UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03395
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FRANKLIN FEDERAL TAX-FREE INCOME FUND
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 4/30
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Date of reporting period: 10/31/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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OCTOBER 31, 2007
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
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WANT TO RECEIVE
THIS DOCUMENT
FRANKLIN FEDERAL FASTER VIA EMAIL?
TAX-FREE INCOME FUND
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SPECIAL FEATURE:
Understanding Interest Rates .............................................. 4
SEMIANNUAL REPORT
Franklin Federal Tax-Free Income Fund ..................................... 7
Performance Summary ....................................................... 11
Your Fund's Expenses ...................................................... 14
Financial Highlights and Statement of Investments ......................... 16
Financial Statements ...................................................... 52
Notes to Financial Statements ............................................. 56
Shareholder Information ................................................... 64
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Semiannual Report
Franklin Federal Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Federal Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal income taxes as
is consistent with prudent investment management and preservation of capital by
investing at least 80% of its total assets in investment-grade municipal
securities that pay interest free from such taxes. 1
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CREDIT QUALITY BREAKDOWN*
Based on Total Long-Term Investments as of 10/31/07**
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
AAA .................................................................... 63.5%
AA ..................................................................... 9.7%
A ...................................................................... 6.3%
BBB .................................................................... 11.4%
Below Investment Grade ................................................. 1.2%
Not Rated by S&P ....................................................... 7.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's and
Fitch are the secondary and tertiary rating agencies. Securities not rated by an
independent rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below.
** Does not include short-term investments and other net assets.
RATINGS MOODY'S FITCH INTERNAL
AAA or Aaa 4.3% -- 0.3%
AA or Aa 0.3% -- --
A 1.4% -- --
BBB or Baa 0.8% 0.4% 0.1%
Below Investment Grade 0.1% -- 0.2%
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Total 6.9% 0.4% 0.6%
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This semiannual report for Franklin Federal Tax-Free Income Fund covers the
period ended October 31, 2007.
1. Dividends are generally subject to state and local taxes, if any. For
investors subject to alternative minimum tax, a small portion of Fund dividends
may be taxable. Distributions of capital gains are generally taxable. To avoid
imposition of 28% backup withholding on all Fund distributions and redemption
proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S.
investors on Form W-8BEN.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 20.
Semiannual Report | 7
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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DIVIDEND DISTRIBUTIONS 2
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DIVIDEND PER SHARE
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MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
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May 4.50 cents 3.92 cents 3.93 cents 4.59 cents
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June 4.50 cents 3.94 cents 3.94 cents 4.59 cents
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July 4.50 cents 3.94 cents 3.94 cents 4.59 cents
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August 4.50 cents 3.94 cents 3.94 cents 4.59 cents
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September 4.45 cents 3.90 cents 3.91 cents 4.54 cents
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October 4.45 cents 3.90 cents 3.91 cents 4.54 cents
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PERFORMANCE OVERVIEW
The Fund's Class A share price, as measured by net asset value, decreased from
$12.11 on April 30, 2007, to $11.98 on October 31, 2007. The Fund's Class A
shares paid dividends totaling 26.90 cents per share for the reporting period. 2
The Performance Summary beginning on page 11 shows that at the end of this
reporting period the Fund's Class A shares' distribution rate was 4.27% based on
an annualization of October's 4.45 cent per share dividend and the maximum
offering price of $12.51 on October 31, 2007. An investor in the 2007 maximum
federal personal income tax bracket of 35.00% would need to earn a distribution
rate of 6.57% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class B, C and Advisor shares' performance,
please see the Performance Summary.
The Fund was subject to bond calls during the period 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 addition, the Fund had prerefunded bonds that reached their
maturity or call dates. In general, we were limited to reinvesting these
proceeds as well as those 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.
MUNICIPAL BOND MARKET OVERVIEW
The six-month period ended October 31, 2007, proved challenging for the
municipal bond market as yields increased for longer-terms bonds. (Bond yields
and prices generally move in opposite directions.) A rather measured
2. All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
8 | Semiannual Report
pullback in the municipal bond market was exacerbated toward the latter part of
the reporting period as all markets felt the impact of subprime loan defaults,
even those with no direct subprime securities exposure, such as the municipal
bond market. Many major financial institutions tightened credit and reassessed
risk from their direct and indirect exposure to subprime loans. A lack of
liquidity across most markets in late August contributed to an increase in
overall volatility and declining values in many asset classes. The Federal Open
Market Committee (FOMC) took action by lowering the discount rate, which is the
interest rate the Federal Reserve charges member banks, 50 basis points (100
basis points equal one percentage point) at a special meeting on August 17. This
set the stage for further easing at its September 18 and October 31 meetings,
when the FOMC lowered the federal funds target rate 50 and 25 basis points,
respectively, to 4.50%. In related actions, the FOMC also reduced the discount
rate at those meetings, bringing it to 5.00% at period-end.
Signs that problems associated with subprime mortgages had spread into higher
quality assets drove global investors to the relative safety of U.S. Treasuries
or shorter-term bonds over the reporting period. Furthermore, investors began to
require additional compensation for taking on risk, and spreads for
credit-driven securities widened. The municipal bond market's brief period of
heightened volatility subsided as demand for municipal bonds quickly returned by
the end of the reporting period. For the six months ended October 31, 2007, the
Lehman Brothers Municipal Bond Index had a +1.30% total return, and the Lehman
Brothers U.S. Treasury Index returned +3.64%. 3 High yield municipal bonds, as
measured by the Lehman Brothers Municipal Bond Index: Non-Investment Grade, had
a -1.11% return for the same period. 4
In this environment, many investors opted for shorter-term bonds and demanded
greater yield for investing in longer-term bonds, which resulted in steeper
Treasury and municipal bond curves (spread between short-term and
3. 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 Baa3/BBB-.
They must have an outstanding par value of at least $7 million and be issued as
part of a transaction of at least $75 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. The Lehman Brothers U.S. Treasury
Index includes public obligations of the U.S. Treasury with a remaining maturity
of one year or more. All issues must have at least one year to final maturity
regardless of call features, have at least $250 million par amount outstanding
and be rated investment grade (Baa3 or better). They must also be dollar
denominated, nonconvertible and publicly issued.
4. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index:
Non-Investment Grade includes bonds with a maximum credit rating of Ba1. All
bonds included must have an outstanding par value of at least $3 million and be
issued as part of a transaction of at least $20 million. The bonds must be dated
after 12/31/90, and must be at least one year from their maturity date. Taxable
municipal bonds, bonds with floating rates and derivatives are excluded from the
index.
Semiannual Report | 9
PORTFOLIO BREAKDOWN
10/31/07
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% OF TOTAL
LONG-TERM INVESTMENTS*
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Prerefunded 28.2%
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Utilities 16.9%
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Transportation 12.1%
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Hospital & Health Care 10.8%
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General Obligation 7.4%
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Other Revenue 5.5%
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Higher Education 5.4%
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Subject to Government Appropriations 5.3%
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Tax-Supported 5.0%
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Corporate-Backed 2.4%
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Housing 1.0%
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* Does not include short-term investments and other net assets.
longer-term yields). On October 31, 2007, two-year, 10-year and 30-year Treasury
yields were 3.94%, 4.48% and 4.75%, respectively. The yield on the two-year fell
66 basis points, while the 10-year fell 15 and the 30-year dropped 6 over the
period. According to Municipal Market Data, at period-end, two-year, 10-year and
30-year municipal bonds yielded 3.33%, 3.81% and 4.40%, respectively. 5 Yield
for the two-year fell 27 basis points, while 10-year and 30-year yields rose 5
and 30 basis points during the reporting period. 5
INVESTMENT STRATEGY
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, our portfolio becomes well
diversified with a broad range of securities. This broad diversification may
help mitigate interest rate risk. We do not use leverage or exotic derivatives,
nor do we use hedging techniques that could add volatility and contribute to
under-performance in adverse markets. We generally stay fully invested to
maximize income distribution.
MANAGER'S DISCUSSION
Our value-oriented philosophy of investing primarily for income, combined with a
relatively steep municipal yield curve compared to Treasuries, favored
longer-term bonds during the reporting period. Consistent with our strategy, we
sought to remain fully invested in bonds ranging from 15 to 30 years in maturity
with good call features. We also maintained our conservative, buy-and-hold
investment strategy as we attempted to provide shareholders with high, current,
tax-free income. The Fund's credit quality improved during the six months under
review as we found value in AAA-rated insured bonds. Credit spreads tightened to
the point where we felt investors were not being adequately compensated for
higher credit risk.
Thank you for your continued participation in Franklin Federal Tax-Free Income
Fund. We look forward to serving your future investment needs.
5. Source: Thomson Financial.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
10 | Semiannual Report
Performance Summary as of 10/31/07
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 does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FKTIX) CHANGE 10/31/07 4/30/07
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Net Asset Value (NAV) -$0.13 $11.98 $12.11
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DISTRIBUTIONS (5/1/07-10/31/07)
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Dividend Income $0.2690
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CLASS B (SYMBOL: FFTBX) CHANGE 10/31/07 4/30/07
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Net Asset Value (NAV) -$0.13 $11.97 $12.10
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DISTRIBUTIONS (5/1/07-10/31/07)
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Dividend Income $0.2354
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CLASS C (SYMBOL: FRFTX) CHANGE 10/31/07 4/30/07
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Net Asset Value (NAV) -$0.14 $11.97 $12.11
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DISTRIBUTIONS (5/1/07-10/31/07)
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Dividend Income $0.2357
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ADVISOR CLASS (SYMBOL: FAFTX) CHANGE 10/31/07 4/30/07
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Net Asset Value (NAV) -$0.14 $11.98 $12.12
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DISTRIBUTIONS (5/1/07-10/31/07)
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Dividend Income $0.2744
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Semiannual Report | 11
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A 2% FEE FOR REDEMPTIONS
MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +1.18% +2.82% +27.11% +61.85%
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Average Annual Total Return 2 -3.14% -1.54% +4.00% +4.48%
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Avg. Ann. Total Return (9/30/07) 3 -1.31% +3.53% +4.50%
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Distribution Rate 4 4.27%
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Taxable Equivalent Distribution Rate 5 6.57%
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30-Day Standardized Yield 6 3.61%
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Taxable Equivalent Yield 5 5.55%
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Total Annual Operating Expenses 7 0.61%
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CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
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Cumulative Total Return 1 +0.89% +2.24% +23.61% +43.43%
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Average Annual Total Return 2 -3.06% -1.69% +3.99% +4.17%
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Avg. Ann. Total Return (9/30/07) 3 -1.44% +3.51% +4.16%
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Distribution Rate 4 3.91%
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Taxable Equivalent Distribution Rate 5 6.02%
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30-Day Standardized Yield 6 3.23%
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Taxable Equivalent Yield 5 4.97%
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Total Annual Operating Expenses 7 1.17%
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CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +0.81% +2.25% +23.60% +53.02%
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Average Annual Total Return 2 -0.18% +1.27% +4.33% +4.35%
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Avg. Ann. Total Return (9/30/07) 3 +1.44% +3.84% +4.36%
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Distribution Rate 4 3.92%
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Taxable Equivalent Distribution Rate 5 6.03%
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30-Day Standardized Yield 6 3.23%
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Taxable Equivalent Yield 5 4.97%
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Total Annual Operating Expenses 7 1.17%
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ADVISOR CLASS 8 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +1.14% +2.91% +27.66% +62.62%
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Average Annual Total Return 2 +1.14% +2.91% +5.00% +4.98%
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Avg. Ann. Total Return (9/30/07) 3 +3.09% +4.51% +5.00%
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Distribution Rate 4 4.55%
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Taxable Equivalent Distribution Rate 5 7.00%
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30-Day Standardized Yield 6 3.87%
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Taxable Equivalent Yield 5 5.95%
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Total Annual Operating Expenses 7 0.52%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
12 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as
described in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
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
October dividend and the maximum offering price (NAV for Classes B, C and
Advisor) per share on 10/31/07.
5. Taxable equivalent distribution rate and yield assume the 2007 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 30 days ended 10/31/07.
7. Figures are as stated in the Fund's prospectus current as of the date of this
report.
8. Effective 3/20/02, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 3/20/02,
a restated figure is used based upon the Fund's Class A performance, excluding
the effect of Class A's maximum initial sales charge, but reflecting the effect
of the Class A Rule 12b-1 fees; and (b) for periods after 3/19/02, actual
Advisor Class performance is used reflecting all charges and fees applicable to
that class. Since 3/20/02 (commencement of sales), the cumulative and average
annual total returns of Advisor Class shares were +33.48% and +5.28%.
Semiannual Report | 13
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
14 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
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BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 5/1/07 VALUE 10/31/07 PERIOD* 5/1/07-10/31/07
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,011.80 $3.08
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Hypothetical (5% return before expenses) $1,000 $1,022.07 $3.10
- ----------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,008.90 $5.91
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Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.94
- ----------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,008.10 $5.91
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.94
- ----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,011.40 $2.63
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Hypothetical (5% return before expenses) $1,000 $1,022.52 $2.64
- ----------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.61%; B: 1.17%; C: 1.17%; and Advisor: 0.52%),
multiplied by the average account value over the period, multiplied by 184/366
to reflect the one-half year period.
Semiannual Report | 15
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
OCTOBER 31, 2007 YEAR ENDED APRIL 30,
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................. $ 12.11 $ 11.99 $ 12.23 $ 11.91 $ 11.99 $ 11.81
------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............ 0.26 0.55 0.53 0.57 0.58 0.59
Net realized and unrealized gains
(losses) ........................ (0.12) 0.12 (0.22) 0.31 (0.10) 0.18
------------------------------------------------------------------------------------------
Total from investment operations ...... 0.14 0.67 0.31 0.88 0.48 0.77
------------------------------------------------------------------------------------------
Less distributions from net investment
income ............................. (0.27) (0.55) (0.55) (0.56) (0.56) (0.59)
------------------------------------------------------------------------------------------
Redemption fees ....................... -- e -- e -- e -- e -- --
------------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 11.98 $ 12.11 $ 11.99 $ 12.23 $ 11.91 $ 11.99
==========================================================================================
Total return c ........................ 1.18% 5.66% 2.55% 7.62% 4.08% 6.72%
RATIOS TO AVERAGE NET ASSETS d
Expenses .............................. 0.61% 0.61% 0.61% 0.61% 0.61% 0.61%
Net investment income ................. 4.38% 4.58% 4.33% 4.72% 4.79% 4.98%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 6,680,003 $ 6,570,140 $ 6,279,940 $ 6,324,986 $ 6,357,878 $ 6,835,209
Portfolio turnover rate ............... 7.31% 6.13% 7.98% 6.74% 6.94% 13.18%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
16 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
OCTOBER 31, 2007 YEAR ENDED APRIL 30,
CLASS B (UNAUDITED) 2007 2006 2005 2004 2003
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................. $ 12.10 $ 11.98 $ 12.22 $ 11.90 $ 11.99 $ 11.81
------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............ 0.23 0.49 0.46 0.50 0.51 0.53
Net realized and unrealized gains
(losses) ........................ (0.12) 0.11 (0.22) 0.31 (0.11) 0.18
------------------------------------------------------------------------------------------
Total from investment operations ...... 0.11 0.60 0.24 0.81 0.40 0.71
------------------------------------------------------------------------------------------
Less distributions from net investment
income ............................. (0.24) (0.48) (0.48) (0.49) (0.49) (0.53)
------------------------------------------------------------------------------------------
Redemption fees ....................... -- e -- e -- e -- e -- --
------------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 11.97 $ 12.10 $ 11.98 $ 12.22 $ 11.90 $ 11.99
==========================================================================================
Total return c ........................ 0.89% 5.08% 1.99% 7.00% 3.41% 6.13%
RATIOS TO AVERAGE NET ASSETS d
Expenses .............................. 1.17% 1.17% 1.17% 1.17% 1.17% 1.17%
Net investment income ................. 3.82% 4.02% 3.77% 4.16% 4.23% 4.42%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 198,186 $ 225,834 $ 260,416 $ 289,490 $ 298,252 $ 293,285
Portfolio turnover rate ............... 7.31% 6.13% 7.98% 6.74% 6.94% 13.18%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 17
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
OCTOBER 31, 2007 YEAR ENDED APRIL 30,
CLASS C (UNAUDITED) 2007 2006 2005 2004 2003
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................. $ 12.11 $ 11.99 $ 12.23 $ 11.90 $ 11.99 $ 11.81
------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............ 0.23 0.49 0.46 0.50 0.51 0.53
Net realized and unrealized gains
(losses) ......................... (0.13) 0.11 (0.22) 0.32 (0.11) 0.18
------------------------------------------------------------------------------------------
Total from investment operations ...... 0.10 0.60 0.24 0.82 0.40 0.71
------------------------------------------------------------------------------------------
Less distributions from net investment
income ............................. (0.24) (0.48) (0.48) (0.49) (0.49) (0.53)
------------------------------------------------------------------------------------------
Redemption fees ....................... -- e -- e -- e -- e -- --
------------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 11.97 $ 12.11 $ 11.99 $ 12.23 $ 11.90 $ 11.99
==========================================================================================
Total return c ........................ 0.81% 5.08% 1.99% 7.09% 3.39% 6.15%
RATIOS TO AVERAGE NET ASSETS d
Expenses .............................. 1.17% 1.17% 1.17% 1.17% 1.17% 1.17%
Net investment income ................. 3.82% 4.02% 3.77% 4.16% 4.23% 4.42%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 484,432 $ 449,918 $ 403,084 $ 371,438 $ 373,431 $ 394,026
Portfolio turnover rate ............... 7.31% 6.13% 7.98% 6.74% 6.94% 13.18%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
18 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
OCTOBER 31, 2007 YEAR ENDED APRIL 30,
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004 2003
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................. $ 12.12 $ 12.00 $ 12.23 $ 11.92 $ 12.00 $ 11.82
------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............ 0.27 0.57 0.54 0.58 0.59 0.60
Net realized and unrealized gains
(losses) ........................ (0.14) 0.11 (0.21) 0.30 (0.10) 0.18
------------------------------------------------------------------------------------------
Total from investment operations ...... 0.13 0.68 0.33 0.88 0.49 0.78
------------------------------------------------------------------------------------------
Less distributions from net investment
income ............................. (0.27) (0.56) (0.56) (0.57) (0.57) (0.60)
------------------------------------------------------------------------------------------
Redemption fees ....................... -- d -- d -- d -- d -- --
------------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 11.98 $ 12.12 $ 12.00 $ 12.23 $ 11.92 $ 12.00
==========================================================================================
Total return .......................... 1.14% 5.76% 2.63% 7.71% 4.17% 6.81%
RATIOS TO AVERAGE NET ASSETS c
Expenses .............................. 0.52% 0.52% 0.52% 0.52% 0.52% 0.52%
Net investment income ................. 4.47% 4.67% 4.42% 4.81% 4.88% 5.07%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 246,741 $ 191,387 $ 155,857 $ 112,032 $ 97,303 $ 88,142
Portfolio turnover rate ............... 7.31% 6.13% 7.98% 6.74% 6.94% 13.18%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Ratios are annualized for periods less than one year.
