,338
10/31/02 $14,870 $17,014 $12,359
11/30/02 $14,803 $16,943 $12,359
12/31/02 $15,121 $17,301 $12,331
1/31/03 $15,082 $17,257 $12,386
2/28/03 $15,287 $17,498 $12,481
3/31/03 $15,293 $17,509 $12,556
4/30/03 $15,391 $17,624 $12,529
5/31/03 $15,768 $18,037 $12,509
6/30/03 $15,701 $17,960 $12,522
7/31/03 $14,988 $17,332 $12,536
8/31/03 $15,055 $17,461 $12,584
9/30/03 $15,424 $17,975 $12,624
10/31/03 $15,359 $17,884 $12,611
11/30/03 $15,539 $18,070 $12,577
12/31/03 $15,671 $18,220 $12,563
1/31/04 $15,757 $18,324 $12,624
2/29/04 $16,017 $18,600 $12,693
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
Class C 2/29/04
- -------------------------------------------
1-Year +3.12%
- -------------------------------------------
5-Year +4.21%
- -------------------------------------------
Since Inception (5/1/95) +5.28%
- -------------------------------------------
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Connecticut Tax- Lehman Brothers
Date Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,241 $10,319 $10,020
6/30/95 $10,162 $10,229 $10,039
7/31/95 $10,215 $10,326 $10,039
8/31/95 $10,352 $10,457 $10,066
9/30/95 $10,441 $10,523 $10,086
10/31/95 $10,562 $10,676 $10,118
11/30/95 $10,694 $10,853 $10,112
12/31/95 $10,765 $10,957 $10,105
1/31/96 $10,811 $11,040 $10,165
2/29/96 $10,745 $10,966 $10,197
3/31/96 $10,642 $10,825 $10,250
4/30/96 $10,658 $10,795 $10,290
5/31/96 $10,677 $10,791 $10,309
6/30/96 $10,751 $10,908 $10,316
7/31/96 $10,829 $11,007 $10,336
8/31/96 $10,876 $11,004 $10,355
9/30/96 $10,983 $11,158 $10,388
10/31/96 $11,064 $11,285 $10,421
11/30/96 $11,200 $11,491 $10,441
12/31/96 $11,177 $11,443 $10,441
1/31/97 $11,196 $11,464 $10,474
2/28/97 $11,286 $11,569 $10,507
3/31/97 $11,191 $11,415 $10,533
4/30/97 $11,257 $11,511 $10,546
5/31/97 $11,402 $11,684 $10,540
6/30/97 $11,513 $11,808 $10,553
7/31/97 $11,757 $12,136 $10,566
8/31/97 $11,676 $12,022 $10,586
9/30/97 $11,808 $12,164 $10,612
10/31/97 $11,848 $12,243 $10,639
11/30/97 $11,936 $12,315 $10,632
12/31/97 $12,081 $12,494 $10,619
1/31/98 $12,173 $12,623 $10,639
2/28/98 $12,200 $12,627 $10,658
3/31/98 $12,207 $12,638 $10,678
4/30/98 $12,208 $12,581 $10,698
5/31/98 $12,352 $12,780 $10,718
6/30/98 $12,397 $12,831 $10,731
7/31/98 $12,438 $12,863 $10,744
8/31/98 $12,563 $13,062 $10,757
9/30/98 $12,674 $13,224 $10,770
10/31/98 $12,657 $13,224 $10,797
11/30/98 $12,694 $13,270 $10,797
12/31/98 $12,728 $13,304 $10,790
1/31/99 $12,856 $13,462 $10,816
2/28/99 $12,812 $13,403 $10,829
3/31/99 $12,843 $13,422 $10,862
4/30/99 $12,843 $13,455 $10,941
5/31/99 $12,772 $13,377 $10,941
6/30/99 $12,559 $13,185 $10,941
7/31/99 $12,593 $13,233 $10,974
8/31/99 $12,390 $13,127 $11,001
9/30/99 $12,355 $13,132 $11,053
10/31/99 $12,123 $12,990 $11,073
11/30/99 $12,211 $13,128 $11,080
12/31/99 $12,050 $13,030 $11,080
1/31/00 $11,898 $12,974 $11,113
2/29/00 $12,006 $13,124 $11,178
3/31/00 $12,315 $13,411 $11,271
4/30/00 $12,220 $13,332 $11,277
5/31/00 $12,119 $13,263 $11,290
6/30/00 $12,421 $13,614 $11,350
7/31/00 $12,582 $13,803 $11,376
8/31/00 $12,779 $14,016 $11,376
9/30/00 $12,704 $13,943 $11,435
10/31/00 $12,831 $14,095 $11,455
11/30/00 $12,917 $14,202 $11,461
12/31/00 $13,163 $14,553 $11,455
1/31/01 $13,229 $14,697 $11,527
2/28/01 $13,290 $14,744 $11,573
3/31/01 $13,417 $14,876 $11,600
4/30/01 $13,268 $14,715 $11,646
5/31/01 $13,431 $14,873 $11,698
6/30/01 $13,529 $14,973 $11,718
7/31/01 $13,786 $15,194 $11,685
8/31/01 $14,028 $15,445 $11,685
9/30/01 $13,921 $15,393 $11,738
10/31/01 $14,130 $15,576 $11,698
11/30/01 $13,984 $15,445 $11,679
12/31/01 $13,840 $15,299 $11,633
1/31/02 $14,056 $15,564 $11,659
2/28/02 $14,221 $15,752 $11,705
3/31/02 $13,943 $15,443 $11,771
4/30/02 $14,180 $15,745 $11,837
5/31/02 $14,244 $15,841 $11,837
6/30/02 $14,370 $16,008 $11,843
7/31/02 $14,571 $16,214 $11,856
8/31/02 $14,725 $16,409 $11,896
9/30/02 $15,068 $16,768 $11,916
10/31/02 $14,746 $16,490 $11,935
11/30/02 $14,674 $16,422 $11,935
12/31/02 $14,967 $16,768 $11,909
1/31/03 $14,922 $16,726 $11,962
2/28/03 $15,131 $16,960 $12,054
3/31/03 $15,116 $16,970 $12,126
4/30/03 $15,205 $17,082 $12,100
5/31/03 $15,570 $17,482 $12,080
6/30/03 $15,509 $17,407 $12,093
7/31/03 $14,788 $16,798 $12,107
8/31/03 $14,847 $16,924 $12,153
9/30/03 $15,202 $17,421 $12,192
10/31/03 $15,131 $17,333 $12,179
11/30/03 $15,314 $17,514 $12,146
12/31/03 $15,436 $17,659 $12,133
1/31/04 $15,514 $17,760 $12,192
2/29/04 $15,750 $18,028 $12,258
28 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of investment. Prior
to 1/1/04, these shares were offered with an initial sales charge; thus actual
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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Connecticut state personal
income tax bracket of 38.25%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 29
Franklin Double Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Double Tax-Free Income Fund
seeks to provide high, current income exempt from federal and personal income
taxes of all 50 U.S. states through a portfolio consisting mainly of municipal
bonds issued by U.S. territories such as Puerto Rico. 1
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin Double Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ................ 45.9%
AA ................. 7.7%
A .................. 22.0%
BBB ................ 24.4%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Double Tax-Free Income Fund's annual report
covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.90 on February
28, 2003, to $12.06 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 52.24 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 33 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 4.26 cent ($0.0426) per share dividend and the
maximum offering price of $12.60 on February 29, 2004. An investor in the 2004
maximum federal income tax bracket
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 96.
30 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin Double Tax-Free Income Fund
3/1/03-2/29/04
- ---------------------------------------------------------------------------
DIVIDEND PER SHARE
- ---------------------------------------------------------------------------
MONTH CLASS A CLASS C
- ---------------------------------------------------------------------------
March 4.48 cents 3.97 cents
- ---------------------------------------------------------------------------
April 4.48 cents 3.97 cents
- ---------------------------------------------------------------------------
May 4.48 cents 3.97 cents
- ---------------------------------------------------------------------------
June 4.35 cents 3.77 cents
- ---------------------------------------------------------------------------
July 4.35 cents 3.77 cents
- ---------------------------------------------------------------------------
August 4.30 cents 3.70 cents
- ---------------------------------------------------------------------------
September 4.30 cents 3.70 cents
- ---------------------------------------------------------------------------
October 4.30 cents 3.70 cents
- ---------------------------------------------------------------------------
November 4.30 cents 3.70 cents
- ---------------------------------------------------------------------------
December 4.30 cents 3.80 cents
- ---------------------------------------------------------------------------
January 4.30 cents 3.80 cents
- ---------------------------------------------------------------------------
February 4.30 cents 3.80 cents
- ---------------------------------------------------------------------------
TOTAL 52.24 CENTS 45.65 CENTS
- ---------------------------------------------------------------------------
of 35.00% would need to earn a distribution rate of 6.24% 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.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 for details.
Franklin Double Tax-Free Income Fund is the only mutual fund of its kind to
offer both state and federal income tax exemption in all 50 states. We do this
by investing in U.S. territories such as Puerto Rico, Virgin Islands and Guam,
which are free
Annual Report | 31
PORTFOLIO BREAKDOWN
Franklin Double Tax-Free Income Fund
2/29/04
- ------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ------------------------------------------------------
Transportation 19.1%
- ------------------------------------------------------
Utilities 18.2%
- ------------------------------------------------------
Other Revenue 11.9%
- ------------------------------------------------------
General Obligation 10.2%
- ------------------------------------------------------
Prerefunded 9.5%
- ------------------------------------------------------
Subject to Government Appropriations 9.1%
- ------------------------------------------------------
Housing 8.0%
- ------------------------------------------------------
Higher Education 5.2%
- ------------------------------------------------------
Hospital & Health Care 4.3%
- ------------------------------------------------------
Tax-Supported 4.2%
- ------------------------------------------------------
Corporate-Backed 0.3%
- ------------------------------------------------------
from state personal income taxes in all states and the District of Columbia.
This can be particularly appealing to residents of states such as Illinois, Iowa
and Wisconsin, which place a tax on their in-state municipal bonds.
The Fund was well diversified with 75 different positions across 11 different
sectors as of February 29, 2004. Issuers represented in the portfolio included
Puerto Rico (75.7% of the Fund's total long-term investments), Virgin Islands
(16.7%), and Guam (7.6%). At the end of the period, the Fund was entirely
investment grade, with AAA-rated securities representing 45.9% of the Fund's
total long-term investments.
Many mutual 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 also helps 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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
32 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.16 $12.06 $11.90
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.5224
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0330
- --------------------------------------------------------------------------------------------------
TOTAL $0.5554
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $12.10 $11.93
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.4565
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0330
- --------------------------------------------------------------------------------------------------
TOTAL $0.4895
- --------------------------------------------------------------------------------------------------
Franklin Double Tax-Free Income Fund paid distributions derived from long-term
capital gains of 3.30 cents ($0.0330) per share in July 2003. The Fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852(b)(3).
Annual Report | Past performance does not guarantee future results. | 33
Performance Summary (CONTINUED)
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.18% +29.80% +74.77%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.65% +4.44% +5.28%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.62% +4.32% +5.65%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.06%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.24%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.55%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.46%
- ---------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.67% +26.53% +62.29%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.67% +4.82% +5.63%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.64% +4.68% +5.57%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.69%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.68%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.16%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.86%
- ---------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
34 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Double Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,571 $10,000 $10,000
3/31/94 $9,242 $9,593 $10,034
4/30/94 $9,287 $9,674 $10,048
5/31/94 $9,352 $9,758 $10,055
6/30/94 $9,289 $9,698 $10,089
7/31/94 $9,434 $9,876 $10,116
8/31/94 $9,483 $9,910 $10,157
9/30/94 $9,374 $9,765 $10,184
10/31/94 $9,213 $9,592 $10,191
11/30/94 $9,031 $9,418 $10,204
12/31/94 $9,240 $9,625 $10,204
1/31/95 $9,462 $9,900 $10,245
2/28/95 $9,728 $10,188 $10,286
3/31/95 $9,790 $10,305 $10,320
4/30/95 $9,836 $10,318 $10,354
5/31/95 $10,096 $10,647 $10,375
6/30/95 $9,980 $10,554 $10,395
7/31/95 $10,055 $10,654 $10,395
8/31/95 $10,165 $10,789 $10,423
9/30/95 $10,230 $10,857 $10,443
10/31/95 $10,371 $11,015 $10,477
11/30/95 $10,499 $11,198 $10,470
12/31/95 $10,581 $11,305 $10,464
1/31/96 $10,651 $11,391 $10,525
2/29/96 $10,573 $11,314 $10,559
3/31/96 $10,503 $11,169 $10,613
4/30/96 $10,507 $11,138 $10,654
5/31/96 $10,515 $11,133 $10,675
6/30/96 $10,645 $11,255 $10,682
7/31/96 $10,715 $11,357 $10,702
8/31/96 $10,728 $11,354 $10,723
9/30/96 $10,884 $11,513 $10,757
10/31/96 $10,982 $11,643 $10,791
11/30/96 $11,145 $11,856 $10,811
12/31/96 $11,117 $11,806 $10,811
1/31/97 $11,121 $11,828 $10,845
2/28/97 $11,211 $11,937 $10,879
3/31/97 $11,100 $11,778 $10,907
4/30/97 $11,189 $11,876 $10,920
5/31/97 $11,352 $12,055 $10,913
6/30/97 $11,446 $12,184 $10,927
7/31/97 $11,723 $12,521 $10,941
8/31/97 $11,653 $12,404 $10,961
9/30/97 $11,785 $12,551 $10,988
10/31/97 $11,849 $12,632 $11,016
11/30/97 $11,938 $12,706 $11,009
12/31/97 $12,093 $12,891 $10,995
1/31/98 $12,177 $13,024 $11,016
2/28/98 $12,199 $13,028 $11,036
3/31/98 $12,244 $13,040 $11,057
4/30/98 $12,221 $12,981 $11,077
5/31/98 $12,386 $13,186 $11,097
6/30/98 $12,425 $13,238 $11,111
7/31/98 $12,453 $13,271 $11,125
8/31/98 $12,601 $13,476 $11,138
9/30/98 $12,746 $13,644 $11,152
10/31/98 $12,728 $13,644 $11,179
11/30/98 $12,771 $13,692 $11,179
12/31/98 $12,788 $13,726 $11,172
1/31/99 $12,916 $13,890 $11,200
2/28/99 $12,891 $13,829 $11,213
3/31/99 $12,962 $13,848 $11,247
4/30/99 $12,992 $13,883 $11,329
5/31/99 $12,950 $13,802 $11,329
6/30/99 $12,781 $13,604 $11,329
7/31/99 $12,819 $13,653 $11,363
8/31/99 $12,665 $13,544 $11,391
9/30/99 $12,671 $13,549 $11,445
10/31/99 $12,519 $13,403 $11,466
11/30/99 $12,612 $13,545 $11,472
12/31/99 $12,486 $13,444 $11,472
1/31/00 $12,370 $13,386 $11,506
2/29/00 $12,513 $13,541 $11,575
3/31/00 $12,774 $13,837 $11,670
4/30/00 $12,714 $13,755 $11,677
5/31/00 $12,650 $13,684 $11,691
6/30/00 $12,961 $14,046 $11,752
7/31/00 $13,145 $14,242 $11,779
8/31/00 $13,354 $14,461 $11,779
9/30/00 $13,290 $14,386 $11,840
10/31/00 $13,375 $14,543 $11,861
11/30/00 $13,479 $14,653 $11,868
12/31/00 $13,758 $15,015 $11,861
1/31/01 $13,844 $15,164 $11,936
2/28/01 $13,898 $15,212 $11,984
3/31/01 $13,995 $15,348 $12,011
4/30/01 $13,887 $15,182 $12,059
5/31/01 $14,044 $15,345 $12,113
6/30/01 $14,159 $15,448 $12,134
7/31/01 $14,409 $15,677 $12,100
8/31/01 $14,628 $15,935 $12,100
9/30/01 $14,445 $15,882 $12,154
10/31/01 $14,634 $16,071 $12,113
11/30/01 $14,504 $15,936 $12,093
12/31/01 $14,343 $15,785 $12,045
1/31/02 $14,567 $16,059 $12,072
2/28/02 $14,773 $16,252 $12,120
3/31/02 $14,502 $15,934 $12,188
4/30/02 $14,794 $16,245 $12,256
5/31/02 $14,852 $16,344 $12,256
6/30/02 $14,967 $16,516 $12,263
7/31/02 $15,146 $16,729 $12,277
8/31/02 $15,305 $16,930 $12,318
9/30/02 $15,663 $17,301 $12,338
10/31/02 $15,399 $17,014 $12,359
11/30/02 $15,362 $16,943 $12,359
12/31/02 $15,673 $17,301 $12,331
1/31/03 $15,575 $17,257 $12,386
2/28/03 $15,760 $17,498 $12,481
3/31/03 $15,758 $17,509 $12,556
4/30/03 $15,792 $17,624 $12,529
5/31/03 $16,194 $18,037 $12,509
6/30/03 $16,120 $17,960 $12,522
7/31/03 $15,509 $17,332 $12,536
8/31/03 $15,644 $17,461 $12,584
9/30/03 $16,074 $17,975 $12,624
10/31/03 $15,986 $17,884 $12,611
11/30/03 $16,201 $18,070 $12,577
12/31/03 $16,350 $18,220 $12,563
1/31/04 $16,422 $18,324 $12,624
2/29/04 $16,728 $18,600 $12,693
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Double Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,267 $10,319 $10,020
6/30/95 $10,143 $10,229 $10,039
7/31/95 $10,223 $10,326 $10,039
8/31/95 $10,328 $10,457 $10,066
9/30/95 $10,389 $10,523 $10,086
10/31/95 $10,526 $10,676 $10,118
11/30/95 $10,660 $10,853 $10,112
12/31/95 $10,729 $10,957 $10,105
1/31/96 $10,803 $11,040 $10,165
2/29/96 $10,721 $10,966 $10,197
3/31/96 $10,636 $10,825 $10,250
4/30/96 $10,645 $10,795 $10,290
5/31/96 $10,638 $10,791 $10,309
6/30/96 $10,764 $10,908 $10,316
7/31/96 $10,831 $11,007 $10,336
8/31/96 $10,849 $11,004 $10,355
9/30/96 $10,992 $11,158 $10,388
10/31/96 $11,086 $11,285 $10,421
11/30/96 $11,237 $11,491 $10,441
12/31/96 $11,203 $11,443 $10,441
1/31/97 $11,211 $11,464 $10,474
2/28/97 $11,296 $11,569 $10,507
3/31/97 $11,158 $11,415 $10,533
4/30/97 $11,252 $11,511 $10,546
5/31/97 $11,411 $11,684 $10,540
6/30/97 $11,500 $11,808 $10,553
7/31/97 $11,773 $12,136 $10,566
8/31/97 $11,697 $12,022 $10,586
9/30/97 $11,823 $12,164 $10,612
10/31/97 $11,882 $12,243 $10,639
11/30/97 $11,956 $12,315 $10,632
12/31/97 $12,115 $12,494 $10,619
1/31/98 $12,192 $12,623 $10,639
2/28/98 $12,208 $12,627 $10,658
3/31/98 $12,258 $12,638 $10,678
4/30/98 $12,230 $12,581 $10,698
5/31/98 $12,379 $12,780 $10,718
6/30/98 $12,414 $12,831 $10,731
7/31/98 $12,435 $12,863 $10,744
8/31/98 $12,588 $13,062 $10,757
9/30/98 $12,716 $13,224 $10,770
10/31/98 $12,692 $13,224 $10,797
11/30/98 $12,739 $13,270 $10,797
12/31/98 $12,751 $13,304 $10,790
1/31/99 $12,862 $13,462 $10,816
2/28/99 $12,831 $13,403 $10,829
3/31/99 $12,905 $13,422 $10,862
4/30/99 $12,918 $13,455 $10,941
5/31/99 $12,872 $13,377 $10,941
6/30/99 $12,708 $13,185 $10,941
7/31/99 $12,741 $13,233 $10,974
8/31/99 $12,583 $13,127 $11,001
9/30/99 $12,584 $13,132 $11,053
10/31/99 $12,417 $12,990 $11,073
11/30/99 $12,501 $13,128 $11,080
12/31/99 $12,383 $13,030 $11,080
1/31/00 $12,263 $12,974 $11,113
2/29/00 $12,399 $13,124 $11,178
3/31/00 $12,650 $13,411 $11,271
4/30/00 $12,575 $13,332 $11,277
5/31/00 $12,517 $13,263 $11,290
6/30/00 $12,818 $13,614 $11,350
7/31/00 $12,995 $13,803 $11,376
8/31/00 $13,195 $14,016 $11,376
9/30/00 $13,127 $13,943 $11,435
10/31/00 $13,204 $14,095 $11,455
11/30/00 $13,301 $14,202 $11,461
12/31/00 $13,571 $14,553 $11,455
1/31/01 $13,648 $14,697 $11,527
2/28/01 $13,707 $14,744 $11,573
3/31/01 $13,796 $14,876 $11,600
4/30/01 $13,683 $14,715 $11,646
5/31/01 $13,818 $14,873 $11,698
6/30/01 $13,926 $14,973 $11,718
7/31/01 $14,164 $15,194 $11,685
8/31/01 $14,385 $15,445 $11,685
9/30/01 $14,188 $15,393 $11,738
10/31/01 $14,378 $15,576 $11,698
11/30/01 $14,231 $15,445 $11,679
12/31/01 $14,079 $15,299 $11,633
1/31/02 $14,290 $15,564 $11,659
2/28/02 $14,473 $15,752 $11,705
3/31/02 $14,214 $15,443 $11,771
4/30/02 $14,493 $15,745 $11,837
5/31/02 $14,543 $15,841 $11,837
6/30/02 $14,638 $16,008 $11,843
7/31/02 $14,818 $16,214 $11,856
8/31/02 $14,966 $16,409 $11,896
9/30/02 $15,307 $16,768 $11,916
10/31/02 $15,043 $16,490 $11,935
11/30/02 $15,000 $16,422 $11,935
12/31/02 $15,309 $16,768 $11,909
1/31/03 $15,207 $16,726 $11,962
2/28/03 $15,368 $16,960 $12,054
3/31/03 $15,360 $16,970 $12,126
4/30/03 $15,385 $17,082 $12,100
5/31/03 $15,770 $17,482 $12,080
6/30/03 $15,689 $17,407 $12,093
7/31/03 $15,088 $16,798 $12,107
8/31/03 $15,224 $16,924 $12,153
9/30/03 $15,632 $17,421 $12,192
10/31/03 $15,524 $17,333 $12,179
11/30/03 $15,740 $17,514 $12,146
12/31/03 $15,863 $17,659 $12,133
1/31/04 $15,926 $17,760 $12,192
2/29/04 $16,229 $18,028 $12,258
Annual Report | Past performance does not guarantee future results. | 35
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES.
THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of investment. Prior
to 1/1/04, these shares were offered with an initial sales charge; thus actual
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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
36 | Past performance does not guarantee future results. | Annual Report
Franklin Federal Intermediate-Term
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Federal Intermediate-Term
Tax-Free Income Fund seeks to provide high, current income exempt from federal
income tax through a portfolio of municipal bonds with a dollar-weighted average
maturity (the time in which debt must be repaid) between 3 and 10 years. 1
- --------------------------------------------------------------------------------
Credit Quality Breakdown*
Franklin Federal Intermediate-Term Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA 68.1%
AA 10.0%
A 3.8%
BBB 16.7%
Below Investment Grade 1.4%
*Quality breakdown may include internal ratings for bonds not rated
by an independent rating agency.
- --------------------------------------------------------------------------------
This annual report for Franklin Federal Intermediate-Term Tax-Free Income Fund
covers the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.48 on February
28, 2003, to $11.76 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 43.33 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 40
1. These dividends are generally subject to state and local income taxes, if
any. For investors subject to the alternative minimum tax, a small portion of
Fund dividends may be taxable. Distributions of capital gains are generally
taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 101.
Annual Report | 37
DIVIDEND DISTRIBUTIONS*
Franklin Federal Intermediate-Term Tax-Free Income Fund
3/1/03-2/29/04
- ----------------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------------
MONTH CLASS A CLASS C**
- ----------------------------------------------------------------------------
March 3.76 cents --
- ----------------------------------------------------------------------------
April 3.76 cents --
- ----------------------------------------------------------------------------
May 3.76 cents --
- ----------------------------------------------------------------------------
June 3.64 cents --
- ----------------------------------------------------------------------------
July 3.64 cents 1.92 cents
- ----------------------------------------------------------------------------
August 3.60 cents 3.06 cents
- ----------------------------------------------------------------------------
September 3.60 cents 3.06 cents
- ----------------------------------------------------------------------------
October 3.55 cents 3.02 cents
- ----------------------------------------------------------------------------
November 3.55 cents 3.02 cents
- ----------------------------------------------------------------------------
December 3.49 cents 2.96 cents
- ----------------------------------------------------------------------------
January 3.49 cents 2.96 cents
- ----------------------------------------------------------------------------
February 3.49 cents 2.96 cents
- ----------------------------------------------------------------------------
TOTAL 43.33 CENTS 22.96 CENTS
- ----------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
**Effective July 1, 2003, the Fund began offering Class C shares to investors.
See the prospectus for details.
shows that at the end of this reporting period the Fund's Class A shares'
distribution rate was 3.48%, based on an annualization of the current 3.49 cent
($0.0349) per share dividend and the maximum offering price of $12.03 on
February 29, 2004. An investor in the 2004 maximum federal income tax bracket of
35.00% would need to earn a distribution rate of 5.36% 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.
The Fund was limited to investing the proceeds from cash inflows at current,
lower interest rates, which tended to reduce the Fund's income and cause
dividend distributions to decline slightly, as shown in the dividend
distributions table.
38 | Annual Report
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
PORTFOLIO BREAKDOWN
Franklin Federal Intermediate-Term
Tax-Free Income Fund
2/29/04
- -----------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- -----------------------------------------------------------
General Obligation 36.9%
- -----------------------------------------------------------
Utilities 26.6%*
- -----------------------------------------------------------
Hospital & Health Care 7.9%
- -----------------------------------------------------------
Tax-Supported 6.5%
- -----------------------------------------------------------
Prerefunded 5.1%
- -----------------------------------------------------------
Transportation 4.8%
- -----------------------------------------------------------
Subject to Government Appropriations 4.3%
- -----------------------------------------------------------
Higher Education 4.3%
- -----------------------------------------------------------
Corporate-Backed 2.7%
- -----------------------------------------------------------
Housing 0.6%
- -----------------------------------------------------------
Other Revenue 0.3%
- -----------------------------------------------------------
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as utilities. A change that affects one project may
affect all similar projects, thereby increasing market risk.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 39
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.28 $11.76 $11.48
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4333
- -----------------------------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 7/1/03
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.10 $11.77 $11.67
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (7/1/03-2/29/04)
- -----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.2296
- -----------------------------------------------------------------------------------------------------------------------
PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.33% +29.70% +73.89%
- -----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.98% +4.86% +5.45%
- -----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.15% +4.70% +5.70%
- -----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.48%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.36%
- -----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.88%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.43%
- -----------------------------------------------------------------------------------------------------------------------
CLASS C INCEPTION (7/1/03)
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +2.96%
- -----------------------------------------------------------------------------------------------------------------------
Aggregate Total Return 7 +1.96%
- -----------------------------------------------------------------------------------------------------------------------
Aggregate Total Return (3/31/04) 3, 7 +1.19%
- -----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.01%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 4.63%
- -----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.38%
- -----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 3.66%
- -----------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
40 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Federal Intermediate- Lehman Brothers Municipal
Date Term Tax-Free Income Fund 10-Year Bond Index 8 CPI 8
3/1/94 $9,774 $10,000 $10,000
3/31/94 $9,474 $9,618 $10,034
4/30/94 $9,522 $9,724 $10,048
5/31/94 $9,601 $9,802 $10,055
6/30/94 $9,575 $9,759 $10,089
7/31/94 $9,707 $9,923 $10,116
8/31/94 $9,776 $9,962 $10,157
9/30/94 $9,698 $9,828 $10,184
10/31/94 $9,572 $9,684 $10,191
11/30/94 $9,442 $9,501 $10,204
12/31/94 $9,578 $9,672 $10,204
1/31/95 $9,801 $9,923 $10,245
2/28/95 $9,980 $10,203 $10,286
3/31/95 $10,075 $10,341 $10,320
4/30/95 $10,095 $10,354 $10,354
5/31/95 $10,352 $10,682 $10,375
6/30/95 $10,300 $10,616 $10,395
7/31/95 $10,393 $10,772 $10,395
8/31/95 $10,534 $10,918 $10,423
9/30/95 $10,627 $10,988 $10,443
10/31/95 $10,753 $11,115 $10,477
11/30/95 $10,886 $11,264 $10,470
12/31/95 $10,958 $11,333 $10,464
1/31/96 $11,026 $11,447 $10,525
2/29/96 $10,972 $11,400 $10,559
3/31/96 $11,138 $11,259 $10,613
4/30/96 $11,135 $11,219 $10,654
5/31/96 $11,125 $11,187 $10,675
6/30/96 $11,230 $11,294 $10,682
7/31/96 $11,300 $11,402 $10,702
8/31/96 $11,307 $11,402 $10,723
9/30/96 $11,419 $11,519 $10,757
10/31/96 $11,539 $11,665 $10,791
11/30/96 $11,690 $11,901 $10,811
12/31/96 $11,689 $11,848 $10,811
1/31/97 $11,433 $11,894 $10,845
2/28/97 $11,532 $12,006 $10,879
3/31/97 $11,424 $11,845 $10,907
4/30/97 $11,512 $11,933 $10,920
5/31/97 $11,585 $12,102 $10,913
6/30/97 $11,720 $12,235 $10,927
7/31/97 $11,981 $12,579 $10,941
8/31/97 $11,921 $12,457 $10,961
9/30/97 $12,014 $12,615 $10,988
10/31/97 $12,079 $12,682 $11,016
11/30/97 $12,147 $12,741 $11,009
12/31/97 $12,306 $12,942 $10,995
1/31/98 $12,455 $13,085 $11,016
2/28/98 $12,458 $13,084 $11,036
3/31/98 $12,466 $13,075 $11,057
4/30/98 $12,445 $13,003 $11,077
5/31/98 $12,604 $13,225 $11,097
6/30/98 $12,641 $13,273 $11,111
7/31/98 $12,684 $13,294 $11,125
8/31/98 $12,824 $13,525 $11,138
9/30/98 $12,950 $13,727 $11,152
10/31/98 $12,946 $13,733 $11,179
11/30/98 $12,985 $13,774 $11,179
12/31/98 $13,020 $13,816 $11,172
1/31/99 $13,172 $14,028 $11,200
2/28/99 $13,104 $13,902 $11,213
3/31/99 $13,113 $13,895 $11,247
4/30/99 $13,160 $13,932 $11,329
5/31/99 $13,087 $13,834 $11,329
6/30/99 $12,939 $13,577 $11,329
7/31/99 $12,974 $13,668 $11,363
8/31/99 $12,897 $13,618 $11,391
9/30/99 $12,923 $13,664 $11,445
10/31/99 $12,779 $13,567 $11,466
11/30/99 $12,859 $13,716 $11,472
12/31/99 $12,779 $13,644 $11,472
1/31/00 $12,697 $13,589 $11,506
2/29/00 $12,783 $13,695 $11,575
3/31/00 $12,980 $13,962 $11,670
4/30/00 $12,922 $13,892 $11,677
5/31/00 $12,846 $13,809 $11,691
6/30/00 $13,083 $14,184 $11,752
7/31/00 $13,223 $14,381 $11,779
8/31/00 $13,426 $14,604 $11,779
9/30/00 $13,401 $14,536 $11,840
10/31/00 $13,510 $14,685 $11,861
11/30/00 $13,551 $14,765 $11,868
12/31/00 $13,727 $15,113 $11,861
1/31/01 $13,886 $15,307 $11,936
2/28/01 $13,948 $15,333 $11,984
3/31/01 $14,057 $15,463 $12,011
4/30/01 $14,000 $15,273 $12,059
5/31/01 $14,145 $15,439 $12,113
6/30/01 $14,234 $15,531 $12,134
7/31/01 $14,425 $15,744 $12,100
8/31/01 $14,652 $16,012 $12,100
9/30/01 $14,635 $15,990 $12,154
10/31/01 $14,776 $16,188 $12,113
11/30/01 $14,646 $15,979 $12,093
12/31/01 $14,491 $15,810 $12,045
1/31/02 $14,692 $16,109 $12,072
2/28/02 $14,876 $16,339 $12,120
3/31/02 $14,621 $16,002 $12,188
4/30/02 $14,923 $16,373 $12,256
5/31/02 $15,005 $16,451 $12,256
6/30/02 $15,201 $16,655 $12,263
7/31/02 $15,368 $16,877 $12,277
8/31/02 $15,514 $17,097 $12,318
9/30/02 $15,829 $17,505 $12,338
10/31/02 $15,557 $17,187 $12,359
11/30/02 $15,456 $17,046 $12,359
12/31/02 $15,788 $17,419 $12,331
1/31/03 $15,717 $17,325 $12,386
2/28/03 $15,988 $17,624 $12,481
3/31/03 $16,004 $17,633 $12,556
4/30/03 $16,125 $17,765 $12,529
5/31/03 $16,567 $18,274 $12,509
6/30/03 $16,464 $18,186 $12,522
7/31/03 $15,768 $17,423 $12,536
8/31/03 $15,913 $17,572 $12,584
9/30/03 $16,436 $18,164 $12,624
10/31/03 $16,303 $18,025 $12,611
11/30/03 $16,461 $18,219 $12,577
12/31/03 $16,633 $18,411 $12,563
1/31/04 $16,711 $18,489 $12,624
2/29/04 $16,995 $18,814 $12,693
CLASS C (7/1/03-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Federal Intermediate- Lehman Brothers Municipal
Date Term Tax-Free Income Fund 10-Year Bond Index 8 CPI 8
7/1/03 $10,000 $10,000 $10,000
7/31/03 $9,581 $9,580 $10,011
8/31/03 $9,674 $9,662 $10,049
9/30/03 $9,978 $9,988 $10,082
10/31/03 $9,901 $9,911 $10,071
11/30/03 $9,984 $10,018 $10,044
12/31/03 $10,083 $10,124 $10,033
1/31/04 $10,125 $10,167 $10,082
2/29/04 $10,196 $10,345 $10,136
Annual Report | Past performance does not guarantee future results. | 41
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES.
THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Subject to the maximum 2.25% initial sales charge.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of investment. Prior
to 1/1/04, these shares were offered with an initial sales charge; thus actual
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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Since Class C shares have existed for less than one year, average annual
total returns are not provided. Aggregate total return for that class represents
change in value of an investment since inception, including the current maximum
sales charge. 8. Source: Standard & Poor's Micropal. The Lehman Brothers
Municipal 10-Year Bond Index is a market value-weighted index engineered for the
long-term tax-exempt bond market. It is the 10-year (8-12) component of the
Municipal Bond Index. All bonds included have a minimum credit rating of at
least Baa. They must have an outstanding par value of at least $5 million and be
issued as part of a transaction of at least $50 million. The bonds must be dated
after 12/31/90, and must be at least one year from their maturity date.
Remarketed issues, taxable municipal bonds, bonds with floating rates and
derivatives are excluded from the index. The index has four main bond sectors:
general obligation, revenue, insured and prerefunded.
42 | Past performance does not guarantee future results. | Annual Report
Franklin Federal Limited-Term
Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Federal Limited-Term Tax-Free
Income Fund seeks to provide high, current income exempt from federal income
taxes while seeking preservation of capital. The Fund's portfolio consists
mainly of municipal securities with a dollar-weighted average maturity (the time
at which the debt must be repaid) of five years or less. 1
- --------------------------------------------------------------------------------
Credit Quality Breakdown*
Franklin Federal Limited-Term Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ................ 73.9%
AA ................. 26.1%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Federal Limited-Term Tax-Free Income Fund's
first annual report covering the nearly six-month period since inception on
September 2, 2003, through February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the nearly six-month period. The Fund's Class A
share price, as measured by net asset value, increased from $10.00 since
inception on September 2, 2003, to $10.12 on February 29, 2004. The Fund's Class
A shares paid dividends totaling 5.00 cents per share for the same period. 2 The
Performance Summary
1. These dividends are generally subject to state and local income taxes, if
any. For investors subject to the alternative minimum tax, a small portion of
Fund dividends may be taxable. Distributions of capital gains are generally
taxable. 2. Assumes shares were purchased and held for the entire accrual
period. Since dividends accrue daily, your actual distributions will vary
depending on the date you purchased your shares and any account activity during
the month. All Fund distributions will vary depending upon current market
conditions, and past distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 112.
Annual Report | 43
DIVIDEND DISTRIBUTIONS*
Franklin Federal Limited-Term
Tax-Free Income Fund -Class A
9/2/03-2/29/04
- ----------------------------------------------------
MONTH DIVIDEND PER SHARE
- ----------------------------------------------------
September --
- ----------------------------------------------------
October 1.00 cent**
- ----------------------------------------------------
November 1.00 cent
- ----------------------------------------------------
December 1.00 cent
- ----------------------------------------------------
January 1.00 cent
- ----------------------------------------------------
February 1.00 cent
- ----------------------------------------------------
TOTAL 5.00 CENTS
- ----------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
**Initial distribution; daily accrual began on 9/22/03 and the first dividend
was paid on 10/17/03.
PORTFOLIO BREAKDOWN
Franklin Federal Limited-Term
Tax-Free Income Fund
2/29/04
- ------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ------------------------------------------------------
General Obligation 48.9%
- ------------------------------------------------------
Utilities 15.6%
- ------------------------------------------------------
Subject to Government Appropriations 9.4%
- ------------------------------------------------------
Other Revenue 8.9%
- ------------------------------------------------------
Tax-Supported 6.6%
- ------------------------------------------------------
Hospital & Health Care 4.0%
- ------------------------------------------------------
Housing 2.7%
- ------------------------------------------------------
Transportation 1.4%
- ------------------------------------------------------
Prerefunded 1.4%
- ------------------------------------------------------
Higher Education 1.1%
- ------------------------------------------------------
on page 45 shows that at the end of this reporting period the Fund's Class A
shares' distribution rate was 1.38%. An investor in the 2004 maximum federal
income tax bracket of 35.00% would need to earn a distribution rate of 2.12%
from a taxable investment to match the Fund's Class A tax-free distribution
rate.
MANAGER'S DISCUSSION
Since the Fund's inception on September 2, 2003, we followed our value-oriented
strategy, investing primarily for income. We looked to remain fully invested in
bonds with maturities averaging five years or less with good call options.
Consistent with our income-oriented investment philosophy, we generally invest
in bonds that we believe should provide the most relative value from an income
perspective, and we are comfortable holding them unless we find an opportunity
to enhance the portfolio's structure or increase its future income-earning
potential. Following our strategy in the recent interest rate environment, we
sought to position the Fund to quickly capture changes in interest rates,
preserve capital and produce tax-free income.
Thank you for your participation in Franklin Federal Limited-Term Tax-Free
Income Fund. We look forward to serving your future investment needs.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
44 | Annual Report
Performance Summary as of 2/29/04
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 does not reflect any taxes due on Fund
dividends, capital gain distributions, if any, or any realized gains on the sale
of Fund shares. Total return reflects the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 9/2/03
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.12 $10.12 $10.00
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (9/2/03-2/29/04)
- ------------------------------------------------------------------------------------------------------------------------
Dividend Income $0.0500
- ------------------------------------------------------------------------------------------------------------------------
PERFORMANCE 1
- ------------------------------------------------------------------------------------------------------------------------
CLASS A INCEPTION (9/2/03)
- ------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +1.74%
- ------------------------------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +1.74%
- ------------------------------------------------------------------------------------------------------------------------
Aggregate Total Return (3/31/04) 4 +1.56%
- ------------------------------------------------------------------------------------------------------------------------
Distribution Rate 5 1.38%
- ------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 6 2.12%
- ------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 7 1.23%
- ------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 6 1.89%
- ------------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES.
THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Subject to no initial sales charge.
1. The Fund's manager has agreed in advance to waive a portion of its management
fees. If the manager had not taken this action, the Fund's distribution rate and
total return would have been lower, and yield for the period would have been
0.60%. After 3/1/04, the fee waiver may be discontinued at any time upon notice
to the Fund's Board of Trustees.
2. Cumulative total return represents the change in value of an investment since
inception.
3. Aggregate total return represents the change in value of an investment since
inception. Since Class A shares have existed for less than one year, average
annual total returns are not provided.
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 current 1.16 cent per
share monthly dividend and the NAV of $10.12 per share on 2/29/04.
6. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%. 7. Yield, calculated as required by the SEC,
is based on the earnings of the Fund's portfolio for the month ended 2/29/04.
Annual Report | Past performance does not guarantee future results. | 45
Franklin High Yield Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin High Yield Tax-Free Income
Fund seeks to provide high, current income exempt from federal income tax
through a portfolio consisting mainly of higher-yielding, medium- to lower-rated
and non-rated municipal bonds. 1 As discussed in the Fund's prospectus, these
securities entail greater risks than higher-rated municipal securities.
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin High Yield Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ................................... 21.3%
AA .................................... 1.5%
A ..................................... 9.6%
BBB ................................... 26.5%
Below Investment Grade ................ 41.1%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin High Yield Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $10.39 on February
28, 2003, to $10.78 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 59.40 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 49 shows that at the end of this reporting
period the Fund's Class A
1. These dividends are generally subject to state and local taxes, if any. For
investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 122.
46 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin High Yield Tax-Free Income Fund
3/1/03-2/29/04
- -----------------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------------------------------
MONTH CLASS A CLASS B CLASS C
- -----------------------------------------------------------------------------
March 4.95 cents 4.46 cents 4.47 cents
- -----------------------------------------------------------------------------
April 4.95 cents 4.46 cents 4.47 cents
- -----------------------------------------------------------------------------
May 4.95 cents 4.46 cents 4.47 cents
- -----------------------------------------------------------------------------
June 4.95 cents 4.47 cents 4.45 cents
- -----------------------------------------------------------------------------
July 4.95 cents 4.47 cents 4.45 cents
- -----------------------------------------------------------------------------
August 4.95 cents 4.45 cents 4.44 cents
- -----------------------------------------------------------------------------
September 4.95 cents 4.45 cents 4.44 cents
- -----------------------------------------------------------------------------
October 4.95 cents 4.45 cents 4.44 cents
- -----------------------------------------------------------------------------
November 4.95 cents 4.45 cents 4.44 cents
- -----------------------------------------------------------------------------
December 4.95 cents 4.47 cents 4.48 cents
- -----------------------------------------------------------------------------
January 4.95 cents 4.47 cents 4.48 cents
- -----------------------------------------------------------------------------
February 4.95 cents 4.47 cents 4.48 cents
- -----------------------------------------------------------------------------
TOTAL 59.40 CENTS 53.53 CENTS 53.51 CENTS
- -----------------------------------------------------------------------------
shares' distribution rate was 5.28%, based on an annualization of the current
4.95 cent ($0.0495) per share dividend and the maximum offering price of $11.26
on February 29, 2004. An investor in the 2004 maximum federal income tax bracket
of 35.00% would need to earn a distribution rate of 8.12% 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.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 for details.
Franklin High Yield Tax-Free Income Fund - Class A generated above-average
tax-free income for shareholders over the past year relative to the Lipper High
Yield Municipal Debt Funds Average's 5.03% 12-month yield. 3 Overall, by
focusing on income while maintaining broad diversification, the Fund delivered
strong results for our shareholders.
3. Source: Lipper Inc. Lipper High Yield Municipal Debt Funds are defined as
funds that invest at least 50% of their assets in lower-rated municipal
securities. For the year ended 2/29/04, there were 80 funds in this category.
Lipper calculations do not include sales charges. The Fund's performance
relative to the average might have differed if such charges had been considered.
Past performance does not guarantee future results.
Annual Report | 47
PORTFOLIO BREAKDOWN
Franklin High Yield Tax-Free Income Fund
2/29/04
- -------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- -------------------------------------------------------
Utilities 23.5%
- -------------------------------------------------------
Prerefunded 16.4%
- -------------------------------------------------------
Hospital & Health Care 14.7%
- -------------------------------------------------------
Transportation 13.5%
- -------------------------------------------------------
Tax-Supported 13.0%
- -------------------------------------------------------
General Obligation 5.9%
- -------------------------------------------------------
Corporate-Backed 5.0%
- -------------------------------------------------------
Other Revenue 3.8%
- -------------------------------------------------------
Housing 1.8%
- -------------------------------------------------------
Subject to Government Appropriations 1.7%
- -------------------------------------------------------
Higher Education 0.7%
- -------------------------------------------------------
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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
48 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.39 $10.78 $10.39
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.5940
- --------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.39 $10.84 $10.45
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.5353
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.40 $10.88 $10.48
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.5351
- --------------------------------------------------------------------------------------------------
Annual Report | Past performance does not guarantee future results. | 49
Performance Summary (CONTINUED)
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.75% +25.10% +75.86%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.10% +3.68% +5.35%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +5.57% +3.57% +5.65%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 5.28%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 8.12%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 4.39%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 6.75%
- ---------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.09% +21.85% +23.01%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.09% +3.71% +3.94%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +5.74% +3.60% +3.83%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.90%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 7.54%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 4.04%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 6.22%
- ---------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.16% +21.69% +61.52%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +8.16% +4.00% +5.58%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +8.70% +3.90% +5.50%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.88%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 7.50%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 4.04%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 6.22%
- ---------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
50 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin High Yield Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,574 $10,000 $10,000
3/31/94 $9,293 $9,593 $10,034
4/30/94 $9,300 $9,674 $10,048
5/31/94 $9,355 $9,758 $10,055
6/30/94 $9,374 $9,698 $10,089
7/31/94 $9,496 $9,876 $10,116
8/31/94 $9,526 $9,910 $10,157
9/30/94 $9,458 $9,765 $10,184
10/31/94 $9,363 $9,592 $10,191
11/30/94 $9,209 $9,418 $10,204
12/31/94 $9,334 $9,625 $10,204
1/31/95 $9,562 $9,900 $10,245
2/28/95 $9,796 $10,188 $10,286
3/31/95 $9,931 $10,305 $10,320
4/30/95 $9,973 $10,318 $10,354
5/31/95 $10,217 $10,647 $10,375
6/30/95 $10,229 $10,554 $10,395
7/31/95 $10,296 $10,654 $10,395
8/31/95 $10,399 $10,789 $10,423
9/30/95 $10,483 $10,857 $10,443
10/31/95 $10,618 $11,015 $10,477
11/30/95 $10,754 $11,198 $10,470
12/31/95 $10,857 $11,305 $10,464
1/31/96 $10,918 $11,391 $10,525
2/29/96 $10,909 $11,314 $10,559
3/31/96 $10,801 $11,169 $10,613
4/30/96 $10,812 $11,138 $10,654
5/31/96 $10,837 $11,133 $10,675
6/30/96 $10,943 $11,255 $10,682
7/31/96 $11,025 $11,357 $10,702
8/31/96 $11,065 $11,354 $10,723
9/30/96 $11,216 $11,513 $10,757
10/31/96 $11,363 $11,643 $10,791
11/30/96 $11,535 $11,856 $10,811
12/31/96 $11,527 $11,806 $10,811
1/31/97 $11,561 $11,828 $10,845
2/28/97 $11,664 $11,937 $10,879
3/31/97 $11,572 $11,778 $10,907
4/30/97 $11,659 $11,876 $10,920
5/31/97 $11,807 $12,055 $10,913
6/30/97 $11,952 $12,184 $10,927
7/31/97 $12,254 $12,521 $10,941
8/31/97 $12,185 $12,404 $10,961
9/30/97 $12,386 $12,551 $10,988
10/31/97 $12,474 $12,632 $11,016
11/30/97 $12,553 $12,706 $11,009
12/31/97 $12,748 $12,891 $10,995
1/31/98 $12,888 $13,024 $11,016
2/28/98 $12,918 $13,028 $11,036
3/31/98 $12,928 $13,040 $11,057
4/30/98 $12,919 $12,981 $11,077
5/31/98 $13,081 $13,186 $11,097
6/30/98 $13,139 $13,238 $11,111
7/31/98 $13,162 $13,271 $11,125
8/31/98 $13,316 $13,476 $11,138
9/30/98 $13,396 $13,644 $11,152
10/31/98 $13,381 $13,644 $11,179
11/30/98 $13,341 $13,692 $11,179
12/31/98 $13,361 $13,726 $11,172
1/31/99 $13,470 $13,890 $11,200
2/28/99 $13,462 $13,829 $11,213
3/31/99 $13,511 $13,848 $11,247
4/30/99 $13,561 $13,883 $11,329
5/31/99 $13,502 $13,802 $11,329
6/30/99 $13,359 $13,604 $11,329
7/31/99 $13,421 $13,653 $11,363
8/31/99 $13,274 $13,544 $11,391
9/30/99 $13,264 $13,549 $11,445
10/31/99 $13,024 $13,403 $11,466
11/30/99 $13,132 $13,545 $11,472
12/31/99 $12,941 $13,444 $11,472
1/31/00 $12,822 $13,386 $11,506
2/29/00 $12,948 $13,541 $11,575
3/31/00 $13,212 $13,837 $11,670
4/30/00 $13,153 $13,755 $11,677
5/31/00 $13,076 $13,684 $11,691
6/30/00 $13,194 $14,046 $11,752
7/31/00 $13,354 $14,242 $11,779
8/31/00 $13,537 $14,461 $11,779
9/30/00 $13,483 $14,386 $11,840
10/31/00 $13,578 $14,543 $11,861
11/30/00 $13,577 $14,653 $11,868
12/31/00 $13,688 $15,015 $11,861
1/31/01 $13,780 $15,164 $11,936
2/28/01 $13,854 $15,212 $11,984
3/31/01 $13,987 $15,348 $12,011
4/30/01 $13,920 $15,182 $12,059
5/31/01 $14,065 $15,345 $12,113
6/30/01 $14,180 $15,448 $12,134
7/31/01 $14,413 $15,677 $12,100
8/31/01 $14,641 $15,935 $12,100
9/30/01 $14,513 $15,882 $12,154
10/31/01 $14,628 $16,071 $12,113
11/30/01 $14,597 $15,936 $12,093
12/31/01 $14,501 $15,785 $12,045
1/31/02 $14,692 $16,059 $12,072
2/28/02 $14,760 $16,252 $12,120
3/31/02 $14,633 $15,934 $12,188
4/30/02 $14,807 $16,245 $12,256
5/31/02 $14,863 $16,344 $12,256
6/30/02 $14,970 $16,516 $12,263
7/31/02 $15,048 $16,729 $12,277
8/31/02 $15,129 $16,930 $12,318
9/30/02 $15,229 $17,301 $12,338
10/31/02 $14,870 $17,014 $12,359
11/30/02 $14,983 $16,943 $12,359
12/31/02 $15,248 $17,301 $12,331
1/31/03 $15,262 $17,257 $12,386
2/28/03 $15,346 $17,498 $12,481
3/31/03 $15,246 $17,509 $12,556
4/30/03 $15,421 $17,624 $12,529
5/31/03 $15,779 $18,037 $12,509
6/30/03 $15,823 $17,960 $12,522
7/31/03 $15,537 $17,332 $12,536
8/31/03 $15,577 $17,461 $12,584
9/30/03 $16,004 $17,975 $12,624
10/31/03 $16,086 $17,884 $12,611
11/30/03 $16,277 $18,070 $12,577
12/31/03 $16,466 $18,220 $12,563
1/31/04 $16,652 $18,324 $12,624
2/29/04 $16,838 $18,600 $12,693
CLASS B (1/1/99-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin High Yield Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
1/1/99 $10,000 $10,000 $10,000
1/31/99 $10,107 $10,119 $10,024
2/28/99 $10,096 $10,075 $10,037
3/31/99 $10,126 $10,089 $10,067
4/30/99 $10,160 $10,114 $10,140
5/31/99 $10,111 $10,055 $10,140
6/30/99 $9,999 $9,911 $10,140
7/31/99 $10,049 $9,947 $10,171
8/31/99 $9,934 $9,867 $10,195
9/30/99 $9,922 $9,871 $10,244
10/31/99 $9,739 $9,764 $10,262
11/30/99 $9,815 $9,868 $10,268
12/31/99 $9,668 $9,794 $10,268
1/31/00 $9,574 $9,752 $10,299
2/29/00 $9,664 $9,865 $10,360
3/31/00 $9,857 $10,081 $10,445
4/30/00 $9,818 $10,021 $10,451
5/31/00 $9,748 $9,969 $10,464
6/30/00 $9,831 $10,233 $10,519
7/31/00 $9,953 $10,375 $10,543
8/31/00 $10,076 $10,535 $10,543
9/30/00 $10,032 $10,481 $10,598
10/31/00 $10,098 $10,595 $10,616
11/30/00 $10,102 $10,675 $10,622
12/31/00 $10,180 $10,939 $10,616
1/31/01 $10,242 $11,047 $10,683
2/28/01 $10,282 $11,082 $10,726
3/31/01 $10,384 $11,182 $10,750
4/30/01 $10,329 $11,060 $10,793
5/31/01 $10,432 $11,179 $10,842
6/30/01 $10,512 $11,254 $10,860
7/31/01 $10,678 $11,421 $10,830
8/31/01 $10,841 $11,609 $10,830
9/30/01 $10,743 $11,570 $10,879
10/31/01 $10,822 $11,708 $10,842
11/30/01 $10,795 $11,609 $10,824
12/31/01 $10,719 $11,499 $10,781
1/31/02 $10,855 $11,699 $10,805
2/28/02 $10,909 $11,840 $10,848
3/31/02 $10,800 $11,608 $10,909
4/30/02 $10,922 $11,835 $10,970
5/31/02 $10,969 $11,907 $10,970
6/30/02 $11,032 $12,033 $10,976
7/31/02 $11,084 $12,187 $10,988
8/31/02 $11,150 $12,334 $11,025
9/30/02 $11,218 $12,604 $11,043
10/31/02 $10,938 $12,395 $11,062
11/30/02 $11,016 $12,343 $11,062
12/31/02 $11,215 $12,604 $11,037
1/31/03 $11,209 $12,572 $11,086
2/28/03 $11,276 $12,748 $11,171
3/31/03 $11,187 $12,755 $11,239
4/30/03 $11,310 $12,840 $11,214
5/31/03 $11,577 $13,140 $11,196
6/30/03 $11,604 $13,084 $11,208
7/31/03 $11,389 $12,627 $11,220
8/31/03 $11,413 $12,721 $11,263
9/30/03 $11,717 $13,095 $11,300
10/31/03 $11,770 $13,029 $11,287
11/30/03 $11,904 $13,165 $11,257
12/31/03 $12,037 $13,274 $11,245
1/31/04 $12,167 $13,350 $11,300
2/29/04 $12,207 $13,551 $11,361
Annual Report | Past performance does not guarantee future results. | 51
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
Class C 2/29/04
- ------------------------------------------
1-Year +8.16%
- ------------------------------------------
5-Year +4.00%
- ------------------------------------------
Since Inception (5/1/95) +5.58%
- ------------------------------------------
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin High Yield Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,256 $10,319 $10,020
6/30/95 $10,271 $10,229 $10,039
7/31/95 $10,343 $10,326 $10,039
8/31/95 $10,441 $10,457 $10,066
9/30/95 $10,518 $10,523 $10,086
10/31/95 $10,647 $10,676 $10,118
11/30/95 $10,787 $10,853 $10,112
12/31/95 $10,885 $10,957 $10,105
1/31/96 $10,940 $11,040 $10,165
2/29/96 $10,927 $10,966 $10,197
3/31/96 $10,815 $10,825 $10,250
4/30/96 $10,820 $10,795 $10,290
5/31/96 $10,838 $10,791 $10,309
6/30/96 $10,939 $10,908 $10,316
7/31/96 $11,016 $11,007 $10,336
8/31/96 $11,050 $11,004 $10,355
9/30/96 $11,196 $11,158 $10,388
10/31/96 $11,336 $11,285 $10,421
11/30/96 $11,501 $11,491 $10,441
12/31/96 $11,487 $11,443 $10,441
1/31/97 $11,526 $11,464 $10,474
2/28/97 $11,622 $11,569 $10,507
3/31/97 $11,526 $11,415 $10,533
4/30/97 $11,606 $11,511 $10,546
5/31/97 $11,747 $11,684 $10,540
6/30/97 $11,885 $11,808 $10,553
7/31/97 $12,179 $12,136 $10,566
8/31/97 $12,105 $12,022 $10,586
9/30/97 $12,308 $12,164 $10,612
10/31/97 $12,378 $12,243 $10,639
11/30/97 $12,451 $12,315 $10,632
12/31/97 $12,648 $12,494 $10,619
1/31/98 $12,781 $12,623 $10,639
2/28/98 $12,804 $12,627 $10,658
3/31/98 $12,808 $12,638 $10,678
4/30/98 $12,794 $12,581 $10,698
5/31/98 $12,946 $12,780 $10,718
6/30/98 $12,998 $12,831 $10,731
7/31/98 $13,025 $12,863 $10,744
8/31/98 $13,159 $13,062 $10,757
9/30/98 $13,231 $13,224 $10,770
10/31/98 $13,222 $13,224 $10,797
11/30/98 $13,176 $13,270 $10,797
12/31/98 $13,178 $13,304 $10,790
1/31/99 $13,291 $13,462 $10,816
2/28/99 $13,276 $13,403 $10,829
3/31/99 $13,316 $13,422 $10,862
4/30/99 $13,358 $13,455 $10,941
5/31/99 $13,284 $13,377 $10,941
6/30/99 $13,137 $13,185 $10,941
7/31/99 $13,203 $13,233 $10,974
8/31/99 $13,042 $13,127 $11,001
9/30/99 $13,038 $13,132 $11,053
10/31/99 $12,798 $12,990 $11,073
11/30/99 $12,885 $13,128 $11,080
12/31/99 $12,695 $13,030 $11,080
1/31/00 $12,573 $12,974 $11,113
2/29/00 $12,690 $13,124 $11,178
3/31/00 $12,941 $13,411 $11,271
4/30/00 $12,890 $13,332 $11,277
5/31/00 $12,798 $13,263 $11,290
6/30/00 $12,918 $13,614 $11,350
7/31/00 $13,066 $13,803 $11,376
8/31/00 $13,239 $14,016 $11,376
9/30/00 $13,181 $13,943 $11,435
10/31/00 $13,268 $14,095 $11,455
11/30/00 $13,260 $14,202 $11,461
12/31/00 $13,362 $14,553 $11,455
1/31/01 $13,443 $14,697 $11,527
2/28/01 $13,509 $14,744 $11,573
3/31/01 $13,631 $14,876 $11,600
4/30/01 $13,560 $14,715 $11,646
5/31/01 $13,693 $14,873 $11,698
6/30/01 $13,810 $14,973 $11,718
7/31/01 $14,027 $15,194 $11,685
8/31/01 $14,242 $15,445 $11,685
9/30/01 $14,100 $15,393 $11,738
10/31/01 $14,217 $15,576 $11,698
11/30/01 $14,167 $15,445 $11,679
12/31/01 $14,066 $15,299 $11,633
1/31/02 $14,258 $15,564 $11,659
2/28/02 $14,316 $15,752 $11,705
3/31/02 $14,187 $15,443 $11,771
4/30/02 $14,347 $15,745 $11,837
5/31/02 $14,395 $15,841 $11,837
6/30/02 $14,493 $16,008 $11,843
7/31/02 $14,561 $16,214 $11,856
8/31/02 $14,634 $16,409 $11,896
9/30/02 $14,723 $16,768 $11,916
10/31/02 $14,356 $16,490 $11,935
11/30/02 $14,471 $16,422 $11,935
12/31/02 $14,717 $16,768 $11,909
1/31/03 $14,723 $16,726 $11,962
2/28/03 $14,797 $16,960 $12,054
3/31/03 $14,695 $16,970 $12,126
4/30/03 $14,855 $17,082 $12,100
5/31/03 $15,204 $17,482 $12,080
6/30/03 $15,225 $17,407 $12,093
7/31/03 $14,945 $16,798 $12,107
8/31/03 $14,976 $16,924 $12,153
9/30/03 $15,390 $17,421 $12,192
10/31/03 $15,459 $17,333 $12,179
11/30/03 $15,634 $17,514 $12,146
12/31/03 $15,791 $17,659 $12,133
1/31/04 $15,962 $17,760 $12,192
2/29/04 $16,152 $18,028 $12,258
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES.
THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the 2004 maximum
federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
52 | Past performance does not guarantee future results. | Annual Report
Franklin New Jersey Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin New Jersey Tax-Free Income
Fund seeks to provide high, current income exempt from federal and New Jersey
state personal income taxes through a portfolio consisting mainly of New Jersey
municipal bonds. 1
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin New Jersey Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ........................ 75.3%
AA ......................... 2.7%
A .......................... 10.6%
BBB ........................ 10.4%
Below Investment Grade ..... 1.0%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin New Jersey Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $12.03 on February
28, 2003, to $12.23 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 53.73 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 57 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.18%, based on an
annualization of the current 4.45 cent ($0.0445) per share dividend and the
maximum offering price of $12.77 on
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 150.
Annual Report | 53
DIVIDEND DISTRIBUTIONS*
Franklin New Jersey Tax-Free Income Fund
3/1/03-2/29/04
- ---------------------------------------------------------------------------
DIVIDEND PER SHARE
- ---------------------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------
March 4.62 cents 4.08 cents 4.05 cents
- ---------------------------------------------------------------------------
April 4.62 cents 4.08 cents 4.05 cents
- ---------------------------------------------------------------------------
May 4.62 cents 4.08 cents 4.05 cents
- ---------------------------------------------------------------------------
June 4.50 cents 3.95 cents 3.90 cents
- ---------------------------------------------------------------------------
July 4.50 cents 3.95 cents 3.90 cents
- ---------------------------------------------------------------------------
August 4.41 cents 3.84 cents 3.82 cents
- ---------------------------------------------------------------------------
September 4.41 cents 3.84 cents 3.82 cents
- ---------------------------------------------------------------------------
October 4.41 cents 3.84 cents 3.82 cents
- ---------------------------------------------------------------------------
November 4.41 cents 3.84 cents 3.82 cents
- ---------------------------------------------------------------------------
December 4.41 cents 3.88 cents 3.89 cents
- ---------------------------------------------------------------------------
January 4.41 cents 3.88 cents 3.89 cents
- ---------------------------------------------------------------------------
February 4.41 cents 3.88 cents 3.89 cents
- ---------------------------------------------------------------------------
TOTAL 53.73 CENTS 47.14 CENTS 46.90 CENTS
- ---------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
February 29, 2004. An investor in the 2004 maximum combined federal and New
Jersey state personal income tax bracket of 39.14% 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 and C shares' performance,
please see the Performance Summary.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline,
as shown in the dividend distributions table.
STATE UPDATE
Strong underlying credit characteristics, including a solid and diverse economic
base and high wealth levels, along with the adoption of the state's $24 billion
fiscal year 2004 budget, earned New Jersey a rating of AA from Standard &
Poor's, an
54 | Annual Report
independent credit rating agency. 3 However, despite moves toward structural
balance, the state remained vulnerable to economic swings and a growing debt
burden. A second independent credit rating agency, Moody's Investors Service,
assigned a rating of Aa2 and a negative outlook to the state, primarily based on
concerns related to structural imbalance in the budget, the extensive use of
non-recurring revenues and very low reserves. 4
Notably, trends in the state appeared to be stabilizing. The fiscal year 2004
budget incorporated additional permanent revenues to the base and controlled
spending for the second consecutive year, despite using $1.5 billion in tobacco
bond proceeds, which will not be available in fiscal year 2005, and $455 million
of federal stimulus aid. 5 Although the state's two primary revenue sources,
personal income and sales taxes, weakened in fiscal year 2003 with collections
coming in substantially below targeted levels, the state projected both to
increase in fiscal year 2004. The fiscal year 2004 budget also anticipated
increased revenue from a higher cigarette tax, a tax on hotel/motel occupancy,
an increased realty transfer fee and casino revenue fund tax. In addition,
reduction of the state's pension contribution resulted in $605 million in
reduced spending. On the expenditure side, the largest area of increase was in
school aid, which rose by $491 million. 6
New Jersey's historical record of strong financial management and controls has
been severely tested over the past two years due to large revenue variances.
Standard & Poor's expects the state to continue to work toward structurally
balancing its budget with either added or expanded revenue measures or reduced
spending initiatives that are permanent in nature. The state faces added
challenges of growing pension payments, education spending pressures, and
increasing debt service costs. In its favor, the state's highly educated work
force and concentration of such technical industries as pharmaceuticals and
telecommunications could help the state generate high income levels and tax
capacity over the longer term.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 for details.
PORTFOLIO BREAKDOWN
Franklin New Jersey Tax-Free Income Fund
2/29/04
- ------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ------------------------------------------------------
Hospital & Health Care 23.7%
- ------------------------------------------------------
Transportation 18.7%
- ------------------------------------------------------
General Obligation 18.2%
- ------------------------------------------------------
Prerefunded 9.9%
- ------------------------------------------------------
Utilities 9.4%
- ------------------------------------------------------
Housing 5.9%
- ------------------------------------------------------
Higher Education 5.5%
- ------------------------------------------------------
Other Revenue 4.0%
- ------------------------------------------------------
Subject to Government Appropriations 3.3%
- ------------------------------------------------------
Tax-Supported 0.8%
- ------------------------------------------------------
Corporate-Backed 0.6%
- ------------------------------------------------------
3. This does not indicate Standard & Poor's rating of the Fund.
4. This does not indicate Moody's rating of the Fund.
5. Source: Moody's Investors Service, "New Issue: New Jersey (State of),"
1/6/04.
6. Source: Standard & Poor's, "New Jersey; Tax Secured, General Obligation,"
RATINGSDIRECT, 1/12/04.
Annual Report | 55
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.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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.
56 | Annual Report
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $12.23 $12.03
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.5373
- ---------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $12.29 $12.09
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.4714
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.21 $12.32 $12.11
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.4690
- ---------------------------------------------------------------------------------------------------
Annual Report | Past performance does not guarantee future results. | 57
Performance Summary (CONTINUED)
PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.27% +30.74% +74.14%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.79% +4.60% +5.25%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.52% +4.49% +5.63%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.18%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.87%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.46%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.69%
- ----------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.67% +18.40% +34.27%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.67% +4.89% +7.10%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +1.48% +4.61% +6.93%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.81%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.26%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.07%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.04%
- ----------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.72% +27.21% +62.83%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.72% +4.93% +5.67%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +4.46% +4.85% +5.60%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.79%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.23%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.07%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.04%
- ----------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
58 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin New Jersey Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,579 $10,000 $10,000
3/31/94 $9,231 $9,593 $10,034
4/30/94 $9,257 $9,674 $10,048
5/31/94 $9,327 $9,758 $10,055
6/30/94 $9,266 $9,698 $10,089
7/31/94 $9,418 $9,876 $10,116
8/31/94 $9,456 $9,910 $10,157
9/30/94 $9,335 $9,765 $10,184
10/31/94 $9,171 $9,592 $10,191
11/30/94 $8,978 $9,418 $10,204
12/31/94 $9,191 $9,625 $10,204
1/31/95 $9,459 $9,900 $10,245
2/28/95 $9,691 $10,188 $10,286
3/31/95 $9,784 $10,305 $10,320
4/30/95 $9,800 $10,318 $10,354
5/31/95 $10,056 $10,647 $10,375
6/30/95 $9,999 $10,554 $10,395
7/31/95 $10,055 $10,654 $10,395
8/31/95 $10,161 $10,789 $10,423
9/30/95 $10,223 $10,857 $10,443
10/31/95 $10,369 $11,015 $10,477
11/30/95 $10,525 $11,198 $10,470
12/31/95 $10,624 $11,305 $10,464
1/31/96 $10,673 $11,391 $10,525
2/29/96 $10,603 $11,314 $10,559
3/31/96 $10,487 $11,169 $10,613
4/30/96 $10,471 $11,138 $10,654
5/31/96 $10,478 $11,133 $10,675
6/30/96 $10,589 $11,255 $10,682
7/31/96 $10,677 $11,357 $10,702
8/31/96 $10,661 $11,354 $10,723
9/30/96 $10,814 $11,513 $10,757
10/31/96 $10,914 $11,643 $10,791
11/30/96 $11,086 $11,856 $10,811
12/31/96 $11,052 $11,806 $10,811
1/31/97 $11,059 $11,828 $10,845
2/28/97 $11,147 $11,937 $10,879
3/31/97 $11,047 $11,778 $10,907
4/30/97 $11,134 $11,876 $10,920
5/31/97 $11,258 $12,055 $10,913
6/30/97 $11,359 $12,184 $10,927
7/31/97 $11,635 $12,521 $10,941
8/31/97 $11,539 $12,404 $10,961
9/30/97 $11,669 $12,551 $10,988
10/31/97 $11,745 $12,632 $11,016
11/30/97 $11,824 $12,706 $11,009
12/31/97 $11,977 $12,891 $10,995
1/31/98 $12,080 $13,024 $11,016
2/28/98 $12,083 $13,028 $11,036
3/31/98 $12,108 $13,040 $11,057
4/30/98 $12,076 $12,981 $11,077
5/31/98 $12,240 $13,186 $11,097
6/30/98 $12,301 $13,238 $11,111
7/31/98 $12,329 $13,271 $11,125
8/31/98 $12,487 $13,476 $11,138
9/30/98 $12,609 $13,644 $11,152
10/31/98 $12,645 $13,644 $11,179
11/30/98 $12,668 $13,692 $11,179
12/31/98 $12,708 $13,726 $11,172
1/31/99 $12,815 $13,890 $11,200
2/28/99 $12,761 $13,829 $11,213
3/31/99 $12,811 $13,848 $11,247
4/30/99 $12,842 $13,883 $11,329
5/31/99 $12,773 $13,802 $11,329
6/30/99 $12,629 $13,604 $11,329
7/31/99 $12,670 $13,653 $11,363
8/31/99 $12,498 $13,544 $11,391
9/30/99 $12,452 $13,549 $11,445
10/31/99 $12,297 $13,403 $11,466
11/30/99 $12,401 $13,545 $11,472
12/31/99 $12,280 $13,444 $11,472
1/31/00 $12,201 $13,386 $11,506
2/29/00 $12,367 $13,541 $11,575
3/31/00 $12,646 $13,837 $11,670
4/30/00 $12,565 $13,755 $11,677
5/31/00 $12,480 $13,684 $11,691
6/30/00 $12,809 $14,046 $11,752
7/31/00 $12,984 $14,242 $11,779
8/31/00 $13,191 $14,461 $11,779
9/30/00 $13,106 $14,386 $11,840
10/31/00 $13,271 $14,543 $11,861
11/30/00 $13,373 $14,653 $11,868
12/31/00 $13,697 $15,015 $11,861
1/31/01 $13,768 $15,164 $11,936
2/28/01 $13,871 $15,212 $11,984
3/31/01 $13,979 $15,348 $12,011
4/30/01 $13,837 $15,182 $12,059
5/31/01 $13,990 $15,345 $12,113
6/30/01 $14,105 $15,448 $12,134
7/31/01 $14,325 $15,677 $12,100
8/31/01 $14,516 $15,935 $12,100
9/30/01 $14,423 $15,882 $12,154
10/31/01 $14,596 $16,071 $12,113
11/30/01 $14,479 $15,936 $12,093
12/31/01 $14,340 $15,785 $12,045
1/31/02 $14,569 $16,059 $12,072
2/28/02 $14,750 $16,252 $12,120
3/31/02 $14,471 $15,934 $12,188
4/30/02 $14,736 $16,245 $12,256
5/31/02 $14,822 $16,344 $12,256
6/30/02 $14,952 $16,516 $12,263
7/31/02 $15,120 $16,729 $12,277
8/31/02 $15,290 $16,930 $12,318
9/30/02 $15,630 $17,301 $12,338
10/31/02 $15,306 $17,014 $12,359
11/30/02 $15,248 $16,943 $12,359
12/31/02 $15,582 $17,301 $12,331
1/31/03 $15,512 $17,257 $12,386
2/28/03 $15,700 $17,498 $12,481
3/31/03 $15,725 $17,509 $12,556
4/30/03 $15,836 $17,624 $12,529
5/31/03 $16,201 $18,037 $12,509
6/30/03 $16,141 $17,960 $12,522
7/31/03 $15,524 $17,332 $12,536
8/31/03 $15,645 $17,461 $12,584
9/30/03 $16,039 $17,975 $12,624
10/31/03 $15,982 $17,884 $12,611
11/30/03 $16,169 $18,070 $12,577
12/31/03 $16,326 $18,220 $12,563
1/31/04 $16,440 $18,324 $12,624
2/29/04 $16,680 $18,600 $12,693
CLASS B (2/1/00-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin New Jersey Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
02/01/00 $10,000 $10,000 $10,000
2/29/00 $10,144 $10,116 $10,059
3/31/00 $10,368 $10,337 $10,142
4/30/00 $10,298 $10,276 $10,148
5/31/00 $10,223 $10,223 $10,160
6/30/00 $10,496 $10,494 $10,213
7/31/00 $10,642 $10,640 $10,237
8/31/00 $10,807 $10,804 $10,237
9/30/00 $10,733 $10,747 $10,290
10/31/00 $10,863 $10,865 $10,308
11/30/00 $10,942 $10,947 $10,314
12/31/00 $11,201 $11,217 $10,308
1/31/01 $11,254 $11,328 $10,373
2/28/01 $11,343 $11,364 $10,415
3/31/01 $11,426 $11,466 $10,438
4/30/01 $11,303 $11,342 $10,480
5/31/01 $11,423 $11,464 $10,527
6/30/01 $11,511 $11,541 $10,545
7/31/01 $11,684 $11,712 $10,515
8/31/01 $11,833 $11,905 $10,515
9/30/01 $11,762 $11,865 $10,563
10/31/01 $11,898 $12,006 $10,527
11/30/01 $11,788 $11,905 $10,509
12/31/01 $11,680 $11,792 $10,468
1/31/02 $11,861 $11,997 $10,492
2/28/02 $12,002 $12,141 $10,533
3/31/02 $11,770 $11,903 $10,592
4/30/02 $11,979 $12,136 $10,652
5/31/02 $12,052 $12,210 $10,652
6/30/02 $12,142 $12,339 $10,658
7/31/02 $12,282 $12,498 $10,669
8/31/02 $12,404 $12,648 $10,705
9/30/02 $12,674 $12,925 $10,723
10/31/02 $12,416 $12,711 $10,741
11/30/02 $12,364 $12,658 $10,741
12/31/02 $12,628 $12,925 $10,717
1/31/03 $12,564 $12,892 $10,764
2/28/03 $12,710 $13,072 $10,847
3/31/03 $12,724 $13,080 $10,912
4/30/03 $12,808 $13,167 $10,889
5/31/03 $13,095 $13,475 $10,871
6/30/03 $13,041 $13,418 $10,883
7/31/03 $12,539 $12,948 $10,895
8/31/03 $12,631 $13,045 $10,936
9/30/03 $12,942 $13,428 $10,972
10/31/03 $12,888 $13,361 $10,960
11/30/03 $13,044 $13,500 $10,930
12/31/03 $13,154 $13,612 $10,918
1/31/04 $13,239 $13,690 $10,972
2/29/04 $13,227 $13,896 $11,031
Annual Report | Past performance does not guarantee future results. | 59
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
Class C 2/29/04
- -------------------------------------------
1-Year +4.72%
- -------------------------------------------
5-Year +4.93%
- -------------------------------------------
Since Inception (5/1/95) +5.67%
- -------------------------------------------
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin New Jersey Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,273 $10,319 $10,020
6/30/95 $10,209 $10,229 $10,039
7/31/95 $10,271 $10,326 $10,039
8/31/95 $10,374 $10,457 $10,066
9/30/95 $10,442 $10,523 $10,086
10/31/95 $10,584 $10,676 $10,118
11/30/95 $10,738 $10,853 $10,112
12/31/95 $10,834 $10,957 $10,105
1/31/96 $10,888 $11,040 $10,165
2/29/96 $10,804 $10,966 $10,197
3/31/96 $10,680 $10,825 $10,250
4/30/96 $10,660 $10,795 $10,290
5/31/96 $10,670 $10,791 $10,309
6/30/96 $10,778 $10,908 $10,316
7/31/96 $10,863 $11,007 $10,336
8/31/96 $10,833 $11,004 $10,355
9/30/96 $10,982 $11,158 $10,388
10/31/96 $11,077 $11,285 $10,421
11/30/96 $11,243 $11,491 $10,441
12/31/96 $11,202 $11,443 $10,441
1/31/97 $11,202 $11,464 $10,474
2/28/97 $11,298 $11,569 $10,507
3/31/97 $11,191 $11,415 $10,533
4/30/97 $11,274 $11,511 $10,546
5/31/97 $11,393 $11,684 $10,540
6/30/97 $11,491 $11,808 $10,553
7/31/97 $11,764 $12,136 $10,566
8/31/97 $11,672 $12,022 $10,586
9/30/97 $11,788 $12,164 $10,612
10/31/97 $11,857 $12,243 $10,639
11/30/97 $11,931 $12,315 $10,632
12/31/97 $12,090 $12,494 $10,619
1/31/98 $12,178 $12,623 $10,639
2/28/98 $12,184 $12,627 $10,658
3/31/98 $12,203 $12,638 $10,678
4/30/98 $12,156 $12,581 $10,698
5/31/98 $12,325 $12,780 $10,718
6/30/98 $12,370 $12,831 $10,731
7/31/98 $12,391 $12,863 $10,744
8/31/98 $12,554 $13,062 $10,757
9/30/98 $12,671 $13,224 $10,770
10/31/98 $12,700 $13,224 $10,797
11/30/98 $12,716 $13,270 $10,797
12/31/98 $12,751 $13,304 $10,790
1/31/99 $12,851 $13,462 $10,816
2/28/99 $12,802 $13,403 $10,829
3/31/99 $12,834 $13,422 $10,862
4/30/99 $12,859 $13,455 $10,941
5/31/99 $12,796 $13,377 $10,941
6/30/99 $12,635 $13,185 $10,941
7/31/99 $12,669 $13,233 $10,974
8/31/99 $12,493 $13,127 $11,001
9/30/99 $12,441 $13,132 $11,053
10/31/99 $12,281 $12,990 $11,073
11/30/99 $12,378 $13,128 $11,080
12/31/99 $12,252 $13,030 $11,080
1/31/00 $12,156 $12,974 $11,113
2/29/00 $12,326 $13,124 $11,178
3/31/00 $12,610 $13,411 $11,271
4/30/00 $12,514 $13,332 $11,277
5/31/00 $12,423 $13,263 $11,290
6/30/00 $12,743 $13,614 $11,350
7/31/00 $12,920 $13,803 $11,376
8/31/00 $13,109 $14,016 $11,376
9/30/00 $13,030 $13,943 $11,435
10/31/00 $13,176 $14,095 $11,455
11/30/00 $13,271 $14,202 $11,461
12/31/00 $13,586 $14,553 $11,455
1/31/01 $13,649 $14,697 $11,527
2/28/01 $13,756 $14,744 $11,573
3/31/01 $13,844 $14,876 $11,600
4/30/01 $13,708 $14,715 $11,646
5/31/01 $13,854 $14,873 $11,698
6/30/01 $13,962 $14,973 $11,718
7/31/01 $14,171 $15,194 $11,685
8/31/01 $14,352 $15,445 $11,685
9/30/01 $14,266 $15,393 $11,738
10/31/01 $14,417 $15,576 $11,698
11/30/01 $14,296 $15,445 $11,679
12/31/01 $14,153 $15,299 $11,633
1/31/02 $14,384 $15,564 $11,659
2/28/02 $14,555 $15,752 $11,705
3/31/02 $14,276 $15,443 $11,771
4/30/02 $14,516 $15,745 $11,837
5/31/02 $14,604 $15,841 $11,837
6/30/02 $14,725 $16,008 $11,843
7/31/02 $14,882 $16,214 $11,856
8/31/02 $15,042 $16,409 $11,896
9/30/02 $15,367 $16,768 $11,916
10/31/02 $15,044 $16,490 $11,935
11/30/02 $14,981 $16,422 $11,935
12/31/02 $15,300 $16,768 $11,909
1/31/03 $15,225 $16,726 $11,962
2/28/03 $15,402 $16,960 $12,054
3/31/03 $15,419 $16,970 $12,126
4/30/03 $15,521 $17,082 $12,100
5/31/03 $15,881 $17,482 $12,080
6/30/03 $15,803 $17,407 $12,093
7/31/03 $15,195 $16,798 $12,107
8/31/03 $15,305 $16,924 $12,153
9/30/03 $15,680 $17,421 $12,192
10/31/03 $15,630 $17,333 $12,179
11/30/03 $15,805 $17,514 $12,146
12/31/03 $15,938 $17,659 $12,133
1/31/04 $16,056 $17,760 $12,192
2/29/04 $16,283 $18,028 $12,258
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and New Jersey state personal
income tax bracket of 39.14%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
60 | Past performance does not guarantee future results. | Annual Report
Franklin Oregon Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Oregon Tax-Free Income Fund
seeks to provide high, current income exempt from federal and Oregon state
personal income taxes through a portfolio consisting mainly of Oregon municipal
bonds. 1
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin Oregon Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ................................... 47.0%
AA .................................... 29.9%
A ..................................... 12.4%
BBB ................................... 8.2%
Below Investment Grade ................ 2.5%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Oregon Tax-Free Income Fund's annual report
covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $11.69 on February
28, 2003, to $11.95 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 52.41 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 64 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.25%, based on an
annualization of the current 4.42 cent ($0.0442) per share dividend and the
maximum offering price of $12.48 on
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 158.
Annual Report | 61
DIVIDEND DISTRIBUTIONS*
Franklin Oregon Tax-Free Income Fund
3/1/03-2/29/04
- -------------------------------------------------------------------
DIVIDEND PER SHARE
-------------------------------
MONTH CLASS A CLASS C
- -------------------------------------------------------------------
March 4.45 cents 3.94 cents
- -------------------------------------------------------------------
April 4.45 cents 3.94 cents
- -------------------------------------------------------------------
May 4.45 cents 3.94 cents
- -------------------------------------------------------------------
June 4.34 cents 3.77 cents
- -------------------------------------------------------------------
July 4.34 cents 3.77 cents
- -------------------------------------------------------------------
August 4.34 cents 3.75 cents
- -------------------------------------------------------------------
September 4.34 cents 3.75 cents
- -------------------------------------------------------------------
October 4.34 cents 3.75 cents
- -------------------------------------------------------------------
November 4.34 cents 3.75 cents
- -------------------------------------------------------------------
December 4.34 cents 3.82 cents
- -------------------------------------------------------------------
January 4.34 cents 3.82 cents
- -------------------------------------------------------------------
February 4.34 cents 3.82 cents
- -------------------------------------------------------------------
TOTAL 52.41 CENTS 45.82 CENTS
- -------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
February 29, 2004. An investor in the 2004 maximum combined federal and Oregon
state personal income tax bracket of 40.85% would need to earn a distribution
rate of 7.19% 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.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
STATE UPDATE
Oregon has experienced a dramatic fall-off in state tax revenue collections
since fiscal year 2000, which was reflected in the state's economic
underperformance the past two years. The state's economic downturn preceded the
national slowdown largely due to Oregon's exposure to high technology, an
industry that began to weaken nationally in the latter part of 2000. The
slowdown resulted in significant job losses in the high-technology manufacturing
and trade sectors, and significantly weakened growth in the services sector,
which posted minimal growth in
62 | Annual Report
2003 after experiencing more than a 4% annual growth rate throughout the
previous decade. 3 The state's unemployment ended the period at 7.1%, above the
5.6% national rate. 4
As constitutionally required, Oregon's legislature passed a balanced budget for
the 2003-2005 biennium. Expenditure controls that eliminated positions and froze
salaries, and revenue enhancements that transferred other funds to the general
fund and increased taxes $800 million, including an income tax surcharge and an
increase in the corporate minimum tax, helped balance the budget. However, in
February 2004 voters repealed these tax law changes, creating uncertainty.
General fund revenues declined 7.5% in the 2001-2003 biennium over prior
bienniums. 3 The state did not have significant reserve fund balances to offset
its weak revenue performance due to the "2% kicker" requiring rebates to
taxpayers whenever revenue growth is more than 2% above budget levels. This
provision makes it difficult for the state to apply any benefit of economic
growth toward building budgetary cushions. In 2003, voters approved two measures
that could positively impact the state's long-term fiscal health: an increase in
the state's cigarette tax and the creation of a rainy day fund.
According to independent credit rating agency Moody's Investors Service,
Oregon's credit outlook is stable, reflecting the state's financial controls
that compensate for low budget reserves, a rising but still low debt burden, and
the creation of a rainy day fund that is expected to have a positive effect on
the state's long-term fiscal health. Such strengths are tempered by a relatively
weak economy that has been disproportionately hurt by the high-technology
sector's underperformance and a meaningful degree of fiscal constraint and
uncertainty associated with voter initiative activity.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
PORTFOLIO BREAKDOWN
Franklin Oregon Tax-Free Income Fund
2/29/04
- ------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ------------------------------------------------------
General Obligation 28.3%
- ------------------------------------------------------
Transportation 14.3%
- ------------------------------------------------------
Prerefunded 9.6%
- ------------------------------------------------------
Higher Education 9.1%
- ------------------------------------------------------
Hospital & Health Care 8.7%
- ------------------------------------------------------
Housing 8.5%
- ------------------------------------------------------
Utilities 7.5%
- ------------------------------------------------------
Other Revenue 4.8%
- ------------------------------------------------------
Corporate-Backed 4.0%
- ------------------------------------------------------
Subject to Government Appropriations 4.0%
- ------------------------------------------------------
Tax-Supported 1.2%
- ------------------------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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: Moody's Investors Service, "New Issue: Oregon (State of)," 1/26/04.
4. Source: Bureau of Labor Statistics.
Annual Report | 63
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $11.95 $11.69
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.5241
- ----------------------------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.27 $12.06 $11.79
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- ----------------------------------------------------------------------------------------------------------------------
Dividend Income $0.4582
- ----------------------------------------------------------------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.87% +28.89% +70.64%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.31% +4.29% +5.03%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +2.30% +4.24% +5.41%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.25%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 7.19%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.51%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.93%
- ----------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +6.30% +25.46% +59.43%
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.30% +4.64% +5.42%
- ----------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +5.40% +4.59% +5.36%
- ----------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.86%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.53%
- ----------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.16%
- ----------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.34%
- ----------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
64 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Oregon Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,574 $10,000 $10,000
3/31/94 $9,235 $9,593 $10,034
4/30/94 $9,258 $9,674 $10,048
5/31/94 $9,317 $9,758 $10,055
6/30/94 $9,268 $9,698 $10,089
7/31/94 $9,418 $9,876 $10,116
8/31/94 $9,454 $9,910 $10,157
9/30/94 $9,330 $9,765 $10,184
10/31/94 $9,154 $9,592 $10,191
11/30/94 $8,965 $9,418 $10,204
12/31/94 $9,197 $9,625 $10,204
1/31/95 $9,457 $9,900 $10,245
2/28/95 $9,706 $10,188 $10,286
3/31/95 $9,799 $10,305 $10,320
4/30/95 $9,814 $10,318 $10,354
5/31/95 $10,063 $10,647 $10,375
6/30/95 $9,987 $10,554 $10,395
7/31/95 $10,052 $10,654 $10,395
8/31/95 $10,177 $10,789 $10,423
9/30/95 $10,230 $10,857 $10,443
10/31/95 $10,367 $11,015 $10,477
11/30/95 $10,514 $11,198 $10,470
12/31/95 $10,585 $11,305 $10,464
1/31/96 $10,652 $11,391 $10,525
2/29/96 $10,599 $11,314 $10,559
3/31/96 $10,490 $11,169 $10,613
4/30/96 $10,492 $11,138 $10,654
5/31/96 $10,505 $11,133 $10,675
6/30/96 $10,616 $11,255 $10,682
7/31/96 $10,684 $11,357 $10,702
8/31/96 $10,693 $11,354 $10,723
9/30/96 $10,817 $11,513 $10,757
10/31/96 $10,907 $11,643 $10,791
11/30/96 $11,049 $11,856 $10,811
12/31/96 $11,042 $11,806 $10,811
1/31/97 $11,056 $11,828 $10,845
2/28/97 $11,143 $11,937 $10,879
3/31/97 $11,059 $11,778 $10,907
4/30/97 $11,136 $11,876 $10,920
5/31/97 $11,258 $12,055 $10,913
6/30/97 $11,348 $12,184 $10,927
7/31/97 $11,593 $12,521 $10,941
8/31/97 $11,554 $12,404 $10,961
9/30/97 $11,665 $12,551 $10,988
10/31/97 $11,730 $12,632 $11,016
11/30/97 $11,809 $12,706 $11,009
12/31/97 $11,953 $12,891 $10,995
1/31/98 $12,046 $13,024 $11,016
2/28/98 $12,058 $13,028 $11,036
3/31/98 $12,064 $13,040 $11,057
4/30/98 $12,052 $12,981 $11,077
5/31/98 $12,197 $13,186 $11,097
6/30/98 $12,238 $13,238 $11,111
7/31/98 $12,266 $13,271 $11,125
8/31/98 $12,424 $13,476 $11,138
9/30/98 $12,547 $13,644 $11,152
10/31/98 $12,520 $13,644 $11,179
11/30/98 $12,574 $13,692 $11,179
12/31/98 $12,603 $13,726 $11,172
1/31/99 $12,720 $13,890 $11,200
2/28/99 $12,675 $13,829 $11,213
3/31/99 $12,713 $13,848 $11,247
4/30/99 $12,732 $13,883 $11,329
5/31/99 $12,662 $13,802 $11,329
6/30/99 $12,469 $13,604 $11,329
7/31/99 $12,507 $13,653 $11,363
8/31/99 $12,345 $13,544 $11,391
9/30/99 $12,319 $13,549 $11,445
10/31/99 $12,117 $13,403 $11,466
11/30/99 $12,242 $13,545 $11,472
12/31/99 $12,118 $13,444 $11,472
1/31/00 $12,048 $13,386 $11,506
2/29/00 $12,201 $13,541 $11,575
3/31/00 $12,480 $13,837 $11,670
4/30/00 $12,398 $13,755 $11,677
5/31/00 $12,322 $13,684 $11,691
6/30/00 $12,651 $14,046 $11,752
7/31/00 $12,824 $14,242 $11,779
8/31/00 $13,031 $14,461 $11,779
9/30/00 $12,944 $14,386 $11,840
10/31/00 $13,073 $14,543 $11,861
11/30/00 $13,151 $14,653 $11,868
12/31/00 $13,451 $15,015 $11,861
1/31/01 $13,521 $15,164 $11,936
2/28/01 $13,575 $15,212 $11,984
3/31/01 $13,683 $15,348 $12,011
4/30/01 $13,539 $15,182 $12,059
5/31/01 $13,669 $15,345 $12,113
6/30/01 $13,773 $15,448 $12,134
7/31/01 $13,993 $15,677 $12,100
8/31/01 $14,209 $15,935 $12,100
9/30/01 $14,115 $15,882 $12,154
10/31/01 $14,288 $16,071 $12,113
11/30/01 $14,170 $15,936 $12,093
12/31/01 $14,015 $15,785 $12,045
1/31/02 $14,219 $16,059 $12,072
2/28/02 $14,385 $16,252 $12,120
3/31/02 $14,140 $15,934 $12,188
4/30/02 $14,391 $16,245 $12,256
5/31/02 $14,460 $16,344 $12,256
6/30/02 $14,588 $16,516 $12,263
7/31/02 $14,753 $16,729 $12,277
8/31/02 $14,896 $16,930 $12,318
9/30/02 $15,209 $17,301 $12,338
10/31/02 $14,896 $17,014 $12,359
11/30/02 $14,848 $16,943 $12,359
12/31/02 $15,156 $17,301 $12,331
1/31/03 $15,096 $17,257 $12,386
2/28/03 $15,296 $17,498 $12,481
3/31/03 $15,293 $17,509 $12,556
4/30/03 $15,401 $17,624 $12,529
5/31/03 $15,803 $18,037 $12,509
6/30/03 $15,768 $17,960 $12,522
7/31/03 $15,215 $17,332 $12,536
8/31/03 $15,323 $17,461 $12,584
9/30/03 $15,717 $17,975 $12,624
10/31/03 $15,659 $17,884 $12,611
11/30/03 $15,847 $18,070 $12,577
12/31/03 $15,989 $18,220 $12,563
1/31/04 $16,090 $18,324 $12,624
2/29/04 $16,338 $18,600 $12,693
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Oregon Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,273 $10,319 $10,020
6/30/95 $10,190 $10,229 $10,039
7/31/95 $10,250 $10,326 $10,039
8/31/95 $10,380 $10,457 $10,066
9/30/95 $10,429 $10,523 $10,086
10/31/95 $10,562 $10,676 $10,118
11/30/95 $10,706 $10,853 $10,112
12/31/95 $10,782 $10,957 $10,105
1/31/96 $10,845 $11,040 $10,165
2/29/96 $10,789 $10,966 $10,197
3/31/96 $10,674 $10,825 $10,250
4/30/96 $10,661 $10,795 $10,290
5/31/96 $10,679 $10,791 $10,309
6/30/96 $10,786 $10,908 $10,316
7/31/96 $10,850 $11,007 $10,336
8/31/96 $10,855 $11,004 $10,355
9/30/96 $10,975 $11,158 $10,388
10/31/96 $11,061 $11,285 $10,421
11/30/96 $11,209 $11,491 $10,441
12/31/96 $11,188 $11,443 $10,441
1/31/97 $11,206 $11,464 $10,474
2/28/97 $11,287 $11,569 $10,507
3/31/97 $11,197 $11,415 $10,533
4/30/97 $11,269 $11,511 $10,546
5/31/97 $11,386 $11,684 $10,540
6/30/97 $11,472 $11,808 $10,553
7/31/97 $11,714 $12,136 $10,566
8/31/97 $11,679 $12,022 $10,586
9/30/97 $11,785 $12,164 $10,612
10/31/97 $11,845 $12,243 $10,639
11/30/97 $11,909 $12,315 $10,632
12/31/97 $12,058 $12,494 $10,619
1/31/98 $12,146 $12,623 $10,639
2/28/98 $12,152 $12,627 $10,658
3/31/98 $12,152 $12,638 $10,678
4/30/98 $12,125 $12,581 $10,698
5/31/98 $12,274 $12,780 $10,718
6/30/98 $12,310 $12,831 $10,731
7/31/98 $12,331 $12,863 $10,744
8/31/98 $12,484 $13,062 $10,757
9/30/98 $12,601 $13,224 $10,770
10/31/98 $12,567 $13,224 $10,797
11/30/98 $12,615 $13,270 $10,797
12/31/98 $12,639 $13,304 $10,790
1/31/99 $12,750 $13,462 $10,816
2/28/99 $12,710 $13,403 $10,829
3/31/99 $12,731 $13,422 $10,862
4/30/99 $12,754 $13,455 $10,941
5/31/99 $12,667 $13,377 $10,941
6/30/99 $12,478 $13,185 $10,941
7/31/99 $12,501 $13,233 $10,974
8/31/99 $12,343 $13,127 $11,001
9/30/99 $12,300 $13,132 $11,053
10/31/99 $12,104 $12,990 $11,073
11/30/99 $12,211 $13,128 $11,080
12/31/99 $12,094 $13,030 $11,080
1/31/00 $12,008 $12,974 $11,113
2/29/00 $12,154 $13,124 $11,178
3/31/00 $12,436 $13,411 $11,271
4/30/00 $12,349 $13,332 $11,277
5/31/00 $12,268 $13,263 $11,290
6/30/00 $12,576 $13,614 $11,350
7/31/00 $12,752 $13,803 $11,376
8/31/00 $12,949 $14,016 $11,376
9/30/00 $12,857 $13,943 $11,435
10/31/00 $12,978 $14,095 $11,455
11/30/00 $13,050 $14,202 $11,461
12/31/00 $13,339 $14,553 $11,455
1/31/01 $13,402 $14,697 $11,527
2/28/01 $13,438 $14,744 $11,573
3/31/01 $13,561 $14,876 $11,600
4/30/01 $13,411 $14,715 $11,646
5/31/01 $13,532 $14,873 $11,698
6/30/01 $13,616 $14,973 $11,718
7/31/01 $13,838 $15,194 $11,685
8/31/01 $14,043 $15,445 $11,685
9/30/01 $13,933 $15,393 $11,738
10/31/01 $14,096 $15,576 $11,698
11/30/01 $13,975 $15,445 $11,679
12/31/01 $13,817 $15,299 $11,633
1/31/02 $14,009 $15,564 $11,659
2/28/02 $14,179 $15,752 $11,705
3/31/02 $13,933 $15,443 $11,771
4/30/02 $14,170 $15,745 $11,837
5/31/02 $14,231 $15,841 $11,837
6/30/02 $14,351 $16,008 $11,843
7/31/02 $14,517 $16,214 $11,856
8/31/02 $14,639 $16,409 $11,896
9/30/02 $14,938 $16,768 $11,916
10/31/02 $14,626 $16,490 $11,935
11/30/02 $14,573 $16,422 $11,935
12/31/02 $14,877 $16,768 $11,909
1/31/03 $14,814 $16,726 $11,962
2/28/03 $15,002 $16,960 $12,054
3/31/03 $14,979 $16,970 $12,126
4/30/03 $15,091 $17,082 $12,100
5/31/03 $15,475 $17,482 $12,080
6/30/03 $15,433 $17,407 $12,093
7/31/03 $14,888 $16,798 $12,107
8/31/03 $14,973 $16,924 $12,153
9/30/03 $15,347 $17,421 $12,192
10/31/03 $15,295 $17,333 $12,179
11/30/03 $15,470 $17,514 $12,146
12/31/03 $15,615 $17,659 $12,133
1/31/04 $15,692 $17,760 $12,192
2/29/04 $15,943 $18,028 $12,258
Annual Report | Past performance does not guarantee future results. | 65
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: Subject to no initial sales charge, but subject to 1% contingent
deferred sales charge for shares redeemed within 12 months of investment. Prior
to 1/1/04, these shares were offered with an initial sales charge; thus actual
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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Oregon state personal income
tax bracket of 40.85%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
66 | Past performance does not guarantee future results. | Annual Report
Franklin Pennsylvania Tax-Free Income Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Pennsylvania Tax-Free Income
Fund seeks to provide high, current income exempt from federal and Pennsylvania
state personal income taxes through a portfolio consisting mainly of
Pennsylvania municipal bonds. 1
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin Pennsylvania Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/29/04
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
AAA ................ 76.1%
AA ................. 5.4%
A .................. 9.2%
BBB ................ 9.3%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Pennsylvania Tax-Free Income Fund's annual
report covering the fiscal year ended February 29, 2004.
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields fell prices rose for the 12-month reporting period. The Fund's Class A
share price, as measured by net asset value, increased from $10.51 on February
28, 2003, to $10.62 on February 29, 2004. The Fund's Class A shares paid
dividends totaling 47.19 cents per share for the Fund's fiscal year. 2 The
Performance Summary beginning on page 70 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.13%, based on an
annualization of the current 3.82 cent ($0.0382) per share dividend and the
maximum offering price of $11.09 on February 29, 2004. An investor in the 2004
maximum combined federal and
1. For investors subject to the alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
2. Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 166.
Annual Report | 67
DIVIDEND DISTRIBUTIONS*
Franklin Pennsylvania Tax-Free Income Fund
3/1/03-2/29/04
- -----------------------------------------------------------------------------
DIVIDEND PER SHARE
-----------------------------------------------
MONTH CLASS A CLASS B CLASS C
- -----------------------------------------------------------------------------
March 4.10 cents 3.61 cents 3.66 cents
- -----------------------------------------------------------------------------
April 4.10 cents 3.61 cents 3.66 cents
- -----------------------------------------------------------------------------
May 4.10 cents 3.61 cents 3.66 cents
- -----------------------------------------------------------------------------
June 3.90 cents 3.41 cents 3.37 cents
- -----------------------------------------------------------------------------
July 3.90 cents 3.41 cents 3.37 cents
- -----------------------------------------------------------------------------
August 3.87 cents 3.37 cents 3.33 cents
- -----------------------------------------------------------------------------
September 3.87 cents 3.37 cents 3.33 cents
- -----------------------------------------------------------------------------
October 3.87 cents 3.37 cents 3.33 cents
- -----------------------------------------------------------------------------
November 3.87 cents 3.37 cents 3.33 cents
- -----------------------------------------------------------------------------
December 3.87 cents 3.41 cents 3.42 cents
- -----------------------------------------------------------------------------
January 3.87 cents 3.41 cents 3.42 cents
- -----------------------------------------------------------------------------
February 3.87 cents 3.41 cents 3.42 cents
- -----------------------------------------------------------------------------
TOTAL 47.19 CENTS 41.36 CENTS 41.30 CENTS
- -----------------------------------------------------------------------------
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. All
Fund distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
Pennsylvania state personal income tax bracket of 36.82% would need to earn a
distribution rate of 6.54% 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.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline,
as shown in the dividend distributions table.
COMMONWEALTH UPDATE
Pennsylvania, along with the nation, experienced the effects of the recent
recession and ensuing modest recovery. Slower economic activity, reduced
corporate and personal spending, and a severe stock market decline, which
virtually eliminated capital gains, affected the commonwealth's revenue stream
in fiscal years 2002 and 2003. Although the number of manufacturing sector jobs
declined, the commonwealth's ongoing transformation from a heavy industry-based
economy to a more
68 | Annual Report
balanced one lessened the severity of this downturn more than in prior
recessions. In addition, Pennsylvania's unemployment rate was held in check over
the past year primarily due to labor force declines, which also has implications
for future revenue.
Over fiscal years 2002 and 2003, Governor Rendell's administration took steps to
address significant revenue shortfalls. Such steps included using reserves,
other one-time revenue sources and appropriation lapses to plug budgetary gaps
and mitigate operating deficits. The reliance on non-recurring measures to
address the budget imbalance led to significant structural imbalance as the
commonwealth began to craft its fiscal year 2004 budget, which called for
expenditure reductions and substantial revenue enhancements that rely on
recurring revenue and can increase education funding. However, discord between
the governor and the legislature resulted in the 2004 budget being enacted in
two parts, approximately half in March 2003 and half in late December, almost
six months into the fiscal year. The final 2004 budget reflected improving
revenue forecasts and contained expenditure reductions, as well as revenue
enhancements that included a personal income tax rate increase, an extension of
the gross receipts tax to cellular and interstate calls, and higher cigarette
taxes.
According to independent credit rating agency Standard & Poor's, Pennsylvania's
credit outlook is stable, reflecting a currently low debt burden; a responsive
financial management team; a diverse economic base that has experienced an
uneven recovery, particularly with respect to job creation; wealth levels nearly
on a par with the nation's; personal incomes that continued to grow modestly
through the recent economic downturn; and a significant reduction of available
reserves to meet revenue shortfalls over the past several years.
MANAGER'S DISCUSSION
We used various investment strategies during the year under review as we sought
to maximize tax-free income for shareholders. Please read the discussion
beginning on page 9 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.
PORTFOLIO BREAKDOWN
Franklin Pennsylvania
Tax-Free Income Fund
2/29/04
- ------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS
- ------------------------------------------------------
General Obligation 22.6%
- ------------------------------------------------------
Hospital & Health Care 17.6%
- ------------------------------------------------------
Transportation 14.7%
- ------------------------------------------------------
Prerefunded 11.5%
- ------------------------------------------------------
Higher Education 8.5%
- ------------------------------------------------------
Subject to Government Appropriations 8.5%
- ------------------------------------------------------
Utilities 6.9%
- ------------------------------------------------------
Housing 4.4%
- ------------------------------------------------------
Corporate-Backed 3.6%
- ------------------------------------------------------
Other Revenue 1.6%
- ------------------------------------------------------
Tax-Supported 0.1%
- ------------------------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
FEBRUARY 29, 2004, 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 ADVISOR 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 | 69
Performance Summary as of 2/29/04
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
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------
CLASS A CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.11 $10.62 $10.51
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.4719
- --------------------------------------------------------------------------------------------------
CLASS B CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.11 $10.65 $10.54
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.4136
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 2/29/04 2/28/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.11 $10.69 $10.58
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (3/1/03-2/29/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.4130
- --------------------------------------------------------------------------------------------------
70 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.66% +29.71% +74.88%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.13% +4.42% +5.29%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.80% +4.30% +5.55%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.13%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.54%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 3.28%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.19%
- ---------------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (2/1/00)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.06% +19.43% +34.52%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.06% +5.20% +7.15%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +0.74% +4.73% +6.91%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.75%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.94%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.86%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.53%
- ---------------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.04% +26.24% +61.63%
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.04% +4.77% +5.59%
- ---------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 3 +3.61% +4.64% +5.48%
- ---------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 3.75%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.93%
- ---------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.87%
- ---------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.54%
- ---------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY
CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER
FROM THOSE SHOWN. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 71
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged index
includes reinvested interest. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
Class A 2/29/04
- -------------------------------------------
1-Year +1.13%
- -------------------------------------------
5-Year +4.42%
- -------------------------------------------
10-Year +5.29%
- -------------------------------------------
CLASS A (3/1/94-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Pennsylvania Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
3/1/94 $9,574 $10,000 $10,000
3/31/94 $9,308 $9,593 $10,034
4/30/94 $9,317 $9,674 $10,048
5/31/94 $9,385 $9,758 $10,055
6/30/94 $9,365 $9,698 $10,089
7/31/94 $9,503 $9,876 $10,116
8/31/94 $9,534 $9,910 $10,157
9/30/94 $9,443 $9,765 $10,184
10/31/94 $9,322 $9,592 $10,191
11/30/94 $9,151 $9,418 $10,204
12/31/94 $9,342 $9,625 $10,204
1/31/95 $9,565 $9,900 $10,245
2/28/95 $9,791 $10,188 $10,286
3/31/95 $9,885 $10,305 $10,320
4/30/95 $9,903 $10,318 $10,354
5/31/95 $10,140 $10,647 $10,375
6/30/95 $10,105 $10,554 $10,395
7/31/95 $10,166 $10,654 $10,395
8/31/95 $10,256 $10,789 $10,423
9/30/95 $10,316 $10,857 $10,443
10/31/95 $10,432 $11,015 $10,477
11/30/95 $10,582 $11,198 $10,470
12/31/95 $10,682 $11,305 $10,464
1/31/96 $10,736 $11,391 $10,525
2/29/96 $10,687 $11,314 $10,559
3/31/96 $10,595 $11,169 $10,613
4/30/96 $10,586 $11,138 $10,654
5/31/96 $10,612 $11,133 $10,675
6/30/96 $10,713 $11,255 $10,682
7/31/96 $10,788 $11,357 $10,702
8/31/96 $10,788 $11,354 $10,723
9/30/96 $10,927 $11,513 $10,757
10/31/96 $11,022 $11,643 $10,791
11/30/96 $11,169 $11,856 $10,811
12/31/96 $11,162 $11,806 $10,811
1/31/97 $11,193 $11,828 $10,845
2/28/97 $11,278 $11,937 $10,879
3/31/97 $11,171 $11,778 $10,907
4/30/97 $11,266 $11,876 $10,920
5/31/97 $11,401 $12,055 $10,913
6/30/97 $11,514 $12,184 $10,927
7/31/97 $11,779 $12,521 $10,941
8/31/97 $11,697 $12,404 $10,961
9/30/97 $11,819 $12,551 $10,988
10/31/97 $11,899 $12,632 $11,016
11/30/97 $11,984 $12,706 $11,009
12/31/97 $12,161 $12,891 $10,995
1/31/98 $12,286 $13,024 $11,016
2/28/98 $12,284 $13,028 $11,036
3/31/98 $12,295 $13,040 $11,057
4/30/98 $12,277 $12,981 $11,077
5/31/98 $12,412 $13,186 $11,097
6/30/98 $12,477 $13,238 $11,111
7/31/98 $12,502 $13,271 $11,125
8/31/98 $12,642 $13,476 $11,138
9/30/98 $12,778 $13,644 $11,152
10/31/98 $12,752 $13,644 $11,179
11/30/98 $12,808 $13,692 $11,179
12/31/98 $12,829 $13,726 $11,172
1/31/99 $12,944 $13,890 $11,200
2/28/99 $12,912 $13,829 $11,213
3/31/99 $12,938 $13,848 $11,247
4/30/99 $12,979 $13,883 $11,329
5/31/99 $12,892 $13,802 $11,329
6/30/99 $12,739 $13,604 $11,329
7/31/99 $12,765 $13,653 $11,363
8/31/99 $12,575 $13,544 $11,391
9/30/99 $12,541 $13,549 $11,445
10/31/99 $12,302 $13,403 $11,466
11/30/99 $12,440 $13,545 $11,472
12/31/99 $12,305 $13,444 $11,472
1/31/00 $12,207 $13,386 $11,506
2/29/00 $12,364 $13,541 $11,575
3/31/00 $12,666 $13,837 $11,670
4/30/00 $12,591 $13,755 $11,677
5/31/00 $12,538 $13,684 $11,691
6/30/00 $12,858 $14,046 $11,752
7/31/00 $13,034 $14,242 $11,779
8/31/00 $13,252 $14,461 $11,779
9/30/00 $13,200 $14,386 $11,840
10/31/00 $13,316 $14,543 $11,861
11/30/00 $13,374 $14,653 $11,868
12/31/00 $13,644 $15,015 $11,861
1/31/01 $13,760 $15,164 $11,936
2/28/01 $13,815 $15,212 $11,984
3/31/01 $13,960 $15,348 $12,011
4/30/01 $13,803 $15,182 $12,059
5/31/01 $13,948 $15,345 $12,113
6/30/01 $14,046 $15,448 $12,134
7/31/01 $14,281 $15,677 $12,100
8/31/01 $14,511 $15,935 $12,100
9/30/01 $14,466 $15,882 $12,154
10/31/01 $14,630 $16,071 $12,113
11/30/01 $14,547 $15,936 $12,093
12/31/01 $14,383 $15,785 $12,045
1/31/02 $14,629 $16,059 $12,072
2/28/02 $14,785 $16,252 $12,120
3/31/02 $14,500 $15,934 $12,188
4/30/02 $14,742 $16,245 $12,256
5/31/02 $14,833 $16,344 $12,256
6/30/02 $14,991 $16,516 $12,263
7/31/02 $15,175 $16,729 $12,277
8/31/02 $15,337 $16,930 $12,318
9/30/02 $15,652 $17,301 $12,338
10/31/02 $15,420 $17,014 $12,359
11/30/02 $15,374 $16,943 $12,359
12/31/02 $15,678 $17,301 $12,331
1/31/03 $15,666 $17,257 $12,386
2/28/03 $15,857 $17,498 $12,481
3/31/03 $15,865 $17,509 $12,556
4/30/03 $16,003 $17,624 $12,529
5/31/03 $16,350 $18,037 $12,509
6/30/03 $16,304 $17,960 $12,522
7/31/03 $15,721 $17,332 $12,536
8/31/03 $15,837 $17,461 $12,584
9/30/03 $16,211 $17,975 $12,624
10/31/03 $16,149 $17,884 $12,611
11/30/03 $16,311 $18,070 $12,577
12/31/03 $16,425 $18,220 $12,563
1/31/04 $16,531 $18,324 $12,624
2/29/04 $16,743 $18,600 $12,693
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
Class B 2/29/04
- -------------------------------------------
1-Year +1.06%
- -------------------------------------------
3-Year +5.20%
- -------------------------------------------
Since Inception (2/1/00) +7.15%
- -------------------------------------------
CLASS B (2/1/00-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Pennsylvania Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
02/01/2000 $10,000 $10,000 $10,000
2/29/00 $10,127 $10,116 $10,059
3/31/00 $10,370 $10,337 $10,142
4/30/00 $10,315 $10,276 $10,148
5/31/00 $10,255 $10,223 $10,160
6/30/00 $10,512 $10,494 $10,213
7/31/00 $10,662 $10,640 $10,237
8/31/00 $10,835 $10,804 $10,237
9/30/00 $10,787 $10,747 $10,290
10/31/00 $10,877 $10,865 $10,308
11/30/00 $10,919 $10,947 $10,314
12/31/00 $11,135 $11,217 $10,308
1/31/01 $11,225 $11,328 $10,373
2/28/01 $11,265 $11,364 $10,415
3/31/01 $11,377 $11,466 $10,438
4/30/01 $11,244 $11,342 $10,480
5/31/01 $11,357 $11,464 $10,527
6/30/01 $11,442 $11,541 $10,545
7/31/01 $11,627 $11,712 $10,515
8/31/01 $11,809 $11,905 $10,515
9/30/01 $11,767 $11,865 $10,563
10/31/01 $11,895 $12,006 $10,527
11/30/01 $11,823 $11,905 $10,509
12/31/01 $11,683 $11,792 $10,468
1/31/02 $11,877 $11,997 $10,492
2/28/02 $11,998 $12,141 $10,533
3/31/02 $11,762 $11,903 $10,592
4/30/02 $11,951 $12,136 $10,652
5/31/02 $12,020 $12,210 $10,652
6/30/02 $12,141 $12,339 $10,658
7/31/02 $12,284 $12,498 $10,669
8/31/02 $12,410 $12,648 $10,705
9/30/02 $12,658 $12,925 $10,723
10/31/02 $12,477 $12,711 $10,741
11/30/02 $12,434 $12,658 $10,741
12/31/02 $12,674 $12,925 $10,717
1/31/03 $12,646 $12,892 $10,764
2/28/03 $12,807 $13,072 $10,847
3/31/03 $12,807 $13,080 $10,912
4/30/03 $12,899 $13,167 $10,889
5/31/03 $13,186 $13,475 $10,871
6/30/03 $13,142 $13,418 $10,883
7/31/03 $12,668 $12,948 $10,895
8/31/03 $12,755 $13,045 $10,936
9/30/03 $13,048 $13,428 $10,972
10/31/03 $12,992 $13,361 $10,960
11/30/03 $13,117 $13,500 $10,930
12/31/03 $13,202 $13,612 $10,918
1/31/04 $13,282 $13,690 $10,972
2/29/04 $13,252 $13,896 $11,031
72 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
CLASS C (5/1/95-2/29/04)
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Franklin Pennsylvania Lehman Brothers
Date Tax-Free Income Fund Municipal Bond Index 7 CPI 7
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,255 $10,319 $10,020
6/30/95 $10,214 $10,229 $10,039
7/31/95 $10,271 $10,326 $10,039
8/31/95 $10,356 $10,457 $10,066
9/30/95 $10,423 $10,523 $10,086
10/31/95 $10,533 $10,676 $10,118
11/30/95 $10,670 $10,853 $10,112
12/31/95 $10,776 $10,957 $10,105
1/31/96 $10,825 $11,040 $10,165
2/29/96 $10,771 $10,966 $10,197
3/31/96 $10,674 $10,825 $10,250
4/30/96 $10,660 $10,795 $10,290
5/31/96 $10,691 $10,791 $10,309
6/30/96 $10,777 $10,908 $10,316
7/31/96 $10,858 $11,007 $10,336
8/31/96 $10,842 $11,004 $10,355
9/30/96 $10,976 $11,158 $10,388
10/31/96 $11,076 $11,285 $10,421
11/30/96 $11,217 $11,491 $10,441
12/31/96 $11,203 $11,443 $10,441
1/31/97 $11,229 $11,464 $10,474
2/28/97 $11,308 $11,569 $10,507
3/31/97 $11,196 $11,415 $10,533
4/30/97 $11,286 $11,511 $10,546
5/31/97 $11,415 $11,684 $10,540
6/30/97 $11,522 $11,808 $10,553
7/31/97 $11,780 $12,136 $10,566
8/31/97 $11,694 $12,022 $10,586
9/30/97 $11,809 $12,164 $10,612
10/31/97 $11,883 $12,243 $10,639
11/30/97 $11,973 $12,315 $10,632
12/31/97 $12,143 $12,494 $10,619
1/31/98 $12,250 $12,623 $10,639
2/28/98 $12,253 $12,627 $10,658
3/31/98 $12,258 $12,638 $10,678
4/30/98 $12,222 $12,581 $10,698
5/31/98 $12,363 $12,780 $10,718
6/30/98 $12,422 $12,831 $10,731
7/31/98 $12,429 $12,863 $10,744
8/31/98 $12,574 $13,062 $10,757
9/30/98 $12,691 $13,224 $10,770
10/31/98 $12,671 $13,224 $10,797
11/30/98 $12,721 $13,270 $10,797
12/31/98 $12,735 $13,304 $10,790
1/31/99 $12,843 $13,462 $10,816
2/28/99 $12,806 $13,403 $10,829
3/31/99 $12,837 $13,422 $10,862
4/30/99 $12,858 $13,455 $10,941
5/31/99 $12,767 $13,377 $10,941
6/30/99 $12,610 $13,185 $10,941
7/31/99 $12,632 $13,233 $10,974
8/31/99 $12,437 $13,127 $11,001
9/30/99 $12,397 $13,132 $11,053
10/31/99 $12,157 $12,990 $11,073
11/30/99 $12,286 $13,128 $11,080
12/31/99 $12,148 $13,030 $11,080
1/31/00 $12,046 $12,974 $11,113
2/29/00 $12,195 $13,124 $11,178
3/31/00 $12,486 $13,411 $11,271
4/30/00 $12,407 $13,332 $11,277
5/31/00 $12,349 $13,263 $11,290
6/30/00 $12,656 $13,614 $11,350
7/31/00 $12,823 $13,803 $11,376
8/31/00 $13,031 $14,016 $11,376
9/30/00 $12,975 $13,943 $11,435
10/31/00 $13,083 $14,095 $11,455
11/30/00 $13,134 $14,202 $11,461
12/31/00 $13,392 $14,553 $11,455
1/31/01 $13,499 $14,697 $11,527
2/28/01 $13,560 $14,744 $11,573
3/31/01 $13,681 $14,876 $11,600
4/30/01 $13,522 $14,715 $11,646
5/31/01 $13,670 $14,873 $11,698
6/30/01 $13,758 $14,973 $11,718
7/31/01 $13,980 $15,194 $11,685
8/31/01 $14,197 $15,445 $11,685
9/30/01 $14,147 $15,393 $11,738
10/31/01 $14,301 $15,576 $11,698
11/30/01 $14,214 $15,445 $11,679
12/31/01 $14,048 $15,299 $11,633
1/31/02 $14,279 $15,564 $11,659
2/28/02 $14,425 $15,752 $11,705
3/31/02 $14,142 $15,443 $11,771
4/30/02 $14,369 $15,745 $11,837
5/31/02 $14,450 $15,841 $11,837
6/30/02 $14,596 $16,008 $11,843
7/31/02 $14,769 $16,214 $11,856
8/31/02 $14,919 $16,409 $11,896
9/30/02 $15,216 $16,768 $11,916
10/31/02 $15,000 $16,490 $11,935
11/30/02 $14,949 $16,422 $11,935
12/31/02 $15,236 $16,768 $11,909
1/31/03 $15,216 $16,726 $11,962
2/28/03 $15,394 $16,960 $12,054
3/31/03 $15,394 $16,970 $12,126
4/30/03 $15,507 $17,082 $12,100
5/31/03 $15,849 $17,482 $12,080
6/30/03 $15,797 $17,407 $12,093
7/31/03 $15,228 $16,798 $12,107
8/31/03 $15,318 $16,924 $12,153
9/30/03 $15,668 $17,421 $12,192
10/31/03 $15,614 $17,333 $12,179
11/30/03 $15,763 $17,514 $12,146
12/31/03 $15,865 $17,659 $12,133
1/31/04 $15,960 $17,760 $12,192
2/29/04 $16,163 $18,028 $12,258
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS C 2/29/04
- -------------------------------------------
1-Year +4.04%
- -------------------------------------------
5-Year +4.77%
- -------------------------------------------
Since Inception (5/1/95) +5.59%
- -------------------------------------------
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. 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 A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to no initial sales charge, but subject to 1% CDSC for shares
redeemed within 12 months of investment. Prior to 1/1/04, these shares were
offered with an initial sales charge; thus actual 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 and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge(s).
