UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENTCOMPANIES
Investment Company Act file number 811-03395
---------
FRANKLIN FEDERAL TAX-FREE INCOME FUND
-------------------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-----------------------------------------------
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area Code: (650) 312-2000
--------------
Date of fiscal year end: 4/30
----
Date of reporting period: 4/30/09
--------
ITEM 1. REPORTS TO STOCKHOLDERS.
APRIL 30, 2009
ANNUAL REPORT
AND SHAREHOLDER LETTER
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[GRAPHIC]
TAX-FREE INCOME
FRANKLIN
FEDERAL TAX-FREE INCOME FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
[GRAPHIC]
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Franklin Federal Tax-Free Income Fund ..................................... 5
Performance Summary ....................................................... 10
Your Fund's Expenses ...................................................... 15
Financial Highlights and Statement of Investments ......................... 17
Financial Statements ...................................................... 54
Notes to Financial Statements ............................................. 57
Report of Independent Registered Public Accounting Firm ................... 65
Tax Designation ........................................................... 66
Board Members and Officers ................................................ 67
Shareholder Information ................................................... 72
Shareholder Letter
Dear Shareholder:
The 12-month period ended April 30, 2009, was an extraordinary and stressful
time for investors and those of us who have worked in financial markets for many
years. During this turbulent period, the U.S. recession deepened, credit markets
froze and housing prices plummeted. Most stocks and bonds suffered major losses
as investors worried about an uncertain future. With a new president, Barack
Obama, the country and the financial markets were eager to see how effectively
the government could address these problems. Although this environment is bound
to provoke great concern, we think it is important to put short-term market
developments in perspective. Keep in mind that as daunting as current conditions
may be, we have navigated through other periods of high market volatility before
and remain committed to our long-term perspective and disciplined investment
philosophy.
With the economy officially in recession since December 2007, economic growth
contracted during the 12-month reporting period. The national housing market
continued its severe correction with drops in housing starts and prices. The
Conference Board's Consumer Confidence Index dropped to the lowest level since
it began in 1967. The unemployment rate rose from 5.0% to 8.9% over the 12-month
period.(1)
The freezing of credit and financial markets in the U.S. and the rest of the
world was the dominant -- and still developing -- story. Despite various
attempts by the Federal Reserve Board (Fed) and the Treasury Department to
inject liquidity into the system and "rescue" such companies as Bear Stearns,
Fannie Mae, Freddie Mac, Merrill Lynch and American International Group, fears
and
(1.) Source: Bureau of Labor Statistics.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
concerns about the health of our major financial institutions created a crisis
on Wall Street that we believe has not been seen since the 1930s. These fears
intensified when Lehman Brothers filed for bankruptcy in September 2008. In
early October the Senate and House approved a modified troubled asset relief
plan, or TARP, providing aid for financial institutions. As the crisis of
confidence and credit freeze spread around the world, many other countries and
central banks took measures to promote liquidity and help financial institutions
within their own borders. Largely in reaction to financial market upheaval, the
10-year U.S. Treasury yield experienced considerable volatility and declined
from 3.77% to 3.16% over the period, reflecting a "flight to quality" by
investors the world over.
On February 17, 2009, President Obama signed into law a $787 billion stimulus
plan known as the American Recovery and Reinvestment Act of 2009, which, at the
least, is expected by many to cushion the effects of the ongoing recession for
taxpayers, consumers, businesses, and state and local governments. At most,
others expect the Act will end the recession and promote renewed growth.
In response to these economic conditions, the Federal Open Market Committee
lowered the federal funds target rate from 2.00% at the beginning of the period
to a range of 0% to 0.25% by period-end. The Fed's current challenge is to
soften the effects of the economic recession, reduce deflation risks and
maintain a healthy financial system to restart lending throughout the economy.
At period-end, the Fed did not regard inflation as an immediate threat. Rather,
it was DEFLATION, or the threat of it, that began to concern an increasing
number of economists. The Fed and the U.S. Treasury continued to take steps they
thought were necessary to preserve the integrity of U.S. and global financial
markets. In March 2009, they announced measures intended to facilitate lending
by banks and further ease credit markets. These included the Fed's decision to
purchase $300 billion in Treasury bonds in the open markets and Treasury
2 | Not part of the annual report
Secretary Geithner's proposal for a partnership between the government and
private investors to purchase and manage "toxic assets" from U.S. banks.
Almost every major market experienced unusually volatile performance during the
reporting period. The municipal bond market, as measured by the Barclays Capital
(BC) Municipal Bond Index, lost value in the second half of 2008 but rebounded
in 2009. The index returned +3.11% for the 12-month review period.(2) Long-term
municipal bonds, which generally make up a significant portion of our
portfolios, had a -3.95% return for the same period.(3)
We believe it is especially important during difficult times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. Investors with discipline and a sound investment plan
may find favorable long-term opportunities when markets decline.
In the enclosed annual report for Franklin Federal Tax-Free Income Fund, the
portfolio managers discuss municipal bond market conditions, investment
decisions and Fund performance during the period. You can also find other
performance data and financial information. Please remember that all securities
markets fluctuate, as do mutual fund share prices. Municipal bonds provide
tax-free income and diversification from equities. Despite periods of
volatility, municipal bonds have a solid long-term record of performance, driven
mostly by their income component.
(2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC Municipal Bond Index is a market value-weighted index engineered for the
long-term tax-exempt bond market. To be included in the index, bonds must
be fixed rate, have at least one year to final maturity and be rated
investment grade (Baa3/BBB- or higher) by at least two of the following
agencies: Moody's, Standard & Poor's or Fitch.
(3.) Source: (C) 2009 Morningstar. The BC Municipal Long Bond Index is the long
(22+ years) component of the BC Municipal Bond Index.
Not part of the annual report | 3
Please check our website at franklintempleton.com for special portfolio manager
commentary during this period of uncertainty. Although market conditions are
constantly changing, we remain committed to our disciplined strategy as we
manage the Fund, keeping in mind the trust you have placed in us. We appreciate
your confidence and encourage you to contact us when you have questions about
your Franklin Templeton tax-free investment.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Federal Tax-Free Income Fund
/s/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and
Co-Directors Franklin Municipal Bond
Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30, 2009. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
4 | Not part of the annual report
Annual 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)
CREDIT QUALITY BREAKDOWN*
4/30/09
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 26.7%
AA 32.8%
A 18.5%
BBB 12.0%
Below Investment Grade 0.9%
Not Rated by S&P 9.1%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below.
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.2% 0.8%
AA or Aa 3.2% --
A 3.1% 0.1%
BBB or Baa 1.0% 0.5%
Below Investment Grade 0.1% 0.1%
--- ---
Total 7.6% 1.5%
This annual report for Franklin Federal Tax-Free Income Fund covers the fiscal
year ended April 30, 2009.
(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 21.
Annual Report | 5
DIVIDEND DISTRIBUTIONS(2)
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
May 2008 4.27 cents 3.70 cents 3.72 cents 4.37 cents
June 2008 4.37 cents 3.82 cents 3.84 cents 4.44 cents
July 2008 4.37 cents 3.82 cents 3.84 cents 4.44 cents
August 2008 4.37 cents 3.82 cents 3.84 cents 4.44 cents
September 2008 4.45 cents 3.91 cents 3.92 cents 4.53 cents
October 2008 4.45 cents 3.91 cents 3.92 cents 4.53 cents
November 2008 4.45 cents 3.91 cents 3.92 cents 4.53 cents
December 2008 4.45 cents 3.96 cents 3.94 cents 4.53 cents
January 2009 4.45 cents 3.96 cents 3.94 cents 4.53 cents
February 2009 4.45 cents 3.96 cents 3.94 cents 4.53 cents
March 2009 4.50 cents 3.99 cents 4.03 cents 4.58 cents
April 2009 4.50 cents 3.99 cents 4.03 cents 4.58 cents
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PERFORMANCE OVERVIEW
The Fund's Class A share price, as measured by net asset value, decreased from
$11.82 on April 30, 2008, to $11.21 on April 30, 2009. The Fund's Class A shares
paid dividends totaling 53.08 cents per share for the reporting period.(2) The
Performance Summary beginning on page 10 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.61% based on an
annualization of April's 4.50 cent per share dividend and the maximum offering
price of $11.71 on April 30, 2009. An investor in the 2009 maximum federal
personal income tax bracket of 35.00% would need to earn a distribution rate of
7.09% 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.
MUNICIPAL BOND MARKET OVERVIEW
The year ended April 30, 2009, was highly unusual for the municipal bond market.
Municipal bonds provide investors with tax-free income and historically have
been a relatively stable, low-volatility investment. Municipal bond funds have
also provided portfolio diversification, helping offset the volatility of higher
risk asset classes, such as equities and many other fixed income securities. For
the 12-month period ended April 30, 2009, the Barclays Capital (BC)
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
6 | Annual Report
Municipal Bond Index had a +3.11% total return compared with the +7.36% return
of the BC U.S. Treasury Index.(3) However, the year under review, in our
opinion, certainly could not be described as stable or low volatility for the
municipal bond market.
The municipal bond market's problems started with the collapse of a few
leveraged hedge funds, whose strategy was mainly focused on leveraging exposure
to subprime mortgage-related collateralized debt obligations (CDOs). The
damaging effects from such subprime-related exposure rapidly spread to other
markets. The falling prices of the CDOs, due to illiquidity and increased
expectations for mortgage defaults, led credit rating agencies to downgrade
financial guaranty companies early in 2008. In 2008, the four major municipal
insurers, AMBAC, MBIA, FGIC and FSA, had been insuring nearly half of new-issue
municipal bonds and had maintained AAA ratings for many years. Although we
believe historically they had been very good risk managers, during 2008 these
insurers were downgraded below AAA.
The downgrades initially did not concern us because many of the issuers that
used insurance were of high quality, and investment-grade municipal bonds had a
historical default rate of less than 1%.(4) However, the downgrades shocked the
market and caused problems for hedge funds and other leveraged market
participants. As insured bonds declined in value during 2008, many hedge funds
that had built up large municipal bond positions were forced to sell their
insured bonds. This resulted in a significant supply/demand imbalance, and the
value of insured bonds continued to plummet. Historically, insured bonds traded
at higher prices than uninsured bonds; however, the value of insurance eroded
considerably. At the same time, the auction rate securities market collapsed.
Although traditional, non-leveraged mutual funds, retail buyers and
property-and-casualty companies continued to support the market, the selling was
overwhelming and helped cause some of the municipal bond market's worst
performance in its history.
The municipal bond market stabilized through the spring and summer of 2008.
Unfortunately, during this time the credit crisis started to spread across
(3.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC Municipal Bond Index is a market value-weighted
index engineered for the long-term tax-exempt bond market. To be included
in the index, bonds must be fixed rate, have at least one year to final
maturity and be rated investment grade (Baa3/BBB- or higher) by at least
two of the following agencies: Moody's, Standard & Poor's or Fitch. The BC
U.S. Treasury Index is the U.S. Treasury component of the U.S. Government
Index and covers public obligations of the U.S. Treasury with a remaining
maturity of one year or more.
(4.) Source: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2009," RATINGSDIRECT, 3/11/09.
Annual Report | 7
PORTFOLIO BREAKDOWN
4/30/09
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Prerefunded 19.4%
Utilities 17.6%
Hospital & Health Care 13.1%
Transportation 12.3%
Subject to Government Appropriations 10.6%
General Obligation 10.2%
Tax-Supported 5.2%
Other Revenue 4.7%
Higher Education 4.3%
Corporate-Backed 1.7%
Housing 0.9%
* Does not include short-term investments and other net assets.
the globe and almost no market was spared. Market psychology turned bearish as
the credit crunch took hold. Access to credit was effectively shut down for
close to a month, which spurred the Treasury and Federal Reserve Board to devise
plans to ease the credit crisis.
September and October brought trends similar to those early in the period. The
municipal bond market had even fewer buyers, mostly plain vanilla mutual funds
and individual investors. Once again, selling by hedge funds and leveraged
investors meeting redemptions was overwhelming and contributed to steep price
declines. The leveraged participants had used a strategy focused on
long-maturity bonds, and as they sold these positions, the long end of the yield
curve was most adversely affected. Interest rates continued to climb higher
toward the end of 2008 as demand waned.
So far, early 2009 appeared more positive. The forced selling by hedge funds and
leveraged funds subsided, and positive cash flows once again characterized the
market. Also helping the municipal bond market were large bond coupon payments
at the beginning of 2009, a small new-issue calendar, and news that municipal
issuers will benefit from the federal government's stimulus package. For
example, the stimulus package allowed municipal issuers to issue bonds in the
taxable bond market through the Build America Bond program. The program provided
issuers with a federal government subsidy that lowered their net borrowing
costs. As a result, many municipal issuers chose to issue taxable Build America
Bonds instead of traditional tax-exempt bonds, decreasing the amount of
new-issue supply and putting downward pressure on tax-exempt yields.
During the reporting period, we had the opportunity to purchase bonds at higher
yields than were available in many years, which supported our Fund's dividend
distributions. At period-end, we continued to be active in the market and felt
that municipal bonds at current yields represented an attractive long-term
opportunity. On April 30, 2009, yields for 10- and 30-year high-grade municipal
bonds continued to exceed comparable Treasury yields, which is highly unusual.
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
8 | Annual Report
diversified with a broad range of securities. This broad diversification may
help mitigate interest rate risk. We do not use leverage or exotic derivatives,
nor do we use hedging techniques that could add volatility and contribute to
underperformance in adverse markets. We generally stay fully invested to
maximize income distribution.
MANAGER'S DISCUSSION
Our value-oriented philosophy of investing primarily for income and a positive
sloping municipal yield curve favored longer-term bonds during the reporting
period. Consistent with our strategy, we sought to remain fully invested in
bonds ranging from 20 to 30 years in maturity with good call features. We sought
to take advantage of strong retail demand for highly rated essential service
bonds, and sold some AA- and AAA-rated securities that were purchased in a lower
municipal bond interest rate environment. Seeking to provide shareholders with
high, current, tax-free income, we reinvested the proceeds in securities with
current coupons and better call protection for a higher interest rate
environment. We found value in credit-driven securities (rated between A and
BBB) as credit spreads widened to the point where we felt investors were being
adequately compensated for higher credit risk. Despite finding value in
credit-driven securities, the Fund's credit quality remained high and finished
the reporting period averaging AA.
Thank you for your continued participation in Franklin Federal Tax-Free Income
Fund. We look forward to serving your future investment needs.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
Annual Report | 9
Performance Summary as of 4/30/09
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKTIX) CHANGE 4/30/09 4/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.61 $11.21 $11.82
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.5308
CLASS B (SYMBOL: FFTBX) CHANGE 4/30/09 4/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.60 $11.21 $11.81
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.4675
CLASS C (SYMBOL: FRFTX) CHANGE 4/30/09 4/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.60 $11.21 $11.81
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.4688
ADVISOR CLASS (SYMBOL: FAFTX) CHANGE 4/30/09 4/30/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.60 $11.22 $11.82
DISTRIBUTIONS (5/1/08-4/30/09)
Dividend Income $0.5403
10 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) -0.55% +18.36% +48.74%
Average Annual Total Return(2) -4.74% +2.53% +3.60%
Avg. Ann. Total Return (3/31/09)(3) -5.40% +1.63% +3.39%
Distribution Rate(4) 4.61%
Taxable Equivalent Distribution Rate(5) 7.09%
30-Day Standardized Yield(6) 3.90%
Taxable Equivalent Yield(5) 6.00%
Total Annual Operating Expenses(7) 0.60%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) -1.02% +15.19% +42.26%
Average Annual Total Return(2) -4.82% +2.53% +3.59%
Avg. Ann. Total Return (3/31/09)(3) -5.44% +1.62% +3.38%
Distribution Rate(4) 4.27%
Taxable Equivalent Distribution Rate(5) 6.57%
30-Day Standardized Yield(6) 3.54%
Taxable Equivalent Yield(5) 5.45%
Total Annual Operating Expenses(7) 1.16%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) -1.01% +15.21% +40.67%
Average Annual Total Return(2) -1.96% +2.87% +3.47%
Avg. Ann. Total Return (3/31/09)(3) -2.60% +1.95% +3.27%
Distribution Rate(4) 4.31%
Taxable Equivalent Distribution Rate(5) 6.63%
30-Day Standardized Yield(6) 3.54%
Taxable Equivalent Yield(5) 5.45%
Total Annual Operating Expenses(7) 1.16%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------- -------
Cumulative Total Return(1) -0.38% +18.89% +49.78%
Average Annual Total Return(2) -0.38% +3.52% +4.12%
Avg. Ann. Total Return (3/31/09)(3) -1.02% +2.61% +3.91%
Distribution Rate(4) 4.90%
Taxable Equivalent Distribution Rate(5) 7.54%
30-Day Standardized Yield(6) 4.18%
Taxable Equivalent Yield(5) 6.43%
Total Annual Operating Expenses(7) 0.51%
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 (800) 342-5236.