d Amount rounds to less than $0.01 per share.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 19
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.5%
MUNICIPAL BONDS 98.5%
ALABAMA 1.5%
Anniston Regional Medical Center Board Revenue, Series A, AMBAC Insured, 5.125%,
6/01/28 ................................................................................ $ 7,000,000 $ 7,162,960
Auburn University General Fee Revenue, AMBAC Insured, 5.00%, 6/01/34 ..................... 11,025,000 11,309,997
Courtland IDB Solid Waste Disposal Revenue, Champion International Corp. Project,
Refunding, 6.00%, 8/01/29 ........................................................... 12,000,000 12,328,680
Series A, 6.70%, 11/01/29 ........................................................... 4,000,000 4,180,440
Fairfield IDB Environmental Improvement Revenue, USX Corp. Project, Refunding, 5.45%,
9/01/14 ................................................................................ 1,445,000 1,480,403
Homewood GO, wts., Refunding, FSA Insured, 4.75%, 9/01/30 ................................ 9,265,000 9,340,880
Mobile GO, wts., Refunding and Improvement, AMBAC Insured, 5.00%, 2/15/30 ................ 5,000,000 5,174,350
Montgomery County Public Building Authority Revenue, wts., Facilities Project, MBIA
Insured, 5.00%, 3/01/31 ................................................................ 6,250,000 6,482,125
University of Alabama General Revenue, Series A,
MBIA Insured, 5.00%, 7/01/29 ........................................................ 10,000,000 10,301,600
MBIA Insured, 5.00%, 7/01/34 ........................................................ 11,500,000 11,800,265
XLCA Insured, 5.00%, 7/01/28 ........................................................ 6,065,000 6,302,081
XLCA Insured, 5.00%, 7/01/32 ........................................................ 6,500,000 6,721,065
University of Alabama University Revenues, Hospital, Series A, MBIA Insured, Pre-Refunded,
5.875%, 9/01/31 ........................................................................ 5,000,000 5,374,150
University of South Alabama University Revenues, Tuition, Capital Improvement, Refunding,
AMBAC Insured, 5.00%, 12/01/36 ......................................................... 11,570,000 11,987,908
-----------------
109,946,904
-----------------
ALASKA 0.4%
Alaska State HFC Revenue, General Housing, Series A, FGIC Insured, 5.00%,
12/01/29 ............................................................................ 4,000,000 4,112,560
12/01/30 ............................................................................ 3,500,000 3,594,220
Alaska State International Airports Revenues, Series B,
AMBAC Insured, Pre-Refunded, 5.25%, 10/01/27 ........................................ 15,000,000 16,145,250
MBIA Insured, 5.00%, 10/01/28 ....................................................... 5,100,000 5,206,896
-----------------
29,058,926
-----------------
ARIZONA 2.5%
Downtown Phoenix Hotel Corp. Revenue, Senior Series A, FGIC Insured, 5.00%,
7/01/29 ............................................................................. 14,465,000 14,983,281
7/01/36 ............................................................................. 15,000,000 15,444,450
Maricopa County IDA Health Facility Revenue, Catholic Healthcare West Project, Refunding,
Series A, 5.00%, 7/01/16 ............................................................... 21,425,000 21,762,872
Maricopa County IDA Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%, 11/15/37 ..... 19,000,000 19,257,830
Mesa IDAR, Discovery Health System, Series A, MBIA Insured, Pre-Refunded, 5.75%,
1/01/25 ................................................................................ 22,500,000 23,783,625
Phoenix Civic Improvement Corp. Distribution Revenue, Capital Appreciation, Civic Plaza,
Series B, FGIC Insured, zero cpn. to 7/01/13, 5.50% thereafter,
7/01/32 ............................................................................. 6,000,000 5,119,020
7/01/34 ............................................................................. 5,000,000 4,275,950
7/01/35 ............................................................................. 9,860,000 8,407,918
20 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Salt River Project,
Refunding, Series A, 5.125%, 1/01/27 ................................................ $ 35,000,000 $ 36,517,950
Series B, 5.00%, 1/01/25 ............................................................ 17,500,000 18,125,625
Salt Verde Financial Corp. Senior Gas Revenue, 5.00%, 12/01/37 ........................... 10,000,000 9,652,900
Scottsdale Municipal Property Corp. Excise Tax Revenue, Series A, Pre-Refunded, 5.00%,
7/01/34 ................................................................................ 7,500,000 8,088,525
University Medical Center Corp. Revenue, 5.00%, 7/01/35 .................................. 7,000,000 6,716,150
-----------------
192,136,096
-----------------
ARKANSAS 1.4%
Arkansas State Development Finance Authority HMR, Series B-1, GNMA Secured, 5.80%,
1/01/23 ................................................................................ 135,000 136,482
Arkansas State Development Finance Authority Revenue, White River Medical Center Project,
5.60%, 6/01/24 ......................................................................... 1,200,000 1,209,924
Little Rock Sewer Revenue, Construction, Series A, FSA Insured, 5.00%, 6/01/31 ........... 8,690,000 9,045,247
Pope County PCR, Arkansas Power and Light Co. Project, Refunding, 6.30%,
12/01/16 ............................................................................ 2,600,000 2,601,404
11/01/20 ............................................................................ 60,500,000 60,921,080
Pulaski County Health Facilities Board Revenue, Nazareth Sisters of Charity, St. Vincent's
Infirmary, MBIA Insured, ETM, 6.05%, 11/01/09 .......................................... 125,000 131,368
Saline County Retirement Housing and Healthcare Facilities Board Revenue, Refunding,
AMBAC Insured, 5.80%, 6/01/11 .......................................................... 180,000 180,294
University of Arkansas University Revenues,
AMBAC Insured, 5.00%, 11/01/31 ...................................................... 7,705,000 8,010,349
Construction, University of Arkansas for Medical Sciences Campus, Series B, MBIA
Insured, 5.00%, 11/01/28 .......................................................... 1,000,000 1,038,200
Construction, University of Arkansas for Medical Sciences Campus, Series B, MBIA
Insured, 5.00%, 11/01/34 .......................................................... 9,000,000 9,288,990
Various Facility, Fayetteville Campus, FGIC Insured, 5.00%, 12/01/27 ................ 5,000,000 5,150,950
University of Central Arkansas Revenue, FGIC Insured, 5.00%, 11/01/37 .................... 5,020,000 5,187,467
-----------------
102,901,755
-----------------
CALIFORNIA 7.6%
Alhambra COP, Clubhouse Facility Project, 11.25%,
1/01/08 ............................................................................. 410,000 414,912
1/01/09 ............................................................................. 455,000 460,392
1/01/10 ............................................................................. 500,000 505,825
California Infrastructure and Economic Development Bank Revenue, Bay Area Toll Bridges,
first lien, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/33 ...................... 24,500,000 26,656,245
California State GO,
5.90%, 5/01/08 ...................................................................... 235,000 237,902
6.00%, 5/01/18 ...................................................................... 535,000 541,238
6.00%, 5/01/20 ...................................................................... 850,000 860,829
5.90%, 4/01/23 ...................................................................... 1,200,000 1,209,192
5.125%, 2/01/26 ..................................................................... 7,500,000 7,764,375
Semiannual Report | 21
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State GO, (continued)
Pre-Refunded, 5.125%, 6/01/25 ....................................................... $ 24,705,000 $ 26,118,126
Pre-Refunded, 5.25%, 4/01/27 ........................................................ 17,500,000 19,159,000
Pre-Refunded, 5.00%, 2/01/32 ........................................................ 49,000,000 51,948,820
Refunding, 5.00%, 2/01/24 ........................................................... 5,000,000 5,127,400
Refunding, 5.125%, 6/01/25 .......................................................... 295,000 302,186
Refunding, 5.00%, 2/01/26 ........................................................... 27,000,000 27,493,020
Refunding, 5.00%, 2/01/26 ........................................................... 20,000,000 20,428,400
Various Purpose, 5.25%, 11/01/25 .................................................... 16,260,000 17,041,618
Various Purpose, 5.00%, 8/01/33 ..................................................... 25,000,000 25,350,500
Various Purpose, 5.50%, 11/01/33 .................................................... 2,500,000 2,646,100
California State Public Works Board Lease Revenue, Various University of California
Projects, Refunding, Series D, 5.00%, 5/01/27 .......................................... 10,000,000 10,244,600
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, zero cpn., 1/15/24 ................................. 65,000,000 25,077,000
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.85% thereafter, 1/15/23 .... 35,000,000 33,036,850
Refunding, 5.75%, 1/15/40 ........................................................... 20,000,000 20,439,800
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Enhanced, Series A, AMBAC Insured, 5.00%, 6/01/45 ................................... 13,255,000 13,471,587
Pre-Refunded, 5.375%, 6/01/28 ....................................................... 50,000,000 52,436,500
Series 2003 A-1, Pre-Refunded, 6.25%, 6/01/33 ....................................... 26,000,000 28,542,020
Hacienda La Puente USD, GO, Election of 2000, Series B, FSA Insured, Pre-Refunded,
5.00%, 8/01/27 ......................................................................... 5,000,000 5,386,650
Inland Empire Tobacco Asset Securitization Corp. Revenue,
Series A, 5.00%, 6/01/21 ............................................................ 12,500,000 12,390,250
Series C-1, zero cpn., 6/01/36 ...................................................... 100,000,000 15,468,000
Los Angeles CRDA Housing Revenue, Refunding, Series A, AMBAC Insured, 6.55%,
1/01/27 ................................................................................ 140,000 139,997
a Los Angeles Regional Airports Improvement Corp. Lease Revenue,
Facilities Sub-Lease, International Airport, Refunding, 6.35%, 11/01/25 ............. 7,500,000 7,304,175
United Airlines, Los Angeles International, Refunding, 6.875%, 11/15/12 ............. 8,400,000 7,394,100
Los Angeles USD, GO, Series A, MBIA Insured, Pre-Refunded, 5.00%, 1/01/28 ................ 25,000,000 26,881,250
Los Angeles Wastewater System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/25 ........... 10,000,000 10,378,400
Metropolitan Water District of Southern California Waterworks Revenue, Series B-2,
FGIC Insured, 5.00%, 10/01/27 .......................................................... 9,645,000 10,024,049
Pajaro Valley USD, GO, Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/26 ............... 5,285,000 5,693,689
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/21 ........................... 50,000,000 51,845,500
senior lien, 5.00%, 1/01/33 ......................................................... 5,000,000 4,792,550
senior lien, ETM, zero cpn., 1/01/23 ................................................ 7,000,000 3,592,610
-----------------
578,805,657
-----------------
COLORADO 2.8%
Adams County Revenue, FHA Insured Mortgage, Platte Valley Medical Center, Refunding,
MBIA Insured, 5.00%, 2/01/31 ........................................................... 6,560,000 6,656,235
Aurora Water Improvement Revenue, first lien, Series A, AMBAC Insured,
5.00%, 8/01/32 ...................................................................... 10,000,000 10,446,300
5.00%, 8/01/39 ...................................................................... 15,000,000 15,585,150
22 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
COLORADO (CONTINUED)
Colorado Board of Governors University Enterprise System Revenue, Series A, FGIC Insured,
5.00%, 3/01/37 ......................................................................... $ 10,000,000 $ 10,322,800
Colorado Health Facilities Authority Revenue,
Catholic Health Initiatives, Series A, Pre-Refunded, 5.00%, 12/01/28 ................ 2,000,000 2,037,780
Kaiser Permanente, Series A, ETM, 5.35%, 11/01/16 ................................... 13,250,000 13,512,747
Kaiser Permanente, Series B, ETM, 5.35%, 8/01/15 .................................... 20,200,000 21,215,858
Colorado Springs Airport Revenue, Series C, zero cpn.,
1/01/08 ............................................................................. 800,000 794,464
1/01/11 ............................................................................. 1,450,000 1,262,370
Colorado Water Resources and Power Development Authority Water Resources Revenue,
Arapahoe County Water Improvement, Series E, MBIA Insured, 5.00%, 12/01/35 ............. 10,000,000 10,362,400
Denver City and County Airport Revenue,
Refunding, Series E, MBIA Insured, 5.25%, 11/15/23 .................................. 43,000,000 43,449,350
System, Refunding, Series A, XLCA Insured, 5.00%, 11/15/25 .......................... 8,000,000 8,321,600
Denver City and County School District No. 1 COP, Denver School Facilities Leasing Corp.,
AMBAC Insured, 5.50%, 12/15/08 ......................................................... 330,000 330,479
Denver Convention Center Hotel Authority Revenue, Senior Series A, XLCA Insured,
Pre-Refunded, 4.75%, 12/01/28 .......................................................... 13,500,000 14,324,580
Littleton MFHR, Riverpointe I, Series A, FSA Insured, Pre-Refunded, 5.95%, 4/01/29 ....... 10,530,000 11,045,128
Mesa State College Auxiliary Facilities Enterprise Revenue, XLCA Insured, 5.00%,
5/15/35 ................................................................................ 9,950,000 10,226,212
Northwest Parkway Public Highway Authority Revenue, Series A, AMBAC Insured, 5.125%,
6/15/31 ................................................................................ 7,500,000 7,816,650
Pueblo County School District No. 060 GO, FGIC Insured, 5.00%, 12/15/22 .................. 5,500,000 5,707,955
Thornton Water Enterprise Revenue, MBIA Insured, 5.00%, 12/01/34 ......................... 10,000,000 10,330,300
University of Colorado Hospital Authority Revenue, Series A, AMBAC Insured, 5.00%,
11/15/29 ............................................................................... 8,500,000 8,645,435
-----------------
212,393,793
-----------------
CONNECTICUT 0.2%
Connecticut State Health and Educational Facilities Authority Revenue, Yale-New Haven
Hospital, Series J-1, AMBAC Insured, 5.00%, 7/01/31 .................................... 10,500,000 10,887,555
Meriden Housing Authority MFR, Connecticut Baptist Housing Project, GNMA Secured,
5.80%, 8/20/39 ......................................................................... 2,640,000 2,782,428
-----------------
13,669,983
-----------------
DISTRICT OF COLUMBIA 1.6%
District of Columbia GO,
Series A, AMBAC Insured, Pre-Refunded, 5.00%, 6/01/30 ............................... 22,860,000 24,759,209
Series A, FGIC Insured, Pre-Refunded, 5.00%, 6/01/28 ................................ 22,475,000 24,050,273
Series A, FSA Insured, 5.375%, 6/01/24 .............................................. 3,580,000 3,688,904
Series A, FSA Insured, Pre-Refunded, 5.375%, 6/01/24 ................................ 1,420,000 1,476,459
Series E, MBIA Insured, ETM, 6.00%, 6/01/13 ......................................... 15,000 15,028
District of Columbia Revenue,
Capital Appreciation, Georgetown University, Series A, MBIA Insured, zero cpn.,
4/01/20 ........................................................................... 8,860,000 4,774,388
Capital Appreciation, Georgetown University, Series A, MBIA Insured, zero cpn.,
4/01/22 ........................................................................... 12,870,000 6,133,198
Semiannual Report | 23
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
DISTRICT OF COLUMBIA (CONTINUED)
District of Columbia Revenue, (continued)
Capital Appreciation, Georgetown University, Series A, MBIA Insured, zero cpn.,
4/01/23 ........................................................................... $ 14,160,000 $ 6,345,662
Deed Tax, Housing Product Trust Fund, Series A, MBIA Insured, 5.00%, 6/01/32 ........ 5,000,000 5,157,200
Gains-Georgetown University, Capital Appreciation, Refunding, AMBAC Insured, zero cpn.