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 2/29/04.
5. Taxable equivalent distribution rate and yield assume the published rates as
of 12/29/03 for the maximum combined federal and Pennsylvania state personal
income tax bracket of 36.82%, based on the federal income tax rate of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the month ended 2/29/04.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index
is a market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa. They
must have an outstanding par value of at least $5 million and be issued as part
of a transaction of at least $50 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date. Remarketed
issues, taxable municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and prerefunded.
Annual Report | Past performance does not guarantee future results. | 73
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ARIZONA TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $10.88 $10.76 $10.83 $10.31 $11.38
-----------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .52 .54 .55 .57 .57
Net realized and unrealized gains (losses) ....................... .33 .12 (.06) .52 (1.02)
-----------------------------------------------------------
Total from investment operations .................................. .85 .66 .49 1.09 (.45)
-----------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.52) (.54) (.56) (.57) (.58)
Net realized gains ............................................... -- -- -- -- (.04)
-----------------------------------------------------------
Total distributions ............................................... (.52) (.54) (.56) (.57) (.62)
-----------------------------------------------------------
Net asset value, end of year ...................................... $11.21 $10.88 $10.76 $10.83 $10.31
-----------------------------------------------------------
Total return b .................................................... 8.00% 6.28% 4.63% 10.80% (4.15)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $900,646 $880,409 $877,126 $777,553 $756,274
Ratios to average net assets:
Expenses ......................................................... .63% .63% .64% .64% .62%
Net investment income ............................................ 4.75% 5.00% 5.12% 5.39% 5.30%
Portfolio turnover rate ........................................... 16.22% 24.94% 27.59% 24.38% 20.55%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
74 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C,D
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $10.93 $10.81 $10.86 $10.32 $10.24
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .46 .48 .50 .52 .05
Net realized and unrealized gains (losses) ...................... .33 .12 (.05) .53 .07
-----------------------------------------------------------
Total from investment operations ................................. .79 .60 .45 1.05 .12
-----------------------------------------------------------
Less distributions from net investment income .................... (.46) (.48) (.50) (.51) (.04)
-----------------------------------------------------------
Net asset value, end of year ..................................... $11.26 $10.93 $10.81 $10.86 $10.32
-----------------------------------------------------------
Total return b ................................................... 7.28% 5.76% 4.22% 10.37% 1.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $25,617 $20,648 $11,798 $3,700 $176
Ratios to average net assets:
Expenses ........................................................ 1.18% 1.18% 1.19% 1.19% 1.18% e
Net investment income ........................................... 4.20% 4.45% 4.57% 4.82% 5.26% e
Portfolio turnover rate .......................................... 16.22% 24.94% 27.59% 24.38% 20.55%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
d For the period February 1, 2000 (effective date) to February 29, 2000.
e Annualized.
</FN>
Annual Report | 75
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $10.97 $10.85 $10.90 $10.38 $11.45
-----------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .46 .48 .50 .52 .52
Net realized and unrealized gains (losses) ....................... .33 .12 (.05) .51 (1.03)
-----------------------------------------------------------
Total from investment operations .................................. .79 .60 .45 1.03 (.51)
-----------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.45) (.48) (.50) (.51) (.52)
Net realized gains ............................................... -- -- -- -- (.04)
-----------------------------------------------------------
Total distributions ............................................... (.45) (.48) (.50) (.51) (.56)
-----------------------------------------------------------
Net asset value, end of year ...................................... $11.31 $10.97 $10.85 $10.90 $10.38
-----------------------------------------------------------
Total return b .................................................... 7.42% 5.66% 4.21% 10.13% (4.65)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $43,027 $37,315 $31,526 $23,840 $22,671
Ratios to average net assets:
Expenses ......................................................... 1.20% 1.16% 1.19% 1.19% 1.18%
Net investment income ............................................ 4.18% 4.47% 4.57% 4.84% 4.75%
Portfolio turnover rate ........................................... 16.22% 24.94% 27.59% 24.38% 20.55%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
</FN>
76 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.3%
Arizona Educational Loan Marketing Corp. Revenue,
Senior Series, 6.375%, 9/01/05 ............................................................. $10,000,000 $ 10,045,000
Sub Series, 6.625%, 9/01/05 ................................................................... 1,000,000 1,022,340
Arizona Health Facilities Authority Hospital System Revenue, Phoenix Baptist Hospital,
MBIA Insured, ETM, 6.25%, 9/01/11 ........................................................... 1,555,000 1,680,380
Arizona Health Facilities Authority Revenue, Catholic Healthcare West, Series A, 6.625%,
7/01/20 ..................................................................................... 6,390,000 7,368,820
Arizona School Facilities Board Revenue, State School Improvement,
5.00%, 7/01/19 .............................................................................. 2,000,000 2,152,140
Arizona State Board Regents COP, University of Arizona Main Campus, Series A-1,
AMBAC Insured, 5.125%, 6/01/25 .............................................................. 2,000,000 2,104,180
Arizona State Municipal Financing Program COP,
Dysart School, Series 22, MBIA Insured, ETM, 7.875%, 8/01/05 ............................... 1,350,000 1,480,113
Peoria School, Series 19, MBIA Insured, ETM, 7.75%, 8/01/04 ................................ 500,000 514,015
Refunding, Series 14, AMBAC Insured, 5.00%, 8/01/33 ........................................ 1,000,000 1,043,910
Series 20, MBIA Insured, ETM, 7.625%, 8/01/06 .............................................. 3,250,000 3,511,917
Arizona State University COP,
Arizona State University Project-2002, MBIA Insured, 5.00%, 7/01/20 ........................ 5,475,000 5,891,374
Arizona State University Project-2002, MBIA Insured, 5.00%, 7/01/21 ........................ 5,965,000 6,379,269
Arizona State University Project-2002, MBIA Insured, 5.10%, 7/01/23 ........................ 3,545,000 3,774,751
Arizona State University Project-2002, MBIA Insured, 5.10%, 7/01/24 ........................ 1,875,000 1,988,381
Arizona State University Project-2002, MBIA Insured, 5.10%, 7/01/25 ........................ 2,640,000 2,790,163
Downtown Campus/Mercado Project, Series A, MBIA Insured, 5.80%, 7/01/24 .................... 1,350,000 1,502,779
Arizona State University Revenue, FGIC Insured,
5.00%, 7/01/23 ............................................................................. 2,890,000 3,057,129
5.00%, 7/01/25 ............................................................................. 2,250,000 2,362,342
5.875%, 7/01/25 ............................................................................ 1,000,000 1,142,700
Arizona Student Loan Acquisition Authority Student Loan Revenue,
junior subordinate, Refunding, Series B-1, 6.15%, 5/01/29 .................................. 1,000,000 1,067,550
Refunding, Senior Series A-1, 5.90%, 5/01/24 ............................................... 1,500,000 1,606,095
Arizona Tourism and Sports Authority Tax Revenue, Multipurpose Stadium Facility, Series A,
MBIA Insured, 5.00%,
7/01/28 .................................................................................... 7,000,000 7,356,370
7/01/31 .................................................................................... 7,000,000 7,339,920
Arizona Water Infrastructure Finance Authority Revenue, Water Quality, Series A, 5.05%,
10/01/20 .................................................................................... 1,890,000 2,037,779
Casa Grande Excise Tax Revenue, FGIC Insured,
6.00%, 4/01/10 ............................................................................. 400,000 401,596
6.20%, 4/01/15 ............................................................................. 930,000 978,090
Casa Grande IDA,
IDR, Frito Lay/PepsiCo, 6.65%, 12/01/14 .................................................... 500,000 512,950
PCR, Frito Lay/PepsiCo, 6.60%, 12/01/10 .................................................... 1,800,000 1,845,000
Chandler GO, FGIC Insured, Pre-Refunded,
6.80%, 7/01/13 ............................................................................. 1,750,000 1,801,135
6.85%, 7/01/14 ............................................................................. 1,625,000 1,672,742
Chandler IDA, MFHR, Hacienda Apartments Project, Refunding, Series A, GNMA Secured,
6.05%, 7/20/30 .............................................................................. 4,055,000 4,093,604
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13 ............... 1,250,000 1,286,725
Annual Report | 77
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding, 5.50%,
5/15/39 ..................................................................................... $ 5,000,000 $ 4,621,150
Coconino County PCR, Arizona Public Service Co., Refunding, Series A, MBIA Insured, 5.875%,
8/15/28 ..................................................................................... 5,275,000 5,396,325
Douglas Community Housing Corp. MFR, Rancho La Perilla, Series A, GNMA Secured, 6.125%,
7/20/41 ..................................................................................... 2,255,000 2,424,847
Eloy Municipal Property Corp. Facilities Revenue, 7.80%, 7/01/09 .............................. 385,000 386,517
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ...................................... 20,000,000 13,515,000
Gilbert ID No. 11, Special Assessment, FGIC Insured, 7.60%, 1/01/05 ........................... 1,500,000 1,531,980
Gilbert Water and Sewer Revenue, Refunding, FGIC Insured, 6.50%,
7/01/12 .................................................................................... 1,500,000 1,540,830
7/01/22 .................................................................................... 3,250,000 3,338,465
Glendale IDA, Educational Facilities Revenue, American Graduate School International,
Connie Lee Insured, Pre-Refunded, 7.00%, 7/01/14 ........................................... 1,000,000 1,089,070
Connie Lee Insured, Pre-Refunded, 7.125%, 7/01/20 .......................................... 1,250,000 1,363,400
Refunding, Connie Lee Insured, 5.875%, 7/01/15 ............................................. 2,200,000 2,435,730
Glendale IDAR, Midwestern University, Series A,
5.375%, 5/15/28 ............................................................................ 15,000,000 15,481,050
Connie Lee Insured, 6.00%, 5/15/16 ......................................................... 455,000 506,988
Connie Lee Insured, 6.00%, 5/15/26 ......................................................... 340,000 373,990
MBIA Insured, 5.375%, 5/15/28 .............................................................. 2,000,000 2,131,760
Goodyear Community Facilities General District No. 1, GO, MBIA Insured, 5.20%, 7/15/25 ........ 1,500,000 1,586,325
Goodyear Community Facilities Utilities District No. 1, GO, MBIA Insured, 5.20%, 7/15/25 ...... 1,000,000 1,057,550
Health Facilities Authority Hospital System Revenue, John C. Lincoln Health Network, 5.75%,
12/01/32 .................................................................................... 3,280,000 3,291,808
Marana Municipal Property Corp. Municipal Facilities Revenue, Refunding, MBIA Insured,
5.25%, 7/01/22 .............................................................................. 1,100,000 1,186,559
Maricopa County GO,
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 ........... 4,020,000 4,124,198
School District No. 31, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 7/01/13 .............. 570,000 585,538
USD No. 41, Gilbert, 6.25%, 7/01/15 ........................................................ 160,000 180,603
USD No. 41, Gilbert, Pre-Refunded, 6.25%, 7/01/15 .......................................... 1,840,000 2,160,914
Maricopa County Hospital Revenue, Sun Health Corp.,
5.30%, 4/01/29 ............................................................................. 12,095,000 11,962,076
Refunding, 5.80%, 4/01/08 .................................................................. 3,870,000 4,204,136
Refunding, 5.90%, 4/01/09 .................................................................. 2,120,000 2,296,829
Refunding, 6.125%, 4/01/18 ................................................................. 15,650,000 16,437,508
Maricopa County IDA,
Health Facilities Revenue, Catholic Healthcare West Project, Refunding, Series A, 5.00%,
7/01/16 ................................................................................... 10,315,000 10,549,976
Health Facilities Revenue, Catholic Healthcare, Refunding, Series A,
5.00%, 7/01/21 ............................................................................ 9,600,000 9,884,544
Health Facility Revenue, Catholic Healthcare, Refunding, 5.00%, 7/01/16 .................... 1,785,000 1,873,857
Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%, 11/15/37 ........................... 16,000,000 16,536,480
Hospital Facility Revenue, Mayo Clinic Hospital, AMBAC Insured,
5.25%, 11/15/37 ........................................................................... 3,000,000 3,141,600
Hospital Facility Revenue, Samaritan Health Services, Refunding, Series A, MBIA Insured,
ETM, 7.00%, 12/01/16 ...................................................................... 1,890,000 2,503,891
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 ........................................ 5,000,000 5,058,850
MFHR, Bay Club at Mesa Cove Project, Series A, MBIA Insured,
5.80%, 9/01/35 ............................................................................ 3,000,000 3,005,970
78 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Maricopa County IDA, (cont.)
MFHR, Madera Pointe Apartments Project, Refunding, FSA Insured,
5.90%, 6/01/26 ............................................................................ $ 2,105,000 $ 2,196,420
MFHR, Metro Gardens, Mesa Ridge Project, Series A, MBIA Insured,
5.15%, 7/01/29 ............................................................................ 2,350,000 2,358,789
MFHR, Senior National Health Facilities II, Project A, FSA
Insured, 5.50%, 1/01/18 ................................................................... 2,000,000 2,241,420
MFHR, Tierra Antigua Project, Series A-1, AMBAC Insured,
5.30%, 12/01/21 ........................................................................... 1,585,000 1,637,701
MFHR, Villas De Merced Apartment Project, Series A, GNMA
Secured, 5.50%, 12/20/37 .................................................................. 570,000 581,115
MFHR, Western Groves Apartments, Series A-1, AMBAC Insured,
5.30%, 12/01/22 ........................................................................... 1,785,000 1,843,191
Maricopa County IDAR, SFMR, GNMA Secured, 6.25%, 12/01/30 ..................................... 320,000 329,341
Maricopa County Osborn School District No. 8 GO, Refunding,
Series A, FGIC Insured, 5.875%,
7/01/14 ..................................................................................... 1,410,000 1,561,081
Maricopa County Pollution Control Corp. PCR, Public Service Co. Palo Verde Project, Series A,
AMBAC Insured, 5.05%, 5/01/29 ............................................................... 29,965,000 31,485,724
Maricopa County School District No. 3 GO, Tempe Elementary,
AMBAC Insured, Pre-Refunded, 6.00%, 7/01/13 ................................................ 255,000 264,328
Refunding, AMBAC Insured, 6.00%, 7/01/13 ................................................... 445,000 460,820
Mesa IDAR, Discovery Health System, Series A, MBIA Insured,
5.75%, 1/01/25 ............................................................................. 41,500,000 46,394,925
5.625%, 1/01/29 ............................................................................ 18,000,000 19,836,360
Mesa Street and Highway Revenue, FSA Insured, 5.00%, 7/01/19 .................................. 2,500,000 2,678,200
Mesa Utility System Revenue, FGIC Insured, 5.00%, 7/01/21 ..................................... 5,000,000 5,311,350
Mohave County IDA, Health Care Revenue, Refunding, GNMA Secured,
6.375%, 11/01/31 ............................................................................ 595,000 633,134
Navajo County PCR, Arizona Public Service Co., Refunding, Series A,
5.875%, 8/15/28 ............................................................................. 47,500,000 48,521,250
Oro Valley Municipal Property Corp. Revenue,
Municipal Water System, MBIA Insured, Pre-Refunded, 5.75%, 7/01/17 ......................... 500,000 556,555
senior lien, Water Project, MBIA Insured, 5.00%, 7/01/28 ................................... 5,025,000 5,280,823
Peoria Water and Sewer Revenue, FGIC Insured, 5.00%, 7/01/19 .................................. 1,300,000 1,392,664
Phoenix Airport Revenue,
Refunding, Series B, MBIA Insured, 6.20%, 7/01/10 .......................................... 700,000 725,102
Refunding, Series C, MBIA Insured, 6.30%, 7/01/10 .......................................... 1,680,000 1,739,069
Refunding, Series C, MBIA Insured, 6.40%, 7/01/11 .......................................... 1,785,000 1,848,046
Refunding, Series C, MBIA Insured, 6.40%, 7/01/12 .......................................... 570,000 590,132
Series D, MBIA Insured, 6.30%, 7/01/10 ..................................................... 1,800,000 1,862,982
Series D, MBIA Insured, 6.40%, 7/01/11 ..................................................... 3,825,000 3,960,099
Series D, MBIA Insured, 6.40%, 7/01/12 ..................................................... 820,000 848,962
Phoenix Civic Improvement Corp. Airport Revenue, senior lien, Series B, FGIC Insured, 5.25%,
7/01/22 .................................................................................... 3,000,000 3,210,540
7/01/23 .................................................................................... 5,000,000 5,318,450
7/01/27 .................................................................................... 15,250,000 16,090,276
Phoenix Civic Improvement Corp. Excise Tax Revenue,
Adams Street Garage Project, senior lien, Series B, 5.35%, 7/01/24 ......................... 2,985,000 3,205,114
Municipal Courthouse Project, senior lien, Series A, 5.375%, 7/01/29 ....................... 18,310,000 19,563,503
Phoenix Civic Improvement Corp. Wastewater System Revenue, junior lien,
FGIC Insured, Pre-Refunded, 6.00%, 7/01/19 ................................................. 3,000,000 3,646,350
FGIC Insured, Pre-Refunded, 6.00%, 7/01/20 ................................................. 3,670,000 4,460,701
FGIC Insured, Pre-Refunded, 6.00%, 7/01/24 ................................................. 24,715,000 30,039,847
Refunding, FGIC Insured, 5.00%, 7/01/20 .................................................... 9,710,000 10,371,834
Refunding, FGIC Insured, 5.125%, 7/01/21 ................................................... 10,000,000 10,701,300
Refunding, FGIC Insured, 5.00%, 7/01/24 .................................................... 7,050,000 7,388,611
Annual Report | 79
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Phoenix Civic Improvement Corp. Water System Revenue, junior lien,
FGIC Insured, 5.00%, 7/01/26 ............................................................... $ 3,250,000 $ 3,407,657
Pre-Refunded, 6.00%, 7/01/19 ............................................................... 3,000,000 3,327,330
Phoenix Civic Plaza Building Corp. Excise Tax Revenue, senior lien,
6.00%, 7/01/14 .............................................................................. 4,300,000 4,598,463
Phoenix GO,
5.25%, 7/01/22 ............................................................................. 5,420,000 5,858,044
Various Purposes, Series B, 5.00%, 7/01/27 ................................................. 8,360,000 8,717,892
Phoenix HFC, Mortgage Revenue,
Project A, Refunding, MBIA Insured, 6.50%, 7/01/24 ......................................... 1,960,000 1,964,920
Section 8 Project, Refunding, Series A, MBIA Insured, 6.90%, 1/01/23 ....................... 1,750,000 1,772,662
Section 8 Project, Refunding, Series A, MBIA Insured, 7.25%, 1/01/23 ....................... 2,260,000 2,266,373
Phoenix IDA,
Government Office Lease Revenue, Capitol Mall LLC II Project, AMBAC Insured, 5.00%,
9/15/21 ................................................................................... 4,300,000 4,589,863
Government Office Lease Revenue, Capitol Mall LLC II Project, AMBAC Insured, 5.00%,
9/15/28 ................................................................................... 4,000,000 4,180,160
Government Office Lease Revenue, Capital Mall Project, AMBAC Insured, 5.375%,
9/15/22 ................................................................................... 2,000,000 2,187,960
Government Office Lease Revenue, Capital Mall Project, AMBAC Insured, 5.50%,
9/15/27 ................................................................................... 24,300,000 26,802,657
Hospital Revenue, Refunding, Series B, Connie Lee Insured,
5.75%, 12/01/16 ........................................................................... 3,500,000 3,994,970
SFMR, GNMA Secured, 6.30%, 12/01/12 ........................................................ 145,000 151,036
Phoenix IDAR, SFMR, Series 1B, GNMA Secured, 6.20%, 6/01/22 ................................... 235,000 242,525
Phoenix Municipal Housing Revenue, Fillmore Gardens Project, Refunding, 6.30%,
6/01/09 ..................................................................................... 1,500,000 1,574,625
Phoenix Street and Highway Revenue, Refunding, 6.60%, 7/01/07 ................................. 610,000 618,180
Pima County IDA,
MFR, Series A, FNMA Insured, 6.00%, 12/01/21 ............................................... 2,720,000 2,868,539
SFMR, GNMA Secured, 6.40%, 11/01/09 ........................................................ 165,000 168,851
SFMR, GNMA Secured, 6.625%, 11/01/14 ....................................................... 110,000 112,416
SFMR, GNMA Secured, 6.75%, 11/01/27 ........................................................ 455,000 465,133
SFMR, Refunding, Series A, 7.625%, 2/01/12 ................................................. 835,000 838,173
SFMR, Series B-1, GNMA Secured, 6.10%, 5/01/31 ............................................. 295,000 310,951
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ................................................................ 55,000 59,639
Puerto Rico Commonwealth GO,
MBIA Insured, Pre-Refunded, 6.45%, 7/01/17 ................................................. 845,000 872,936
Public Improvement, Series A, 5.375%, 7/01/28 .............................................. 5,000,000 5,353,950
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series B, 6.00%, 7/01/26 ................................................................... 2,000,000 2,106,880
Series B, Pre-Refunded, 6.00%, 7/01/39 ..................................................... 19,600,000 23,887,304
Series D, 5.375%, 7/01/36 .................................................................. 5,000,000 5,361,750
Series G, 5.00%, 7/01/33 ................................................................... 11,320,000 11,720,388
Series Y, 5.00%, 7/01/36 ................................................................... 10,000,000 10,391,700
Series Y, 5.50%, 7/01/36 ................................................................... 8,550,000 9,497,255
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.50%, 7/01/09 .............................................................................. 155,000 155,591
80 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Electric Power Authority Revenue, Series II, 5.25%, 7/01/31 ....................... $15,000,000 $ 15,942,300
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ................................................. 685,000 689,000
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 ..................... 40,000 40,626
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 ......................... 5,225,000 5,650,524
Hospital Auxilio Mutuo Obligation, Series A, MBIA Insured, 6.25%,
7/01/24 ................................................................................... 2,790,000 2,955,335
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ..................... 30,000,000 32,170,500
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.50%,
8/01/29 ..................................................................................... 15,000,000 16,248,000
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 6,368,880
Refunding, Series A, 5.125%, 1/01/27 ....................................................... 15,000,000 15,979,650
Series B, 5.00%, 1/01/25 ................................................................... 7,125,000 7,536,041
Series B, 5.00%, 1/01/31 ................................................................... 3,725,000 3,914,640
Scottsdale GO,
5.00%, 7/01/24 ............................................................................. 8,225,000 8,639,869
Refunding, 5.00%, 7/01/22 .................................................................. 3,000,000 3,207,240
Scottsdale IDA, Hospital Revenue, Scottsdale Healthcare,
5.70%, 12/01/21 ............................................................................ 2,000,000 2,116,900
5.80%, 12/01/31 ............................................................................ 14,865,000 15,805,955
Sedona Sewer Sales Tax Revenue, Refunding,
6.75%, 7/01/07 ............................................................................. 3,800,000 3,909,744
7.00%, 7/01/12 ............................................................................. 5,000,000 5,148,500
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC
Insured, 6.15%, 1/01/15 ..................................................................... 360,000 377,730
Southern Arizona Capital Facilities Finance Corp., Student Housing Revenue, University of
Arizona Project, MBIA Insured, 5.10%, 9/01/33 ............................................... 6,000,000 6,308,040
Surprise Municipal Property Corp. Excise Tax Revenue, FGIC Insured, Pre-Refunded, 5.70%,
7/01/20 ..................................................................................... 8,000,000 9,462,480
Tempe Arizona IDA Lease Revenue, State University Foundation, AMBAC Insured, 5.00%,
7/01/28 .................................................................................... 6,585,000 6,894,495
7/01/34 .................................................................................... 12,760,000 13,310,084
Tolleson IDA, MFR, Copper Cove Project, Series A, GNMA Secured,
5.40%, 11/20/22 ............................................................................ 1,090,000 1,135,976
5.45%, 11/20/32 ............................................................................ 1,285,000 1,337,171
Tucson Airport Authority Inc. Revenue, sub. lien, AMBAC Insured, 5.35%, 6/01/31 ............... 10,000,000 10,526,100
Tucson GO,
Series 1984-G, FGIC Insured, Pre-Refunded, 6.25%, 7/01/18 .................................. 650,000 667,823
Series A, 5.25%, 7/01/20 ................................................................... 1,050,000 1,137,497
Tucson IDA, Lease Revenue, University Of Arizona/Marshall Foundation, Series A,
AMBAC Insured, 5.00%, 7/15/32 ............................................................... 1,000,000 1,043,700
Tucson Water Revenue,
Series A, FGIC Insured, 5.00%, 7/01/23 ..................................................... 3,600,000 3,786,804
Series D, FGIC Insured, 5.25%, 7/01/23 ..................................................... 3,000,000 3,204,870
Series D, FGIC Insured, 5.25%, 7/01/24 ..................................................... 2,700,000 2,876,337
Annual Report | 81
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
University of Arizona COP,
Administrative and Packaging Facility Project, Series B, MBIA Insured, Pre-Refunded,
6.00%, 7/15/16 ............................................................................ $ 500,000 $ 519,275
Parking and Student Housing, AMBAC Insured, 5.75%, 6/01/24 ................................. 1,115,000 1,256,371
Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 .............................. 1,000,000 1,042,490
University of Arizona Projects, Series B, AMBAC Insured, 5.125%,
6/01/22 ................................................................................... 2,250,000 2,411,438
University Projects, Series B, AMBAC Insured, 5.00%, 6/01/28 ............................... 7,000,000 7,353,710
University of Arizona System Revenue, Pre-Refunded, 6.35%, 6/01/14 ............................ 1,300,000 1,343,173
University of Arizona University Revenues, Arizona Board of Regents System, Series A,
FGIC Insured, 5.80%, 6/01/24 ................................................................ 2,000,000 2,275,280
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding,
Series A, 5.50%, 10/01/13 ................................................................... 2,500,000 2,704,575
Virgin Islands Water and Power Authority Water System Revenue, Refunding, 5.50%,
7/01/17 ..................................................................................... 1,500,000 1,574,970
Yavapai County GO, Elementary School District No. 6 Cottonwood-Oak Creek, Project of 1993,
Series B, AMBAC Insured, Pre-Refunded, 6.70%, 7/01/09 ....................................... 250,000 257,223
Yavapai County IDA,
Hospital Facility Revenue, Regional Medical Center, Series A,
6.00%, 8/01/33 ............................................................................. 2,000,000 2,072,580
IDR, Citizens Utilities Co. Project, 5.45%, 6/01/33 ........................................ 2,000,000 2,081,300
Residential Care Facility Revenue, Margaret T. Morris Center, Series A, GNMA Secured,
5.40%, 2/20/38 ............................................................................ 1,575,000 1,588,388
Yavapai County USD No. 28, Camp Verde GO,
FGIC Insured, Pre-Refunded, 6.00%, 7/01/09 ................................................. 700,000 725,606
Refunding, FGIC Insured, 6.00%, 7/01/09 .................................................... 75,000 77,651
Yuma IDA, Hospital Revenue,
Regency Apartments, Refunding, Series A, GNMA Secured, 5.50%, 12/20/32 ..................... 920,000 925,548
Yuma Regional Medical Center, FSA Insured, 5.50%, 8/01/21 .................................. 2,015,000 2,241,345
Yuma Municipal Property Corp. Revenue, Municipal Facilities, AMBAC Insured, 5.00%,
7/01/25 ..................................................................................... 3,100,000 3,222,388
---------------
TOTAL LONG TERM INVESTMENTS (COST $880,418,105) ............................................... 943,206,577
---------------
SHORT TERM INVESTMENTS 1.2%
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding,
MBIA Insured, Weekly VRDN and Put, .89%, 12/01/15 ........................................... 9,300,000 9,300,000
a Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 ................................. 1,800,000 1,800,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $11,100,000) ............................................... 11,100,000
---------------
TOTAL INVESTMENTS (COST $891,518,105) 98.5% ................................................... 954,306,577
OTHER ASSETS, LESS LIABILITIES 1.5% ........................................................... 14,983,878
---------------
NET ASSETS 100.0% ............................................................................. $ 969,290,455
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
82 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN COLORADO TAX-FREE INCOME FUND
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $11.98 $11.79 $11.64 $10.90 $12.05
------------------------------------------------------------
Income from investment operations:
Net investment income a ........................................ .55 .57 .58 .59 .59
Net realized and unrealized gains (losses) ..................... .19 .19 .16 .74 (1.13)
------------------------------------------------------------
Total from investment operations ................................ .74 .76 .74 1.33 (.54)
------------------------------------------------------------
Less distributions from:
Net investment income .......................................... (.53) (.57) (.59) (.59) (.60)
Net realized gains ............................................. -- -- -- -- (.01)
------------------------------------------------------------
Total distributions ............................................. (.53) (.57) (.59) (.59) (.61)
------------------------------------------------------------
Net asset value, end of year .................................... $12.19 $11.98 $11.79 $11.64 $10.90
------------------------------------------------------------
Total return b .................................................. 6.39% 6.62% 6.48% 12.50% (4.57)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $339,134 $345,825 $309,109 $285,169 $264,563
Ratios to average net assets:
Expenses ....................................................... .69% .69% .70% .71% .70%
Net investment income .......................................... 4.56% 4.79% 4.95% 5.27% 5.18%
Portfolio turnover rate ......................................... 17.79% 26.30% 20.72% 50.05% 29.30%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
Annual Report | 83
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $12.06 $11.86 $11.70 $10.96 $12.11
------------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .48 .51 .52 .54 .53
Net realized and unrealized gains (losses) ...................... .20 .20 .16 .73 (1.14)
------------------------------------------------------------
Total from investment operations ................................. .68 .71 .68 1.27 (.61)
------------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.47) (.51) (.52) (.53) (.53)
Net realized gains .............................................. -- -- -- -- (.01)
------------------------------------------------------------
Total distributions .............................................. (.47) (.51) (.52) (.53) (.54)
------------------------------------------------------------
Net asset value, end of year ..................................... $12.27 $12.06 $11.86 $11.70 $10.96
------------------------------------------------------------
Total return b ................................................... 5.75% 6.10% 5.95% 11.83% (5.08)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $43,075 $43,821 $34,473 $23,450 $20,564
Ratios to average net assets:
Expenses ........................................................ 1.26% 1.22% 1.25% 1.26% 1.25%
Net investment income ........................................... 3.99% 4.26% 4.40% 4.72% 4.63%
Portfolio turnover rate .......................................... 17.79% 26.30% 20.72% 50.05% 29.30%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
</FN>
84 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.8%
Arapahoe County MFR,
Centennial East Project, Series A-1, AMBAC Insured, 5.95%, 12/01/33 ....................... $ 2,820,000 $ 2,951,808
Housing Development Reserve, South Creek Project, Series A, FSA Insured, 6.45%,
6/01/32 .................................................................................. 3,105,000 3,357,468
Arapahoe County Water and Wastewater GO, Refunding, Series A, MBIA Insured, 5.125%,
12/01/32 ................................................................................... 15,000,000 15,781,350
Arvada IDR, Wanco Inc. Project,
5.25%, 12/01/07 ........................................................................... 85,000 90,789
5.80%, 12/01/17 ........................................................................... 480,000 512,146
Arvada MFHR, Springwood Community Project, Refunding, 6.35%, 8/20/16 ......................... 1,000,000 1,018,620
Aurora COP,
AMBAC Insured, 5.50%, 12/01/30 ............................................................ 4,935,000 5,451,349
Refunding, 6.25%, 12/01/09 ................................................................ 2,850,000 2,977,936
Bayfield School District No. 10 GO, MBIA Insured, Pre-Refunded,
6.65%, 6/01/15 ............................................................................. 1,000,000 1,069,940
Boulder County Development Revenue, University Corporation for Atmospheric Research,
MBIA Insured, 5.00%, 9/01/33 ............................................................... 1,500,000 1,562,130
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.50%, 12/01/12 ........................................................................... 1,000,000 1,042,870
5.60%, 12/01/17 ........................................................................... 3,385,000 3,479,035
Boulder County MFHR, Cloverbasin Village II Apartments, Series A, FSA Insured,
6.10%, 10/01/24 ........................................................................... 1,280,000 1,350,285
6.15%, 10/01/31 ........................................................................... 2,830,000 2,997,876
Bowles Metropolitan District GO, Refunding, FSA Insured, 5.00%, 12/01/33 ..................... 2,500,000 2,615,650
Broomfield COP,
AMBAC Insured, 6.00%, 12/01/29 ............................................................ 2,000,000 2,321,200
Master Facilities Lease Purchase, AMBAC Insured, 5.625%, 12/01/22 ......................... 1,535,000 1,733,122
Broomfield Sales and Use Tax Revenue, Refunding and Improvement, Series A, AMBAC
Insured, 5.00%,
12/01/27 .................................................................................. 11,050,000 11,542,498
12/01/31 .................................................................................. 3,490,000 3,642,967
Broomfield Sewer Activity Enterprise Sewer and Wastewater Revenue, AMBAC Insured, 5.00%,
12/01/31 ................................................................................... 7,500,000 7,828,725
Colorado Colleges Board of Trustees Auxiliary Facilities System Revenue, Western State College
Project, Improvements, Series B, MBIA Insured, 5.00%, 5/15/25 .............................. 1,300,000 1,372,514
Colorado Educational and Cultural Facilities Authority Revenue, Student Housing, University of
Colorado Foundation Project, AMBAC Insured, 5.00%,
7/01/27 ................................................................................... 6,545,000 6,839,132
7/01/32 ................................................................................... 10,005,000 10,419,207
Colorado Educational and Cultural Facilities Authority Revenue and Improvement, University of
Denver Project, Refunding, AMBAC Insured, 5.375%, 3/01/23 .................................. 4,000,000 4,317,480
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26 .......................... 1,615,000 1,623,333
Catholic Health Initiatives, Series A, 5.00%, 12/01/28 .................................... 1,800,000 1,829,772
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17 ....................... 954,000 957,062
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%,
7/15/17 .................................................................................. 1,056,000 1,059,612
Covenant Retirement Communities, 6.75%, 12/01/15 ............................................. 1,750,000 1,833,685
Covenant Retirement Communities, 6.75%, 12/01/25 .......................................... 4,950,000 5,122,458
Hospital Improvement, NCMC Inc. Project, FSA Insured, 5.75%, 5/15/24 ...................... 5,000,000 5,556,950
Kaiser Permanente, Series A, 5.35%, 11/01/16 .............................................. 8,000,000 8,636,640
Annual Report | 85
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Colorado Health Facilities Authority Revenue, (cont.)
National Benevolent Association, Series A, GNMA Secured, 5.70%, 12/20/31 .................. $ 2,820,000 $ 3,024,929
Oakbrook Manor, Series A, GNMA Secured, 7.25%, 4/01/11 .................................... 240,000 241,169
Oakbrook Manor, Series A, GNMA Secured, 7.625%, 4/01/26 ................................... 885,000 889,567
Parkview Medical Center Inc. Project, 5.25%, 9/01/18 ...................................... 1,660,000 1,686,527
Parkview Medical Center Inc. Project, 5.30%, 9/01/25 ...................................... 1,615,000 1,618,828
Portercare Adventist Health, 6.625%, 11/15/26 ............................................. 2,500,000 2,799,375
Portercare Adventist Health, 6.50%, 11/15/31 .............................................. 5,500,000 6,107,420
Sisters of Charity Leavenworth, MBIA Insured, 5.00%, 12/01/25 ............................. 1,000,000 1,032,010
Colorado HFAR,
MF, Project II, Series A2, 5.30%, 10/01/23 ................................................ 2,000,000 2,079,560
MF, Project II, Series A2, 5.375%, 10/01/32 ............................................... 4,390,000 4,534,519
MF, Series A-2, 6.00%, 10/01/28 ........................................................... 1,000,000 1,049,810
MFH, Castle High, Series A, AMBAC Insured, 5.90%, 12/01/20 ................................ 2,630,000 2,801,003
MFH, Insured Mortgage, Series C-3, 6.05%, 10/01/32 ........................................ 1,535,000 1,625,442
Colorado Public Highway Authority Revenue, Highway E-470,
Refunding, Series A, MBIA Insured, 5.00%, 9/01/26 ......................................... 10,000,000 10,301,200
Series A, MBIA Insured, 5.75%, 9/01/29 .................................................... 4,575,000 5,261,616
Series A, MBIA Insured, 5.75%, 9/01/35 .................................................... 10,825,000 12,435,976
Colorado School of Mines Auxiliary Facilities Revenue, Enterprise, Refunding and Improvement,
AMBAC Insured, 5.00%, 12/01/30 ............................................................. 2,000,000 2,062,240
Colorado Springs Hospital Revenue, Refunding, 6.375%, 12/15/30 ............................... 7,500,000 8,194,275
Colorado Springs Utilities Revenue,
Refunding and Improvement, Series A, 5.375%, 11/15/26 ..................................... 10,000,000 10,602,100
sub. lien, System Improvement, Series A, 5.00%, 11/15/33 .................................. 2,030,000 2,133,388
sub. lien, System Improvement, Series B, 5.00%, 11/15/27 .................................. 5,000,000 5,251,500
Colorado State Board of Community Colleges and Occupational Education Revenue, Red Rocks
Community College Project, AMBAC Insured, Pre-Refunded, 6.00%, 11/01/19 .................... 90,000 97,268
Colorado Water Resource and Power Development Authority Clean Water Revenue, Series A,
6.15%, 9/01/11 ............................................................................ 125,000 126,646
6.30%, 9/01/14 ............................................................................ 25,000 25,331
Colorado Water Resource and Power Development Authority Small Water Resource Revenue,
Series A, FGIC Insured, 5.80%, 11/01/20 .................................................... 2,000,000 2,333,120
Denver City and County Airport Revenue,
Series A, 7.50%, 11/15/23 ................................................................. 3,315,000 3,510,452
Series A, AMBAC Insured, 5.625%, 11/15/23 ................................................. 4,500,000 4,849,020
Series A, Pre-Refunded, 7.50%, 11/15/23 ................................................... 685,000 729,319
Series B, 5.50%, 11/15/33 ................................................................. 5,000,000 5,063,300
Series D, 7.75%, 11/15/13 ................................................................. 1,000,000 1,244,100
Denver City and County COP, Series B, AMBAC Insured, Pre-Refunded, 5.50%, 12/01/25 ........... 17,000,000 20,348,830
Denver City and County School District No. 1 GO, FSA Insured, 4.50%, 12/01/28 ................ 3,500,000 3,479,105
Denver Health and Hospital Authority Healthcare Revenue, Series A, 6.00%,
12/01/23 .................................................................................. 1,000,000 1,013,470
12/01/31 .................................................................................. 5,400,000 5,439,258
Dolores County School District GO, FSA Insured, 5.375%, 12/01/25 ............................. 1,400,000 1,507,576
Douglas County School District No. 1 GO, Douglas and Elbert Counties, Improvement, Series A,
MBIA Insured, 6.50%, 12/15/16 .............................................................. 230,000 241,748
El Paso County Mortgage Revenue, Stetson Meadows, Series A, GNMA Secured, 5.25%,
12/20/32 ................................................................................... 1,900,000 1,957,874
86 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
El Paso County School District No. 2 GO, FGIC Insured, 5.25%, 12/01/26 ....................... $ 4,000,000 $ 4,266,800
El Paso County School District No. 38 GO, Pre-Refunded, 6.00%, 12/01/24 ...................... 1,500,000 1,829,115
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31 ...................... 5,325,000 5,564,252
Garfield County Building Corp. COP, AMBAC Insured, 5.75%,
12/01/19 .................................................................................. 1,500,000 1,746,015
12/01/24 .................................................................................. 1,000,000 1,149,070
Greeley MFR, Housing Mortgage, Creek Stone Project, FHA Insured,
5.95%, 7/01/28 ............................................................................. 1,000,000 1,049,460
La Junta Hospital Revenue, Ark Valley Regional Medical Center Project,
5.75%, 4/01/14 ............................................................................ 2,090,000 2,168,981
6.00%, 4/01/19 ............................................................................ 1,000,000 1,023,410
6.10%, 4/01/24 ............................................................................ 1,000,000 1,021,790
Lakewood MFHR, Mortgage, FHA Insured,
6.65%, 10/01/25 ........................................................................... 1,235,000 1,289,105
6.70%, 10/01/36 ........................................................................... 3,025,000 3,159,764
Larimer and Weld County School District No. Re-5j GO, Series B, MBIA Insured, 5.00%,
11/15/29 ................................................................................... 1,040,000 1,091,282
Las Animas County School District No. 1 COP, Refunding,
6.15%, 12/01/08 ........................................................................... 1,000,000 1,081,320
6.20%, 12/01/10 ........................................................................... 935,000 1,008,631
Montrose County COP, 6.35%, 6/15/06 .......................................................... 1,850,000 1,893,845
Mountain College Residence Hall Authority Revenue, MBIA Insured,
5.75%, 6/01/23 ............................................................................. 2,000,000 2,173,160
Northwest Parkway Public Highway Authority Revenue, Series A,
AMBAC Insured, 5.125%, 6/15/26 ............................................................ 7,500,000 7,951,350
AMBAC Insured, 5.125%, 6/15/31 ............................................................ 4,465,000 4,712,718
FSA Insured, 5.25%, 6/15/41 ............................................................... 3,460,000 3,687,357
Pitkin County Open Space Acquisition GO, Refunding, AMBAC Insured,
5.375%, 12/01/30 ........................................................................... 2,940,000 3,171,290
Pueblo Board Waterworks Water Revenue, Series A, FSA Insured, 6.00%, 11/01/21 ................ 4,300,000 5,113,431
Pueblo County COP, Public Parking, 6.90%, 7/01/15 ............................................ 430,000 438,364
Pueblo County GO, MBIA Insured, 6.00%, 6/01/16 ............................................... 4,395,000 4,820,568
Pueblo County School District No. 070 Pueblo Rural GO, FGIC Insured, Pre-Refunded, 6.00%,
12/01/19 ................................................................................... 3,995,000 4,793,121
Pueblo Urban Renewal Authority Tax Increment Revenue, Refunding, AMBAC Insured, 6.10%,
12/01/15 ................................................................................... 1,000,000 1,015,670
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ............................................................... 25,000 27,109
Puerto Rico Commonwealth Public Improvement GO, Series A, 5.00%, 7/01/27 ..................... 6,000,000 6,235,380
Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.00%, 7/01/33 .................... 4,000,000 4,141,480
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 1,391,524
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 .................... 7,400,000 7,935,390
Regional Transportation District Sales Tax Revenue, Series A, FGIC Insured, 5.125%,
11/01/20 ................................................................................... 1,735,000 1,868,769
Summit County Sports Facilities Revenue, Keystone Resorts Project, Ralston Purina Co.,
Refunding, 7.875%, 9/01/08 ................................................................. 2,750,000 3,387,863
University of Colorado COP, USHSC and Academic Project, Series A, AMBAC Insured, 5.00%,
6/01/33 .................................................................................... 6,070,000 6,339,083
University of Colorado Hospital Authority Revenue, Series A, 5.60%,
11/15/25 ................................................................................... 1,900,000 1,976,893
UTE Water Conservancy District Water Revenue, MBIA Insured, 5.75%, 6/15/20 ................... 5,000,000 5,817,050
Annual Report | 87
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ........................................................................... $ 2,500,000 $ 2,705,125
5.50%, 10/01/22 ........................................................................... 2,500,000 2,598,475
Westminster Building Authority COP, MBIA Insured, 5.25%, 12/01/22 ............................ 1,555,000 1,681,111
---------------
TOTAL LONG TERM INVESTMENTS (COST $342,941,215) .............................................. 373,919,601
---------------
SHORT TERM INVESTMENTS .9%
a Colorado Health Facilities Authority Revenue, The Visiting Nurse Corp., Daily VRDN and Put,
1.03%, 7/01/22 ............................................................................. 200,000 200,000
a Colorado Springs Utilities Revenue, sub. lien, Series A, Weekly VRDN and Put, .90%,
11/01/29 ................................................................................... 900,000 900,000
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ........................................................ 700,000 700,000
a Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 ................................ 1,500,000 1,500,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $3,300,000) ............................................... 3,300,000
---------------
TOTAL INVESTMENTS (COST $346,241,215) 98.7% .................................................. 377,219,601
OTHER ASSETS, LESS LIABILITIES 1.3% .......................................................... 4,989,158
---------------
NET ASSETS 100.0% ............................................................................ $ 382,208,759
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
88 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $11.10 $10.88 $10.63 $10.06 $11.27
-----------------------------------------------------------
Income from investment operations:
Net investment income a ........................................ .49 .51 .53 .56 .56
Net realized and unrealized gains (losses) ..................... .02 .22 .25 .56 (1.21)
-----------------------------------------------------------
Total from investment operations ................................ .51 .73 .78 1.12 (.65)
-----------------------------------------------------------
Less distributions from net investment income ................... (.49) (.51) (.53) (.55) (.56)
-----------------------------------------------------------
Net asset value, end of year .................................... $11.12 $11.10 $10.88 $10.63 $10.06
-----------------------------------------------------------
Total return b .................................................. 4.72% 6.90% 7.53% 11.43% (5.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $265,854 $279,268 $266,100 $228,844 $207,745
Ratios to average net assets:
Expenses ....................................................... .70% .70% .70% .73% .71%
Net investment income .......................................... 4.43% 4.66% 4.91% 5.37% 5.26%
Portfolio turnover rate ......................................... 6.79% 10.20% 15.45% 10.11% 30.61%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
Annual Report | 89
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $11.15 $10.92 $10.66 $10.10 $11.30
-----------------------------------------------------------
Income from investment operations:
Net investment income a ........................................ .43 .45 .47 .50 .50
Net realized and unrealized gains (losses) ..................... .02 .23 .26 .56 (1.20)
-----------------------------------------------------------
Total from investment operations ................................ .45 .68 .73 1.06 (.70)
-----------------------------------------------------------
Less distributions from net investment income ................... (.43) (.45) (.47) (.50) (.50)
-----------------------------------------------------------
Net asset value, end of year .................................... $11.17 $11.15 $10.92 $10.66 $10.10
-----------------------------------------------------------
Total return b .................................................. 4.12% 6.40% 7.01% 10.69% (6.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $42,817 $46,267 $38,368 $27,256 $25,007
Ratios to average net assets:
Expenses ....................................................... 1.27% 1.24% 1.25% 1.28% 1.26%
Net investment income .......................................... 3.86% 4.12% 4.36% 4.83% 4.73%
Portfolio turnover rate ......................................... 6.79% 10.20% 15.45% 10.11% 30.61%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c For the year ended February 29.
</FN>
90 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.6%
Bridgeport GO, Series A, FGIC Insured, Pre-Refunded, 5.875%, 7/15/19 .......................... $ 1,000,000 $ 1,209,300
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding, 5.50%,
5/15/39 ..................................................................................... 4,000,000 3,696,920
aConnecticut GO, Series A, MBIA Insured, 4.75%, 3/01/23 ........................................ 3,500,000 3,637,515
Connecticut State Airport Revenue, Bradley International Airport, Series A, FGIC Insured,
5.125%, 10/01/26 ............................................................................ 3,000,000 3,121,590
Connecticut State Development Authority First Mortgage Gross Revenue, Health Care Project,
5.75%, 12/01/23 ............................................................................ 750,000 780,570
Baptist Homes Inc. Project, Refunding, Asset Guaranteed, 5.625%, 9/01/22 ................... 2,000,000 2,190,020
Church Homes Inc., Refunding, 5.80%, 4/01/21 ............................................... 4,000,000 3,910,840
Elim Park Baptist Home, Refunding, Series A, 5.375%, 12/01/18 .............................. 1,100,000 1,113,167
Connecticut State Development Authority PCR, Connecticut Light and
Water, Refunding, Series A, 5.85%, 9/01/28 .................................................. 5,500,000 5,832,420
Connecticut State Development Authority Revenue, Life Care Facilities, Seabury Project,
Refunding, Asset Guaranteed, 5.00%, 9/01/21 ................................................. 2,000,000 2,074,000
Connecticut State Development Authority Solid Waste Disposal Facilities Revenue, Pfizer Inc.
Project, 7.00%, 7/01/25 ..................................................................... 2,000,000 2,184,360
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic
Co. Project,
6.15%, 4/01/35 ............................................................................. 1,000,000 1,056,320
6.00%, 9/01/36 ............................................................................. 10,000,000 10,456,600
Connecticut State GO,
Series B, 5.00%, 6/15/20 ................................................................... 10,000,000 10,717,200
Series B, 5.00%, 6/15/22 ................................................................... 2,000,000 2,131,000
Series F, FSA Insured, 5.00%, 10/15/19 ..................................................... 4,000,000 4,358,960
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, Pre-Refunded, 6.00%,
11/01/14 ................................................................................... 2,000,000 2,280,840
Brunswick School, Series A, MBIA Insured, 5.00%, 7/01/29 ................................... 5,000,000 5,197,400
Catholic Health East, Series F, MBIA Insured, 5.75%, 11/15/29 .............................. 3,250,000 3,640,650
Child Care Facilities Program, Series C, AMBAC Insured, 5.625%, 7/01/29 .................... 1,250,000 1,383,313
Child Care Facilities Program, Series E, AMBAC Insured, 5.00%, 7/01/31 ..................... 1,000,000 1,045,660
Choate Rosemary Hall, Series A, MBIA Insured, Pre-Refunded, 7.00%,
7/01/25 ................................................................................... 1,500,000 1,544,805
Connecticut College Project, Series D-1, MBIA Insured, 5.75%, 7/01/30 ...................... 1,000,000 1,143,270
Danbury Hospital Issue, Refunding, Series G, AMBAC Insured, 5.75%,
7/01/29 ................................................................................... 3,500,000 3,906,840
Eastern Connecticut Health Network, Refunding, Series A, Asset Guaranteed, 6.00%,
7/01/25 ................................................................................... 9,195,000 10,329,019
Fairfield University, Series I, MBIA Insured, 5.25%, 7/01/25 ............................... 2,500,000 2,648,950
Fairfield University, Series I, MBIA Insured, 5.50%, 7/01/29 ............................... 8,000,000 8,821,200
Fairfield University, Series J, MBIA Insured, 5.00%, 7/01/29 ............................... 3,000,000 3,132,540
Greenwich Academy, Series B, FSA Insured, 5.00%, 3/01/32 ................................... 4,210,000 4,401,766
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 ................................. 2,000,000 2,191,300
Hebrew Home and Hospital, Series B, FHA Insured, 5.15%, 8/01/28 ............................ 3,800,000 3,951,088
Horace Bushnell Memorial Hall, Series A, MBIA Insured, 5.625%, 7/01/29 ..................... 1,000,000 1,113,830
Hospital for Special Care, Refunding, Series B, 5.375%, 7/01/17 ............................ 3,000,000 2,583,960
Hospital for Special Care, Refunding, Series B, 5.50%, 7/01/27 ............................. 3,200,000 2,576,960
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 .................................. 500,000 660,105
New Horizons Village Project, 7.30%, 11/01/16 .............................................. 2,905,000 3,058,645
Sacred Heart University, Refunding, Series E, Asset Guaranteed,
5.00%, 7/01/28 ............................................................................ 4,000,000 4,102,200
Annual Report | 91
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Connecticut State Health and Educational Facilities Authority Revenue, (cont.)