Annual Report | 11
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 4/30/09
- ------- -------
1-Year -4.74%
5-Year +2.53%
10-Year +3.60%
CLASS A (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
---- ------------------------- -------------------- -------
5/1/1999 $ 9,572 $10,000 $10,000
5/31/1999 $ 9,538 $ 9,942 $10,000
6/30/1999 $ 9,414 $ 9,799 $10,000
7/31/1999 $ 9,434 $ 9,835 $10,030
8/31/1999 $ 9,335 $ 9,756 $10,054
9/30/1999 $ 9,331 $ 9,760 $10,102
10/31/1999 $ 9,207 $ 9,654 $10,120
11/30/1999 $ 9,283 $ 9,757 $10,126
12/31/1999 $ 9,198 $ 9,684 $10,126
1/31/2000 $ 9,137 $ 9,642 $10,156
2/29/2000 $ 9,246 $ 9,754 $10,217
3/31/2000 $ 9,439 $ 9,967 $10,301
4/30/2000 $ 9,393 $ 9,908 $10,307
5/31/2000 $ 9,347 $ 9,857 $10,319
6/30/2000 $ 9,558 $10,118 $10,373
7/31/2000 $ 9,679 $10,259 $10,397
8/31/2000 $ 9,817 $10,417 $10,397
9/30/2000 $ 9,787 $10,363 $10,451
10/31/2000 $ 9,876 $10,476 $10,469
11/30/2000 $ 9,939 $10,555 $10,475
12/31/2000 $10,131 $10,816 $10,469
1/31/2001 $10,203 $10,923 $10,535
2/28/2001 $10,250 $10,958 $10,578
3/31/2001 $10,330 $11,056 $10,602
4/30/2001 $10,245 $10,936 $10,644
5/31/2001 $10,343 $11,054 $10,692
6/30/2001 $10,415 $11,128 $10,710
7/31/2001 $10,576 $11,293 $10,680
8/31/2001 $10,737 $11,479 $10,680
9/30/2001 $10,659 $11,440 $10,728
10/31/2001 $10,759 $11,576 $10,692
11/30/2001 $10,698 $11,479 $10,674
12/31/2001 $10,600 $11,370 $10,632
1/31/2002 $10,737 $11,567 $10,656
2/28/2002 $10,838 $11,707 $10,698
3/31/2002 $10,674 $11,477 $10,758
4/30/2002 $10,830 $11,702 $10,818
5/31/2002 $10,904 $11,773 $10,818
6/30/2002 $10,997 $11,897 $10,824
7/31/2002 $11,091 $12,050 $10,836
8/31/2002 $11,184 $12,195 $10,872
9/30/2002 $11,372 $12,462 $10,890
10/31/2002 $11,166 $12,256 $10,909
11/30/2002 $11,155 $12,205 $10,909
12/31/2002 $11,362 $12,462 $10,884
1/31/2003 $11,342 $12,431 $10,933
2/28/2003 $11,484 $12,604 $11,017
3/31/2003 $11,473 $12,612 $11,083
4/30/2003 $11,558 $12,695 $11,059
5/31/2003 $11,847 $12,992 $11,041
6/30/2003 $11,824 $12,937 $11,053
7/31/2003 $11,391 $12,484 $11,065
8/31/2003 $11,486 $12,578 $11,107
9/30/2003 $11,787 $12,947 $11,143
10/31/2003 $11,774 $12,882 $11,131
11/30/2003 $11,919 $13,016 $11,101
12/31/2003 $12,025 $13,124 $11,089
1/31/2004 $12,132 $13,199 $11,143
2/29/2004 $12,299 $13,398 $11,203
3/31/2004 $12,305 $13,351 $11,276
4/30/2004 $12,029 $13,035 $11,312
5/31/2004 $11,975 $12,988 $11,378
6/30/2004 $12,012 $13,035 $11,414
7/31/2004 $12,163 $13,207 $11,396
8/31/2004 $12,365 $13,471 $11,402
9/30/2004 $12,444 $13,543 $11,426
10/31/2004 $12,565 $13,659 $11,486
11/30/2004 $12,510 $13,547 $11,492
12/31/2004 $12,674 $13,712 $11,450
1/31/2005 $12,828 $13,840 $11,474
2/28/2005 $12,814 $13,794 $11,540
3/31/2005 $12,769 $13,707 $11,631
4/30/2005 $12,945 $13,923 $11,709
5/31/2005 $13,048 $14,022 $11,697
6/30/2005 $13,130 $14,109 $11,703
7/31/2005 $13,106 $14,045 $11,757
8/31/2005 $13,200 $14,187 $11,817
9/30/2005 $13,098 $14,091 $11,961
10/31/2005 $13,029 $14,006 $11,986
11/30/2005 $13,099 $14,073 $11,889
12/31/2005 $13,213 $14,194 $11,841
1/31/2006 $13,240 $14,232 $11,931
2/28/2006 $13,344 $14,328 $11,955
3/31/2006 $13,271 $14,229 $12,022
4/30/2006 $13,275 $14,224 $12,124
5/31/2006 $13,324 $14,287 $12,184
6/30/2006 $13,283 $14,234 $12,208
7/31/2006 $13,444 $14,403 $12,244
8/31/2006 $13,620 $14,617 $12,268
9/30/2006 $13,705 $14,718 $12,208
10/31/2006 $13,803 $14,811 $12,142
11/30/2006 $13,923 $14,934 $12,124
12/31/2006 $13,884 $14,881 $12,142
1/31/2007 $13,868 $14,843 $12,179
2/28/2007 $14,024 $15,039 $12,244
3/31/2007 $13,985 $15,002 $12,356
4/30/2007 $14,027 $15,046 $12,436
5/31/2007 $13,975 $14,980 $12,512
6/30/2007 $13,922 $14,902 $12,536
7/31/2007 $14,010 $15,017 $12,533
8/31/2007 $13,933 $14,953 $12,510
9/30/2007 $14,128 $15,174 $12,545
10/31/2007 $14,192 $15,242 $12,571
11/30/2007 $14,245 $15,339 $12,646
12/31/2007 $14,262 $15,381 $12,638
1/31/2008 $14,350 $15,575 $12,700
2/29/2008 $13,706 $14,862 $12,737
3/31/2008 $14,095 $15,287 $12,848
4/30/2008 $14,316 $15,466 $12,926
5/31/2008 $14,417 $15,559 $13,034
6/30/2008 $14,238 $15,384 $13,166
7/31/2008 $14,243 $15,442 $13,235
8/31/2008 $14,358 $15,623 $13,182
9/30/2008 $13,537 $14,890 $13,164
10/31/2008 $13,307 $14,738 $13,031
11/30/2008 $13,176 $14,785 $12,781
12/31/2008 $13,256 $15,001 $12,649
1/31/2009 $13,663 $15,550 $12,704
2/28/2009 $13,883 $15,631 $12,767
3/31/2009 $13,927 $15,634 $12,798
4/30/2009 $14,238 $15,947 $12,830
Total Returns 42.38% 59.47% 28.30%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 4/30/09
- ------- -------
1-Year -4.82%
5-Year +2.53%
10-Year +3.59%
CLASS B (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN
FEDERAL
TAX-FREE BARCLAYS
INCOME CAPITAL
FUND - MUNICIPAL
DATE CLASS B BOND INDEX CPI
---- -------- ---------- -------
5/1/1999 $10,000 $10,000 $10,000
5/31/1999 $ 9,960 $ 9,942 $10,000
6/30/1999 $ 9,826 $ 9,799 $10,000
7/31/1999 $ 9,841 $ 9,835 $10,030
8/31/1999 $ 9,733 $ 9,756 $10,054
9/30/1999 $ 9,724 $ 9,760 $10,102
10/31/1999 $ 9,590 $ 9,654 $10,120
11/30/1999 $ 9,673 $ 9,757 $10,126
12/31/1999 $ 9,580 $ 9,684 $10,126
1/31/2000 $ 9,512 $ 9,642 $10,156
2/29/2000 $ 9,614 $ 9,754 $10,217
3/31/2000 $ 9,809 $ 9,967 $10,301
4/30/2000 $ 9,765 $ 9,908 $10,307
5/31/2000 $ 9,713 $ 9,857 $10,319
6/30/2000 $ 9,919 $10,118 $10,373
7/31/2000 $10,040 $10,259 $10,397
8/31/2000 $10,178 $10,417 $10,397
9/30/2000 $10,142 $10,363 $10,451
10/31/2000 $10,230 $10,476 $10,469
11/30/2000 $10,291 $10,555 $10,475
12/31/2000 $10,485 $10,816 $10,469
1/31/2001 $10,555 $10,923 $10,535
2/28/2001 $10,599 $10,958 $10,578
3/31/2001 $10,676 $11,056 $10,602
4/30/2001 $10,592 $10,936 $10,644
5/31/2001 $10,679 $11,054 $10,692
6/30/2001 $10,758 $11,128 $10,710
7/31/2001 $10,910 $11,293 $10,680
8/31/2001 $11,072 $11,479 $10,680
9/30/2001 $10,987 $11,440 $10,728
10/31/2001 $11,085 $11,576 $10,692
11/30/2001 $11,026 $11,479 $10,674
12/31/2001 $10,910 $11,370 $10,632
1/31/2002 $11,046 $11,567 $10,656
2/28/2002 $11,144 $11,707 $10,698
3/31/2002 $10,971 $11,477 $10,758
4/30/2002 $11,136 $11,702 $10,818
5/31/2002 $11,197 $11,773 $10,818
6/30/2002 $11,288 $11,897 $10,824
7/31/2002 $11,379 $12,050 $10,836
8/31/2002 $11,470 $12,195 $10,872
9/30/2002 $11,657 $12,462 $10,890
10/31/2002 $11,440 $12,256 $10,909
11/30/2002 $11,423 $12,205 $10,909
12/31/2002 $11,630 $12,462 $10,884
1/31/2003 $11,604 $12,431 $10,933
2/28/2003 $11,744 $12,604 $11,017
3/31/2003 $11,727 $12,612 $11,083
4/30/2003 $11,819 $12,695 $11,059
5/31/2003 $12,099 $12,992 $11,041
6/30/2003 $12,070 $12,937 $11,053
7/31/2003 $11,633 $12,484 $11,065
8/31/2003 $11,714 $12,578 $11,107
9/30/2003 $12,016 $12,947 $11,143
10/31/2003 $11,996 $12,882 $11,131
11/30/2003 $12,139 $13,016 $11,101
12/31/2003 $12,241 $13,124 $11,089
1/31/2004 $12,344 $13,199 $11,143
2/29/2004 $12,508 $13,398 $11,203
3/31/2004 $12,509 $13,351 $11,276
4/30/2004 $12,222 $13,035 $11,312
5/31/2004 $12,161 $12,988 $11,378
6/30/2004 $12,194 $13,035 $11,414
7/31/2004 $12,340 $13,207 $11,396
8/31/2004 $12,540 $13,471 $11,402
9/30/2004 $12,613 $13,543 $11,426
10/31/2004 $12,729 $13,659 $11,486
11/30/2004 $12,666 $13,547 $11,492
12/31/2004 $12,837 $13,712 $11,450
1/31/2005 $12,976 $13,840 $11,474
2/28/2005 $12,967 $13,794 $11,540
3/31/2005 $12,905 $13,707 $11,631
4/30/2005 $13,078 $13,923 $11,709
5/31/2005 $13,176 $14,022 $11,697
6/30/2005 $13,254 $14,109 $11,703
7/31/2005 $13,223 $14,045 $11,757
8/31/2005 $13,313 $14,187 $11,817
9/30/2005 $13,204 $14,091 $11,961
10/31/2005 $13,128 $14,006 $11,986
11/30/2005 $13,192 $14,073 $11,889
12/31/2005 $13,301 $14,194 $11,841
1/31/2006 $13,321 $14,232 $11,931
2/28/2006 $13,420 $14,328 $11,955
3/31/2006 $13,340 $14,229 $12,022
4/30/2006 $13,338 $14,224 $12,124
5/31/2006 $13,380 $14,287 $12,184
6/30/2006 $13,334 $14,234 $12,208
7/31/2006 $13,489 $14,403 $12,244
8/31/2006 $13,660 $14,617 $12,268
9/30/2006 $13,739 $14,718 $12,208
10/31/2006 $13,831 $14,811 $12,142
11/30/2006 $13,945 $14,934 $12,124
12/31/2006 $13,900 $14,881 $12,142
1/31/2007 $13,877 $14,843 $12,179
2/28/2007 $14,027 $15,039 $12,244
3/31/2007 $13,981 $15,002 $12,356
4/30/2007 $14,016 $15,046 $12,436
5/31/2007 $13,964 $14,980 $12,512
6/30/2007 $13,911 $14,902 $12,536
7/31/2007 $13,999 $15,017 $12,533
8/31/2007 $13,922 $14,953 $12,510
9/30/2007 $14,115 $15,174 $12,545
10/31/2007 $14,180 $15,242 $12,571
11/30/2007 $14,233 $15,339 $12,646
12/31/2007 $14,250 $15,381 $12,638
1/31/2008 $14,338 $15,575 $12,700
2/29/2008 $13,694 $14,862 $12,737
3/31/2008 $14,083 $15,287 $12,848
4/30/2008 $14,304 $15,466 $12,926
5/31/2008 $14,404 $15,559 $13,034
6/30/2008 $14,226 $15,384 $13,166
7/31/2008 $14,230 $15,442 $13,235
8/31/2008 $14,345 $15,623 $13,182
9/30/2008 $13,525 $14,890 $13,164
10/31/2008 $13,295 $14,738 $13,031
11/30/2008 $13,163 $14,785 $12,781
12/31/2008 $13,244 $15,001 $12,649
1/31/2009 $13,650 $15,550 $12,704
2/28/2009 $13,870 $15,631 $12,767
3/31/2009 $13,914 $15,634 $12,798
4/30/2009 $14,226 $15,947 $12,830
Total Returns 42.26% 59.47% 28.30%
12 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 4/30/09
- ------- -------
1-Year -1.96%
5-Year +2.87%
10-Year +3.47%
CLASS C (5/1/99-4/30/09)
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
---- ------------------------- -------------------- -------
5/1/1999 $10,000 $10,000 $10,000
5/31/1999 $ 9,951 $ 9,942 $10,000
6/30/1999 $ 9,817 $ 9,799 $10,000
7/31/1999 $ 9,833 $ 9,835 $10,030
8/31/1999 $ 9,725 $ 9,756 $10,054
9/30/1999 $ 9,724 $ 9,760 $10,102
10/31/1999 $ 9,582 $ 9,654 $10,120
11/30/1999 $ 9,666 $ 9,757 $10,126
12/31/1999 $ 9,572 $ 9,684 $10,126
1/31/2000 $ 9,504 $ 9,642 $10,156
2/29/2000 $ 9,605 $ 9,754 $10,217
3/31/2000 $ 9,809 $ 9,967 $10,301
4/30/2000 $ 9,757 $ 9,908 $10,307
5/31/2000 $ 9,705 $ 9,857 $10,319
6/30/2000 $ 9,911 $10,118 $10,373
7/31/2000 $10,040 $10,259 $10,397
8/31/2000 $10,169 $10,417 $10,397
9/30/2000 $10,134 $10,363 $10,451
10/31/2000 $10,220 $10,476 $10,469
11/30/2000 $10,281 $10,555 $10,475
12/31/2000 $10,475 $10,816 $10,469
1/31/2001 $10,545 $10,923 $10,535
2/28/2001 $10,589 $10,958 $10,578
3/31/2001 $10,675 $11,056 $10,602
4/30/2001 $10,582 $10,936 $10,644
5/31/2001 $10,670 $11,054 $10,692
6/30/2001 $10,748 $11,128 $10,710
7/31/2001 $10,900 $11,293 $10,680
8/31/2001 $11,062 $11,479 $10,680
9/30/2001 $10,976 $11,440 $10,728
10/31/2001 $11,074 $11,576 $10,692
11/30/2001 $11,016 $11,479 $10,674
12/31/2001 $10,900 $11,370 $10,632
1/31/2002 $11,045 $11,567 $10,656
2/28/2002 $11,134 $11,707 $10,698
3/31/2002 $10,970 $11,477 $10,758
4/30/2002 $11,125 $11,702 $10,818
5/31/2002 $11,187 $11,773 $10,818
6/30/2002 $11,277 $11,897 $10,824
7/31/2002 $11,377 $12,050 $10,836
8/31/2002 $11,459 $12,195 $10,872
9/30/2002 $11,655 $12,462 $10,890
10/31/2002 $11,429 $12,256 $10,909
11/30/2002 $11,412 $12,205 $10,909
12/31/2002 $11,619 $12,462 $10,884
1/31/2003 $11,594 $12,431 $10,933
2/28/2003 $11,743 $12,604 $11,017
3/31/2003 $11,717 $12,612 $11,083
4/30/2003 $11,809 $12,695 $11,059
5/31/2003 $12,089 $12,992 $11,041
6/30/2003 $12,060 $12,937 $11,053
7/31/2003 $11,622 $12,484 $11,065
8/31/2003 $11,703 $12,578 $11,107
9/30/2003 $12,004 $12,947 $11,143
10/31/2003 $11,995 $12,882 $11,131
11/30/2003 $12,137 $13,016 $11,101
12/31/2003 $12,229 $13,124 $11,089
1/31/2004 $12,341 $13,199 $11,143
2/29/2004 $12,505 $13,398 $11,203
3/31/2004 $12,496 $13,351 $11,276
4/30/2004 $12,209 $13,035 $11,312
5/31/2004 $12,159 $12,988 $11,378
6/30/2004 $12,191 $13,035 $11,414
7/31/2004 $12,328 $13,207 $11,396
8/31/2004 $12,527 $13,471 $11,402
9/30/2004 $12,610 $13,543 $11,426
10/31/2004 $12,726 $13,659 $11,486
11/30/2004 $12,652 $13,547 $11,492
12/31/2004 $12,823 $13,712 $11,450
1/31/2005 $12,962 $13,840 $11,474
2/28/2005 $12,953 $13,794 $11,540
3/31/2005 $12,891 $13,707 $11,631
4/30/2005 $13,075 $13,923 $11,709
5/31/2005 $13,173 $14,022 $11,697
6/30/2005 $13,239 $14,109 $11,703
7/31/2005 $13,209 $14,045 $11,757
8/31/2005 $13,298 $14,187 $11,817
9/30/2005 $13,200 $14,091 $11,961
10/31/2005 $13,124 $14,006 $11,986
11/30/2005 $13,178 $14,073 $11,889
12/31/2005 $13,286 $14,194 $11,841
1/31/2006 $13,307 $14,232 $11,931
2/28/2006 $13,416 $14,328 $11,955
3/31/2006 $13,326 $14,229 $12,022
4/30/2006 $13,335 $14,224 $12,124
5/31/2006 $13,366 $14,287 $12,184
6/30/2006 $13,331 $14,234 $12,208
7/31/2006 $13,475 $14,403 $12,244
8/31/2006 $13,645 $14,617 $12,268
9/30/2006 $13,736 $14,718 $12,208
10/31/2006 $13,816 $14,811 $12,142
11/30/2006 $13,930 $14,934 $12,124
12/31/2006 $13,885 $14,881 $12,142
1/31/2007 $13,862 $14,843 $12,179
2/28/2007 $14,012 $15,039 $12,244
3/31/2007 $13,966 $15,002 $12,356
4/30/2007 $14,013 $15,046 $12,436
5/31/2007 $13,954 $14,980 $12,512
6/30/2007 $13,883 $14,902 $12,536
7/31/2007 $13,964 $15,017 $12,533
8/31/2007 $13,882 $14,953 $12,510
9/30/2007 $14,069 $15,174 $12,545
10/31/2007 $14,127 $15,242 $12,571
11/30/2007 $14,173 $15,339 $12,646
12/31/2007 $14,195 $15,381 $12,638
1/31/2008 $14,276 $15,575 $12,700
2/29/2008 $13,617 $14,862 $12,737
3/31/2008 $13,997 $15,287 $12,848
4/30/2008 $14,211 $15,466 $12,926
5/31/2008 $14,304 $15,559 $13,034
6/30/2008 $14,132 $15,384 $13,166
7/31/2008 $14,118 $15,442 $13,235
8/31/2008 $14,238 $15,623 $13,182
9/30/2008 $13,405 $14,890 $13,164
10/31/2008 $13,171 $14,738 $13,031
11/30/2008 $13,035 $14,785 $12,781
12/31/2008 $13,120 $15,001 $12,649
1/31/2009 $13,504 $15,550 $12,704
2/28/2009 $13,715 $15,631 $12,767
3/31/2009 $13,766 $15,634 $12,798
4/30/2009 $14,067 $15,947 $12,830
Total Returns 40.67% 59.47% 28.30%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 4/30/09
- ---------------- -------
1-Year -0.38%
5-Year +3.52%
10-Year +4.12%
ADVISOR CLASS (5/1/99-4/30/09)(8)
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
---- --------------------------- -------------------- -------
5/1/1999 $10,000 $10,000 $10,000
5/31/1999 $ 9,964 $ 9,942 $10,000
6/30/1999 $ 9,834 $ 9,799 $10,000
7/31/1999 $ 9,855 $ 9,835 $10,030
8/31/1999 $ 9,752 $ 9,756 $10,054
9/30/1999 $ 9,747 $ 9,760 $10,102
10/31/1999 $ 9,618 $ 9,654 $10,120
11/30/1999 $ 9,698 $ 9,757 $10,126
12/31/1999 $ 9,609 $ 9,684 $10,126
1/31/2000 $ 9,545 $ 9,642 $10,156
2/29/2000 $ 9,660 $ 9,754 $10,217
3/31/2000 $ 9,860 $ 9,967 $10,301
4/30/2000 $ 9,813 $ 9,908 $10,307
5/31/2000 $ 9,765 $ 9,857 $10,319
6/30/2000 $ 9,985 $10,118 $10,373
7/31/2000 $10,111 $10,259 $10,397
8/31/2000 $10,256 $10,417 $10,397
9/30/2000 $10,224 $10,363 $10,451
10/31/2000 $10,317 $10,476 $10,469
11/30/2000 $10,383 $10,555 $10,475
12/31/2000 $10,583 $10,816 $10,469
1/31/2001 $10,659 $10,923 $10,535
2/28/2001 $10,708 $10,958 $10,578
3/31/2001 $10,791 $11,056 $10,602
4/30/2001 $10,703 $10,936 $10,644
5/31/2001 $10,805 $11,054 $10,692
6/30/2001 $10,880 $11,128 $10,710
7/31/2001 $11,048 $11,293 $10,680
8/31/2001 $11,217 $11,479 $10,680
9/30/2001 $11,135 $11,440 $10,728
10/31/2001 $11,240 $11,576 $10,692
11/30/2001 $11,176 $11,479 $10,674
12/31/2001 $11,074 $11,370 $10,632
1/31/2002 $11,216 $11,567 $10,656
2/28/2002 $11,322 $11,707 $10,698
3/31/2002 $11,160 $11,477 $10,758
4/30/2002 $11,324 $11,702 $10,818
5/31/2002 $11,393 $11,773 $10,818
6/30/2002 $11,490 $11,897 $10,824
7/31/2002 $11,599 $12,050 $10,836
8/31/2002 $11,687 $12,195 $10,872
9/30/2002 $11,894 $12,462 $10,890
10/31/2002 $11,669 $12,256 $10,909
11/30/2002 $11,659 $12,205 $10,909
12/31/2002 $11,876 $12,462 $10,884
1/31/2003 $11,856 $12,431 $10,933
2/28/2003 $12,015 $12,604 $11,017
3/31/2003 $12,004 $12,612 $11,083
4/30/2003 $12,095 $12,695 $11,059
5/31/2003 $12,387 $12,992 $11,041
6/30/2003 $12,364 $12,937 $11,053
7/31/2003 $11,923 $12,484 $11,065
8/31/2003 $12,013 $12,578 $11,107
9/30/2003 $12,339 $12,947 $11,143
10/31/2003 $12,326 $12,882 $11,131
11/30/2003 $12,479 $13,016 $11,101
12/31/2003 $12,591 $13,124 $11,089
1/31/2004 $12,703 $13,199 $11,143
2/29/2004 $12,879 $13,398 $11,203
3/31/2004 $12,876 $13,351 $11,276
4/30/2004 $12,599 $13,035 $11,312
5/31/2004 $12,543 $12,988 $11,378
6/30/2004 $12,583 $13,035 $11,414
7/31/2004 $12,731 $13,207 $11,396
8/31/2004 $12,954 $13,471 $11,402
9/30/2004 $13,038 $13,543 $11,426
10/31/2004 $13,155 $13,659 $11,486
11/30/2004 $13,098 $13,547 $11,492
12/31/2004 $13,281 $13,712 $11,450
1/31/2005 $13,432 $13,840 $11,474
2/28/2005 $13,430 $13,794 $11,540
3/31/2005 $13,373 $13,707 $11,631
4/30/2005 $13,570 $13,923 $11,709
5/31/2005 $13,679 $14,022 $11,697
6/30/2005 $13,754 $14,109 $11,703
7/31/2005 $13,730 $14,045 $11,757
8/31/2005 $13,829 $14,187 $11,817
9/30/2005 $13,735 $14,091 $11,961
10/31/2005 $13,663 $14,006 $11,986
11/30/2005 $13,726 $14,073 $11,889
12/31/2005 $13,847 $14,194 $11,841
1/31/2006 $13,876 $14,232 $11,931
2/28/2006 $13,997 $14,328 $11,955
3/31/2006 $13,922 $14,229 $12,022
4/30/2006 $13,927 $14,224 $12,124
5/31/2006 $13,968 $14,287 $12,184
6/30/2006 $13,938 $14,234 $12,208
7/31/2006 $14,096 $14,403 $12,244
8/31/2006 $14,281 $14,617 $12,268
9/30/2006 $14,384 $14,718 $12,208
10/31/2006 $14,475 $14,811 $12,142
11/30/2006 $14,615 $14,934 $12,124
12/31/2006 $14,575 $14,881 $12,142
1/31/2007 $14,559 $14,843 $12,179
2/28/2007 $14,724 $15,039 $12,244
3/31/2007 $14,684 $15,002 $12,356
4/30/2007 $14,729 $15,046 $12,436
5/31/2007 $14,675 $14,980 $12,512
6/30/2007 $14,609 $14,902 $12,536
7/31/2007 $14,715 $15,017 $12,533
8/31/2007 $14,635 $14,953 $12,510
9/30/2007 $14,828 $15,174 $12,545
10/31/2007 $14,897 $15,242 $12,571
11/30/2007 $14,966 $15,339 $12,646
12/31/2007 $14,985 $15,381 $12,638
1/31/2008 $15,079 $15,575 $12,700
2/29/2008 $14,391 $14,862 $12,737
3/31/2008 $14,801 $15,287 $12,848
4/30/2008 $15,034 $15,466 $12,926
5/31/2008 $15,154 $15,559 $13,034
6/30/2008 $14,967 $15,384 $13,166
7/31/2008 $14,960 $15,442 $13,235
8/31/2008 $15,095 $15,623 $13,182
9/30/2008 $14,233 $14,890 $13,164
10/31/2008 $13,980 $14,738 $13,031
11/30/2008 $13,856 $14,785 $12,781
12/31/2008 $13,942 $15,001 $12,649
1/31/2009 $14,357 $15,550 $12,704
2/28/2009 $14,589 $15,631 $12,767
3/31/2009 $14,650 $15,634 $12,798
4/30/2009 $14,978 $15,947 $12,830
Total Returns 49.78% 59.47% 28.30%
Annual Report | 13
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE SENSITIVE TO INTEREST RATE MOVEMENTS, THE FUND'S
YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES
GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF
BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY
DECLINE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Classes B, C and
Advisor) per share on 4/30/09.