to 4/01/18, 5.00% thereafter, 4/01/32 ............................................. 15,370,000 9,028,953
District of Columbia Tobacco Settlement Financing Corp. Revenue, Refunding, Asset-Backed
Bonds, 6.50%, 5/15/33 .................................................................. 35,000,000 36,520,400
-----------------
121,949,674
-----------------
FLORIDA 5.8%
Brevard County Local Option Fuel Tax Revenue, FGIC Insured, 5.00%, 8/01/37 ............... 12,245,000 12,673,820
Broward County School Board COP,
MBIA Insured, 5.00%, 7/01/28 ........................................................ 17,415,000 17,783,501
Series A, FSA Insured, 5.25%, 7/01/24 ............................................... 25,000,000 26,163,500
Cape Coral Water and Sewer Revenue, AMBAC Insured, 5.00%, 10/01/36 ....................... 5,000,000 5,177,850
Escambia County Health Facilities Authority Revenue, Ascension Health Credit, Series A-2,
AMBAC Insured, Pre-Refunded, 5.75%, 11/15/29 ........................................... 10,000,000 10,539,900
Florida State Board of Education Capital Outlay GO, Public Education, Refunding, Series D,
5.75%, 6/01/22 ...................................................................... 10,000,000 10,634,900
6.00%, 6/01/23 ...................................................................... 17,500,000 20,939,450
Florida State Mid-Bay Bridge Authority Revenue, Series A,
AMBAC Insured, zero cpn., 10/01/23 .................................................. 4,950,000 2,199,483
AMBAC Insured, zero cpn., 10/01/24 .................................................. 2,970,000 1,246,093
Pre-Refunded, zero cpn., 10/01/23 ................................................... 50,000 24,589
Pre-Refunded, zero cpn., 10/01/24 ................................................... 30,000 13,934
Hernando County School Board COP, MBIA Insured, 5.00%, 7/01/30 ........................... 10,000,000 10,255,200
Hillsborough County IDAR, Refunding, Series A, 5.25%, 10/01/24 ........................... 13,500,000 13,801,590
Hillsborough County School Board COP,
Master Lease Program, Series B, MBIA Insured, 5.00%, 7/01/27 ........................ 5,000,000 5,145,950
Refunding, Series A, MBIA Insured, 5.00%, 7/01/25 ................................... 5,000,000 5,080,400
Indian River County School Board COP, FGIC Insured, 5.00%, 7/01/27 ....................... 16,485,000 17,071,536
Jacksonville Capital Improvement Revenue, Series A, AMBAC Insured, 5.00%, 10/01/30 ....... 20,175,000 20,649,516
Jacksonville Economic Development Commission Health Care Facilities Revenue, Mayo Clinic,
5.00%, 11/15/36 ........................................................................ 17,950,000 18,299,307
Jacksonville Excise Taxes Revenue, Series A, AMBAC Insured, 5.00%, 10/01/32 .............. 6,015,000 6,233,224
Jacksonville Sales Tax Revenue, AMBAC Insured, 5.00%,
10/01/23 ............................................................................ 6,000,000 6,184,080
10/01/26 ............................................................................ 20,000,000 20,591,800
Jacksonville Transportation Revenue, MBIA Insured, 5.00%, 10/01/31 ....................... 5,000,000 5,095,600
Lee County Transportation Facilities Revenue, Sanibel Bridges and Causeway, Series B,
CIFG Insured, 5.00%, 10/01/35 .......................................................... 10,645,000 10,909,848
Miami-Dade County Aviation Revenue, Miami International Airport, Hub of the Americas,
Refunding, Series A, CIFG Insured, 5.00%, 10/01/38 ..................................... 15,000,000 15,038,100
Miami-Dade County Public Facilities Revenue, Jackson Health System, Series A,
MBIA Insured, 5.00%, 6/01/30 ........................................................... 10,630,000 10,939,971
24 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Miami-Dade County Special Obligation Revenue,
Juvenile Courthouse Project, Series A, AMBAC Insured, 5.00%, 4/01/32 .................. $ 10,000,000 $ 10,261,300
Sub Series B, MBIA Insured, zero cpn., 10/01/34 ....................................... 5,500,000 1,282,545
Orlando Utilities Commission Water and Electric Revenue, Refunding, 5.00%, 10/01/22 ...... 7,500,000 7,793,550
Orlando-Orange County Expressway Authority Revenue,
Series A, FSA Insured, 5.00%, 7/01/32 ................................................. 12,000,000 12,465,000
Series B, AMBAC Insured, 5.00%, 7/01/28 ............................................... 10,630,000 10,951,026
Palm Beach County School Board COP,
Refunding, Series D, FSA Insured, 5.00%, 8/01/28 ...................................... 25,000,000 25,451,750
Series A, FGIC Insured, Pre-Refunded, 6.00%, 8/01/23 .................................. 5,100,000 5,488,773
Port St. Lucie GO, MBIA Insured, 5.00%, 7/01/32 .......................................... 7,000,000 7,247,100
South Broward Hospital District Revenue, South Broward Hospital District, Refunding,
4.75%, 5/01/28 ......................................................................... 10,000,000 9,832,700
South Miami Health Facilities Authority Hospital Revenue, Baptist Health South Florida
Group, 5.00%, 8/15/32 .................................................................. 31,070,000 31,258,906
St. Lucie County Transportation Revenue, AMBAC Insured, 5.00%, 8/01/27 ................... 5,785,000 6,052,498
Tallahassee Energy System Revenue, Refunding, MBIA Insured, 5.00%, 10/01/37 .............. 20,000,000 20,726,600
Tampa Bay Water Utility System Revenue, Series B, FGIC Insured,
5.00%, 10/01/26 ....................................................................... 5,245,000 5,400,200
5.00%, 10/01/31 ....................................................................... 10,000,000 10,191,200
Pre-Refunded, 5.00%, 10/01/26 ......................................................... 4,755,000 5,014,861
-----------------
442,111,151
-----------------
GEORGIA 4.1%
Atlanta Airport Passenger Facility Charge Revenue, General, sub. lien,
Refunding, Series C, FSA Insured, 5.00%, 1/01/33 ...................................... 29,520,000 30,053,131
Series J, FSA Insured, 5.00%, 1/01/29 ................................................. 10,000,000 10,234,800
Atlanta Airport Revenue, General,
Series A, FGIC Insured, Pre-Refunded, 5.50%, 1/01/26 .................................. 18,295,000 19,260,244
Series G, FSA Insured, 5.00%, 1/01/30 ................................................. 18,285,000 18,692,024
Atlanta Development Authority Revenue,
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/24 ......... 6,385,000 6,901,291
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/25 ......... 6,955,000 7,514,669
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/26 ......... 5,000,000 5,398,250
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/27 ......... 5,000,000 5,398,850
Yamacraw Design Center Project, Series A, MBIA Insured, Pre-Refunded, 5.125%,
1/01/27 ............................................................................. 5,000,000 5,293,600
Atlanta Development Authority Student Housing Facilities Revenue, Piedmont Ellis LLC,
Series A, XLCA Insured, 5.00%, 9/01/30 ................................................. 10,000,000 10,372,700
Atlanta Water and Wastewater Revenue,
FSA Insured, 5.00%, 11/01/34 .......................................................... 20,205,000 20,890,556
Refunding, Series A, MBIA Insured, 5.00%, 11/01/33 .................................... 13,000,000 13,303,940
Clark County Hospital Authority Revenue, Athens Regional Medical Center Project,
MBIA Insured, 5.00%, 1/01/27 ........................................................... 5,000,000 5,200,850
Clayton County Development Authority Student Housing and Activity Center Revenue,
CSU Foundation Real Estate I LLC Project, XLCA Insured, 5.00%, 7/01/33 ................. 11,125,000 11,450,629
Semiannual Report | 25
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Cobb County Hospital Authority Revenue, Refunding, AMBAC Insured, 5.00%, 4/01/28 ......... $ 18,000,000 $ 18,755,640
De Kalb County Water and Sewer Revenue, 5.25%, 10/01/25 .................................. 12,000,000 12,721,080
Griffin Combined Public Utility Revenue, Refunding and Improvement, AMBAC Insured,
5.00%, 1/01/25 ......................................................................... 5,000,000 5,213,350
Gwinnett County Hospital Authority Revenue, Anticipation Certificates, Gwinnett Hospital
Systems Inc. Project, Series B, MBIA Insured, Pre-Refunded, 5.30%, 9/01/27 ............. 10,000,000 10,872,500
Gwinnett County Water and Sewer Authority Revenue, Pre-Refunded, 5.25%, 8/01/25 .......... 20,000,000 21,497,000
Henry County and Henry County Water and Sewer Authority Revenue, Refunding and
Improvement, Series A, MBIA Insured, 5.00%, 2/01/26 .................................... 5,770,000 6,007,666
Houston County Hospital Authority Revenue, Anticipation Certificates, Houston Healthcare
Project, 5.25%, 10/01/35 ............................................................... 10,485,000 10,613,756
Jefferson Public Building Authority Revenue, Jackson County Facilities, Series A,
XLCA Insured, 5.00%, 3/01/32 ........................................................... 6,075,000 6,252,511
Main Street Natural Gas Inc. Gas Prior Revenue, Series A, 5.50%, 9/15/28 ................. 5,000,000 5,124,950
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Second Indenture Series,
MBIA Insured, Pre-Refunded, 5.00%,
7/01/23 ............................................................................... 10,150,000 10,822,539
7/01/25 ............................................................................... 12,160,000 12,965,722
7/01/26 ............................................................................... 12,800,000 13,648,128
Richmond County Development Authority Educational Facilities Revenue, MCG-PPG Cancer
Research Center, Series A, AMBAC Insured, 5.00%, 12/15/29 .............................. 5,000,000 5,193,650
-----------------
309,654,026
-----------------
HAWAII 0.8%
Hawaii State Airports System Revenue, Second Series,
ETM, 6.90%, 7/01/12 ................................................................... 500,000 539,235
MBIA Insured, ETM, 6.90%, 7/01/12 ..................................................... 400,000 431,940
Hawaii State Department of Budget and Finance Special Purpose Revenue,
Kaiser Permanente, Series A, ETM, 5.15%, 3/01/15 ...................................... 4,000,000 4,104,760
Wilcox Memorial Hospital Projects, Refunding, 5.25%, 7/01/13 .......................... 600,000 610,956
Wilcox Memorial Hospital Projects, Refunding, 5.35%, 7/01/18 .......................... 2,040,000 2,062,970
Wilcox Memorial Hospital Projects, Refunding, 5.50%, 7/01/28 .......................... 2,410,000 2,425,761
Hawaii State GO,
Refunding, Series BW, 6.375%, 3/01/11 ................................................. 95,000 103,490
Series BW, ETM, 6.375%, 3/01/11 ....................................................... 5,000 5,449
Series CA, 6.00%, 1/01/09 ............................................................. 100,000 102,894
Series CT, FSA Insured, Pre-Refunded, 5.875%, 9/01/19 ................................. 5,000,000 5,265,450
Hawaii State Housing Finance and Development Corp. SFM Purchase Revenue, Refunding,
Series A, FNMA Insured, 5.75%, 7/01/30 ................................................. 310,000 317,682
Honolulu City and County Board of Water Supply Water System Revenue, Refunding, Series A,
MBIA Insured, 5.00%, 7/01/36 ........................................................... 20,000,000 20,608,000
Honolulu City and County GO,
Refunding, Series C, FGIC Insured, 5.00%, 7/01/20 ..................................... 5,250,000 5,394,953
Series 1992, ETM, 6.00%, 12/01/14 ..................................................... 150,000 171,693
Honolulu City and County MFHR, Waipahu Towers Project, Series A, 6.90%, 6/20/35 .......... 1,185,000 1,186,884
26 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
HAWAII (CONTINUED)
Honolulu City and County Wastewater System Revenue,
First Bond Resolution, Senior Series, AMBAC Insured, Pre-Refunded, 5.125%,
7/01/31 ............................................................................. $ 8,000,000 $ 8,444,880
Second Bond Resolution, Refunding, Junior Series, FGIC Insured, 5.00%, 7/01/23 ........ 10,000,000 10,256,600
Kauai County GO, Refunding, Series C, AMBAC Insured, 5.95%, 8/01/10 ...................... 220,000 234,183
-----------------
62,267,780
-----------------
IDAHO 0.0% b
Idaho Housing Agency Revenue, Refunding, Series D-1, 6.45%, 7/01/19 ...................... 195,000 194,442
-----------------
ILLINOIS 4.9%
Aurora Waterworks and Sewer Revenue, XLCA Insured, 4.75%, 12/01/36 ....................... 7,765,000 7,656,290
Bourbonnais Industrial Project Revenue, Olivet Nazarene University Project, Radian
Insured, 5.125%, 11/01/37 .............................................................. 5,000,000 4,973,400
Chicago COP, AMBAC Insured, 7.75%, 7/15/11 ............................................... 8,400,000 9,199,176
Chicago GO, Lakefront Millennium Parking Facilities, MBIA Insured, ETM, 5.75%, 1/01/23 ... 8,955,000 10,529,110
Chicago Sales Tax Revenue, FGIC Insured, Pre-Refunded, 5.375%, 1/01/27 ................... 3,060,000 3,130,135
Chicago SFMR, Collateral, Series A, GNMA Secured, 7.25%, 9/01/28 ......................... 5,000 5,056
Illinois Development Finance Authority Hospital Revenue,
Adventist Health System, Sunbelt Obligation, Pre-Refunded, 5.65%, 11/15/24 ............ 6,030,000 6,343,862
Adventist Health System, Sunbelt Obligation, Pre-Refunded, 5.50%, 11/15/29 ............ 20,000,000 20,982,800
Sisters of St. Francis Health Services, Refunding, MBIA Insured, Pre-Refunded, 5.375%,
11/01/27 ............................................................................ 5,000,000 5,100,000
Illinois Development Finance Authority Revenue, Provena Health, Refunding, Series A,
MBIA Insured, 5.50%, 5/15/21 ........................................................... 10,000,000 10,192,200
Illinois Finance Authority Revenue,
Columbia College, MBIA Insured, 5.00%, 12/01/32 ....................................... 15,440,000 15,870,158
Sherman Health System, Series A, 5.50%, 8/01/37 ....................................... 5,000,000 5,029,500
Illinois HDA Revenue, MF Program, Series 1,
6.625%, 9/01/12 ....................................................................... 3,730,000 3,737,385
6.75%, 9/01/21 ........................................................................ 3,285,000 3,291,800
Illinois Health Facilities Authority Revenue,
Children's Memorial Hospital, Series A, AMBAC Insured, Pre-Refunded, 5.75%,
8/15/25 ............................................................................. 9,120,000 9,563,962
Loyola University Health Systems, Refunding, Series A, MBIA Insured, 5.625%,
7/01/18 ............................................................................. 7,090,000 7,171,889
Loyola University Health Systems, Series A, MBIA Insured, ETM, 5.625%, 7/01/18 ........ 2,105,000 2,409,130
Methodist Medical Center, Refunding, MBIA Insured, 5.25%, 11/15/21 .................... 2,885,000 2,954,500
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%,
11/15/28 ............................................................................ 7,500,000 7,610,325
South Suburban Hospital, ETM, 7.00%, 2/15/18 .......................................... 4,200,000 4,935,924
Illinois Municipal Electric Agency Power Supply Revenue, Series A, FGIC Insured, 5.00%,
2/01/35 ................................................................................ 20,000,000 20,625,600
Illinois State GO, FSA Insured, 5.00%, 9/01/29 ........................................... 12,000,000 12,447,240
Kane County School District No. 129 GO, Series A, FGIC Insured, Pre-Refunded, 5.25%,
2/01/22 ................................................................................ 5,285,000 5,633,229
Semiannual Report | 27
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue,
Capital Appreciation, 2002, Series A, FGIC Insured, ETM, zero cpn., 6/15/08 ........... $ 7,000,000 $ 6,854,750
Capital Appreciation, 2002, Series A, FGIC Insured, ETM, zero cpn., 6/15/09 ........... 9,275,000 8,773,501
Capital Appreciation, 2002, Series A, FGIC Insured, zero cpn., 6/15/08 ................ 185,000 181,108
Capital Appreciation, 2002, Series A, FGIC Insured, zero cpn., 6/15/09 ................ 235,000 222,082
Capital Appreciation, McCormick Place, Refunding, Series B, MBIA Insured, zero cpn.
to 6/14/12, 5.50% thereafter, 6/15/20 ............................................... 8,240,000 7,106,588
Capital Appreciation, McCormick Place, Refunding, Series B, MBIA Insured, zero cpn.