Sacred Heart University, Series C, 6.50%, 7/01/16 .......................................... $ 235,000 $ 251,443
Sacred Heart University, Series C, 6.625%, 7/01/26 ......................................... 785,000 825,922
Sacred Heart University, Series C, Pre-Refunded, 6.50%, 7/01/16 ............................ 765,000 869,224
Sacred Heart University, Series C, Pre-Refunded, 6.625%, 7/01/26 ........................... 6,215,000 7,079,444
Sacred Heart University, Series D, Pre-Refunded, 6.20%, 7/01/27 ............................ 1,000,000 1,163,510
Series B, MBIA Insured, 5.00%, 7/01/33 ..................................................... 2,690,000 2,829,046
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ................................... 4,615,000 3,939,133
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26 ................................... 2,000,000 2,202,380
Trinity College, Series G, AMBAC Insured, 5.00%, 7/01/31 ................................... 5,425,000 5,697,444
University of Connecticut Foundation, Series A, 5.375%, 7/01/29 ............................ 1,250,000 1,315,725
Village Families and Children, Series A, AMBAC Insured, 5.00%, 7/01/32 ..................... 1,000,000 1,043,880
Westover School, Series A, Asset Guaranteed, 5.70%, 7/01/30 ................................ 2,000,000 2,186,260
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20 .............................. 5,000,000 4,415,550
Yale New Haven Hospital, Refunding, Series H, MBIA Insured, 5.70%,
7/01/25 ................................................................................... 4,000,000 4,325,920
Connecticut State HFAR,
Housing Finance Mortgage Project, Series B, 6.10%, 11/15/31 ................................ 2,715,000 2,871,058
Housing Mortgage Finance Program, Series C-2, 6.25%, 11/15/18 .............................. 1,500,000 1,581,810
Housing Mortgage Finance Program, Series D-1, 5.55%, 11/15/28 .............................. 1,000,000 1,035,930
Housing Mortgage Finance Program, Sub Series E-2, 5.20%, 11/15/21 .......................... 1,840,000 1,907,749
Housing Mortgage Finance, Sub Series E-4, 5.05%, 5/15/28 ................................... 4,650,000 4,740,675
Special Obligation, Special Needs Housing, Series 1, AMBAC Insured,
5.00%, 6/15/22 ............................................................................ 1,000,000 1,039,900
Special Obligation, Special Needs Housing, Series 1, AMBAC Insured,
5.00%, 6/15/32 ............................................................................ 1,000,000 1,029,930
Connecticut State Higher Education Supplemental Loan Authority Revenue, Family Education
Loan Program, Series A,
AMBAC Insured, 6.00%, 11/15/18 ............................................................. 1,415,000 1,485,948
MBIA Insured, 5.50%, 11/15/17 .............................................................. 1,535,000 1,610,568
Connecticut State Special Tax Obligation Revenue, Transportation Infrastructure,
Series A, FSA Insured, Pre-Refunded, 5.375%, 10/01/18 ...................................... 2,000,000 2,365,880
Series A, FSA Insured, Pre-Refunded, 5.00%, 10/01/21 ....................................... 1,000,000 1,157,380
Series B, AMBAC Insured, 5.00%, 12/01/20 ................................................... 5,000,000 5,411,600
Series B, AMBAC Insured, 5.00%, 12/01/22 ................................................... 1,000,000 1,062,490
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 .................................................... 200,000 225,380
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.75%, 10/01/24 ......................... 5,500,000 5,794,360
New Haven GO, Refunding, Series C, MBIA Insured, 5.00%, 11/01/22 .............................. 3,000,000 3,203,550
Puerto Rico Commonwealth GO, Public Improvement,
MBIA Insured, Pre-Refunded, 5.75%, 7/01/26 ................................................. 1,775,000 2,104,919
Refunding, FSA Insured, 5.125%, 7/01/30 .................................................... 2,000,000 2,122,020
Series A, 5.125%, 7/01/31 .................................................................. 5,000,000 5,202,400
Series A, 5.00%, 7/01/33 ................................................................... 1,000,000 1,035,370
Series A, FGIC Insured, 5.00%, 7/01/32 ..................................................... 5,000,000 5,271,150
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, 5.00%, 7/01/38 ................................................................... 2,500,000 2,556,950
Series G, 5.00%, 7/01/33 ................................................................... 2,000,000 2,070,740
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/28 ............................................................... 5,000,000 5,186,050
92 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Electric Power Authority Revenue,
Series HH, FSA Insured, 5.25%, 7/01/29 ..................................................... $13,000,000 $ 13,933,140
Series II, 5.25%, 7/01/31 .................................................................. 1,000,000 1,062,820
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 3,673,587
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Revenue, University Plaza Project, Series A, MBIA Insured, 5.00%, 7/01/33 ................... 1,000,000 1,043,430
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ..................... 8,000,000 8,578,800
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.70%,
8/01/25 ..................................................................................... 11,000,000 12,066,340
South Regional Water Authority Water System Revenue, Series A, MBIA Insured, 5.00%,
8/01/33 ..................................................................................... 6,000,000 6,341,100
University of Connecticut Revenue, Student Fee,
Refunding, Series A, FGIC Insured, 5.00%, 11/15/26 ......................................... 10,000,000 10,590,500
Series A, 5.00%, 5/15/23 ................................................................... 10,000,000 10,585,100
Series A, FGIC Insured, Pre-Refunded, 6.00%, 11/15/25 ...................................... 1,500,000 1,839,870
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ................................................................................... 2,500,000 2,704,575
10/01/22 ................................................................................... 2,500,000 2,598,475
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/21 ..................................................................................... 1,000,000 1,007,400
---------------
TOTAL LONG TERM INVESTMENTS (COST $286,558,998) ............................................... 304,428,948
SHORT TERM INVESTMENTS 1.7%
bConnecticut State Health and Educational Facilities Authority Revenue, Weekly VRDN and Put,
.91%, 7/01/27 ............................................................................... 3,800,000 3,800,000
bPuerto Rico Commonwealth Government Development Bank Revenue, Refunding,
MBIA Insured, Weekly VRDN and Put, .89%, 12/01/15 ........................................... 1,400,000 1,400,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $5,200,000) ................................................ 5,200,000
---------------
TOTAL INVESTMENTS (COST $291,758,998) 100.3% .................................................. 309,628,948
OTHER ASSETS, LESS LIABILITIES (.3)% .......................................................... (957,845)
---------------
NET ASSETS 100.0% ............................................................................. $ 308,671,103
---------------
<FN>
See glossary of terms on page 173.
a See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
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.
</FN>
Annual Report | See notes to financial statements. | 93
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN DOUBLE TAX-FREE INCOME FUND
-------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $11.90 $11.68 $11.55 $10.95 $11.88
-------------------------------------------------------------
Income from investment operations:
Net investment income a ....................................... .52 .54 .56 .58 .59
Net realized and unrealized gains (losses) .................... .19 .22 .15 .60 (.92)
-------------------------------------------------------------
Total from investment operations ............................... .71 .76 .71 1.18 (.33)
-------------------------------------------------------------
Less distributions from:
Net investment income ......................................... (.52) (.54) (.58) (.58) (.58)
Net realized gains ............................................ (.03) -- -- d -- (.02)
-------------------------------------------------------------
Total distributions ............................................ (.55) (.54) (.58) (.58) (.60)
-------------------------------------------------------------
Net asset value, end of year ................................... $12.06 $11.90 $11.68 $11.55 $10.95
-------------------------------------------------------------
Total return b ................................................. 6.18% 6.67% 6.29% 11.06% (2.91)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $298,732 $273,119 $239,081 $205,678 $195,157
Ratios to average net assets:
Expenses ...................................................... .72% .74% .75% .77% .74%
Net investment income ......................................... 4.35% 4.61% 4.84% 5.18% 5.14%
Portfolio turnover rate ........................................ 25.31% 31.54% 33.53% 42.32% 13.41%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.002.
</FN>
94 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DOUBLE TAX-FREE INCOME FUND (CONTINUED)
-------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $11.93 $11.70 $11.58 $10.97 $11.89
-------------------------------------------------------------
Income from investment operations:
Net investment income a ........................................ .45 .48 .50 .52 .53
Net realized and unrealized gains (losses) ..................... .20 .23 .13 .61 (.92)
-------------------------------------------------------------
Total from investment operations ................................ .65 .71 .63 1.13 (.39)
-------------------------------------------------------------
Less distributions from:
Net investment income .......................................... (.45) (.48) (.51) (.52) (.51)
Net realized gains ............................................. (.03) -- -- d -- (.02)
-------------------------------------------------------------
Total distributions ............................................. (.48) (.48) (.51) (.52) (.53)
-------------------------------------------------------------
Net asset value, end of year .................................... $12.10 $11.93 $11.70 $11.58 $10.97
-------------------------------------------------------------
Total return b .................................................. 5.67% 6.17% 5.59% 10.54% (3.37)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $45,572 $30,856 $17,971 $10,413 $7,270
Ratios to average net assets:
Expenses ....................................................... 1.30% 1.24% 1.30% 1.32% 1.30%
Net investment income .......................................... 3.77% 4.11% 4.29% 4.63% 4.60%
Portfolio turnover rate ......................................... 25.31% 31.54% 33.53% 42.32% 13.41%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.002.
</FN>
Annual Report | See notes to financial statements. | 95
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.9%
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding, 5.50%,
5/15/39 .................................................................................... $ 5,000,000 $ 4,621,150
Guam International Airport Authority General Revenue, Series B, MBIA Insured, 5.00%,
10/01/12 ................................................................................... 700,000 799,484
Guam International Airport Authority Revenue,
Series A, MBIA Insured, 5.25%, 10/01/20 ................................................... 1,725,000 1,909,592
Series A, MBIA Insured, 5.25%, 10/01/21 ................................................... 715,000 787,301
Series A, MBIA Insured, 5.25%, 10/01/22 ................................................... 700,000 765,534
Series B, MBIA Insured, 5.25%, 10/01/22 ................................................... 1,000,000 1,093,620
Series B, MBIA Insured, 5.25%, 10/01/23 ................................................... 1,000,000 1,087,820
Series C, MBIA Insured, 5.25%, 10/01/21 ................................................... 5,000,000 5,304,750
Series C, MBIA Insured, 5.00%, 10/01/23 ................................................... 5,000,000 5,224,300
Guam Power Authority Revenue,
Refunding, Series A, MBIA Insured, 5.125%, 10/01/29 ....................................... 1,975,000 2,081,294
Refunding, Series A, MBIA Insured, 5.25%, 10/01/34 ........................................ 7,000,000 7,482,230
Series A, Pre-Refunded, 6.75%, 10/01/24 ................................................... 2,680,000 2,823,434
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, Pre-Refunded, 5.75%,
7/01/26 .................................................................................... 3,000,000 3,557,610
Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.00%, 7/01/27 .................... 5,000,000 5,196,150
Puerto Rico Commonwealth GO, Public Improvement, Series A,
5.375%, 7/01/28 ........................................................................... 2,000,000 2,141,580
FGIC Insured, 5.125%, 7/01/31 ............................................................. 5,000,000 5,288,850
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Refunding, Series AA, 5.00%, 7/01/35 ...................................................... 4,200,000 4,348,554
Series Y, 5.50%, 7/01/36 .................................................................. 11,850,000 13,162,861
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, 5.00%,
7/01/23 .................................................................................... 1,000,000 1,075,550
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series B, Pre-Refunded, 6.00%, 7/01/39 .................................................... 10,000,000 12,187,400
Series D, 5.375%, 7/01/36 ................................................................. 11,990,000 12,857,476
Puerto Rico Commonwealth Infrastructure Financing Authority Special Obligation Bonds,
Series A, ETM, 5.50%, 10/01/32 ............................................................. 10,000,000 11,239,100
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.50%, 7/01/09 ............................................................................ 310,000 311,181
AMBAC Insured, 5.00%, 7/01/21 ............................................................. 10,000,000 10,594,200
AMBAC Insured, 5.00%, 7/01/28 ............................................................. 2,000,000 2,074,420
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Revenue, Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 ................................................. 365,000 366,956
Puerto Rico Electric Power Authority Power Revenue, Series NN,
5.125%, 7/01/29 ........................................................................... 5,125,000 5,386,426
MBIA Insured, 5.00%, 7/01/32 .............................................................. 2,000,000 2,119,140
Puerto Rico Electric Power Authority Revenue,
Series HH, FSA Insured, 5.25%, 7/01/29 .................................................... 1,605,000 1,720,207
Series II, 5.25%, 7/01/31 ................................................................. 15,500,000 16,473,710
Series II, FSA Insured, 5.125%, 7/01/26 ................................................... 1,000,000 1,074,720
Puerto Rico HFAR, Capital Fund Program, 4.60%, 12/01/24 ...................................... 10,000,000 10,117,700
96 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Puerto Rico HFC, HMR, MBS, Series A, GNMA Secured, 5.20%, 12/01/33 ........................... $12,010,000 $ 12,386,153
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 10/01/15 ............................................... 295,000 295,982
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ................................................ 870,000 875,081
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 .................... 2,060,000 2,092,239
Puerto Rico Housing Bank and Financing Authority SFMR, Affordable Housing Mortgage,
First Portfolio, 6.25%, 4/01/29 ............................................................ 1,915,000 1,981,776
Puerto Rico Industrial Medical and Environmental Pollution Control Facilities Financing
Authority Revenue, PepsiCo Inc. Project, 6.25%, 11/15/13 ................................... 900,000 926,055
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 2,693,850
Dr. Pila Hospital Project, Refunding, FHA Insured, 6.25%, 8/01/32 ......................... 500,000 530,900
Hospital Auxilio Mutuo Obligation, Series A, MBIA Insured, 6.25%,
7/01/24 .................................................................................. 8,445,000 8,945,451
Mennonite General Hospital Project, 5.625%, 7/01/17 ....................................... 790,000 698,637
Mennonite General Hospital Project, 5.625%, 7/01/27 ....................................... 1,950,000 1,610,837
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Industrial Revenue,
Guaynabo Municipal Government, 5.625%, 7/01/15 ............................................ 6,550,000 6,938,088
Guaynabo Municipal Government, 5.625%, 7/01/22 ............................................ 3,160,000 3,293,794
Guaynabo Warehouse, Series A, 5.15%, 7/01/19 .............................................. 1,250,000 1,277,325
Guaynabo Warehouse, Series A, 5.20%, 7/01/24 .............................................. 4,120,000 4,143,196
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 2,100,240
Ana G. Mendez University System Project, Refunding, 5.375%, 2/01/29 ....................... 8,850,000 9,015,584
Cogen Facility, AES Puerto Rico Project, 6.625%, 6/01/26 .................................. 5,970,000 6,349,811
University Plaza Project, Series A, MBIA Insured, 5.00%, 7/01/33 .......................... 6,000,000 6,260,580
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.50%,
8/01/23 .................................................................................... 7,400,000 8,356,746
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured,
5.00%, 8/01/27 ............................................................................. 6,500,000 6,879,210
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 .................... 12,500,000 13,404,375
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ................... 1,250,000 1,253,938
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation,
Series A, 5.00%, 6/01/26 .................................................................. 3,865,000 3,959,577
Series A, MBIA Insured, 5.00%, 8/01/31 .................................................... 1,000,000 1,049,810
Series E, 5.50%, 8/01/29 .................................................................. 9,000,000 9,748,800
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Secured,
6.45%, 3/01/16 ............................................................................ 275,000 284,383
6.50%, 3/01/25 ............................................................................ 655,000 675,469
Virgin Islands PFAR,
Gross Receipts Taxes, Loan Notes, 5.00%, 10/01/26 ......................................... 5,000,000 5,260,050
Gross Receipts Taxes, Loan Notes, 5.00%, 10/01/33 ......................................... 9,220,000 9,643,843
Gross Receipts Taxes, Loan Notes, FSA Insured, 5.00%, 10/01/22 ............................ 1,000,000 1,084,630
senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ........................ 3,000,000 3,172,740
senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ........................ 6,750,000 7,015,883
senior lien, Fund Loan Notes, Refunding, Series A, 5.625%, 10/01/25 ....................... 3,950,000 4,097,651
Virgin Islands Port Authority Marine Revenue, Series A, FSA Insured,
5.25%, 9/01/18 ............................................................................ 3,930,000 4,278,905
5.00%, 9/01/23 ............................................................................ 10,000,000 10,477,000
Annual Report | 97
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
Virgin Islands Water and Power Authority Electric System Revenue,
AMBAC Insured, 4.50%, 7/01/28 ............................................................. $ 5,000,000 $ 5,045,250
Refunding, 5.30%, 7/01/18 ................................................................. 4,175,000 4,237,415
Refunding, 5.30%, 7/01/21 ................................................................. 1,000,000 1,007,400
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.25%, 7/01/12 ............................................................................ 4,000,000 4,258,040
5.50%, 7/01/17 ............................................................................ 4,000,000 4,199,920
---------------
TOTAL LONG TERM INVESTMENTS (COST $316,174,360) .............................................. 337,080,914
---------------
SHORT TERM INVESTMENTS .8%
aPuerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ........................................................ 2,300,000 2,300,000
aPuerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 ................................ 500,000 500,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $2,800,000) ............................................... 2,800,000
---------------
TOTAL INVESTMENTS (COST $318,974,360) 98.7% .................................................. 339,880,914
OTHER ASSETS, LESS LIABILITIES 1.3% .......................................................... 4,423,268
---------------
NET ASSETS 100.0% ............................................................................ $ 344,304,182
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
98 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $11.48 $11.14 $10.94 $10.52 $11.30
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .43 .46 .50 .52 .51
Net realized and unrealized gains (losses) ...................... .28 .35 .21 .42 (.78)
-----------------------------------------------------------
Total from investment operations ................................. .71 .81 .71 .94 (.27)
-----------------------------------------------------------
Less distributions from net investment income .................... (.43) (.47) (.51) (.52) (.51)
-----------------------------------------------------------
Net asset value, end of year ..................................... $11.76 $11.48 $11.14 $10.94 $10.52
-----------------------------------------------------------
Total return b ................................................... 6.33% 7.45% 6.64% 9.10% (2.43)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $454,942 $365,043 $240,157 $164,450 $170,907
Ratios to average net assets:
Expenses ........................................................ .70% .72% .77% .76% .73%
Expenses excluding waiver and payments by affiliate ............. .70% .72% .77% .76% .75%
Net investment income ........................................... 3.69% 4.07% 4.49% 4.88% 4.72%
Portfolio turnover rate .......................................... 8.62% 4.86% 7.47% 8.87% 31.27%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
Annual Report | 99
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND (CONTINUED)
-------------------
PERIOD ENDED
CLASS C FEBRUARY 29, 2004 C
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................................... $11.67
-------------------
Income from investment operations:
Net investment income a .................................................. .24
Net realized and unrealized gains (losses) ............................... .10
-------------------
Total from investment operations .......................................... .34
-------------------
Less distributions from net investment income ............................. (.24)
-------------------
Net asset value, end of period ............................................ $11.77
-------------------
Total return b ............................................................ 2.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................................... $11,182
Ratios to average net assets:
Expenses ................................................................. 1.25% d
Net investment income .................................................... 3.14% d
Portfolio turnover rate ................................................... 8.62%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the period July 1, 2003 (effective date) to February 29, 2004.
d Annualized.
</FN>
100 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.6%
BONDS 98.1%
ALABAMA 5.3%
Alabama State GO, Series A, 4.00%,
9/01/12 ................................................................................... $ 2,130,000 $ 2,277,119
9/01/15 ................................................................................... 1,000,000 1,038,050
Alabama Water Pollution Control Authority Revenue, Revolving Fund Loan,
Refunding, Series B, AMBAC Insured, 4.625%, 8/15/13 ....................................... 5,900,000 6,468,583
Series B, AMBAC Insured, 4.125%, 2/15/14 .................................................. 3,000,000 3,166,590
East Alabama Health Care Authority Health Care Facilities Revenue, Tax Anticipation Bond,
Series A, MBIA Insured,
4.50%, 9/01/13 ............................................................................ 1,925,000 2,084,679
4.625%, 9/01/14 ........................................................................... 2,010,000 2,170,639
4.50%, 9/01/15 ............................................................................ 2,100,000 2,226,000
Huntsville Capital Improvement Warrants GO, Series C, AMBAC Insured,
4.00%, 11/01/14 ............................................................................ 1,590,000 1,667,942
Huntsville Health Care Authority Revenue, Series A, MBIA Insured,
4.80%, 6/01/13 ............................................................................. 2,400,000 2,676,600
Sylacauga GO, wts., AMBAC Insured, 5.50%, 6/01/12 ............................................ 600,000 692,538
---------------
24,468,740
---------------
ALASKA .1%
Alaska State HFC Revenue, Veteran's Mortgage, First Series, GNMA Secured, 5.80%,
6/01/04 .................................................................................... 280,000 283,301
---------------
ARIZONA 5.7%
Arizona School Facilities Board Revenue, Series B, FGIC Insured,
4.00%, 9/01/13 ............................................................................. 5,000,000 5,342,200
Maricopa County GO,
School District No. 11, Peoria Unified, Refunding, FSA Insured,
4.00%, 7/01/12 ............................................................................ 2,200,000 2,354,286
School District No. 40, Glendale School Improvement, 6.10%, 7/01/08 ....................... 570,000 611,411
School District No. 40, Glendale School Improvement, Pre-Refunded,
6.10%, 7/01/08 ........................................................................... 430,000 462,611
School District No. 97, Deer Valley School Improvement, Series A, FGIC Insured, 4.75%,
7/01/12 .................................................................................. 4,000,000 4,499,760
Maricopa County USD No. 48 Scottsdale GO, Refunding, Series A, FSA Insured, 4.00%,
7/01/15 .................................................................................... 3,000,000 3,147,780
Maricopa County USD No. 80 Chandler GO, Project of 2002, Series A, FSA Insured, 4.00%,
7/01/14 .................................................................................... 1,000,000 1,054,130
Mesa GO,
FGIC Insured, Pre-Refunded, 4.50%, 7/01/14 ................................................ 1,000,000 1,119,620
Refunding, Series A, FGIC Insured, 4.20%, 7/01/16 ......................................... 715,000 746,124
Phoenix GO, Refunding, 4.00%, 7/01/15 ........................................................ 4,000,000 4,125,640
Tempe Arizona IDA Lease Revenue, State University Foundation, AMBAC Insured, 4.00%,
7/01/14 ................................................................................... 1,110,000 1,165,533
7/01/15 ................................................................................... 1,000,000 1,037,850
7/01/16 ................................................................................... 1,000,000 1,028,220
---------------
26,695,165
---------------
Annual Report | 101
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ARKANSAS 1.3%
Conway Hospital Revenue, Conway Regional Medical Improvement, Refunding, Series A,
6.20%, 8/01/17 ............................................................................. $ 1,105,000 $ 1,174,272
Little Rock GO, Capital Improvements, FSA Insured, 4.00%, 4/01/15 ............................ 2,500,000 2,588,125
University of Arkansas University Revenue, Student Fee University of Arkansas at Fort Smith,
FSA Insured, 4.75%, 12/01/15 ............................................................... 2,295,000 2,478,325
---------------
6,240,722
---------------
CALIFORNIA 9.6%
California State Department of Water Resources Power Supply Revenue, Series A, 5.125%,
5/01/18 .................................................................................... 3,000,000 3,197,310
California State GO, Refunding, 5.00%, 2/01/17 ............................................... 3,000,000 3,149,160
California State Various Purpose GO, 5.25%, 11/01/17 ......................................... 10,000,000 10,744,000
Golden State Tobacco Securitization Corp., Tobacco Settlement Revenue,
5.00%, 6/01/12 ............................................................................. 1,500,000 1,601,115
Los Angeles Department of Water and Power Waterworks Revenue, Series B, MBIA Insured,
4.25%, 7/01/17 ............................................................................. 6,530,000 6,789,959
Los Angeles USD, GO, Series A, MBIA Insured,
4.125%, 7/01/15 ........................................................................... 2,500,000 2,622,725
4.25%, 7/01/16 ............................................................................ 2,500,000 2,621,625
Los Angeles Wastewater System Revenue, Refunding, MBIA Insured,
4.00%, 6/01/14 ............................................................................. 10,000,000 10,504,600
North Orange County Community College District GO, Election of 2002, Series B, FGIC Insured,
4.00%, 8/01/15 ............................................................................. 3,215,000 3,354,178
---------------
44,584,672
---------------
COLORADO 2.1%
Denver City and County COP, Series B, AMBAC Insured, Pre-Refunded, 5.75%,
12/01/16 ................................................................................... 3,000,000 3,637,350
Denver City and County Medical Facilities GO, 4.00%, 8/01/16 ................................. 6,000,000 6,132,180
---------------
9,769,530
---------------
CONNECTICUT .6%
Connecticut State Health and Educational Facilities Authority Revenue, Sacred Heart University,
Refunding, Series C, 6.00%, 7/01/05 ....................................................... 135,000 141,781
Series C, ETM, 6.00%, 7/01/05 ............................................................. 425,000 452,191
Connecticut State HFAR, Housing Mortgage Finance Program, Series C-2, 6.00%, 11/15/10 ........ 2,000,000 2,137,960
---------------
2,731,932
---------------
FLORIDA 7.3%
Collier County Capital Improvement Revenue, FGIC Insured, 4.60%, 10/01/13 .................... 1,000,000 1,097,130
Hillsborough County School Board Sales Tax Revenue, AMBAC Insured,
4.25%, 10/01/12 ............................................................................ 1,800,000 1,946,394
Jacksonville Electric Authority Revenue, Electric System, Sub Series A,
5.00%, 10/01/16 ............................................................................ 3,420,000 3,546,916
Jacksonville Water and Sewer System Revenue, Series B, FSA Insured,
4.10%, 10/01/13 ............................................................................ 3,000,000 3,084,390
Marion County Public Improvement Revenue, Refunding, MBIA Insured,
4.10%, 12/01/11 ........................................................................... 1,600,000 1,741,536
4.20%, 12/01/12 ........................................................................... 1,400,000 1,522,346
4.30%, 12/01/13 ........................................................................... 1,800,000 1,941,156
102 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Marion County School Board COP, FSA Insured, 4.00%, 6/01/15 .................................. $ 1,115,000 $ 1,148,873
Orlando Waste Water Services Revenue, Refunding, Series A, AMBAC Insured, 4.00%,
10/01/14 ................................................................................... 7,530,000 7,863,579
Palm Beach County IDR, Lourdes-Noreen McKeen Residence, Geriatric Care Inc. Project,
Pre-Refunded,
6.20%, 12/01/08 ........................................................................... 275,000 315,703
6.30%, 12/01/09 ........................................................................... 580,000 667,406
Tampa Bay Water Utility System Revenue,
FGIC Insured, Pre-Refunded, 5.75%, 10/01/15 ............................................... 1,000,000 1,208,490
Series B, FGIC Insured, 4.75%, 10/01/15 ................................................... 4,140,000 4,473,146
Series B, FGIC Insured, 4.75%, 10/01/16 ................................................... 3,400,000 3,645,548
---------------
34,202,613
---------------
GEORGIA 2.2%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.30%,
12/01/13 ................................................................................... 1,020,000 967,786
De Kalb County GO, Refunding, Series B, 4.00%, 1/01/16 ....................................... 5,695,000 5,905,829
Wayne County Development Authority PCR, ITT Rayonier Inc. Project, Refunding, 6.10%,
11/01/07 ................................................................................... 3,105,000 3,149,619
---------------
10,023,234
---------------
HAWAII .7%
Hawaii State Department of Budget and Finance Special Purpose Revenue,
Kaiser Permanente, Series A, 5.10%, 3/01/14 ............................................... 2,500,000 2,778,125
Kapi `Olani Health Obligation, 5.60%, 7/01/06 ............................................. 500,000 532,365
---------------
3,310,490
---------------
ILLINOIS 1.1%
Chicago Park District GO, Refunding, FGIC Insured, 4.125%, 1/01/14 ........................... 3,125,000 3,289,094
Illinois Health Facilities Authority Revenue,
St. Elizabeth's Hospital, 6.00%, 7/01/05 .................................................. 140,000 147,505
Victory Health Services, Series A, 5.25%, 8/15/09 ......................................... 1,170,000 1,140,785
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center, ETM, 5.75%, 7/01/06 ..................................................... 640,000 672,557
---------------
5,249,941
---------------
INDIANA 1.2%
Franklin EDR, Hoover Universal Inc. Project, Johnson Controls, Refunding, 6.10%,
12/01/04 ................................................................................... 2,000,000 2,071,140
Sullivan PCR, Indiana-Michigan Power Co. Project, Refunding, Series C,
5.95%, 5/01/09 ............................................................................. 3,500,000 3,552,920
---------------
5,624,060
---------------
Annual Report | 103
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
KENTUCKY .5%
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement,
5.70%, 10/01/10 .............................................................................. $ 1,000,000 $ 986,500
5.75%, 10/01/11 ........................................................................... 1,500,000 1,477,350
---------------
2,463,850
---------------
LOUISIANA 2.3%
Louisiana Public Facilities Authority Revenue, Ochsner Clinic Foundation Project, Series A,
MBIA Insured, 4.00%, 5/15/12 ............................................................... 6,285,000 6,640,228
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ................. 4,000,000 4,233,880
---------------
10,874,108
---------------
MASSACHUSETTS 2.6%
Massachusetts State Development Finance Agency Resource Recovery Revenue,
Waste Management Inc. Project, Series B, 6.90%, 12/01/29 ................................... 3,000,000 3,526,410
Massachusetts State Development Finance Agency Revenue, Loomis Community Project,
first mortgage, Refunding, Series A, 5.50%, 7/01/08 ........................................ 2,420,000 2,461,673
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Ogden Haverhill
Project, Refunding, Series A,
5.15%, 12/01/07 ........................................................................... 2,000,000 2,010,640
5.20%, 12/01/08 ........................................................................... 2,000,000 2,013,200
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care, 5.50%,
10/01/12 ................................................................................... 1,745,000 1,876,852
---------------
11,888,775
---------------
MICHIGAN 3.8%
Battle Creek Downtown Development Authority Tax Allocation, Refunding, MBIA Insured,
5.00%, 5/01/17 ............................................................................. 3,295,000 3,513,623
Chippewa County Hospital Financing Authority Revenue, Chippewa County War Memorial
Hospital, Refunding, Series B, 5.30%, 11/01/07 ............................................. 815,000 856,655
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 ............................................. 1,000,000 1,067,020
Ferris State University Revenue, Refunding, AMBAC Insured, 5.00%, 10/01/18 ................... 2,640,000 2,790,216
Michigan State Hospital Finance Authority Revenue, Ascension Health Credit, Series A,
MBIA Insured, Pre-Refunded, 6.00%, 11/15/13 ................................................ 1,200,000 1,441,416
Saginaw-Midland GO, Municipal Water Supply Corp. Revenue, Water Supply System, Refunding,
MBIA Insured, 4.25%, 9/01/13 ............................................................... 1,245,000 1,346,468
Wayne-Westland Community Schools GO, Refunding,
4.50%, 5/01/12 ............................................................................ 1,035,000 1,145,579
4.625%, 5/01/13 ........................................................................... 1,095,000 1,218,012
Western Townships Utilities Authority GO, Refunding, MBIA Insured,
4.75%, 1/01/17 ............................................................................. 4,290,000 4,530,884
---------------
17,909,873
---------------
MINNESOTA 7.6%
Chaska ISD No. 112, GO, Refunding, Series A,
5.00%, 2/01/16 ............................................................................ 4,000,000 4,313,320
FSA Insured, 4.00%, 2/01/14 ............................................................... 2,060,000 2,152,329
104 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MINNESOTA (CONT.)
Minneapolis GO, Various Purpose, 5.00%, 12/01/17 ............................................. $ 3,000,000 $ 3,279,390
Minneapolis Special School District No. 001 COP, Refunding, Series B, FGIC Insured, 4.625%,
2/01/17 .................................................................................... 1,000,000 1,061,560
Minneapolis Special School District No. 001 GO, Refunding, FSA Insured, 4.00%,
2/01/13 ................................................................................... 3,000,000 3,170,790
2/01/14 ................................................................................... 6,300,000 6,582,366
Mounds View ISD No. 621, GO, MBIA Insured, 5.00%,
2/01/14 ................................................................................... 2,340,000 2,614,927
2/01/15 ................................................................................... 2,425,000 2,702,759
2/01/16 ................................................................................... 2,460,000 2,721,941
Ramsey County GO, Capital Improvement Plan, Series A, 4.75%, 2/01/15 ......................... 2,215,000 2,408,015
Robbinsdale ISD No. 281, GO, Refunding, FSA Insured,
4.00%, 2/01/13 ............................................................................ 2,070,000 2,187,845
4.125%, 2/01/14 ........................................................................... 2,175,000 2,291,232
---------------
35,486,474
---------------
MISSOURI 1.6%
Lake of the Ozarks Community Board Corp. Bridge System Revenue, Refunding, 5.00%,
12/01/08 ................................................................................... 3,000,000 3,140,190
Southeast Missouri State University System Facilities Revenue, Refunding and Improvement,
MBIA Insured,
4.375%, 4/01/12 ........................................................................... 335,000 365,509
4.50%, 4/01/14 ............................................................................ 545,000 585,968
4.60%, 4/01/15 ............................................................................ 1,360,000 1,457,444
4.70%, 4/01/16 ............................................................................ 1,165,000 1,248,169
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Refunding, 5.00%,
11/15/04 ................................................................................... 560,000 563,522
---------------
7,360,802
---------------
NEW HAMPSHIRE .1%
New Hampshire Higher Education and Health Facilities Authority Revenue, New Hampshire
Catholic Charities, Refunding, Series A, 5.10%, 8/01/04 .................................... 250,000 250,442
---------------
NEW JERSEY 4.0%
Camden County Improvement Authority Leave Revenue, County Guaranteed, Refunding,
Series A, FGIC Insured, 4.00%, 9/01/15 ..................................................... 2,500,000 2,579,175
Gloucester County Improvement Authority Solid Waste Resource Recovery Revenue,
Waste Management Inc. Project, Refunding, Series A, 6.85%, 12/01/29 ........................ 2,625,000 3,078,836
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding, Series 1,
5.90%, 1/01/15 ............................................................................. 875,000 877,048
New Jersey Health Care Facilities Financing Authority Revenue, Monmouth Medical Center,
Refunding, Series C, FSA Insured, ETM, 5.80%, 7/01/04 ...................................... 1,000,000 1,015,980
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Refunding, Series C, FSA Insured, 4.50%, 12/15/10 .......................................... 10,000,000 11,128,200
---------------
18,679,239
---------------
Annual Report | 105
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK 7.4%
Liverpool Central School District GO, Refunding, FSA Insured, 5.00%, 7/15/14 ................. $ 1,560,000 $ 1,746,404
Middletown New York City School District GO, Refunding, Series A, FSA Insured, 4.00%,
11/01/14 .................................................................................. 1,785,000 1,871,537
11/01/15 .................................................................................. 2,050,000 2,118,183
MTA Commuter Facilities Revenue, Services Contract, Refunding, Series R, ETM, 5.50%,
7/01/11 .................................................................................... 2,215,000 2,557,129
MTA Transportation Facilities Revenue, Series A, Pre-Refunded, 6.00%,
7/01/15 .................................................................................... 1,500,000 1,787,520
New York City GO,
Refunding, Series H, 5.90%, 8/01/09 ....................................................... 500,000 563,520
Refunding, Series J, 6.00%, 8/01/08 ....................................................... 3,000,000 3,387,720
Series C, MBIA Insured, 5.875%, 8/01/16 ................................................... 1,250,000 1,478,912
Series F, 4.75%, 1/15/16 .................................................................. 3,000,000 3,157,290
New York City Transitional Finance Authority Revenue, Series C, 4.50%,
2/15/13 .................................................................................... 4,500,000 4,861,755
New York State Dormitory Authority Revenue,
FHA Insured Mortgage, St. Barnabas, Series B, AMBAC Insured, 4.25%,
8/01/14 ................................................................................... 2,355,000 2,496,771
Mental Health Services Facilities Improvement, Refunding, Series D,
5.60%, 2/15/07 ........................................................................... 140,000 154,409
Mental Health Services Facilities Improvement, Series D, MBIA Insured,
5.00%, 8/15/17 ........................................................................... 2,000,000 2,132,920
New York State HFAR, Health Facilities, New York City, Refunding, Series A, 5.90%,
5/01/05 .................................................................................... 1,000,000 1,051,510
New York State Thruway Authority Service Contract Revenue, Local Highway and Bridge,
Pre-Refunded, 5.75%,
4/01/08 ................................................................................... 500,000 556,515
4/01/09 ................................................................................... 1,150,000 1,279,985
Port Authority of New York and New Jersey Construction Revenue, One Hundred Thirty Fourth,
Refunding, 4.00%, 7/15/14 .................................................................. 2,460,000 2,566,075
Port Authority of New York and New Jersey Special Obligation Revenue, 3rd Installment, 7.00%,
10/01/07 ................................................................................... 800,000 833,944
---------------
34,602,099
---------------
NORTH CAROLINA 6.6%
Asheville Water System Revenue, FSA Insured, 5.25%,
8/01/15 ................................................................................... 915,000 1,037,217
8/01/17 ................................................................................... 1,020,000 1,143,379
8/01/19 ................................................................................... 1,030,000 1,140,365
Charlotte Water and Sewer System Revenue, 5.00%, 6/01/16 ..................................... 4,000,000 4,414,600
Mecklenburg County GO, Public Improvement, Series A, 4.00%, 2/01/16 .......................... 5,000,000 5,151,200
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series D, 6.00%, 1/01/09 ....................................................... 1,000,000 1,110,470
Series D, 6.45%, 1/01/14 .................................................................. 1,000,000 1,143,080
North Carolina Infrastructure Financial Corp. COP, Correctional Facilities Project, Series A,
4.00%, 2/01/17 ............................................................................. 2,715,000 2,759,417
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, Refunding, Series B,
6.50%, 1/01/09 ............................................................................. 5,000,000 5,783,250
Wake County GO, Public Improvement, 4.50%, 3/01/14 ........................................... 6,400,000 6,935,808
---------------
30,618,786
---------------
106 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OHIO 7.4%
Akron GO, Refunding and Improvement Various Purpose, MBIA Insured,
4.125%, 12/01/14 ........................................................................... $ 1,000,000 $ 1,057,510
Akron Income Tax Revenue, Community Learning Canters, FGIC Insured,
4.00%, 12/01/14 ............................................................................ 2,140,000 2,262,044
Allen County GO, AMBAC Insured, 4.75%, 12/01/17 .............................................. 2,180,000 2,352,264
Butler County GO, MBIA Insured, 4.00%, 12/01/14 .............................................. 1,210,000 1,279,006
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services, Refunding,
5.25%, 7/01/08 ............................................................................ 575,000 599,322
5.40%, 7/01/10 ............................................................................ 775,000 803,233
5.50%, 7/01/11 ............................................................................ 500,000 517,170
Kenston Local School District GO, School Improvement, MBIA Insured,
4.00%, 12/01/15 ............................................................................ 1,775,000 1,851,644
Lake Ohio Local School District GO, MBIA Insured, 5.20%, 12/01/17 ............................ 2,565,000 2,844,842
Mahoning County Sewer System Revenue, AMBAC Insured, 5.20%, 12/01/14 ......................... 1,360,000 1,525,063
Mason City School District GO, School Improvement, Refunding, FGIC Insured, 5.00%,
12/01/15 ................................................................................... 2,670,000 3,066,709
Ohio State Building Authority Revenue, State Facilities, Administration Building Fund Project,
Refunding, Series B, FSA Insured, 4.00%, 10/01/12 .......................................... 1,000,000 1,075,120
Ohio State GO, Common Schools, Series B, 4.00%, 9/15/14 ...................................... 8,895,000 9,299,189
Southwest Regional Water District Water Improvement Revenue, Refunding, MBIA Insured,
4.00%,
12/01/13 .................................................................................. 1,020,000 1,092,226
12/01/14 .................................................................................. 1,020,000 1,078,171
University of Akron General Receipts Revenue, FGIC Insured, 5.75%, 1/01/14 ................... 2,000,000 2,335,660
Youngstown GO, AMBAC Insured, 6.125%, 12/01/15 ............................................... 1,275,000 1,601,974
---------------
34,641,147
---------------
OKLAHOMA .6%
Jackson County Memorial Hospital Authority Revenue, Jackson County Memorial Hospital
Project, Refunding, 6.75%, 8/01/04 ......................................................... 345,000 347,460
Okmulgee County Governmental Building Authority Sales Tax Revenue, First Mortgage,
MBIA Insured,
5.60%, 3/01/10 ............................................................................ 1,200,000 1,367,256
6.00%, 3/01/15 ............................................................................ 700,000 807,583
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding,
5.75%, 8/15/06 ............................................................................. 435,000 458,934
---------------
2,981,233
---------------
OREGON 3.8%
Clackamas County Hospital Facilities Authority Revenue, Willamette View Inc. Project,
Refunding, 6.00%, 11/01/06 ................................................................. 500,000 524,590
Emerald Peoples Utility District Revenue, Refunding, Series A, FSA Insured, 4.00%,
11/01/14 .................................................................................. 2,380,000 2,504,688
11/01/15 .................................................................................. 2,475,000 2,575,609
Hillsboro Hospital Facility Authority Revenue, Hospital Tuality Healthcare Project, Refunding,
5.75%, 10/01/12 ............................................................................ 1,000,000 1,028,480
Annual Report | 107
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OREGON (CONT.)
Lane County School District No. 052 Bethel GO, Refunding, FSA Insured,
3.75%, 6/15/12 ............................................................................ $ 1,000,000 $ 1,058,380
3.75%, 6/15/13 ............................................................................ 1,785,000 1,855,882
3.875%, 6/15/14 ........................................................................... 1,935,000 2,006,460
Salem Water and Sewer Revenue,
MBIA Insured, 4.10%, 6/01/16 .............................................................. 1,035,000 1,079,484
Refunding, FSA Insured, 4.375%, 6/01/11 ................................................... 2,160,000 2,395,051
Refunding, FSA Insured, 4.50%, 6/01/12 .................................................... 2,250,000 2,503,485
---------------
17,532,109
---------------
PENNSYLVANIA 3.2%
Allegheny County IDAR, Pollution Control, Refunding, Series A, AMBAC Insured, 4.35%,
12/01/13 ................................................................................... 5,000,000 5,477,900
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding, 5.40%,
7/01/07 .................................................................................... 1,135,000 1,143,490
Delaware County IDA, PCR, Peco Energy Co. Project, Refunding, Series A, 5.20%, 4/01/21 ....... 1,000,000 1,021,140
Pittsburgh Water and Sewer Authority Revenue, Refunding, FSA Insured, 4.00%,
9/01/14 ................................................................................... 5,000,000 5,258,300
9/01/15 ................................................................................... 2,000,000 2,080,180
---------------
14,981,010
---------------
SOUTH CAROLINA .7%
Charleston County Resource Recovery Revenue, Foster Wheeler Charleston, Refunding,
AMBAC Insured, 5.25%, 1/01/10 .............................................................. 1,000,000 1,135,460
Rock Hill Utility System Revenue, Refunding and Improvement, Series A, FSA Insured, 4.00%,
1/01/14 .................................................................................... 2,000,000 2,098,560
---------------
3,234,020
---------------
TENNESSEE .8%
Tennessee State School Board Authority Revenue, Higher Educational Facilities,
Second Program, Series A, FSA Insured, 5.00%, 5/01/13 ...................................... 3,425,000 3,848,878
---------------
TEXAS 2.8%
Abilene Higher Educational Facilities Revenue, Abilene Christian University,
5.90%, 10/01/05 ........................................................................... 720,000 763,387
Refunding, ETM, 5.90%, 10/01/05 ........................................................... 65,000 69,782
Goose Creek Consolidated ISD, GO, Pre-Refunded, 5.00%, 2/15/15 ............................... 1,000,000 1,037,910
Houston Hotel Occupancy Tax and Special Revenue, Convention and Entertainment, Series B,
AMBAC Insured, 5.00%, 9/01/11 .............................................................. 6,000,000 6,838,920
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.35%,
11/01/10 ................................................................................... 2,500,000 2,593,625
Travis County Health Facilities Development Corp. Revenue, Ascension Health Credit, Series A,
MBIA Insured, Pre-Refunded, 6.25%, 11/15/17 ................................................ 1,500,000 1,830,630
---------------
13,134,254
---------------
108 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
U.S. TERRITORIES 2.1%
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 ...................................................... $ 200,000 $ 209,624
Series A, ETM, 5.875%, 6/01/05 ............................................................ 500,000 530,190
Virgin Islands PFAR, senior lien, Refunding, Series A, 5.30%, 10/01/11 ....................... 4,000,000 4,336,120
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
4.875%, 7/01/06 ........................................................................... 2,000,000 2,113,680
5.00%, 7/01/09 ............................................................................ 2,400,000 2,607,505
---------------
9,797,119
---------------
UTAH .1%
Salt Lake County College Revenue, Westminster College Project, 5.50%,
10/01/12 ................................................................................... 340,000 365,554
---------------
VIRGINIA 2.3%
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding,
5.85%, 9/01/04 ............................................................................. 2,800,000 2,857,820
Fairfax County GO, Series B, 4.00%, 6/01/15 .................................................. 7,500,000 7,823,850
---------------
10,681,670
---------------
WASHINGTON .4%
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%,
12/01/05 ................................................................................... 600,000 603,234
Washington State Public Power Supply System Revenue, Nuclear Project No. 1, Refunding,
Series A, AMBAC Insured, 5.70%, 7/01/09 .................................................... 1,000,000 1,110,360
---------------
1,713,594
---------------
WEST VIRGINIA .2%
West Virginia Public Energy Authority Energy Revenue, Morgantown Association Project,
Series A, 5.05%, 7/01/08 ................................................................... 740,000 770,458
---------------
TOTAL BONDS .................................................................................. 456,999,894
---------------
Annual Report | 109
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON BONDS .5%
CALIFORNIA .5%
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, Refunding,
Series A, 1/15/17 .......................................................................... $ 3,000,000 $ 2,528,220
---------------
TOTAL LONG TERM INVESTMENTS (COST $431,403,450) .............................................. 459,528,114
---------------
SHORT TERM INVESTMENTS .2%
FLORIDA .2%
aOrange County School Board COP, Series B, MBIA Insured, Daily VRDN and Put, .98%,
8/01/27 .................................................................................... 900,000 900,000
NEW YORK
a New York City GO, Refunding, Series H, Sub Series H-3, FSA Insured, Daily VRDN and Put,
.98%, 8/01/14 .............................................................................. 300,000 300,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $1,200,000) ............................................... 1,200,000
---------------
TOTAL INVESTMENTS (COST $432,603,450) 98.8% .................................................. 460,728,114
OTHER ASSETS, LESS LIABILITIES 1.2% .......................................................... 5,395,373
---------------
NET ASSETS 100.0% ............................................................................ $ 466,123,487
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
110 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
--------------------
PERIOD ENDED
CLASS A FEBRUARY 29, 2004 C
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................. $10.00
--------------------
Income from investment operations:
Net investment income a ............................................. .06
Net realized and unrealized gains (losses) .......................... .11
--------------------
Total from investment operations ..................................... .17
--------------------
Less distributions from net investment income ........................ (.05)
--------------------
Net asset value, end of period ....................................... $10.12
--------------------
Total return b ....................................................... 1.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................................... $24,282
Ratios to average net assets:
Expenses ............................................................ .50% d
Expenses including waiver and payments by affiliate ................. 1.27% d
Net investment income ............................................... 1.22% d
Portfolio turnover rate .............................................. 8.08%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the period September 2, 2003 (effective date) to February 29, 2004.
d Annualized.