(5.) Taxable equivalent distribution rate and yield assume the 2009 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 4/30/09.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Effective 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 +34.21% and +4.22%.
(9.) Source: (C) 2009 Morningstar. The BC Municipal Bond Index is a market
value-weighted index engineered for the long-term tax-exempt bond market.
To be included in the index, bonds must be fixed rate, have at least one
year to final maturity and be rated investment grade (Baa3/BBB- or higher)
by at least two of the following agencies: Moody's, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
14 | Annual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 15
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/08 VALUE 4/30/09 PERIOD* 11/1/08-4/30/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,070.00 $3.18
Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.11
CLASS B
Actual $1,000 $1,068.00 $6.05
Hypothetical (5% return before expenses) $1,000 $1,018.94 $5.91
CLASS C
Actual $1,000 $1,068.00 $6.05
Hypothetical (5% return before expenses) $1,000 $1,018.94 $5.91
ADVISOR CLASS
Actual $1,000 $1,071.40 $2.72
Hypothetical (5% return before expenses) $1,000 $1,022.17 $2.66
* Expenses are calculated using the most recent expense ratio, annualized for
each class (A: 0.62%; B: 1.18%; C: 1.18%; and Advisor: 0.53%), multiplied
by the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.
16 | Annual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS
YEAR ENDED APRIL 30,
-------------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ---------- ---------- ----------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 11.82 $ 12.11 $ 11.99 $ 12.23 $ 11.91
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) .......................... 053 0.53 0.55 0.53 0.57
Net realized and unrealized gains (losses) ........ (0.61) (0.29) 0.12 (0.22) 0.31
---------- ---------- ---------- ---------- ----------
Total from investment operations ..................... (0.08) 0.24 0.67 0.31 0.88
---------- ---------- ---------- ---------- ----------
Less distributions from net investment income ........ (0.53) (0.53) (0.55) (0.55) (0.56)
---------- ---------- ---------- ---------- ----------
Redemption fees(c, d) ................................ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ......................... $ 11.21 $ 11.82 $ 12.11 $ 11.99 $ 12.23
---------- ---------- ---------- ---------- ----------
Total return(e) ...................................... (0.55)% 2.06% 5.66% 2.55% 7.62%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 0.61% 0.60% 0.61% 0.61% 0.61%
Net investment income ................................ 4.73% 4.44% 4.58% 4.33% 4.72%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $7,513,448 $6,901,918 $6,570,140 $6,279,940 $6,324,986
Portfolio turnover rate .............................. 6.74% 15.47% 6.13% 7.98% 6.74%
(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 repurchases 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) Amount rounds to less than $0.01 per share.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 17
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED APRIL 30,
----------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 11.81 $ 12.10 $ 11.98 $ 12.22 $ 11.90
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .......................... 0.47 0.46 0.49 0.46 0.50
Net realized and unrealized gains (losses) ........ (0.60) (0.29) 0.11 (0.22) 0.31
-------- -------- -------- -------- --------
Total from investment operations ..................... (0.13) 0.17 0.60 0.24 0.81
-------- -------- -------- -------- --------
Less distributions from net investment income ........ (0.47) (0.46) (0.48) (0.48) (0.49)
-------- -------- -------- -------- --------
Redemption fees(c, d) ................................ -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ......................... $ 11.21 $ 11.81 $ 12.10 $ 11.98 $ 12.22
-------- -------- -------- -------- --------
Total return(e) ...................................... (1.02)% 1.49% 5.08% 1.99% 7.00%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 1.17% 1.16% 1.17% 1.17% 1.17%
Net investment income ................................ 4.17% 3.88% 4.02% 3.77% 4.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $130,925 $178,156 $225,834 $260,416 $289,490
Portfolio turnover rate .............................. 6.74% 15.47% 6.13% 7.98% 6.74%
(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 repurchases 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) Amount rounds to less than $0.01 per share.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
18 | Annual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED APRIL 30,
----------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 11.81 $ 12.11 $ 11.99 $ 12.23 $ 11.90
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .......................... 0.47 0.46 0.49 0.46 0.50
Net realized and unrealized gains (losses) ........ (0.60) (0.30) 0.11 (0.22) 0.32
-------- -------- -------- -------- --------
Total from investment operations ..................... (0.13) 0.16 0.60 0.24 0.82
-------- -------- -------- -------- --------
Less distributions from net investment income ........ (0.47) (0.46) (0.48) (0.48) (0.49)
-------- -------- -------- -------- --------
Redemption fees(c, d) ................................ -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ......................... $ 11.21 $ 11.81 $ 12.11 $ 11.99 $ 12.23
-------- -------- -------- -------- --------
Total return(e) ...................................... (1.01)% 1.41% 5.08% 1.99% 7.09%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 1.17% 1.16% 1.17% 1.17% 1.17%
Net investment income ................................ 4.17% 3.88% 4.02% 3.77% 4.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $808,779 $594,724 $449,918 $403,084 $371,438
Portfolio turnover rate .............................. 6.74% 15.47% 6.13% 7.98% 6.74%
(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 repurchases 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) Amount rounds to less than $0.01 per share.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 19
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED APRIL 30,
----------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 11.82 $ 12.12 $ 12.00 $ 12.23 $ 11.92
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .......................... 0.54 0.54 0.57 0.54 0.58
Net realized and unrealized gains (losses) ........ (0.60) (0.30) 0.11 (0.21) 0.30
-------- -------- -------- -------- --------
Total from investment operations ..................... (0.06) 0.24 0.68 0.33 0.88
-------- -------- -------- -------- --------
Less distributions from net investment income ........ (0.54) (0.54) (0.56) (0.56) (0.57)
-------- -------- -------- -------- --------
Redemption fees(c, d) ................................ -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ......................... $ 11.22 $ 11.82 $ 12.12 $ 12.00 $ 12.23
-------- -------- -------- -------- --------
Total return ......................................... (0.38)% 2.07% 5.76% 2.63% 7.71%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 0.52% 0.51% 0.52% 0.52% 0.52%
Net investment income ................................ 4.82% 4.53% 4.67% 4.42% 4.81%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $458,341 $252,943 $191,387 $155,857 $112,032
Portfolio turnover rate .............................. 6.74% 15.47% 6.13% 7.98% 6.74%
(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 repurchases 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) Amount rounds to less than $0.01 per share.
(d) Effective September 1, 2008, the redemption fee was eliminated.
The accompanying notes are an integral part of these financial statements.
20 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS 96.1%
ALABAMA 1.3%
Anniston Regional Medical Center Board Revenue, Series A, AMBAC Insured, 5.125%,
6/01/28 ......................................................................... $ 7,000,000 $ 6,159,230
Courtland IDB Solid Waste Disposal Revenue, Champion International Corp. Project,
Refunding, 6.00%, 8/01/29 ....................................................... 12,000,000 9,040,440
Series A, 6.70%, 11/01/29 ....................................................... 4,000,000 3,301,680
East Alabama Health Care Authority Health Care Facilities Revenue, Mandatory Put
9/01/18, Series B, 5.50%, 9/01/33 ............................................... 18,500,000 17,822,900
Fairfield IDB Environmental Improvement Revenue, USX Corp. Project, Refunding,
5.45%, 9/01/14 .................................................................. 1,445,000 1,442,240
Homewood GO, wts., Refunding, FSA Insured, 4.75%, 9/01/30 .......................... 9,265,000 9,033,931
Mobile GO, wts., Refunding and Improvement, AMBAC Insured, 5.00%, 2/15/30 .......... 5,000,000 5,103,300
Montgomery County Public Building Authority Revenue, wts., Facilities Project, MBIA
Insured, 5.00%, 3/01/31 ......................................................... 6,250,000 6,332,438
Tuscaloosa Public Educational Building Authority Student Housing Revenue, Ridgecrest
Student Housing LLC, Assured Guaranty, 6.75%, 7/01/38 ........................... 10,000,000 11,024,900
University of Alabama General Revenue, Series A,
MBIA Insured, 5.00%, 7/01/29 .................................................... 10,000,000 10,103,400
MBIA Insured, 5.00%, 7/01/34 .................................................... 10,500,000 10,499,265
XLCA Insured, 5.00%, 7/01/28 .................................................... 5,000,000 5,148,100
XLCA Insured, 5.00%, 7/01/32 .................................................... 5,500,000 5,578,925
University of Alabama University Revenues, Hospital, Series A, MBIA Insured,
Pre-Refunded, 5.875%, 9/01/31 ................................................... 5,000,000 5,376,950
University of South Alabama University Revenues, Tuition, Capital Improvement,
Refunding, AMBAC Insured, 5.00%, 12/01/36 ....................................... 11,570,000 11,249,048
---------------
117,216,747
---------------
ALASKA 0.4%
Alaska State HFC Revenue, General Housing, Series A, FGIC Insured, 5.00%,
12/01/29 ........................................................................ 4,000,000 3,979,520
12/01/30 ........................................................................ 3,500,000 3,449,880
Alaska State International Airports Revenues, Series B, MBIA Insured, 5.00%,
10/01/28 ........................................................................ 5,100,000 4,862,187
Matanuska-Susitna Borough Lease Revenue, Goose Greek Correctional Center,
Assured Guaranty, 6.00%, 9/01/32 ................................................ 20,000,000 21,595,800
---------------
33,887,387
---------------
ARIZONA 2.7%
Downtown Phoenix Hotel Corp. Revenue, Senior Series A, FGIC Insured, 5.00%,
7/01/29 ......................................................................... 14,465,000 11,246,682
7/01/36 ......................................................................... 15,000,000 11,044,500
Glendale Western Loop 101 Public Facilities Corp. Excise Tax Revenue, third lien,
Series A, 6.25%, 7/01/38 ........................................................ 10,000,000 10,266,400
Maricopa County IDA Health Facility Revenue, Catholic Healthcare West Project,
Refunding, Series A, 5.00%, 7/01/16 ............................................. 19,270,000 19,361,147
Maricopa County IDA Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%,
11/15/37 ........................................................................ 19,000,000 18,340,130
Maricopa County PCC, PCR, El Paso Electric Co. Project, Series A, 7.25%, 2/01/40 ... 10,000,000 10,533,500
Mesa IDAR, Discovery Health System, Series A, MBIA Insured, Pre-Refunded, 5.75%,
1/01/25 ......................................................................... 22,500,000 23,445,675
Annual Report | 21
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Phoenix Civic Improvement Corp. Airport Revenue, senior lien, Series A, 5.00%,
7/01/33 ......................................................................... $ 28,000,000 $ 28,141,120
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 4,796,400
7/01/34 ......................................................................... 5,000,000 3,951,650
7/01/35 ......................................................................... 9,860,000 7,791,274
Pima County IDA Lease Revenue, Pima County Arizona, 5.00%, 9/01/39 ................. 20,000,000 18,839,800
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 35,905,450
Series A, 5.00%, 1/01/38 ........................................................ 10,000,000 10,111,400
Series B, 5.00%, 1/01/25 ........................................................ 17,500,000 17,956,925
Salt Verde Financial Corp. Senior Gas Revenue, 5.00%, 12/01/37 ..................... 10,000,000 6,778,900
University Medical Center Corp. Revenue, 5.00%, 7/01/35 ............................ 7,000,000 5,196,730
---------------
243,707,683
---------------
ARKANSAS 1.2%
Arkansas State Development Finance Authority Revenue, White River Medical Center
Project, 5.60%, 6/01/24 ......................................................... 1,200,000 1,029,024
Fort Smith Water and Sewer Revenue, Construction, Refunding, FSA Insured, 5.00%,
10/01/32 ........................................................................ 10,000,000 10,248,400
Little Rock Sewer Revenue, Construction, Series A, FSA Insured, 5.00%, 6/01/31 ..... 8,690,000 8,822,262
Pope County PCR, Arkansas Power and Light Co. Project, Refunding, 6.30%,
12/01/16 ........................................................................ 2,600,000 2,601,066
11/01/20 ........................................................................ 60,500,000 58,113,880
Pulaski County Health Facilities Board Revenue, Nazareth Sisters of Charity,
St. Vincent's Infirmary, MBIA Insured, ETM, 6.05%, 11/01/09 ..................... 125,000 128,477
Saline County Retirement Housing and Healthcare Facilities Board Revenue, Refunding,
AMBAC Insured, 5.80%, 6/01/11 ................................................... 160,000 159,997
University of Arkansas University Revenues,
Construction, University of Arkansas for Medical Sciences Campus, Series B, MBIA
Insured, 5.00%, 11/01/28 ..................................................... 1,000,000 1,020,660
Construction, University of Arkansas for Medical Sciences Campus, Series B, MBIA
Insured, 5.00%, 11/01/34 ..................................................... 9,000,000 9,055,710
Various Facility, Fayetteville Campus, AMBAC Insured, 5.00%, 11/01/31 ........... 7,705,000 7,719,254
Various Facility, Fayetteville Campus, FGIC Insured, 5.00%, 12/01/27 ............ 5,000,000 5,076,550
University of Central Arkansas Revenue, FGIC Insured, 5.00%, 11/01/37 .............. 5,020,000 4,799,823
---------------
108,775,103
---------------
CALIFORNIA 7.6%
Alhambra COP, Clubhouse Facility Project, 11.25%, 1/01/10 .......................... 500,000 507,105
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 27,837,145
California State GO,
6.00%, 5/01/18 .................................................................. 535,000 542,832
6.00%, 5/01/20 .................................................................. 850,000 859,792
5.90%, 4/01/23 .................................................................. 1,200,000 1,208,412
6.00%, 4/01/38 .................................................................. 90,000,000 93,118,500
22 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State GO, (continued)
Pre-Refunded, 5.125%, 6/01/25 ................................................... $ 24,705,000 $ 26,853,594
Pre-Refunded, 5.25%, 4/01/27 .................................................... 17,500,000 20,331,150
Pre-Refunded, 5.00%, 2/01/32 .................................................... 49,000,000 54,029,360
Refunding, 5.00%, 2/01/26 ....................................................... 47,000,000 45,851,320
Various Purpose, 5.25%, 11/01/25 ................................................ 16,260,000 16,311,382
Various Purpose, 5.00%, 8/01/33 ................................................. 25,000,000 23,025,250
Various Purpose, 5.50%, 11/01/33 ................................................ 2,500,000 2,486,675
Various Purpose, Refunding, 5.25%, 3/01/38 ...................................... 20,000,000 19,030,200
California State Public Works Board Lease Revenue,
Department of Education, Riverside Campus Project, Series B, 6.125%, 4/01/28 .... 2,740,000 2,795,869
Department of General Services, Buildings 8 and 9, Series A, 6.00%, 4/01/27 ..... 3,980,000 4,039,103
Department of General Services, Buildings 8 and 9, Series A, 6.125%, 4/01/29 .... 2,000,000 2,027,280
California Statewide CDA Revenue,
Adventist, Series B, Assured Guaranty, 5.00%, 3/01/37 ........................... 10,000,000 8,527,700
St. Joseph Health System, Series B, FGIC Insured, 5.75%, 7/01/47 ................ 5,000,000 4,677,050
St. Joseph Health System, Series E, FSA Insured, 5.25%, 7/01/47 ................. 10,000,000 9,663,900
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, zero cpn., 1/15/24 ............................. 65,000,000 18,994,300
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.85% thereafter,
1/15/23 ...................................................................... 35,000,000 27,233,500
Refunding, 5.75%, 1/15/40 ....................................................... 20,000,000 14,702,000
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Enhanced, Series A, AMBAC Insured, 5.00%, 6/01/45 ............................... 13,255,000 10,415,911
Pre-Refunded, 5.375%, 6/01/28 ................................................... 50,000,000 52,371,000
Series A-1, Pre-Refunded, 6.25%, 6/01/33 ........................................ 24,320,000 26,810,854
Hacienda La Puente USD, GO, Election of 2000, Series B, FSA Insured, Pre-Refunded,
5.00%, 8/01/27 .................................................................. 5,000,000 5,733,750
Inland Empire Tobacco Asset Securitization Corp. Revenue,
Series A, 5.00%, 6/01/21 ........................................................ 11,930,000 9,926,356
Series C-1, zero cpn., 6/01/36 .................................................. 100,000,000 6,305,000
Los Angeles Regional Airports Improvement Corp. Lease Revenue,
(a) Facilities Lease, United Air Lines Inc., Los Angeles International Airport,
Refunding, 6.875%, 11/15/12 .................................................. 8,400,000 3,922,296
Facilities Sublease, Delta Air Lines Inc., Los Angeles International Airport,
Refunding, 6.35%, 11/01/25 ................................................... 7,500,000 5,098,425
Los Angeles USD, GO,
Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/31 ....................... 10,000,000 9,802,500
Series A, MBIA Insured, Pre-Refunded, 5.00%, 1/01/28 ............................ 25,000,000 28,544,500
Los Angeles Wastewater System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/25 ..... 10,000,000 10,083,900
Metropolitan Water District of Southern California Waterworks Revenue, Series B-2,
FGIC Insured, 5.00%, 10/01/27 ................................................... 9,645,000 9,877,927
Pajaro Valley USD, GO, Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/26 ......... 5,285,000 6,060,574
Pomona USD, GO, 2008 Election, Series A, Assured Guaranty, 5.00%, 8/01/29 .......... 5,585,000 5,549,424
Sacramento County Airport System Revenue, Senior Series B, FSA Insured, 5.25%,
7/01/33 ......................................................................... 16,355,000 14,114,692
Annual Report | 23
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/21 ....................... $ 50,000,000 $ 41,450,000
senior lien, 5.00%, 1/01/33 ..................................................... 5,000,000 3,556,550
senior lien, ETM, zero cpn., 1/01/23 ............................................ 7,000,000 3,941,770
---------------
678,218,848
---------------
COLORADO 2.5%
Adams County Revenue, Platte Valley Medical Center, Refunding, MBIA Insured, 5.00%,
2/01/31 ......................................................................... 6,560,000 5,925,845