to 6/14/12, 5.55% thereafter, 6/15/21 ............................................... 6,000,000 5,162,640
Capital Appreciation, McCormick Place, Refunding, Series B, zero cpn. to 6/14/17,
5.65% thereafter, 6/15/22 ........................................................... 30,000,000 20,500,800
Capital Appreciation, Series A, FGIC Insured, ETM, zero cpn., 6/15/08 ................. 1,315,000 1,287,714
Capital Appreciation, Series A, FGIC Insured, ETM, zero cpn., 6/15/09 ................. 1,490,000 1,409,436
McCormick Place Expansion Project, 6.50%, 6/15/22 ..................................... 5,000 5,011
McCormick Place Expansion Project, 6.50%, 6/15/27 ..................................... 555,000 556,199
McCormick Place Expansion Project, Refunding, FGIC Insured, 5.25%, 12/15/28 ........... 39,580,000 40,658,555
McCormick Place Expansion Project, Series A, FGIC Insured, 6.65%, 6/15/12 ............. 250,000 250,570
McCormick Place Expansion Project, Series A, FGIC Insured, ETM, zero cpn., 6/15/10 .... 7,845,000 7,154,483
McCormick Place Expansion Project, Series A, FGIC Insured, ETM, zero cpn., 6/15/11 .... 9,690,000 8,506,463
McCormick Place Expansion Project, Series A, FGIC Insured, zero cpn., 6/15/10 ......... 155,000 141,031
McCormick Place Expansion Project, Series A, MBIA Insured, 5.00%, 12/15/28 ............ 26,795,000 27,478,272
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick
Place Convention Center, ETM, 7.00%, 7/01/26 ........................................... 12,000,000 15,618,240
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%, 11/01/20 ...... 1,000,000 1,214,580
Southwestern Illinois Development Authority IDR, Spectrulite Consortium Inc. Project,
6.625%, 2/01/10 ........................................................................ 1,950,000 1,952,652
Southwestern Illinois Development Authority Revenue, Capital Appreciation,
Local Government Program, FSA Insured, zero cpn.,
12/01/24 .............................................................................. 3,850,000 1,753,521
12/01/26 .............................................................................. 7,700,000 3,162,852
University of Illinois University Revenues, Auxiliary Facilities System,
AMBAC Insured, zero cpn., 4/01/10 ..................................................... 14,250,000 13,062,547
Refunding, Series A, AMBAC Insured, 5.00%, 4/01/30 .................................... 5,000,000 5,119,150
Refunding, Series B, FGIC Insured, 5.125%, 4/01/26 .................................... 3,585,000 3,681,042
Series B, FGIC Insured, Pre-Refunded, 5.125%, 4/01/26 ................................. 8,415,000 8,852,917
Upper River Valley Development Authority Environmental Facilities Revenue, General
Electric Co. Project, 5.45%, 2/01/23 ................................................... 3,600,000 3,680,460
------------------
373,739,835
------------------
INDIANA 1.3%
Indiana Health and Educational Facility Financing Authority Hospital Revenue, 5.50%,
3/01/27 ............................................................................... 5,000,000 5,032,200
Indiana Health Facility Financing Authority Hospital Revenue,
Community Foundation Northwest Indiana, Refunding, Series A, 6.375%, 8/01/21 ......... 15,590,000 16,316,026
Community Foundation Northwest Indiana, Series A, Pre-Refunded, 6.375%, 8/01/21 ...... 1,910,000 2,113,281
Jackson County Schneck Memorial Hospital, Refunding, 5.25%, 2/15/22 .................. 1,200,000 1,211,940
28 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
INDIANA (CONTINUED)
Indiana Health Facility Financing Authority Revenue, Greenwood Village South Project,
Refunding, 5.625%, 5/15/28 ............................................................. $ 1,750,000 $ 1,738,380
Indiana State Development Financing Authority Environmental Revenue, Refunding, 6.25%,
7/15/30 ................................................................................ 2,000,000 2,030,420
Indiana State Educational Facilities Authority Revenue,
DePauw University Project, Refunding, 5.30%, 7/01/16 .................................. 600,000 620,112
Valparaiso University, Refunding, AMBAC Insured, 5.125%, 10/01/23 ..................... 2,015,000 2,065,496
Indiana State HFA, SFMR, Refunding,
Series A, 6.75%, 1/01/10 .............................................................. 1,745,000 1,748,455
Series A, 6.80%, 1/01/17 .............................................................. 12,835,000 12,889,934
Series A-2, GNMA Secured, 6.10%, 7/01/22 .............................................. 185,000 187,337
Indiana Transportation Finance Authority Highway Revenue,
Pre-Refunded, 5.375%, 12/01/25 ........................................................ 2,235,000 2,360,674
Refunding, 5.375%, 12/01/25 ........................................................... 12,765,000 13,482,776
Indianapolis Local Public Improvement Bond Bank Revenue, Waterworks Project, Series A,
MBIA Insured, Pre-Refunded, 5.25%, 7/01/33 ............................................. 19,020,000 20,403,895
c Jasper County EDR, Georgia-Pacific Corp. Project,
5.625%, 12/01/27 ...................................................................... 3,500,000 3,328,290
Refunding, 6.70%, 4/01/29 ............................................................. 3,000,000 3,055,290
Madison County Authority Anderson Hospital Revenue, Refunding, Series A, BIG Insured,
8.00%, 1/01/14 ......................................................................... 85,000 85,145
New Albany Floyd County School Building Corp. Revenue, first mortgage, MBIA Insured,
Pre-Refunded, 5.375%, 1/15/18 .......................................................... 1,500,000 1,549,815
Petersburg PCR, 5.75%, 8/01/21 ........................................................... 5,000,000 5,252,950
Rochester Community Multi-School Building Corp. Revenue, first mortgage, AMBAC Insured,
Pre-Refunded, 5.20%, 1/15/18 ........................................................... 1,000,000 1,023,320
-----------------
96,495,736
-----------------
KANSAS 0.7%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding,
Series A, MBIA Insured, 5.30%, 6/01/31 ................................................ 18,000,000 19,041,480
Series B, MBIA Insured, 4.85%, 6/01/31 ................................................ 19,325,000 19,405,005
Kansas State Development Finance Authority Health Facilities Revenue, Stormont-Vail
HealthCare Inc., Series L, MBIA Insured, 5.125%, 11/15/36 .............................. 5,000,000 5,196,700
Kansas State Development Finance Authority Hospital Revenue, Susan B. Allen Memorial
Hospital, Series Z, Radian Insured, 5.25%, 12/15/23 .................................... 2,000,000 2,044,340
Kansas State Development Finance Authority Revenue, Water Pollution Control,
Revolving Fund,
Refunding, Series II, 5.125%, 11/01/18 ................................................ 3,450,000 3,608,596
Series II, Pre-Refunded, 5.125%, 11/01/18 ............................................. 1,550,000 1,643,605
Newton Hospital Revenue, Newton Healthcare Corp., Refunding, Series A, 5.70%,
11/15/18 ............................................................................... 1,875,000 1,886,100
Shawnee County USD No. 437 Auburn-Washburn GO, Refunding, FSA Insured, 5.00%,
9/01/20 ................................................................................ 2,500,000 2,578,700
-----------------
55,404,526
-----------------
Semiannual Report | 29
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
KENTUCKY 1.3%
Jefferson County Capital Projects Corp. Lease Revenue, Refunding, Series A, zero cpn.,
8/15/08 ............................................................................... $ 4,505,000 $ 4,385,032
8/15/09 ............................................................................... 4,580,000 4,301,490
8/15/10 ............................................................................... 4,620,000 4,134,207
8/15/13 ............................................................................... 6,825,000 5,389,225
8/15/14 ............................................................................... 6,860,000 5,192,951
8/15/16 ............................................................................... 7,005,000 4,842,697
8/15/17 ............................................................................... 7,115,000 4,666,800
Kentucky Economic Development Finance Authority Health System Revenue,
Norton Healthcare Inc.,
Refunding, Series B, MBIA Insured, zero cpn., 10/01/18 ................................ 8,585,000 5,228,093
Refunding, Series C, MBIA Insured, 6.05%, 10/01/19 .................................... 7,385,000 8,228,293
Refunding, Series C, MBIA Insured, 6.10%, 10/01/21 .................................... 6,050,000 6,729,657
Refunding, Series C, MBIA Insured, 6.10%, 10/01/23 .................................... 11,295,000 12,526,268
Series C, MBIA Insured, Pre-Refunded, 6.05%, 10/01/19 ................................. 3,695,000 4,187,765
Series C, MBIA Insured, Pre-Refunded, 6.10%, 10/01/21 ................................. 2,875,000 3,266,000
Series C, MBIA Insured, Pre-Refunded, 6.10%, 10/01/23 ................................. 5,650,000 6,418,400
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement,
5.80%, 10/01/12 ....................................................................... 1,000,000 1,011,550
5.85%, 10/01/17 ....................................................................... 5,615,000 5,659,752
Kentucky State Municipal Power Agency Power System Revenue, Prairie State Project,
Series A, MBIA Insured, 5.00%, 9/01/32 ................................................. 10,000,000 10,417,000
Owensboro Electric Light and Power Revenue, Series B, AMBAC Insured, zero cpn., 1/01/08 .. 5,250,000 5,221,335
-----------------
101,806,515
-----------------
LOUISIANA 3.7%
Calcasieu Parish Inc. IDB, PCR, Gulf States Utilities Co. Project, Refunding, 6.75%,
10/01/12 ............................................................................... 14,285,000 14,306,713
Calcasieu Parish Memorial Hospital Service District Revenue, Lake Charles Parish Memorial
Hospital Project, Refunding, Series A, Connie Lee Insured,
6.375%, 12/01/12 ...................................................................... 3,805,000 4,023,597
6.50%, 12/01/18 ....................................................................... 5,530,000 6,479,888
6.65%, 12/01/21 ....................................................................... 3,145,000 3,152,013
6.85%, 12/01/22 ....................................................................... 11,040,000 11,063,074
East Baton Rouge Mortgage Finance Authority SFM Purchase Revenue, Series A, 6.80%,
10/01/28 ............................................................................... 895,000 897,962
Ernest N. Morial New Orleans Exhibit Hall Authority Special Tax, senior sub. note,
Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/15/33 .................................. 30,350,000 32,518,507
Greater New Orleans Expressway Commission Revenue, Refunding, AMBAC Insured, 5.00%,
11/01/27 ............................................................................... 5,655,000 5,834,886
Jefferson Parish Home Mortgage Authority SFMR, Refunding, Series G-2, GNMA Secured,
5.55%, 6/01/32 ......................................................................... 1,025,000 1,036,224
Lafayette Communications Systems Revenue, XLCA Insured, 5.25%, 11/01/27 .................. 12,485,000 13,262,691
Lafayette Public Improvement Sales Tax GO, Series B, MBIA Insured, 4.75%, 3/01/30 ........ 5,055,000 5,126,983
30 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
LOUISIANA (CONTINUED)
Louisiana Local Government Environmental Facilities and CDA Revenue,
Jefferson Parking Garage Project, AMBAC Insured, 5.00%, 9/01/31 ....................... $ 4,290,000 $ 4,370,309
MBIA Insured, 5.00%, 12/01/26 ......................................................... 5,605,000 5,766,480
d Louisiana Local Government Environmental Facilities and CDA Revenue, Bossier City
Public Improvement Projects, MBIA Insured, 5.00%, 11/01/32 ............................. 6,730,000 6,948,590
Louisiana Public Facilities Authority Revenue,
Millennium Housing LLC Student Housing, CIFG Insured, 5.00%, 11/01/30 ................. 10,000,000 10,349,800
Ochsner Clinic Foundation Project, Refunding, Series B, ETM, 5.75%, 5/15/23 ........... 10,000,000 11,667,400
Ochsner Clinic Foundation Project, Series B, 5.25%, 5/15/38 ........................... 10,260,000 10,259,795
Ochsner Clinic Foundation Project, Series B, 5.50%, 5/15/47 ........................... 10,000,000 10,118,100
Tulane University, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/32 .............. 5,000,000 5,310,550
Louisiana State Gas and Fuels Tax Revenue, Series A,
AMBAC Insured, 5.00%, 6/01/27 ......................................................... 19,250,000 19,731,058
FSA Insured, 4.75%, 5/01/39 ........................................................... 17,250,000 17,345,738
Louisiana State GO, Series A, FGIC Insured, Pre-Refunded, 5.00%, 11/15/19 ................ 9,000,000 9,408,240
d New Orleans GO, Radian Insured,
5.00%, 12/01/27 ....................................................................... 5,935,000 5,868,409
5.125%, 12/01/33 ...................................................................... 11,645,000 11,439,699
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding, 6.70%, 3/01/13 ... 2,200,000 2,201,650
St. Charles Parish Consolidated Waterworks and Wastewater District No. 1 Revenue,
Series A, AMBAC Insured, 5.00%, 7/01/36 ................................................ 6,230,000 6,383,071
St. John the Baptist Parish Revenue, Marathon Oil Corp., Series A, 5.125%, 6/01/37 ....... 40,500,000 40,102,695
West Feliciana Parish PCR, Gulf States Utilities Co. Project, 7.00%, 11/01/15 ............ 3,050,000 3,069,093
-----------------
278,043,215
-----------------
MAINE 0.2%
Jay Solid Waste Disposal Revenue, International Paper Co. Project, Refunding, Series B,
6.20%, 9/01/19 ......................................................................... 8,000,000 8,309,360
Maine Health and Higher Educational Facilities Authority Revenue, Series A, MBIA
Insured, 5.00%, 7/01/32 ................................................................ 6,045,000 6,233,664
-----------------
14,543,024
-----------------
MARYLAND 0.7%
Baltimore Convention Center Hotel Revenue, Senior Series A, XLCA Insured, 5.00%,
9/01/32 ................................................................................ 3,500,000 3,638,985
Baltimore Project Revenue,
Wastewater Projects, Series D, AMBAC Insured, 5.00%, 7/01/37 .......................... 5,000,000 5,217,650
Water Projects, Series C, AMBAC Insured, 5.00%, 7/01/37 ............................... 8,130,000 8,483,899
Maryland State EDC Student Housing Revenue, University of Maryland College Park
Projects, Refunding, CIFG Insured, 5.00%, 6/01/33 ...................................... 15,000,000 15,463,500
Maryland State Health and Higher Educational Facilities Authority Revenue, Western
Maryland Health, Series A, MBIA Insured, 5.00%, 7/01/34 ................................ 20,000,000 20,651,200
-----------------
53,455,234
-----------------
MASSACHUSETTS 4.2%
Massachusetts Bay Transportation Authority Revenue Special Assessment,
2007, Refunding, Series A, 5.25%, 7/01/30 ............................................. 2,785,000 2,864,651
Series A, Pre-Refunded, 5.25%, 7/01/30 ................................................ 29,740,000 31,101,200
Semiannual Report | 31
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts Bay Transportation Authority Sales Tax Revenue, Refunding, Senior Series
A, 5.00%, 7/01/28 ...................................................................... $ 10,000,000 $ 10,808,100
Massachusetts Special Obligation Revenue, Consolidation Loan, Series A, FGIC Insured,
Pre-Refunded, 5.00%, 6/01/22 ........................................................... 15,070,000 15,977,817
Massachusetts State Development Finance Agency Revenue,
Massachusetts/Saltonstall Redevelopment Building Corp., Series A, MBIA Insured,
5.125%, 8/01/28 ..................................................................... 6,735,000 6,968,907
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.00%, 9/01/37 .............. 10,000,000 10,384,700
Massachusetts State GO,
Consolidated Loan, Series C, AMBAC Insured, 5.00%, 8/01/37 ............................ 10,000,000 10,430,200
MBIA Insured, Pre-Refunded, 5.00%, 8/01/22 ............................................ 4,100,000 4,355,143
Series B, ETM, 6.50%, 8/01/08 ......................................................... 5,785,000 5,915,220
Massachusetts State Health and Educational Facilities Authority Revenue,
Berklee College Music, Refunding, Series A, 5.00%, 10/01/37 ........................... 10,000,000 10,163,600
Berkshire Health System, Series E, 6.25%, 10/01/31 .................................... 2,250,000 2,345,152
Berkshire Health System, Series E, Radian Insured, 5.70%, 10/01/25 .................... 4,500,000 4,691,250
Emmanuel College, MBIA Insured, 5.00%, 7/01/37 ........................................ 10,000,000 10,308,400
Harvard University, Series FF, 5.00%, 7/15/22 ......................................... 13,550,000 14,153,381
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care,
5.65%, 10/01/17 ....................................................................... 2,295,000 2,348,887
5.70%, 10/01/27 ....................................................................... 7,375,000 7,523,754
Massachusetts State School Building Authority Dedicated Sales Tax Revenue, Series A,
AMBAC Insured, 4.75%, 8/15/32 ......................................................... 15,000,000 15,174,600
AMBAC Insured, 4.50%, 8/15/35 ......................................................... 30,000,000 29,163,300
FSA Insured, 5.00%, 8/15/30 ........................................................... 15,000,000 15,616,500
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue,
Refunding, Series A, MBIA Insured, 5.00%, 1/01/37 ..................................... 52,130,000 52,213,408
Refunding, Sub Series A, AMBAC Insured, 5.25%, 1/01/29 ................................ 5,000,000 5,127,650
sub. lien, Refunding, Series B, MBIA Insured, 5.125%, 1/01/37 ......................... 21,350,000 21,353,416
Massachusetts State Water Pollution Abatement Trust Revenue,
Massachusetts Water Revenue Abatement Program, Series A, 5.00%, 8/01/32 ............... 225,000 230,510
Massachusetts Water Revenue Abatement Program, Series A, Pre-Refunded, 5.00%,
8/01/32 ............................................................................. 4,775,000 5,076,446
Water Revenue Authority Program, Refunding, Sub Series A, 5.75%, 8/01/29 .............. 5,210,000 5,462,060
Water Revenue Authority Program, Sub Series A, Pre-Refunded, 5.75%, 8/01/29 ........... 1,290,000 1,353,300
Route 3 North Transportation Improvement Assn. Massachusetts Lease Revenue, MBIA
Insured, Pre-Refunded, 5.375%, 6/15/29 ................................................. 16,405,000 17,203,267
-----------------
318,314,819
-----------------
MICHIGAN 3.9%
Anchor Bay School District GO, Refunding, 5.00%, 5/01/29 ................................. 6,300,000 6,431,229
Chippewa Valley School GO, Pre-Refunded, 5.125%, 5/01/27 ................................. 5,310,000 5,656,478
Coldwater Community Schools GO, MBIA Insured, Pre-Refunded, zero cpn., 5/01/18 ........... 5,935,000 3,181,101
Detroit City School District GO, School Building and Site Improvements,
Series A, FGIC Insured, Pre-Refunded, 5.00%, 5/01/23 .................................. 2,000,000 2,138,320
Series A, FSA Insured, Pre-Refunded, 5.125%, 5/01/31 .................................. 14,925,000 15,898,856
Series B, FGIC Insured, 5.00%, 5/01/33 ................................................ 16,870,000 17,300,860
32 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Detroit Sewage Disposal Revenue, senior lien, Series A, FGIC Insured, Pre-Refunded,
5.125%, 7/01/31 ........................................................................ $ 10,000,000 $ 10,556,100
Detroit Sewage Disposal System Revenue, second lien, Series A, MBIA Insured, 5.00%,
7/01/30 ................................................................................ 5,470,000 5,684,643
Detroit Water Supply System Revenue,
second lien, Series B, FGIC Insured, 5.50%, 7/01/33 ................................... 5,000,000 5,385,950
senior lien, Series A, FGIC Insured, 5.00%, 7/01/30 ................................... 17,575,000 17,968,153
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ..................... 7,060,000 7,477,670
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ..................... 6,170,000 6,539,398
Detroit/Wayne County Stadium Authority Revenue, FGIC Insured, 5.25%, 2/01/27 ............. 8,625,000 8,746,354
Grand Rapids Public Schools GO, School Building and Site, FSA Insured, 4.50%, 5/01/31 .... 21,800,000 21,457,958
Harrison Community Schools GO, AMBAC Insured, zero cpn., 5/01/20 ......................... 6,000,000 2,763,300
Jackson County Building Authority Revenue, AMBAC Insured, Pre-Refunded, 5.60%, 5/01/30 ... 4,145,000 4,359,835
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series I, 5.00%, 10/15/24 .............................. 31,350,000 32,206,168
Refunding, Series IA, FGIC Insured, 5.00%, 10/15/31 ................................... 9,475,000 9,848,694
Michigan State Hospital Finance Authority Revenue, Ascension Health Credit, Series A,
MBIA Insured, Pre-Refunded, 6.125%, 11/15/23 ........................................... 18,000,000 19,121,220
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 10,361,600
Michigan State Trunk Line Revenue, Series A, FSA Insured, Pre-Refunded,
5.00%, 11/01/25 ....................................................................... 16,250,000 17,143,912
5.25%, 11/01/30 ....................................................................... 10,000,000 10,642,400
Michigan Tobacco Settlement Finance Authority Revenue, Tobacco Settlement Asset,
Senior Series A,
5.25%, 6/01/22 ........................................................................ 10,000,000 10,044,400
6.00%, 6/01/34 ........................................................................ 17,680,000 17,730,034
Royal Oak Hospital Finance Authority Revenue, William Beaumont Hospital, Series M, MBIA
Insured, 5.25%, 11/15/31 ............................................................... 10,000,000 10,314,200