</FN>
Annual Report | See notes to financial statements. | 111
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 73.9%
ALABAMA 1.1%
Etowah County Board of Education Special Tax GO, School Warrants, FSA Insured, 2.60%,
9/01/08 ..................................................................................... $ 250,000 $ 255,442
-------------
ALASKA 4.2%
Kenai Peninsula Boro Alaska GO, Center Kenai Peninsula Hospital Service Area, FGIC Insured,
2.50%, 8/01/04 ............................................................................. 500,000 503,150
3.25%, 8/01/09 ............................................................................. 500,000 518,350
-------------
1,021,500
-------------
ARIZONA 3.5%
Oro Valley Municipal Property Corp. Revenue, senior lien Water Project, MBIA Insured,
2.00%, 7/01/04 ............................................................................. 410,000 411,414
3.00%, 7/01/08 ............................................................................. 425,000 442,170
-------------
853,584
-------------
COLORADO 1.4%
Water Resources and Power Development Authority Revenue, Series B, 3.25%, 9/01/07 ............. 320,000 337,539
-------------
FLORIDA 2.8%
Arcadia Public Improvement Revenue, Refunding, AMBAC Insured, 1.10%, 12/01/04 ................. 205,000 205,211
Hillsborough County School Board COP, MBIA Insured, 5.70%, 7/01/06 ............................ 240,000 248,503
Jupiter Water Revenue, AMBAC Insured, 3.75%, 10/01/07 ......................................... 105,000 112,441
Marion County Utility System Revenue, Series A, MBIA Insured, 2.00%, 12/01/06 ................. 100,000 101,609
-------------
667,764
-------------
GEORGIA 2.3%
Association County Commissioners Leasing Program COP, Dekalb County Public Purpose Project,
2.50%, 12/01/07 ............................................................................. 555,000 568,187
-------------
ILLINOIS .5%
Winnebago Boone Community College District No. 511 GO, Rock Valley College, Series A,
MBIA Insured, 2.00%, 12/30/04 ............................................................... 125,000 126,045
-------------
INDIANA .5%
Madison Grant Industry School Building Corporation Revenue, First Mortgage, AMBAC Insured,
2.25%, 1/15/06 .............................................................................. 120,000 122,251
-------------
KANSAS 1.7%
Johnson County Water District No. 001 Water Revenue, Refunding, 2.50%, 6/01/08 ................ 400,000 408,916
-------------
112 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
KENTUCKY 2.6%
Anderson County School District Financial Corporation School Building Revenue, Refunding,
Series B, 3.80%, 3/01/06 .................................................................... $ 120,000 $ 125,766
Breathitt County Justice Center Corporation Revenue, Justice Center Project, MBIA Insured,
3.00%, 10/01/06 ............................................................................. 55,000 57,291
Breathitt County School District Financial Corporation School Building Revenue, Refunding,
Second Series, 4.00%, 3/01/07 ............................................................... 110,000 117,456
Kentucky State Property & Building Commission Revenues, Refunding,
Project No. 80-Series A, MBIA Insured, 2.75%, 5/01/08 ....................................... 225,000 231,703
Woodford County School District Financial Corporation School Building Revenue, Refunding,
4.30%, 8/01/06 .............................................................................. 100,000 106,605
-------------
638,821
-------------
MASSACHUSETTS .8%
Massachusetts State Development Finance Agency Revenue, Brandeis University, Series K,
FGIC Insured, 2.50%, 10/01/07 ............................................................... 200,000 205,320
-------------
MICHIGAN 2.5%
Commerce Charter Township Michigan GO, Special Assessment, Series A, FSA Insured, 2.50%,
10/01/06 .................................................................................... 100,000 102,647
Detroit GO, Refunding, Series B, XLCA Insured, 3.00%, 4/01/06 ................................. 400,000 413,060
Michigan Municipal Building Authority Revenue, Local Government Loan Project, Series B,
AMBAC Insured, 2.75%, 11/01/08 .............................................................. 100,000 102,736
-------------
618,443
-------------
MINNESOTA 5.3%
St. Paul Port Authority Lease Revenue, Office Building at Cedar Street-03-12, 2.50%,
12/01/07 .................................................................................... 500,000 511,515
Washington County GO, Jail, Refunding, Series B, 2.50%, 2/01/07 ............................... 750,000 768,045
-------------
1,279,560
-------------
MISSOURI 1.9%
Missouri State Development Finance Board Infrastructure Facilities Revenue, Hartman Heritage
Center Phase II, AMBAC Insured, 3.00%, 4/01/08 .............................................. 200,000 207,952
Platte County COP, Public Improvements, 2.40%, 10/01/08 ....................................... 200,000 201,732
Springfield COP, Enterprise System Project, 3.85%, 2/01/08 .................................... 50,000 53,287
-------------
462,971
-------------
NEVADA 2.2%
Henderson Local ID Special Assessment, No. T-6 Senior Limited Obligation, Refunding,
Series A, FSA Insured, 2.85%, 11/01/09 ...................................................... 300,000 300,216
Washoe County Improvement Bonds, Refunding, FSA Insured, 2.50%, 11/01/08 ...................... 230,000 233,754
-------------
533,970
-------------
Annual Report | 113
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
NEW JERSEY 4.2%
Washington Township Board of Education Gloucester County GO, Refunding, MBIA Insured,
2.75%, 2/01/08 .............................................................................. $ 1,000,000 $ 1,029,590
-------------
NEW YORK 2.8%
New York State Urban Development Corp. Revenue,
Correctional and Youth Facilities Service, Series A, 4.00%, 1/01/28 ........................ 400,000 426,364
State Personal Income Tax, Series C-1 Empire State, 2.80%, 12/15/09 ........................ 245,000 249,062
-------------
675,426
-------------
OHIO 14.6%
Franklin County Hospital Revenue, Refunding, Hospital Corp., Series C, MBIA Insured, 2.50%,
5/15/08 ..................................................................................... 500,000 508,395
aGalion Ohio City School District GO, School Improvement, FGIC Insured,
2.00%, 12/01/04 ............................................................................. 645,000 649,863
Ohio State GO, Conservation Projects, Series A, 2.00%, 3/01/05 ................................ 1,000,000 1,009,870
Princeton City School District GO, MBIA Insured, 2.00%, 12/01/04 .............................. 125,000 125,943
Stark County, Refunding Sewerage Systems, AMBAC Insured, 2.50%, 12/01/08 ...................... 370,000 376,982
Sugarcreek Local School District GO, School Improvement, Refunding, MBIA Insured, 2.00%,
12/01/06 .................................................................................... 500,000 508,045
Warren GO, AMBAC Insured, 2.00%, 12/01/06 ..................................................... 365,000 370,873
-------------
3,549,971
-------------
OKLAHOMA .7%
Oklahoma County ISD GO, No. 12 Edmond Building, 2.25%, 7/01/06 ................................ 100,000 101,455
Oklahoma Development Finance Authority Lease Revenue, Department of Human Services
County Office, AMBAC Insured, 3.25%, 2/01/06 ................................................ 75,000 77,824
-------------
179,279
-------------
OREGON .4%
Lake County School District No. 014, Refunding, FSA Insured, 2.50%, 1/15/08 ................... 105,000 107,219
-------------
PENNSYLVANIA 1.7%
Lehigh County IDA Pollution Control Revenue, Electrical Utilities Corporation Project,
Refunding, AMBAC Insured, 3.125%, 11/01/08 .................................................. 150,000 156,586
Pittsburgh Water and Sewer Authority Revenue, Refunding, FSA Insured, 2.65%,
9/01/08 ..................................................................................... 250,000 255,543
-------------
412,129
-------------
RHODE ISLAND .4%
Rhode Island Housing and Mortgage Financial Corporation, Home Ownership Opportunity,
Series 44 A, 2.40%, 10/01/07 ................................................................ 100,000 100,478
-------------
SOUTH CAROLINA .3%
Florence County GO, Public Improvements, AMBAC Insured, 3.75%, 3/01/08 ........................ 75,000 80,223
-------------
114 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
SOUTH DAKOTA 1.6%
South Dakota HDA, Series D, 2.90%, 5/01/09 .................................................... $ 375,000 $ 376,425
---------------
TEXAS 2.9%
Hays County GO, Refunding and Improvement, AMBAC Insured, 3.875%, 8/15/07 ..................... 255,000 273,151
Sienna Plantation MUD No. 2 GO, FGIC Insured, 4.75%,
10/01/06 ................................................................................... 70,000 75,712
10/01/07 ................................................................................... 75,000 82,660
10/01/08 ................................................................................... 80,000 89,021
Westador MUD GO, FSA Insured, 4.00%, 3/01/09 .................................................. 170,000 177,090
---------------
697,634
---------------
U.S. TERRITORIES 1.9%
Guam International Airport Authority Revenue, Series A, MBIA Insured, 2.375%,
10/01/08 .................................................................................... 240,000 243,494
Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series C, MBIA Insured,
5.00%, 7/01/28 .............................................................................. 200,000 222,816
---------------
466,310
---------------
UTAH .8%
Davis County Sales Tax Revenue Series B, AMBAC Insured, 2.55%, 10/01/08 ....................... 180,000 182,885
---------------
VIRGINIA 1.3%
Virginia Beach Development Authority Public Facility Revenue, Series A, 3.00%,
12/01/07 .................................................................................... 300,000 312,864
---------------
WASHINGTON 6.1%
Burlington Sewer Revenue, Refunding, MBIA Insured, 2.50%, 9/01/06 ............................. 200,000 204,878
King County School District No. 403 Renton GO, FSA Insured, 3.00%, 12/01/07 ................... 500,000 521,255
aKing County School District No. 408 Auburn GO, Refunding, FSA Insured, 2.00%,
12/01/04 .................................................................................... 285,000 287,149
Sunmer Water and Sewer Revenue, Utility Local Improvement District NO. 73 and 74,
FSA Insured, 1.80%, 10/01/06 ................................................................ 150,000 150,030
Washington COP, Equipment, Series C, 2.00%, 1/01/06 ........................................... 100,000 101,042
Yakima Tieton Irrigation District Revenue, Refunding, FSA Insured, 2.50%,
6/01/06 ..................................................................................... 200,000 204,842
---------------
1,469,196
---------------
WEST VIRGINIA .9%
West Virginia State Hospital Finance Authority Hospital Revenue, West Virginia University
Hospital, Refunding, FSA Insured, 2.50%, 6/01/07 ............................................ 205,000 209,371
---------------
TOTAL LONG TERM INVESTMENTS (COST $17,756,547) ................................................ 17,949,313
---------------
Annual Report | 115
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 28.9%
CALIFORNIA 1.2%
bLos Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2,
Daily VRDN and Put, .98%, 7/01/35 ........................................................... $ 100,000 $ 100,000
bOrange County Sanitation Districts COP, Refunding, Series B, Daily VRDN and Put, .98%,
8/01/30 ..................................................................................... 200,000 200,000
-------------
300,000
-------------
FLORIDA 2.5%
bAlachua County Health Facilities Continuing Care Revenue, Oak Hammock University of Florida
Project, Series A, Daily VRDN and Put, .98%, 10/01/32 ....................................... 100,000 100,000
bOrange County School Board COP, Series B,
AMBAC Insured, Daily VRDN and Put, .98%, 8/01/25 ........................................... 300,000 300,000
MBIA Insured, Daily VRDN and Put, .98%, 8/01/27 ............................................ 100,000 100,000
bPinellas County Health Facilities Authority Revenue, Pooled Hospital Loan Program, Refunding,
Daily VRDN and Put, AMBAC Insured, 1.00%, 12/01/15 .......................................... 100,000 100,000
-------------
600,000
-------------
GEORGIA 2.9%
bAthens-Clarke County Unified Government Authority Revenue, University of Georgia Athletic
Association Project, Daily VRDN and Put, 1.00%, 8/01/33 ..................................... 300,000 300,000
bAtlanta Water and Wastewater Revenue, Series C, FSA Insured, Daily VRDN and Put, .98%,
11/01/41 .................................................................................... 300,000 300,000
bHapeville IDAR, Hapeville Hotel Ltd., Daily VRDN and Put, .97%, 11/01/15 ...................... 100,000 100,000
-------------
700,000
-------------
LOUISIANA .4%
bLouisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc. Project,
First Stage, ACES, Refunding, Daily VRDN and Put, .98%, 9/01/17 ............................. 100,000 100,000
-------------
MARYLAND .4%
bBaltimore County Revenue, Oak Crest Village Inc. Project, Series A, Weekly VRDN and Put,
.96%, 1/01/29 ............................................................................... 100,000 100,000
-------------
MASSACHUSETTS 1.8%
Massachusetts State Development Finance Agency Revenue, Brandeis University, Series K,
FGIC Insured, 2.00%, 10/01/04 ............................................................... 175,000 176,036
bMassachusetts State Water Resource Authority Revenue, Multi-Modal, Refunding, Sub Series D,
Daily VRDN and Put, .98%, 8/01/17 ........................................................... 250,000 250,000
-------------
426,036
-------------
116 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
MICHIGAN 2.5%
bDetroit Sewage Disposal Revenue, senior lien, Series B, Daily VRDN and Put,
.98%, 7/01/33 ............................................................................... $ 300,000 $ 300,000
bMichigan State University Revenues, Series A, Daily VRDN and Put, .98%,
8/15/32 ..................................................................................... 300,000 300,000
-------------
600,000
-------------
MINNESOTA 6.2%
bBeltrami County Environmental Control Revenue, Northwood Panelboard, Refunding,
Daily VRDN and Put, .97%, 12/01/21 .......................................................... 200,000 200,000
bCohasset Revenue, Minnesota Power and Light Co. Project, Refunding, Series C,
Daily VRDN and Put, .98%, 6/01/20 ........................................................... 100,000 100,000
bHennepin County GO, Series B, Weekly VRDN and Put, .80%, 12/01/20 ............................. 100,000 100,000
bMinneapolis Convention Center GO, Weekly VRDN and Put, .80%, 12/01/18 ......................... 100,000 100,000
bMinneapolis State Revenue, Refunding, Weekly VRDN and Daily Put, .80%,
12/01/18 .................................................................................... 600,000 600,000
bSpring Lake Park Senior Housing Revenue, Oak Crest Apartment Project, Refunding,
Weekly VRDN and Put, .95%, 2/15/33 .......................................................... 395,000 395,000
-------------
1,495,000
-------------
NEW MEXICO 2.5%
bFarmington PCR, Arizona Public Service Co.,
Refunding, Series B, Daily VRDN and Put, .98%, 9/01/24 ..................................... 500,000 500,000
Series A, Daily VRDN and Put, .98%, 5/01/24 ................................................ 100,000 100,000
-------------
600,000
-------------
NEW YORK 4.5%
bJay Street Development Corp. Certificate Facilities Lease Revenue, Jay Street Project,
Series A-2, AMBAC Insured, Daily VRDN and Put, .92%, 5/01/20 ................................ 100,000 100,000
bLong Island Power Authority Electric Systems Revenue, Sub Series 2, Daily VRDN and Put,
.98%, 5/01/33 ............................................................................... 300,000 300,000
bNassau County Interim Finance Authority Revenue, Sales Tax Secured, Refunding, Series B,
FSA Insured, Weekly VRDN and Put, .90%, 11/15/22 ............................................ 100,000 100,000
bNew York City GO,
Series B2, Sub Series B5, Weekly VRDN and Put, .96%, 8/15/11 ............................... 400,000 400,000
Sub Series A-7, Daily VRDN and Put, .98%, 8/01/21 .......................................... 100,000 100,000
bNew York City Municipal Water Finance Authority Water and Sewer System Revenue,
Fiscal 2003, Refunding, Sub Series C-3, Daily VRDN and Put, .98%, 6/15/18 ................... 100,000 100,000
-------------
1,100,000
-------------
NORTH CAROLINA 1.2%
bNorth Carolina State GO, Series G, Weekly VRDN and Put, .86%, 5/01/21 ......................... 300,000 300,000
-------------
Annual Report | 117
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
OHIO 1.6%
bCuyahoga County Hospital Revenue, University Hospitals of Cleveland, Daily VRDN and Put,
.94%, 1/01/16 ............................................................................... $ 400,000 $ 400,000
-------------
PENNSYLVANIA .4%
bLehigh County General Purpose Authority Revenue, Lehigh Valley Health, Series B,
MBIA Insured, Daily VRDN and Put, .94%, 7/01/29 ............................................. 100,000 100,000
-------------
TENNESSEE .8%
bClarksville PBA Revenue, Pooled Financing, Tennessee Municipal Bond Fund,
Daily VRDN and Put, 1.00%, 1/01/33 .......................................................... 200,000 200,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $7,021,036) ................................................ 7,021,036
-------------
TOTAL INVESTMENTS (COST $24,777,583) 102.8% ................................................... 24,970,349
OTHER ASSETS, LESS LIABILITIES (2.8)% ......................................................... (688,746)
-------------
NET ASSETS 100.0% ............................................................................. $ 24,281,603
-------------
<FN>
See glossary of terms on page 173.
a See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
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.
</FN>
118 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
---------------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $10.39 $10.58 $10.50 $10.41 $11.49
---------------------------------------------------------------------
Income from investment operations:
Net investment income a ............................... .59 .59 .61 .62 .65
Net realized and unrealized gains (losses) ............ .39 (.18) .06 .09 (1.08)
---------------------------------------------------------------------
Total from investment operations ....................... .98 .41 .67 .71 (.43)
---------------------------------------------------------------------
Less distributions from:
Net investment income ................................. (.59) (.60) (.59) (.62) (.65)
Net realized gains .................................... -- -- -- -- -- d
---------------------------------------------------------------------
Total distributions .................................... (.59) (.60) (.59) (.62) (.65)
---------------------------------------------------------------------
Net asset value, end of year ........................... $10.78 $10.39 $10.58 $10.50 $10.41
---------------------------------------------------------------------
Total return b ......................................... 9.75% 3.97% 6.53% 6.99% (3.81)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $4,570,744 $4,410,233 $4,660,764 $4,709,402 $5,017,322
Ratios to average net assets:
Expenses .............................................. .62% .62% .62% .62% .61%
Net investment income ................................. 5.62% 5.69% 5.78% 5.90% 5.92%
Portfolio turnover rate ................................ 8.67% 11.81% 10.18% 11.08% 25.35%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.003.
</FN>
Annual Report | 119
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (CONTINUED)
--------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C
--------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................ $10.45 $10.64 $10.54 $10.45 $11.52
--------------------------------------------------------------
Income from investment operations:
Net investment income a ...................................... .53 .54 .56 .56 .59
Net realized and unrealized gains (losses) ................... .39 (.19) .07 .09 (1.07)
--------------------------------------------------------------
Total from investment operations .............................. .92 .35 .63 .65 (.48)
--------------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.53) (.54) (.53) (.56) (.59)
Net realized gains ........................................... -- -- -- -- -- d
--------------------------------------------------------------
Total distributions ........................................... (.53) (.54) (.53) (.56) (.59)
--------------------------------------------------------------
Net asset value, end of year .................................. $10.84 $10.45 $10.64 $10.54 $10.45
--------------------------------------------------------------
Total return b ................................................ 9.09% 3.37% 6.10% 6.38% (4.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $250,878 $212,027 $175,655 $136,030 $92,099
Ratios to average net assets:
Expenses ..................................................... 1.18% 1.18% 1.18% 1.18% 1.17%
Net investment income ........................................ 5.06% 5.13% 5.23% 5.33% 5.44%
Portfolio turnover rate ....................................... 8.67% 11.81% 10.18% 11.08% 25.35%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.003.
</FN>
120 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $10.48 $10.67 $10.58 $10.48 $11.56
-----------------------------------------------------------
Income from investment operations:
Net investment income a ........................................ .54 .54 .56 .56 .59
Net realized and unrealized gains (losses) ..................... .39 (.19) .06 .10 (1.08)
-----------------------------------------------------------
Total from investment operations ................................ .93 .35 .62 .66 (.49)
-----------------------------------------------------------
Less distributions from:
Net investment income .......................................... (.53) (.54) (.53) (.56) (.59)
Net realized gains ............................................. -- -- -- -- -- d
-----------------------------------------------------------
Total distributions ............................................. (.53) (.54) (.53) (.56) (.59)
-----------------------------------------------------------
Net asset value, end of year .................................... $10.88 $10.48 $10.67 $10.58 $10.48
-----------------------------------------------------------
Total return b .................................................. 9.16% 3.37% 5.98% 6.45% (4.41)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $565,210 $508,653 $504,900 $501,372 $540,932
Ratios to average net assets:
Expenses ....................................................... 1.18% 1.18% 1.18% 1.18% 1.17%
Net investment income .......................................... 5.06% 5.13% 5.23% 5.34% 5.35%
Portfolio turnover rate ......................................... 8.67% 11.81% 10.18% 11.08% 25.35%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.003.
</FN>
Annual Report | See notes to financial statements. | 121
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 95.1%
BONDS 87.5%
ALABAMA .3%
Camden IDB, Exempt Facilities Revenue, Weyerhaeuser, Refunding,
Series A, 6.125%, 12/01/24 ............................................................. $ 3,000,000 $ 3,231,150
Series B, 6.375%, 12/01/24 ............................................................. 1,750,000 1,868,213
Oneonta Eastern Health Systems Special Care Facilities Financing Authority GO, 7.75%,
7/01/21 ................................................................................. 11,215,000 12,461,435
---------------
17,560,798
---------------
ALASKA .2%
Alaska Industrial Development and Export Authority Power Revenue, Upper Lynn Canal
Regional Power,
5.70%, 1/01/12 ......................................................................... 2,520,000 2,456,219
5.80%, 1/01/18 ......................................................................... 1,495,000 1,372,230
5.875%, 1/01/32 ........................................................................ 6,900,000 6,091,044
Alaska State HFC Revenue, Series A, MBIA Insured, 5.85%, 12/01/15 ......................... 2,340,000 2,437,157
---------------
12,356,650
---------------
ARIZONA 6.9%
Apache County IDA,
IDR, Tucson Electric Power Co. Project, Series C, 5.85%, 3/01/26 ....................... 16,500,000 16,219,500
PCR, Tucson Electric Power Co. Project, Series A, 5.85%, 3/01/28 ....................... 53,150,000 52,743,402
PCR, Tucson Electric Power Co. Project, Series B, 5.875%, 3/01/33 ...................... 33,800,000 33,267,988
Arizona Health Facilities Authority Revenue,
Bethesda Foundation Project, Series A, 6.375%, 8/15/15 ................................. 400,000 407,428
Bethesda Foundation Project, Series A, 6.40%, 8/15/27 .................................. 4,000,000 3,966,280
Catholic Healthcare West, Series A, 6.625%, 7/01/20 .................................... 3,940,000 4,543,529
Casa Grande IDA, Hospital Revenue, Casa Grande Regional Medical Center, Series A, 7.25%,
12/01/32 ................................................................................ 14,500,000 14,891,790
Coconino County PCR, Tucson Electric Power Navajo, Refunding,
Series A, 7.125%, 10/01/32 ............................................................. 21,125,000 21,992,815
Series B, 7.00%, 10/01/32 .............................................................. 9,500,000 9,903,085
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 .................................. 4,000,000 2,703,000
Health Facilities Authority Hospital System Revenue, John C. Lincoln Health Network,
6.375%, 12/01/37 ........................................................................ 2,500,000 2,634,125
Maricopa County IDA, Health Facility Revenue, Catholic Healthcare, Refunding, 5.00%,
7/01/16 ................................................................................. 6,500,000 6,823,570
Maricopa County Pollution Control Corp. PCR,
El Paso Electric, Series A, 6.375%, 7/01/14 ............................................ 32,000,000 33,566,400
Public Service Co. of Colorado, Refunding, Series A, 5.75%, 11/01/22 ................... 9,800,000 9,907,310
Pima County IDAR, Tucson Electric Power Co. Project,
Series A, 6.10%, 9/01/25 ............................................................... 3,990,000 3,924,365
Series B, 6.00%, 9/01/29 ............................................................... 94,690,000 93,593,490
Series C, 6.00%, 9/01/29 ............................................................... 53,500,000 52,880,470
Red Hawk Canyon CFD, No. 1, Arizona Assessment Revenue, 7.625%, 6/01/05 ................... 6,735,000 6,962,104
---------------
370,930,651
---------------
122 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ARKANSAS .5%
Arkansas State Development Finance Authority Industrial Facilities Revenue,
Potlatch Corp. Projects, Series A, 7.75%, 8/01/25 ....................................... $ 3,800,000 $ 4,126,686
Baxter County IDR, Aeroquip/Trinova Corp. Project, Refunding, 5.80%,
10/01/13 ................................................................................ 2,400,000 2,788,560
Calhoun County Solid Waste Disposal Revenue, Georgia-Pacific Corp. Project, 6.375%,
11/01/26 ................................................................................ 10,000,000 9,969,200
Independence County PCR, Arkansas Power and Light Co. Project, Refunding, 6.25%,
1/01/21 ................................................................................. 5,000,000 5,126,300
Warren Solid Waste Disposal Revenue, Potlach Corp. Project, 7.00%, 4/01/12 ................ 3,150,000 3,299,877
---------------
25,310,623
---------------
CALIFORNIA 10.8%
ABAG 1915 Act, Special Assessment,
Windemere Ranch AD 1, 7.45%, 9/02/30 ................................................... 37,650,000 40,166,903
Windemere Ranch AD 99-1, 6.375%, 9/02/32 ............................................... 9,740,000 10,090,640
Adelanto Water Authority Revenue, Water Systems Acquisition Project, sub. lien, Series A,
Pre-Refunded, 7.50%, 9/01/28 ............................................................ 21,330,000 26,984,157
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%,
12/01/23 ................................................................................ 11,900,000 12,539,863
Avenal PFAR, Refunding,
7.00%, 9/02/10 ......................................................................... 1,135,000 1,206,153
7.25%, 9/02/27 ......................................................................... 3,665,000 3,863,643
Beaumont PFAR, Sewer Enterprise Project, Series A, Pre-Refunded, 6.90%,
9/01/23 ................................................................................. 4,450,000 5,721,543
Calabasas Special Tax, CFD No. 01-1, Refunding, 6.25%, 9/01/31 ............................ 6,000,000 6,162,840
California County Tobacco Securitization Agency Revenue, Asset-Backed, Alameda County,
5.875%, 6/01/35 ......................................................................... 3,700,000 3,228,583
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Series B, 6.125%, 6/01/09 ............................................................... 910,000 930,530
aCalifornia Infrastructure and Economic Development Bank Revenue, Department Social
Services Administration Building, AMBAC Insured, 5.00%,
12/01/30 ............................................................................... 10,300,000 11,149,750
12/01/35 ............................................................................... 14,110,000 15,274,075
California PCFA, Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project, 6.875%,
11/01/27 ................................................................................ 5,480,000 5,492,440
California Special Districts Association Finance Corp. COP, Series V,
7.50%, 5/01/13 .......................................................................... 640,000 654,944
California State GO,
5.25%, 4/01/30 ......................................................................... 2,500,000 2,551,000
5.00%, 2/01/33 ......................................................................... 38,700,000 38,639,628
Refunding, 5.25%, 4/01/32 .............................................................. 2,500,000 2,547,675
Variable Purpose, 5.125%, 11/01/24 ..................................................... 18,935,000 19,360,848
California Statewide CDA Revenue,
Elder Care Alliance, Series A, 8.25%, 11/15/32 ......................................... 13,090,000 13,695,282
Eskaton Village Grass Valley, 8.25%, 11/15/31 .......................................... 3,500,000 3,829,490
Monterey Institute International, 7.75%, 7/01/31 ....................................... 15,010,000 13,372,409
Prospect Sierra School, 6.75%, 9/01/32 ................................................. 6,545,000 6,833,766
California Statewide Communities Development Revenue, John F. Kennedy University, 6.75%,
10/01/33 ................................................................................ 8,000,000 7,938,640
Chula Vista CFD, Special Tax No. 99-1, Otay Ranch Special Assessment 1, 6.10%,
9/01/31 ................................................................................. 4,890,000 4,990,587
Annual Report | 123
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Corona COP, Corona Community Hospital Project,
ETM, 9.425%, 9/01/06 ................................................................... $ 3,655,000 $ 4,080,844
Pre-Refunded, 9.425%, 9/01/20 .......................................................... 8,820,000 12,263,063
El Dorado County CFD, Special Tax, Promontory Specific, Series No. 2001-1, 6.30%,
9/01/31 ................................................................................. 3,500,000 3,621,205
Elk Grove Special Tax, East Franklin Community No. 1-A,
5.80%, 8/01/25 ......................................................................... 3,745,000 3,790,801
6.00%, 8/01/33 ......................................................................... 5,435,000 5,605,659
Emeryville RDA, MFHR, Emery Bay Apartments II,
Refunding, Series A, 5.85%, 10/01/28 ................................................... 14,060,000 13,562,557
sub. lien, Refunding, Series B, 6.35%, 10/01/28 ........................................ 3,325,000 3,259,996
sub. lien, Refunding, Series C, 7.875%, 10/01/28 ....................................... 1,960,000 1,931,560
Foothill/Eastern Corridor Agency Toll Road Revenue, senior lien, Series A, Pre-Refunded,
6.50%, 1/01/32 .......................................................................... 37,675,000 43,028,241
Fullerton CFD No. 1, Special Tax, Amerige Heights, 6.20%, 9/01/32 ......................... 3,500,000 3,599,925
Gateway Improvement Authority Revenue, Marin City CFD, Series A, Pre-Refunded, 7.75%,
9/01/25 ................................................................................. 4,445,000 4,928,972
Golden State Tobacco Securitization Corp.,
California Settlement Revenue, Asset Backed, Series A-3, 7.875%, 6/01/42 ............... 10,000,000 10,762,800
Tobacco Settlement Revenue, 5.50%, 6/01/33 ............................................. 20,000,000 20,346,000
Tobacco Settlement Revenue, 5.625%, 6/01/38 ............................................ 21,000,000 21,414,960
Tobacco Settlement Revenue, 5.50%, 6/01/43 ............................................. 20,000,000 20,214,800
Tobacco Settlement Revenue, Series 2003 A-1, 6.75%, 6/01/39 ............................ 4,735,000 4,622,496
Hesperia PFAR, Series B, 7.375%, 10/01/23 ................................................. 6,365,000 6,460,220
Lake Elsinore 1915 Act, AD No. 93-1, Limited Obligation, Refunding,
7.00%, 9/02/30 .......................................................................... 8,450,000 8,959,958
Lee Lake Water District Special Tax, California CFD No. 3, Retreat,
5.95%, 9/01/34 .......................................................................... 5,000,000 5,012,350
Los Angeles MFR, Refunding,
Series J-1B, 7.125%, 1/01/24 ........................................................... 630,000 637,963
Series J-1C, 7.125%, 1/01/24 ........................................................... 1,335,000 1,351,874
Series J-2B, 8.50%, 1/01/24 ............................................................ 3,085,000 3,101,258
Series J-2C, 8.50%, 1/01/24 ............................................................ 6,560,000 6,595,358
Los Angeles Regional Airports Improvement Corp. Lease Revenue,
Facilities Sub-Lease, International Airport, Refunding, 6.35%, 11/01/25 ................ 12,000,000 9,975,960
Facilities Sub-Lease, Los Angeles International, Series A-1,
7.125%, 12/01/24 ...................................................................... 2,000,000 1,973,920
Facilities Sub-Lease, Los Angeles International, Series A-2, 7.50%,
12/01/24 .............................................................................. 10,000,000 9,982,600
Refunding, Series C, 6.125%, 12/01/07 .................................................. 5,000,000 4,888,800
Refunding, Series C, 7.00%, 12/01/12 ................................................... 8,000,000 7,880,480
Refunding, Series C, 7.50%, 12/01/24 ................................................... 30,000,000 29,947,800
United Airlines, International Airport, Refunding, 6.875%, 11/15/12 .................... 9,500,000 6,440,240
Murrieta CFD, 1915 Act, No. 2000-1, Special Tax, 6.375%, 9/01/30 .......................... 4,000,000 4,145,440
Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ......................... 1,945,000 2,037,349
Poway USD, Special Tax GO, CFD, No. 10, Area A, 6.10%, 9/01/31 ............................ 1,995,000 2,037,813
San Bernardino County Finance Authority Revenue, Public Improvement, AD, Refunding,
Series A,
6.50%, 9/02/04 ......................................................................... 415,000 423,213
7.00%, 9/02/17 ......................................................................... 2,345,000 2,366,363
124 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
San Francisco Uptown Parking Corp. Parking Revenue, Union Square, MBIA Insured, 6.00%,
7/01/31 ................................................................................. $ 8,920,000 $ 10,030,540
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, 5.00%,
1/01/33 ................................................................................. 5,930,000 5,503,277
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 ............................ 1,305,000 1,309,998
San Ramon 1915 Act, Special Assessment, Fostoria Parkway Reassessment District No. 9,
6.80%, 9/02/15 .......................................................................... 655,000 681,049
Saugus USD, Special Tax, 6.00%, 9/01/33 ................................................... 3,150,000 3,209,283
Stockton CFD, Special Tax, Spanos Park West, 6.375%, 9/01/32 .............................. 4,100,000 4,244,279
Stockton Improvement Bond Special Assesment, 1915 Act, Limited Obligation,
Mosher AD 02, 6.30%, 9/02/33 ............................................................ 6,000,000 6,174,780
West Sacramento Special Tax, CFD No. 16, 6.00%, 9/01/33 ................................... 3,000,000 2,991,750
---------------
582,623,183
---------------
COLORADO 2.0%
Arvada MFHR, Springwood Community Project, 6.45%, 2/20/26 ................................. 3,000,000 3,051,090
Colorado Health Facilities Authority Revenue, Volunteers of America Care Facilities,
Refunding and Improvement, Series A,
5.45%, 7/01/08 ......................................................................... 1,135,000 1,128,008
5.75%, 7/01/20 ......................................................................... 3,000,000 2,769,660
5.875%, 7/01/28 ........................................................................ 2,990,000 2,732,262
Denver City and County Airport Revenue,
Series B, 5.50%, 11/15/33 .............................................................. 20,000,000 20,253,200
Series D, 7.75%, 11/15/13 .............................................................. 500,000 622,050
Denver City and County Special Facilities Airport Revenue, United Airlines Inc. Project,
Series A, 6.875%, 10/01/32 .............................................................. 11,760,000 8,014,087
Eagle County Air Terminal Corp. Revenue, Series A,
7.00%, 5/01/21 ......................................................................... 955,000 905,674
7.125%, 5/01/31 ........................................................................ 1,705,000 1,614,107
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21 ............................. 1,985,000 2,000,721
Eagle County Sports and Housing Facilities Revenue, Vail Associate Project, Refunding,
6.95%, 8/01/19 .......................................................................... 41,200,000 42,369,668
Littleton MFHR, Riverpoint, Refunding, Series C, 8.00%, 12/01/29 .......................... 2,870,000 3,060,597
McKay Landing Metropolitan District No. 2 GO, Limited Tax, 7.50%, 12/01/19 ................ 3,550,000 3,833,468
Saddle Rock South Metropolitan District No. 2 GO, Ltd. Mill Levy Obligation, 7.20%,
12/01/19 ................................................................................ 675,000 731,059
Saddle Rock South Metropolitan District No. 3 GO, Ltd. Mill Levy Obligation, 7.35%,
12/01/19 ................................................................................ 3,440,000 3,731,643
University of Colorado Hospital Authority Revenue, Series A, 5.60%,
11/15/31 ................................................................................ 9,000,000 9,294,390
Villages Castle Rock Metropolitan District No. 4 Revenue, cash flow variable rate bond,
Refunding, 7.76%, 6/01/31 ............................................................... 3,000,000 2,304,990
---------------
108,416,674
---------------
Annual Report | 125
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CONNECTICUT 1.9%
Connecticut State Development Authority PCR,
Connecticut Light and Water, Refunding, Series A, 5.85%, 9/01/28 ....................... $ 53,825,000 $ 57,078,183
Western Massachusetts Electric Co., Refunding, Series A, 5.85%, 9/01/28 ................ 12,500,000 13,282,125
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic Co.
Project, 6.15%, 4/01/35 ................................................................. 3,000,000 3,168,960
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Series C, 6.50%, 7/01/16 ...................................... 420,000 449,387
Sacred Heart University, Series C, Pre-Refunded, 6.50%, 7/01/16 ........................ 1,580,000 1,795,259
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ............................... 5,650,000 4,822,558
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/11 .......................... 1,600,000 1,528,672
Connecticut State HFAR, Housing Mortgage Finance Program, Series C-1, 6.30%,
11/15/17 ................................................................................ 19,995,000 21,106,122
---------------
103,231,266
---------------
FLORIDA 9.3%
Beacon Tradeport CDD, Special Assessment, Commercial Project, Series A,
ETM, 5.80%, 5/01/04 .................................................................... 1,535,000 1,547,188
Pre-Refunded, 6.00%, 5/01/16 ........................................................... 27,760,000 32,953,063
Pre-Refunded, 6.20%, 5/01/22 ........................................................... 23,590,000 28,949,648
Brighton Lakes CDD, GO, Special Assessment, Series B,
7.375%, 5/01/07 ........................................................................ 5,535,000 5,715,220
7.625%, 5/01/31 ........................................................................ 3,300,000 3,512,157
Brooks of Bonita Springs CDD, Capital Improvement Revenue,
6.85%, 5/01/31 ......................................................................... 1,500,000 1,587,105
Series A, 6.20%, 5/01/19 ............................................................... 7,125,000 7,398,742
Brooks of Bonita Springs II CDD, Capital Improvement Revenue,
Series A, 7.00%, 5/01/31 ............................................................... 12,470,000 13,278,181
Series B, 6.60%, 5/01/07 ............................................................... 1,310,000 1,351,632
Capital Region CDD, Capital Improvement Revenue, Series A-2, 6.85%, 5/01/31 ............... 2,395,000 2,579,631
Cedar Hammock CDD, Capital Improvement Revenue, 6.375%, 11/01/04 .......................... 6,435,000 6,496,969
Championsgate CDD, Capital Improvement Revenue,
Series A, 6.25%, 5/01/20 ............................................................... 2,735,000 2,696,464
Series B, 5.70%, 5/01/05 ............................................................... 1,190,000 1,198,925
Citrus County Hospital Board Revenue, Citrus Memorial Hospital, Refunding, 6.375%,
8/15/32 ................................................................................. 10,550,000 10,996,265
Falcon Trace CDD, Special Assessment, 6.00%, 5/01/20 ...................................... 3,690,000 3,788,892
Fleming Plantation CDD, Special Assessment, Series B, 7.375%, 5/01/31 ..................... 10,000,000 10,897,100
Florida State Board of Education Capital Outlay GO, Public Education, Refunding, Series D,
6.00%, 6/01/23 .......................................................................... 5,000,000 6,179,500
Gateway Services District Water Management Benefit Tax Revenue, Second Assessment Area,
Phase One, 8.00%, 5/01/20 ............................................................... 3,880,000 4,045,172
Groves CDD, Special Assessment Revenue,
Series A, 7.75%, 5/01/32 ............................................................... 1,810,000 1,691,879
Series B, 7.625%, 5/01/08 .............................................................. 9,600,000 8,781,888
126 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Halifax Hospital Medical Center Hospital Revenue, Series A, 7.25%,
10/01/24 ............................................................................... $ 4,700,000 $ 5,132,541
10/01/29 ............................................................................... 1,400,000 1,524,824
Heritage Harbor CDD, Special Assessment Revenue, Series A, 6.70%, 5/01/19 ................. 1,760,000 1,815,669
Heritage Palms CDD, Capital Improvement Revenue, 6.25%, 11/01/04 .......................... 2,300,000 2,321,183
Highlands County Health Facilities Authority Revenue, Adventist Health Systems, Refunding,
5.25%, 11/15/28 ......................................................................... 1,500,000 1,525,275
Hillsborough County IDAR, Refunding, Series B, 5.25%,
10/01/28 ............................................................................... 1,500,000 1,531,635
10/01/34 ............................................................................... 7,250,000 7,375,280
Indian Trace CDD,
Special Assessment, Isles at Weston Project, 5.50%, 5/01/33 ............................ 3,000,000 2,931,600
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/05 .............. 3,170,000 3,279,111
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/11 .............. 12,760,000 14,394,046
Indian Trail ID, GO, Water Control and Improvement, Unit Development 18,
6.875%, 8/01/10 ........................................................................ 940,000 1,008,977
7.00%, 8/01/20 ......................................................................... 2,445,000 2,598,522
7.25%, 8/01/31 ......................................................................... 5,725,000 6,090,255
Indigo CDD, Capital Improvement Revenue,
Refunding, Series A, 7.00%, 5/01/31 .................................................... 960,000 992,294
Series C, 7.00%, 5/01/30 ............................................................... 4,980,000 5,147,527
Lake Ashton CDD Revenue, Series A, 7.40%, 5/01/32 ......................................... 1,900,000 2,040,144
Lakeland Retirement Community Revenue, first mortgage, Carpenters Home, Refunding,
Series A, 6.75%, 1/01/19 ................................................................ 15,345,000 15,468,067
Lakeside Plantation CDD, Capital Improvement Revenue, 7.00%, 5/01/07 ...................... 4,590,000 3,749,709
Lakewood Ranch CDD, Special Assessment Revenue, 6.00%, 5/01/08 ............................ 1,080,000 1,117,984
Lakewood Ranch CDD 2, Special Assessment, Series A, 8.125%, 5/01/17 ....................... 3,580,000 3,771,530
Lakewood Ranch CDD 3, Special Assessment Revenue, 7.625%, 5/01/18 ......................... 495,000 521,205
Largo First Mortgage Revenue, The Barrington Project, Series A, 7.50%,
9/01/33 ................................................................................. 11,000,000 11,376,640
Marion County IDAR, Little Sumter Utility Co. Project, 7.15%, 10/01/30 .................... 4,250,000 4,285,105
Mediterra North CDD, Capital Improvement Revenue, Series A, 6.80%, 5/01/31 ................ 8,670,000 9,174,507
Mediterra South CDD, Capital Improvement Revenue,
6.85%, 5/01/31 ......................................................................... 2,705,000 2,871,060
Series B, 6.25%, 5/01/04 ............................................................... 80,000 80,181
Series B, 6.95%, 5/01/31 ............................................................... 7,615,000 8,080,048
bMiami-Dade County IDAR, Special Facilities, United Airlines Inc. Project, 6.05%,
3/01/35 ................................................................................. 5,000,000 1,102,800
Mount Dora Country Club CDD, Special Assessment Revenue,
7.125%, 5/01/05 ........................................................................ 65,000 66,235
7.75%, 5/01/13 ......................................................................... 710,000 722,773
North Springs ID,
Special Assessment Revenue, Parkland Isles Project, Series A,
7.00%, 5/01/19 ......................................................................... 1,030,000 1,079,512
Special Assessment, Water Management, Series A, Pre-Refunded,
8.20%, 5/01/24 ........................................................................ 1,800,000 1,845,774
Special Assessment, Water Management, Series B, 8.30%, 5/01/24 ......................... 1,585,000 1,621,487
Northern Palm Beach County ID Revenue, Water Control and Improvement, Unit Development
No. 43, 6.10%, 8/01/21 .................................................................. 2,850,000 2,985,232
Annual Report | 127
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Northwood CDD, Special Assessment Revenue, Series B, 7.60%, 5/01/17 ....................... $ 1,340,000 $ 1,356,013
Oakstead CDD Revenue, Capital Improvement, Series A, 7.20%, 5/01/32 ....................... 3,430,000 3,662,828
Orange County Health Facilities Authority Revenue,
Hospital Adventist Health System, 5.625%, 11/15/32 ..................................... 10,000,000 10,602,600
Hospital Orlando Regional Healthcare, 5.75%, 12/01/32 .................................. 15,000,000 15,776,850
Parklands West CDD Revenue, Special Assessment, Series A, 6.90%, 5/01/32 .................. 2,970,000 3,163,822
Parkway Center CDD, Special Assessment, Series A, 8.25%, 5/01/31 .......................... 2,378,083 1,902,466
Pelican Marsh CDD, Special Assessment Revenue,
Series A, 7.10%, 5/01/20 ............................................................... 3,800,000 4,106,318
Series A, 7.20%, 5/01/31 ............................................................... 6,470,000 6,989,670
Series A, ETM, 8.25%, 5/01/04 .......................................................... 315,000 318,711
Series A, Pre-Refunded, 8.25%, 5/01/16 ................................................. 6,590,000 6,799,298
Series B, 6.90%, 5/01/11 ............................................................... 11,425,000 12,361,507
Series C, 7.00%, 5/01/19 ............................................................... 11,835,000 12,478,351
Series D, 6.95%, 5/01/19 ............................................................... 4,390,000 4,615,822
Piney-Z CDD, Capital Improvement Revenue, Series A, 7.25%, 5/01/19 ........................ 780,000 822,393
Poinciana CDD, Special Assessment, Series A, 7.125%, 5/01/31 .............................. 10,615,000 11,292,980
Reserve CDD,
Capital Improvement Revenue, Stormwater Management, 8.25%, 5/01/14 ..................... 3,365,000 3,439,535
No. 2, Capital Improvement Revenue, 7.125%, 5/01/30 .................................... 4,530,000 4,762,797
Utility Revenue, Stormwater Management, Refunding, Series A, 6.625%,
12/01/22 .............................................................................. 4,100,000 4,300,080
River Place St. Lucie CDD, Special Assessment Revenue,
Series A, 7.625%, 5/01/21 .............................................................. 1,245,000 1,324,045
Series A, 7.625%, 5/01/30 .............................................................. 1,590,000 1,690,949
Series B, 7.25%, 5/01/10 ............................................................... 2,000,000 2,104,900
Riverwood Community Development Revenue, Special AD, Series A,
6.75%, 5/01/04 ......................................................................... 240,000 240,643
7.75%, 5/01/14 ......................................................................... 875,000 949,252
Sampson Creek CDD, Capital Improvement Revenue, Series A, 6.95%, 5/01/31 .................. 2,935,000 3,211,829
St. John's County IDA, Health Care Revenue, Glenmoor St. John's Project, Series A, 8.00%,
1/01/17 ................................................................................. 1,625,000 1,587,787
St. Lucie West Services District Capital Improvement Revenue, Cascades Project, 6.10%,
5/01/18 ................................................................................. 2,305,000 2,372,606
St. Lucie West Services District Revenue, Port St. Lucie, Pre-Refunded, 7.875%,
5/01/20 ................................................................................. 17,665,000 18,179,052
St. Lucie West Services District Special Assessment Revenue, Port St. Lucie, Water
Management Benefit, Refunding, Series B,
6.00%, 5/01/09 ......................................................................... 955,000 975,342
6.25%, 5/01/25 ......................................................................... 5,080,000 5,290,363
St. Lucie West Services District Water Management Benefit Tax Revenue, Pre-Refunded,
7.70%, 5/01/25 .......................................................................... 4,595,000 4,736,480
Stoneybrook West CDD, Special Assessment Revenue, Series A, 7.00%, 5/01/32 ................ 3,075,000 3,272,046
Sumter County IDAR, Little Sumter Utility Co. Project,
6.75%, 10/01/27 ........................................................................ 2,750,000 2,772,715
7.25%, 10/01/27 ........................................................................ 3,995,000 4,027,999
Tara CDD No. 1 Capital Improvement Revenue, Series A, 7.15%, 5/01/31 ...................... 1,405,000 1,502,057
128 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Venetian CDD, Capital Improvement Revenue, Series A, 6.75%, 5/01/34 ....................... $ 8,635,000 $ 9,148,437
Verandah West CDD Revenue, Series A, 6.625%, 5/01/33 ...................................... 9,000,000 9,222,840
Village CDD, No. 4, Special Assessment Revenue, 7.20%, 5/01/31 ............................ 8,890,000 9,627,070
Village Center CDD, Recreational Revenue,
Sub Series B, 6.30%, 1/01/07 ........................................................... 1,110,000 1,157,319
Sub Series B, 6.25%, 1/01/13 ........................................................... 7,540,000 8,001,222
Sub Series B, 8.25%, 1/01/17 ........................................................... 2,180,000 2,363,185
Sub Series C, 7.375%, 1/01/19 .......................................................... 2,440,000 2,613,508
Vista Lake CDD, Capital Improvement Revenue, Series A, 7.20%, 5/01/32 ..................... 2,790,000 2,986,835
Waterchase CDD, Capital Improvement Revenue, Series A, 6.70%, 5/01/32 ..................... 2,965,000 3,099,018
Waterlefe CDD, Capital Improvement Revenue, Series A, 6.95%, 5/01/31 ...................... 1,210,000 1,301,452
Westchase East CDD, Capital Improvement Revenue, 7.10%, 5/01/21 ........................... 1,530,000 1,640,757
---------------
499,426,102
---------------
GEORGIA .5%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.375%,
12/01/28 ................................................................................ 1,470,000 1,275,769
Floyd County Development Authority Environmental Improvement Revenue,
Dates-Temple-Inland, 5.70%, 12/01/15 .................................................... 1,575,000 1,670,319
Forsyth County Hospital Authority Revenue, Anticipation Certificate, Georgia Baptist Health
Care System Project, ETM,
6.25%, 10/01/18 ........................................................................ 6,000,000 7,352,040
6.375%, 10/01/28 ....................................................................... 8,000,000 10,043,920
McDuffie County Development Authority Waste Disposal Revenue, Temple-Inland Forest
Products, 6.95%, 12/01/23 ............................................................... 5,120,000 5,502,208
---------------
25,844,256
---------------
HAWAII .1%
Hawaii State Department of Transportation Special Facilities Revenue, Continental Airlines
Inc. Project, Refunding, 7.00%, 6/01/20 ................................................. 4,240,000 4,071,672
---------------
IDAHO .4%
Nez Perce County PCR,
Potlatch 84, 7.00%, 12/01/14 ........................................................... 2,500,000 2,683,275
Potlatch Corp. Project, Refunding, 6.00%, 10/01/24 ..................................... 17,500,000 16,781,450
---------------
19,464,725
---------------
ILLINOIS 2.9%
Antioch Village Special Service Area No. 1 Special Tax, Deercrest Project, 6.625%,
3/01/33 ................................................................................. 3,350,000 3,368,157
Antioch Village Special Service Area No. 2 Special Tax, Clublands Project, 6.625%,
3/01/33 ................................................................................. 5,650,000 5,680,623
Bolingbrook Special Service Area No. 1, Special Tax, Augusta Village Project, 6.75%,
3/01/32 ................................................................................. 5,500,000 5,719,505
Annual Report | 129
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ILLINOIS (CONT.)
Bolingbrook Special Service Area No. 2, Special Tax, Bloomfield West Project, Series A,
6.625%, 3/01/31 ........................................................................ $ 4,530,000 $ 4,598,856
7.00%, 3/01/31 ......................................................................... 5,000,000 5,244,500
Bolingbrook Special Service Area No. 3, Special Tax, Lakewood Ridge Project, 7.05%,
3/01/31 ................................................................................. 5,905,000 6,387,202
Bryant PCR, Central Illinois Light Co. Project, Refunding, MBIA Insured,
5.90%, 8/01/23 .......................................................................... 11,000,000 11,249,810
Cary Special Tax,
Special Service Area No. 1 Cambridge, Series A, 7.625%, 3/01/30 ........................ 3,913,000 4,256,248
Special Service Area No. 2 Foxford Hill, 7.50%, 3/01/30 ................................ 5,500,000 5,838,690
Chicago O'Hare International Airport Special Facilities Revenue, American Airlines Inc.
Project, 8.20%, 12/01/24 ................................................................ 7,830,000 6,851,250
Gilberts Special Service Area No. 9, Special Tax, Big Timber Project, 7.75%, 3/01/27 ...... 6,000,000 6,693,900
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 ................................................................... 2,140,000 2,164,182
Pre-Refunded, 7.25%, 5/15/22 ........................................................... 7,000,000 7,080,990
Illinois Health Facilities Authority Revenue,
Northwestern Medical Center, MBIA Insured, Pre-Refunded, 6.625%,
11/15/25 ............................................................................... 6,500,000 6,888,180
Rush Presbyterian Hospital, Refunding, Series A, MBIA Insured,
6.25%, 11/15/20 ....................................................................... 9,000,000 10,134,990
Sarah Bush Lincoln Health Center, Refunding, Series B, 6.00%, 2/15/11 .................. 3,370,000 3,624,502
St. Elizabeth's Hospital, 6.25%, 7/01/16 ............................................... 1,215,000 1,278,885
St. Elizabeth's Hospital, 6.375%, 7/01/26 .............................................. 6,695,000 6,979,069
Thorek Hospital and Medical Center, Refunding, 5.375%, 8/15/28 ......................... 8,595,000 8,294,519
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center,
ETM, 7.00%, 7/01/26 .................................................................... 7,500,000 10,202,250
Pre-Refunded, 6.25%, 7/01/17 ........................................................... 11,000,000 12,476,970
Minooka Special Assessment, Improvement Prairie Ridge Project, 6.875%,
3/01/33 ................................................................................. 3,000,000 3,067,290
Montgomery Special Assessment, Improvement, Lakewood Creek Project,
7.75%, 3/01/30 .......................................................................... 5,000,000 5,484,750
Southwestern Development Authority Revenue, Anderson Hospital, 5.625%,
8/15/29 ................................................................................. 2,425,000 2,430,020
Wauconda Special Service Area No. 1, Special Tax, Liberty Lakes Project, 6.625%,
3/01/33 ................................................................................. 5,280,000 5,376,043
Yorkville United City Special Service Area Special Tax, No. 2003, Windett Ridge Project,
Series 101, 6.875%, 3/01/33 ............................................................. 3,900,000 4,071,249
---------------
155,442,630
---------------
INDIANA 1.3%
Goshen Industrial Revenue, Greencroft Hospital Association Inc., Refunding, 5.75%,
8/15/19 ................................................................................ 3,000,000 2,951,700
8/15/28 ................................................................................ 5,000,000 4,834,350
Indiana Health Facility Financing Authority Hospital Revenue,
Community Foundation Northwest Indiana, Series A, 6.375%, 8/01/31 ...................... 48,500,000 49,716,380
Jackson County Scheck Memorial Hospital, Refunding, 5.125%, 2/15/17 .................... 1,500,000 1,508,745
Indiana State Development Finance Authority Environmental Revenue, USX Corp. Project,
Refunding, 5.60%, 12/01/32 .............................................................. 8,200,000 8,311,602
---------------
67,322,777
---------------
130 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
KENTUCKY 1.0%
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project,
Series A, 7.50%, 2/01/20 ............................................................... $ 17,290,000 $ 16,820,058
Series A, 7.125%, 2/01/21 .............................................................. 4,500,000 4,216,905
Series B, 7.25%, 2/01/22 ............................................................... 3,595,000 3,405,507
Kentucky Economic Development Finance Authority Hospital System Revenue,
Appalachian Regional Health Center Facility, Refunding and Improvement,
5.875%, 10/01/22 ........................................................................ 6,835,000 6,377,602
Maysville Solid Waste Disposal Facilities Revenue, Inland Container Corp. Project, Refunding,
6.90%, 9/01/22 .......................................................................... 16,000,000 17,128,480
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%,
9/01/06 ................................................................................. 370,000 376,875
Russell Health System Revenue, Pre-Refunded, 8.10%, 7/01/15 ............................... 6,940,000 8,006,362
---------------
56,331,789
---------------
LOUISIANA .9%
Beauregard Parish Revenue, Boise Cascade Corporate Project, Refunding, 6.80%,
2/01/27 ................................................................................. 13,990,000 14,471,256
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding,
6.70%, 3/01/13 .......................................................................... 4,850,000 4,911,643
West Feliciana Parish PCR,
Entergy Gulf States Project, Refunding, Series B, 6.60%, 9/01/28 ....................... 20,750,000 21,241,360
Series A, 7.50%, 5/01/15 ............................................................... 8,740,000 8,897,757
---------------
49,522,016
---------------
MAINE .6%
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 ...................... 4,800,000 4,857,072
Skowhegan PCR, S.D. Warren Co.,
Series A, 6.65%, 10/15/15 .............................................................. 24,570,000 24,784,005
Series B, 6.65%, 10/15/15 .............................................................. 4,940,000 4,983,027
---------------
34,624,104
---------------
MARYLAND .7%
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding and
Improvement, Series B, 8.50%, 9/01/07 ................................................... 5,340,000 5,972,363
Maryland State CDA, Department of Housing and Community Development Revenue, Series A,
5.875%, 7/01/16 ......................................................................... 3,185,000 3,365,430
Maryland State EDC Revenue, Chesapeake Bay,
senior lien, Series B, 7.50%, 12/01/14 ................................................. 1,915,000 1,782,712
senior lien, Series B, 7.625%, 12/01/22 ................................................ 6,740,000 6,137,983
Series B, 7.75%, 12/01/31 .............................................................. 16,160,000 14,651,302
Takoma Park Hospital Facilities Revenue, Washington Adventist Hospital Project, Series B,
8.50%, 9/01/07 .......................................................................... 6,975,000 7,879,937
---------------
39,789,727
---------------
Annual Report | 131
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MASSACHUSETTS .5%
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series A, 7.00%, 3/01/21 ................................................................ $ 2,000,000 $ 2,641,360
Massachusetts State Development Finance Agency Resource Recovery Revenue, Waste
Management Inc. Project, Series B, 6.90%, 12/01/29 ...................................... 3,000,000 3,526,410
Massachusetts State Development Finance Agency Revenue,
Berkshire Retirement Project, first mortgage, 5.60%, 7/01/19 ........................... 1,030,000 1,031,751
Berkshire Retirement Project, first mortgage, 5.625%, 7/01/29 .......................... 1,620,000 1,588,783
Loomis Community Project, first mortgage, Refunding, Series A, 5.75%, 7/01/23 .......... 3,500,000 3,301,130
Loomis Community Project, first mortgage, Series A, 5.625%, 7/01/15 .................... 1,850,000 1,846,004
Massachusetts State Health and Educational Facilities Authority Revenue, Saint Memorial
Medical Center, Refunding, Series A,
5.75%, 10/01/06 ........................................................................ 2,485,000 2,506,073
6.00%, 10/01/23 ........................................................................ 6,235,000 5,951,744
bMassachusetts State Industrial Finance Agency Solid Waste Disposal Revenue, Massachusetts
Paper Co. Project, senior lien, 8.50%, 11/01/12 ......................................... 39,820,661 4,420,093
---------------
26,813,348
---------------
MICHIGAN 3.4%
Delta County EDC, Environmental Improvement Revenue, Mead Escanaba Paper, Refunding,
Series A, 6.25%, 4/15/27 ................................................................ 10,500,000 11,286,450
Detroit GO,
Refunding, Series B, 6.375%, 4/01/07 ................................................... 7,535,000 8,039,996
Refunding, Series B, 6.25%, 4/01/08 .................................................... 3,000,000 3,197,070
Series A, Pre-Refunded, 6.80%, 4/01/15 ................................................. 5,160,000 5,532,191
Dickinson County Memorial Hospital System Revenue, Pre-Refunded, 8.125%,
11/01/24 ................................................................................ 4,250,000 4,530,415
Garden City Hospital Financing Authority Hospital Revenue, Refunding,
5.625%, 9/01/10 ........................................................................ 2,000,000 1,841,760
5.75%, 9/01/17 ......................................................................... 1,000,000 840,330
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, Pre-Refunded, 6.125%, 1/15/21 ............................................. 11,770,000 13,048,222
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Refunding, Series A, MBIA Insured,Pre-Refunded, 6.125%,
11/15/23 .............................................................................. 18,000,000 21,740,580
Detroit Medical Center Obligation Group, Refunding, Series A, 6.25%, 8/15/13 ........... 7,500,000 6,102,075
Detroit Medical Center Obligation Group, Refunding, Series A, 6.50%, 8/15/18 ........... 30,205,000 23,654,140
Detroit Medical Center Obligation Group, Refunding, Series B, 5.50%,
8/15/23 ............................................................................... 500,000 332,185
Detroit Medical Center Obligation Group, Series A, 5.25%, 8/15/23 ...................... 500,000 321,000
Memorial Healthcare Center, Refunding, 5.75%, 11/15/15 ................................. 1,000,000 1,042,750
Mercy Health Services, Series Q, AMBAC Insured, ETM, 5.75%, 8/15/16 .................... 7,310,000 7,974,625
Sinai Hospital, Refunding, 6.625%, 1/01/16 ............................................. 2,990,000 2,432,156
Sinai Hospital, Refunding, 6.70%, 1/01/26 .............................................. 7,250,000 5,527,762
132 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MICHIGAN (CONT.)