Aurora Water Improvement Revenue, first lien, Series A, AMBAC Insured, 5.00%,
8/01/32 ......................................................................... 10,000,000 10,140,800
8/01/36 ......................................................................... 41,235,000 41,536,840
8/01/39 ......................................................................... 26,930,000 27,072,729
Colorado Board of Governors University Enterprise System Revenue, Series A, FGIC
Insured, 5.00%, 3/01/37 ......................................................... 10,000,000 9,706,900
Colorado Health Facilities Authority Revenue,
Hospital, Refunding, Series B, FSA Insured, 5.25%, 3/01/36 ...................... 10,000,000 9,314,500
Kaiser Permanente, Series A, ETM, 5.35%, 11/01/16 ............................... 13,250,000 13,390,582
Valley View Hospital Assn., Refunding, 5.50%, 5/15/28 ........................... 5,000,000 4,055,650
Valley View Hospital Assn., Refunding, 5.75%, 5/15/36 ........................... 7,000,000 5,549,390
Colorado Springs Airport Revenue, Series C, zero cpn., 1/01/11 ..................... 1,450,000 1,401,628
Colorado State Higher Education Capital Construction Lease Purchase Financing
Program COP, 5.50%, 11/01/27 .................................................... 10,000,000 10,512,900
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 9,438,600
Denver City and County Airport Revenue, System, Refunding, Series A, XLCA Insured,
5.00%, 11/15/25 ................................................................. 8,000,000 8,115,520
Mesa State College Auxiliary Facilities Enterprise Revenue, XLCA Insured, 5.00%,
5/15/35 ......................................................................... 9,950,000 9,653,888
Northwest Parkway Public Highway Authority Revenue, Series A, AMBAC Insured,
Pre-Refunded, 5.125%, 6/15/31 ................................................... 7,500,000 8,203,125
Park Creek Metropolitan District Revenue, Senior Property Tax Support, Refunding and
Improvement, Assured Guaranty, 6.25%, 12/01/30 .................................. 6,000,000 6,078,360
Public Authority for Colorado Energy Natural Gas Purpose Revenue, 6.50%, 11/15/38 .. 20,000,000 16,389,000
Pueblo County School District No. 060 GO, FGIC Insured, 5.00%, 12/15/22 ............ 5,500,000 5,634,640
Thornton Water Enterprise Revenue, MBIA Insured, 5.00%, 12/01/34 ................... 10,000,000 10,067,300
University of Colorado Enterprise System Revenue, Series A, 5.375%, 6/01/32 ........ 3,500,000 3,673,390
University of Colorado Hospital Authority Revenue, Series A, AMBAC Insured, 5.00%,
11/15/29 ........................................................................ 8,500,000 7,433,335
---------------
223,294,922
---------------
CONNECTICUT 0.0%(b)
Meriden Housing Authority MFR, Connecticut Baptist Housing Project, GNMA Secured,
5.80%, 8/20/39 .................................................................. 2,600,000 2,745,964
---------------
DISTRICT OF COLUMBIA 1.8%
District of Columbia Ballpark Revenue, Series B-1, BHAC Insured, 5.00%,
2/01/24 ......................................................................... 12,120,000 12,646,978
2/01/25 ......................................................................... 7,000,000 7,242,200
2/01/26 ......................................................................... 9,950,000 10,200,839
24 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
DISTRICT OF COLUMBIA (CONTINUED)
District of Columbia GO,
Series A, FSA Insured, 5.375%, 6/01/24 .......................................... $ 3,580,000 $ 3,616,981
Series A, FSA Insured, Pre-Refunded, 5.375%, 6/01/24 ............................ 1,420,000 1,439,284
Series E, MBIA Insured, ETM, 6.00%, 6/01/13 ..................................... 15,000 15,054
District of Columbia Hospital Revenue, Children's Hospital Obligation, Sub Series 1,
FSA Insured, 5.45%, 7/15/35 ..................................................... 25,000,000 24,688,750
District of Columbia Income Tax Secured Revenue, Series A, 5.25%, 12/01/34 ......... 10,000,000 10,277,400
District of Columbia Revenue,
Capital Appreciation, Georgetown University, Series A, MBIA Insured,
Pre-Refunded, zero cpn., 4/01/20 ............................................. 8,860,000 5,252,385
Capital Appreciation, Georgetown University, Series A, MBIA Insured,
Pre-Refunded, zero cpn., 4/01/22 ............................................. 12,870,000 6,747,226
Capital Appreciation, Georgetown University, Series A, MBIA Insured,
Pre-Refunded, zero cpn., 4/01/23 ............................................. 14,160,000 6,981,022
Deed Tax, Housing Product Trust Fund, Series A, MBIA Insured, 5.00%, 6/01/32 .... 5,000,000 4,769,450
Gains-Georgetown University, Capital Appreciation, Refunding, AMBAC Insured,
zero cpn. to 4/01/18, 5.00% thereafter, 4/01/32 .............................. 15,370,000 8,107,060
Georgetown University, Refunding, Series D, 5.50%, 4/01/36 ...................... 5,000,000 4,992,750
Medlantic/Helix, Series B, FSA Insured, 5.00%, 8/15/38 .......................... 20,000,000 17,989,800
District of Columbia Tobacco Settlement FICO Revenue, Asset-Backed Bonds, Refunding,
6.50%, 5/15/33 .................................................................. 35,000,000 26,048,050
District of Columbia Water and Sewer Authority Public Utility Revenue, Refunding,
Series A, 6.00%, 10/01/35 ....................................................... 8,000,000 8,681,520
Metropolitan Washington D.C. Airports Authority Airport System Revenue, Refunding,
Series A, 5.375%, 10/01/29 ...................................................... 5,000,000 4,624,350
---------------
164,321,099
---------------
FLORIDA 7.2%
Brevard County Local Option Fuel Tax Revenue, FGIC Insured, 5.00%, 8/01/37 ......... 12,245,000 11,267,359
Broward County School Board COP,
MBIA Insured, 5.00%, 7/01/28 .................................................... 17,415,000 17,328,970
Series A, FSA Insured, 5.25%, 7/01/24 ........................................... 25,000,000 25,178,750
Broward County Water and Sewer Utility Revenue, Series A, 5.25%, 10/01/34 .......... 8,800,000 8,897,240
Cape Coral Water and Sewer Revenue, AMBAC Insured, 5.00%, 10/01/36 ................. 5,000,000 4,596,300
Florida State Board of Education Capital Outlay GO, Public Education, Refunding,
Series D, 5.75%, 6/01/22 ........................................................ 10,000,000 10,356,600
6.00%, 6/01/23 .................................................................. 17,500,000 20,717,900
Florida State Mid-Bay Bridge Authority Revenue, Series A,
AMBAC Insured, zero cpn., 10/01/23 .............................................. 4,950,000 2,005,839
AMBAC Insured, zero cpn., 10/01/24 .............................................. 2,970,000 1,105,345
Pre-Refunded, zero cpn., 10/01/23 ............................................... 50,000 28,356
Pre-Refunded, zero cpn., 10/01/24 ............................................... 30,000 16,068
Hernando County School Board COP, MBIA Insured, 5.00%, 7/01/30 ..................... 10,000,000 9,327,500
Hillsborough County Aviation Authority Revenue, Series A, Assured Guaranty, 5.50%,
10/01/38 ........................................................................ 5,000,000 4,662,800
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Series A, 5.65%,
5/15/18 ......................................................................... 6,500,000 6,347,445
Hillsborough County IDAR, Refunding, Series A, 5.25%, 10/01/24 ..................... 13,500,000 11,536,155
Annual Report | 25
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Hillsborough County School Board COP,
Master Lease Program, Series B, MBIA Insured, 5.00%, 7/01/27 .................... $ 5,000,000 $ 5,031,350
Refunding, Series A, MBIA Insured, 5.00%, 7/01/25 ............................... 5,000,000 4,972,300
Indian River County School Board COP, FGIC Insured, 5.00%, 7/01/27 ................. 16,485,000 16,194,534
Jacksonville Capital Improvement Revenue, Series A, AMBAC Insured, 5.00%,
10/01/30 ........................................................................ 20,175,000 19,404,719
Jacksonville Economic Development Commission Health Care Facilities Revenue, Mayo
Clinic, 5.00%, 11/15/36 ......................................................... 17,950,000 16,608,597
Jacksonville Excise Taxes Revenue, Series A, AMBAC Insured, 5.00%, 10/01/32 ........ 6,015,000 5,805,558
Jacksonville Sales Tax Revenue, AMBAC Insured, 5.00%,
10/01/23 ........................................................................ 6,000,000 6,071,520
10/01/26 ........................................................................ 20,000,000 20,152,200
Jacksonville Transportation Revenue, MBIA Insured, 5.00%, 10/01/31 ................. 5,000,000 5,020,000
Lee County Transportation Facilities Revenue, Sanibel Bridges and Causeway,
Series B, CIFG Insured, 5.00%, 10/01/35 ......................................... 10,645,000 10,063,357
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 11,503,800
(c) Refunding, Series A, 5.50%, 10/01/36 ............................................ 20,000,000 19,259,800
Refunding, Series A, Assured Guaranty, 5.25%, 10/01/33 .......................... 11,000,000 9,626,430
Refunding, Series A, Assured Guaranty, 5.25%, 10/01/38 .......................... 13,000,000 11,107,720
Refunding, Series B, FSA Insured, 5.00%, 10/01/41 ............................... 20,000,000 18,437,600
Miami-Dade County Educational Facilities Authority Revenue, University of Miami,
Series A, 5.50%, 4/01/38 ........................................................ 12,500,000 12,216,250
Miami-Dade County GO, Building Better Communities Program, Series B-1, 5.75%,
7/01/33 ......................................................................... 20,000,000 20,354,200
Miami-Dade County Public Facilities Revenue, Jackson Health System, Series A,
MBIA Insured, 5.00%, 6/01/30 .................................................... 10,630,000 8,826,939
Miami-Dade County School Board COP, Assured Guaranty, 5.25%, 2/01/27 ............... 10,000,000 10,090,300
Miami-Dade County Special Obligation Revenue,
Juvenile Courthouse Project, Series A, AMBAC Insured, 5.00%, 4/01/32 ............ 10,000,000 9,772,800
Series B, MBIA Insured, zero cpn., 10/01/34 ..................................... 5,500,000 760,650
Miami-Dade County Transit Sales Surtax Revenue, Refunding, FSA Insured, 5.00%,
7/01/38 ......................................................................... 18,845,000 18,672,380
Orange County Health Facilities Authority Revenue, Hospital, Orlando Regional
Healthcare, Series B, FSA Insured, 5.00%, 12/01/32 .............................. 20,000,000 18,295,000
Orange County School Board COP, Series A, Assured Guaranty, 5.50%, 8/01/34 ......... 15,000,000 15,186,000
Orlando Tourist Development Tax Revenue, Orlando, Assured Guaranty, 5.50%,
11/01/38 ........................................................................ 18,490,000 18,589,476
11/01/38 ........................................................................ 5,000,000 5,030,250
Orlando Utilities Commission Water and Electric Revenue, Refunding, 5.00%,
10/01/22 ........................................................................ 7,500,000 7,745,250
Orlando-Orange County Expressway Authority Revenue,
Series A, FSA Insured, 5.00%, 7/01/32 ........................................... 12,000,000 11,869,320
Series B, AMBAC Insured, 5.00%, 7/01/28 ......................................... 10,630,000 10,672,839
Palm Beach County School Board COP,
Refunding, Series D, FSA Insured, 5.00%, 8/01/28 ................................ 25,000,000 24,967,500
Series A, FGIC Insured, Pre-Refunded, 6.00%, 8/01/23 ............................ 5,100,000 5,481,327
Palm Beach County Solid Waste Authority Revenue, Improvement, Series B, 5.50%,
10/01/28 ........................................................................ 10,000,000 10,348,300
26 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Pensacola Airport Revenue, Airport Revenue Bonds, Refunding, 6.25%, 10/01/38 ....... $ 16,500,000 $ 15,469,905
Port St. Lucie GO, MBIA Insured, 5.00%, 7/01/32 .................................... 7,000,000 7,036,330
South Broward Hospital District Revenue, South Broward Hospital District Obligated
Group, Refunding,
4.75%, 5/01/28 ............................................................... 10,000,000 8,635,700
5.00%, 5/01/36 ............................................................... 12,500,000 10,767,875
South Miami Health Facilities Authority Hospital Revenue, Baptist Health South
Florida Group,
5.00%, 8/15/32 ............................................................... 31,070,000 27,202,406
St. Lucie County Transportation Revenue, AMBAC Insured, 5.00%, 8/01/27 ............. 5,785,000 5,642,631
Tallahassee Energy System Revenue, Refunding, MBIA Insured, 5.00%, 10/01/37 ........ 20,000,000 20,012,600
Tampa Bay Water Utility System Revenue,
Refunding and Improvement, Series A, National Public Financial Guarantee, 5.00%,
10/01/28 ........................................................................ 5,000,000 4,908,400
Series B, FGIC Insured, 5.00%, 10/01/26 ......................................... 5,245,000 5,260,053
Series B, FGIC Insured, 5.00%, 10/01/31 ......................................... 10,000,000 9,959,500
Series B, FGIC Insured, Pre-Refunded, 5.00%, 10/01/26 ........................... 4,755,000 5,190,463
---------------
641,596,756
---------------
GEORGIA 4.4%
Athens-Clarke County Unified Government Water and Sewer Revenue, 5.50%, 1/01/38 .... 14,500,000 15,287,495
Atlanta Airport Passenger Facility Charge Revenue, General, sub. lien,
Refunding, Series C, FSA Insured, 5.00%, 1/01/33 ................................ 19,500,000 19,418,295
Series J, FSA Insured, 5.00%, 1/01/29 ........................................... 10,000,000 10,087,500
Atlanta Airport Revenue, General, Series A, FGIC Insured, Pre-Refunded, 5.50%,
1/01/26 ......................................................................... 18,295,000 19,065,220
Atlanta Development Authority Revenue,
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/24 ... 6,385,000 6,117,213
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/25 ... 6,955,000 6,512,592
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/26 ... 5,000,000 4,601,750
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/27 ... 5,000,000 4,537,900
Yamacraw Design Center Project, Series A, MBIA Insured, Pre-Refunded, 5.125%,
1/01/27 ...................................................................... 5,000,000 5,472,750
Atlanta Development Authority Student Housing Facilities Revenue, Piedmont Ellis
LLC, Series A, XLCA Insured, 5.00%, 9/01/30 ..................................... 10,000,000 9,705,800
Atlanta Water and Wastewater Revenue,
FSA Insured, 5.00%, 11/01/34 .................................................... 20,205,000 19,918,493
Refunding, Series A, MBIA Insured, 5.00%, 11/01/33 .............................. 13,000,000 11,367,460
Bleckley-Dodge County Joint Development Authority Student Housing Facilities
Revenue, MGC Real Estate Foundation II LLC Project,
5.00%, 7/01/33 ............................................................... 5,000,000 4,586,450
5.25%, 7/01/38 ............................................................... 10,000,000 9,376,600
Bulloch County Development Authority Revenue, Assured Guaranty, 5.375%, 7/01/39 .... 23,075,000 23,617,724
Burke County Development Authority PCR, Oglethorpe Power Corp., Vogtle Project,
Series B, 5.50%, 1/01/33 ........................................................ 15,000,000 13,465,200
Series E, 7.00%, 1/01/23 ........................................................ 25,000,000 26,236,000
Clark County Hospital Authority Revenue, Athens Regional Medical Center Project,
MBIA Insured, 5.00%, 1/01/27 .................................................... 5,000,000 4,941,900
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 10,850,101
Annual Report | 27
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Cobb County Hospital Authority Revenue, Refunding, AMBAC Insured, 5.00%, 4/01/28 ... $ 18,000,000 $ 17,590,320
DeKalb County Water and Sewer Revenue, Pre-Refunded, 5.25%, 10/01/25 ............... 12,000,000 12,867,000
DeKalb Newton and Gwinnett Counties Joint Development Authority Revenue, Georgia
Gwinnett College Foundation LLC Project, 6.00%, 7/01/34 ......................... 10,000,000 10,006,600
Georgia State Higher Education Facilities Authority Revenue, USG Real Estate
Foundation I LLC Project,
6.25%, 6/15/40 ............................................................... 13,970,000 14,479,067
Assured Guaranty, 5.625%, 6/15/38 .................................................. 5,000,000 5,101,450
Griffin Combined Public Utility Revenue, Refunding and Improvement, AMBAC Insured,
5.00%, 1/01/25 .................................................................. 5,000,000 5,043,750
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 11,270,600
Gwinnett County Water and Sewer Authority Revenue, Pre-Refunded, 5.25%, 8/01/25 .... 20,000,000 22,544,800
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 5,949,389
Houston County Hospital Authority Revenue, Anticipation Certificates, Houston
Healthcare
Project, 5.25%, 10/01/35 ........................................................ 10,485,000 8,836,339
Jefferson Public Building Authority Revenue, Jackson County Facilities, Series A,
XLCA Insured, 5.00%, 3/01/32 .................................................... 6,075,000 5,977,071
Main Street Natural Gas Inc. Gas Project Revenue, Series A, 5.50%, 9/15/28 ......... 5,000,000 3,761,750
Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional
Healthcare Systems, Refunding, Assured Guaranty, 6.50%, 8/01/38 ................. 10,000,000 10,567,300
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Second Indenture
Series, MBIA Insured, Pre-Refunded, 5.00%,
7/01/25 ...................................................................... 12,160,000 13,658,963
7/01/26 ...................................................................... 12,800,000 14,377,856
Richmond County Development Authority Educational Facilities Revenue, MCG-PPG Cancer
Research Center, Series A, AMBAC Insured, 5.00%, 12/15/29 ....................... 5,000,000 4,898,950
---------------
392,097,648
---------------
HAWAII 0.5%
Hawaii State Airports System Revenue, Second Series,
ETM, 6.90%, 7/01/12 ............................................................. 410,000 437,101
MBIA Insured, ETM, 6.90%, 7/01/12 ............................................... 350,000 373,135
Hawaii State Department of Budget and Finance Special Purpose Revenue, Wilcox
Memorial Hospital Projects, Refunding,
5.25%, 7/01/13 ............................................................... 600,000 591,390
5.35%, 7/01/18 ............................................................... 2,040,000 1,873,230
5.50%, 7/01/28 ............................................................... 1,470,000 1,199,167
Hawaii State GO,
Refunding, Series BW, 6.375%, 3/01/11 ........................................... 95,000 103,851
Series BW, ETM, 6.375%, 3/01/11 ................................................. 5,000 5,486
Series CT, FSA Insured, Pre-Refunded, 5.875%, 9/01/19 ........................... 5,000,000 5,137,950
Hawaii State Housing Finance and Development Corp. SFM Purchase Revenue, Refunding,
Series A, FNMA Insured, 5.75%, 7/01/30 .......................................... 310,000 309,746
Honolulu City and County Board of Water Supply Water System Revenue, Refunding,
Series A, MBIA Insured, 5.00%, 7/01/36 .......................................... 20,000,000 20,250,600
Honolulu City and County GO,
ETM, 6.00%, 12/01/14 ............................................................ 150,000 182,016
Refunding, Series C, FGIC Insured, 5.00%, 7/01/20 ............................... 5,250,000 5,316,413
28 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
HAWAII (CONTINUED)
Honolulu City and County MFHR, Waipahu Towers Project, Series A, 6.90%, 6/20/35 .... $ 1,170,000 $ 1,172,153
Honolulu City and County Wastewater System Revenue, Second Bond Resolution,