Southgate Community School District GO, FGIC Insured, Pre-Refunded, 5.00%, 5/01/25 ....... 5,500,000 5,628,315
Wayne State University Revenues, General, AMBAC Insured, 5.00%, 11/15/36 ................. 5,000,000 5,198,800
West Ottawa Public School District GO, Series A, 5.00%, 5/01/27 .......................... 5,000,000 5,155,650
-----------------
294,941,598
-----------------
MINNESOTA 2.0%
Cloquet PCR, Potlatch Corp. Projects, Refunding, 5.90%, 10/01/26 ......................... 9,100,000 9,158,331
Golden Valley Revenue, Covenant Retirement Communities, Series A, 5.50%, 12/01/29 ........ 1,500,000 1,507,530
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue,
Series A, FGIC Insured, Pre-Refunded, 5.125%, 1/01/31 ................................. 10,000,000 10,291,900
Series A, FGIC Insured, Pre-Refunded, 5.25%, 1/01/32 .................................. 32,025,000 33,693,823
Series A, FGIC Insured, Pre-Refunded, 5.75%, 1/01/32 .................................. 5,000,000 5,287,400
Series C, FGIC Insured, Pre-Refunded, 5.25%, 1/01/26 .................................. 19,000,000 19,990,090
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 .................................... 510,000 521,087
Series A, MBIA Insured, Pre-Refunded, 5.75%, 11/15/26 ................................. 25,300,000 25,820,421
Semiannual Report | 33
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Minnesota State Municipal Power Agency Electric Revenue, 5.00%, 10/01/30 ................. $ 5,000,000 $ 5,114,450
Minnetonka MFHR, Ridgepointe II Project, Series A, GNMA Secured, Pre-Refunded, 5.95%,
10/20/33 ............................................................................... 11,075,000 11,837,514
Rochester Health Care Facilities Revenue, Mayo Foundation, Series A, 5.50%, 11/15/27 ..... 20,000,000 20,337,000
Roseville MFHR, Rosepointe I Project, Series A, GNMA Secured, Pre-Refunded, 5.95%,
10/20/33 ............................................................................... 7,955,000 8,401,912
University of Minnesota Revenue, Series A, ETM, 5.75%, 7/01/13 ........................... 1,250,000 1,386,350
-----------------
153,347,808
-----------------
MISSISSIPPI 1.4%
Claiborne County PCR, Systems Energy Resources Inc., Refunding, 6.20%, 2/01/26 ........... 36,500,000 36,645,635
Jackson County Environmental Improvement Revenue, International Paper Co. Project,
6.70%, 5/01/24 ......................................................................... 3,500,000 3,646,055
Mississippi Business Finance Corp. PCR, System Energy Resource Inc. Project, Refunding,
5.875%, 4/01/22 ....................................................................... 40,000,000 40,098,000
5.90%, 5/01/22 ........................................................................ 8,250,000 8,276,235
Mississippi State GO, Refunding, 5.75%, 12/01/12 ......................................... 2,000,000 2,196,700
Mississippi State University Educational Building Corp. Revenue, Residence Hall and
Campus Improvement, MBIA Insured, 5.00%, 8/01/35 ....................................... 13,265,000 13,693,459
-----------------
104,556,084
-----------------
MISSOURI 1.4%
Jackson County Special Obligation Revenue, MBIA Insured, 5.00%, 12/01/22 ................. 9,095,000 9,453,525
Missouri Development Finance Board Cultural Facilities Revenue, Nelson Gallery
Foundation, Series A, MBIA Insured, 5.00%, 12/01/30 .................................... 11,500,000 11,819,010
Missouri Joint Municipal Electric Utility Commission Power Project Revenue,
Iatan 2 Project, Series A, AMBAC Insured, 5.00%, 1/01/34 .............................. 14,000,000 14,482,300
Plum Point Project, MBIA Insured, 5.00%, 1/01/34 ...................................... 8,000,000 8,248,000
Missouri State Board of Public Buildings Special Obligation Revenue, Series A, 4.75%,
10/15/28 ............................................................................... 8,250,000 8,330,603
Missouri State Health and Educational Facilities Authority Revenue, SSM Health Care,
Refunding, Series A, MBIA Insured, 5.00%, 6/01/22 ..................................... 230,000 233,715
Series A, AMBAC Insured, 5.25%, 6/01/21 ............................................... 8,740,000 9,181,894
Series A, AMBAC Insured, Pre-Refunded, 5.25%, 6/01/21 ................................. 8,760,000 9,350,774
Series A, MBIA Insured, Pre-Refunded, 5.00%, 6/01/22 .................................. 4,270,000 4,351,130
St. Louis Airport Revenue,
Airport Development Program, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/20 ..... 5,000,000 5,253,300
Airport Development Program, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/21 ..... 7,250,000 7,617,285
Capital Improvement Program, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/27 ..... 12,390,000 13,159,543
Taney County IDA Hospital Revenue, The Skaggs Community Hospital Assn., Refunding,
5.40%, 5/15/28 ......................................................................... 4,000,000 4,010,200
-----------------
105,491,279
-----------------
MONTANA 0.6%
Forsyth PCR, Puget Sound Energy, Refunding, Series A, AMBAC Insured, 5.00%, 3/01/31 ...... 30,000,000 30,882,000
Montana Facility Finance Authority Revenue, Benefis Health System, Refunding, Assured
Guaranty, 5.00%, 1/01/37 ............................................................... 14,600,000 14,900,176
-----------------
45,782,176
-----------------
34 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEBRASKA 1.6%
Adams County School District No. 018 GO, Hastings Public Schools, FSA Insured, 5.00%,
12/15/31 ............................................................................... $ 5,795,000 $ 6,048,995
Lancaster County School District No. 001 GO, Lincoln Public Schools, 5.00%, 1/15/36 ...... 24,725,000 25,694,962
Lincoln Electric System Revenue, 5.00%, 9/01/31 .......................................... 8,645,000 8,967,199
Omaha Convention Hotel Corp. Revenue, Convention Center, first tier,
Refunding, AMBAC Insured, 5.00%, 2/01/35 .............................................. 30,000,000 30,779,100
Series A, AMBAC Insured, 5.125%, 4/01/26 .............................................. 12,500,000 13,301,250
Omaha Public Power District Separate Electricity Revenue, System, Nebraska City 2, Series
A, AMBAC Insured, 5.00%, 2/01/30 ....................................................... 12,165,000 12,706,464
Public Power Generation Agency Revenue, Whelan Energy Center Unit 2, Series A,
AMBAC Insured, 5.00%, 1/01/37 .......................................................... 15,000,000 15,432,000
University of Nebraska Revenue, Omaha Student Facilities Project, 5.00%, 5/15/32 ......... 5,895,000 6,125,907
University of Nebraska University Revenues, Kearney Student Fees and Facilities, 5.00%,
7/01/30 ................................................................................ 5,000,000 5,179,150
-----------------
124,235,027
-----------------
NEVADA 1.7%
Clark County Airport Revenue, sub. lien,
Series A-2, FGIC Insured, 5.125%, 7/01/27 ............................................. 10,000,000 10,367,100
Series B, FGIC Insured, Pre-Refunded, 5.25%, 7/01/31 .................................. 20,000,000 21,197,400
Director of the State Department of Business and Industry Revenue, Las Vegas Monorail
Project,
AMBAC Insured, zero cpn., 1/01/25 ..................................................... 3,080,000 1,355,939
AMBAC Insured, zero cpn., 1/01/26 ..................................................... 3,815,000 1,592,572
AMBAC Insured, zero cpn., 1/01/27 ..................................................... 3,000,000 1,186,860
AMBAC Insured, zero cpn., 1/01/28 ..................................................... 13,315,000 4,989,131
AMBAC Insured, zero cpn., 1/01/29 ..................................................... 8,410,000 2,989,082
first tier, AMBAC Insured, 5.625%, 1/01/32 ............................................ 21,995,000 23,283,907
first tier, AMBAC Insured, 5.625%, 1/01/34 ............................................ 15,000,000 15,879,000
Henderson Health Care Facility Revenue, Catholic Healthcare West, Series A, Pre-Refunded,
5.25%, 7/01/18 ......................................................................... 23,685,000 24,200,386
Nevada State GO, Municipal Bond Bank Project No. 40-41, Series A, ETM, 6.375%, 12/01/17 .. 10,275,000 10,295,550
Sparks RDA Tax Allocation Revenue, Refunding, Series A, Radian Insured, 6.00%, 1/15/23 ... 5,000,000 5,212,400
Washoe County GO, Reno Sparks Convention, Refunding, Series A, FGIC Insured, 5.00%,
7/01/24 ................................................................................ 5,000,000 5,120,350
-----------------
127,669,677
-----------------
NEW HAMPSHIRE 0.2%
Nashua Housing Authority MFR, Clocktower Project, Refunding, GNMA Secured, 6.25%,
6/20/33 ................................................................................ 5,603,000 5,705,983
New Hampshire Health and Education Facilities Authority Revenue,
Exeter Project, 6.00%, 10/01/24 ....................................................... 2,000,000 2,144,600
Exeter Project, 5.75%, 10/01/31 ....................................................... 1,000,000 1,039,550
The Memorial Hospital, Refunding, 5.25%, 6/01/26 ...................................... 1,000,000 991,760
The Memorial Hospital, Refunding, 5.25%, 6/01/36 ...................................... 1,100,000 1,062,094
Semiannual Report | 35
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW HAMPSHIRE (CONTINUED)
New Hampshire Higher Educational and Health Facilities Authority Revenue,
New Hampshire Catholic Charities, 5.80%, 8/01/22 ...................................... $ 1,000,000 $ 1,000,390
Rivier College, Refunding, 5.60%, 1/01/28 ............................................. 4,590,000 4,656,509
-----------------
16,600,886
-----------------
NEW JERSEY 2.2%
Health Care Facilities Financing Authority Revenue, Englewood Hospital, MBIA Insured,
5.00%, 8/01/23 ......................................................................... 5,000,000 5,172,100
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 .............................................................. 2,100,000 2,109,051
Series 1, 6.00%, 1/01/29 .............................................................. 5,000,000 4,993,600
Series 2, 6.125%, 1/01/19 ............................................................. 2,000,000 2,013,620
Series 2, 6.125%, 1/01/29 ............................................................. 5,000,000 4,932,450
New Jersey EDA Lease Revenue, International Center for Public Health Project, University
of Medicine and Dentistry, AMBAC Insured, 6.00%, 6/01/32 ............................... 5,000,000 5,274,500
New Jersey EDA Revenue,
Cigarette Tax, 5.75%, 6/15/29 ......................................................... 20,000,000 20,960,400
Motor Vehicle Surcharge Revenue, Series A, MBIA Insured, 5.00%, 7/01/29 ............... 10,000,000 10,412,600
Motor Vehicle Surcharge Revenue, Series A, MBIA Insured, 5.00%, 7/01/34 ............... 5,000,000 5,177,000
School Facilities Construction, Series C, MBIA Insured, 4.75%, 6/15/25 ................ 7,500,000 7,580,100
School Facilities Construction, Series O, 5.125%, 3/01/28 ............................. 20,000,000 20,898,000
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Series B, MBIA Insured, Pre-Refunded, 5.00%, 12/15/21 .................................. 12,400,000 13,110,892
New Jersey State Turnpike Authority Turnpike Revenue,
Growth and Income Securities, Series B, AMBAC Insured, zero cpn. to 1/01/15,
5.15% thereafter, 1/01/35 ........................................................... 10,000,000 7,149,900
Series A, MBIA Insured, Pre-Refunded, 5.60%, 1/01/22 .................................. 7,500,000 7,838,175
Series A, MBIA Insured, Pre-Refunded, 5.50%, 1/01/25 .................................. 13,000,000 13,559,390
Series C, FSA Insured, 5.00%, 1/01/30 ................................................. 15,845,000 16,422,233
Tobacco Settlement Financing Corp. Revenue, Asset-Backed, Pre-Refunded, 5.75%, 6/01/32 ... 19,830,000 21,233,369
-----------------
168,837,380
-----------------
NEW MEXICO 0.0% b
New Mexico State Highway Commission Tax Revenue, senior sub. lien, Series A,
Pre-Refunded, 6.00%, 6/15/13 ........................................................... 1,000,000 1,063,620
-----------------
NEW YORK 7.7%
Liberty Development Corp. Revenue,
5.50%, 10/01/37 ....................................................................... 13,000,000 14,369,940
Goldman Sachs Headquarters, 5.25%, 10/01/35 ........................................... 25,000,000 26,638,750
Long Island Power Authority Electric System Revenue, General, Series A, MBIA Insured,
Pre-Refunded, 5.25%, 12/01/26 .......................................................... 10,000,000 10,208,100
MTA Commuter Facilities Revenue, Series A,
FGIC Insured, Pre-Refunded, 6.00%, 7/01/16 ............................................ 8,950,000 9,105,551
Pre-Refunded, 5.25%, 7/01/28 .......................................................... 5,000,000 5,308,150
Pre-Refunded, 6.125%, 7/01/29 ......................................................... 15,040,000 15,710,934
36 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
MTA Dedicated Tax Fund Revenue, Series A,
FGIC Insured, Pre-Refunded, 6.00%, 4/01/30 ............................................ $ 12,500,000 $ 13,262,000
FGIC Insured, Pre-Refunded, 5.00%, 11/15/31 ........................................... 14,250,000 15,090,322
MBIA Insured, ETM, 6.25%, 4/01/11 ..................................................... 1,280,000 1,395,469
MTA Revenue,
Refunding, Series E, 5.25%, 11/15/31 .................................................. 10,000,000 10,388,700
Refunding, Series U, 5.125%, 11/15/31 ................................................. 20,720,000 21,315,493
Series A, MBIA Insured, 4.75%, 11/15/27 ............................................... 15,000,000 15,260,250
MTA Transit Facilities Revenue,
Series A, FSA Insured, Pre-Refunded, 6.00%, 7/01/16 ................................... 3,630,000 3,693,089
Series A, Pre-Refunded, 6.00%, 7/01/24 ................................................ 5,000,000 5,214,700
Series A, Pre-Refunded, 5.625%, 7/01/27 ............................................... 10,800,000 11,014,596
Service Contract, Series 8, Pre-Refunded, 5.375%, 7/01/21 ............................. 15,000,000 16,390,800
Nassau County GO, Improvement, Refunding, Series F, 6.625%, 3/01/08 ...................... 7,325,000 7,397,005
Nassau Health Care Corp. Health System Revenue, Nassau County Guaranteed, FSA Insured,
Pre-Refunded, 5.75%, 8/01/29 ........................................................... 10,000,000 10,593,800
New York City GO,
Refunding, Series H, 6.125%, 8/01/25 .................................................. 5,000 5,059
Series D, 8.00%, 8/01/16 .............................................................. 5,000 5,053
Series D, 5.50%, 6/01/24 .............................................................. 16,405,000 17,607,651
Series D, Pre-Refunded, 5.50%, 6/01/24 ................................................ 7,535,000 8,169,748
Series E, 6.50%, 12/01/12 ............................................................. 20,000 20,041
Series F, 5.25%, 1/15/23 .............................................................. 14,415,000 15,230,889
Series F, Pre-Refunded, 5.25%, 1/15/23 ................................................ 5,585,000 6,031,465
Series I, 6.25%, 4/15/13 .............................................................. 1,480,000 1,497,982
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Pre-Refunded, 5.50%, 6/15/33 .......................................................... 55,000,000 58,449,600
Refunding, Series D, 5.25%, 6/15/25 ................................................... 10,000,000 10,509,600
Series A, FGIC Insured, Pre-Refunded, 5.50%, 6/15/32 .................................. 10,000,000 10,435,300
Series A, Pre-Refunded, 5.75%, 6/15/30 ................................................ 8,000,000 8,379,360
Series G, FSA Insured, 5.125%, 6/15/32 ................................................ 24,215,000 24,981,647
New York City Transitional Finance Authority Revenue, Future Tax Secured,
Refunding, Series B, 5.00%, 5/01/30 ................................................... 7,205,000 7,416,251
Series B, Pre-Refunded, 6.00%, 11/15/29 ............................................... 10,000,000 10,731,500
Series B, Pre-Refunded, 5.00%, 5/01/30 ................................................ 295,000 314,818
Series C, Pre-Refunded, 5.50%, 11/01/20 ............................................... 5,000,000 5,301,900
Series C, Pre-Refunded, 5.50%, 11/01/24 ............................................... 4,200,000 4,453,596
Series D, 5.00%, 2/01/27 .............................................................. 10,000,000 10,338,800
Series E, 5.00%, 2/01/28 .............................................................. 8,885,000 9,173,407
New York City Transportation Authority MTA Triborough COP, Series A, AMBAC Insured,
Pre-Refunded, 5.40%, 1/01/19 ........................................................... 15,000,000 15,776,550
New York City Trust Cultural Resources Revenue, Museum of Modern Art 2001, Series D,
AMBAC Insured, 5.125%, 7/01/31 ......................................................... 8,000,000 8,302,640
New York Convention Center Development Corp. Revenue, Hotel Unit Fee Secured,
AMBAC Insured, 5.00%, 11/15/30 ......................................................... 10,000,000 10,395,100
New York State Dormitory Authority Lease Revenue, Court Facilities, Pre-Refunded, 6.00%,
5/15/39 ................................................................................ 16,000,000 17,162,400
Semiannual Report | 37
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues,
City University System Consolidated, Third General, Refunding, Series 1, 5.25%,
7/01/25 ............................................................................. $ 10,000,000 $ 10,262,600
Second Hospital, Interfaith Medical Center, Series D, Pre-Refunded, 5.30%, 2/15/19 .... 5,000,000 5,101,150
Second Hospital, Interfaith Medical Center, Series D, Pre-Refunded, 5.40%, 2/15/28 .... 8,000,000 8,164,080
State Supported Debt, Mental Health Services, Refunding, Series A, 6.00%, 8/15/17 ..... 55,000 55,923
State Supported Debt, Mental Health Services, Refunding, Series A, 5.75%, 2/15/27 ..... 15,000 15,242
State Supported Debt, State University Educational Facilities, Pre-Refunded, 5.125%,
5/15/21 ............................................................................. 6,495,000 6,623,731
State Supported Debt, State University Educational Facilities, Refunding, 5.125%,
5/15/21 ............................................................................. 670,000 680,452
State Supported Debt, Upstate Community Colleges, Refunding, Series A, 5.00%,
7/01/28 ............................................................................. 6,570,000 6,690,954
State Supported Debt, Upstate Community Colleges, Series A, Pre-Refunded, 5.00%,
7/01/28 ............................................................................. 3,430,000 3,554,989
New York State HFA Service Contract Obligation Revenue, Refunding, Series C, 5.50%,
9/15/22 ................................................................................ 17,505,000 17,769,676
New York State HFAR, Housing Project Mortgage, Refunding, Series A, FSA Insured,
6.10%, 11/01/15 ....................................................................... 4,135,000 4,163,201
6.125%, 11/01/20 ...................................................................... 3,510,000 3,530,323
New York State Thruway Authority Highway and Bridge Trust Fund Revenue, Series A,
FSA Insured, Pre-Refunded, 6.00%, 4/01/14 .............................................. 1,420,000 1,519,670
Onondaga County GO,
5.875%, 2/15/12 ....................................................................... 300,000 327,936
ETM, 5.875%, 2/15/12 .................................................................. 700,000 766,353
Triborough Bridge and Tunnel Authority Revenues, General Purpose,
Refunding, Series A, 5.00%, 1/01/27 ................................................... 5,000,000 5,146,950
Series A, 5.00%, 1/01/32 .............................................................. 3,085,000 3,152,068
Series A, Pre-Refunded, 5.00%, 1/01/32 ................................................ 16,915,000 17,907,741
Series B, Pre-Refunded, 5.50%, 1/01/30 ................................................ 15,000,000 17,123,850
Series X, ETM, 6.625%, 1/01/12 ........................................................ 1,800,000 1,976,400
Series Y, ETM, 6.00%, 1/01/12 ......................................................... 1,000,000 1,057,850
-----------------
588,639,145
-----------------
NORTH CAROLINA 2.9%
Charlotte Airport Revenue, Series A, MBIA Insured, 5.00%, 7/01/34 ........................ 6,000,000 6,156,660
Charlotte COP, Transit Projects, Phase II, Series E, 5.00%, 6/01/30 ...................... 15,940,000 16,394,609
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 5.75%, 1/01/26 ................................................... 65,350,000 67,384,345
Refunding, Series B, 6.00%, 1/01/22 ................................................... 1,250,000 1,416,525
Refunding, Series B, 6.25%, 1/01/23 ................................................... 39,030,000 45,393,842
Refunding, Series B, 5.75%, 1/01/24 ................................................... 35,140,000 36,238,125
Refunding, Series B, FGIC Insured, 6.25%, 1/01/23 ..................................... 1,280,000 1,281,574
Refunding, Series D, 5.125%, 1/01/23 .................................................. 12,000,000 12,252,360
Refunding, Series D, 5.125%, 1/01/26 .................................................. 3,000,000 3,050,730
Series D, 6.70%, 1/01/19 .............................................................. 2,000,000 2,110,400
Series D, 6.75%, 1/01/26 .............................................................. 5,000,000 5,268,400
38 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
North Carolina Medical Care Commission Revenue, Rowan Regional Medical Center,
FSA Insured, 4.75%, 9/01/24 ............................................................ $ 6,970,000 $ 7,058,728
University Hospital Chapel Hill Revenue, Refunding, AMBAC Insured, 5.00%, 2/15/21 ........ 5,000,000 5,117,100
Winston-Salem Water and Sewer System Revenue, Pre-Refunded, 5.125%, 6/01/28 .............. 11,000,000 11,688,380