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co. Pollution Control Project, Refunding, Series C,
5.45%, 9/01/29 ......................................................................... $ 11,000,000 $ 11,622,710
Detroit Edison Co. Pollution Project, Refunding, Series BB, MBIA Insured, 6.20%,
8/15/25 ............................................................................... 7,825,000 8,509,609
Midland County EDR, Refunding,
Series A, 6.875%, 7/23/09 .............................................................. 35,000,000 36,769,250
Series B, 6.75%, 7/23/09 ............................................................... 4,000,000 4,205,880
Tawas City Hospital Finance Authority Revenue, Tawas St. Joseph's Hospital Project,
Refunding, Series A, ETM, 5.60%, 2/15/13 ................................................ 1,750,000 1,968,470
Wayne Charter County Special Airport Facilities Revenue, Airport Revenues, Refunding,
6.75%, 12/01/15 ......................................................................... 4,995,000 4,780,065
---------------
185,299,691
---------------
MINNESOTA 1.6%
Duluth Commercial Development Revenue, Duluth Radisson Hotel Project, Refunding,
8.00%, 12/01/15 ......................................................................... 5,000,000 4,090,400
Hubbard County Solid Waste Disposal Revenue, Potlatch Corp. Project, 7.25%,
8/01/14 ................................................................................. 9,000,000 9,709,110
Maplewood Health Care Facility Revenue, Health East Project, 5.95%,
11/15/06 ................................................................................ 2,200,000 2,202,992
Minneapolis and St. Paul Metropolitan Airports Commission Special Facilities Revenue,
Northwest Airlines Project, Series A, 7.00%, 4/01/25 ................................... 6,000,000 5,807,340
Northwest Airlines, Series B, 6.50%, 4/01/25 ........................................... 3,750,000 3,675,900
Minneapolis CDA, Supported Development Revenue, Limited Tax, Series 3-A, 8.375%,
12/01/19 ................................................................................ 600,000 609,924
Minneapolis Health Care Facility Revenue, Fairview Health Services, Series A, 5.625%,
5/15/32 ................................................................................. 18,380,000 19,266,100
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Series A, 6.375%, 11/15/29 .............................................................. 6,500,000 7,111,715
Minnesota State HFAR, Rental Housing, Refunding, Series D, MBIA Insured, 5.95%,
2/01/18 ................................................................................. 2,370,000 2,444,892
Robbinsdale MFHR, Copperfield Phase II Apartments, Refunding, 9.00%,
3/01/25 ................................................................................. 4,110,000 4,174,280
Roseville MFHR, Rosepointe I Project, Refunding, Series C, 8.00%,
12/01/29 ................................................................................ 3,280,000 3,507,271
Southcentral Multi-County Housing and RDAR, Pooled Housing and Ltd. Annual Tax,
Pooled Housing Program, 8.00%, 2/01/25 .................................................. 10,000,000 6,241,400
St. Paul Housing and RDA, Tax Increment Revenue, Energy Park Project, Series A, 8.625%,
9/01/07 ................................................................................. 720,000 728,604
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16 ................................................................................ 4,425,000 4,529,563
6/01/26 ................................................................................ 10,660,000 10,950,698
---------------
85,050,189
---------------
MISSISSIPPI .7%
Claiborne County PCR, Systems Energy Resources Inc., Refunding, 6.20%,
2/01/26 ................................................................................. 33,295,000 33,334,621
Corinth and Alcorn County Hospital Revenue, Magnolia Regional Health Center Project,
Refunding, Series A, 5.50%, 10/01/21 .................................................... 3,500,000 3,532,200
---------------
36,866,821
---------------
Annual Report | 133
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MISSOURI .7%
Lake of the Ozarks Community Board Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 .......................................................... $ 1,000,000 $ 1,150,830
Pre-Refunded, 6.40%, 12/01/25 .......................................................... 3,000,000 3,460,140
Refunding, 5.25%, 12/01/20 ............................................................. 8,350,000 7,981,932
St. Louis County IDA, Industrial Revenue, Kiel Center, Refunding,
7.625%, 12/01/09 ....................................................................... 8,000,000 8,250,560
7.75%, 12/01/13 ........................................................................ 5,175,000 5,337,133
7.875%, 12/01/24 ....................................................................... 6,000,000 6,187,920
West Plains IDA, Hospital Revenue,
Ozarks Medical Center, 6.30%, 11/15/11 ................................................. 940,000 1,000,545
Ozarks Medical Center, 6.75%, 11/15/24 ................................................. 1,870,000 1,918,265
Ozarks Medical Center Project, Refunding, 5.50%, 11/15/12 .............................. 500,000 505,555
---------------
35,792,880
---------------
NEBRASKA
Scotts Bluff County Hospital Authority No. 1, Hospital Revenue, Regional West Medical
Center, 6.375%, 12/15/08 ................................................................ 1,145,000 1,161,831
---------------
NEVADA 3.6%
Clark County ID, Special Assessment, Special ID No. 142, Local Improvement, 6.375%,
8/01/23 ................................................................................. 4,200,000 4,286,394
Clark County IDR,
Local ID No. 132, Summerlin, 6.875%, 2/01/21 ........................................... 3,965,000 4,094,854
Southwest Gas Corp., Series A, 6.50%, 12/01/33 ......................................... 13,775,000 13,894,842
Director of State Department of Business and Industry Revenue, Las Vegas Monorail Project,
Second Tier,
7.25%, 1/01/23 ......................................................................... 8,000,000 8,103,440
7.375%, 1/01/30 ........................................................................ 9,000,000 9,129,240
7.375%, 1/01/40 ........................................................................ 45,000,000 45,138,600
Henderson Local ID No. 2, Special Assessment, 9.50%, 8/01/11 .............................. 2,500,000 2,571,125
Henderson Local ID No. T-1, Special Assessment, Series A, 8.50%, 8/01/13 .................. 17,370,000 17,912,812
Henderson Local ID No. T-4C, Special Assessment, Green Valley, Refunding, Series A, 5.90%,
11/01/18 ................................................................................ 3,095,000 3,190,233
Henderson Local ID No. T-12, Special Assessment, Series A, 7.375%, 8/01/18 ................ 43,780,000 47,397,541
Las Vegas Downtown RDA, Tax Increment Revenue, Fremont Street Project, Series A,
Pre-Refunded, 6.10%, 6/15/14 ............................................................ 3,500,000 3,585,190
Las Vegas IDR, Special Local ID No. 808, Summerlin, 6.75%, 6/01/21 ........................ 8,420,000 8,685,146
Las Vegas Local Improvement Bond Special Assessment, Special ID No. 404, FSA Insured,
5.85%, 11/01/09 ......................................................................... 3,000,000 3,022,320
Las Vegas Special Assessment ID No. 505, Elkhorn Springs, 8.00%, 9/15/13 .................. 5,600,000 5,765,928
Nevada Housing Division Revenue, SF Program,
Sub Series A-1, FHA Insured, 8.75%, 10/01/04 ........................................... 35,000 35,220
Sub Series B-1, 7.90%, 10/01/05 ........................................................ 175,000 176,523
Sub Series C-1, 7.55%, 10/01/05 ........................................................ 215,000 215,800
Washoe County Revenue, Reno-Sparks Convention Center Project, FSA Insured, Pre-Refunded,
6.40%, 7/01/29 .......................................................................... 15,415,000 18,702,403
---------------
195,907,611
---------------
134 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW HAMPSHIRE .3%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Hillcrest Terrace, 7.50%, 7/01/24 ...................................................... $ 17,250,000 $ 15,514,822
Littleton Hospital Association, Series B, 5.90%, 5/01/28 ............................... 2,000,000 1,779,060
New Hampshire Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 .................. 1,300,000 1,346,514
---------------
18,640,396
---------------
NEW JERSEY 4.1%
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 ............................................................... 2,180,000 2,179,782
Series 1, 6.00%, 1/01/29 ............................................................... 5,000,000 4,967,600
Series 2, 6.125%, 1/01/19 .............................................................. 2,125,000 2,137,686
Series 2, 6.125%, 1/01/29 .............................................................. 5,105,000 5,123,021
New Jersey EDA Revenue,
FHA, Keswick Pines, Refunding, 5.75%, 1/01/24 .......................................... 1,500,000 1,485,870
first mortgage, Presbyterian, Series A, 6.25%, 11/01/20 ................................ 7,635,000 7,839,465
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 11,526,316
Special Facility Revenue, Continental Airlines Inc. Project, 6.625%,
9/15/12 ............................................................................... 18,500,000 17,604,045
Special Facility Revenue, Continental Airlines Inc. Project, 6.25%,
9/15/19 ............................................................................... 54,420,000 48,010,957
Special Facility Revenue, Continental Airlines Inc. Project, 6.40%,
9/15/23 ............................................................................... 73,030,000 64,519,084
New Jersey Health Care Facilities Financing Authority Revenue,
5.50%, 7/01/33 ......................................................................... 3,000,000 3,052,290
Lutheran Home, Series A, 8.40%, 7/01/19 ................................................ 2,100,000 2,113,272
South Jersey Hospital, 5.875%, 7/01/21 ................................................. 7,500,000 7,822,575
South Jersey Hospital, 6.00%, 7/01/32 .................................................. 18,000,000 18,654,120
Trinitas Hospital Obligation Group, Refunding, 7.50%, 7/01/30 .......................... 5,000,000 5,566,100
Tobacco Settlement Financing Corp. Revenue, Asset Backed, Refunding,
6.00%, 6/01/37 ......................................................................... 10,000,000 9,009,900
6.125%, 6/01/42 ........................................................................ 9,050,000 8,197,580
---------------
219,809,663
---------------
NEW MEXICO 2.6%
Farmington PCR,
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.30%,
12/01/16 .............................................................................. 24,045,000 25,204,450
Public Service Co. of New Mexico, San Juan Project, Refunding, Series D, 6.375%,
4/01/22 ............................................................................... 66,125,000 69,376,366
Public Service Co. Project, Series A, 6.60%, 10/01/29 .................................. 6,000,000 6,392,700
Tucson Electric Power Co., Series A, 6.95%, 10/01/20 ................................... 37,000,000 39,117,880
---------------
140,091,396
---------------
Annual Report | 135
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK 9.5%
Corinth IDA, Environmental Improvement Revenue, International Paper Company Project,
Refunding, Series A, 5.75%, 2/01/22 ..................................................... $ 2,000,000 $ 2,100,840
MTA Transit Facilities Revenue, Series A, MBIA Insured, Pre-Refunded, 5.875%,
7/01/27 ................................................................................. 22,700,000 26,227,353
New York City GO,
Refunding, Series F, 6.00%, 8/01/11 .................................................... 10,000,000 11,094,800
Refunding, Series H, 6.25%, 8/01/15 .................................................... 25,000,000 28,276,250
Refunding, Series J, 6.00%, 8/01/21 .................................................... 8,885,000 9,832,319
Series A, 6.125%, 8/01/06 .............................................................. 9,595,000 9,917,776
Series A, Pre-Refunded, 6.125%, 8/01/06 ................................................ 595,000 616,616
Series B, 7.00%, 2/01/18 ............................................................... 115,000 115,371
Series B, 6.00%, 8/15/26 ............................................................... 2,245,000 2,440,337
Series B, Pre-Refunded, 6.00%, 8/15/26 ................................................. 2,755,000 3,114,886
Series B, Sub Series B-1, Pre-Refunded, 7.00%, 8/15/16 ................................. 17,070,000 17,706,370
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 ................................. 5,000,000 5,192,000
Series D, 7.625%, 2/01/14 .............................................................. 5,000 5,018
Series D, Pre-Refunded, 6.00%, 2/15/10 ................................................. 4,995,000 5,283,461
Series E, 6.25%, 2/15/07 ............................................................... 10,000 10,535
Series E, Pre-Refunded, 6.25%, 2/15/07 ................................................. 3,260,000 3,455,959
Series F, 7.50%, 2/01/21 ............................................................... 85,000 85,295
Series F, Pre-Refunded, 6.625%, 2/15/25 ................................................ 8,625,000 9,156,817
Series G, 5.75%, 8/01/10 ............................................................... 505,000 522,463
Series G, 6.125%, 10/15/11 ............................................................. 20,480,000 23,340,851
Series G, 6.20%, 10/15/14 .............................................................. 10,000,000 11,351,800
Series G, 7.50%, 2/01/22 ............................................................... 10,000 10,035
Series I, 6.25%, 4/15/17 ............................................................... 8,490,000 9,522,639
Series I, 6.25%, 4/15/27 ............................................................... 5,065,000 5,661,606
Series I, Pre-Refunded, 6.25%, 4/15/17 ................................................. 16,880,000 19,467,704
Series I, Pre-Refunded, 6.25%, 4/15/27 ................................................. 17,855,000 20,592,171
Series J, Pre-Refunded, 6.00%, 8/01/21 ................................................. 1,115,000 1,289,386
New York City IDA,
Civic Facility Revenue, Amboy Properties Corp. Project, Refunding,
6.75%, 6/01/20 ......................................................................... 6,895,000 6,898,310
Civic Facility Revenue, Series C, 6.80%, 6/01/28 ....................................... 5,000,000 5,215,100
Civic Facility Revenue, Staten Island University Hospital Project, Series C, 6.45%,
7/01/32 ............................................................................... 1,500,000 1,541,940
IDR, La Guardia Association LP Project, Refunding, 6.00%, 11/01/28 ..................... 7,500,000 4,121,250
Special Facilities Revenue, American Airlines Inc. Project, 6.90%,
8/01/24 ............................................................................... 4,000,000 3,074,720
Special Facilities Revenue, British Airways PLC Project, 7.625%,
12/01/32 .............................................................................. 15,000,000 15,156,300
Special Facilities Revenue, JFK International Airport Project, Series A, 8.00%,
8/01/12 ............................................................................... 74,000,000 63,654,060
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Series E, 5.00%, 6/15/34 ................................................................ 10,000,000 10,444,800
136 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
New York GO,
6.125%, 8/01/25 ........................................................................ $ 5,570,000 $ 6,192,058
Refunding, Series A, 6.25%, 8/01/08 .................................................... 2,965,000 3,066,255
Refunding, Series A, Pre-Refunded, 6.25%, 8/01/08 ...................................... 7,035,000 7,292,622
Refunding, Series H, Pre-Refunded, 6.125%, 8/01/25 ..................................... 30,000 34,816
New York Revenue, Fiscal 2003, Series I, 5.00%,
3/01/24 ................................................................................ 5,000,000 5,160,850
3/01/25 ................................................................................ 9,000,000 9,262,710
3/01/33 ................................................................................ 4,500,000 4,601,385
New York State Dormitory Authority Revenue,
City University System, Third General, Series 2, Pre-Refunded, 6.00%,
7/01/26 ................................................................................ 6,100,000 6,884,155
Mental Health Services, Refunding, Series A, 6.00%, 8/15/17 ............................ 2,300,000 2,591,410
Mental Health Services, Series A, Pre-Refunded, 6.00%, 8/15/17 ......................... 8,940,000 10,264,819
State University Educational Facilities, Pre-Refunded, 6.00%, 5/15/18 .................. 5,000,000 5,619,200
New York State HFA, Service Contract Obligation Revenue, Series A,
6.00%, 3/15/26 ......................................................................... 220,000 243,665
Pre-Refunded, 6.00%, 3/15/26 ........................................................... 4,755,000 5,402,155
New York State HFAR, Refunding, Series A, 5.90%, 11/01/05 ................................. 12,515,000 13,442,737
New York State Mortgage Agency Revenue, Homeowners Mortgage,
Series 59, 6.10%, 10/01/15 ............................................................. 2,000,000 2,121,600
Series 61, 5.80%, 10/01/16 ............................................................. 5,000,000 5,268,850
New York State Urban Development Corp. Revenue, Correctional Capital Facilities, Series 7,
Pre-Refunded, 5.70%, 1/01/27 ............................................................ 4,750,000 5,389,872
Oneida County IDAR, Civic Facility, St. Elizabeth Medical, Series B,
6.00%, 12/01/19 ......................................................................... 1,000,000 976,040
Onondaga County IDA, Solid Waste Disposal Facility Revenue, Solvay Paperboard LLC Project,
Refunding,
6.80%, 11/01/14 ........................................................................ 5,000,000 5,349,750
7.00%, 11/01/30 ........................................................................ 7,000,000 7,471,940
Port Authority of New York and New Jersey Special Obligation Revenue,
3rd Installment, 7.00%, 10/01/07 ....................................................... 5,300,000 5,524,879
4th Installment, Special Project, 6.75%, 10/01/11 ...................................... 925,000 976,707
5th Installment, 6.75%, 10/01/19 ....................................................... 17,500,000 18,223,100
Continental Airlines Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 ................ 10,000,000 10,054,000
Continental Airlines Inc., Eastern Project, La Guardia, 9.125%, 12/01/15 ............... 27,650,000 27,692,305
Utica IDA, Civic Facility Revenue, Utica College Civic Facility,
6.75%, 12/01/21 ........................................................................ 1,250,000 1,316,375
6.85%, 12/01/31 ........................................................................ 2,000,000 2,105,720
Warren and Washington Counties IDAR, Adirondack Resource Recovery Project, Refunding,
Series A, 7.90%, 12/15/07 ............................................................... 710,000 714,686
---------------
509,741,799
---------------
Annual Report | 137
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NORTH CAROLINA 1.6%
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 5.75%, 1/01/26 ...................................................... $ 37,500,000 $ 39,394,500
Refunding, Series B, 5.75%, 1/01/24 ...................................................... 35,750,000 37,704,810
Refunding, Series D, 6.75%, 1/01/26 ...................................................... 5,000,000 5,603,800
Series D, 6.70%, 1/01/19 ................................................................. 2,000,000 2,259,480
North Carolina HFAR, SF, Series II, FHA Insured, 6.20%,
3/01/16 .................................................................................. 1,675,000 1,751,196
9/01/17 .................................................................................. 1,095,000 1,141,833
---------------
87,855,619
---------------
NORTH DAKOTA .5%
Mercer County PCR, Basin Electric Power Corp., Refunding, Second Series, AMBAC Insured,
6.05%, 1/01/19 ............................................................................ 24,655,000 26,092,880
---------------
OHIO 3.2%
Akron COP, Akron Municipal Baseball Stadium Project, Capital Appreciation,
6.30%, 12/01/05 .......................................................................... 1,700,000 1,823,726
6.40%, 12/01/06 .......................................................................... 1,685,000 1,876,214
6.50%, 12/01/07 .......................................................................... 1,230,000 1,349,408
6.90%, 12/01/16 .......................................................................... 2,500,000 2,768,650
Cuyahoga County Hospital Revenue, Refunding, 5.50%, 1/01/29 ................................. 11,500,000 12,125,370
Dayton Special Facilities Revenue, Emery Air Freight Corp., Emery Worldwide Air Inc.,
Refunding,
Series C, 6.05%, 10/01/09 ................................................................ 14,250,000 13,333,297
Series E, 6.05%, 10/01/09 ................................................................ 5,250,000 4,912,268
Series F, 6.05%, 10/01/09 ................................................................ 1,000,000 935,670
Franklin County Health Care Facilities Revenue,
Ohio Presbyterian, Series A, 7.125%, 7/01/29 ............................................. 1,000,000 1,074,130
Presbyterian Retirement Services, Refunding, 5.50%, 7/01/17 .............................. 3,100,000 3,127,745
Presbyterian Retirement Services, Refunding, 5.50%, 7/01/21 .............................. 950,000 943,635
Presbyterian Retirement Services, Series A, 6.625%, 7/01/13 .............................. 1,000,000 1,075,390
Lucas County Health Facilities Revenue, Presbyterian Retirement Services, Refunding,
Series A,
6.625%, 7/01/14 .......................................................................... 1,000,000 1,055,390
6.75%, 7/01/20 ........................................................................... 2,000,000 2,078,380
Montgomery County Health Systems Revenue,
Series B-1, Pre-Refunded, 8.10%, 7/01/18 ................................................. 5,940,000 6,882,935
Series B-2, Pre-Refunded, 8.10%, 7/01/18 ................................................. 6,045,000 7,013,967
St. Leonard, Series B, Pre-Refunded, 8.10%, 7/01/18 ...................................... 9,000,000 10,433,340
138 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OHIO (CONT.)
Ohio State Air Quality Development Authority Revenue,
Dayton Power and Light Co. Project, Refunding, 6.10%, 9/01/30 ............................ $ 17,900,000 $ 18,356,987
PCR, Cleveland Electric, Refunding, Series B, 6.00%, 8/01/20 ............................. 6,250,000 6,456,125
Pollution Control, Ohio Edison, Refunding, Series A, 5.95%, 5/15/29 ...................... 13,000,000 13,056,940
Ohio State Water Development Authority PCR, Facilities Revenue, Cleveland Electric,
Refunding, Series A, 8.00%, 10/01/23 ...................................................... 27,700,000 29,211,866
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express, Project 1,
7.00%, 4/01/04 ........................................................................... 870,000 870,461
7.25%, 4/01/09 ........................................................................... 5,385,000 5,470,245
7.375%, 4/01/14 .......................................................................... 8,200,000 8,336,776
7.50%, 4/01/19 ........................................................................... 14,365,000 14,423,609
Willoughby IDR, Presbyterian Retirement Services, Refunding, Series A,
6.875%, 7/01/16 ........................................................................... 1,500,000 1,567,260
---------------
170,559,784
---------------
OKLAHOMA .2%
Oklahoma Development Finance Authority Revenue, Comanche County Hospital Project,
Series B, 6.60%, 7/01/31 .................................................................. 5,000,000 5,259,400
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding,
6.00%, 8/15/14 ............................................................................ 4,000,000 4,139,960
---------------
9,399,360
---------------
OREGON 2.4%
Klamath Falls Electric Revenue,
Klamath Cogen Project, senior lien, 7.00%, 1/01/25 ....................................... 12,900,000 13,678,773
Klamath Cogen, senior lien, Refunding, 5.75%, 1/01/13 .................................... 13,000,000 13,413,010
Klamath Cogen, senior lien, Refunding, 5.875%, 1/01/16 ................................... 19,650,000 19,962,435
Klamath Cogen, senior lien, Refunding, 6.00%, 1/01/25 .................................... 66,060,000 66,273,374
Oregon State Department of Administrative Services COP, Series A, AMBAC Insured,
Pre-Refunded, 6.00%, 5/01/26 .............................................................. 9,400,000 11,378,136
Oregon State Health Housing Educational and Cultural Facilities Authority Revenue,
Linfield College Project, Series A, 6.75%, 10/01/25 ....................................... 5,220,000 5,901,941
---------------
130,607,669
---------------
PENNSYLVANIA 4.4%
Allegheny County Hospital Development Authority Revenue, Health System,
Series A, MBIA Insured, 6.50%, 11/15/30 .................................................. 10,000,000 12,015,800
Series B, 8.65%, 11/15/05 ................................................................ 2,000,000 2,065,880
Series B, 9.25%, 11/15/15 ................................................................ 24,000,000 26,150,640
Series B, 9.25%, 11/15/22 ................................................................ 24,000,000 26,150,640
Allegheny County IDAR, Environmental Improvement, USX Corp., Refunding,
6.10%, 7/15/20 ........................................................................... 5,500,000 5,729,185
Series A, 6.70%, 12/01/20 ................................................................ 9,400,000 9,680,120
Carbon County IDAR, Panther Creek Partner Project, Refunding, 6.65%,
5/01/10 ................................................................................... 3,775,000 4,107,615
Chartiers Valley Industrial and Commercial Development Authority Revenue, Asbury Health
Center Project, Refunding, 7.40%, 12/01/15 ................................................ 5,250,000 5,401,357
Annual Report | 139
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA (CONT.)
Delaware County IDAR, Resource Recovery Facility, Refunding, Series A,
6.10%, 1/01/06 ........................................................................... $ 2,140,000 $ 2,229,452
6.50%, 1/01/08 ........................................................................... 425,000 463,752
6.10%, 7/01/13 ........................................................................... 20,500,000 22,083,625
6.20%, 7/01/19 ........................................................................... 6,500,000 6,799,390
Lancaster IDAR, Garden Spot Village Project, Series A, 7.625%, 5/01/31 ...................... 1,650,000 1,763,438
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding, Series A,
MBIA Insured, 6.15%, 8/01/29 .............................................................. 4,000,000 4,339,960
Pennsylvania Convention Center Authority Revenue, Refunding, Series A,
6.25%, 9/01/04 ........................................................................... 1,150,000 1,172,264
6.60%, 9/01/09 ........................................................................... 16,000,000 16,679,680
6.70%, 9/01/14 ........................................................................... 20,760,000 21,619,049
6.75%, 9/01/19 ........................................................................... 15,800,000 16,419,992
Pennsylvania EDA, Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%,
12/01/15 .................................................................................. 10,000,000 10,424,800
Pennsylvania State Higher Educational Facilities Authority Health Services Revenue,
Allegheny Delaware Valley Obligation Group, Series A, MBIA Insured, 5.875%,
11/15/16 .................................................................................. 13,000,000 14,450,150
Philadelphia GO, Refunding, Series B, 6.00%, 5/15/05 ........................................ 3,080,000 3,141,692
Philadelphia IDA, Health Care Facility Revenue, Pauls Run, Series A, 5.85%,
5/15/13 ................................................................................... 2,200,000 2,238,632
Philadelphia Water and Sewer Revenue, Series 10, ETM, 7.35%, 9/01/04 ........................ 5,320,000 5,488,910
Sayre Health Care Facilities Authority Revenue, Guthrie Health, Series A, 5.75%,
12/01/21 .................................................................................. 3,000,000 3,144,540
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial Hospital
Project, Series A, MBIA Insured, 5.75%, 7/01/16 ........................................... 8,130,000 8,996,739
Washington County IDA, PCR, West Pennsylvania Power Co., Series G, AMBAC Insured,
6.05%, 4/01/14 ............................................................................ 5,025,000 5,370,167
---------------
238,127,469
---------------
RHODE ISLAND .3%
Rhode Island State Health and Educational Building Corp. Revenue,
Landmark Medical Center, Asset Guaranteed, 5.875%, 10/01/19 .............................. 6,000,000 6,142,740
Hospital Financing, Lifespan Obligation Group, 6.50%, 8/15/32 ............................ 8,000,000 8,315,440
Hospital Financing, Lifespan Obligation Group, MBIA Insured, 5.75%,
5/15/23 ................................................................................. 3,500,000 3,860,745
---------------
18,318,925
---------------
SOUTH CAROLINA .5%
Charleston County Hospital Facilities First Mortgage Revenue, Sandpiper Village Inc., 8.00%,
11/01/13 .................................................................................. 2,800,000 2,724,568
Piedmont Municipal Power Agency Electric Revenue, Refunding,
6.60%, 1/01/21 ........................................................................... 3,515,000 3,621,153
Series A, 6.55%, 1/01/16 ................................................................. 4,110,000 4,234,122
South Carolina Jobs EDA Revenue, Myrtle Beach Convention, Series A, 6.625%, 4/01/36 ......... 11,400,000 10,636,542
Tobacco Settlement Revenue Management Authority, Tobacco Settlement Revenue, Series B,
6.375%, 5/15/30 ........................................................................... 3,750,000 3,512,438
---------------
24,728,823
---------------
140 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS 2.0%
Alliance Airport Authority Special Facilities Revenue, American Airlines Inc. Project, 7.50%,
12/01/29 .................................................................................. $ 15,500,000 $ 12,090,000
Angelina and Neches River Authority, Texas Waste Disposal Revenue, Adjusted Temple Inland
Forest Products, 6.95%, 5/01/23 ........................................................... 1,750,000 1,882,177
Austin Convention Enterprises Inc. Convention Center Revenue, First Tier, Series A, 6.70%,
1/01/32 ................................................................................... 10,000,000 10,804,200
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word Health Services,
Refunding, FSA Insured, ETM, 6.00%, 11/15/15 .............................................. 8,750,000 9,502,062
Brazos River Authority PCR, Refunding, TXU Energy Co. Project, Series B, 6.30%,
7/01/32 ................................................................................... 9,000,000 9,502,650
Coppell Special Assessment, Gateway Project, 8.70%, 3/01/12 ................................. 2,995,000 3,027,046
Decatur Hospital Authority Hospital Revenue, Series A, 5.75%, 9/01/29 ....................... 4,905,000 4,764,570
El Paso Health Facilities Development Corp. Revenue, Senior Care Facilities, Bienvivir Senior
Health,
7.00%, 8/15/12 ........................................................................... 1,030,000 1,061,683
7.50%, 8/15/18 ........................................................................... 2,300,000 2,409,135
Georgetown Health Facilities Development Corp. Revenue, Georgetown Healthcare System,
Refunding, 6.25%, 8/15/29 ................................................................. 10,975,000 10,742,111
Matagorda County Naval District No. 1 Revenue, Centerpoint Energy Project, Refunding,
5.60%, 3/01/27 ............................................................................ 11,000,000 11,263,010
Nueces River Authority Environmental Improvement Revenue, Asarco Inc. Project, Refunding,
5.60%, 1/01/27 ........................................................................... 8,640,000 5,838,739
Series A, 5.60%, 4/01/18 ................................................................. 4,500,000 3,040,380
Sabine River Authority PCR,
Southwestern Electric Power Co., Refunding, MBIA Insured, 6.10%, 4/01/18 ................. 7,000,000 7,762,720
Texas Energy Co. LLC Project, Refunding, Series B, 6.15%, 8/01/22 ........................ 3,000,000 3,182,130
TXU Energy Co. Project, Refunding, Series A, 5.80%, 7/01/22 .............................. 1,000,000 1,050,660
Texas State GO, Veterans Housing Assistance, Fund I, Refunding, Series A, 6.15%,
12/01/25 .................................................................................. 7,430,000 7,697,852
---------------
105,621,125
---------------
U.S. TERRITORIES 3.7%
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding,
5.50%, 5/15/39 ........................................................................... 11,500,000 10,628,645
5.625%, 5/15/43 .......................................................................... 3,500,000 3,267,670
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 ..................................................... 2,355,000 2,468,323
Refunding, Series A, 6.00%, 6/01/07 ...................................................... 8,930,000 9,606,447
Series A, ETM, 6.00%, 6/01/07 ............................................................ 2,845,000 3,118,831
Series A, Pre-Refunded, 6.375%, 6/01/11 .................................................. 22,770,000 25,798,182
Series A, Pre-Refunded, 6.375%, 6/01/16 .................................................. 27,230,000 30,851,318
Series E, FSA Insured, 6.00%, 6/01/11 .................................................... 3,185,000 3,255,898
District of Columbia Hospital Revenue, Medlantic Healthcare Group, Refunding, Series A,
MBIA Insured, ETM, 5.875%, 8/15/19 ........................................................ 8,850,000 9,757,745
District of Columbia Revenue,
Carnegie Endowment Revenue, 5.75%, 11/15/26 .............................................. 5,410,000 5,844,910
Methodist Home Issue, 6.00%, 1/01/29 ..................................................... 4,750,000 4,464,288
Annual Report | 141
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
U.S. TERRITORIES (CONT.)
District of Columbia Tobacco Settlement Financing Corp. Revenue, Asset Backed Bonds,
6.50%, 5/15/33 ............................................................................ $ 22,000,000 $ 20,766,460
Northern Mariana Islands Commonwealth Ports Authority Airport Revenue, senior lien,
Series A, 6.25%, 3/15/28 .................................................................. 9,045,000 9,350,721
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.60%,
3/15/28 ................................................................................... 8,475,000 9,083,759
Puerto Rico Electric Power Authority Power Revenue, Series NN, 5.125%,
7/01/29 ................................................................................... 11,500,000 12,086,615
Virgin Islands PFAR, sub. lien, Fund Loan Notes, Refunding, Series E,
5.75%, 10/01/13 .......................................................................... 15,000,000 15,574,200
5.875%, 10/01/18 ......................................................................... 7,000,000 7,318,010
6.00%, 10/01/22 .......................................................................... 14,500,000 15,033,165
---------------
198,275,187
---------------
UTAH .1%
Carbon County Solid Waste Disposal Revenue, Laidlaw Environmental Services, Refunding,
Series A, 7.45%, 7/01/17 .................................................................. 2,500,000 2,581,400
---------------
VERMONT .3%
Vermont Educational and Health Buildings Financing Agency Revenue, Fletcher Allen Health,
Series A, AMBAC Insured, 6.00%, 12/01/23 .................................................. 15,000,000 17,490,900
---------------
VIRGINIA .5%
Penninsula Ports Authority Coalition Terminal Revenue, Dominion Terminal Associates,
Refunding, 6.00%, 4/01/33 ................................................................. 9,000,000 9,443,520
Virginia Beach Development Authority Residential Care Facility Mortgage Revenue,
Westminster Canterbury Project, Series A,
7.125%, 11/01/23 ......................................................................... 5,000,000 5,448,400
7.25%, 11/01/32 .......................................................................... 9,000,000 9,861,120
---------------
24,753,040
---------------
WEST VIRGINIA
West Virginia State Hospital Finance Authority Hospital Revenue, Logan General Hospital
Project, Refunding and Improvement, 7.25%, 7/01/20 ........................................ 15,000,000 1,457,775
---------------
WISCONSIN .3%
Kaukauna Environmental Improvement Revenue, International Paper Co. Project, Series A,
6.70%, 5/01/24 ............................................................................ 4,100,000 4,481,915
Wisconsin State Health and Educational Facilities Authority Revenue,
Franciscan Skemp Medical Center Inc. Project, 6.25%, 11/15/20 ............................ 9,510,000 9,964,578
New Castle Place Project, Series A, 7.00%, 12/01/31 ...................................... 2,500,000 2,582,050
---------------
17,028,543
---------------
WYOMING .2%
Sweetwater County PCR, Idaho Power Co. Project, Refunding, Series A,
6.05%, 7/15/26 ............................................................................ 10,500,000 10,936,485
---------------
TOTAL BONDS ................................................................................. 4,711,280,252
---------------
142 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS 7.6%
CALIFORNIA 6.5%
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, 1/15/22 ................................................. $ 49,115,000 $ 17,597,413
Capital Appreciation, Refunding, 1/15/31 ................................................. 4,000,000 821,200
Capital Appreciation, Refunding, 1/15/34 ................................................. 4,500,000 765,540
Capital Appreciation, Refunding, 1/15/36 ................................................. 4,000,000 600,400
Convertible Capital Appreciation, Refunding, 1/15/23 ..................................... 35,000,000 27,051,150
San Francisco City and County RDA, Lease Revenue, George R. Moscone Center,
7/01/09 .................................................................................. 3,750,000 3,216,713
7/01/10 .................................................................................. 4,500,000 3,692,520
7/01/12 .................................................................................. 4,500,000 3,280,950
7/01/13 .................................................................................. 4,250,000 2,929,270
7/01/14 .................................................................................. 2,250,000 1,460,250
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
junior lien, ETM, 1/01/05 ................................................................ 8,000,000 7,925,760
junior lien, ETM, 1/01/06 ................................................................ 9,000,000 8,792,550
junior lien, ETM, 1/01/07 ................................................................ 9,400,000 8,958,106
junior lien, ETM, 1/01/08 ................................................................ 10,400,000 9,593,480
junior lien, ETM, 1/01/09 ................................................................ 21,800,000 19,234,794
junior lien, ETM, 1/01/10 ................................................................ 15,000,000 12,770,700
junior lien, ETM, 1/01/12 ................................................................ 30,100,000 23,260,979
junior lien, ETM, 1/01/24 ................................................................ 52,700,000 20,338,511
junior lien, ETM, 1/01/25 ................................................................ 45,200,000 16,424,324
junior lien, ETM, 1/01/26 ................................................................ 131,900,000 45,364,367
junior lien, ETM, 1/01/27 ................................................................ 139,100,000 45,253,403
senior lien, Refunding, Series A, 1/15/16 ................................................ 22,500,000 19,093,050
senior lien, Refunding, Series A, 1/15/17 ................................................ 20,000,000 16,854,800
senior lien, Refunding, Series A, 1/15/23 ................................................ 20,000,000 16,538,200
senior lien, Refunding, Series A, 1/15/24 ................................................ 20,000,000 16,414,200
---------------
348,232,630
---------------
KENTUCKY .5%
Kentucky Economic Development Finance Authority Revenue, Norton Healthcare Inc.,
Series C, MBIA Insured,
10/01/22 ................................................................................. 15,975,000 16,490,194
10/01/27 ................................................................................. 10,000,000 10,118,400
---------------
26,608,594
---------------
NEW YORK
MAC for City of Troy Revenue, Capital Appreciation, Series C, MBIA Insured,
7/15/21 .................................................................................. 428,010 198,960
1/15/22 .................................................................................. 649,658 290,287
---------------
489,247
---------------
Annual Report | 143
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
TENNESSEE .4%
Johnson City Health and Educational Facilities Board Hospital Revenue, First Mortgage
Mountain States Health,
Refunding, Series A, MBIA Insured, 7/01/27 ............................................... $ 19,365,000 $ 5,913,878
Refunding, Series A, MBIA Insured, 7/01/28 ............................................... 19,400,000 5,617,464
Refunding, Series A, MBIA Insured, 7/01/29 ............................................... 19,365,000 5,302,524
Refunding, Series A, MBIA Insured, 7/01/30 ............................................... 19,370,000 5,026,515
Knox County Health and Housing Facilities Board Hospital Facilities Revenue, Refunding and
Improvement, FSA Insured, 1/01/25 ......................................................... 5,000,000 1,578,500
Knox County Health Educational and Housing Board Hospital Facilities Revenue, Refunding
and Improvement, FSA Insured, 1/01/26 ..................................................... 2,610,000 773,395
---------------
24,212,276
---------------
TEXAS .2%
Texas State Turnpike Authority Revenue, Capital Appreciation, AMBAC Insured,
8/15/32 ................................................................................... 51,000,000 10,155,630
---------------
TOTAL ZERO COUPON BONDS ..................................................................... 409,698,377
---------------
TOTAL LONG TERM INVESTMENTS (COST $4,850,668,414) ........................................... 5,120,978,629
---------------
SHORT TERM INVESTMENTS 3.9%
CALIFORNIA
cLos Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2,
Daily VRDN and Put, .98%, 7/01/35 ......................................................... 200,000 200,000
cMetropolitan Water District Southern California Waterworks Revenue, Refunding, Series B-1,
Daily VRDN and Put, .98%, 7/01/35 ......................................................... 300,000 300,000
---------------
500,000
---------------
CONNECTICUT
cConnecticut State Health and Educational Facilities Authority Revenue, Weekly VRDN and
Put, .91%, 7/01/27 ........................................................................ 600,000 600,000
---------------
FLORIDA .3%
cJacksonville Health Facilities Authority Hospital Revenue,
Baptist Medical Center Project, Daily VRDN and Put, .93%, 8/15/21 ........................ 1,000,000 1,000,000
Genesis Rehabilitation Hospital, Refunding, Daily VRDN and Put, 1.00%,
5/01/21 ................................................................................. 4,100,000 4,100,000
cOrange County School Board COP, Series B,
AMBAC Insured, Daily VRDN and Put, .98%, 8/01/25 ......................................... 5,400,000 5,400,000
MBIA Insured, Daily VRDN and Put, .98%, 8/01/27 .......................................... 2,300,000 2,300,000
cPinellas County Health Facilities Authority Revenue, Pooled Hospital Loan Program,
Refunding, Daily VRDN and Put, AMBAC Insured, 1.00%, 12/01/15 ............................. 2,500,000 2,500,000
---------------
15,300,000
---------------
144 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
GEORGIA .3%
cAthens-Clarke County Unified Government Authority Revenue, University of Georgia Athletic
Association Project, Daily VRDN and Put, 1.00%, 8/01/33 ................................... $ 4,500,000 $ 4,500,000
cAtlanta Downtown Development Authority Revenue, Underground Atlanta Project, Refunding,
Weekly VRDN and Daily Put, .93%, 10/01/16 ................................................. 6,600,000 6,600,000
cAtlanta Water and Wastewater Revenue, Series C, FSA Insured, Daily VRDN and Put, .98%,
11/01/41 .................................................................................. 3,100,000 3,100,000
---------------
14,200,000
---------------
KENTUCKY .2%
cBerea Educational Facilities Revenue, Series A, Daily VRDN and Put, .98%,
6/01/32 ................................................................................... 9,100,000 9,100,000
---------------
LOUISIANA
cLouisiana Public Facilities Authority Revenue, Kenner Hotel Ltd., Daily VRDN and Put, .97%,
12/01/15 .................................................................................. 2,200,000 2,200,000
---------------
MASSACHUSETTS .2%
cMassachusetts State Health and Educational Facilities Authority Revenue, Capital Assets
Program, Series D, MBIA Insured, Daily VRDN and Put, .97%, 1/01/35 ........................ 3,580,000 3,580,000
cMassachusetts State Water Resource Authority Revenue, Multi-Modal, Refunding, Sub
Series D, Daily VRDN and Put, .98%, 8/01/17 ............................................... 6,400,000 6,400,000
---------------
9,980,000
---------------
MICHIGAN .7%
cDetroit Sewage Disposal Revenue, senior lien, Series B, Daily VRDN and Put, .98%,
7/01/33 ................................................................................... 27,095,000 27,095,000
cMichigan State University Revenues, Series A, Daily VRDN and Put, .98%,
8/15/32 ................................................................................... 10,000,000 10,000,000
---------------
37,095,000
---------------
MINNESOTA
cMinneapolis State Revenue, Refunding, Weekly VRDN and Daily Put, .80%,
12/01/18 .................................................................................. 400,000 400,000
---------------
NEW JERSEY
cCamden County Improvement Authority Revenue, Senior Redevelopment, Harvest Village
Project, Series A, Daily VRDN and Put, .98%, 7/01/29 ...................................... 600,000 600,000
---------------
NEW YORK 1.9%
cLong Island Power Authority Electric Systems Revenue, Sub Series 2, Daily VRDN and Put,
.98%, 5/01/33 ............................................................................. 5,650,000 5,650,000
cNew York City GO,
Refunding, Series H, Sub Series H-3, FSA Insured, Daily VRDN and Put, .98%,
8/01/21 ................................................................................. 2,500,000 2,500,000
Series H, Sub Series H-3, Daily VRDN and Put, .98%, 8/01/22 .............................. 3,700,000 3,700,000
Sub Series A-7, Daily VRDN and Put, .98%, 8/01/20 ........................................ 25,150,000 25,150,000
Sub Series E-3, Daily VRDN and Put, .98%, 8/01/23 ........................................ 5,200,000 5,200,000
Unlimited, Series B, Sub Series B-4, Daily VRDN and Put, .97%, 8/15/23 ................... 5,200,000 5,200,000
Annual Report | 145
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
NEW YORK (CONT.)
cNew York City Municipal Water Finance Authority Water and Sewer System Revenue,
Fiscal 2003, Refunding, Sub Series C-3, Daily VRDN and Put, .98%,
6/15/18 .................................................................................. $ 35,200,000 $ 35,200,000
Series C, FGIC Insured, Daily VRDN and Put, .97%, 6/15/22 ................................ 8,700,000 8,700,000
Series C, FGIC Insured, Daily VRDN and Put, .97%, 6/15/23 ................................ 8,500,000 8,500,000
Series G, FGIC Insured, Daily VRDN and Put, .98%, 6/15/24 ................................ 1,000,000 1,000,000
---------------
100,800,000
---------------
NORTH CAROLINA .1%
cCharlotte-Mecklenberg Hospital Authority Health Care System Revenue, Series B,
Weekly VRDN and Put, .94%, 1/15/26 ........................................................ 6,500,000 6,500,000
cNorth Carolina Medical Care Commission Hospital Revenue, Pooled Financing Project,
Series A, Daily VRDN and Put, .93%, 10/01/16 .............................................. 1,500,000 1,500,000
---------------
8,000,000
---------------
TENNESSEE .2%
cClarksville PBA Revenue, Pooled Financing, Tennessee Municipal Bond Fund, Daily VRDN
and Put, 1.00%,
7/01/31 .................................................................................. 6,510,000 6,510,000
1/01/33 .................................................................................. 2,800,000 2,800,000
cKnox County Health Educational and Housing Facility Board Student Housing Revenue,
Volunteer Student Housing LLC Project, Weekly VRDN and Put, .96%, 9/01/34 ................. 2,400,000 2,400,000
---------------
11,710,000
---------------
U.S. TERRITORIES
cPuerto Rico Commonwealth Government Development Bank Revenue, Refunding,
MBIA Insured, Weekly VRDN and Put, .89%, 12/01/15 ......................................... 200,000 200,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $210,685,000) ............................................ 210,685,000
---------------
TOTAL INVESTMENTS (COST $5,061,353,414) 99.0% ............................................... 5,331,663,629
OTHER ASSETS, LESS LIABILITIES 1.0% ......................................................... 55,168,588
---------------
NET ASSETS 100.0% ........................................................................... $5,386,832,217
---------------
<FN>
See glossary of terms on page 173.
a See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
b The fund discontinues accruing income on defaulted securities. See Note 6.
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.
</FN>
146 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $12.03 $11.85 $11.70 $10.99 $11.96
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .54 .56 .57 .59 .60
Net realized and unrealized gains (losses) ...................... .19 .18 .15 .71 (.96)
-----------------------------------------------------------
Total from investment operations ................................. .73 .74 .72 1.30 (.36)
-----------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.53) (.56) (.57) (.59) (.61)
Net realized gains .............................................. -- -- -- -- -- d
-----------------------------------------------------------
Total distributions .............................................. (.53) (.56) (.57) (.59) (.61)
-----------------------------------------------------------
Net asset value, end of year ..................................... $12.23 $12.03 $11.85 $11.70 $10.99
-----------------------------------------------------------
Total return b ................................................... 6.27% 6.41% 6.35% 12.16% (3.08)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $786,938 $778,716 $731,972 $654,709 $617,407
Ratios to average net assets:
Expenses ........................................................ .65% .65% .65% .67% .65%
Net investment income ........................................... 4.31% 4.68% 4.86% 5.24% 5.23%
Portfolio turnover rate .......................................... 8.95% 17.95% 6.11% 20.19% 21.21%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.003.
</FN>
Annual Report | 147
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C,D
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $12.09 $11.90 $11.74 $11.00 $10.89
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .48 .49 .51 .54 .06
Net realized and unrealized gains (losses) ...................... .19 .19 .16 .73 .10
-----------------------------------------------------------
Total from investment operations ................................. .67 .68 .67 1.27 .16
-----------------------------------------------------------
Less distributions from net investment income .................... (.47) (.49) (.51) (.53) (.05)
-----------------------------------------------------------
Net asset value, end of year ..................................... $12.29 $12.09 $11.90 $11.74 $11.00
-----------------------------------------------------------
Total return b ................................................... 5.67% 5.88% 5.82% 11.81% 1.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $80,303 $67,994 $36,461 $9,798 $226
Ratios to average net assets:
Expenses ........................................................ 1.20% 1.20% 1.20% 1.21% 1.20% e
Net investment income ........................................... 4.86% 4.13% 4.31% 4.64% 4.66% e
Portfolio turnover rate .......................................... 8.95% 17.95% 6.11% 20.19% 21.21%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d For the period February 1, 2000 (effective date) to February 29, 2000.
e Annualized.
</FN>
148 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (CONTINUED)
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $12.11 $11.93 $11.77 $11.05 $12.03
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .48 .50 .51 .53 .54
Net realized and unrealized gains (losses) ...................... .20 .18 .16 .72 (.98)
-----------------------------------------------------------
Total from investment operations ................................. .68 .68 .67 1.25 (.44)
-----------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.47) (.50) (.51) (.53) (.54)
Net realized gains .............................................. -- -- -- -- -- d
-----------------------------------------------------------
Total distributions .............................................. (.47) (.50) (.51) (.53) (.54)
-----------------------------------------------------------
Net asset value, end of year ..................................... $12.32 $12.11 $11.93 $11.77 $11.05
-----------------------------------------------------------
Total return b ................................................... 5.72% 5.80% 5.81% 11.59% (3.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $111,847 $100,410 $74,104 $53,381 $46,403
Ratios to average net assets:
Expenses ........................................................ 1.22% 1.18% 1.20% 1.21% 1.20%
Net investment income ........................................... 4.88% 4.15% 4.31% 4.69% 4.67%
Portfolio turnover rate .......................................... 8.95% 17.95% 6.11% 20.19% 21.21%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.003.
</FN>
Annual Report | See notes to financial statements. | 149
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.6%
BONDS 98.6%
Aberdeen Township GO, Refunding, FGIC Insured, 5.70%, 2/01/22 ............................... $ 4,100,000 $ 4,579,372
Allamuchy Town Board of Education COP, MBIA Insured, 6.00%, 11/01/14 ........................ 1,000,000 1,051,340
Atlantic County Improvement Authority Luxury Tax Revenue, Convention Center Project,
MBIA Insured, ETM, 7.40%, 7/01/16 ......................................................... 9,500,000 12,604,125
Berkeley Township Board of Education GO, FSA Insured, 4.75%, 8/01/22 ........................ 1,975,000 2,044,777
Branchburg Township Board of Education GO, FGIC Insured, 5.00%,
7/15/26 .................................................................................. 1,230,000 1,289,347
7/15/27 .................................................................................. 1,300,000 1,361,048
7/15/28 .................................................................................. 1,365,000 1,428,227
7/15/29 .................................................................................. 1,440,000 1,505,765
Camden County Improvement Authority Health System Revenue, Catholic Health East, Series B,
AMBAC Insured, 5.00%, 11/15/28 ............................................................ 11,600,000 12,017,948
Cape May County IPC, Financing Authority Revenue, Atlantic City Electric Co., Refunding,
Series A, MBIA Insured, 6.80%, 3/01/21 .................................................... 5,400,000 7,211,646
Carteret Board of Education COP, MBIA Insured,
5.75%, 1/15/30 ........................................................................... 1,155,000 1,309,008
Pre-Refunded, 6.25%, 4/15/19 ................................................................ 2,750,000 2,894,925
Delaware River and Bay Authority Revenue,
FGIC Insured, 5.25%, 1/01/26 ............................................................. 9,000,000 9,337,320
MBIA Insured, 5.00%, 1/01/27 ............................................................. 10,000,000 10,449,300
Series A, AMBAC Insured, 5.75%, 1/01/29 .................................................. 4,000,000 4,564,560
Delaware River Port Authority Pennsylvania and New Jersey Delaware River Bridges Revenue,
FSA Insured, 5.75%,
1/01/22 .................................................................................. 8,500,000 9,726,210
1/01/26 .................................................................................. 10,000,000 11,328,400
East Orange GO, Water Utility, AMBAC Insured, 5.70%,
6/15/23 .................................................................................. 1,200,000 1,343,940
6/15/24 .................................................................................. 1,385,000 1,545,203
6/15/25 .................................................................................. 1,465,000 1,628,201
Egg Harbor Township School District GO, Refunding, FGIC Insured, 5.125%,
7/15/24 ................................................................................... 4,870,000 5,198,968
Freehold Township Board Education GO, MBIA Insured, 5.00%, 2/15/30 .......................... 1,500,000 1,564,305
Gloucester County Improvement Authority Solid Waste Resource Recovery Revenue,
Waste Management Inc. Project, Refunding,
Series A, 6.85%, 12/01/29 ................................................................ 1,375,000 1,612,724
Series B, 7.00%, 12/01/29 ................................................................ 1,250,000 1,461,612
Hammonton School District GO, FGIC Insured, 5.00%,
8/01/26 .................................................................................. 1,155,000 1,217,347
8/01/27 .................................................................................. 1,215,000 1,278,836
Health Care Facilities Financing Authority Revenue, Englewood Hospital, MBIA Insured, 5.00%,
8/01/31 ................................................................................... 7,330,000 7,657,065
Higher Education Student Assistance Authority Student Loan Revenue, Series A, MBIA Insured,
6.15%, 6/01/19 ............................................................................ 2,120,000 2,293,183
Highland Park School District GO, Refunding, MBIA Insured, 5.125%, 2/15/25 .................. 7,120,000 7,359,873
Hoboken GO, Parking Utility, Series A, FGIC Insured, 5.00%, 1/01/23 ......................... 4,315,000 4,586,845
Hoboken New Jersey Parking Authority Parking Revenue, AMBAC Insured, Pre-Refunded,
5.30%, 5/01/27 ............................................................................ 3,600,000 4,267,656
150 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Hudson County Improvement Authority Solid Waste Systems Revenue, Koppers Site Project,
Series A, 6.125%, 1/01/29 ................................................................. $ 6,510,000 $ 6,415,410
Irvington Township GO, Refunding, Series B, MBIA Insured, 5.00%, 7/15/33 .................... 15,000,000 15,789,900
Jackson Township School District GO, FGIC Insured, 5.00%, 4/15/25 ........................... 3,000,000 3,159,270
Jersey City GO,
FSA Insured, 5.00%, 3/01/21 .............................................................. 1,500,000 1,577,610
Series A, FSA Insured, 5.625%, 3/01/20 ................................................... 1,000,000 1,136,660
Lafayette Yard Community Development Revenue, Hotel/Conference Center Project-Trenton
Guaranteed, MBIA Insured, Pre-Refunded,
6.00%, 4/01/29 ........................................................................... 1,750,000 2,113,895
5.80%, 4/01/35 ........................................................................... 2,520,000 3,015,709
Middlesex County COP, MBIA Insured, 5.00%, 8/01/31 .......................................... 3,250,000 3,386,662
Middlesex County Improvement Authority Revenue, Administration Building Residential Project,
FNMA Insured,
5.25%, 7/01/21 ........................................................................... 750,000 802,110
5.35%, 7/01/34 ........................................................................... 1,575,000 1,655,671
Middletown Township GO, Board of Education, MBIA Insured, Pre-Refunded, 5.85%,
8/01/24 ................................................................................... 4,295,000 4,904,718
8/01/25 .................................................................................. 5,000 5,710
Monroe Township Municipal Utilities Authority Middlesex County Revenue, Refunding,
FGIC Insured, 5.00%, 2/01/26 .............................................................. 1,000,000 1,044,470
New Jersey EDA Revenue,
Hillcrest Health Services System Project, Refunding, AMBAC Insured,
5.375%, 1/01/16 .......................................................................... 2,500,000 2,734,800
Municipal Rehabilitation, Series A, AMBAC Insured, 5.00%, 4/01/28 ........................ 14,545,000 15,325,485
School Facilities Construction, Series A, AMBAC Insured, 5.00%, 6/15/21 .................. 15,000,000 15,851,400
School Facilities Construction, Series C, MBIA Insured, 4.75%, 6/15/25 ................... 17,500,000 17,932,425
Transportation Project, Sublease, Series A, FSA Insured, Pre-Refunded, 5.25%,
5/01/17 ................................................................................. 5,000,000 5,734,800
Transportation Project, Sublease, Series A, FSA Insured, Pre-Refunded, 5.00%,
5/01/18 ................................................................................. 2,000,000 2,269,660
New Jersey EDA,
EDR, School Revenue, Blair Academy, 1995 Project, Series N, 6.90%,
12/01/11 ................................................................................. 2,535,000 2,546,053
Heating and Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%,
12/01/10 ................................................................................ 6,370,000 6,520,587
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%,
12/01/04 ................................................................................ 840,000 851,080
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%,
12/01/07 ................................................................................ 2,720,000 2,784,736
Lease Revenue, International Center for Public Health Project, University of Medicine and
Dentistry, AMBAC Insured, 6.00%, 6/01/32 ................................................ 5,000,000 5,783,400
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, Series A,
AMBAC Insured, 6.25%, 8/01/24 ........................................................... 8,200,000 8,566,540
PCR, Jersey Central Power and Light, 7.10%, 7/01/15 ...................................... 550,000 562,991
Revenue, Jewish Community Housing Corp. Metropolitan Project, 5.90%,
12/01/31 ................................................................................ 5,110,000 5,505,054
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16 .................... 1,640,000 1,713,193
State Lease Revenue, Liberty State Park Lease Rental, Refunding, AMBAC Insured, 5.75%,
3/15/20 ................................................................................. 4,605,000 5,075,953
Terminal Revenue, GATX Terminals Corp. Project, 6.65%, 9/01/22 ........................... 7,440,000 7,542,672
Water Facilities Revenue, Hackensack Water Co. Project, Refunding, Series A, MBIA Insured,
5.80%, 3/01/24 .......................................................................... 1,000,000 1,024,400
Water Facilities Revenue, Refunding, AMBAC Insured, 5.00%, 9/01/32 ....................... 560,000 589,400
Annual Report | 151
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
New Jersey Health Care Facilities Financing Authority Revenue,
5.75%, 7/01/28 ........................................................................... $ 11,000,000 $ 11,392,480
Atlantic City Medical Center, Refunding, 5.75%, 7/01/25 .................................. 5,000,000 5,319,000
Atlantic Health Systems, Series A, AMBAC Insured, 5.00%, 7/01/27 ......................... 7,500,000 7,739,925
Burdette Tomlin Memorial Hospital, 5.50%, 7/01/29 ........................................ 5,725,000 5,934,764
Cathedral Health Services, Refunding, MBIA Insured, 5.25%, 8/01/21 ....................... 5,000,000 5,320,950
East Orange General Hospital, Series B, 7.75%, 7/01/20 ................................... 4,775,000 4,724,194
Franciscan St. Mary's Hospital, ETM, 5.875%, 7/01/12 ..................................... 3,900,000 4,446,936
Hackensack University Medical Center, 6.00%, 1/01/34 ..................................... 10,000,000 10,583,500
Holy Name Hospital, 6.00%, 7/01/25 ....................................................... 3,000,000 3,083,520
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 ........................................ 3,000,000 3,229,680
Jersey City Medical Center, AMBAC Insured, 5.00%, 8/01/31 ................................ 7,000,000 7,276,360
Jersey Shore Medical Center, Refunding, AMBAC Insured, 5.875%, 7/01/24 ................... 975,000 989,186
JFK Medical Center/Hartwyck, Refunding, MBIA Insured, 5.00%, 7/01/25 ..................... 7,855,000 8,153,804
Medical Center at Princeton Obligation Group, AMBAC Insured, 5.00%,
7/01/28 ................................................................................. 7,000,000 7,241,010
Meridian Health Systems Obligation Group, FSA Insured, 5.375%, 7/01/24 ................... 6,500,000 6,941,805
Meridian Health Systems Obligation Group, FSA Insured, 5.25%, 7/01/29 .................... 20,000,000 21,075,600
Monmouth Medical Center, Series C, FSA Insured, Pre-Refunded, 6.25%,
7/01/24 ................................................................................. 8,250,000 8,558,467
Pascack Valley Hospital Association, 5.125%, 7/01/28 ..................................... 5,000,000 4,345,800
Robert Wood Johnson University Hospital, 5.75%, 7/01/25 .................................. 5,000,000 5,368,950
South Jersey Hospital, 5.875%, 7/01/21 ................................................... 10,000,000 10,430,100
South Jersey Hospital, 6.00%, 7/01/32 .................................................... 18,600,000 19,275,924
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27 .............................. 2,000,000 2,058,960
St. Joseph's Hospital and Medical Center, Refunding, Connie Lee Insured, 5.75%,
7/01/16 ................................................................................. 1,000,000 1,104,180
St. Joseph's Hospital and Medical Center, Refunding, Connie Lee Insured, 6.00%,
7/01/26 ................................................................................. 1,000,000 1,106,190
St. Peters University Hospital, Series A, 6.875%, 7/01/30 ................................ 1,500,000 1,642,320
New Jersey State Building Authority State Building Revenue, Refunding,
5.00%, 6/15/15 ............................................................................ 5,000,000 5,386,200
New Jersey State Building Authority State Revenue, Series A, FSA Insured, Pre-Refunded,
5.00%, 12/15/22 ........................................................................... 1,000,000 1,158,400
New Jersey State Educational Facilites Authority Revenue, William Patterson University,
Series A, FGIC Insured, 5.00%, 7/01/28 .................................................... 1,000,000 1,059,540
New Jersey State Educational Facilities Authority Revenue,
Capital Improvement Funding Project, Series A, FSA Insured, 5.00%, 9/01/20 ................ 8,000,000 8,472,320
FGIC Insured, 5.50%, 7/01/30 ............................................................. 6,615,000 7,277,029
Kean University, Series D, FGIC Insured, 5.00%, 7/01/33 .................................. 10,000,000 10,516,900
Montclair State University, Series F, FGIC Insured, 5.00%, 7/01/31 ....................... 5,000,000 5,214,500
New Jersey Institute of Technology, Refunding, Series A, MBIA Insured,
6.00%, 7/01/24 .......................................................................... 1,455,000 1,506,725
New Jersey Institute of Technology, Series A, MBIA Insured, 6.00%,
7/01/15 ................................................................................. 4,000,000 4,142,200
New Jersey Institute of Technology, Series G, MBIA Insured, 4.75%,
7/01/31 ................................................................................. 2,000,000 2,035,800
Ramapo College, Series D, AMBAC Insured, 5.00%, 7/01/25 .................................. 1,000,000 1,047,380
Ramapo College, Series D, AMBAC Insured, 5.00%, 7/01/31 .................................. 1,500,000 1,564,350
Rowan College, Series E, AMBAC Insured, Pre-Refunded, 6.00%, 7/01/26 ..................... 9,810,000 10,975,722
Rowan University, Series C, FGIC Insured, 5.00%, 7/01/31 ................................. 2,000,000 2,095,580
Rowan University, Series K, FGIC Insured, 5.00%, 7/01/27 ................................. 1,000,000 1,050,650
Rowan University, Series K, FGIC Insured, 5.00%, 7/01/33 ................................. 1,000,000 1,047,080
Seton Hall University Project, Series G, AMBAC Insured, 5.00%, 7/01/26 ................... 1,870,000 1,957,404
152 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
New Jersey State Educational Facilities Authority Revenue, (cont.)