Refunding, Junior Series, FGIC Insured, 5.00%, 7/01/23 .......................... 10,000,000 10,068,500
Kauai County GO, Refunding, Series C, AMBAC Insured, 5.95%, 8/01/10 ................ 220,000 231,101
---------------
47,251,839
---------------
IDAHO 0.2%
Idaho Health Facilities Authority Revenue, St. Luke's Health System Project,
Series A, 6.75%, 11/01/37 ....................................................... 12,500,000 13,231,875
Idaho Housing Agency Revenue, Refunding, Series D-1, 6.45%, 7/01/19 ................ 100,000 100,171
---------------
13,332,046
---------------
ILLINOIS 5.2%
Aurora Waterworks and Sewer Revenue, XLCA Insured, 4.75%, 12/01/36 ................. 7,765,000 7,116,545
Bourbonnais Industrial Project Revenue, Olivet Nazarene University Project, Radian
Insured, 5.125%, 11/01/37 ....................................................... 5,000,000 3,839,300
Chicago Board of Education GO, Refunding, Series C, FSA Insured, 5.25%, 12/01/23 ... 15,860,000 16,814,296
Chicago COP, AMBAC Insured, 7.75%, 7/15/11 ......................................... 5,500,000 6,088,885
Chicago GO, Lakefront Millennium Parking Facilities, MBIA Insured, ETM, 5.75%,
1/01/23 ......................................................................... 8,955,000 10,629,316
Chicago Wastewater Transmission Revenue, Series A, BHAC Insured, 5.50%, 1/01/38 .... 18,000,000 19,277,460
Illinois Development Finance Authority Hospital Revenue, Adventist Health System,
Sunbelt Obligation, Pre-Refunded,
5.65%, 11/15/24 .............................................................. 6,030,000 6,255,281
5.50%, 11/15/29 .............................................................. 20,000,000 20,731,400
Illinois Development Finance Authority Revenue, Provena Health, Refunding, Series A,
MBIA Insured, 5.50%, 5/15/21 .................................................... 10,000,000 10,004,000
Illinois Finance Authority Revenue,
Alexian Brothers Health System, Refunding, Series A, FSA Insured, 5.50%, 1/01/28 45,000,000 44,582,400
Columbia College, MBIA Insured, 5.00%, 12/01/32 ................................. 15,440,000 12,689,055
Resurrection Health Care, Series B, FSA Insured, 5.25%, 5/15/29 ................. 28,650,000 23,027,438
Rush University Medical Center, Refunding, Series B, MBIA Insured, 5.75%,
11/01/28 ..................................................................... 2,500,000 2,420,350
Rush University Medical Center, Refunding, Series B, MBIA Insured, 5.25%,
11/01/35 ..................................................................... 3,000,000 2,507,370
Sherman Health System, Series A, 5.50%, 8/01/37 ................................. 5,000,000 3,395,000
Illinois Health Facilities Authority Revenue,
Children's Memorial Hospital, Series A, AMBAC Insured, Pre-Refunded, 5.75%,
8/15/25 ...................................................................... 9,120,000 9,337,147
Loyola University Health Systems, Refunding, Series A, MBIA Insured, 5.625%,
7/01/18 ...................................................................... 7,090,000 7,099,784
Loyola University Health Systems, Series A, MBIA Insured, ETM, 5.625%, 7/01/18 2,105,000 2,586,077
Methodist Medical Center, Refunding, MBIA Insured, 5.25%, 11/15/21 .............. 2,885,000 2,845,908
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%,
11/15/28 ..................................................................... 7,500,000 6,201,300
South Suburban Hospital, ETM, 7.00%, 2/15/18 .................................... 4,200,000 5,119,674
Illinois Municipal Electric Agency Power Supply Revenue, Series A, FGIC Insured,
5.00%, 2/01/35 .................................................................. 20,000,000 19,053,000
Illinois State Finance Authority Revenue, Rush University Medical Center Obligation
Group, Series B, 7.25%, 11/01/38 ................................................ 10,000,000 10,388,600
Illinois State GO, FSA Insured, 5.00%, 9/01/29 ..................................... 12,000,000 12,070,200
Kane County School District No. 129 GO, Series A, FGIC Insured, Pre-Refunded, 5.25%,
2/01/22 ......................................................................... 5,285,000 5,847,800
Annual Report | 29
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue,
Capital Appreciation, 2002, Series A, FGIC Insured, ETM, zero cpn., 6/15/09 ...... $ 9,275,000 $ 9,265,725
Capital Appreciation, 2002, Series A, FGIC Insured, zero cpn., 6/15/09 ........... 235,000 234,443
Capital Appreciation, McCormick Place, Refunding, Series B, MBIA Insured, zero
cpn. to 6/14/12, 5.50% thereafter, 6/15/20 .................................... 8,240,000 7,788,860
Capital Appreciation, McCormick Place, Refunding, Series B, MBIA Insured, zero
cpn. to 6/14/12, 5.55% thereafter, 6/15/21 ..................................... 6,000,000 5,649,720
Capital Appreciation, McCormick Place, Refunding, Series B, zero cpn. to 6/14/17,
5.65% thereafter, 6/15/22 ..................................................... 30,000,000 22,578,300
Capital Appreciation, Series A, FGIC Insured, ETM, zero cpn., 6/15/09 ............ 1,490,000 1,488,510
McCormick Place Expansion Project, 6.50%, 6/15/22 ................................ 5,000 5,016
McCormick Place Expansion Project, 6.50%, 6/15/27 ................................ 555,000 554,994
McCormick Place Expansion Project, Refunding, National Public Financial Guarantee,
5.25%, 12/15/28 ............................................................... 39,580,000 40,419,888
McCormick Place Expansion Project, Series A, FGIC Insured, 6.65%, 6/15/12 ........ 250,000 250,813
McCormick Place Expansion Project, Series A, FGIC Insured, ETM, zero cpn.,
6/15/10 ....................................................................... 7,845,000 7,755,959
McCormick Place Expansion Project, Series A, FGIC Insured, ETM, zero cpn.,
6/15/11 ....................................................................... 9,690,000 9,383,215
McCormick Place Expansion Project, Series A, FGIC Insured, zero cpn., 6/15/10 .... 155,000 151,210
McCormick Place Expansion Project, Series A, MBIA Insured, 5.00%, 12/15/28 ....... 26,795,000 26,912,094
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick
Place Convention Center, ETM, 7.00%, 7/01/26 ..................................... 12,000,000 15,807,600
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%,
11/01/20 ......................................................................... 1,000,000 1,229,420
Southwestern Illinois Development Authority Revenue, Capital Appreciation, Local
Government Program, FSA Insured, zero cpn.,
12/01/24 ......................................................................... 3,850,000 1,730,960
12/01/26 ......................................................................... 7,700,000 2,988,139
University of Illinois University Revenues, Auxiliary Facilities System, AMBAC
Insured, zero cpn., 4/01/10 ...................................................... 14,250,000 14,052,210
Refunding, Series A, AMBAC Insured, 5.00%, 4/01/30 ............................... 5,000,000 5,025,000
Refunding, Series B, FGIC Insured, 5.125%, 4/01/26 ............................... 3,585,000 3,650,247
Series A, 5.75%, 4/01/38 ......................................................... 7,000,000 7,411,460
Series B, FGIC Insured, Pre-Refunded, 5.125%, 4/01/26 ............................ 8,415,000 9,063,544
Upper River Valley Development Authority Environmental Facilities Revenue, General
Electric Co. Project, 5.45%, 2/01/23 ............................................. 3,600,000 3,622,824
---------------
466,947,737
---------------
INDIANA 1.0%
Indiana Bond Bank Revenue, Special Program, Hendricks Regional Health, Series A,
5.50%, 2/01/29 ................................................................... 9,000,000 9,081,900
Indiana Finance Authority Hospital Revenue, Deaconess Hospital Obligation, Series A,
6.75%, 3/01/39 ................................................................... 9,750,000 9,923,160
Indiana Health and Educational Facility Financing Authority Hospital Revenue, 5.50%,
3/01/27 .......................................................................... 6,500,000 5,445,375
Indiana Health Facility Financing Authority Hospital Revenue,
Community Foundation Northwest Indiana, Refunding, Series A, 6.375%, 8/01/21 ..... 15,590,000 15,169,226
Community Foundation Northwest Indiana, Series A, Pre-Refunded, 6.375%, 8/01/21 .. 1,910,000 2,124,569
Jackson County Schneck Memorial Hospital, Refunding, 5.25%, 2/15/22 .............. 1,200,000 1,106,292
Indiana Health Facility Financing Authority Revenue, Greenwood Village South
Project, Refunding, 5.625%, 5/15/28 .............................................. 1,750,000 1,227,572
30 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
INDIANA (CONTINUED)
Indiana Municipal Power Agency Power Supply System Revenue, Indiana Municipal Power
Agency, Series B, 6.00%, 1/01/39 ................................................ $ 4,000,000 $ 4,120,760
Indiana State Development Financing Authority Environmental Revenue, Refunding,
6.25%, 7/15/30 .................................................................. 2,000,000 1,755,540
Indiana State Educational Facilities Authority Revenue,
DePauw University Project, Refunding, 5.30%, 7/01/16 ............................ 600,000 608,142
Valparaiso University, Refunding, AMBAC Insured, 5.125%, 10/01/23 ............... 2,015,000 2,039,805
Indiana Transportation Finance Authority Highway Revenue, Pre-Refunded, 5.375%,
12/01/25 ........................................................................ 15,000,000 16,087,050
(d) Jasper County EDR, Georgia-Pacific Corp. Project, 5.625%, 12/01/27 ................. 3,500,000 2,096,325
Refunding, 6.70%, 4/01/29 ....................................................... 3,000,000 2,009,970
Jasper County PCR, Northern Indiana Public Service Co., Refunding, Series C, MBIA
Insured, 5.60%, 11/01/16 ........................................................ 5,000,000 5,048,650
Madison County Authority Anderson Hospital Revenue, Refunding, Series A, BIG
Insured, 8.00%, 1/01/14 ......................................................... 65,000 64,998
Petersburg PCR, 5.75%, 8/01/21 ..................................................... 5,000,000 4,386,500
University of Southern Indiana Revenue, Student Fee, Series J, Assured Guaranty,
5.75%, 10/01/28 ................................................................. 2,000,000 2,138,860
---------------
84,434,694
---------------
KANSAS 0.7%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding,
Series A, MBIA Insured, 5.30%, 6/01/31 .......................................... 18,000,000 16,025,580
Series B, MBIA Insured, 4.85%, 6/01/31 .......................................... 19,325,000 16,828,983
Kansas State Development Finance Authority Health Facilities Revenue, Stormont-Vail
HealthCare Inc., Series L, MBIA Insured, 5.125%, 11/15/36 ....................... 3,750,000 3,202,350
Kansas State Development Finance Authority Hospital Revenue, Susan B. Allen Memorial
Hospital, Series Z, Radian Insured, 5.25%, 12/15/23 ............................. 2,000,000 1,629,000
Kansas State Development Finance Authority Revenue, Water Pollution Control,
Revolving Fund,
Refunding, Series II, 5.125%, 11/01/18 .......................................... 3,450,000 3,631,332
Series II, Pre-Refunded, 5.125%, 11/01/18 ....................................... 1,550,000 1,705,573
Overland Park Development Corp. Revenue, second tier, Convention, Refunding,
Series B, AMBAC Insured, 5.125%, 1/01/32 ........................................ 20,000,000 16,361,800
Wyandotte County Kansas City Unified Government Utility System Revenue, Series A,
BHAC Insured, 5.25%, 9/01/34 .................................................... 5,000,000 5,368,700
---------------
64,753,318
---------------
KENTUCKY 1.6%
Carroll County Environmental Facilities Revenue, AMBAC Insured, 5.75%, 2/01/26 ..... 12,500,000 12,379,625
Jefferson County Capital Projects Corp. Lease Revenue, Refunding, Series A,
zero cpn.,
8/15/09 ......................................................................... 4,580,000 4,564,382
8/15/10 ......................................................................... 4,620,000 4,467,170
8/15/13 ......................................................................... 6,825,000 6,013,780
8/15/14 ......................................................................... 6,860,000 5,765,693
8/15/16 ......................................................................... 7,005,000 5,341,593
8/15/17 ......................................................................... 7,115,000 5,130,342
Annual Report | 31
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY (CONTINUED)
Kentucky Economic Development Finance Authority Health System Revenue,
Norton Healthcare Inc.,
Refunding, Series B, MBIA Insured, zero cpn., 10/01/18 .......................... $ 8,585,000 $ 4,991,233
Refunding, Series C, MBIA Insured, 6.05%, 10/01/19 .............................. 7,385,000 7,261,670
Refunding, Series C, MBIA Insured, 6.10%, 10/01/21 .............................. 6,050,000 5,801,285
Refunding, Series C, MBIA Insured, 6.10%, 10/01/23 .............................. 11,295,000 10,633,791
Series C, MBIA Insured, Pre-Refunded, 6.05%, 10/01/19 ........................... 3,695,000 4,370,594
Series C, MBIA Insured, Pre-Refunded, 6.10%, 10/01/21 ........................... 2,875,000 3,406,703
Series C, MBIA Insured, Pre-Refunded, 6.10%, 10/01/23 ........................... 5,650,000 6,694,911
Kentucky Economic Development Finance Authority Hospital System Revenue,
Appalachian Regional Health Center Facility, Refunding and Improvement,
5.80%, 10/01/12 ................................................................. 1,000,000 916,810
5.85%, 10/01/17 ................................................................. 5,615,000 4,498,794
Kentucky Economic Development Finance Authority Louisville Arena Project Revenue,
Louisville Arena, Sub Series A-1, Assured Guaranty, 6.00%, 12/01/38 ................ 4,000,000 4,081,040
Kentucky State Municipal Power Agency Power System Revenue, Prairie State Project,
Series A, MBIA Insured, 5.00%, 9/01/32 .......................................... 10,000,000 10,012,800
Kentucky State Property and Buildings Commission Revenues, Project No. 90,
Refunding, 5.50%, 11/01/28 ...................................................... 15,000,000 15,699,600
Louisville and Jefferson County Metropolitan Government College Revenue, Bellarmine
University, Refunding and Improvement, Series A, 6.00%, 5/01/33 ................. 3,000,000 2,634,810
Louisville and Jefferson County Metropolitan Government Health Facilities Revenue,
Jewish Hospital and St. Mary's HealthCare Inc. Project, Refunding, 6.125%,
2/01/37 ......................................................................... 11,500,000 11,505,865
Paducah Electric Plant Board Revenue, Series A, Assured Guaranty, 5.25%, 10/01/35 .. 7,000,000 7,179,060
---------------
143,351,551
---------------
LOUISIANA 2.4%
Calcasieu Parish Inc. IDB, PCR, Gulf States Utilities Co. Project, Refunding, 6.75%,
10/01/12 ........................................................................ 7,695,000 7,693,923
Calcasieu Parish Memorial Hospital Service District Revenue, Lake Charles Parish
Memorial Hospital Project, Refunding, Series A, Connie Lee Insured,
6.375%, 12/01/12 ................................................................ 2,690,000 2,676,173
6.50%, 12/01/18 ................................................................. 5,530,000 5,139,361
East Baton Rouge Mortgage Finance Authority SFM Purchase Revenue, Series A, 6.80%,
10/01/28 ........................................................................ 765,000 768,504
(c) East Baton Rouge Parish Sewer Commission Revenue, Refunding, Series A, 5.25%, ...... 6,000,000 5,858,340
2/01/39
Greater New Orleans Expressway Commission Revenue, Refunding, AMBAC Insured, 5.00%,
11/01/27 ........................................................................ 5,655,000 5,670,721
Jefferson Parish Home Mortgage Authority SFMR, Refunding, Series G-2, GNMA Secured,
5.55%, 6/01/32 .................................................................. 760,000 750,546
Lafayette Communications Systems Revenue, XLCA Insured, 5.25%, 11/01/27 ............ 12,485,000 12,153,773
Lafayette Public Improvement Sales Tax GO, Series B, MBIA Insured, 4.75%, 3/01/30 .. 5,055,000 4,982,360
Louisiana Local Government Environmental Facilities and CDA Revenue, Bossier City
Public Improvement Projects, AMBAC Insured, 5.00%, 11/01/32 ..................... 6,730,000 6,504,343
Jefferson Parking Garage Project, AMBAC Insured, 5.00%, 9/01/31 ................. 4,290,000 3,729,554
MBIA Insured, 5.00%, 12/01/26 ................................................... 5,605,000 5,630,222
32 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
LOUISIANA (CONTINUED)
Louisiana Public Facilities Authority Revenue,
Cleco Power Project, Mandatory Put 12/01/11, 7.00%, 12/01/38 .................... $ 10,000,000 $ 10,369,200
Millennium Housing LLC Student Housing, CIFG Insured, 5.00%, 11/01/30 ........... 10,000,000 7,351,700
Ochsner Clinic Foundation Project, Series B, 5.25%, 5/15/38 ..................... 10,260,000 7,444,656
Ochsner Clinic Foundation Project, Series B, 5.50%, 5/15/47 ..................... 10,000,000 7,311,500
Ochsner Clinic Foundation Project, Series B, ETM, 5.75%, 5/15/23 ................ 10,000,000 12,117,300
Tulane University of Louisiana, Series A, AMBAC Insured,
Pre-Refunded, 5.00%, 7/01/32 ................................................. 5,000,000 5,565,150
Louisiana State Gas and Fuels Tax Revenue, Series A, AMBAC Insured,
5.00%, 6/01/27 .................................................................. 19,250,000 19,181,277
FSA Insured, 4.75%, 5/01/39 ..................................................... 16,750,000 15,829,755
New Orleans GO,
Public Improvement, MBIA Insured, 5.00%, 10/01/33 ............................... 3,545,000 3,133,638
Radian Insured, 5.00%, 12/01/27 ................................................. 5,935,000 5,520,381
Radian Insured, 5.125%, 12/01/33 ................................................ 11,645,000 10,481,315
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project,
Refunding, 6.70%, 3/01/13 ....................................................... 1,490,000 1,489,672
Rapides Finance Authority Revenue, Cleco Power LLC Project,
Mandatory Put 10/01/11, 6.00%, 10/01/38 ......................................... 4,750,000 4,703,782
St. Charles Parish Consolidated Waterworks and Wastewater District
No. 1 Revenue, Series A, AMBAC Insured, 5.00%, 7/01/36 ......................... 6,230,000 6,211,248
St. John the Baptist Parish Revenue, Marathon Oil Corp. Project,
Series A, 5.125%, 6/01/37 ....................................................... 40,500,000 31,141,260
West Feliciana Parish PCR, Gulf States Utilities Co. Project, 7.00%, 11/01/15 ...... 1,350,000 1,351,634
---------------
210,761,288
---------------
MAINE 0.2%
Jay Solid Waste Disposal Revenue, International Paper Co. Project, Refunding,
Series B, 6.20%, 9/01/19 ........................................................ 8,000,000 6,981,360
Maine Health and Higher Educational Facilities Authority Revenue, Series A,
MBIA Insured, 5.00%, 7/01/32 .................................................... 6,045,000 6,103,274
---------------
13,084,634
---------------
MARYLAND 0.7%
Baltimore Convention Center Hotel Revenue, Senior Series A, XLCA
Insured, 5.00%, 9/01/32 ......................................................... 3,500,000 2,126,040
Baltimore Project Revenue,
Wastewater Projects, Series D, AMBAC Insured, 5.00%, 7/01/37 .................... 5,000,000 5,019,600
Water Projects, Series C, AMBAC Insured, 5.00%, 7/01/37 ......................... 8,130,000 8,161,870
Maryland State EDC, PCR, Potomac Electric Project, Refunding, 6.20%, 9/01/22 ....... 5,000,000 5,332,800
Maryland State EDC Student Housing Revenue, University of Maryland College
Park Projects, Refunding, CIFG Insured, 5.00%, 6/01/33 .......................... 15,000,000 10,541,550
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Health System, Series A, 6.75%, 7/01/39 ............................ 3,000,000 3,115,770
LifeBridge Health, Refunding, Assured Guaranty, 5.00%, 7/01/28 .................. 3,000,000 3,017,760