-----------------
220,811,778
-----------------
NORTH DAKOTA 0.3%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group, Refunding,
5.50%,
12/01/20 .............................................................................. 8,870,000 9,125,279
12/01/24 .............................................................................. 13,945,000 14,225,294
-----------------
23,350,573
-----------------
OHIO 3.2%
Akron Bath Copley Joint Township Hospital District Revenue, Hospital Improvement
Children's Hospital Center, FSA Insured, 5.00%, 11/15/31 ............................... 9,250,000 9,514,550
Akron Income Tax Revenue, Community Learning, FGIC Insured, 5.00%,
12/01/26 .............................................................................. 6,085,000 6,320,185
12/01/27 .............................................................................. 3,185,000 3,309,852
Buckeye Tobacco Settlement Financing Authority Revenue, Asset-Backed,
Senior Convertible Capital Appreciation Turbo Term Bond, Series A-3, zero cpn. to
12/01/12, 6.25% thereafter, 6/01/37 ................................................. 15,000,000 11,044,050
Senior Current Interest Turbo Term Bond, Series A-2, 5.75%, 6/01/34 ................... 11,250,000 10,863,675
Senior Current Interest Turbo Term Bond, Series A-2, 6.00%, 6/01/42 ................... 5,000,000 4,963,650
Cleveland Airport System Revenue, Series A, FSA Insured,
5.00%, 1/01/31 ........................................................................ 17,930,000 18,158,428
Pre-Refunded, 5.00%, 1/01/31 .......................................................... 2,070,000 2,157,002
Cleveland State University General Receipt Revenue, FGIC Insured, 5.00%, 6/01/29 ......... 5,000,000 5,178,100
Columbus City School District GO, School Facilities Construction and Improvement,
FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ............................................ 16,000,000 17,121,440
Cuyahoga County Hospital Facilities Revenue, Canton Inc. Project, 7.50%, 1/01/30 ......... 17,100,000 18,150,111
Dayton Special Facilities Revenue, Emery Air Freight Corp., Emery Worldwide Air Inc.,
Refunding,
Series A, 5.625%, 2/01/18 ............................................................. 6,000,000 6,150,120
Series E, 6.05%, 10/01/09 ............................................................. 4,000,000 4,189,320
Series F, 6.05%, 10/01/09 ............................................................. 2,750,000 2,880,158
Franklin County Convention Facilities Authority Revenue, Tax and Lease Revenue,
MBIA Insured, Pre-Refunded, 5.00%, 12/01/27 ........................................... 6,145,000 6,212,534
Refunding, MBIA Insured, 5.00%, 12/01/27 .............................................. 1,355,000 1,369,891
Hamilton County Sales Tax Revenue,
Refunding, Sub Series B, AMBAC Insured, 5.25%, 12/01/32 ............................... 1,995,000 2,069,872
Sub Series B, AMBAC Insured, Pre-Refunded, 5.25%, 12/01/32 ............................ 8,005,000 8,430,946
Kettering City School District GO, School Improvement, Refunding, FGIC Insured, 5.00%,
12/01/30 ............................................................................... 1,860,000 2,000,858
Little Miami Local School District GO, School Improvement, FSA Insured, Pre-Refunded,
5.00%, 12/01/34 ........................................................................ 4,000,000 4,355,720
Semiannual Report | 39
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Marysville Wastewater Treatment System Revenue, Refunding, XLCA Insured, 5.00%,
12/01/31 ............................................................................. $ 8,000,000 $ 8,319,200
12/01/36 ............................................................................. 13,725,000 14,220,747
Montgomery County Hospital Facilities Revenue, Grandview Hospital and Medical Center,
Pre-Refunded,
5.50%, 12/01/10 ...................................................................... 1,300,000 1,354,145
5.60%, 12/01/11 ...................................................................... 1,000,000 1,043,630
5.65%, 12/01/12 ...................................................................... 925,000 966,283
Nordonia Hills Local School District GO, School Improvement, AMBAC Insured, Pre-Refunded,
5.375%, 12/01/20 ..................................................................... 4,275,000 4,556,466
5.45%, 12/01/25 ...................................................................... 3,000,000 3,204,030
Ohio State Water Development Authority Pollution Control Facilities Revenue, Water Control
Loan Fund, Water Quality Series, MBIA Insured, Pre-Refunded, 5.125%, 6/01/19 ........... 18,000,000 18,199,440
Pickerington Local School District GO, School Facilities Construction and Improvement,
FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ............................................ 15,000,000 15,852,450
Springboro Community City School District GO, School Improvement, MBIA Insured,
Pre-Refunded, 5.00%, 12/01/27 .......................................................... 10,350,000 11,153,367
University of Akron General Receipts Revenue, FGIC Insured, Pre-Refunded, 5.75%,
1/01/29 ................................................................................ 11,305,000 11,954,811
University of Cincinnati COP, Jefferson Avenue Residence Hall, MBIA Insured, 5.125%,
6/01/28 ................................................................................ 4,000,000 4,095,040
University of Cincinnati General Receipts Revenue, Series A, FGIC Insured, Pre-Refunded,
5.25%, 6/01/24 ......................................................................... 5,000,000 5,337,200
-----------------
244,697,271
-----------------
OKLAHOMA 0.1%
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding,
6.00%, 8/15/14 ......................................................................... 3,610,000 3,644,006
-----------------
OREGON 1.2%
Health Sciences University Revenue, Series A, MBIA Insured, 5.00%, 7/01/26 ............... 10,500,000 10,904,880
Jackson County School District No.6 Central Point GO, FGIC Insured, Pre-Refunded, 5.25%,
6/15/20 ................................................................................ 4,000,000 4,182,240
Lane County School District No. 19 Springfield GO, Refunding, FGIC Insured, 6.00%,
10/15/13 ............................................................................... 1,250,000 1,402,125
Oregon State Department of Administrative Services COP, Series A, AMBAC Insured,
Pre-Refunded, 6.00%, 5/01/26 ........................................................... 10,000,000 10,699,900
Oregon State Department of Transportation Highway User Tax Revenue, senior lien, Series A,
4.50%, 11/15/32 ........................................................................ 30,000,000 29,381,700
Oregon State EDR, Georgia-Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 ............................................... 3,500,000 3,388,700
c Series CLVII, 6.35%, 8/01/25 ......................................................... 5,500,000 5,503,135
Oregon State GO, State Board of Higher Education, Series A,
5.00%, 8/01/26 ....................................................................... 6,630,000 6,963,489
5.00%, 8/01/27 ....................................................................... 6,955,000 7,295,517
Pre-Refunded, 5.00%, 8/01/26 ......................................................... 12,000,000 12,629,400
-----------------
92,351,086
-----------------
40 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA 4.2%
Allegheny County Hospital Development Authority Revenue, Health System, Series A,
MBIA Insured, Pre-Refunded, 6.50%, 11/15/30 ............................................ $ 10,000,000 $ 11,056,100
Allegheny County IDAR, Environmental Improvement, USX Corp., Refunding, 5.50%,
12/01/29 ............................................................................... 10,000,000 10,199,300
Allegheny County Port Authority Special Revenue, Transportation, Refunding, FGIC Insured,
5.00%, 3/01/29 ......................................................................... 10,000,000 10,264,900
Berks County GO, AMBAC Insured, 5.00%, 11/15/25 .......................................... 5,000,000 5,040,250
Butler Area School District GO, FGIC Insured, Pre-Refunded, 5.60%, 4/01/28 ............... 5,000,000 5,250,650
Coatesville School District GO, FSA Insured, 5.00%, 8/01/24 .............................. 6,420,000 6,784,592
Delaware County Authority University Revenue, Villanova University, Series A, MBIA
Insured, 5.00%, 12/01/18 ............................................................... 7,090,000 7,238,961
Delaware River Port Authority Pennsylvania and New Jersey Revenue, FSA Insured, 5.75%,
1/01/22 .............................................................................. 8,500,000 8,907,745
1/01/26 .............................................................................. 10,000,000 10,473,300
Delaware Valley Regional Finance Authority Local Government Revenue, Series B,
AMBAC Insured, 5.60%, 7/01/17 .......................................................... 5,000,000 5,622,500
Erie County Hospital Authority Revenue, Hamot Health Foundation, CIFG Insured, 5.00%,
11/01/37 ............................................................................... 5,000,000 5,130,500
Erie Water Authority Water Revenue, Series A, MBIA Insured, Pre-Refunded, 5.20%,
12/01/30 ............................................................................... 18,700,000 19,903,532
Montgomery County IDA Retirement Community Revenue, Adult Community Total Services
Retirement-Life Communities Inc., 5.25%, 11/15/28 ...................................... 2,500,000 2,509,650
Northampton County General Purpose Authority Revenue, County Agreement, FSA Insured,
5.25%, 10/01/30 ........................................................................ 12,150,000 12,666,011
Pennsylvania State Public School Building Authority Lease Revenue, School District of
Philadelphia Project, FSA Insured, Pre-Refunded, 5.00%, 6/01/33 ........................ 32,000,000 34,242,880
Pennsylvania State Turnpike Commission Revenue, AMBAC Insured, Pre-Refunded, 5.00%,
7/15/31 ................................................................................ 5,850,000 6,204,861
Philadelphia Authority for Industrial Development Lease Revenue, Series B, FSA Insured,
Pre-Refunded, 5.25%, 10/01/30 .......................................................... 15,630,000 16,762,237
Philadelphia Gas Works Revenue,
Fifth Series A-1, FSA Insured, 5.00%, 9/01/29 ........................................ 5,000,000 5,145,150
Refunding, First Series A, FSA Insured, 5.00%, 7/01/26 ............................... 5,000,000 5,030,500
Philadelphia GO, MBIA Insured, 5.00%, 5/15/25 ............................................ 5,000,000 5,020,850
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Mortgage, North Philadelphia Health Systems, Refunding, Series A, FHA Insured, 5.30%,
1/01/18 ............................................................................ 2,855,000 2,915,355
Mortgage, North Philadelphia Health Systems, Refunding, Series A, FHA Insured, 5.35%,
1/01/23 ............................................................................ 5,690,000 5,799,646
Mortgage, North Philadelphia Health Systems, Refunding, Series A, FHA Insured, 5.375%,
1/01/28 ............................................................................ 3,700,000 3,752,651
Temple University Hospital, Pre-Refunded, 5.875%, 11/15/23 ........................... 5,000,000 5,053,000
Philadelphia Parking Authority Airport Parking Revenue, FSA Insured, 5.25%, 9/01/29 ...... 15,000,000 15,505,200
Philadelphia RDA Revenue, Neighborhood Transformation, Series C, FGIC Insured, 5.00%,
4/15/29 .............................................................................. 10,965,000 11,329,257
4/15/30 .............................................................................. 12,000,000 12,383,280
Semiannual Report | 41
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Philadelphia School District GO, Series A, FSA Insured, Pre-Refunded, 5.75%, 2/01/30 ..... $ 14,050,000 $ 15,013,689
Philadelphia Water and Wastewater Revenue, Series A, FGIC Insured,
5.00%, 11/01/31 ...................................................................... 8,995,000 9,238,405
Pre-Refunded, 5.00%, 11/01/31 ........................................................ 16,005,000 17,065,011
Pittsburgh and Allegheny County Public Auditorium Hotel Room Revenue, AMBAC Insured,
5.125%, 2/01/35 ........................................................................ 15,000,000 15,412,200
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset District Sales
Tax, AMBAC Insured, 5.25%, 2/01/31 ..................................................... 5,000,000 5,161,450
State Public School Building Authority School Revenue, Daniel Boone School District
Project, MBIA Insured, Pre-Refunded, 5.00%, 4/01/28 .................................... 9,500,000 10,147,710
-----------------
322,231,323
-----------------
RHODE ISLAND 1.2%
Narragansett Bay Commission Wastewater System Revenue, Series A, MBIA Insured, 5.00%,
8/01/30 ................................................................................ 7,990,000 8,279,797
Rhode Island Health and Educational Building Corp. Revenue, Hospital Financing, Series A,
Pre-Refunded,
5.875%, 9/15/23 ...................................................................... 2,000,000 2,041,040
6.00%, 9/15/33 ....................................................................... 3,000,000 3,064,710
Rhode Island Housing and Mortgage Finance Corp. Revenue, Homeownership Opportunity,
Refunding, Series 15-A, 6.85%, 10/01/24 .............................................. 620,000 621,358
Refunding, Series 25-A, 4.95%, 10/01/16 .............................................. 130,000 131,749
Series 10-A, 6.50%, 10/01/22 ......................................................... 475,000 476,601
Series 10-A, 6.50%, 4/01/27 .......................................................... 265,000 266,852
Rhode Island State Economic Development Corp. Airport Revenue, Series B, MBIA Insured,
5.00%,
7/01/27 .............................................................................. 12,280,000 12,625,191
7/01/30 .............................................................................. 14,965,000 15,317,575
Rhode Island State Health and Educational Building Corp. Revenue,
Health Facilities, St. Antoine, Series B, 6.125%, 11/15/29 ........................... 8,090,000 8,361,743
Higher Education Facility, University of Rhode Island, Refunding, Series A, AMBAC
Insured, 5.00%, 9/15/30 ............................................................ 10,000,000 10,435,100
Hospital Financing, Lifespan Obligated Group, 6.375%, 8/15/21 ........................ 925,000 1,004,115
Hospital Financing, Lifespan Obligated Group, Pre-Refunded, 6.375%, 8/15/21 .......... 6,075,000 6,819,856
Hospital Financing, Lifespan Obligated Group, Refunding, Series A, FSA Insured, 5.00%,
5/15/26 ............................................................................ 5,000,000 5,186,150
Hospital Financing, Lifespan Obligated Group, Refunding, Series A, FSA Insured, 5.00%,
5/15/32 ............................................................................ 14,440,000 14,822,949
-----------------
89,454,786
-----------------
SOUTH CAROLINA 1.8%
Beaufort-Jasper Water and Sewer Authority Waterworks and Sewer System Revenue,
FSA Insured, Pre-Refunded, 5.00%, 3/01/26 .............................................. 7,750,000 8,199,423
Charleston Educational Excellence Finance Corp. Revenue, Charleston County School
District, 5.25%, 12/01/30 .............................................................. 8,000,000 8,314,240
Dorchester County Waterworks and Sewer System Revenue, Refunding, MBIA Insured, 5.00%,
10/01/28 ............................................................................... 8,000,000 8,289,040
42 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
SOUTH CAROLINA (CONTINUED)
Greenville County School District Installment Purchase Revenue, Building Equity Sooner
Tomorrow, Refunding, 5.00%, 12/01/28 ................................................... $ 7,500,000 $ 7,709,025
Greenwood Fifty School Facilities Inc. Installment Purchase Revenue, Greenwood School
District 50, Refunding, Assured Guaranty, 4.50%, 12/01/32 .............................. 7,030,000 6,854,320
Lancaster Educational Assistance Program Inc. Revenue, School District of Lancaster County
Project, 5.00%, 12/01/26 ............................................................... 10,000,000 9,926,800
Medical University of South Carolina Hospital Authority Hospital Facilities Revenue,
Mortgage, Refunding, Series A, MBIA Insured, 5.00%, 8/15/31 ............................ 13,860,000 14,170,603
Newberry Investing in Children's Education Installment Revenue, Newberry County School
District Project, 5.00%, 12/01/30 ...................................................... 4,000,000 3,914,080
Scago Educational Facilities Corp. for Beaufort School District Revenue, Beaufort School
District, FSA Insured, 5.00%, 12/01/31 ................................................. 5,340,000 5,492,777
Scago Educational Facilities Corp. for Chesterfield School District Revenue, School
Project, Assured Guaranty, 5.00%, 12/01/29 ............................................. 7,500,000 7,681,050
Scago Educational Facilities Corp. for Colleton School District Revenue, School Project,
Assured Guaranty, 5.00%,
12/01/25 ............................................................................. 3,340,000 3,448,082
12/01/26 ............................................................................. 4,000,000 4,120,440
Scago Educational Facilities Corp. for Pickens School District Revenue, Pickens County
Project, FSA Insured, 5.00%, 12/01/31 .................................................. 10,000,000 10,211,700
South Carolina Public Service Authority Revenue, Series B, FSA Insured, 5.25%, 1/01/33 ... 31,835,000 32,997,296
Sumter Two School Facilities Inc. Installment Purchase Revenue, Sumter County School
District 2, Refunding, Assured Guaranty, 4.50%, 12/01/32 ............................... 6,000,000 5,850,060
-----------------
137,178,936
-----------------
SOUTH DAKOTA 0.4%
South Dakota Health and Educational Facilities Authority Revenue,
Avera Health Issue, AMBAC Insured, 5.25%, 7/01/22 .................................... 15,425,000 16,296,667
Sanford Health, 5.00%, 11/01/27 ...................................................... 2,355,000 2,404,950
Sanford Health, 5.00%, 11/01/40 ...................................................... 12,945,000 12,924,158
-----------------
31,625,775
-----------------
TENNESSEE 1.0%
Clarksville Natural Gas Acquisition Corp. Gas Revenue, 5.00%, 12/15/19 ................... 6,000,000 6,081,420
Johnson City Health and Educational Facilities Board Hospital Revenue, first mortgage,
Mountain States Health, Refunding, Series A, MBIA Insured, 6.00%, 7/01/21 .............. 7,000,000 7,472,290
Knox County Health Educational and Housing Facilities Board Hospital Facilities Revenue,
Refunding, Series A, FSA Insured, 5.00%, 1/01/22 ..................................... 2,260,000 2,332,320
Series A, FSA Insured, Pre-Refunded, 5.00%, 1/01/22 .................................. 2,740,000 2,918,895
Knox County Health Educational and Housing Facilities Board Revenue, University Health
System Inc., Refunding, 5.25%, 4/01/27 ................................................. 17,500,000 17,732,400
Knoxville Wastewater System Revenue, Improvement, Series A, MBIA Insured, 5.00%,
4/01/30 ................................................................................ 7,850,000 8,174,833
Memphis GO, Pre-Refunded, 5.00%, 4/01/17 ................................................. 3,000,000 3,048,840
Metropolitan Government of Nashville and Davidson County District Energy Revenue, Series
A, AMBAC Insured, 5.00%, 10/01/25 ...................................................... 5,460,000 5,654,048
Semiannual Report | 43
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
Tennessee Energy Acquisition Corp. Gas Revenue, Series A, 5.25%, 9/01/26 ................. $ 20,000,000 $ 20,261,800
Tennessee HDA Revenue, Homeownership Program, Refunding, Series 1D, 4.70%,
7/01/15 ................................................................................ 360,000 366,336
-----------------
74,043,182
-----------------
TEXAS 5.9%
Austin Electric Utility System Revenue, Refunding, MBIA Insured, 5.00%, 11/15/28 ......... 10,000,000 10,306,300
Bexar County GO, Certificates of Obligation, Combined Flood Control Tax, FSA Insured,
5.00%, 6/15/37 ......................................................................... 20,000,000 20,591,200
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word Health Services,
FSA Insured, ETM,
6.00%, 11/15/15 ....................................................................... 7,500,000 7,603,425
6.10%, 11/15/23 ....................................................................... 8,300,000 8,661,050
Bexar County HFC, MFHR,
American Opportunity Housing, Series A, MBIA Insured, 5.80%, 1/01/31 .................. 6,000,000 6,179,880
Honey Creek Apartments Project, Series A, MBIA Insured, 6.125%, 4/01/20 ............... 1,000,000 1,042,560
Honey Creek Apartments Project, Series A, MBIA Insured, 6.20%, 4/01/30 ................ 2,845,000 2,970,180
Bridge City ISD, GO, Refunding, 5.375%, 2/15/32 .......................................... 2,005,000 2,077,541
Carrollton GO, Improvement, FSA Insured, 5.25%, 8/15/19 .................................. 1,000,000 1,044,430
Dallas ISD, GO, Refunding, 5.25%, 2/15/20 ................................................ 2,000,000 2,098,880
Dallas-Fort Worth International Airport Revenue, Refunding and Improvement, Series A,
FGIC Insured, 5.625%, 11/01/26 ......................................................... 85,000,000 88,204,500
Decatur Hospital Authority Hospital Revenue, Series A, ETM, 5.75%, 9/01/29 ............... 4,040,000 4,565,402
Duncanville ISD, GO,
Refunding, Series B, 5.25%, 2/15/32 ................................................... 50,000 51,874
Series B, Pre-Refunded, 5.25%, 2/15/32 ................................................ 9,850,000 10,512,609
Edcouch Elsa ISD, GO, Pre-Refunded, 5.50%, 2/15/30 ....................................... 2,000,000 2,090,740
Gulf Coast Waste Disposal Authority Environmental Improvement Revenue, USX Corp.