Stevens Institute of Technology, Series I, 5.00%, 7/01/18 ................................ $ 1,100,000 $ 1,161,061
Stevens Institute of Technology, Series I, 5.00%, 7/01/28 ................................ 1,575,000 1,618,722
University of Medical Dentistry, Series C, AMBAC Insured, 5.125%, 12/01/29 ............... 2,700,000 2,823,309
New Jersey State Highway Authority Garden State Parkway General Revenue, ETM, 6.20%,
1/01/10 ................................................................................... 5,000,000 5,886,700
New Jersey State Housing and Mortgage Finance Agency MFHR,
GO, Series D, FSA Insured, 5.50%, 5/01/22 ................................................ 955,000 989,304
Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 ...................................... 5,000,000 5,212,200
Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 ...................................... 11,275,000 11,676,052
Series A1, FSA Insured, 6.35%, 11/01/31 .................................................. 2,000,000 2,152,280
Series B, FSA Insured, 6.25%, 11/01/26 ................................................... 2,000,000 2,152,740
Series E1, FSA Insured, 5.70%, 5/01/20 ................................................... 2,790,000 2,982,538
Series E1, FSA Insured, 5.75%, 5/01/25 ................................................... 1,295,000 1,375,342
New Jersey State Housing and Mortgage Finance Agency Revenue,
Home Buyer, Series CC, MBIA Insured, 5.875%, 10/01/31 .................................... 4,345,000 4,535,919
Home Buyer, Series J, MBIA Insured, 6.20%, 10/01/25 ...................................... 3,255,000 3,323,192
Home Buyer, Series N, MBIA Insured, 6.35%, 10/01/27 ...................................... 1,035,000 1,068,182
Home Buyer, Series U, MBIA Insured, 5.85%, 4/01/29 ....................................... 11,005,000 11,449,492
SFMR, Home Buyer, Series Z, MBIA Insured, 5.70%, 10/01/17 ................................ 4,085,000 4,232,142
New Jersey State Transporation Corp. COP, Federal Transportation Administration Grants,
Series A, AMBAC Insured, Pre-Refunded, 6.125%, 9/15/15 .................................... 2,000,000 2,387,300
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Refunding, Series B, MBIA Insured, 5.00%, 12/15/21 ........................................ 10,000,000 10,566,600
New Jersey State Turnpike Authority Turnpike Revenue GO, Series A, FGIC Insured, 5.00%,
1/01/27 ................................................................................... 16,000,000 16,902,560
New Jersey State Turnpike Authority Turnpike Revenue, Series A, MBIA Insured,
5.60%, 1/01/22 ........................................................................... 7,500,000 8,436,975
5.50%, 1/01/25 ........................................................................... 16,300,000 18,076,863
North Brunswick Township Board of Education GO, Refunding, FGIC Insured, 5.00%,
2/01/15 ................................................................................... 2,000,000 2,125,540
North Hudson Sewer Authority New Jersey Sewer Revenue, Series C, MBIA Insured, 5.00%,
8/01/22 .................................................................................. 1,000,000 1,051,760
8/01/31 .................................................................................. 1,000,000 1,043,340
North Plainfield Board of Education GO, FSA Insured, 4.875%, 8/15/25 ........................ 1,020,000 1,055,710
Ocean County Board of Education GO, Cape May, FGIC Insured, 5.00%,
4/01/21 .................................................................................. 2,155,000 2,283,912
4/01/22 ..................................................................................... 2,142,000 2,251,263
Passaic County Utilities Authority Solid Waste Disposal Revenue, Refunding, Series A,
FSA Insured, 5.00%, 3/01/24 ............................................................... 1,000,000 1,067,140
Passaic Valley Sewer Commissioners GO, Sewer System, Refunding, Series E, AMBAC Insured,
5.75%, 12/01/22 ........................................................................... 8,925,000 10,306,501
Port Authority of New York and New Jersey Revenue,
120th Series, MBIA Insured, 5.50%, 10/15/35 .............................................. 5,000,000 5,312,400
121st Series, MBIA Insured, 5.375%, 10/15/35 ............................................. 3,000,000 3,194,790
Consolidated, 94th Series, 6.00%, 12/01/16 ............................................... 2,000,000 2,089,180
Consolidated, 94th Series, 6.00%, 6/01/17 ................................................ 5,000,000 5,222,950
Consolidated, 109th Series, FSA Insured, 5.375%, 7/15/27 ................................. 2,500,000 2,649,325
Annual Report | 153
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Port Authority of New York and New Jersey Revenue, (cont.)
Consolidated, 125th Series, FSA Insured, 5.00%, 4/15/32 .................................. $ 23,950,000 $ 25,290,721
Delta Air Lines Special Project, Series 1, 6.95%, 6/01/08 ................................ 5,000,000 5,017,650
Port Authority of New York and New Jersey Special Obligation Revenue,
4th Installment, Special Project, 6.75%, 10/01/11 ........................................ 2,500,000 2,639,750
John F. Kennedy International Air Terminal, MBIA Insured, 5.75%, 12/01/22 ................ 8,000,000 8,883,200
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ............................................................. 3,000,000 3,099,180
Public Improvement, Refunding, FSA Insured, 5.125%, 7/01/30 .............................. 22,005,000 23,347,526
Public Improvement, Series A, 5.00%, 7/01/27 ............................................. 11,555,000 11,968,091
Public Improvement, Series A, FGIC Insured, 5.00%, 7/01/32 ............................... 3,000,000 3,162,690
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series B, Pre-Refunded, 6.00%, 7/01/39 ................................................... 10,000,000 12,187,400
Series D, 5.375%, 7/01/36 ................................................................ 5,000,000 5,361,750
Series D, 5.25%, 7/01/38 ................................................................. 5,000,000 5,264,850
Puerto Rico Commonwealth Infrastructure Financing Authority Special Obligation Bonds,
Series A, ETM, 5.50%, 10/01/32 ............................................................ 1,000,000 1,123,910
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.50%, 7/01/09 ........................................................................... 60,000 60,229
AMBAC Insured, 5.00%, 7/01/28 ............................................................ 15,000,000 15,558,150
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Revenue, Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 ................................................ 120,000 120,643
Puerto Rico Electric Power Authority Revenue,
Series II, 5.25%, 7/01/31 ................................................................ 18,000,000 19,130,760
Series X, Pre-Refunded, 6.00%, 7/01/15 ................................................... 2,000,000 2,172,980
Series X, Pre-Refunded, 6.125%, 7/01/21 .................................................. 5,000,000 5,440,700
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ......................... 2,515,000 2,529,688
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Revenue, University Plaza Project, Series A, MBIA Insured, 5.00%, 7/01/33 ................. 1,000,000 1,043,430
Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 ................... 25,000,000 26,808,750
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series A,
MBIA Insured, 5.00%, 8/01/29 ............................................................. 5,000,000 5,255,550
Salem County IPC, Financing Authority Revenue, Public Services, Electric and Gas Co.,
Refunding, Series D, MBIA Insured, 6.55%, 10/01/29 ........................................ 5,000,000 5,252,800
South Brunswick Township Board of Education GO, Refunding, Series AA, FGIC Insured, 5.50%,
8/01/24 ................................................................................... 1,720,000 1,874,129
South Jersey Transportation Authority Transportation Systems Revenue, AMBAC Insured, 5.00%,
11/01/29 .................................................................................. 12,000,000 12,517,920
Tobacco Settlement Financing Corp. Revenue, Asset Backed, Refunding, 6.00%,
6/01/37 ................................................................................... 13,000,000 11,712,870
Union County Utilities Authority Solid Waste Revenue, sub. lease, Ogden Martin, Series A,
AMBAC Insured, 5.35%, 6/01/23 ............................................................. 2,705,000 2,837,599
University of Medicine and Dentistry COP,
AMBAC Insured, 5.00%, 4/15/32 ............................................................ 4,625,000 4,859,719
Series A, MBIA Insured, 5.00%, 9/01/22 ................................................... 1,700,000 1,810,075
University of Medicine and Dentistry Revenue, Series A, AMBAC Insured, 5.00%,
12/01/24 ................................................................................. 2,500,000 2,643,075
12/01/31 ................................................................................. 29,395,000 30,923,540
154 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Virgin Islands PFAR,
Gross Receipts Taxes, Loan Notes, 5.00%, 10/01/33 ........................................ $ 5,000,000 $ 5,229,850
senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/15 ....................... 2,500,000 2,680,550
senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ....................... 3,045,000 3,220,331
senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ....................... 2,000,000 2,078,780
Washington Township Board of Education GO, Mercer County, FGIC Insured, 5.00%,
1/01/28 ................................................................................... 4,497,000 4,716,274
West Orange County Board of Education COP, MBIA Insured, 5.625%, 10/01/29 ................... 2,000,000 2,235,480
Woodbridge Township GO, FGIC Insured, 5.00%, 7/15/24 ........................................ 1,220,000 1,282,025
---------------
TOTAL BONDS ................................................................................. 965,498,784
---------------
ZERO COUPON BONDS
Middlesex County COP, MBIA Insured, 6/15/24 ................................................. 1,000,000 378,320
---------------
TOTAL LONG TERM INVESTMENTS (COST $896,217,160) ............................................. 965,877,104
---------------
SHORT TERM INVESTMENTS .3%
aNew Jersey Sports and Exposition Authority State Contract Revenue, Refunding, Series B-2,
MBIA Insured, Weekly VRDN and Put, .87%, 3/01/21 .......................................... 2,600,000 2,600,000
aPuerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ....................................................... 300,000 300,000
TOTAL SHORT TERM INVESTMENTS (COST $2,900,000) .............................................. 2,900,000
---------------
TOTAL INVESTMENTS (COST $899,117,160) 98.9% ................................................. 968,777,104
OTHER ASSETS, LESS LIABILITIES 1.1% ......................................................... 10,311,148
---------------
NET ASSETS 100.0% ........................................................................... $ 979,088,252
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
Annual Report | See notes to financial statements. | 155
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN OREGON TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $11.69 $11.52 $11.42 $10.81 $11.83
-----------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .54 .53 .55 .58 .58
Net realized and unrealized gains (losses) ....................... .24 .18 .11 .61 (1.02)
-----------------------------------------------------------
Total from investment operations .................................. .78 .71 .66 1.19 (.44)
-----------------------------------------------------------
Less distributions from net investment income ..................... (.52) (.54) (.56) (.58) (.58)
-----------------------------------------------------------
Net asset value, end of year ...................................... $11.95 $11.69 $11.52 $11.42 $10.81
-----------------------------------------------------------
Total return b .................................................... 6.87% 6.32% 5.95% 11.25% (3.76)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $554,871 $559,531 $513,733 $457,613 $432,675
Ratios to average net assets:
Expenses ......................................................... .65% .65% .67% .67% .66%
Net investment income ............................................ 4.62% 4.63% 4.79% 5.20% 5.16%
Portfolio turnover rate ........................................... 4.82% 8.92% 19.36% 16.22% 24.58%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
</FN>
156 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND (CONTINUED)
---------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $11.79 $11.61 $11.50 $10.88 $11.90
---------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .48 .48 .49 .52 .52
Net realized and unrealized gains (losses) ...................... .25 .18 .12 .62 (1.02)
---------------------------------------------------------
Total from investment operations ................................. .73 .66 .61 1.14 (.50)
---------------------------------------------------------
Less distributions from net investment income .................... (.46) (.48) (.50) (.52) (.52)
---------------------------------------------------------
Net asset value, end of year ..................................... $12.06 $11.79 $11.61 $11.50 $10.88
---------------------------------------------------------
Total return b ................................................... 6.30% 5.79% 5.50% 10.58% (4.36)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $80,108 $75,491 $56,449 $38,733 $34,071
Ratios to average net assets:
Expenses ........................................................ 1.22% 1.17% 1.22% 1.22% 1.21%
Net investment income ........................................... 4.05% 4.11% 4.24% 4.65% 4.62%
Portfolio turnover rate .......................................... 4.82% 8.92% 19.36% 16.22% 24.58%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
</FN>
Annual Report | See notes to financial statements. | 157
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.8%
BONDS 96.9%
Bend Sewer Revenue, AMBAC Insured, 5.375%, 10/01/20 ........................................ $ 1,550,000 $ 1,707,914
Benton and Linn County School District No. 509J GO, Corvallis, FSA Insured, 5.00%,
6/01/22 .................................................................................. 5,000,000 5,362,950
Benton County Hospital Facilities Authority Revenue, Samaritan Health Services Project,
Refunding,
5.20%, 10/01/17 ......................................................................... 4,000,000 4,175,840
5.125%, 10/01/28 ........................................................................ 4,500,000 4,568,805
Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding, 5.625%,
5/15/43 .................................................................................. 10,000,000 9,336,200
Clackamas County Hospital Facilities Authority Revenue,
Gross Willamette Falls, Refunding, 5.75%, 4/01/15 ....................................... 2,250,000 2,284,582
Kaiser Permanente, Series A, 5.375%, 4/01/14 ............................................ 2,500,000 2,837,100
Willamette Falls Hospital Project, 6.00%, 4/01/19 ....................................... 1,000,000 1,051,630
Willamette View Inc. Project, Refunding, 6.10%, 11/01/12 ................................ 500,000 511,210
Willamette View Inc. Project, Refunding, 6.30%, 11/01/21 ................................ 1,500,000 1,508,325
Clackamas County School District No. 007J Lake Oswego GO, MBIA Insured, 5.00%,
6/01/26 .................................................................................. 5,000,000 5,250,500
Clackamas County School District No. 62C GO, Oregon City, Refunding, FSA Insured, 5.00%,
6/15/20 .................................................................................. 2,560,000 2,803,354
Clackamas County School District No. 86 GO, 5.25%, 6/15/20 ................................. 3,000,000 3,263,670
Clackamas County School District No. 108 GO, FSA Insured, 5.00%, 6/15/25 ................... 5,000,000 5,258,050
Coos County School District No. 13 GO, North Bend, FSA Insured, 5.00%,
6/15/22 .................................................................................. 2,520,000 2,686,900
Curry County School District No. 17-C Brookings Harbor GO, 5.375%, 12/15/20 ................ 2,750,000 3,043,067
Deschutes County Administrative School District No. 1 GO, Series A, FSA Insured, 5.125%,
6/15/21 .................................................................................. 3,500,000 3,755,605
Deschutes County Hospital Facilities Authority Hospital Revenue, St. Charles Medical Center,
6.00%, 1/01/13 ........................................................................... 3,000,000 3,118,800
Douglas County Hospital Facilities Authority Revenue, Catholic Health Facilities, Series B,
MBIA Insured, 6.00%, 11/15/15 ............................................................ 1,950,000 2,050,132
Eugene Public Safety Facilities GO, FGIC Insured, 5.70%, 6/01/16 ........................... 500,000 545,120
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 ........................... 560,000 561,697
Gresham Stormwater Revenue, FGIC Insured, 5.30%, 5/01/21 ................................... 1,190,000 1,300,146
Hillsboro Hospital Facility Authority Revenue, Hospital Tuality Healthcare Project, Asset
Guaranteed, 5.375%,
10/01/26 ................................................................................ 2,000,000 2,125,760
10/01/31 ................................................................................ 2,000,000 2,131,060
Jackson County School District No. 4 GO, Phoenix-Talent District, FSA Insured, 5.00%,
6/15/20 .................................................................................. 2,000,000 2,148,700
Jackson County School District No. 9 Eagle Point GO, 5.00%,
6/15/20 ................................................................................. 1,680,000 1,787,318
6/15/21 ................................................................................. 1,500,000 1,587,075
Klamath Falls Inter Community Hospital Authority Revenue, Merle West Medical Center Project,
Refunding, 6.25%, 9/01/31 ................................................................ 5,250,000 5,574,083
Lane and Douglas Counties School District No. 045J3 GO, South Lane District, Refunding,
FSA Insured, 4.75%, 6/15/25 .............................................................. 3,510,000 3,613,931
Lane County PCR, Weyerhaeuser Co. Project, Refunding, 6.50%, 7/01/09 ....................... 11,575,000 11,869,700
Lane County School District No. 052 Bethel GO, Refunding, FSA Insured,
5.00%, 6/15/20 ........................................................................... 5,700,000 6,173,442
158 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Lane County School District No. 4J Eugene GO, FSA Insured, 4.75%, 7/01/22 .................. $ 5,150,000 $ 5,347,039
Linn County Community School District No. 9 GO,
Lebanon, FGIC Insured, 5.55%, 6/15/21 ................................................... 1,155,000 1,310,833
Lebanon, FGIC Insured, 5.60%, 6/15/30 ................................................... 9,495,000 10,553,882
MBIA Insured, Pre-Refunded, 5.375%, 6/15/30 ............................................. 5,000,000 5,846,700
Linn County School District No. 55 GO, Sweet Home, FSA Insured, 5.00%, 6/15/29 ............. 1,000,000 1,049,050
Marion County Housing Authority Revenue, Elliott Residence Project, GNMA Secured, 7.50%,
10/20/25 ................................................................................. 1,170,000 1,270,819
Medford Hospital Facilities Authority Revenue, Asante Health System, Series A, MBIA Insured,
5.00%,
8/15/18 ................................................................................. 8,000,000 8,494,320
8/15/24 ................................................................................. 5,300,000 5,573,904
Multnomah County COP, Series A, 4.75%, 8/01/16 ............................................. 1,000,000 1,056,560
Multnomah County Educational Facilities Revenue, University of Portland Project, 6.00%,
4/01/25 .................................................................................. 2,000,000 2,162,320
Multnomah County School District No. 40 GO, FSA Insured, 5.00%, 12/01/20 ................... 3,490,000 3,732,625
Multnomah-Clackamas Counties Centennial School District No. 28-302 GO, FGIC Insured,
5.00%, 6/15/21 ........................................................................... 5,000,000 5,342,250
Northern Wasco County Peoples Utilities District Hydroelectric Revenue, McNary Dam Fishway
Project, 5.20%, 12/01/24 ................................................................. 5,000,000 5,116,050
Oak Lodge Water District GO, AMBAC Insured,
7.40%, 12/01/08 ......................................................................... 215,000 224,845
7.50%, 12/01/09 ......................................................................... 215,000 225,002
Oregon Board Higher Education GO, Refunding, 5.00%, 8/01/31 ................................ 2,000,000 2,076,400
Oregon City Sewer Revenue, Pre-Refunded, 6.875%, 10/01/19 .................................. 4,000,000 4,394,280
Oregon Health Sciences University Revenue, Series A, MBIA Insured, 5.00%,
7/01/32 .................................................................................. 23,750,000 24,941,300
Oregon State Department of Administrative Services COP,
Refunding, Series A, AMBAC Insured, 5.00%, 5/01/24 ...................................... 10,000,000 10,496,200
Refunding, Series B, AMBAC Insured, 5.00%, 5/01/26 ...................................... 7,500,000 7,915,875
Series A, AMBAC Insured, Pre-Refunded, 6.00%, 5/01/26 ................................... 2,000,000 2,420,880
Oregon State Department of Transportation Revenue, Regional Light Rail Federal Westside
Project, MBIA Insured, Pre-Refunded,
6.10%, 6/01/07 .......................................................................... 2,000,000 2,065,220
6.20%, 6/01/08 .......................................................................... 2,500,000 2,582,125
6.25%, 6/01/09 .......................................................................... 1,750,000 1,807,698
Oregon State Department of Transportation Usertax Revenue, Series A, 5.125%,
11/15/23 ................................................................................ 5,000,000 5,360,200
11/15/26 ................................................................................ 14,200,000 15,116,184
Oregon State EDR, Georgia Pacific Corp. Project, Series CLVII, 6.35%,
8/01/25 .................................................................................. 7,910,000 7,863,647
Oregon State GO,
Board of Higher Education, Baccalaureate, Series A, 5.00%, 8/01/27 ...................... 6,000,000 6,199,500
Board of Higher Education, Series A, 5.65%, 8/01/27 ..................................... 4,440,000 4,893,768
Board of Higher Education, Series C, 5.65%, 8/01/27 ..................................... 1,460,000 1,609,212
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/15 ........................ 910,000 952,169
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/21 ........................ 455,000 473,391
Elderly and Disabled Housing Authority, Series A, 5.375%, 8/01/28 ....................... 1,655,000 1,752,480
Elderly and Disabled Housing Authority, Series B, 6.10%, 8/01/17 ........................ 1,410,000 1,447,605
Elderly and Disabled Housing Authority, Series B, 6.25%, 8/01/23 ........................ 2,015,000 2,080,266
Annual Report | 159
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Oregon State GO, (cont.)
Elderly and Disabled Housing Authority, Series B, 6.375%, 8/01/24 ....................... $ 135,000 $ 136,746
Elderly and Disabled Housing Authority, Series C, 6.50%, 8/01/22 ........................ 335,000 339,352
State Board of Higher Education, Series A, 5.60%, 8/01/25 ............................... 8,000,000 8,908,640
State Board of Higher Education, Series A, 5.50%, 8/01/29 ............................... 2,000,000 2,211,100
Veteran's Welfare, Series 75, 5.85%, 10/01/15 ........................................... 475,000 495,055
Veteran's Welfare, Series 75, 5.875%, 10/01/18 .......................................... 250,000 259,480
Veteran's Welfare, Series 75, 6.00%, 4/01/27 ............................................ 1,100,000 1,140,359
Veteran's Welfare, Series 76-A, 6.05%, 10/01/28 ......................................... 1,610,000 1,694,750
Veteran's Welfare, Series 77, 5.30%, 10/01/29 ........................................... 3,250,000 3,343,730
Veteran's Welfare, Series A, 5.70%, 10/01/32 ............................................ 4,405,000 4,575,077
Oregon State Health Housing Educational and Cultural Facilities Authority Revenue,
Lewis and Clark College Project, Series A, MBIA Insured, 6.125%, 10/01/24 ............... 10,500,000 10,989,510
Peacehealth, AMBAC Insured, 5.00%, 11/15/26 ............................................. 5,500,000 5,821,695
Reed College Project, Series A, 5.75%, 7/01/32 .......................................... 10,735,000 12,089,757
Oregon State Housing and Community Services Department HFR, Multi-Unit,
Series A, FHA Insured, 6.80%, 7/01/13 ................................................... 6,275,000 6,283,409
Series C, FHA Insured, 6.85%, 7/01/22 ................................................... 180,000 180,241
Oregon State Housing and Community Services Department MFHR,
Series A, 6.15%, 7/01/21 ................................................................ 910,000 956,892
Series B, 6.00%, 7/01/31 ................................................................ 5,000,000 5,254,750
Oregon State Housing and Community Services Department Mortgage Revenue, SFM Program,
Series A, 6.35%, 7/01/14 ................................................................ 1,250,000 1,282,288
Series A, 6.40%, 7/01/18 ................................................................ 580,000 594,372
Series A, 6.45%, 7/01/26 ................................................................ 1,210,000 1,252,132
Series B, 6.875%, 7/01/28 ............................................................... 2,875,000 2,883,596
Series C, 6.20%, 7/01/15 ................................................................ 925,000 959,003
Series C, 6.40%, 7/01/26 ................................................................ 545,000 563,917
Series D, 6.80%, 7/01/27 ................................................................ 1,750,000 1,773,398
Series H, FHA Insured, 5.75%, 7/01/30 ................................................... 3,425,000 3,558,472
Polk Marion and Benton Counties School District No. 13J GO, FSA Insured,
5.80%, 6/15/20 ........................................................................... 1,985,000 2,298,570
Port Astoria PCR, James River Project, Refunding, 6.55%, 2/01/15 945,000 947,400
Port of Portland International Airport Revenue, Portland International Airport,
Refunding, Series D, FGIC Insured, 5.00%, 7/01/23 ....................................... 3,000,000 3,126,330
Series 7B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21 ................................... 2,800,000 3,552,920
Series 12C, FGIC Insured, 5.00%, 7/01/18 ................................................ 1,500,000 1,589,775
Series A, AMBAC Insured, 5.50%, 7/01/24 ................................................. 22,000,000 23,900,800
Port St. Helens PCR,
Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/27 ................................. 4,750,000 4,443,720
Portland General Electric Co. Project, Series A, 5.25%, 8/01/14 ......................... 3,600,000 3,414,312
Portland Community College District GO, Series B, 5.00%,
6/01/20 ................................................................................. 7,185,000 7,646,564
6/01/21 ................................................................................. 6,290,000 6,653,436
Portland GO,
Central City Streetcar Project, Series A, 4.75%, 4/01/21 ................................ 3,600,000 3,692,880
Limited Tax, Series A, 5.00%, 4/01/18 ................................................... 1,000,000 1,066,700
Limited Tax, Series A, 5.00%, 6/01/24 ................................................... 10,000,000 10,523,500
Limited Tax, Series A, MBIA Insured, 5.125%, 6/01/30 .................................... 6,315,000 6,700,026
160 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Portland Housing Authority MFR,
Berry Ridge Project, 6.30%, 5/01/29 ..................................................... $ 1,500,000 $ 1,584,960
Housing-Lovejoy Station Apartments Project, MBIA Insured, 6.00%, 7/01/33 ................ 2,000,000 2,126,560
Portland Housing Authority Revenue, 7.10%, 7/01/15 ......................................... 1,000,000 1,017,030
Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%,
10/01/16 ................................................................................. 635,000 637,972
Portland MFHR, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 ..................... 1,000,000 1,040,900
Portland MFR, Housing Garden Park Estates Project, Series A, GNMA Secured, 5.875%,
3/20/37 .................................................................................. 3,175,000 3,321,812
Portland River District Urban Renewal & Redevelopment Revenue, Series A, AMBAC Insured,
5.00%, 6/15/21 ........................................................................... 3,000,000 3,240,210
Portland Sewer System Revenue,
Refunding, Series A, FSA Insured, 5.00%, 6/01/23 ........................................ 2,500,000 2,669,550
Series A, Pre-Refunded, 6.25%, 6/01/15 .................................................. 9,100,000 9,309,209
Portland Urban Renewal and Redevelopment Tax Allocation, Convention Center, Series A,
AMBAC Insured, 5.50%, 6/15/20 ............................................................ 3,000,000 3,396,030
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ............................................................. 45,000 48,795
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ............................................................ 1,000,000 1,033,060
Public Improvement, Series A, 5.00%, 7/01/27 ............................................ 10,000,000 10,357,500
Public Improvement, Series A, 5.125%, 7/01/31 ........................................... 15,000,000 15,607,200
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, Series Y,
5.50%, 7/01/36 .......................................................................... 13,000,000 14,440,270
Pre-Refunded, 5.50%, 7/01/26 ............................................................ 4,275,000 4,754,869
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series D, 5.375%, 7/01/36 ................................................................ 10,000,000 10,723,500
Puerto Rico Electric Power Authority Revenue,
Series II, 5.25%, 7/01/31 ............................................................... 12,000,000 12,753,840
Series II, FSA Insured, 5.125%, 7/01/26 ................................................. 9,150,000 9,833,688
Series X, Pre-Refunded, 6.00%, 7/01/15 .................................................. 2,500,000 2,716,225
Puerto Rico HFC Revenue, Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%,
12/01/26 ................................................................................. 395,000 401,182
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.50%,
8/01/29 .................................................................................. 5,000,000 5,416,000
Redmond GO, Series C, MBIA Insured, 5.00%, 6/01/33 ......................................... 1,260,000 1,325,633
Salem Educational Facilities Revenue, Willamette University, Refunding, 6.10%, 4/01/14 ..... 1,000,000 1,013,300
Salem-Keizer School District No. 24J GO, 5.00%, 6/01/19 .................................... 9,500,000 10,800,360
Tri-County Metropolitan Transportation District Revenue, Limited Obligation, Airport Light Rail,
Series 1, 5.65%, 6/01/29 ................................................................. 14,080,000 14,878,477
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ................................................................................ 1,635,000 1,753,080
10/01/18 ................................................................................ 2,400,000 2,538,192
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/18 ................................................................................. 2,500,000 2,537,375
7/01/21 ................................................................................. 1,400,000 1,410,360
Washington and Clackamas Counties School District No. 23 GO, MBIA Insured, 5.00%,
6/15/22 .................................................................................. 7,000,000 7,463,610
Annual Report | 161
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Washington County Clean Water Services Sewer Revenue, senior lien, FGIC Insured, 5.00%,
10/01/19 ................................................................................. $ 3,905,000 $ 4,226,967
Washington County GO, 5.00%, 6/01/26 ....................................................... 10,000,000 10,361,800
Washington County School District No. 48J Beaverton GO, 5.00%, 6/01/22 ..................... 4,155,000 4,390,298
Washington County School District No. 88 J Sherwood GO, FSA Insured, Pre-Refunded, 6.10%,
6/01/12 .................................................................................. 190,000 202,000
Washington County Unified Sewer Agency Revenue, senior lien, Series A,
AMBAC Insured, 6.20%, 10/01/10 .......................................................... 470,000 482,793
AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ........................................... 1,000,000 1,030,030
Pre-Refunded, 6.20%, 10/01/10 ........................................................... 3,530,000 3,636,500
Washington Multnomah and Yamhill Counties School District No. 1J Hillsboro GO, FSA Insured,
5.60%, 4/01/20 ........................................................................... 1,000,000 1,134,530
Western Lane Hospital District Hospital Facilities Authority Revenue, Sisters of St. Joseph of
Peace Health and Hospital Services, Refunding, MBIA Insured, 5.875%,
8/01/12 .................................................................................. 4,400,000 4,567,860
---------------
TOTAL BONDS ................................................................................ 615,035,446
---------------
ZERO COUPON BONDS .9%
Oregon Health Sciences University Revenue, Capital Appreciation, Refunding, Series A,
MBIA Insured, 7/01/21 .................................................................... 11,480,000 5,229,140
Portland GO, Limited Tax, Series B, 6/01/21 ................................................ 1,000,000 460,320
---------------
TOTAL ZERO COUPON BONDS .................................................................... 5,689,460
---------------
TOTAL LONG TERM INVESTMENTS (COST $578,632,503) ............................................ 620,724,906
---------------
SHORT TERM INVESTMENTS 1.1%
aMultnomah County Higher Educational Revenue, Concordia University Portland Project,
Daily VRDN and Put, 1.03%, 12/01/29 ...................................................... 700,000 700,000
aPuerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ...................................................... 6,300,000 6,300,000
aPuerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 .............................. 100,000 100,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $7,100,000) ............................................. 7,100,000
---------------
TOTAL INVESTMENTS (COST $585,732,503) 98.9% ................................................ 627,824,906
OTHER ASSETS, LESS LIABILITIES 1.1% ........................................................ 7,154,128
---------------
NET ASSETS 100.0% .......................................................................... $ 634,979,034
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
162 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
-----------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS A 2004 C 2003 2002 2001 2000 C
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $10.51 $10.29 $10.12 $ 9.55 $10.52
-----------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .47 .50 .52 .53 .53
Net realized and unrealized gains (losses) ...................... .11 .22 .17 .56 (.97)
-----------------------------------------------------------
Total from investment operations ................................. .58 .72 .69 1.09 (.44)
-----------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.47) (.50) (.52) (.52) (.53)
Net realized gains .............................................. -- -- -- -- -- d
-----------------------------------------------------------
Total distributions .............................................. (.47) (.50) (.52) (.52) (.53)
-----------------------------------------------------------
Net asset value, end of year ..................................... $10.62 $10.51 $10.29 $10.12 $ 9.55
-----------------------------------------------------------
Total return b ................................................... 5.66% 7.23% 7.01% 11.73% (4.24)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $732,998 $722,865 $676,684 $649,603 $639,004
Ratios to average net assets:
Expenses ........................................................ .66% .66% .67% .67% .66%
Net investment income ........................................... 4.51% 4.82% 5.07% 5.40% 5.32%
Portfolio turnover rate .......................................... 17.63% 6.60% 11.23% 7.56% 24.21%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0002.
</FN>
Annual Report | 163
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (CONTINUED)
---------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS B 2004 C 2003 2002 2001 2000 C,D
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $10.54 $10.31 $10.13 $ 9.55 $9.47
---------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .42 .44 .46 .48 .04
Net realized and unrealized gains (losses) ...................... .10 .24 .18 .57 .08
---------------------------------------------------------
Total from investment operations ................................. .52 .68 .64 1.05 .12
---------------------------------------------------------
Less distributions from net investment income .................... (.41) (.45) (.46) (.47) (.04)
---------------------------------------------------------
Net asset value, end of year ..................................... $10.65 $10.54 $10.31 $10.13 $9.55
---------------------------------------------------------
Total return b ................................................... 5.06% 6.74% 6.50% 11.23% 1.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $50,112 $36,575 $16,408 $3,205 $186
Ratios to average net assets:
Expenses ........................................................ 1.21% 1.21% 1.22% 1.22% 1.21% e
Net investment income ........................................... 3.96% 4.27% 4.50% 4.85% 5.06% e
Portfolio turnover rate .......................................... 17.63% 6.60% 11.23% 7.56% 24.21%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d For the period February 1, 2000 (effective date) to February 29, 2000.
e Annualized.
</FN>
164 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED FEBRUARY 28,
CLASS C 2004 C 2003 2002 2001 2000 C
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $10.58 $10.35 $10.18 $ 9.60 $10.57
------------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .42 .45 .46 .48 .48
Net realized and unrealized gains (losses) ....................... .10 .23 .17 .57 (.97)
------------------------------------------------------------
Total from investment operations .................................. .52 .68 .63 1.05 (.49)
------------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.41) (.45) (.46) (.47) (.48)
Net realized gains ............................................... -- -- -- -- -- d
------------------------------------------------------------
Total distributions ............................................... (.41) (.45) (.46) (.47) (.48)
------------------------------------------------------------
Net asset value, end of year ...................................... $10.69 $10.58 $10.35 $10.18 $ 9.60
------------------------------------------------------------
Total return b .................................................... 5.04% 6.71% 6.38% 11.18% (4.76)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $81,137 $74,605 $55,692 $43,907 $40,973
Ratios to average net assets:
Expenses ......................................................... 1.23% 1.19% 1.22% 1.22% 1.21%
Net investment income ............................................ 3.94% 4.29% 4.52% 4.85% 4.77%
Portfolio turnover rate ........................................... 17.63% 6.60% 11.23% 7.56% 24.21%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c For the year ended February 29.
d The fund made a capital gain distribution of $.0002.
</FN>
Annual Report | See notes to financial statements. | 165
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.0%
BONDS 97.1%
Allegheny County Airport Authority Airport Revenue, Pittsburgh International Airport,
Refunding, 5.75%, 1/01/18 ................................................................. $ 1,000,000 $ 1,085,550
Allegheny County Airport Revenue, Pittsburgh International Airport, Refunding, Series B,
MBIA Insured, 5.00%, 1/01/19 .............................................................. 6,000,000 6,252,720
Allegheny County COP, AMBAC Insured, 5.00%, 12/01/28 ........................................ 4,000,000 4,157,400
Allegheny County GO, MBIA Insured, 5.00%, 11/01/27 .......................................... 1,420,000 1,490,120
Allegheny County Higher Education Building Authority Revenue, Duquesne University Project,
AMBAC Insured, 5.00%, 3/01/21 ............................................................. 1,000,000 1,042,180
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured, Pre-Refunded, 6.25%,
9/01/20 ................................................................................. 10,000,000 11,552,100
Allegheny Hospital, South Hills Health System, Series A, MBIA Insured, 5.875%,
5/01/26 ................................................................................. 1,700,000 1,848,359
Health Center, Canterbury Place, AMBAC Insured, 5.375%, 12/01/21 ......................... 4,500,000 4,848,345
Health System, Series A, MBIA Insured, 6.50%, 11/15/30 ................................... 10,000,000 12,015,800
University of Pittsburgh Health Center, Refunding, Series A, MBIA Insured, 5.625%,
4/01/27 ................................................................................. 10,450,000 11,369,913
Allegheny County IDAR,
Environmental Improvement, USX Corp., Refunding, 6.10%, 1/15/18 .......................... 2,000,000 2,103,640
Environmental Improvement, USX Corp., Refunding, 5.50%, 12/01/29 ......................... 10,000,000 10,121,700
Environmental Improvement, USX Corp., Refunding, 5.60%, 9/01/30 .......................... 7,530,000 7,667,874
Series A, MBIA Insured, 5.00%, 11/01/29 .................................................. 5,000,000 5,239,500
Series B, MBIA Insured, 5.00%, 11/01/29 .................................................. 9,795,000 10,264,180
Allegheny County Port Authority Special Revenue, Transportation,
FGIC Insured, 5.00%, 3/01/25 ............................................................. 13,250,000 13,899,250
FGIC Insured, 5.00%, 3/01/29 ............................................................. 16,500,000 17,240,355
MBIA Insured, Pre-Refunded, 6.125%, 3/01/29 .............................................. 15,000,000 17,889,000
Allegheny County Residential Finance Authority Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G, FHA Insured, 6.35%,
10/01/36 ................................................................................ 1,820,000 1,879,623
SF, Series FF-2, GNMA Secured, 6.00%, 11/01/31 ........................................... 3,925,000 4,113,047
SF, Series II-2, GNMA Secured, 5.90%, 11/01/32 ........................................... 1,145,000 1,195,437
SFM, Series DD-1, GNMA Secured, 5.35%, 11/01/19 .......................................... 345,000 356,878
SFM, Series DD-2, GNMA Secured, 5.40%, 11/01/29 .......................................... 1,655,000 1,703,326
SFMR, Series T, GNMA Secured, 6.95%, 5/01/17 ............................................. 640,000 640,883
Armstrong County GO, MBIA Insured, 5.40%, 6/01/31 ........................................... 2,500,000 2,677,475
Bensalem Township GO, Refunding, FGIC Insured, 5.75%, 12/01/16 .............................. 3,000,000 3,234,600
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded,
7.00%, 5/15/18 ............................................................................ 4,000,000 4,048,960
Berwick Area School District GO, Series A, FGIC Insured, 5.00%, 10/01/25 .................... 1,000,000 1,046,800
Bradford County IDA, Solid Waste Disposal Revenue, International Paper Co. Projects, Series A,
6.60%, 3/01/19 2,500,000 2,617,350
Bucks County IDAR, AMBAC Insured, 5.125%, 9/15/31 ........................................... 3,675,000 3,856,214
Cambria County IDA, PCR, Pennsylvania Electric Co. Project, Refunding, Series A,
MBIA Insured, 5.80%, 11/01/20 ............................................................. 5,000,000 5,457,600
Carbon County IDAR, Panther Creek Partner Project, Refunding, 6.65%,
5/01/10 ................................................................................... 4,000,000 4,352,440
Chartiers Valley Industrial and Commercial Development Authority First Mortgage Revenue,
Asbury Place Project, Pre-Refunded, 6.50%, 2/01/36 ........................................ 4,115,000 4,556,334
166 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding,
5.40%, 7/01/07 ........................................................................... $ 1,000,000 $ 1,007,480
5.55%, 7/01/09 ........................................................................... 2,365,000 2,391,937
5.60%, 7/01/10 ........................................................................... 600,000 602,688
5.75%, 7/01/12 ........................................................................... 1,795,000 1,798,913
5.75%, 7/01/17 ........................................................................... 700,000 673,484
5.625%, 7/01/21 .......................................................................... 1,500,000 1,386,570
Council Rock School District GO, Series A, MBIA Insured, 5.00%, 11/15/22 .................... 5,180,000 5,484,843
Cumberland County Municipal Authority College Revenue, Dickinson College Series A,
AMBAC Insured, 5.50%, 11/01/30 ............................................................ 1,200,000 1,329,408
Dauphin County General Authority Health System Revenue, Pinnacle Health System Project,
Refunding, MBIA Insured, 5.50%, 5/15/17 ................................................... 2,000,000 2,211,600
Dauphin County General Authority Hospital Revenue, Hapsco-Western Hospital Project,
Refunding,
Series A, MBIA Insured, 6.50%, 7/01/12 ................................................... 4,500,000 4,560,120
Series B, MBIA Insured, ETM, 6.25%, 7/01/16 .............................................. 5,000,000 6,111,650
Dauphin County General Authority Revenue, Sub. Series 3, AMBAC Insured, 4.75%,
6/01/26 ................................................................................... 1,000,000 1,061,090
Deer Lakes School District GO, Series A, FSA Insured, 5.00%, 1/15/23 ........................ 1,000,000 1,036,900
Delaware County Authority College Revenue,
Cabrini College, Asset Guaranteed, 5.875%, 7/01/29 ....................................... 6,385,000 7,047,316
Eastern College, Series C, 5.625%, 10/01/28 .............................................. 2,210,000 2,227,216
Haverford College, 5.75%, 11/15/29 ....................................................... 3,500,000 3,976,280
Haverford College, 6.00%, 11/15/30 ....................................................... 1,750,000 2,044,752
Delaware County Authority Revenue,
Dunwoody Village Project, 6.25%, 4/01/30 ................................................. 1,800,000 1,893,492
Health Facilities, Mercy Health Corp. Project, ETM, 6.00%, 12/15/26 ...................... 10,800,000 11,958,624
Delaware County IDAR, Philadelphia Suburban Water Co. Project, FGIC Insured, 6.00%,
6/01/29 ................................................................................... 2,000,000 2,265,520
Delaware County University Authority Revenue, Villanova University, Series A, MBIA Insured,
5.00%, 12/01/28 ........................................................................... 3,000,000 3,102,600
Delaware Valley Regional Finance Authority Local Government Revenue, Series B,
AMBAC Insured, 5.60%, 7/01/17 ............................................................. 5,000,000 6,033,250
Erie County IDA, Environmental Improvement Revenue, International Paper Co. Project,
Refunding, Series B, 6.00%, 9/01/16 ....................................................... 600,000 655,044
Erie GO, Series E, FGIC Insured, 5.25%, 11/15/25 ............................................ 5,000,000 5,335,250
Erie School District GO, AMBAC Insured, Pre-Refunded, 5.80%, 9/01/29 ........................ 3,000,000 3,600,030
Greater Johnstown School District GO, Series C, MBIA Insured, 5.125%,
8/01/25 ................................................................................... 3,630,000 3,836,365
Hazleton Area School District GO, Series B, FGIC Insured, 5.00%, 3/01/23 .................... 4,455,000 4,624,602
Hazleton Health Services Authority Hospital Revenue, Hazleton General Hospital, 5.50%,
7/01/27 ................................................................................... 2,475,000 2,036,232
Lancaster Area Sewer Authority Revenue, MBIA Insured, 5.00%, 4/01/28 ........................ 1,500,000 1,582,575
Lancaster County Hospital Authority Revenue, Health Center,
Masonic Homes Project, Refunding, AMBAC Insured, 5.00%, 11/15/20 ......................... 1,600,000 1,645,120
Willow Valley Retirement Project, 5.875%, 6/01/21 ........................................ 1,000,000 1,051,600
Annual Report | 167
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Latrobe IDAR, Saint Vincent College Project, 5.70%, 5/01/31 ................................. $ 1,500,000 $ 1,561,935
Lebanon County Good Samaritan Hospital Authority Revenue, Good Samaritan Hospital Project,
Refunding, 6.00%, 11/15/18 ................................................................ 2,500,000 2,532,025
Lehigh County General Purpose Authority Revenues,
Good Shepherd Rehabilitation Hospital, Refunding, AMBAC Insured,
5.25%, 11/15/27 .......................................................................... 5,000,000 5,234,950
Lehigh Valley Hospital, Health Network, Series A, MBIA Insured,
5.00%, 7/01/28 .......................................................................... 4,000,000 4,131,320
Lehigh Valley Hospital, Health Network, Series B, FSA Insured,
5.25%, 7/01/19 .......................................................................... 2,750,000 3,016,282
Lehigh Valley Hospital, Refunding, Series A, MBIA Insured, 5.875%,
7/01/15 ................................................................................. 1,000,000 1,076,190
Muhlenburg Hospital Center, Series A, Pre-Refunded, 6.60%, 7/15/22 ....................... 5,800,000 5,919,538
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding,
Series A, MBIA Insured, 6.15%, 8/01/29 ................................................... 5,550,000 6,021,694
Series B, MBIA Insured, 6.40%, 9/01/29 ................................................... 10,000,000 10,454,400
Lower Merion Township School District GO, Refunding, 4.375%, 5/15/18 ........................ 3,000,000 3,101,160
Luzerne County GO, Series D, FGIC Insured, 5.00%, 11/15/26 .................................. 5,000,000 5,204,500
Luzerne County IDA Exempt Facility Revenue, Gas and Water Co. Project, Refunding, Series A,
6.05%, 1/01/19 ........................................................................... 4,750,000 4,869,225
AMBAC Insured, 7.00%, 12/01/17 ........................................................... 5,000,000 5,295,700
Lycoming County Authority College Revenue, Pennsylvania College of Technology,
AMBAC Insured, 5.25%, 5/01/32 ............................................................ 5,030,000 5,369,927
Refunding, AMBAC Insured, 5.35%, 7/01/26 ................................................. 2,400,000 2,571,048
Mercer County GO, FGIC Insured, 5.00%, 10/01/31 ............................................. 2,000,000 2,083,080
Mercer County IDA, Water Facilities Revenue, MBIA Insured, 6.00%, 7/01/30 ................... 5,000,000 5,685,500
Montgomery County GO, 5.00%, 9/15/22 ........................................................ 3,335,000 3,518,959
Montgomery County Higher Education and Health Authority Revenue, Faulkeways At Gwynedd
Project, 6.75%,
11/15/24 ................................................................................. 400,000 428,288
11/15/30 ................................................................................. 1,000,000 1,065,670
Montgomery County IDA, Retirement Community Revenue,
Act Retirement-Life Communities, 5.25%, 11/15/28 ......................................... 5,000,000 4,951,800
Adult Community Total Services, Refunding, Series A, 5.875%, 11/15/22 .................... 4,850,000 5,070,530
Adult Community Total Services, Series B, 5.75%, 11/15/17 ................................ 4,000,000 4,225,840
Mount Pleasant Business District Authority Hospital Revenue, Frick Hospital, Refunding,
5.70%, 12/01/13 .......................................................................... 1,205,000 1,261,249
5.75%, 12/01/17 .......................................................................... 500,000 509,980
5.75%, 12/01/27 .......................................................................... 1,600,000 1,579,440
Muhlenberg School District GO, Series AA, FGIC Insured,
5.00%, 9/01/22 ........................................................................... 1,390,000 1,478,974
Pre-Refunded, 6.00%, 9/01/23 ............................................................. 4,000,000 4,847,800
Neshaminy School District GO, FGIC Insured, Pre-Refunded, 7.00%, 2/15/14 .................... 1,000,000 1,027,330
New Wilmington Municipal Authority College Revenue, Westminster College, 5.35%,
3/01/28 ................................................................................... 2,250,000 2,266,853
Norristown Area School District GO, FGIC Insured, 5.00%, 9/01/27 ............................ 5,000,000 5,255,000
North Hampton County IDAR, PCR, Metropolitan Edison Co., Refunding, Series A,
MBIA Insured, 6.10%, 7/15/21 .............................................................. 6,100,000 6,610,692
North Pocona School District GO, FGIC Insured, 5.00%, 9/15/23 ............................... 2,640,000 2,805,528
168 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Norwin School District GO,
FGIC Insured, Pre-Refunded, 6.00%, 4/01/30 ............................................... $ 5,000,000 $ 5,996,550
Series A, MBIA Insured, 5.00%, 4/01/30 ................................................... 1,000,000 1,039,820
Series B, MBIA Insured, 5.00%, 4/01/31 ................................................... 6,390,000 6,609,497
Pennsbury School District GO, FGIC Insured, 5.00%, 1/15/22 .................................. 2,835,000 3,014,030
Pennsylvania Convention Center Authority Revenue, Refunding, Series A,
6.60%, 9/01/09 ............................................................................ 5,000,000 5,212,400
Pennsylvania EDA,
Financing Authority Revenue, MacMillan, LP Project, Pre-Refunded, 7.60%,
12/01/20 ................................................................................. 3,000,000 3,381,840
Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%,
12/01/15 ................................................................................ 5,000,000 5,212,400
Pennsylvania HFA, SFMR, Refunding, Series 54-A, 6.15%, 10/01/22 ............................. 95,000 99,092
Pennsylvania HFAR,
SF, 5.75%, 7/01/14 ....................................................................... 50,000 50,000
SF, 5.25%, 4/01/21 ....................................................................... 7,000,000 7,163,730
SFM, Series 67A, 5.85%, 10/01/18 ......................................................... 5,000,000 5,288,700
Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue, Philadelphia
Funding Program, FGIC Insured, Pre-Refunded, 7.00%, 6/15/14 ............................... 6,000,000 6,459,420
Pennsylvania State Higher Educational Facilities Authority College and University Revenues,
Allegheny College, Series B, 6.125%, 11/01/13 ............................................ 90,000 92,172
Marywood University Project, MBIA Insured, 5.65%, 6/01/25 ................................ 2,500,000 2,803,475
Pennsylvania State Higher Educational Facilities Authority Health Services Revenue,
Allegheny Delaware Valley Obligation Group, Refunding, Series A, MBIA Insured, 5.875%,
11/15/21 ................................................................................ 17,000,000 18,655,460
University of Pennsylvania Health Services, Refunding, Series A, 5.75%,
1/01/22 ................................................................................. 10,000,000 10,285,400
Pennsylvania State Higher Educational Facilities Authority Revenue,
Bryn Mawr College, AMBAC Insured, 5.125%, 12/01/29 ....................................... 1,500,000 1,569,000
Drexel University, Refunding, MBIA Insured, 5.75%, 5/01/22 ............................... 4,000,000 4,512,440
Drexel University, Series A, 5.00%, 5/01/20 .............................................. 1,485,000 1,564,908
Drexel University, Series A, 5.20%, 5/01/29 .............................................. 750,000 787,268
Philadelphia College of Textiles and Science, 6.75%, 4/01/20 ............................. 3,040,000 3,195,678
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 ................. 4,000,000 4,328,120
State System of Higher Education, Series R, FSA Insured, 5.00%, 6/15/24 .................. 3,140,000 3,284,974
Temple University, 7.40%, 10/01/10 ....................................................... 30,000 30,150
Temple University, First Series, MBIA Insured, 5.00%, 7/15/31 ............................ 3,000,000 3,135,390
Pennsylvania State Public School Building Authority Revenue, Lehigh Career and Technical
Institution, MBIA Insured, 5.00%, 10/01/31 ................................................ 1,000,000 1,041,540
Pennsylvania State Turnpike Commission Oil Franchise Tax Revenue, Series B, MBIA Insured,
5.00%,
12/01/24 ................................................................................. 1,655,000 1,757,163
12/01/31 ................................................................................. 5,000,000 5,255,550
Pennsylvania State Turnpike Commission Revenue, AMBAC Insured, 5.00%,
7/15/28 .................................................................................. 10,000,000 10,497,600
7/15/31 .................................................................................. 13,820,000 14,481,011
Pennsylvania State Turnpike Commission Turnpike Revenue, Series R, AMBAC Insured, 5.00%,
12/01/26 .................................................................................. 2,230,000 2,349,305
Pennsylvania State Turnpike Oil Commission Franchise Tax Revenue, Series R, AMBAC Insured,
5.00%, 12/01/30 ........................................................................... 11,125,000 11,682,585
Annual Report | 169
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured, 6.10%,
6/15/25 ................................................................................... $ 5,000,000 $ 5,369,100
Philadelphia Authority For IDR, Philadelphia Corp. Aging Project, Series B, AMBAC Insured,
5.25%, 7/01/31 ............................................................................ 2,000,000 2,132,860
Philadelphia Gas Works Revenue, 12th Series B, MBIA Insured, ETM, 7.00%,
5/15/20 ................................................................................... 1,000,000 1,299,730
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Children's Hospital, Refunding, Series A, 5.00%, 2/15/21 ................................. 2,465,000 2,489,527
Frankford Hospital, Series A, ETM, 6.00%, 6/01/14 ........................................ 2,460,000 2,506,125
Temple University Hospital, 5.875%, 11/15/23 ............................................. 5,000,000 5,012,700
Philadelphia Housing Authority Capital Fund Program Revenue, Series A, FSA Insured, 5.00%,
12/01/21 .................................................................................. 5,000,000 5,395,750
Philadelphia IDA, Lease Revenue, Series B, FSA Insured, 5.125%, 10/01/26 .................... 12,000,000 12,668,280
Philadelphia Parking Authority Parking Revenue, Airport, FSA Insured, 5.25%,
9/01/22 .................................................................................. 3,250,000 3,499,763
9/01/29 .................................................................................. 13,000,000 13,714,610
Philadelphia RDA, Home Improvement Loan Revenue, Series B, FHA Insured, 6.10%,
6/01/17 ................................................................................... 600,000 622,974
Philadelphia School District GO,
Series B, AMBAC Insured, 5.375%, 4/01/19 ................................................. 1,000,000 1,076,940
Series C, MBIA Insured, 5.75%, 3/01/29 ................................................... 8,000,000 9,044,160
Philadelphia Water and Sewer Revenue, Series 10,ETM, 7.35%, 9/01/04 ......................... 2,440,000 2,517,470
Philadelphia Water and Wastewater Revenue, Series A, FGIC Insured, 5.00%,
11/01/31 .................................................................................. 8,000,000 8,371,440
Pittsburgh Public Parking Authority Parking Revenue, AMBAC Insured, 6.00%,
12/01/24 .................................................................................. 2,000,000 2,331,820
Pittsburgh Urban RDA,
Mortgage Revenue, Series C, GNMA Secured, 5.70%, 4/01/30 ................................. 1,370,000 1,414,032
Mortgage Revenue, Series D, 6.25%, 10/01/17 .............................................. 1,695,000 1,769,919
Tax Allocation, 6.10%, 5/01/19 ........................................................... 1,000,000 1,116,740
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured, ETM, 7.25%,
9/01/14 ................................................................................... 1,250,000 1,577,963
Plum Boro School District GO, FGIC Insured, 5.25%, 9/15/30 .................................. 8,870,000 9,413,110
Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.00%,
7/01/27 .................................................................................. 10,590,000 10,968,593
7/01/33 .................................................................................. 34,685,000 35,911,808
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series G, 5.00%, 7/01/33 .................................................................. 1,000,000 1,035,370
Sayre Health Care Facilities Authority Revenue, Guthrie Health, Series A, 5.875%,
12/01/31 .................................................................................. 2,500,000 2,640,500
Seneca Valley School District GO, MBIA Insured, 5.375%, 1/01/21 ............................. 2,000,000 2,195,820
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial Hospital Project,
Series A, MBIA Insured, 5.75%, 7/01/26 .................................................... 10,000,000 10,873,500
Southcentral General Authority Revenue, Wellspan Health Obligated, Refunding, MBIA Insured,
5.25%, 5/15/31 ............................................................................ 10,000,000 10,650,000
Southeastern Pennsylvania Transportation Authority Special Revenue, FGIC Insured, 5.375%,
3/01/22 ................................................................................... 3,000,000 3,214,440
Southern Lehigh School District GO, Series A, FGIC Insured, 5.00%, 9/01/25 .................. 6,900,000 7,255,695
State Public School Building Authority College Revenue, Westmoreland County Community
College, FGIC Insured, 5.25%, 10/15/22 .................................................... 2,675,000 2,916,579
170 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
State Public School Building Authority Lease Revenue, Philadelphia School District Project,
FSA Insured, 5.00%, 6/01/29 ............................................................... $ 3,300,000 $ 3,466,749
State Public School Building Authority School Revenue,
Daniel Boone School District Project, MBIA Insured, 5.00%, 4/01/28 ....................... 10,000,000 10,505,800
Northwestern School District Project, Series E, FGIC Insured, 5.75%,
1/15/19 ................................................................................. 3,000,000 3,414,570
Philadelphia School District Project, FSA Insured, 5.00%, 6/01/33 ........................ 34,170,000 35,816,994
Susquehanna Area Regional Airport Authority Revenue,
Series A, AMBAC Insured, 5.00%, 1/01/28 .................................................. 3,000,000 3,094,860
Series B, AMBAC Insured, 5.00%, 1/01/33 .................................................. 10,000,000 10,345,600
University of Pittsburgh Revenue, Higher Education, Refunding, Series B, MBIA Insured,
5.00%, 6/01/21 ............................................................................ 10,000,000 10,536,300
Upper St. Clair Township School District GO,
FSA Insured, 5.00%, 7/15/28 .............................................................. 1,000,000 1,047,270
Refunding, 5.20%, 7/15/27 ................................................................ 5,000,000 5,179,000
Virgin Islands PFAR, Gross Receipts Taxes, Loan Notes, 5.00%, 10/01/33 ...................... 5,000,000 5,229,850
Washington County Authority Revenue, Capital Projects and Equipment Program, Refunding,
AMBAC Insured, 6.15%, 12/01/29 ............................................................ 5,000,000 6,223,300
Washington County GO, Series A, AMBAC Insured, 5.125%, 9/01/27 .............................. 5,000,000 5,287,300
West Allegheny School District GO, Refunding, Series D,
4.75%, 9/01/19 ........................................................................... 3,625,000 3,811,978
FGIC Insured, 4.75%, 9/01/20 ............................................................. 3,805,000 3,980,068
Wilkes Barre Area School District GO, FGIC Insured, Pre-Refunded, 6.375%,
4/01/15 ................................................................................... 2,000,000 2,062,940
---------------
TOTAL BONDS 839,276,476
---------------
ZERO COUPON/STEP-UP BONDS .9%
Pennsylvania HFA, SFMR,
Series 63A, 4/01/30 ...................................................................... 11,000,000 2,708,090
Series 64, zero cpn. to 10/01/08, 5.25% thereafter, 4/01/30 .............................. 6,000,000 4,797,480
---------------
TOTAL ZERO COUPON/STEP-UP BONDS ............................................................. 7,505,570
---------------
TOTAL LONG TERM INVESTMENTS (COST $786,272,869) ............................................. 846,782,046
---------------
Annual Report | 171
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS .7%
aChester County IDAR, Refunding, Daily VRDN and Put, 1.00%, 7/01/31 .......................... $ 100,000 $ 100,000
aEmmaus General Authority Revenue, FSA Insured, Weekly VRDN and Put,
.96%, 12/01/28 ............................................................................ 285,000 285,000
aGettysburg Area IDAR, Brethren Home Community Project, Series A, Weekly VRDN and Put,
.96%, 6/01/24 ............................................................................. 185,000 185,000
aLehigh County General Purpose Authority Revenue, St. Lukes Hospital Project,
Daily VRDN and Put, .93%, 7/01/31 ......................................................... 100,000 100,000
aNew Castle Area Hospital Authority Revenue, Jameson Memorial Hospital, FSA Insured,
Weekly VRDN and Put, .90%, 7/01/26 ........................................................ 3,800,000 3,800,000
aPennsylvania State Higher Educational Facilities Authority College and University Revenues,
College of Optometry, Refunding, Weekly VRDN and Put, .96%, 3/01/26 ....................... 500,000 500,000
aPuerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, .89%, 12/01/15 ....................................................... 300,000 300,000
aPuerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, .92%, 7/01/28 ............................... 200,000 200,000
aYork General Authority Pooled Financing Revenue,
Sub Series 1996-B, AMBAC Insured, Weekly VRDN and Put, .96%, 9/01/26 ..................... 395,000 395,000
Sub Series A, AMBAC Insured, Weekly VRDN and Put, .96%, 9/01/26 .......................... 695,000 695,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $6,560,000) .............................................. 6,560,000
---------------
TOTAL INVESTMENTS (COST $792,832,869) 98.7% ................................................. 853,342,046
OTHER ASSETS, LESS LIABILITIES 1.3% ......................................................... 10,905,374
---------------
NET ASSETS 100.0% ........................................................................... $ 864,247,420
---------------
<FN>
See glossary of terms on page 173.