Upper Chesapeake Hospitals, Series C, 6.00%, 1/01/38 ............................ 5,000,000 4,265,250
Western Maryland Health, Series A, MBIA Insured, 5.00%, 7/01/34 ................. 20,000,000 18,154,400
---------------
59,735,040
---------------
Annual Report | 33
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS 3.1%
Massachusetts Bay Transportation Authority Revenue, Assessment,
Refunding, Series A, 5.25%, 7/01/30 ............................................. $ 2,785,000 $ 2,805,581
Series A, Pre-Refunded, 5.25%, 7/01/30 .......................................... 14,740,000 15,531,538
Massachusetts Bay Transportation Authority Sales Tax Revenue, Refunding, Senior
Series A, 5.00%, 7/01/28 ........................................................ 10,000,000 10,703,400
Massachusetts Educational Financing Authority Education Loan Revenue, Series H,
Assured Guaranty, 6.35%, 1/01/30 ................................................ 10,000,000 9,701,200
Massachusetts State Development Finance Agency Revenue,
Massachusetts/Saltonstall Redevelopment Building Corp., Series A, MBIA Insured,
5.125%, 8/01/28 .............................................................. 6,735,000 5,757,078
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.00%, 9/01/37 ........ 10,000,000 9,547,800
Massachusetts State GO,
Consolidated Loan, Series C, AMBAC Insured, 5.00%, 8/01/37 ...................... 10,000,000 10,236,600
MBIA Insured, Pre-Refunded, 5.00%, 8/01/22 ...................................... 4,100,000 4,534,067
Massachusetts State Health and Educational Facilities Authority Revenue,
Berklee College of Music, Refunding, Series A, 5.00%, 10/01/37 .................. 10,000,000 9,435,600
Berkshire Health System, Series E, 6.25%, 10/01/31 .............................. 2,250,000 1,962,158
Berkshire Health System, Series E, Radian Insured, 5.70%, 10/01/25 .............. 4,500,000 3,825,180
Caregroup, Series E-1, 5.125%, 7/01/33 .......................................... 3,000,000 2,511,750
Caregroup, Series E-1, 5.125%, 7/01/38 .......................................... 3,500,000 2,862,020
Emmanuel College, MBIA Insured, 5.00%, 7/01/37 .................................. 10,000,000 7,673,400
Harvard University, Series FF, 5.00%, 7/15/22 ................................... 13,550,000 14,154,330
Northeastern University, Series R, 5.00%, 10/01/33 .............................. 6,830,000 6,550,926
Massachusetts State HFA Housing Revenue, Series B, 7.00%, 12/01/38 ................. 10,000,000 10,832,400
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care,
5.65%, 10/01/17 ................................................................. 2,295,000 2,299,980
5.70%, 10/01/27 ................................................................. 7,375,000 7,379,720
Massachusetts State School Building Authority Dedicated Sales Tax Revenue, Series A,
AMBAC Insured, 4.50%, 8/15/35 ................................................... 30,000,000 28,193,100
FSA Insured, 5.00%, 8/15/30 ..................................................... 15,000,000 15,282,000
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue,
Refunding, Series A, MBIA Insured, 5.00%, 1/01/37 ............................... 52,130,000 41,977,161
Series B, MBIA Insured, 5.125%, 1/01/37 ......................................... 21,150,000 17,212,293
Sub Series A, AMBAC Insured, 5.25%, 1/01/29 ..................................... 5,000,000 4,402,200
Massachusetts State Water Pollution Abatement Trust Revenue, MWRA Program, Series A,
5.00%, 8/01/32 .................................................................. 225,000 228,476
Pre-Refunded, 5.00%, 8/01/32 .................................................... 4,775,000 5,344,801
Massachusetts State Water Pollution Abatement Trust Water Pollution Abatement
Revenue, MWRA Program,
Refunding, Sub Series A, 5.75%, 8/01/29 ......................................... 5,210,000 5,279,658
Sub Series A, Pre-Refunded, 5.75%, 8/01/29 ...................................... 1,290,000 1,319,502
Route 3 North Transportation Improvement Assn. Massachusetts Lease Revenue,
MBIA Insured, Pre-Refunded, 5.375%, 6/15/29 ..................................... 16,405,000 17,293,659
---------------
274,837,578
---------------
MICHIGAN 3.7%
Anchor Bay School District GO, Refunding, 5.00%, 5/01/29 ........................... 6,300,000 6,344,982
Chippewa Valley School GO, Pre-Refunded, 5.125%, 5/01/27 ........................... 5,310,000 5,898,560
34 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Coldwater Community Schools GO, MBIA Insured, Pre-Refunded, zero cpn., 5/01/18 ..... $ 5,935,000 $ 3,348,764
Detroit City School District GO, School Building and Site Improvement,
Series A, FGIC Insured, Pre-Refunded, 5.00%, 5/01/23 ............................ 2,000,000 2,255,960
Series A, FSA Insured, Pre-Refunded, 5.125%, 5/01/31 ............................ 14,925,000 16,556,153
Series B, FGIC Insured, 5.00%, 5/01/33 .......................................... 16,870,000 13,585,242
Detroit Sewer Disposal System Revenue,
second lien, Series A, MBIA Insured, 5.00%, 7/01/30 ............................. 5,470,000 4,492,949
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.125%, 7/01/31 .............. 10,000,000 10,837,000
Detroit Water Supply System Revenue,
second lien, Series B, FGIC Insured, Pre-Refunded, 5.50%, 7/01/33 ............... 5,000,000 5,501,400
second lien, Series B, FSA Insured, 7.00%, 7/01/36 .............................. 5,000,000 5,471,200
senior lien, Series A, FGIC Insured, 5.00%, 7/01/30 ............................. 17,575,000 15,038,928
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ............... 7,060,000 7,606,797
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ............... 6,170,000 6,709,752
Detroit/Wayne County Stadium Authority Revenue, FGIC Insured, 5.25%, 2/01/27 ....... 8,625,000 8,278,189
Grand Rapids Public Schools GO, School Building and Site, FSA Insured, 4.50%, 5/01/31 21,800,000 21,206,168
Harrison Community Schools GO, AMBAC Insured, zero cpn., 5/01/20 ................... 6,000,000 2,930,280
Jackson County Building Authority Revenue, AMBAC Insured, Pre-Refunded, 5.60%,
5/01/30 ......................................................................... 4,145,000 4,354,115
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series I, 5.00%, 10/15/24 ........................ 31,350,000 30,656,224
Facilities Program, Refunding, Series I, 6.25%, 10/15/38 ........................ 15,000,000 16,024,500
Refunding, Series IA, FGIC Insured, 5.00%, 10/15/31 ............................. 9,475,000 8,671,994
Michigan State GO, Environmental Program, Refunding, Series A,
6.00%, 11/01/24 ................................................................. 1,000,000 1,065,720
5.50%, 11/01/25 ................................................................. 1,000,000 1,016,130
Michigan State Hospital Finance Authority Revenue, Ascension Health Credit, Series A,
MBIA Insured, Pre-Refunded, 6.125%, 11/15/23 .................................... 18,000,000 18,712,440
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 9,309,100
Michigan State Trunk Line Revenue, Series A, FSA Insured, Pre-Refunded, 5.25%,
11/01/30 ........................................................................ 10,000,000 10,969,400
Michigan Tobacco Settlement Finance Authority Revenue, Tobacco Settlement Asset,
Senior Series A, 5.25%, 6/01/22 ................................................. 10,000,000 7,776,600
Senior Series A, 6.00%, 6/01/34 ................................................. 42,680,000 27,578,109
Turbo, Series A, 6.875%, 6/01/42 ................................................ 17,500,000 11,823,700
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont Hospital,
Refunding, 8.25%, 9/01/39 ....................................................... 20,000,000 22,183,600
Series M, MBIA Insured, 5.25%, 11/15/31 ......................................... 10,000,000 8,055,600
Southgate Community School District GO, FGIC Insured, Pre-Refunded,
5.00%, 5/01/25 .................................................................. 5,500,000 5,500,000
Wayne State University Revenues, General, AMBAC Insured, 5.00%, 11/15/36 ........... 5,000,000 5,071,950
West Ottawa Public School District GO, Series A, 5.00%, 5/01/27 .................... 5,000,000 5,086,300
---------------
329,917,806
---------------
MINNESOTA 1.2%
Cloquet PCR, Potlatch Corp. Projects, Refunding, 5.90%, 10/01/26 ................... 9,100,000 6,437,795
Golden Valley Revenue, Covenant Retirement Communities, Series A, 5.50%, 12/01/29 .. 1,500,000 1,135,530
Annual Report | 35
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue,
Series A, FGIC Insured, Pre-Refunded, 5.25%, 1/01/32 ............................ $ 32,025,000 $ 34,237,287
Series A, FGIC Insured, Pre-Refunded, 5.75%, 1/01/32 ............................ 5,000,000 5,220,350
Series C, FGIC Insured, Pre-Refunded, 5.25%, 1/01/26 ............................ 19,000,000 20,296,370
Minneapolis Health Care System Revenue, Fairview Health Services, Series A,
6.625%, 11/15/28 ................................................................ 11,000,000 11,541,970
6.75%, 11/15/32 ................................................................. 6,250,000 6,540,125
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 .............................. 510,000 487,239
Minnetonka MFHR, Ridgepointe II Project, Series A, GNMA Secured, Pre-Refunded,
5.95%, 10/20/33 ................................................................. 11,075,000 11,895,214
Roseville MFHR, Rosepointe I Project, Series A, GNMA Secured, Pre-Refunded, 5.95%,
10/20/33 ........................................................................ 7,785,000 8,221,739
University of Minnesota Revenue, Series A, ETM, 5.75%, 7/01/13 ..................... 1,250,000 1,464,875
---------------
107,478,494
---------------
MISSISSIPPI 0.9%
Claiborne County PCR, Systems Energy Resources Inc. Project, Refunding, 6.20%,
2/01/26 ......................................................................... 36,500,000 30,966,965
Jackson County Environmental Improvement Revenue, International Paper Co. Project,
6.70%, 5/01/24 .................................................................. 3,500,000 3,049,970
Mississippi Business Finance Corp. PCR, System Energy Resource Inc. Project,
Refunding,
5.875%, 4/01/22 .............................................................. 40,000,000 34,770,800
5.90%, 5/01/22 ............................................................... 8,250,000 7,184,842
Mississippi State GO, Refunding, 5.75%, 12/01/12 ................................... 2,000,000 2,275,080
---------------
78,247,657
---------------
MISSOURI 1.3%
Jackson County Special Obligation Revenue, MBIA Insured, 5.00%, 12/01/22 ........... 9,095,000 9,409,960
Missouri Development Finance Board Cultural Facilities Revenue, Nelson Gallery
Foundation, Series A, MBIA Insured, 5.00%, 12/01/30 ............................. 11,500,000 11,632,250
Missouri Joint Municipal Electric Utility Commission Power Project Revenue,
Iatan 2 Project, Series A, AMBAC Insured, 5.00%, 1/01/34 ........................ 14,000,000 12,965,260
Plum Point Project, MBIA Insured, 5.00%, 1/01/34 ................................ 8,000,000 6,437,920
Missouri State Board of Public Buildings Special Obligation Revenue, Series A,
4.75%, 10/15/28 ................................................................. 8,250,000 8,381,835
Missouri State Health and Educational Facilities Authority Health Facilities
Revenue, St. Luke's Health System, Series B, 5.50%, 11/15/35 .................... 15,000,000 15,300,600
Missouri State Health and Educational Facilities Authority Revenue, SSM Health Care,
Refunding, Series A, MBIA Insured, 5.00%, 6/01/22 ............................... 230,000 230,166
Series A, AMBAC Insured, Pre-Refunded, 5.25%, 6/01/21 ........................... 9,950,000 10,819,829
Series B, AMBAC Insured, 5.25%, 6/01/21 ......................................... 7,550,000 7,596,432
St. Louis Airport Revenue,
Airport Development Program, Series A, MBIA Insured, Pre-Refunded, 5.00%,
7/01/20 ...................................................................... 5,000,000 5,422,000
Airport Development Program, Series A, MBIA Insured, Pre-Refunded, 5.00%,
7/01/21 ...................................................................... 7,250,000 7,861,900
Capital Improvement Program, Series A, MBIA Insured, Pre-Refunded, 5.00%,
7/01/27 ...................................................................... 12,390,000 13,790,442
Taney County IDA Hospital Revenue, The Skaggs Community Hospital Assn., Refunding,
5.40%, 5/15/28 .................................................................. 4,000,000 3,132,120
---------------
112,980,714
---------------
36 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
MONTANA 0.4%
Forsyth PCR, Puget Sound Energy, Refunding, Series A, AMBAC Insured, 5.00%,
3/01/31 ......................................................................... $ 30,000,000 $ 23,093,100
Montana Facility Finance Authority Revenue, Benefis Health System, Refunding,
Assured Guaranty, 5.00%, 1/01/37 ................................................ 13,500,000 12,636,135
---------------
35,729,235
---------------
NEBRASKA 1.5%
Adams County School District No. 018 GO, Hastings Public Schools, FSA Insured,
5.00%, 12/15/31 ................................................................. 5,795,000 5,886,329
Lancaster County Correctional Facility Joint Public Agency GO, Building, 5.00%,
12/01/28 ........................................................................ 5,000,000 5,188,600
Lancaster County School District No. 001 GO, Lincoln Public Schools, 5.00%,
1/15/36 ......................................................................... 24,725,000 25,292,934
Lincoln Electric System Revenue, 5.00%, 9/01/31 .................................... 8,645,000 8,794,299
Madison County Hospital Authority No. 001 Hospital Revenue, Faith Regional Health
Services Project, Series A-1, 6.00%, 7/01/33 .................................... 12,000,000 10,597,080
Municipal Energy Agency of Nebraska Power Supply system Revenue, Refunding,
Series A, BHAC Insured, 5.375%, 4/01/39 ......................................... 5,000,000 5,236,350
Omaha Convention Hotel Corp. Revenue, Convention Center, first tier,
Refunding, AMBAC Insured, 5.00%, 2/01/35 ........................................ 30,000,000 26,727,600
Series A, AMBAC Insured, Pre-Refunded, 5.125%, 4/01/26 .......................... 12,500,000 13,847,500
Omaha Public Power District Separate Electricity Revenue, System, Nebraska City 2,
Series A, AMBAC Insured, 5.00%, 2/01/30 ......................................... 12,165,000 12,327,646
University of Nebraska Revenues,
Kearney Student Fees and Facilities, 5.00%, 7/01/30 ............................. 5,000,000 5,110,350
Lincoln Student Fees and Facilities, Series A, 5.25%, 7/01/34 ................... 5,000,000 5,195,400
Omaha Student Facilities Project, 5.00%, 5/15/32 ................................ 5,000,000 5,109,350
University of Nebraska Omaha Health and Recreation Project, 5.00%, 5/15/38 ...... 5,000,000 5,083,500
---------------
134,396,938
---------------
NEVADA 0.9%
Clark County Airport Revenue, sub. lien,
Series A-2, FGIC Insured, 5.125%, 7/01/27 ....................................... 10,000,000 9,751,300
Series B, FGIC Insured, Pre-Refunded, 5.25%, 7/01/31 ............................ 20,000,000 21,727,200
Clark County School District GO, Refunding, Series A, FGIC Insured, 5.00%,
6/15/24 ......................................................................... 15,000,000 14,734,050
Director of the State of Nevada Department of Business and Industry Revenue,
Capital Appreciation, Las Vegas Monorail Project, AMBAC Insured, zero cpn.,
1/01/25.......................................................................... 3,080,000 433,510
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/26 ................... 3,815,000 504,992
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/27 ................... 3,000,000 373,410
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/28 ................... 13,315,000 1,561,184
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/29 ................... 8,410,000 928,884
Las Vegas Monorail Project, first tier, AMBAC Insured, 5.625%, 1/01/32 .......... 21,995,000 7,496,336
Las Vegas Monorail Project, first tier, AMBAC Insured, 5.625%, 1/01/34 .......... 15,000,000 5,111,550
Nevada State GO, Municipal Bond Bank Project No. 40-41, Series A, ETM, 6.375%,
12/01/17 ........................................................................ 10,275,000 10,536,601
Sparks RDA Tax Allocation Revenue, Refunding, Series A, Radian Insured, 6.00%,
1/15/23 ......................................................................... 5,000,000 4,040,600
Washoe County GO, Reno Sparks Convention, Refunding, Series A, FGIC Insured, 5.00%,
7/01/24 ......................................................................... 5,000,000 4,957,750
---------------
82,157,367
---------------
Annual Report | 37
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
NEW HAMPSHIRE 0.1%
Nashua Housing Authority MFR, Clocktower Project, Refunding, GNMA Secured, 6.25%,
6/20/33 ......................................................................... $ 5,408,000 $ 5,410,109
New Hampshire Health and Education Facilities Authority Revenue,
Exeter Project, 6.00%, 10/01/24 ................................................. 2,000,000 2,023,740
Exeter Project, 5.75%, 10/01/31 ................................................. 1,000,000 930,570
The Memorial Hospital, Refunding, 5.25%, 6/01/26 ................................ 1,000,000 768,570
The Memorial Hospital, Refunding, 5.25%, 6/01/36 ................................ 1,100,000 777,172
New Hampshire Higher Educational and Health Facilities Authority Revenue, New
Hampshire Catholic Charities, 5.80%, 8/01/22 .................................... 1,000,000 838,740
---------------
10,748,901
---------------
NEW JERSEY 3.3%
Health Care Facilities Financing Authority Revenue, Englewood Hospital, MBIA
Insured, 5.00%, 8/01/23 ......................................................... 5,000,000 5,063,700
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 ........................................................ 2,100,000 1,842,729
Series 1, 6.00%, 1/01/29 ........................................................ 5,000,000 3,819,000
Series 2, 6.125%, 1/01/19 ....................................................... 2,000,000 1,771,700
Series 2, 6.125%, 1/01/29 ....................................................... 5,000,000 3,819,900
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 4,714,350
New Jersey EDA Revenue,
Cigarette Tax, 5.75%, 6/15/29 ................................................... 20,000,000 14,616,000
Motor Vehicle Surcharge Revenue, Series A, MBIA Insured, 5.00%, 7/01/29 ......... 10,000,000 9,788,000
Motor Vehicle Surcharge Revenue, Series A, MBIA Insured, 5.00%, 7/01/34 ......... 5,000,000 4,839,700
School Facilities Construction, Series C, MBIA Insured, 4.75%, 6/15/25 .......... 7,500,000 7,531,950
School Facilities Construction, Series O, 5.125%, 3/01/28 ....................... 20,000,000 20,335,600
Series U, 5.00%, 9/01/37 ........................................................ 22,000,000 22,057,860
New Jersey Health Care Facilities Financing Authority Revenue, State Contract
Hospital Asset Transitions Program, Series A, 5.25%, 10/01/38 ................... 10,000,000 10,014,200
New Jersey State COP, Equipment Lease Purchase, Series A, 5.25%,
6/15/25 ......................................................................... 20,305,000 20,382,971
6/15/26 ......................................................................... 8,000,000 8,012,000
6/15/27 ......................................................................... 4,000,000 3,995,120
6/15/28 ......................................................................... 2,000,000 1,992,720
New Jersey State Housing and Mortgage Finance Agency Revenue, Series AA, 6.375%,
10/01/28 ........................................................................ 7,500,000 8,016,150