Projects, Refunding, 5.50%, 9/01/17 .................................................... 3,250,000 3,328,097
Gulf Coast Waste Disposal Authority Revenue, Valero Energy Corp. Project, 5.70%,
4/01/32 ................................................................................ 3,000,000 3,044,220
Harris County Hospital District Revenue, senior lien, Refunding, Series A, MBIA Insured,
5.125%, 2/15/32 ........................................................................ 10,215,000 10,599,901
Hays Consolidated ISD, GO, Capital Appreciation, Pre-Refunded, zero cpn.,
8/15/19 ............................................................................... 5,285,000 2,885,029
8/15/21 ............................................................................... 8,420,000 4,056,251
8/15/22 ............................................................................... 8,470,000 3,836,741
Hidalgo County GO, Certificates of Obligation, FSA Insured, Pre-Refunded, 5.25%,
8/15/21 ................................................................................ 2,500,000 2,652,525
Houston Airport System Revenue, sub. lien, Series B, FSA Insured, Pre-Refunded, 5.50%,
7/01/30 ................................................................................ 2,000,000 2,105,160
Houston Area Water Corp. Contract Revenue, Northeast Water Purification Project,
FGIC Insured, Pre-Refunded, 5.125%, 3/01/28 ............................................ 15,000,000 15,944,400
Houston GO, Public Improvement, Refunding, MBIA Insured, 5.00%, 3/01/25 .................. 5,000,000 5,132,450
Houston Water and Sewer Systems Revenue, junior lien, Series B, FGIC Insured,
Pre-Refunded,
5.00%, 12/01/25 ....................................................................... 9,710,000 9,913,424
5.25%, 12/01/30 ....................................................................... 14,000,000 14,736,540
44 | Semiannual Report
s
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Keller ISD, GO,
Pre-Refunded, 5.375%, 8/15/25 ......................................................... $ 1,330,000 $ 1,398,628
Refunding, 5.375%, 8/15/25 ............................................................ 170,000 176,848
Kerrville ISD, GO, Pre-Refunded, 6.00%, 8/15/13 .......................................... 1,000,000 1,068,030
Laredo ISD, GO, Pre-Refunded, 5.25%, 8/01/24 ............................................. 4,000,000 4,125,080
Little Cypress Mauriceville Consolidated ISD, GO,
Pre-Refunded, 5.90%, 8/01/29 .......................................................... 785,000 818,088
Refunding, 5.90%, 8/01/29 ............................................................. 1,345,000 1,400,064
Lower Colorado River Authority Revenue,
Improvement, Series A, MBIA Insured, Pre-Refunded, 5.00%, 5/15/26 ..................... 130,000 136,461
Refunding, FSA Insured, 5.00%, 5/15/31 ................................................ 10,000,000 10,239,600
Refunding and Improvement, Series A, MBIA Insured, 5.00%, 5/15/26 ..................... 1,870,000 1,917,330
Lubbock Educational Facilities Authority Revenue, Lubbock Christian, Refunding and
Improvement, 5.125%, 11/01/27 .......................................................... 1,000,000 989,510
Lubbock HFC, SFMR, MBS Program, Refunding, Series A, GNMA Secured, 6.125%, 12/01/17 ...... 140,000 142,064
Manor ISD, GO, School Building, 5.00%, 8/01/37 ........................................... 8,175,000 8,389,757
North Central Texas Health Facility Development Corp. Revenue,
Children's Medical Center Dallas, Refunding, AMBAC Insured, 5.25%, 8/15/24 ............ 19,335,000 20,315,091
Texas Health Resources System, Series B, MBIA Insured, Pre-Refunded, 5.125%,
2/15/22 ............................................................................. 5,985,000 6,132,051
Northside ISD, GO,
Pre-Refunded, 5.00%, 2/15/26 .......................................................... 1,345,000 1,407,314
Refunding, 5.00%, 2/15/26 ............................................................. 1,155,000 1,179,394
Onalaska ISD, GO, 5.375%, 2/15/32 ........................................................ 2,840,000 2,971,492
Pasadena GO, Certificates of Obligation, FGIC Insured, Pre-Refunded, 5.25%, 4/01/32 ...... 3,000,000 3,168,060
Port Corpus Christi IDC Revenue, Valero, Refunding, Series B, 5.40%, 4/01/18 ............. 4,000,000 4,067,360
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.65%,
12/01/22 ............................................................................... 15,000,000 15,522,300
Richardson GO, Hotel Occupancy Certificates, Series A, FGIC Insured, 5.75%, 2/15/21 ...... 2,500,000 2,627,025
Rio Grande City Consolidated ISD, GO, School Building, 5.00%, 8/15/37 .................... 10,510,000 10,825,405
San Antonio Energy Acquisition Public Facility Corp. Revenue, Gas Supply Revenue,
5.50%, 8/01/25 ......................................................................... 20,000,000 20,996,600
San Antonio Water Revenue, Systems, Refunding, FSA Insured, 5.00%,
5/15/25 ............................................................................... 5,000,000 5,132,200
5/15/28 ............................................................................... 5,000,000 5,121,900
Southmost Regional Water Authority Water Supply Contract Revenue, MBIA Insured, 5.00%,
9/01/25 ................................................................................ 5,000,000 5,152,850
Tarrant County Health Facilities Development Corp. Health System Revenue, Harris
Methodist Health System, FGIC Insured, ETM, 6.00%, 9/01/24 ............................. 4,000,000 4,650,840
Tarrant County Health Facilities Development Corp. Revenue, Bethesda Living Centers,
Series C, 5.75%,
8/15/18 ............................................................................... 1,570,000 1,561,129
8/15/28 ............................................................................... 3,900,000 3,709,212
Texas City IDC Marine Terminal Revenue, ARCO Pipe Line Co. Project, Refunding, 7.375%,
10/01/20 ............................................................................... 500,000 639,535
Semiannual Report | 45
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Texas State Revenue, Transportation Commission-Mobility Fund, Series A, 5.00%, 4/01/33 ... $ 10,000,000 $ 10,371,800
Texas State Turnpike Authority Central Texas Turnpike System Revenue, Capital
Appreciation, AMBAC Insured, zero cpn., 8/15/31 ........................................ 43,500,000 11,386,125
Tyler Health Facilities Development Corp. Hospital Revenue,
d East Texas Medical Center, Refunding and Improvement, Series A, 5.25%, 11/01/32 ....... 6,250,000 6,164,375
East Texas Medical Center Project, Refunding, Series A, MBIA Insured, 5.50%,
11/01/17 ............................................................................ 1,735,000 1,783,025
East Texas Medical Center Project, Series D, FSA Insured, Pre-Refunded, 5.375%,
11/01/27 ............................................................................ 11,080,000 11,495,278
University of Texas University Revenues, Financing System, Series A, Pre-Refunded, 5.70%,
8/15/20 ................................................................................ 1,000,000 1,039,650
Waco Health Facilities Development Corp. FHA Insured Mortgage Revenue, Hillcrest Health
System Project, Series A, MBIA Insured, 5.00%, 8/01/31 ................................. 15,000,000 15,361,650
Wylie ISD, GO,
Pre-Refunded, 7.00%, 8/15/24 .......................................................... 660,000 739,543
Refunding, 7.00%, 8/15/24 ............................................................. 340,000 380,212
-----------------
450,938,185
-----------------
UTAH 0.4%
Intermountain Power Agency Power Supply Revenue, ETM, 6.15%, 7/01/14 ..................... 16,000,000 16,467,360
Salt Lake County College Revenue, Westminster College Project, Pre-Refunded, 5.625%,
10/01/28 ............................................................................... 3,305,000 3,467,308
South Jordan Sales Tax Revenue, AMBAC Insured, Pre-Refunded, 5.20%, 8/15/26 .............. 4,770,000 5,056,105
South Valley Water Reclamation Facility Sewer Revenue, AMBAC Insured, 5.00%, 8/15/30 ..... 5,730,000 5,957,825
-----------------
30,948,598
-----------------
VERMONT 0.5%
Burlington Airport Revenue, Series A, MBIA Insured, 5.00%, 7/01/28 ....................... 5,780,000 5,939,991
University of Vermont and State Agricultural College Revenue, Refunding, MBIA Insured,
5.00%, 10/01/30 ........................................................................ 12,210,000 12,743,943
Vermont Educational and Health Buildings Financing Agency Revenue,
Fletcher Allen Health, Series A, AMBAC Insured, 6.125%, 12/01/27 ...................... 13,000,000 14,003,600
Hospital, Fletcher Allen Health, Series A, 4.75%, 12/01/36 ............................ 5,000,000 4,566,750
-----------------
37,254,284
-----------------
VIRGINIA 0.5%
Greater Richmond Convention Center Authority Hotel Tax Revenue, Refunding, MBIA
Insured, 5.00%, 6/15/30 ................................................................ 12,260,000 12,738,876
Harrisonburg IDAR, FACS-Rockingham Memorial Hospital, AMBAC Insured, 5.00%, 8/15/31 ...... 10,000,000 10,351,300
Medical College Hospital Authority Revenue, General Revenue Bonds, MBIA Insured,
5.125%, 7/01/18 ........................................................................ 2,000,000 2,054,860
Norfolk Parking System Revenue, Refunding, Series A, MBIA Insured, 5.00%, 2/01/27 ........ 5,000,000 5,228,100
Virginia State HDA Commonwealth Mortgage Revenue, Series H, Sub Series H-1, MBIA
Insured, 5.35%, 7/01/31 ................................................................ 10,000,000 10,252,500
-----------------
40,625,636
-----------------
46 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
WASHINGTON 3.4%
Bellingham Housing Authority Revenue, Pacific Rim and Cascade Meadows Project,
Refunding, MBIA Insured, 5.20%, 11/01/27 ............................................... $ 200,000 $ 200,904
Central Puget Sound Regional Transportation Authority Sales and Use Tax Revenue,
Series A, AMBAC Insured, 5.00%, 11/01/30 ............................................... 20,000,000 20,706,800
Chelan County PUD No. 1 Consolidated Revenue, Chelan Hydroelectric, Division I,
Mandatory Put 7/01/28, Series A, FSA Insured, 5.25%, 7/01/33 ........................... 200,000 203,352
Clark County PUD No. 1 Generating System Revenue,
FGIC Insured, ETM, 6.00%, 1/01/08 ..................................................... 200,000 200,796
Refunding, FSA Insured, 5.50%, 1/01/25 ................................................ 15,015,000 15,789,324
Energy Northwest Electric Revenue, Columbia Generating Station, Refunding,
Series A, 5.00%, 7/01/24 .............................................................. 15,255,000 15,951,848
Series B, FSA Insured, 5.35%, 7/01/18 ................................................. 11,500,000 12,218,175
Goat Hill Properties Lease Revenue, Government Office Building Project, MBIA Insured,
5.00%, 12/01/33 ........................................................................ 18,500,000 19,020,590
Grant County PUD No. 2 Wanapum Hydro Electric Revenue, Refunding,
Second Series A, MBIA Insured, 5.20%, 1/01/23 ......................................... 250,000 255,302
Series D, FSA Insured, 5.20%, 1/01/23 ................................................. 6,000,000 6,242,520
King County Housing Authority Revenue, Woodridge Park Project, 6.25%, 5/01/15 ............ 145,000 146,317
King County School District No. 408 Auburn GO, FSA Insured, 5.00%, 12/01/24 .............. 5,000,000 5,191,250
Pierce County School District No. 320 Sumner GO, FSA Insured, Pre-Refunded, 6.00%,
12/01/14 ............................................................................... 2,000,000 2,149,820
Pierce County School District No. 403 Bethel GO, FGIC Insured, 5.25%, 12/01/22 ........... 5,000,000 5,263,100
Port Seattle Revenue, Refunding, Series A,
FGIC Insured, 5.00%, 4/01/31 .......................................................... 21,680,000 22,055,714
MBIA Insured, 5.00%, 7/01/33 .......................................................... 10,000,000 10,206,600
Seattle Municipal Light and Power Revenue, 5.40%, 12/01/25 ............................... 10,000,000 10,433,000
Seattle Water System Revenue, FGIC Insured, 5.00%, 10/01/23 .............................. 300,000 308,058
Snohomish County Housing Authority Revenue, Pooled, 6.30%, 4/01/16 ....................... 185,000 186,382
Snohomish County USD No. 6 GO, 6.50%, 12/01/11 ........................................... 7,000,000 7,563,570
Tacoma GO, Series A, MBIA Insured, Pre-Refunded, 5.625%, 12/01/22 ........................ 300,000 300,438
Twenty-Fifth Avenue Properties Washington Student Housing Revenue, MBIA Insured,
5.125%, 6/01/22 ....................................................................... 2,925,000 3,045,042
5.25%, 6/01/33 ........................................................................ 9,770,000 10,122,502
Washington State GO,
AMBAC Insured, 5.00%, 1/01/31 ......................................................... 7,925,000 8,208,953
Motor Vehicle Fuel Tax, Series B, FGIC Insured, 5.00%, 7/01/27 ........................ 10,000,000 10,307,100
Series A, FGIC Insured, 5.00%, 7/01/27 ................................................ 10,000,000 10,307,100
Various Purpose, Series C, FSA Insured, 5.25%, 1/01/26 ................................ 10,120,000 10,490,999
Washington State Health Care Facilities Authority Revenue,
MultiCare Health Systems, MBIA Insured, 5.00%, 8/15/22 ................................ 250,000 253,613
Providence Health Care Services, Refunding, Series A, FGIC Insured, 5.00%, 10/01/36 ... 9,750,000 9,988,972
Providence Health Care Services, Series A, FGIC Insured, Pre-Refunded, 5.00%,
10/01/36 ............................................................................ 250,000 271,887
Providence Services, MBIA Insured, Pre-Refunded, 5.50%, 12/01/26 ...................... 6,000,000 6,308,340
Semiannual Report | 47
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
WASHINGTON (CONTINUED)
Washington State Public Power Supply System Revenue,
Nuclear Project No. 2, Refunding, Series A, 6.30%, 7/01/12 ............................ $ 7,700,000 $ 8,548,540
Nuclear Project No. 3, Capital Appreciation, Refunding, Series B, zero cpn.,
7/01/14 ............................................................................. 12,450,000 9,527,736
Nuclear Project No. 3, Capital Appreciation, Series B, ETM, zero cpn., 7/01/14 ........ 2,550,000 1,977,117
Nuclear Project No. 3, Refunding, Series B, zero cpn., 7/01/12 ........................ 6,400,000 5,351,552
Nuclear Project No. 3, Refunding, Series B, zero cpn., 7/01/13 ........................ 11,000,000 8,807,150
-----------------
258,110,463
-----------------
WEST VIRGINIA 0.8%
Braxton County Solid Waste Disposal Revenue, Weyerhaeuser Co. Project, Refunding,
5.40%, 5/01/25 ......................................................................... 10,000,000 10,053,000
Harrison County County Commission Solid Waste Disposal Revenue, Allegheny Energy
Supply Co. LLC, Refunding, Series D, 5.50%, 10/15/37 ................................... 9,000,000 9,040,770
Pleasants County PCR, County Commission, Series F, 5.25%, 10/15/37 ....................... 14,000,000 14,118,300
West Virginia State GO, Series A, FGIC Insured, 5.20%, 11/01/26 .......................... 10,000,000 10,919,800
West Virginia State Water Development Water Revenue, Loan Program 2, Refunding, Series B,
AMBAC Insured, 5.00%, 11/01/29 ......................................................... 7,500,000 7,759,050
West Virginia University Revenues, Improvement, West Virginia University Projects,
Series C, FGIC Insured, 5.00%, 10/01/34 ................................................ 10,000,000 10,359,600
-----------------
62,250,520
-----------------
WISCONSIN 0.5%
Janesville IDR, Simmons Manufacturing Co., 7.00%, 10/15/17 ............................... 2,200,000 2,204,488
Wisconsin State Health and Educational Facilities Authority Revenue,
Children's Hospital of Wisconsin Inc., AMBAC Insured, 5.375%, 2/15/28 ................. 21,050,000 21,339,017
Franciscan Sisters Christian, Series A, Pre-Refunded, 5.50%, 2/15/18 .................. 1,500,000 1,523,235
Franciscan Sisters Christian, Series A, Pre-Refunded, 5.50%, 2/15/28 .................. 1,000,000 1,015,490
Thedacare Inc., AMBAC Insured, 5.00%, 12/15/30 ........................................ 10,000,000 10,288,200
-----------------
36,370,430
-----------------
U.S. TERRITORIES 1.8%
PUERTO RICO 1.7%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.375%, 5/15/33 ............................................................. 21,765,000 21,838,130
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, Series Y,
Pre-Refunded,
5.00%, 7/01/36 ....................................................................... 62,000,000 67,536,600
5.50%, 7/01/36 ....................................................................... 7,000,000 7,881,370
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series K, 5.00%, 7/01/30 .................................................... 19,190,000 19,419,896
Puerto Rico Industrial Medical and Environmental Pollution Control Facilities
Financing Authority Revenue, PepsiCo Inc. Project, 6.25%, 11/15/13 ..................... 350,000 367,584
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue, Guaynabo Warehouse, Series A,
5.15%, 7/01/19 ......................................................................... 850,000 855,840
48 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.25%, 7/01/27 ................................................... $ 3,265,000 $ 3,352,828
Series D, Pre-Refunded, 5.25%, 7/01/27 ................................................ 8,735,000 9,370,559
-----------------
130,622,807
-----------------
VIRGIN ISLANDS 0.1%
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ....................................................................... 1,400,000 1,425,046
5.50%, 10/01/22 ....................................................................... 5,000,000 5,078,750
5.625%, 10/01/25 ...................................................................... 1,900,000 1,930,305
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/18 ................................................................................ 500,000 499,155
-----------------
8,933,256
-----------------
TOTAL U.S. TERRITORIES ................................................................... 139,556,063
-----------------
TOTAL LONG TERM INVESTMENTS (COST $7,187,762,266) ........................................ 7,493,500,666
-----------------
SHORT TERM INVESTMENTS 0.5%
CALIFORNIA 0.2%
e Whittier Revenue, Whittier College, Refunding, RADIAN Insured, Weekly VRDN and Put,
6.00%, 12/01/33 ........................................................................ 12,200,000 12,200,000
-----------------
CONNECTICUT 0.0% b
e Connecticut State Health and Educational Facilities Authority Revenue, Yale University,
Series T-1, Daily VRDN and Put, 3.50%, 7/01/29 ........................................ 200,000 200,000
Series V-1, Daily VRDN and Put, 3.50%, 7/01/36 ........................................ 100,000 100,000
-----------------
300,000
-----------------
KENTUCKY 0.0% b
e Berea Educational Facilities Revenue, Series A, Daily VRDN and Put, 3.57%, 6/01/32 ....... 800,000 800,000
-----------------
MARYLAND 0.0% b
e Montgomery County GO, BAN, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 3.57%, 6/01/26 .................................................................... 800,000 800,000
-----------------
MASSACHUSETTS 0.2%
e Massachusetts State Development Finance Agency Revenue, Suffolk University, Refunding,
Radian Insured, Weekly VRDN and Put, 6.00%, 7/01/32 .................................... 17,800,000 17,800,000
-----------------
MINNESOTA 0.0% b
e Minnesota State Higher Education Facilities Authority Revenue, College of St.