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.
</FN>
172 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (CONTINUED)
GLOSSARY OF TERMS
1915 ACT - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
ACES - Adjustable Convertible Exempt Securities
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CDA - Community Development Authority/Agency
CDD - Community Development District
CFD - Community Facilities District
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority/Agency Revenue
HFC - Housing Finance Corp.
HFR - Housing Finance Revenue
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDB - Industrial Development Bond/Board
IDR - Industrial Development Revenue
IPC - Industrial Pollution Control
ISD - Independent School District
LLC - Limited Liability Corp.
LP - Limited Partnership
MAC - Municipal Assistance Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
PLC - Public Limited Co.
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
USD - Unified/Union School District
XLCA - XL Capital Assurance
Annual Report | 173
Franklin Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
February 29, 2004
-------------------------------------------------------------
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 ................................................. $891,518,105 $346,241,215 $291,758,998 $318,974,360
-------------------------------------------------------------
Value ................................................ 954,306,577 377,219,601 309,628,948 339,880,914
Cash .................................................. 1,310,699 58,355 154,717 313,585
Receivables:
Investment securities sold ........................... 5,120,122 -- -- --
Capital shares sold .................................. 945,228 689,495 241,478 1,335,921
Interest ............................................. 10,305,428 5,532,180 3,740,280 3,866,708
-------------------------------------------------------------
Total assets ..................................... 971,988,054 383,499,631 313,765,423 345,397,128
-------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ...................... -- -- 3,633,112 --
Capital shares redeemed .............................. 680,291 537,955 656,849 373,244
Affiliates ........................................... 498,940 218,641 187,543 209,230
Shareholders ......................................... 434,112 102,185 332,407 136,901
Distributions to shareholders ......................... 994,725 385,985 246,394 328,337
Other liabilities ..................................... 89,531 46,106 38,015 45,234
-------------------------------------------------------------
Total liabilities ................................ 2,697,599 1,290,872 5,094,320 1,092,946
-------------------------------------------------------------
Net assets, at value ............................ $969,290,455 $382,208,759 $308,671,103 $344,304,182
-------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................... $ (763,973) $ 36,763 $ (193,783) $ (217,680)
Net unrealized appreciation (depreciation) ............ 62,788,472 30,978,386 17,869,950 20,906,554
Accumulated net realized gain (loss) .................. (21,957,742) (7,718,478) (6,997,652) 590,492
Capital shares ........................................ 929,223,698 358,912,088 297,992,588 323,024,816
-------------------------------------------------------------
Net assets, at value ............................ $969,290,455 $382,208,759 $308,671,103 $344,304,182
-------------------------------------------------------------
174 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
----------------------------------------------------------
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 .................................. $900,646,098 $339,133,641 $265,854,161 $298,732,029
----------------------------------------------------------
Shares outstanding .................................... 80,349,310 27,826,083 23,911,034 24,763,425
----------------------------------------------------------
Net asset value per share a ........................... $11.21 $12.19 $11.12 $12.06
----------------------------------------------------------
Maximum offering price per share (net asset value per
share / 95.75%) ..................................... $11.71 $12.73 $11.61 $12.60
----------------------------------------------------------
CLASS B:
Net assets, at value .................................. $ 25,617,399 -- -- --
----------------------------------------------------------
Shares outstanding .................................... 2,274,311 -- -- --
----------------------------------------------------------
Net asset value and maximum offering price
per share a .......................................... $11.26 -- -- --
----------------------------------------------------------
CLASS C:
Net assets, at value .................................. $ 43,026,958 $ 43,075,118 $ 42,816,942 $ 45,572,153
----------------------------------------------------------
Shares outstanding .................................... 3,805,219 3,511,679 3,834,646 3,766,684
----------------------------------------------------------
Net asset value and maximum offering price
per share a .......................................... $11.31 $12.27 $11.17 $12.10
----------------------------------------------------------
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</FN>
Annual Report | 175
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
---------------------------------------------------------------
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 ............................................. $432,603,450 $24,777,583 $5,061,353,414 $899,117,160
---------------------------------------------------------------
Value ............................................ 460,728,114 24,970,349 5,331,663,629 968,777,104
Cash .............................................. 8,528 69,849 1,951 9,461
Receivables:
Capital shares sold .............................. 2,004,909 323,312 10,755,718 2,066,090
Interest ......................................... 5,167,940 145,586 88,514,874 11,260,944
Offering costs (Note 1e) .......................... -- 18,827 -- --
---------------------------------------------------------------
Total assets ................................. 467,909,491 25,527,923 5,430,936,172 982,113,599
---------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................. -- 936,605 26,423,825 --
Capital shares redeemed .......................... 1,043,274 251,437 5,685,345 1,036,978
Affiliates ....................................... 249,194 3,238 2,938,303 572,187
Shareholders ..................................... 65,002 227 3,112,904 530,898
Distributions to shareholders ..................... 378,313 7,658 5,470,537 782,931
Other liabilities ................................. 50,221 47,155 473,041 102,353
---------------------------------------------------------------
Total liabilities ............................ 1,786,004 1,246,320 44,103,955 3,025,347
---------------------------------------------------------------
Net assets, at value ........................ $466,123,487 $24,281,603 $5,386,832,217 $979,088,252
---------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ............... $ (294,830) $ 28,288 $ 3,600,097 $ 141,350
Net unrealized appreciation (depreciation) ........ 28,124,664 192,766 270,310,215 69,659,944
Accumulated net realized gain (loss) .............. (4,772,998) -- (385,664,859) (3,510,236)
Capital shares .................................... 443,066,651 24,060,549 5,498,586,764 912,797,194
---------------------------------------------------------------
Net assets, at value ........................ $466,123,487 $24,281,603 $5,386,832,217 $979,088,252
---------------------------------------------------------------
176 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
-------------------------------------------------------------------
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 ............................... $454,941,960 $24,281,603 $4,570,741,871 $786,938,476
-------------------------------------------------------------------
Shares outstanding ................................. 38,701,272 2,398,555 424,106,271 64,346,808
-------------------------------------------------------------------
Net asset value per share a ........................ $11.76 $10.12 $10.78 $12.23
-------------------------------------------------------------------
Maximum offering price per share (net asset value per
share / 97.75%, 100%, 95.75% and 95.75%,
respectively) ..................................... $12.03 $10.12 $11.26 $12.77
-------------------------------------------------------------------
CLASS B:
Net assets, at value ............................... -- -- $ 250,878,303 $ 80,302,747
-------------------------------------------------------------------
Shares outstanding ................................. -- -- 23,144,661 6,533,092
-------------------------------------------------------------------
Net asset value and maximum offering price
per share a ...................................... -- -- $10.84 $12.29
-------------------------------------------------------------------
CLASS C:
Net assets, at value ............................... $ 11,181,527 -- $ 565,212,043 $111,847,029
-------------------------------------------------------------------
Shares outstanding ................................. 950,013 -- 51,966,499 9,082,078
-------------------------------------------------------------------
Net asset value and maximum offering price
per share a ....................................... $11.77 -- $10.88 $12.32
-------------------------------------------------------------------
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</FN>
Annual Report | 177
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
-----------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
-----------------------------
Assets:
Investments in securities:
Cost ............................................................ $585,732,503 $792,832,869
-----------------------------
Value ........................................................... 627,824,906 853,342,046
Cash ............................................................. 901,309 135,586
Receivables:
Capital shares sold ............................................. 710,783 1,221,878
Interest ........................................................ 7,161,409 12,989,510
-----------------------------
Total assets ................................................ 636,598,407 867,689,020
-----------------------------
Liabilities:
Payables:
Capital shares redeemed ......................................... 401,253 1,496,133
Affiliates ...................................................... 356,041 532,866
Shareholders .................................................... 278,984 500,980
Distributions to shareholders .................................... 520,380 840,053
Other liabilities ................................................ 62,715 71,568
-----------------------------
Total liabilities ........................................... 1,619,373 3,441,600
-----------------------------
Net assets, at value ....................................... $634,979,034 $864,247,420
-----------------------------
Net assets consist of:
Undistributed net investment income .............................. $ 1,034,875 $ (587,643)
Net unrealized appreciation (depreciation) ....................... 42,092,403 60,509,177
Accumulated net realized gain (loss) ............................. (7,840,159) (9,906,512)
Capital shares ................................................... 599,691,915 814,232,398
-----------------------------
Net assets, at value ....................................... $634,979,034 $864,247,420
-----------------------------
178 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2004
------------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------------------------
CLASS A:
Net assets, at value ................................................................... $554,871,490 $732,998,188
------------------------------
Shares outstanding ..................................................................... 46,420,138 69,009,453
------------------------------
Net asset value per share a ............................................................ $11.95 $10.62
------------------------------
Maximum offering price per share (net asset value per share / 95.75%) .................. $12.48 $11.09
------------------------------
CLASS B:
Net assets, at value ................................................................... -- $ 50,112,377
------------------------------
Shares outstanding ..................................................................... -- 4,704,388
------------------------------
Net asset value and maximum offering price per share a ................................. -- $10.65
------------------------------
CLASS C:
Net assets, at value ................................................................... $ 80,107,544 $ 81,136,855
------------------------------
Shares outstanding ..................................................................... 6,644,639 7,588,212
------------------------------
Net asset value and maximum offering price per share a ................................. $12.06 $10.69
------------------------------
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</FN>
Annual Report | See notes to financial statements. | 179
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended February 29, 2004
-------------------------------------------------------
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 ................................................... $ 50,709,971 $19,864,566 $16,089,343 $16,500,124
-------------------------------------------------------
Expenses:
Management fees (Note 3) ................................... 4,504,067 1,951,777 1,658,094 1,714,663
Distribution fees (Note 3)
Class A ................................................... 883,304 335,492 270,164 285,988
Class B ................................................... 151,511 -- -- --
Class C ................................................... 269,546 289,333 296,006 266,120
Transfer agent fees (Note 3) ............................... 331,367 170,500 138,058 193,636
Custodian fees ............................................. 9,661 4,785 3,239 3,227
Reports to shareholders .................................... 43,908 23,567 17,984 24,044
Registration and filing fees ............................... 25,960 11,066 8,510 40,853
Professional fees .......................................... 31,800 22,142 17,866 16,487
Trustees' fees and expenses ................................ 8,058 3,243 2,709 2,742
Other ...................................................... 81,750 37,406 33,499 28,451
-------------------------------------------------------
Total expenses ........................................ 6,340,932 2,849,311 2,446,129 2,576,211
-------------------------------------------------------
Net investment income ................................ 44,369,039 17,015,255 13,643,214 13,923,913
-------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .................. (20,658,598) (4,268,593) (3,507,772) 576,099
Net unrealized appreciation (depreciation)
on investments ............................................. 48,316,889 10,100,721 3,545,453 5,153,880
-------------------------------------------------------
Net realized and unrealized gain (loss) ..................... 27,658,291 5,832,128 37,681 5,729,979
-------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................................ $ 72,027,330 $22,847,383 $13,680,895 $19,653,892
-------------------------------------------------------
180 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 29, 2004
----------------------------------------------------------------
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 A INCOME FUND INCOME FUND
----------------------------------------------------------------
Investment income:
Interest .............................................. $18,562,587 $149,381 $322,859,615 $49,716,410
----------------------------------------------------------------
Expenses:
Management fees (Note 3) .............................. 2,168,068 43,166 23,532,184 4,582,962
Administrative fees (Note 3) .......................... -- 17,266 -- --
Distribution fees (Note 3) ............................
Class A .............................................. 419,633 13,055 4,134,988 782,248
Class B .............................................. -- -- 1,501,112 488,264
Class C .............................................. 28,382 -- 3,440,056 711,786
Transfer agent fees (Note 3) .......................... 182,063 2,083 2,653,180 473,365
Custodian fees ........................................ 5,065 47 50,016 9,556
Reports to shareholders ............................... 19,693 2,796 298,308 57,972
Registration and filing fees .......................... 68,477 -- 171,464 20,701
Offering costs (Note 1e) .............................. -- 18,827 -- --
Professional fees ..................................... 19,309 10,411 102,304 32,422
Trustees' fees and expenses ........................... 3,513 -- 44,058 8,216
Other ................................................. 54,339 2,801 405,000 80,865
----------------------------------------------------------------
Total expenses .................................... 2,968,542 110,452 36,332,670 7,248,357
Expenses waived/paid by affiliate (Note 3) ........ -- (67,073) -- --
----------------------------------------------------------------
Net expenses ..................................... 2,968,542 43,379 36,332,670 7,248,357
----------------------------------------------------------------
Net investment income .......................... 15,594,045 106,002 286,526,945 42,468,053
----------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............. (668,601) -- (38,082,554) (2,542,310)
Net unrealized appreciation (depreciation) on
investments .......................................... 11,104,148 192,766 228,390,197 17,189,050
----------------------------------------------------------------
Net realized and unrealized gain (loss) ................ 10,435,547 192,766 190,307,643 14,646,740
----------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations ............................................ $26,029,592 $298,768 $476,834,588 $57,114,793
----------------------------------------------------------------
<FN>
a For the period September 2, 2003 (effective date) to February 29, 2004.
</FN>
Annual Report | 181
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 29, 2004
----------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------------------------
Investment income:
Interest ............................................................... $33,229,773 $43,923,896
----------------------------
Expenses:
Management fees (Note 3) ............................................... 3,085,337 4,073,989
Distribution fees (Note 3)
Class A ............................................................... 552,526 728,100
Class B ............................................................... -- 293,716
Class C ............................................................... 535,217 518,527
Transfer agent fees (Note 3) ........................................... 269,664 495,996
Custodian fees ......................................................... 6,241 10,208
Reports to shareholders ................................................ 33,901 60,973
Registration and filing fees ........................................... 11,909 16,376
Professional fees ...................................................... 22,657 32,170
Trustees' fees and expenses ............................................ 5,389 7,243
Other .................................................................. 59,114 75,276
----------------------------
Total expenses .................................................... 4,581,955 6,312,574
----------------------------
Net investment income ............................................ 28,647,818 37,611,322
----------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .............................. (1,314,156) 550,793
Net unrealized appreciation (depreciation) on investments .............. 13,960,130 7,829,296
----------------------------
Net realized and unrealized gain (loss) ................................. 12,645,974 8,380,089
----------------------------
Net increase (decrease) in net assets resulting from operations ......... $41,293,792 $45,991,411
----------------------------
182 | See notes to financial statements. | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended February 29, 2004 and February 28, 2003
-----------------------------------------------------------------
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 44,369,039 $ 46,397,059 $ 17,015,255 $ 17,389,156
Net realized gain (loss) from investments ..... (20,658,598) (1,217,555) (4,268,593) (478,716)
Net unrealized appreciation (depreciation) on
investments .................................. 48,316,889 11,512,404 10,100,721 6,898,223
-----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................ 72,027,330 56,691,908 22,847,383 23,808,663
Distributions to shareholders from:
Net investment income:
Class A ...................................... (41,679,586) (43,990,532) (15,005,597) (15,808,097)
Class B ...................................... (960,327) (726,902) -- --
Class C ...................................... (1,665,537) (1,533,527) (1,680,274) (1,657,910)
-----------------------------------------------------------------
Total distributions to shareholders ............ (44,305,450) (46,250,961) (16,685,871) (17,466,007)
Capital share transactions: (Note 2)
Class A ...................................... (5,539,682) (6,424,239) (12,213,413) 31,060,050
Class B ...................................... 4,251,835 8,589,023 -- --
Class C ...................................... 4,484,816 5,315,893 (1,385,337) 8,661,494
-----------------------------------------------------------------
Total capital share transactions ............... 3,196,969 7,480,677 (13,598,750) 39,721,544
Net increase (decrease) in net assets ..... 30,918,849 17,921,624 (7,437,238) 46,064,200
Net assets:
Beginning of year .............................. 938,371,606 920,449,982 389,645,997 343,581,797
-----------------------------------------------------------------
End of year .................................... $969,290,455 $938,371,606 $382,208,759 $389,645,997
-----------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of year ................................... $ (763,973) $ (780,711) $ 36,763 $ (278,335)
-----------------------------------------------------------------
Annual Report | 183
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) for the years ended February 29,
2004 and February 28, 2003
-----------------------------------------------------------------
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 13,643,214 $ 14,448,900 $ 13,923,913 $ 12,728,262
Net realized gain (loss) from investments ..... (3,507,772) (301,098) 576,099 1,266,563
Net unrealized appreciation (depreciation) on
investments .................................. 3,545,453 6,932,080 5,153,880 4,007,179
-----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................ 13,680,895 21,079,882 19,653,892 18,002,004
Distributions to shareholders from:
Net investment income:
Class A ...................................... (11,965,537) (12,678,538) (12,518,487) (11,703,123)
Class C ...................................... (1,720,192) (1,824,860) (1,486,625) (958,610)
Net realized gains:
Class A ...................................... -- -- (801,023) --
Class C ...................................... -- -- (110,991) --
-----------------------------------------------------------------
Total distributions to shareholders ............ (13,685,729) (14,503,398) (14,917,126) (12,661,733)
Capital share transactions: (Note 2)
Class A ...................................... (13,448,720) 7,591,220 21,517,610 29,180,967
Class C ...................................... (3,410,293) 6,899,565 14,074,696 12,401,078
-----------------------------------------------------------------
Total capital share transactions ............... (16,859,013) 14,490,785 35,592,306 41,582,045
Net increase (decrease) in net assets ..... (16,863,847) 21,067,269 40,329,072 46,922,316
Net assets:
Beginning of year .............................. 325,534,950 304,467,681 303,975,110 257,052,794
-----------------------------------------------------------------
End of year .................................... $308,671,103 $325,534,950 $344,304,182 $303,975,110
-----------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of year ................................... $ (193,783) $ (143,624) $ (217,680) $ (120,924)
-----------------------------------------------------------------
184 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004 and February 28, 2003
--------------------------------------------------------
FRANKLIN FEDERAL FRANKLIN FEDERAL
INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------
2004 2003 2004 A
--------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 15,594,045 $ 12,032,231 $ 106,002
Net realized gain (loss) from investments ................... (668,601) (1,667,996) --
Net unrealized appreciation (depreciation) on investments ... 11,104,148 11,278,999 192,766
--------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations ............................................. 26,029,592 21,643,234 298,768
Distributions to shareholders from:
Net investment income:
Class A .................................................... (15,561,514) (12,306,438) (98,401)
Class C .................................................... (130,067) -- --
--------------------------------------------------------
Total distributions to shareholders .......................... (15,691,581) (12,306,438) (98,401)
Capital share transactions: (Note 2)
Class A .................................................... 79,906,840 115,549,260 24,081,236
Class C .................................................... 10,835,484 -- --
--------------------------------------------------------
Total capital share transactions ............................. 90,742,324 115,549,260 24,081,236
Net increase (decrease) in net assets ................... 101,080,335 124,886,056 24,281,603
Net assets:
Beginning of year ............................................ 365,043,152 240,157,096 --
--------------------------------------------------------
End of year .................................................. $466,123,487 $365,043,152 $24,281,603
--------------------------------------------------------
Undistributed net investment income included in net assets:
End of year .................................................. $ (294,830) $ (185,953) $ 28,288
--------------------------------------------------------
<FN>
a For the period September 2, 2003 (effective date) to February 29, 2004.
</FN>
Annual Report | 185
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004 and February 28, 2003
-----------------------------------------------------------------
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 286,526,945 $ 292,448,793 $ 42,468,053 $ 41,127,508
Net realized gain (loss) from investments .... (38,082,554) (156,638,645) (2,542,310) 1,872,908
Net unrealized appreciation (depreciation) on
investments ................................. 228,390,197 59,952,076 17,189,050 12,001,971
-----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............... 476,834,588 195,762,224 57,114,793 55,002,387
Distributions to shareholders from:
Net investment income:
Class A ..................................... (248,671,196) (257,560,436) (34,707,901) (35,557,820)
Class B ..................................... (11,645,618) (9,941,037) (2,905,134) (2,168,987)
Class C ..................................... (26,532,844) (25,875,435) (4,103,439) (3,583,942)
-----------------------------------------------------------------
Total distributions to shareholders ........... (286,849,658) (293,376,908) (41,716,474) (41,310,749)
Capital share transactions: (Note 2)
Class A ..................................... (825,832) (165,542,051) (4,144,978) 35,368,565
Class B ..................................... 30,081,118 39,815,915 11,028,108 30,587,915
Class C ..................................... 36,679,192 12,935,149 9,687,573 24,933,697
-----------------------------------------------------------------
Total capital share transactions .............. 65,934,478 (112,790,987) 16,570,703 90,890,177
Net increase (decrease) in net assets .... 255,919,408 (210,405,671) 31,969,022 104,581,815
Net assets:
Beginning of year ............................. 5,130,912,809 5,341,318,480 947,119,230 842,537,415
-----------------------------------------------------------------
End of year ................................... $5,386,832,217 $5,130,912,809 $979,088,252 $947,119,230
-----------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of year .................................. $ 3,600,097 $ 4,216,328 $ 141,350 $ (608,253)
-----------------------------------------------------------------
186 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended February 29, 2004 and February 28, 2003
-------------------------------------------------------------------
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 28,647,818 $ 27,474,420 $ 37,611,322 $ 37,193,302
Net realized gain (loss) from investments ... (1,314,156) (1,249,462) 550,793 121,103
Net unrealized appreciation (depreciation) on
investments ................................ 13,960,130 10,473,963 7,829,296 17,611,015
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .............. 41,293,792 36,698,921 45,991,411 54,925,420
Distributions to shareholders from:
Net investment income:
Class A .................................... (24,553,481) (25,009,883) (32,515,147) (33,704,000)
Class B .................................... -- -- (1,754,982) (1,108,726)
Class C .................................... (3,058,350) (2,675,738) (3,025,043) (2,756,802)
-------------------------------------------------------------------
Total distributions to shareholders .......... (27,611,831) (27,685,621) (37,295,172) (37,569,528)
Capital share transactions: (Note 2)
Class A .................................... (16,629,365) 37,845,519 2,769,101 31,026,174
Class B .................................... -- -- 13,027,305 19,470,806
Class C .................................... 2,904,472 17,981,209 5,710,499 17,407,532
-------------------------------------------------------------------
Total capital share transactions ............. (13,724,893) 55,826,728 21,506,905 67,904,512
Net increase (decrease) in net assets ... (42,932) 64,840,028 30,203,144 85,260,404
Net assets:
Beginning of year ............................ 635,021,966 570,181,938 834,044,276 748,783,872
-------------------------------------------------------------------
End of year .................................. $634,979,034 $635,021,966 $864,247,420 $834,044,276
-------------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of year ................................. $ 1,034,875 $ 6,333 $ (587,643) $ (827,673)
-------------------------------------------------------------------
Annual Report | See notes to financial statements. | 187
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-five
separate series. All funds included in this report (the Funds) are diversified
except the Franklin Connecticut Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund. The investment objective of the Funds is
to provide tax-free income.
Effective September 2, 2003, the Franklin Tax-Free Trust began offering shares
of the Franklin Federal Limited-Term Tax-Free Income Fund.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market. The Trust
utilizes independent pricing services to perform any of the pricing functions
under procedures approved by the Board of Trustees. Tax-free bonds may be valued
by the pricing services using matrix pricing which considers such factors as
prices of comparable quality issues, yield, maturity, coupon, and credit
ratings. If events occur that materially affect the values of securities after
the prices are determined, or if market quotations are not readily available,
the securities will be valued at fair value as determined following procedures
approved by the Board of Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Funds may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Funds will generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
C. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its income.
188 | 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
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. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders. Other distributions are recorded on the
ex-dividend date.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
E. OFFERING COSTS
Offering costs are amortized on a straight line basis over twelve months.
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. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
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. However, based on experience, the Trust
expects the risk of loss to be remote.
Annual Report | 189
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the funds are indicated below.
Effective July 1, 2003, the Franklin Federal Intermediate-Term Tax-Free Income
Fund began offering a new class of shares, Class C. 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 Federal Limited-Term Franklin Colorado Tax-Free Income Fund Franklin Arizona Tax-Free
Tax-Free Income Fund Franklin Connecticut Tax-Free Income Fund
Income Fund Franklin High Yield Tax-Free
Franklin Double Tax-Free Income Fund Income Fund
Franklin Federal Intermediate-Term Franklin New Jersey Tax-Free
Tax-Free Income Fund Income Fund
Franklin Oregon Tax-Free Income Fund Franklin Pennsylvania Tax-Free
Income Fund
At February 29, 2004, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' shares were as follows:
-------------------------------------------------------------
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ........................ 8,735,575 $ 95,537,851 3,254,151 $ 38,882,997
Shares issued in reinvestment of
distributions .................... 1,736,551 19,003,550 646,860 7,744,688
Shares redeemed .................... (11,015,009) (120,081,083) (4,932,337) (58,841,098)
-------------------------------------------------------------
Net increase (decrease) ............ (542,883) $ (5,539,682) (1,031,326) $(12,213,413)
-------------------------------------------------------------
Year ended February 28, 2003
Shares sold ........................ 9,083,190 $ 97,458,649 5,348,521 $ 63,092,701
Shares issued in reinvestment of
distributions .................... 1,742,398 18,715,474 660,681 7,802,005
Shares redeemed .................... (11,420,942) (122,598,362) (3,373,942) (39,834,656)
-------------------------------------------------------------
Net increase (decrease) ............ (595,354) $ (6,424,239) 2,635,260 $ 31,060,050
-------------------------------------------------------------
CLASS B SHARES:
Year ended February 29, 2004
Shares sold ........................ 581,071 $ 6,381,331
Shares issued in reinvestment of
distributions .................... 52,462 576,757
Shares redeemed .................... (247,507) (2,706,253)
----------------------------
Net increase (decrease) ............ 386,026 $ 4,251,835
----------------------------
Year ended February 28, 2003
Shares sold ........................ 921,864 $ 9,940,075
Shares issued in reinvestment of
distributions .................... 40,188 434,023
Shares redeemed .................... (165,468) (1,785,075)
----------------------------
Net increase (decrease) ............ 796,584 $ 8,589,023
----------------------------
190 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
--------------------------------------------------------------
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold .......................... 1,080,396 $ 11,900,539 674,057 $ 8,115,169
Shares issued in reinvestment of
distributions ....................... 79,989 882,919 83,462 1,005,519
Shares redeemed ...................... (755,318) (8,298,642) (879,907) (10,506,025)
--------------------------------------------------------------
Net increase (decrease) .............. 405,067 $ 4,484,816 (122,388) $ (1,385,337)
--------------------------------------------------------------
Year ended February 28, 2003
Shares sold .......................... 1,057,738 $ 11,456,641 1,243,854 $ 14,808,721
Shares issued in reinvestment of
distributions ....................... 74,746 809,507 87,051 1,034,191
Shares redeemed ...................... (638,585) (6,950,255) (604,233) (7,181,418)
--------------------------------------------------------------
Net increase (decrease) .............. 493,899 $ 5,315,893 726,672 $ 8,661,494
--------------------------------------------------------------
--------------------------------------------------------------
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold .......................... 2,373,240 $ 26,111,250 4,544,617 $ 53,808,605
Shares issued in reinvestment of
distributions ....................... 572,407 6,290,430 634,766 7,509,425
Shares redeemed ...................... (4,184,405) (45,850,400) (3,376,545) (39,800,420)
--------------------------------------------------------------
Net increase (decrease) .............. (1,238,758) $ (13,448,720) 1,802,838 $ 21,517,610
--------------------------------------------------------------
Year ended February 28, 2003
Shares sold .......................... 4,088,355 $ 44,680,001 4,925,595 $ 57,804,023
Shares issued in reinvestment of
distributions ....................... 576,274 6,287,856 530,164 6,224,833
Shares redeemed ...................... (3,976,574) (43,376,637) (2,968,352) (34,847,889)
--------------------------------------------------------------
Net increase (decrease) .............. 688,055 $ 7,591,220 2,487,407 $ 29,180,967
--------------------------------------------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold .......................... 554,560 $ 6,101,720 1,587,295 $ 18,884,441
Shares issued in reinvestment of
distributions ....................... 106,841 1,179,391 77,046 914,123
Shares redeemed ...................... (976,503) (10,691,404) (484,030) (5,723,868)
--------------------------------------------------------------
Net increase (decrease) .............. (315,102) $ (3,410,293) 1,180,311 $ 14,074,696
--------------------------------------------------------------
Year ended February 28, 2003
Shares sold .......................... 1,190,156 $ 13,001,797 1,217,735 $ 14,359,255
Shares issued in reinvestment of
distributions ....................... 114,999 1,260,187 39,146 461,479
Shares redeemed ...................... (669,302) (7,362,419) (205,889) (2,419,656)
--------------------------------------------------------------
Net increase (decrease) .............. 635,853 $ 6,899,565 1,050,992 $ 12,401,078
--------------------------------------------------------------
Annual Report | 191
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
--------------------------------------------------------------
FRANKLIN FEDERAL FRANKLIN FEDERAL
INTERMEDIATE-TERM TAX-FREE LIMITED-TERM TAX-FREE
INCOME FUND INCOME FUND
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004 a
Shares sold ........................ 17,039,206 $ 196,412,368 3,084,547 $ 30,994,328
Shares issued in reinvestment of
distributions ..................... 864,153 9,965,937 5,355 54,054
Shares redeemed .................... (11,010,241) (126,471,465) (691,347) (6,967,146)
--------------------------------------------------------------
Net increase (decrease) ............ 6,893,118 $ 79,906,840 2,398,555 $ 24,081,236
--------------------------------------------------------------
Year ended February 28, 2003
Shares sold ........................ 17,062,285 $ 192,289,192
Shares issued in reinvestment of
distributions ..................... 692,108 7,792,982
Shares redeemed .................... (7,499,753) (84,532,914)
------------------------------
Net increase (decrease) ............ 10,254,640 $ 115,549,260
------------------------------
CLASS C SHARES:
Period ended February 29, 2004 b
Shares sold ........................ 1,004,690 $ 11,462,123
Shares issued in reinvestment of
distributions ..................... 8,570 99,271
Shares redeemed .................... (63,247) (725,910)
------------------------------
Net increase (decrease) ............ 950,013 $ 10,835,484
------------------------------
--------------------------------------------------------------
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ........................ 45,915,940 $ 481,986,570 8,135,000 $ 97,682,596
Shares issued in reinvestment of
distributions ..................... 11,809,635 123,756,632 1,666,071 20,017,987
Shares redeemed .................... (58,066,409) (606,569,034) (10,189,229) (121,845,561)
--------------------------------------------------------------
Net increase (decrease) ............ (340,834) $ (825,832) (388,158) $ (4,144,978)
--------------------------------------------------------------
Year ended February 28, 2003
Shares sold ........................ 40,094,442 $ 419,496,057 10,495,503 $ 124,602,465
Shares issued in reinvestment of
distributions ..................... 11,604,443 121,186,423 1,645,953 19,539,292
Shares redeemed .................... (67,637,602) (706,224,531) (9,159,046) (108,773,192)
--------------------------------------------------------------
Net increase (decrease) ............ (15,938,717) $ (165,542,051) 2,982,410 $ 35,368,565
--------------------------------------------------------------
192 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------------------------------------------
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
CLASS B SHARES:
Year ended February 29, 2004
Shares sold ...................... 4,708,755 $ 49,618,591 1,402,778 $ 16,966,765
Shares issued in reinvestment of
distributions ................... 595,624 6,279,212 157,812 1,905,305
Shares redeemed .................. (2,456,024) (25,816,685) (652,919) (7,843,962)
---------------------------------------------------------------
Net increase (decrease) .......... 2,848,355 $ 30,081,118 907,671 $ 11,028,108
---------------------------------------------------------------
Year ended February 28, 2003
Shares sold ...................... 5,204,586 $ 54,751,295 2,785,221 $ 33,247,871
Shares issued in reinvestment of
distributions ................... 507,168 5,321,949 115,151 1,375,024
Shares redeemed .................. (1,930,931) (20,257,329) (338,035) (4,034,980)
---------------------------------------------------------------
Net increase (decrease) .......... 3,780,823 $ 39,815,915 2,562,337 $ 30,587,915
---------------------------------------------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold ...................... 10,121,982 $107,220,157 2,573,609 $ 31,154,172
Shares issued in reinvestment of
distributions ................... 1,456,622 15,401,856 217,959 2,636,336
Shares redeemed .................. (8,144,304) (85,942,821) (2,001,064) (24,102,935)
---------------------------------------------------------------
Net increase (decrease) .......... 3,434,300 $ 36,679,192 790,504 $ 9,687,573
---------------------------------------------------------------
Year ended February 28, 2003
Shares sold ...................... 7,331,785 $ 77,373,623 3,032,271 $ 36,327,461
Shares issued in reinvestment of
distributions ................... 1,399,997 14,744,649 191,482 2,288,798
Shares redeemed .................. (7,516,595) (79,183,123) (1,145,069) (13,682,562)
---------------------------------------------------------------
Net increase (decrease) .......... 1,215,187 $ 12,935,149 2,078,684 $ 24,933,697
---------------------------------------------------------------
---------------------------------------------------------------
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
CLASS A SHARES:
Year ended February 29, 2004
Shares sold ...................... 5,072,675 $ 59,385,944 7,437,800 $ 77,974,452
Shares issued in reinvestment of
distributions ................... 1,255,455 14,705,775 1,686,506 17,700,608
Shares redeemed .................. (7,778,597) (90,721,084) (8,883,382) (92,905,959)
---------------------------------------------------------------
Net increase (decrease) .......... (1,450,467) $ (16,629,365) 240,924 $ 2,769,101
---------------------------------------------------------------
Year ended February 28, 2003
Shares sold ...................... 6,811,964 $ 78,662,445 8,220,702 $ 85,008,670
Shares issued in reinvestment of
distributions ................... 1,253,238 14,463,503 1,650,772 17,039,579
Shares redeemed .................. (4,797,817) (55,280,429) (6,882,151) (71,022,075)
---------------------------------------------------------------
Net increase (decrease) .......... 3,267,385 $ 37,845,519 2,989,323 $ 31,026,174
---------------------------------------------------------------
Annual Report | 193
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-----------------------------------------------------------
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
CLASS B SHARES:
Year ended February 29, 2004
Shares sold .......................... 1,603,965 $ 16,892,699
Shares issued in reinvestment of
distributions ....................... 104,293 1,097,423
Shares redeemed ...................... (474,513) (4,962,817)
--------------------------
Net increase (decrease) .............. 1,233,745 $ 13,027,305
--------------------------
Year ended February 28, 2003
Shares sold .......................... 1,950,230 $ 20,216,053
Shares issued in reinvestment of
distributions ....................... 64,904 673,131
Shares redeemed ...................... (136,157) (1,418,378)
--------------------------
Net increase (decrease) .............. 1,878,977 $ 19,470,806
--------------------------
CLASS C SHARES:
Year ended February 29, 2004
Shares sold .......................... 1,202,251 $ 14,208,193 1,805,858 $ 19,082,893
Shares issued in reinvestment of
distributions ....................... 167,648 1,980,055 184,442 1,948,269
Shares redeemed ...................... (1,130,336) (13,283,776) (1,454,355) (15,320,663)
-----------------------------------------------------------
Net increase (decrease) .............. 239,563 $ 2,904,472 535,945 $ 5,710,499
-----------------------------------------------------------
Year ended February 28, 2003
Shares sold .......................... 2,142,866 $ 24,990,581 2,329,651 $ 24,259,074
Shares issued in reinvestment of
distributions ....................... 149,742 1,742,390 164,679 1,711,336
Shares redeemed ...................... (751,284) (8,751,762) (824,070) (8,562,878)
-----------------------------------------------------------
Net increase (decrease) .............. 1,541,324 $ 17,981,209 1,670,260 $ 17,407,532
-----------------------------------------------------------
<FN>
a For the period September 2, 2003 (effective date) to February 29, 2004 for the
Franklin Federal Limited-Term Tax-Free Income Fund. bFor the period July 1,
2003 (effective date) to February 29, 2004.
</FN>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
- ------------------------------------------------------------------------------------------
ENTITY 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
194 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 the
Funds as follows:
- -------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- -------------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
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
- -------------------------------------------------------------------------------
.500% First $100 million
.450% Over $100 million, up to and including $250 million
.425% Over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
The Franklin Federal Limited-Term Tax-Free Income Fund pays an administrative
fee to FT Services of .20% per year of the average daily net assets of the fund.
Advisers and FT Services agreed in advance to waive management and
administrative fees, respectively, and assume payment of other expenses of the
Franklin Federal Limited-Term Tax-Free Income Fund, as noted in the Statement of
Operations.
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
The Funds, except the Franklin Federal Limited-Term Tax-Free Income Fund,
reimburse Distributors up to .10%, .65%, and .65% per year of their average
daily net assets of Class A, Class B, and Class C, respectively, for costs
incurred in marketing the Funds' shares under a Rule 12b-1 plan.
The Franklin Federal Limited-Term Tax-Free Income Fund reimburses Distributors
up to .15% per year of its average daily net assets for costs incurred in
marketing the fund's shares under a Rule 12b-1 plan.
Annual Report | 195
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Distributors has advised the Funds it received (paid) net commissions from (on)
sales of the Funds' shares, and received contingent deferred sales charges for
the year 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
--------------------------------------------------------
Net commissions received (paid) ............ $(137,576) $(56,253) $(37,803) $(86,127)
Contingent deferred sales charges .......... $ 41,810 $ 34,264 $ 11,985 $ 23,177
--------------------------------------------------------
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
--------------------------------------------------------
Net commissions received (paid) ............ $(78,110) $ -- $(1,855,790) $(689,807)
Contingent deferred sales charges .......... $ 29,297 $ -- $ 462,144 $ 157,851
----------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------------------------
Net commissions received (paid) ............ $35,502 $(465,893)
Contingent deferred sales charges .......... $38,868 $ 89,904
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were paid to 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 ........................ $227,801 $117,769 $96,102 $134,679
--------------------------------------------------------
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 ........................ $114,023 $1,593 $1,810,332 $319,368
----------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------------------------
Transfer agent fees ........................ $189,907 $349,464
196 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
At February 29, 2004, the following funds had tax basis capital losses which may
be carried over to offset future capital gains. Such losses expire as follows:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------
Capital loss carryovers expiring in:
2005 ................................................... $ -- $ -- $ 322,502
2008 ................................................... 164,843 1,416,851 2,457,013
2009 ................................................... 46,061 1,524,288 427,481
2011 ................................................... 144,775 81,665 53,698
2012 ................................................... 20,652,167 4,695,674 3,034,219
---------------------------------------------
$ 21,007,846 $ 7,718,478 $ 6,294,913
---------------------------------------------
---------------------------------------------
FRANKLIN
FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- HIGH-YIELD NEW JERSEY
TERM TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------
Capital loss carryovers expiring in:
2005 ................................................... $ 99,478 $ -- $ --
2006 ................................................... 95,778 -- --
2008 ................................................... 314,284 37,171,665 --
2009 ................................................... 1,207,419 73,985,675 368,869
2010 ................................................... 614,893 63,519,381 --
2011 ................................................... -- 131,377,453 --
2012 ................................................... 2,156,839 50,621,589 2,933,869
---------------------------------------------
$ 4,488,691 $ 356,675,763 $ 3,302,738
---------------------------------------------
---------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
---------------------------
Capital loss carryovers expiring in:
2008 ................................................... $ 2,272,755 $ 1,499,688
2009 ................................................... 966,007 3,680,545
2010 ................................................... 1,860,003 4,726,279
2012 ................................................... 2,455,722 --
---------------------------
$ 7,554,487 $ 9,906,512
---------------------------
On February 29, 2004, the Franklin Connecticut Tax-Free Income Fund and the
Franklin Federal Intermediate-Term Tax-Free Income Fund had expired capital loss
carryovers of $46,957 and $803,112, respectively, which were reclassified to
paid-in capital.
Annual Report | 197
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At February 29, 2004, the following funds have deferred capital losses occurring
subsequent to October 31, 2003. For tax purposes, such losses will be reflected
in the year ending February 28, 2005.
----------------------------------------
FRANKLIN
FRANKLIN FRANKLIN FEDERAL
ARIZONA CONNECTICUT INTERMEDIATE-
TAX-FREE TAX-FREE TERM TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------
$949,896 $702,739 $284,307
----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
HIGH-YIELD NEW JERSEY OREGON
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------------------------------
$28,434,900 $105,248 $285,673
The tax character of distributions paid during the years ended February 29, 2004
and February 28, 2003, was as follows:
---------------------------------------------------------------
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------
Distributions paid from -
tax exempt income .................. $ 44,305,450 $ 46,250,961 $ 16,685,871 $ 17,466,007
---------------------------------------------------------------
---------------------------------------------------------------
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------
Distributions paid from:
Tax exempt income .................. $ 13,685,729 $ 14,503,398 $ 14,005,112 $ 12,661,733
Long term capital gain ............. -- -- 912,014 --
---------------------------------------------------------------
$ 13,685,729 $ 14,503,398 $ 14,917,126 $ 12,661,733
---------------------------------------------------------------
198 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
------------------------------------------------------
FRANKLIN FEDERAL FRANKLIN FEDERAL
INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------
2004 2003 2004 A
------------------------------------------------------
Distributions paid from -
tax exempt income ............... $ 15,691,581 $ 12,306,438 $98,401
------------------------------------------------------
-----------------------------------------------------------------
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------
Distributions paid from -
tax exempt income ............... $ 286,849,658 $ 293,376,908 $ 41,716,474 $ 41,310,749
-----------------------------------------------------------------
---------------------------------------------------------------
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------
Distributions paid from -
tax exempt income ............... $ 27,611,831 $ 27,685,621 $ 37,295,172 $ 37,569,528
---------------------------------------------------------------
<FN>
a For the period September 2, 2003 (effective date) to February 29, 2004 for the
Franklin Federal Limited-Term Tax-Free Income Fund.
</FN>
Distributions of income to shareholders may not equal net investment income due
to differing treatments of dividend distributions for book and tax purposes.
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities, bond discounts,
and offering costs.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, bond workout expenditures,
and bond discounts.
Annual Report | 199
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At February 29, 2004, the cost of investments, net unrealized appreciation
(depreciation), undistributed tax exempt and ordinary income and undistributed
long term capital gains 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 ................................ $ 891,340,812 $ 346,188,684 $ 291,749,114
--------------------------------------------------
Unrealized appreciation ............................ $ 69,617,198 $ 31,030,917 $ 20,062,797
Unrealized depreciation ............................ (6,651,433) -- (2,182,963)
--------------------------------------------------
Net unrealized appreciation (depreciation) ......... $ 62,965,765 $ 31,030,917 $ 17,879,834
--------------------------------------------------
Distributable earnings-undistributed tax exempt
income ............................................ $ 53,458 $ 370,219 $ 42,728
--------------------------------------------------
--------------------------------------------------
FRANKLIN FRANKLIN FEDERAL FRANKLIN FEDERAL
DOUBLE INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Cost of investments .............................. $ 318,947,492 $ 432,588,784 $ 24,777,543
--------------------------------------------------
Unrealized appreciation .......................... $ 21,595,385 $ 28,324,598 $ 195,250
Unrealized depreciation .......................... (661,963) (185,268) (2,444)
--------------------------------------------------
Net unrealized appreciation (depreciation) ....... $ 20,933,422 $ 28,139,330 $ 192,806
--------------------------------------------------
Undistributed tax exempt income .................. $ 83,789 $ 68,817 $ 35,906
Undistributed long term capital gains ............ 590,492 -- --
--------------------------------------------------
Distributable earnings ........................... $ 674,281 $ 68,817 $ 35,906
--------------------------------------------------
--------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD NEW JERSEY OREGON
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
Cost of investments .............................. $ 5,059,860,045 $ 899,110,073 $ 585,662,218
--------------------------------------------------
Unrealized appreciation .......................... $ 376,015,526 $ 71,070,711 $ 42,960,306
Unrealized depreciation .......................... (104,211,942) (1,403,680) (797,618)
--------------------------------------------------
Net unrealized appreciation (depreciation) ....... $ 271,803,584 $ 69,667,031 $ 42,162,688
--------------------------------------------------
Undistributed tax exempt income .................. $ 7,002,516 $ 814,945 $ 1,484,970
Undistributed ordinary income .................... 20,553 -- --
--------------------------------------------------
Distributable earnings ........................... $ 7,023,069 $ 814,945 $ 1,484,970
--------------------------------------------------
200 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
--------------
FRANKLIN
PENNSYLVANIA
TAX-FREE
INCOME FUND
--------------
Cost of investments ............................................ $792,777,617
--------------
Unrealized appreciation ........................................ $ 60,998,657
Unrealized depreciation ........................................ (434,228)
--------------
Net unrealized appreciation (depreciation) ..................... $ 60,564,429
--------------
Distributable earnings-undistributed tax exempt income ......... $ 197,158
--------------
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended February 29, 2004, 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 .......................... $151,612,494 $66,183,762 $20,900,270 $119,215,195
Sales .............................. $163,777,382 $78,384,070 $35,837,752 $ 80,047,196
-----------------------------------------------------------
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 .......................... $123,353,619 $18,885,252 $434,629,598 $110,907,081
Sales .............................. $ 35,986,457 $ 1,095,000 $465,137,765 $ 84,663,956
----------------------------
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------------------------
Purchases .......................... $29,791,262 $168,816,969
Sales .............................. $42,728,105 $146,333,172
Annual Report | 201
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Yield Tax-Free Income Fund has 41.1% of its portfolio invested
in below investment grade and comparable quality unrated high yield securities,
which tend to be more sensitive to economic conditions than higher rated
securities. The risk of loss due to default by the issuer may be significantly
greater for the holders of high yielding securities because such securities are
generally unsecured and are often subordinated to other creditors of the issuer.
The fund held defaulted and/or other securities for which the income has been
deemed uncollectible. The fund discontinues accruing income on these securities
and provides an estimate for losses on interest receivable. At February 29,
2004, the value of these securities was $5,522,893, representing .10% of the
fund's net assets. For information as to specific securities, see the
accompanying Statement of Investments.
7. REGULATORY MATTERS
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company"),
alleging violations of the Massachusetts Uniform Securities Act. The complaint
arises from activity that occurred in 2001 during which time an officer of a
Company subsidiary was negotiating an agreement with an investor relating to
investments in a mutual fund and a hedge fund.
The Funds, in addition to other entities within Franklin Templeton Investments,
including the Company and other funds, have been named in shareholder class and
derivative lawsuits related to the matter described above, as well as actions
seeking the return of certain management and other fees to the Funds. The Funds'
management believes that the claims made in the lawsuits are without merit and
they intend to defend vigorously against the allegations. It is anticipated that
the Funds may be named in additional similar civil actions related to the matter
described above.
In addition, as part of ongoing investigations by the U.S. Securities and
Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of
California, the New York Attorney General, the California Attorney General, the
U.S. Attorney for the District of Massachusetts, the Florida Department of
Financial Services, and the Commissioner of Securities and the Attorney General
of the State of West Virginia, relating to certain practices in the mutual fund
industry, including late trading, market timing and sales compensation
arrangements, the Company and its subsidiaries, as well as certain current or
former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company and
its current employees are providing documents and information in response to
these requests and subpoenas. In addition, the Company has responded to requests
for similar kinds of information from regulatory authorities in some of the
foreign countries where the Company conducts its global asset management
business.
202 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
The Staff of the SEC has informed the Company that it intends to recommend that
the Commission authorize an action against the Funds' investment adviser
relating to the frequent trading issues that are the subject of the SEC's
investigation. These issues were previously disclosed as being under
investigation by government authorities and the subject of an internal inquiry
by the Company in its Annual Report on Form 10-K and on its public website. The
Company currently is in discussions with the SEC Staff in an effort to resolve
the issues raised in their investigation. The Funds' management has been advised
that the Company cannot predict the likelihood of whether those discussions will
result in a settlement and, if so, the terms of such settlement. The impact, if
any, of these matters on the Funds is uncertain at this time. If the Company
finds that it bears responsibility for any unlawful or improper conduct, it is
committed to making the Funds or their shareholders whole, as appropriate.
Annual Report | 203
Franklin Tax-Free Trust
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TAX-FREE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting the Franklin Tax-Free Trust (hereafter referred to as the
"Funds") at February 29, 2004, the results of each of their operations, the
changes in each of their net assets and 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 auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at February 29, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 12, 2004
204 | Annual Report
Franklin Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds hereby
designate 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 29, 2004. A portion
of the Funds' exempt-interest dividends may be subject to the federal
alternative minimum tax. In January 2005, shareholders will be notified of
amounts for use in preparing their 2004 income tax returns.
Under Section 852(b)(3)(C) of the Code, the Franklin Double Tax-Free Income Fund
hereby designates $591,656 as a capital gain dividend for the fiscal year ended
February 29, 2004.
Annual Report | 205
Board Members and Officers
The name, age 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. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (82) Trustee Since 1984 113 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (71) Trustee Since 1984 143 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
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).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (71) Trustee Since 1989 134 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 1998 82 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil
San Mateo, CA 94403-1906 and gas); Beverly Enterprises, Inc.
(health care); H.J. Heinz Company
(processed foods and allied
products); RTI International
Metals, Inc. (manufacture and
distribution of titanium); and
Canadian National Railway
(railroad).
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 (74) Trustee Since 1984 115 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
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).
- ------------------------------------------------------------------------------------------------------------------------------------
206 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (75) Trustee Since 1992 142 Director, White Mountains Insurance
One Franklin Parkway Group, Ltd. (holding company); Martek
San Mateo, CA 94403-1906 Biosciences Corporation; MedImmune,
Inc. (biotechnology); and
Overstock.com (Internet services);
and FORMERLY, Director, MCI
Communication Corporation
(subsequently known as MCI WorldCom,
Inc. and WorldCom, Inc.)
(communications services) (1988-2002)
and Spacehab, Inc. (aerospace
services) (1994-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation
(financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association
of Securities Dealers, Inc. (1970-1987).
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee and Since 1984 142 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.; Vice President, Franklin
Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (63) Trustee, Trustee and 125 None
One Franklin Parkway President and President since
San Mateo, CA 94403-1906 Chief 1984 and Chief
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.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
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 49 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 207
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
SHEILA AMOROSO (44) Vice President Since 2000 Not Applicable None
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.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (58) Vice President Since 1986 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of most of the other subsidiaries
of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RAFAEL R. COSTAS, JR. (39) Vice President Since 2000 Not Applicable None
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.
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (43) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.;
Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin
Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor
Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton 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
49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL Officer -
33394-3091 Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
208 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President,
Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory
Services, Inc., Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor
Services, LLC, Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC,
and Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of
Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel
and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
DIOMEDES LOO-TAM (65) Treasurer and Since March 2004 Not Applicable None
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; and Consultant, MyVest Corporation (software
development company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees,
Runkel Funds, Inc. (2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments
(1985-2000); and Senior Vice President, Franklin Templeton Services, LLC (1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (66) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch
600 5th Avenue Chemicals, Inc. and Lingnan
Rockefeller Center Foundation
New York, NY 10048-0772
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the
case may be of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (66) Vice President Since 2000 Not Applicable None
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the
subsidiaries of Franklin Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited
(until 2000) and Director, Templeton Asset Management Ltd. (until 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 209
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS WALSH (42) Vice President Since 2000 Not Applicable None
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 adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc., which
is the parent company of the Trust's adviser and distributor. Note: Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers.
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 OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
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. LAHAYE IS AN INDEPENDENT TRUSTEE
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 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
210 | Annual Report
Franklin Tax-Free Trust
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund'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 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention:
Proxy Group.
Annual Report | 211
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Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5,6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC7
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 10
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
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. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
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. Portfolio of insured municipal securities.
9. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
10.The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 Not part of the annual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R) One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
Franklin Tax-Free Trust
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a current
Franklin Tax-Free Trust prospectus. Investors should carefully consider a fund's
investment goals, risks, charges and expenses before investing. To obtain a
prospectus, which contains this and other information, talk to your financial
advisor, call us at 1-800/DIAL BEN(R) (1-800/342-5236) or visit
franklintempleton.com. Please read the prospectus 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 A2004 04/04
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 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers 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 Frank W.T. LaHaye, and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $879,601 for the fiscal year ended February 29, 2004 and $449,298 for the
fiscal year ended February 28, 2003.
(b) Audit-Related Fees
The aggregate 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 were $25,733 for
the fiscal year ended February 29, 2004 and $35,442 for the fiscal year ended
February 28, 2003. The services for which these fees were paid included payments
for internal control examination pursuant to the Statement of Auditing Standards
No. 70 and other attestation services.
The aggregate 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 the their financial
statements were $378,708 for the fiscal year ended February 29, 2004 and
$492,543 for the fiscal year ended February 28, 2003. The services for which
these fees were paid included payments for internal control examination pursuant
to the Statement of Auditing Standards No. 70 and other attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
There were no fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant, other than the services
reported in paragraphs (a)-(c) of Item 4.
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 not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended February 29,
2004 and $800 for the fiscal year ended February 28, 2003. The services for
which these fees were paid included payments for subscription fees.
(e) (1) The Fund'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
Fund by the auditors to the Fund's investment adviser or to any entity that
controls, is controlled by or is under common control with the Fund's investment
adviser and that provides ongoing services to the Fund where the non-audit
services relate directly to the operations or financial reporting of the Fund;
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 pre-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 $404,441 for the fiscal year ended February 29, 2004 and
$528,785 for the fiscal year ended February 28, 2003.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no
changes to the procedures by which shareholders may recommend nominee to the
Registrant's Board of Trustees that would require disclosure herein.
ITEM 10. 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 11. EXHIBITS.
(A) Code of Ethics for Principal Executive and Senior Financial Officers.
(B)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Diomedes Loo-Tam, Chief Financial Officer
(B)(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Diomedes Loo-Tam, Chief Financial 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/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date April 30, 2004
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/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date April 30, 2004
By /s/Diomedes Loo-Tam
Chief Financial Officer
Date April 30, 2004