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Series A, 6.00%, 12/15/38 ....................................................... 60,000,000 64,626,000
New Jersey State Turnpike Authority Turnpike Revenue,
Growth and Income Securities, Series B, AMBAC Insured, zero cpn. to 1/01/15,
5.15% thereafter, 1/01/35 .................................................... 10,000,000 7,085,100
Series A, MBIA Insured, Pre-Refunded, 5.60%, 1/01/22 ............................ 7,500,000 7,750,950
Series A, MBIA Insured, Pre-Refunded, 5.50%, 1/01/25 ............................ 13,000,000 13,426,530
Series C, FSA Insured, 5.00%, 1/01/30 ........................................... 15,845,000 16,109,136
Series E, 5.25%, 1/01/40 ........................................................ 12,500,000 12,583,875
Tobacco Settlement FICO Revenue, Asset-Backed, Pre-Refunded, 5.75%, 6/01/32 ........ 18,270,000 19,783,487
---------------
293,978,728
---------------
38 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
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 $ 1,059,930
---------------
NEW YORK 7.8%
Liberty Development Corp. Revenue,
5.50%, 10/01/37 ................................................................. 13,000,000 11,694,020
Goldman Sachs Headquarters, 5.25%, 10/01/35 ..................................... 25,000,000 21,732,500
Long Island Power Authority Electric System Revenue, General, Refunding, Series A,
6.00%, 5/01/33 .................................................................. 12,500,000 13,211,500
MTA Commuter Facilities Revenue, Series A, Pre-Refunded,
5.25%, 7/01/28 .................................................................. 5,000,000 5,465,450
6.125%, 7/01/29 ................................................................. 15,040,000 15,176,112
MTA Dedicated Tax Fund Revenue,
Series A, FGIC Insured, Pre-Refunded, 6.00%, 4/01/30 ............................ 12,500,000 13,128,500
Series A, FGIC Insured, Pre-Refunded, 5.00%, 11/15/31 ........................... 14,250,000 15,676,710
Series A, MBIA Insured, ETM, 6.25%, 4/01/11 ..................................... 1,280,000 1,408,307
Series B, 5.25%, 11/15/28 ....................................................... 6,000,000 6,096,960
Series B, 5.25%, 11/15/29 ....................................................... 4,000,000 4,054,840
Series B, 5.25%, 11/15/30 ....................................................... 3,000,000 3,036,270
Series B, 5.00%, 11/15/34 ....................................................... 5,000,000 4,873,250
MTA Revenue,
Refunding, Series E, 5.25%, 11/15/31 ............................................ 10,000,000 9,895,600
Refunding, Series U, 5.125%, 11/15/31 ........................................... 20,720,000 20,166,362
Series A, 5.00%, 11/15/37 ....................................................... 25,000,000 23,346,250
Transportation, Series C, 6.50%, 11/15/28 ....................................... 15,000,000 16,569,000
MTA Transit Facilities Revenue,
Series A, Pre-Refunded, 6.00%, 7/01/24 .......................................... 5,000,000 5,044,250
Service Contract, Series 8, Pre-Refunded, 5.375%, 7/01/21 ....................... 15,000,000 17,352,600
Nassau Health Care Corp. Health System Revenue, Nassau County Guaranteed, FSA
Insured, Pre-Refunded, 5.75%, 8/01/29 ........................................... 10,000,000 10,321,100
New York City GO,
Refunding, Series H, 6.125%, 8/01/25 ............................................ 5,000 5,000
Series D, 8.00%, 8/01/16 ........................................................ 5,000 5,060
Series D, 5.50%, 6/01/24 ........................................................ 16,405,000 16,789,861
Series D, Pre-Refunded, 5.50%, 6/01/24 .......................................... 7,535,000 8,502,042
Series E, 6.50%, 12/01/12 ....................................................... 20,000 20,065
Series E, Sub Series E-1, 6.25%, 10/15/28 ....................................... 10,000,000 10,955,200
Series F, 5.25%, 1/15/23 ........................................................ 14,415,000 14,714,256
Series F, Pre-Refunded, 5.25%, 1/15/23 .......................................... 5,585,000 6,341,321
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Pre-Refunded, 5.50%, 6/15/33 .................................................... 55,000,000 58,634,950
Refunding, Series D, 5.25%, 6/15/25 ............................................. 10,000,000 10,323,700
Refunding, Series FF-2, 5.50%, 6/15/40 .......................................... 15,000,000 15,795,600
Series A, 5.75%, 6/15/40 ........................................................ 6,000,000 6,471,480
Series A, FGIC Insured, Pre-Refunded, 5.50%, 6/15/32 ............................ 10,000,000 10,157,100
Series A, Pre-Refunded, 5.75%, 6/15/30 .......................................... 8,000,000 8,127,920
Series G, FSA Insured, 5.125%, 6/15/32 .......................................... 24,215,000 24,321,788
Annual Report | 39
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City Transitional Finance Authority Building Aid Revenue,
Fiscal 2009, Series S-3, 5.25%, 1/15/34 ......................................... $ 10,170,000 $ 10,044,401
Fiscal 2009, Series S-4, 5.50%, 1/15/34 ......................................... 12,890,000 13,043,391
Series S-2, 6.00%, 7/15/38 ...................................................... 20,000,000 20,977,000
New York City Transitional Finance Authority Revenue, Future Tax Secured,
Refunding, Series B, 5.00%, 5/01/30 ............................................. 7,205,000 7,241,529
Series B, Pre-Refunded, 6.00%, 11/15/29 ......................................... 10,000,000 10,670,100
Series B, Pre-Refunded, 5.00%, 5/01/30 .......................................... 295,000 326,966
Series C, Pre-Refunded, 5.50%, 11/01/20 ......................................... 5,000,000 5,299,650
Series C, Pre-Refunded, 5.50%, 11/01/24 ......................................... 4,200,000 4,451,706
Series D, 5.00%, 2/01/27 ........................................................ 10,000,000 10,162,700
New York City Transportation Authority MTA Triborough COP, Series A, AMBAC Insured,
Pre-Refunded, 5.40%, 1/01/19 .................................................... 15,000,000 15,616,650
New York City Trust for Cultural Resources Revenue, Museum of Modern Art 2001,
Series D, AMBAC Insured, 5.125%, 7/01/31 ........................................ 8,000,000 8,107,520
New York Convention Center Development Corp. Revenue, Hotel Unit Fee Secured,
AMBAC Insured, 5.00%, 11/15/30 .................................................. 10,000,000 9,580,200
New York State Dormitory Authority Lease Revenue, Court Facilities, Pre-Refunded,
6.00%, 5/15/39 .................................................................. 16,000,000 17,072,160
New York State Dormitory Authority Revenues,
City University System Consolidated, Third General, Refunding, Series 1, 5.25%,
7/01/25 ...................................................................... 10,000,000 10,027,000
State Supported Debt, State University Educational Facilities, Pre-Refunded,
5.125%, 5/15/21 .............................................................. 6,495,000 6,502,599
State Supported Debt, State University Educational Facilities, Refunding, 5.125%,
5/15/21 ...................................................................... 670,000 670,496
State Supported Debt, Upstate Community Colleges, 6.00%, 7/01/31 ................ 23,215,000 24,285,908
State Supported Debt, Upstate Community Colleges, Refunding, Series A, 5.00%,
7/01/28 ...................................................................... 6,570,000 6,372,637
State Supported Debt, Upstate Community Colleges, Series A, Pre-Refunded, 5.00%,
7/01/28 ...................................................................... 3,430,000 3,489,030
New York State HFA Service Contract Obligation Revenue, Refunding, Series C, 5.50%,
9/15/22 ......................................................................... 17,505,000 17,638,213
New York State HFAR, Housing Project Mortgage, Refunding, Series A, FSA Insured,
6.10%, 11/01/15 ................................................................. 4,135,000 4,153,856
6.125%, 11/01/20 ................................................................ 3,510,000 3,516,739
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 1,506,223
New York State Urban Development Corp. Revenue, State Personal Income Tax,
Series B-1, 5.00%, 3/15/36 ...................................................... 5,000,000 4,999,700
Onondaga County GO,
5.875%, 2/15/12 ................................................................. 300,000 335,136
ETM, 5.875%, 2/15/12 ............................................................ 700,000 788,508
Sales Tax Asset Receivable Corp. Revenue, Series A, AMBAC Insured, 5.00%, 10/15/29 8,000,000 8,245,600
Triborough Bridge and Tunnel Authority Revenues,
General, Series A-2, 5.25%, 11/15/34 ............................................ 7,500,000 7,680,600
General Purpose, 5.25%, 11/15/38 ................................................ 25,000,000 25,595,250
40 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
Triborough Bridge and Tunnel Authority Revenues, (continued)
General Purpose, Refunding, Series A, 5.00%, 1/01/27 ............................ $ 5,000,000 $ 5,054,150
General Purpose, Series A, 5.00%, 1/01/32 ....................................... 3,085,000 3,090,121
General Purpose, Series B, Pre-Refunded, 5.50%, 1/01/30 ......................... 15,000,000 18,448,950
General Purpose, Series X, ETM, 6.625%, 1/01/12 ................................. 1,800,000 2,007,882
General Purpose, Series Y, ETM, 6.00%, 1/01/12 .................................. 805,000 867,846
---------------
697,285,341
---------------
NORTH CAROLINA 2.6%
Charlotte Airport Revenue, Series A, MBIA Insured, 5.00%, 7/01/34 .................. 6,000,000 5,767,140
Charlotte COP, Transit Projects, Phase II, Series E, 5.00%, 6/01/30 ................ 15,940,000 16,139,091
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 5.75%, 1/01/26 ............................................. 65,350,000 65,568,922
Refunding, Series B, 6.00%, 1/01/22 ............................................. 1,250,000 1,334,600
Refunding, Series B, 6.25%, 1/01/23 ............................................. 39,030,000 42,478,691
Refunding, Series B, 5.75%, 1/01/24 ............................................. 35,140,000 35,329,405
Refunding, Series B, FGIC Insured, 6.25%, 1/01/23 ............................... 1,280,000 1,281,587
Refunding, Series D, 5.125%, 1/01/23 ............................................ 12,000,000 11,762,640
Refunding, Series D, 5.125%, 1/01/26 ............................................ 3,000,000 2,868,630
Series D, 6.70%, 1/01/19 ........................................................ 2,000,000 2,040,580
Series D, 6.75%, 1/01/26 ........................................................ 5,000,000 5,086,500
North Carolina Medical Care Commission Revenue, Rowan Regional Medical Center,
FSA Insured, 4.75%, 9/01/24 ..................................................... 6,970,000 6,976,064
North Carolina State Capital Improvement Limited Obligation Revenue, 5.00%,
5/01/22 ......................................................................... 5,000,000 5,525,500
5/01/24 ......................................................................... 5,500,000 5,944,510
5/01/25 ......................................................................... 5,750,000 6,170,670
5/01/27 ......................................................................... 4,500,000 4,746,105
5/01/28 ......................................................................... 4,250,000 4,454,297
Winston-Salem Water and Sewer System Revenue, Pre-Refunded, 5.125%, 6/01/28 ........ 11,000,000 12,040,710
---------------
235,515,642
---------------
NORTH DAKOTA 0.3%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group,
Assured Guaranty, 5.00%, 12/01/26 ............................................... 8,385,000 7,363,288
Refunding, 5.50%, 12/01/20 ...................................................... 8,870,000 7,743,066
Refunding, 5.50%, 12/01/24 ...................................................... 13,945,000 11,507,275
---------------
26,613,629
---------------
OHIO 2.8%
Akron Bath Copley Joint Township Hospital District Revenue, Hospital Improvement
Children's Hospital Center, FSA Insured, 5.00%, 11/15/31 ........................ 9,250,000 8,600,188
Akron Income Tax Revenue, Community Learning, FGIC Insured, 5.00%,
12/01/26 ........................................................................ 6,085,000 6,131,733
12/01/27 ........................................................................ 3,185,000 3,200,384
American Municipal Power Inc. Revenue, Refunding, 5.00%, 2/15/38 ................... 22,500,000 21,765,150
Annual Report | 41
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
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 $ 6,331,650
Senior Current Interest Turbo Term Bond, Series A-2, 5.75%, 6/01/34 ............. 11,250,000 6,688,575
Senior Current Interest Turbo Term Bond, Series A-2, 6.00%, 6/01/42 ............. 5,000,000 2,877,150
Cleveland Airport System Revenue, Series A, FSA Insured,
5.00%, 1/01/31 .................................................................. 17,930,000 17,945,778
Pre-Refunded, 5.00%, 1/01/31 .................................................... 2,070,000 2,151,082
Cleveland State University General Receipt Revenue, FGIC Insured, 5.00%, 6/01/29 ... 5,000,000 5,028,700
Columbus City School District GO, School Facilities Construction and Improvement,
FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ..................................... 16,000,000 18,190,400
Cuyahoga County Hospital Facilities Revenue, Canton Inc. Project, 7.50%, 1/01/30 ... 17,100,000 15,584,427
Dayton Special Facilities Revenue, Emery Air Freight Corp., Emery Worldwide Air
Inc., Refunding,
Series A, 5.625%, 2/01/18 ....................................................... 6,000,000 5,887,980
Series E, 6.05%, 10/01/09 ....................................................... 4,000,000 4,033,960
Series F, 6.05%, 10/01/09 ....................................................... 2,750,000 2,773,348
Hamilton County Sales Tax Revenue,
Refunding, Series B, AMBAC Insured, 5.25%, 12/01/32 ............................. 1,995,000 1,965,733
Series B, AMBAC Insured, Pre-Refunded, 5.25%, 12/01/32 .......................... 8,005,000 8,536,932
Kettering City School District GO, School Improvement, FGIC Insured, Pre-Refunded,
5.00%, 12/01/30 ................................................................. 1,860,000 2,140,395
Little Miami Local School District GO, School Improvement, FSA Insured,
Pre-Refunded, 5.00%, 12/01/34 ................................................... 4,000,000 4,713,080
Marysville Wastewater Treatment System Revenue, Refunding, XLCA Insured, 5.00%,
12/01/31 ........................................................................ 8,000,000 7,024,800
12/01/36 ........................................................................ 13,725,000 11,732,130
Montgomery County Hospital Facilities Revenue, Grandview Hospital and Medical
Center, Pre-Refunded,
5.50%, 12/01/10 ................................................................. 1,300,000 1,332,903
5.60%, 12/01/11 ................................................................. 1,000,000 1,025,880
5.65%, 12/01/12 ................................................................. 925,000 949,207
Nordonia Hills Local School District GO, School Improvement, AMBAC Insured,
Pre-Refunded,
5.375%, 12/01/20 ................................................................ 4,275,000 4,623,584
5.45%, 12/01/25 ................................................................. 3,000,000 3,248,130
Ohio State GO, Series A, 5.375%, 9/01/28 ........................................... 10,000,000 10,736,100
Pickerington Local School District GO, School Facilities Construction and
Improvement, FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ........................ 15,000,000 16,507,650
Scioto County Hospital Revenue, Southern Ohio Medical Center, Refunding, 5.75%,
2/15/38 ......................................................................... 17,000,000 15,371,060
Springboro Community City School District GO, School Improvement, MBIA Insured,
Pre-Refunded, 5.00%, 12/01/27 ................................................... 10,350,000 11,899,705
University of Akron General Receipts Revenue, FGIC Insured, Pre-Refunded, 5.75%,
1/01/29 ......................................................................... 11,305,000 11,807,055
University of Cincinnati COP, Jefferson Avenue Residence Hall, MBIA Insured, 5.125%,
6/01/28 ......................................................................... 4,000,000 3,944,800
University of Cincinnati General Receipts Revenue, Series A, FGIC Insured,
Pre-Refunded, 5.25%, 6/01/24 .................................................... 5,000,000 5,475,000
---------------
250,224,649
---------------
42 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
OKLAHOMA 0.0%(b)
Valley View Hospital Authority Revenue, Valley View Regional Medical Center,
Refunding, 6.00%, 8/15/14 ....................................................... $ 3,170,000 $ 2,916,210
---------------
OREGON 1.3%
Health Sciences University Revenue, Series A, MBIA Insured, 5.00%, 7/01/26 ......... 10,500,000 9,236,640
Jackson County School District No. 6 Central Point GO, FGIC Insured, Pre-Refunded,
5.25%, 6/15/20 .................................................................. 4,000,000 4,211,160
Lane County School District No. 19 Springfield GO, Refunding, FGIC Insured, 6.00%,
10/15/13 ........................................................................ 1,250,000 1,469,750
Oregon State Department of Administrative Services COP, Series A, AMBAC Insured,
Pre-Refunded, 6.00%, 5/01/26 .................................................... 10,000,000 10,607,300
Oregon State Department of Transportation Highway User Tax Revenue, senior lien,
Series A, 4.50%, 11/15/32 ....................................................... 30,000,000 28,861,500
Oregon State EDR, Georgia-Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 .......................................... 3,500,000 2,198,980
(d) Series CLVII, 6.35%, 8/01/25 .................................................... 5,500,000 3,747,260
Oregon State GO, State Board of Higher Education, Series A,
5.00%, 8/01/26 .................................................................. 6,630,000 6,910,648
5.00%, 8/01/27 .................................................................. 6,955,000 7,210,805
Pre-Refunded, 5.00%, 8/01/26 .................................................... 12,000,000 13,065,480
Port of Portland International Airport Revenue, Series Nineteen, 5.50%, 7/01/38 .... 25,000,000 25,685,750
---------------
113,205,273
---------------
PENNSYLVANIA 3.7%
Allegheny County Hospital Development Authority Revenue, Health System, Series A,
MBIA Insured, Pre-Refunded, 6.50%, 11/15/30 ..................................... 10,000,000 11,048,300
Allegheny County IDAR, Environmental Improvement, USX Corp., Refunding, 5.50%,
12/01/29 ........................................................................ 10,000,000 8,386,400
Allegheny County Port Authority Special Revenue, Transportation, Refunding, FGIC
Insured, 5.00%, 3/01/29 ......................................................... 10,000,000 9,826,500
Butler Area School District GO, FGIC Insured, Pre-Refunded, 5.60%, 4/01/28 ......... 5,000,000 5,226,350
Centennial School District Bucks County GO, Series B, FSA Insured, 5.25%,
12/15/37......................................................................... 13,655,000 13,797,968
Coatesville School District GO, FSA Insured, 5.00%, 8/01/24 ........................ 6,420,000 6,833,962
Delaware County Authority University Revenue, Villanova University, Series A, MBIA
Insured, 5.00%, 12/01/18 ........................................................ 7,090,000 7,137,928
Delaware River Port Authority Pennsylvania and New Jersey Revenue, FSA Insured,
5.75%,
1/01/22 ......................................................................... 8,500,000 8,616,875