Catherine, Series Five N2, Weekly VRDN and Put, 3.38%, 10/01/32 ........................ 700,000 700,000
-----------------
NEVADA 0.1%
e Las Vegas Valley Water District GO, Water Improvement, Series C, Daily VRDN and Put,
3.58%, 6/01/36 ......................................................................... 3,000,000 3,000,000
-----------------
Semiannual Report | 49
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
NEW YORK 0.0% b
e Long Island Power Authority Electric System Revenue, Sub Series 3B, Daily VRDN and
Put, 3.47%, 5/01/33 .................................................................... $ 1,500,000 $ 1,500,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $37,100,000) .......................................... 37,100,000
-----------------
TOTAL INVESTMENTS (COST $7,224,862,266) 99.0% ............................................ 7,530,600,666
OTHER ASSETS, LESS LIABILITIES 1.0% ...................................................... 78,760,871
-----------------
NET ASSETS 100.0% ........................................................................ $ 7,609,361,537
=================
See Selected Portfolio Abbreviations on page 51.
a See Note 6 regarding defaulted securities.
b Rounds to less than 0.1% of net assets.
c See Note 7 regarding other considerations.
d A portion or all of the securities purchased on a when-issued or delayed
delivery basis. See Note 1(b).
e Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates. The coupon rate shown represents the rate at period end.
50 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (UNAUDITED)
SELECTED PORTFOLIO ABBREVIATIONS
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipation Note
BIG - Bond Investors Guaranty Insurance Co. (acquired by
MBIA in 1989 and no longer does business under this name)
CDA - Community Development Authority/Agency
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Bond/Board
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Security
MF - Multi-Family
MFHR - Multi-Family Housing 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
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
USD - Unified/Union School District
XLCA - XL Capital Assurance
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007 (unaudited)
Assets:
Investments in securities:
Cost ...................................................................... $ 7,224,862,266
=================
Value ..................................................................... $ 7,530,600,666
Cash ......................................................................... 50,796
Receivables:
Capital shares sold ....................................................... 11,741,634
Interest .................................................................. 113,944,023
-----------------
Total assets ........................................................... 7,656,337,119
-----------------
Liabilities:
Payables:
Investment securities purchased ........................................... 30,402,762
Capital shares redeemed ................................................... 11,406,318
Affiliates ................................................................ 3,912,879
Accrued expenses and other liabilities ....................................... 1,253,623
-----------------
Total liabilities ...................................................... 46,975,582
-----------------
Net assets, at value ................................................ $ 7,609,361,537
=================
Net assets consist of:
Paid-in capital .............................................................. $ 7,330,824,673
Undistributed net investment income .......................................... 4,219,075
Net unrealized appreciation (depreciation) ................................... 305,738,400
Accumulated net realized gain (loss) ......................................... (31,420,611)
-----------------
Net assets, at value ................................................ $ 7,609,361,537
=================
52 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2007 (unaudited)
CLASS A:
Net assets, at value ......................................................... $ 6,680,002,759
=================
Shares outstanding ........................................................... 557,826,216
=================
Net asset value per share a .................................................. $ 11.98
=================
Maximum offering price per share (net asset value per share / 95.75%) ........ $ 12.51
=================
CLASS B:
Net assets, at value ......................................................... $ 198,186,216
=================
Shares outstanding ........................................................... 16,563,757
=================
Net asset value and maximum offering price per share a ....................... $ 11.97
=================
CLASS C:
Net assets, at value ......................................................... $ 484,431,903
=================
Shares outstanding ........................................................... 40,478,620
=================
Net asset value and maximum offering price per share a ....................... $ 11.97
=================
ADVISOR CLASS:
Net assets, at value ......................................................... $ 246,740,659
=================
Shares outstanding ........................................................... 20,593,892
=================
Net asset value and maximum offering price per share a ....................... $ 11.98
=================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended October 31, 2007 (unaudited)
Investment income:
Interest ..................................................................... $ 187,201,330
-----------------
Expenses:
Management fees (Note 3a) .................................................... 16,978,312
Distribution fees: (Note 3c)
Class A ................................................................... 3,037,728
Class B ................................................................... 684,931
Class C ................................................................... 1,513,039
Transfer agent fees (Note 3e) ................................................ 1,706,037
Custodian fees ............................................................... 55,269
Reports to shareholders ...................................................... 142,280
Registration and filing fees ................................................. 170,799
Professional fees ............................................................ 54,753
Trustees' fees and expenses .................................................. 86,439
Other ........................................................................ 175,245
-----------------
Total expenses ......................................................... 24,604,832
-----------------
Net investment income ............................................... 162,596,498
-----------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .................................... (6,446,416)
Net change in unrealized appreciation (depreciation) on investments .......... (74,530,429)
-----------------
Net realized and unrealized gain (loss) ......................................... (80,976,845)
-----------------
Net increase (decrease) in net assets resulting from operations ................. $ 81,619,653
=================
54 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
SIX MONTHS ENDED
OCTOBER 31, 2007 YEAR ENDED
(UNAUDITED) APRIL 30, 2007
-----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ..................................................... $ 162,596,498 $ 327,498,465
Net realized gain (loss) from investments ................................. (6,446,416) 8,498,203
Net change in unrealized appreciation (depreciation) on investments ....... (74,530,429) 56,442,130
-----------------------------------
Net increase (decrease) in net assets resulting from operations ..... 81,619,653 392,438,798
-----------------------------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................ (147,804,780) (287,661,933)
Class B ................................................................ (4,167,839) (9,822,812)
Class C ................................................................ (9,071,976) (16,599,749)
Advisor Class .......................................................... (4,858,565) (7,929,154)
-----------------------------------
Total distributions to shareholders .......................................... (165,903,160) (322,013,648)
-----------------------------------
Capital share transactions: (Note 2)
Class A ................................................................ 184,370,820 227,931,591
Class B ................................................................ (24,966,304) (37,117,042)
Class C ................................................................ 39,538,011 42,838,598
Advisor Class .......................................................... 57,399,999 33,874,961
-----------------------------------
Total capital share transactions ............................................. 256,342,526 267,528,108
-----------------------------------
Redemption fees .............................................................. 23,010 30,329
-----------------------------------
Net increase (decrease) in net assets ............................... 172,082,029 337,983,587
Net assets:
Beginning of period .......................................................... 7,437,279,508 7,099,295,921
-----------------------------------
End of period ................................................................ $ 7,609,361,537 $ 7,437,279,508
-----------------------------------
Undistributed net investment income included in net assets:
End of period ................................................................ $ 4,219,075 $ 7,525,737
===================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES
Franklin Federal Tax-Free Income Fund (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as a diversified, open-end
investment company, consisting of one fund, the Franklin Federal Tax-Free Income
Fund (Fund). The Fund offers four classes of shares: Class A, Class B, Class C,
and Advisor Class. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Fund 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
Fund will generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
56 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its income and net realized
gains.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Distributions to shareholders are recorded on the ex-dividend date and
are determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
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. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the fund and accounted for as an addition to paid-in
capital.
Semiannual Report | 57
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
G. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred. Currently, the Trust expects the
risk of loss to be remote.
2. CAPITAL STOCK
At October 31, 2007, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
----------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 2007 APRIL 30, 2007
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Shares sold ........................ 42,650,701 $ 509,075,321 62,990,734 $ 761,644,962
Shares issued in reinvestment
of distributions ................ 7,110,144 84,818,110 13,258,240 159,920,111
Shares redeemed .................... (34,338,144) (409,522,611) (57,475,070) (693,633,482)
----------------------------------------------------------------
Net increase (decrease) ............ 15,422,701 $ 184,370,820 18,773,904 $ 227,931,591
================================================================
CLASS B SHARES:
Shares sold ........................ 140,334 $ 1,671,183 237,136 $ 2,861,177
Shares issued in reinvestment
of distributions ................ 213,919 2,551,312 494,793 5,964,479
Shares redeemed .................... (2,449,833) (29,188,799) (3,803,700) (45,942,698)
----------------------------------------------------------------
Net increase (decrease) ............ (2,095,580) $ (24,966,304) (3,071,771) $ (37,117,042)
================================================================
CLASS C SHARES:
Shares sold ........................ 6,022,367 $ 71,839,444 8,044,481 $ 97,259,220
Shares issued in reinvestment
of distributions ................ 492,535 5,874,367 878,780 10,599,639
Shares redeemed .................... (3,201,513) (38,175,800) (5,385,107) (65,020,261)
----------------------------------------------------------------
Net increase (decrease) ............ 3,313,389 $ 39,538,011 3,538,154 $ 42,838,598
================================================================
ADVISOR CLASS SHARES:
Shares sold ........................ 5,437,740 $ 64,991,889 5,085,425 $ 61,511,201
Shares issued in reinvestment
of distributions ................ 141,215 1,684,263 164,119 1,982,576
Shares redeemed .................... (776,797) (9,276,153) (2,447,003) (29,618,816)
----------------------------------------------------------------
Net increase (decrease) ............ 4,802,158 $ 57,399,999 2,802,541 $ 33,874,961
================================================================
58 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or trustees of the following
subsidiaries:
- --------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- --------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
The Fund pays an investment management fee to Advisers based on the month-end
net assets of the Fund as follows:
- ------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- ------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
C. DISTRIBUTION FEES
The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors for costs incurred in connection with the servicing,
sale and distribution of the Fund's shares up to the maximum annual plan rate.
Under the Class A reimbursement distribution plan, costs exceeding the maximum
for the current plan year cannot be reimbursed in subsequent periods.
In addition, under the Fund's Class B and C compensation distribution plans, the
Fund pays Distributors for costs incurred in connection with the servicing, sale
and distribution of the Fund's shares up to the maximum annual plan rate for
each class.
Semiannual Report | 59
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ..................................................... 0.10%
Class B ..................................................... 0.65%
Class C ..................................................... 0.65%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the period:
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ................................... $ 976,769
Contingent deferred sales charges retained ....................... $ 163,282
E. TRANSFER AGENT FEES
For the period ended October 31, 2007, the Fund paid transfer agent fees of
$1,706,037, of which $1,002,970 was retained by Investor Services.
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At April 30, 2007, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2012 ........................................................ $ 23,006,496
2014 ........................................................ 1,937,789
----------------
$ 24,944,285
================
At October 31, 2007, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ......................................... $ 7,223,706,522
================
Unrealized appreciation ..................................... $ 328,377,072
Unrealized depreciation ..................................... (21,482,928)
----------------
Net unrealized appreciation (depreciation) .................. $ 306,894,144
================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and bond discounts.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of bond workout expenditures and bond
discounts.
60 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended October 31, 2007, aggregated $853,437,351 and $538,584,000,
respectively.
6. DEFAULTED SECURITIES
The Fund held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At October 31, 2007, the aggregate value of these
securities was $14,698,275 representing 0.19% of the Fund's net assets. The Fund
discontinues accruing income on securities for which income has been deemed
uncollectible and provides an estimate for losses on interest receivable. The
securities have been identified on the accompanying Statement of Investments.
7. OTHER CONSIDERATIONS
The Oregon Economic Development Department ("OEDD"), the issuer of Oregon
Economic Development Department Revenue Bonds (Georgia-Pacific Corporation 1995
Project), Series 157, maturing on August 1, 2025 (the "OEDD Bonds") held by
Franklin Federal Tax-Free Income Fund (the Fund), received a proposed adverse
determination letter during the fiscal year ended April 30, 2006, from the
Internal Revenue Service ("IRS") in which the IRS indicated that the interest
paid to bondholders of the OEDD Bonds is not excludable from gross income. In
addition, on December 6, 2006, Georgia-Pacific Corporation (GP) released a
notice that the IRS had also issued proposed adverse determination letters for
the Jasper County, Indiana Economic Development Refunding Revenue Bonds
(Georgia-Pacific Corporation Project), Series 1997 and Series 1999 Bonds ("the
Jasper Bonds"). The Fund has been holding the OEDD Bonds since January 1996 and
the Jasper Bonds since November 1997, and has passed through the interest earned
on both the OEDD Bonds and the Jasper Bonds to the shareholders of the Fund in
the form of non-taxable dividends during the holding period. In addition, the
Fund has been contacted by the IRS informing it of the determination for the
OEDD bonds. The GP notice indicates that GP disagrees with the adverse
determinations and that notices of appeal and protest have been filed or will be
filed as provided by applicable IRS procedures and within applicable time
frames. In various prior SEC filings, GP has stated that it will take steps to
ensure the OEDD bondholders will be made whole with respect to any liability
caused by the IRS determination.
Pendleton County, Kentucky (the "County"), the issuer of Pendleton County,
Kentucky Multi-County Lease Revenue Bonds (Kentucky Association of Counties
Leasing Trust Program) 1993 Series A and 1993 Series B (the "Pendleton Bonds")
held by the Fund, received a proposed adverse determination letter from the IRS
which indicated that the interest paid to bondholders of the Pendleton Bonds is
not excludable from gross income. The Fund held the Pendleton Bonds between
March 1993 and July 2005 and has passed through the interest earned on the
Pendleton
Semiannual Report | 61
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. OTHER CONSIDERATIONS (CONTINUED)
Bonds to the shareholders of the Fund in the form of non-taxable dividends
during the holding period. The County has filed a protest and a request for
Appeals' review of the proposed adverse determination and continues to believe
that all requirements related to the excludability of interest paid to
bondholders were satisfied.
If there were not favorable final determinations in these matters, the Fund
could be subject to tax expense plus interest which is estimated to be
approximately $2,504,393 at October 31, 2007. However, the ultimate outcome of
these matters is unknown at this time. Based on the uncertainty regarding the
outcome of these matters, no liability has been recorded on the Statement of
Assets and Liabilities of the Fund. The Fund's management believes that the
final outcome of these matters will not have a material adverse impact to the
Fund and/or its shareholders.
8. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Once the SEC approves the final
plan of distribution, disbursements of settlement monies will be made promptly
to individuals who were shareholders of the designated funds during the relevant
period, in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Trust or its shareholders whole, as appropriate.
62 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. NEW ACCOUNTING PRONOUNCEMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48), on October 31, 2007. FIN 48
clarifies the accounting for uncertainty in tax positions taken or expected to
be taken in a tax return. FIN 48 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The Fund has reviewed the tax
positions for open tax years (tax years ended April 30, 2005 - 2007) and has
determined that the implementation of FIN 48 did not have a material impact on
the Fund's financial statements.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
Semiannual Report | 63
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION
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 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
64 | Semiannual Report
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON FUNDS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
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
Alabama
Arizona
California 8
Colorado
Connecticut
Florida 8
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 9
1. The fund is open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy remained the
same.
6. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7. The fund invests primarily in insured municipal securities.
8. 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).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
05/07 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN FEDERAL
TAX-FREE INCOME FUND
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 prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
116 S2007 12/07
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, 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 FEDERAL TAX-FREE INCOME FUND
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 27, 2007
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
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 27, 2007
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date December 27, 2007