1/01/26 ......................................................................... 10,000,000 10,107,000
Delaware Valley Regional Finance Authority Local Government Revenue, Series B,
AMBAC Insured, 5.60%, 7/01/17 ................................................... 5,000,000 5,464,450
Erie County Hospital Authority Revenue, Hamot Health Foundation, CIFG Insured,
5.00%, 11/01/37 ................................................................. 5,000,000 3,902,500
Erie Water Authority Water Revenue, Series A, MBIA Insured, Pre-Refunded, 5.20%,
12/01/30 ........................................................................ 18,700,000 20,624,043
Montgomery County IDA Retirement Community Revenue, ACTS Retirement-Life
Communities Inc. Obligated Group, 5.25%, 11/15/28 ............................... 2,500,000 1,828,275
Northampton County General Purpose Authority Hospital Revenue, St. Luke's Hospital
Project, Series A, 5.375%, 8/15/28 .............................................. 5,000,000 4,283,400
Northampton County General Purpose Authority Revenue, County Agreement, FSA Insured,
5.25%, 10/01/30 ................................................................. 12,150,000 12,365,176
Annual Report | 43
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Pennsylvania Economic Development Financing Authority Water Facility Revenue,
American Water Co. Project, 6.20%, 4/01/39 ...................................... $ 12,500,000 $ 12,967,250
Pennsylvania State Higher Educational Facilities Authority Revenue, Temple
University, Refunding, MBIA Insured, 5.00%, 4/01/33 ............................. 14,225,000 13,894,553
Pennsylvania State Turnpike Commission Revenue, AMBAC Insured, Pre-Refunded, 5.00%,
7/15/31 ......................................................................... 5,850,000 6,416,514
Pennsylvania State Turnpike Commission Turnpike Revenue, Refunding, Series C,
Sub Series C-1, Assured Guaranty,
6.00%, 6/01/28 .................................................................. 5,000,000 5,433,050
6.25%, 6/01/38 .................................................................. 15,000,000 16,479,750
Philadelphia Authority for Industrial Development Lease Revenue, Series B, FSA
Insured, Pre-Refunded, 5.25%, 10/01/30 .......................................... 15,630,000 17,305,849
Philadelphia Gas Works Revenue,
Fifth Series A-1, FSA Insured, 5.00%, 9/01/29 ................................... 5,000,000 4,961,850
Refunding, First Series A, FSA Insured, 5.00%, 7/01/26 .......................... 5,000,000 4,959,850
Philadelphia Hospitals and Higher Education Facilities Authority Hospital Revenue,
Temple University Hospital, Refunding, Series A, 6.625%, 11/15/23 ............... 2,450,000 2,237,953
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Mortgage,
North Philadelphia Health Systems, Refunding, Series A, FHA Insured,
5.30%, 1/01/18 .................................................................. 2,490,000 2,501,603
5.35%, 1/01/23 .................................................................. 5,690,000 5,704,111
5.375%, 1/01/28 ................................................................. 3,700,000 3,616,639
Philadelphia Parking Authority Airport Parking Revenue, FSA Insured, 5.25%, 9/01/29 15,000,000 15,002,100
Philadelphia RDAR, Neighborhood Transformation, Series C, FGIC Insured, 5.00%,
4/15/29 ......................................................................... 10,965,000 9,458,190
4/15/30 ......................................................................... 12,000,000 10,237,920
Philadelphia School District GO,
Series A, FSA Insured, Pre-Refunded, 5.75%, 2/01/30 ............................. 14,050,000 15,189,736
Series E, 6.00%, 9/01/38 ........................................................ 25,000,000 25,826,250
Philadelphia Water and Wastewater Revenue, Series A, FGIC Insured, 5.00%, 11/01/31 . 8,995,000 8,769,675
Pittsburgh and Allegheny County Public Auditorium Hotel Room Revenue, AMBAC Insured,
5.125%, 2/01/35 ................................................................. 15,000,000 14,150,250
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset District
Sales Tax, AMBAC Insured, 5.25%, 2/01/31 ........................................ 5,000,000 5,004,300
---------------
329,566,520
---------------
RHODE ISLAND 1.2%
Narragansett Bay Commission Wastewater System Revenue, Series A, MBIA Insured,
5.00%, 8/01/30 .................................................................. 7,990,000 7,805,431
Rhode Island Convention Center Authority Revenue, Refunding, Series A, Assured
Guaranty, 5.50%, 5/15/27 ........................................................ 17,300,000 17,566,074
Rhode Island Health and Educational Building Corp. Revenue, Hospital Financing,
Lifespan Obligation, Series A, 7.00%, 5/15/39 ................................... 8,200,000 8,318,408
Rhode Island Housing and Mortgage Finance Corp. Revenue, Homeownership Opportunity,
Refunding, Series 15-A, 6.85%, 10/01/24 ......................................... 620,000 624,762
Refunding, Series 25-A, 4.95%, 10/01/16 ......................................... 120,000 120,379
Series 10-A, 6.50%, 10/01/22 .................................................... 475,000 476,591
Series 10-A, 6.50%, 4/01/27 ..................................................... 265,000 265,708
44 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
RHODE ISLAND (CONTINUED)
Rhode Island State Economic Development Corp. Airport Revenue, Series B, MBIA
Insured, 5.00%,
7/01/27 ......................................................................... $ 12,280,000 $ 12,049,382
7/01/30 ......................................................................... 14,965,000 14,250,720
Rhode Island State Health and Educational Building Corp. Revenue,
Health Facilities, St. Antoine, Series B, Pre-Refunded, 6.125%, 11/15/29 ........ 7,745,000 8,041,014
Higher Education Facility, University of Rhode Island, Refunding, Series A, AMBAC
Insured, 5.00%, 9/15/30 ...................................................... 10,000,000 10,091,600
Hospital Financing, Lifespan Obligated Group, 6.375%, 8/15/21 ................... 925,000 940,290
Hospital Financing, Lifespan Obligated Group, Pre-Refunded, 6.375%, 8/15/21 ..... 6,075,000 6,869,974
Hospital Financing, Lifespan Obligated Group, Refunding, Series A, FSA Insured,
5.00%, 5/15/26 ............................................................... 5,000,000 4,711,900
Hospital Financing, Lifespan Obligated Group, Refunding, Series A, FSA Insured,
5.00%, 5/15/32 ............................................................... 14,440,000 12,668,068
---------------
104,800,301
---------------
SOUTH CAROLINA 2.0%
Charleston Educational Excellence Finance Corp. Revenue, Charleston County School
District, 5.25%, 12/01/30 ....................................................... 8,000,000 8,017,280
Dorchester County Waterworks and Sewer System Revenue, Refunding, MBIA Insured,
5.00%, 10/01/28 ................................................................. 8,000,000 7,320,880
Greenville County School District Installment Purchase Revenue, Building Equity
Sooner Tomorrow, Refunding, 5.00%, 12/01/28 ..................................... 7,500,000 7,499,700
Greenwood Fifty School Facilities Inc. Installment Purchase Revenue, Greenwood
School District 50, Refunding, Assured Guaranty, 4.50%, 12/01/32 ................ 7,030,000 6,648,622
Lancaster Educational Assistance Program Inc. Revenue, School District of Lancaster
County Project, 5.00%, 12/01/26 ................................................. 12,300,000 11,533,218
Medical University of South Carolina Hospital Authority Hospital Facilities Revenue,
Mortgage, Refunding, Series A, MBIA Insured, 5.00%, 8/15/31 ..................... 13,860,000 12,857,645
Newberry Investing in Children's Education Installment Revenue, Newberry County
School District Project, 5.00%, 12/01/30 ........................................ 4,000,000 3,324,880
Piedmont Municipal Power Agency Electric Revenue, Series A-2, 5.00%, 1/01/24 ....... 10,000,000 9,078,700
Scago Educational Facilities Corp. for Beaufort School District Revenue, Beaufort
School District, FSA Insured, 5.00%, 12/01/31 ................................... 5,340,000 5,406,964
Scago Educational Facilities Corp. for Chesterfield School District Revenue, School
Project, Assured Guaranty, 5.00%, 12/01/29 ...................................... 7,500,000 6,923,475
Scago Educational Facilities Corp. for Colleton School District Revenue, School
Project, Assured Guaranty, 5.00%,
12/01/25 ........................................................................ 3,340,000 3,273,534
12/01/26 ........................................................................ 4,000,000 3,863,720
Scago Educational Facilities Corp. for Pickens School District Revenue, Pickens
County Project, FSA Insured, 5.00%,
12/01/25 ........................................................................ 18,900,000 18,218,466
12/01/31 ........................................................................ 10,000,000 8,855,500
South Carolina Jobs EDA Hospital Facilities Revenue, Palmetto Health, Refunding,
Series A, FSA Insured, 5.00%, 8/01/35 ........................................... 20,000,000 17,061,200
(c) South Carolina Jobs EDA Hospital Revenue, Refunding and Improvement, Anmed Health
Series B, Assured Guarantee, 5.375%, 2/01/29 .................................... 4,000,000 3,930,440
Annual Report | 45
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
SOUTH CAROLINA (CONTINUED)
South Carolina Public Service Authority Revenue, Series B, FSA Insured, 5.25%,
1/01/33 ......................................................................... $ 31,835,000 $ 32,281,008
South Carolina State Public Service Authority Revenue, Refunding, Series A, 5.50%,
1/01/38 ......................................................................... 7,500,000 7,919,175
Sumter Two School Facilities Inc. Installment Purchase Revenue, Sumter County School
District 2, Refunding, Assured Guaranty, 4.50%, 12/01/32 ........................ 6,000,000 5,555,820
---------------
179,570,227
---------------
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 15,807,848
Avera Health Issue, Series B, 5.50%, 7/01/35 .................................... 3,000,000 2,598,420
Avera Health Issue, Series B, 5.25%, 7/01/38 .................................... 5,000,000 4,110,750
Sanford Health, 5.00%, 11/01/27 ................................................. 2,355,000 2,110,904
Sanford Health, 5.00%, 11/01/40 ................................................. 12,945,000 10,855,030
---------------
35,482,952
---------------
TENNESSEE 0.4%
Clarksville Natural Gas Acquisition Corp. Gas Revenue, 5.00%, 12/15/19 ............. 6,000,000 4,639,980
Johnson City Health and Educational Facilities Board Hospital Revenue, first
mortgage, Mountain States Health, Series A, MBIA Insured, Pre-Refunded, 6.00%,
7/01/21 ......................................................................... 7,000,000 7,257,670
Knox County Health Educational and Housing Facilities Board Hospital Facilities
Revenue, Series A, FSA Insured, Pre-Refunded, 5.00%, 1/01/22 .................... 2,740,000 3,072,554
Knox County Health Educational and Housing Facilities Board Revenue, University
Health System Inc., Refunding, 5.25%, 4/01/27 ................................... 17,500,000 14,635,075
Knoxville Wastewater System Revenue, Improvement, Series A, MBIA Insured, 5.00%,
4/01/30 ......................................................................... 7,850,000 8,047,113
Tennessee HDA Revenue, Homeownership Program, Refunding, Series 1D, 4.70%,
7/01/15 ......................................................................... 255,000 252,458
---------------
37,904,850
---------------
TEXAS 7.4%
Austin Community College District Public Facility Corp. Revenue, Educational
Facility Project, Round Rock Campus, 5.25%, 8/01/33 ............................. 8,675,000 8,762,878
Austin Electric Utility System Revenue, Refunding, MBIA Insured, 5.00%, 11/15/28 ... 10,000,000 9,901,500
Bexar County GO, Certificates of Obligation, Combined Flood Control Tax, FSA
Insured, 5.00%, 6/15/37 ......................................................... 20,000,000 20,346,000
Bexar County HFC, MFHR,
American Opportunity Housing, Series A, MBIA Insured, 5.80%, 1/01/31 ............ 6,000,000 4,178,580
Honey Creek Apartments Project, Series A, MBIA Insured, 6.125%, 4/01/20 ......... 1,000,000 833,830
Honey Creek Apartments Project, Series A, MBIA Insured, 6.20%, 4/01/30 .......... 2,845,000 2,169,426
Bexar County Hospital District GO, Certificate of Obligation, 5.00%, 2/15/38 ....... 10,000,000 9,516,300
Bridge City ISD, GO, Pre-Refunded, 5.375%, 2/15/32 ................................. 1,930,000 2,080,887
Carrollton GO, Improvement, FSA Insured, 5.25%, 8/15/19 ............................ 1,000,000 1,047,110
Crowley ISD, GO, School Building, 5.00%, 8/01/36 ................................... 13,900,000 14,260,983
Dallas Civic Center Revenue, Refunding and Improvement, Assured Guaranty, 5.25%,
8/15/34 ......................................................................... 9,075,000 9,196,605
Dallas County Utility and Reclamation District GO, Refunding, Series A, AMBAC
Insured, 5.375%, 2/15/29 ........................................................ 28,325,000 25,701,822
Dallas ISD, GO, Refunding, 5.25%, 2/15/20 .......................................... 2,000,000 2,112,960
46 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Dallas-Fort Worth International Airport Revenue, Refunding and Improvement,
Series A, FGIC Insured, 5.625%, 11/01/26 ........................................ $ 85,000,000 $ 82,831,650
Denton ISD, GO, School Building, 5.00%, 8/15/38 .................................... 15,710,000 16,007,390
Duncanville ISD, GO, Series B, Pre-Refunded, 5.25%, 2/15/32 ........................ 9,850,000 10,927,885
Edcouch Elsa ISD, GO, Pre-Refunded, 5.50%, 2/15/30 ................................. 2,000,000 2,078,640
Forney ISD, GO, School Building, Series A, 6.00%, 8/15/37 .......................... 2,000,000 2,191,960
Gulf Coast Waste Disposal Authority Environmental Improvement Revenue, USX Corp.
Projects, Refunding, 5.50%, 9/01/17 ............................................. 3,250,000 3,130,043
Gulf Coast Waste Disposal Authority Revenue, Valero Energy Corp. Project, 5.70%,
4/01/32 ......................................................................... 3,000,000 2,366,640
Harris County Health Facilities Development Corp. Hospital Revenue, Memorial Hermann
Healthcare System, Refunding, Series B, 7.25%, 12/01/35 ......................... 13,500,000 14,350,635
Harris County Hospital District Revenue, senior lien, Refunding, Series A, MBIA
Insured, 5.125%, 2/15/32 ........................................................ 10,215,000 9,061,931
Hays Consolidated ISD, GO, Capital Appreciation, Pre-Refunded, zero cpn.,
8/15/19 ......................................................................... 5,285,000 3,200,649
8/15/21 ......................................................................... 8,420,000 4,499,985
8/15/22 ......................................................................... 8,470,000 4,256,429
Hidalgo County GO, Certificates of Obligation, FSA Insured, Pre-Refunded, 5.25%,
8/15/21 ......................................................................... 2,500,000 2,739,850
Houston Airport System Revenue, sub. lien, Series B, FSA Insured, Pre-Refunded,
5.50%, 7/01/30 .................................................................. 2,000,000 2,111,940
Houston Area Water Corp. Contract Revenue, Northeast Water Purification Project,
FGIC Insured, Pre-Refunded, 5.125%, 3/01/28 ..................................... 15,000,000 16,505,550
Houston GO, Public Improvement, Refunding, MBIA Insured, 5.00%, 3/01/25 ............ 5,000,000 5,102,450
Houston Water and Sewer Systems Revenue, junior lien, Series B, FGIC Insured,
Pre-Refunded, 5.25%, 12/01/30 ................................................... 14,000,000 14,930,300
Keller ISD, GO,
Pre-Refunded, 5.375%, 8/15/25 ................................................... 1,330,000 1,411,941
School Building, 5.50%, 2/15/35 ................................................. 10,000,000 10,311,900
Kerrville ISD, GO, Pre-Refunded, 6.00%, 8/15/13 .................................... 1,000,000 1,070,890
Laredo ISD, GO, Pre-Refunded, 5.25%, 8/01/24 ....................................... 4,000,000 4,045,760
Little Cypress Mauriceville Consolidated ISD, GO,
Pre-Refunded, 5.90%, 8/01/29 .................................................... 785,000 795,386
Refunding, 5.90%, 8/01/29 ....................................................... 1,345,000 1,351,174
Lower Colorado River Authority Revenue,
Improvement, Series A, MBIA Insured, Pre-Refunded, 5.00%, 5/15/26 ............... 130,000 140,604
Refunding, FSA Insured, 5.00%, 5/15/31 .......................................... 10,000,000 10,027,700
Refunding and Improvement, Series A, MBIA Insured, 5.00%, 5/15/26 ............... 1,870,000 1,888,270
Lubbock Educational Facilities Authority Revenue, Lubbock Christian, Refunding and
Improvement, 5.125%, 11/01/27 ................................................... 1,000,000 746,700
Manor ISD, GO, School Building, 5.00%, 8/01/37 ..................................... 8,175,000 8,318,390
Matagorda County Hospital District Revenue, FHA Insured, 5.00%, 2/15/35 ............ 10,000,000 8,836,000
North Central Texas Health Facility Development Corp. Revenue, Children's Medical
Center Dallas, Refunding, AMBAC Insured, 5.25%, 8/15/24 ......................... 19,335,000 19,495,287
North Harris County Regional Water Authority Revenue, senior lien,
5.25%, 12/15/33 ................................................................. 27,000,000 26,058,780
5.50%, 12/15/38 ................................................................. 25,000,000 24,746,000
Annual Report | 47
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
North Texas Tollway Authority Revenue,
Capital Appreciation, System, first tier, Refunding, Series I, zero cpn.
to 1/01/15, 6.50% thereafter, 1/01/43 ........................................ $ 25,000,000 $ 16,311,250
System, first tier, Refunding, Series A, 5.75%, 1/01/40 ......................... 35,000,000 34,847,050
System, first tier, Refunding, Series K-2, 6.00%, 1/01/38 ....................... 15,000,000 15,306,900
System, second tier, Refunding, Series F, 5.75%, 1/01/38 ........................ 30,000,000 27,933,300
Northside ISD, GO,
Pre-Refunded, 5.00%, 2/15/26 .................................................... 1,345,000 1,441,275
Refunding, 5.00%, 2/15/26 ....................................................... 1,155,000 1,172,775
Pasadena GO, Certificates of Obligation, FGIC Insured, Pre-Refunded, 5.25%,
4/01/32 ......................................................................... 3,000,000 3,241,230
Port Corpus Christi IDC Revenue, Valero, Refunding, Series B, 5.40%, 4/01/18 ....... 4,000,000 3,642,640
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.65%,
12/01/22 ........................................................................ 15,000,000 14,131,500
Port Houston Authority Harris County GO, Refunding, Series A, 5.625%, 10/01/38 ..... 14,000,000 12,951,820
Richardson GO, Hotel Occupancy Certificates, Series A, FGIC Insured, Pre-Refunded,
5.75%, 2/15/21 .................................................................. 2,500,000 2,602,150
Rio Grande City Consolidated ISD, GO, School Building, 5.00%, 8/15/37 .............. 10,510,000 10,727,662
San Antonio Energy Acquisition Public Facility Corp. Revenue, Gas Supply Revenue,
5.50%, 8/01/25 .................................................................. 10,000,000 8,533,400
San Antonio Water Revenue, Systems, Refunding, FSA Insured, 5.00%,
5/15/25 ......................................................................... 5,000,000 5,101,150
5/15/28 ......................................................................... 5,000,000 5,058,650
Southmost Regional Water Authority Water Supply Contract Revenue, MBIA Insured,
5.00%, 9/01/25 .................................................................. 5,000,000 5,042,250
Tarrant County Health Facilities Development Corp. Health System Revenue, Harris
Methodist Health System, FGIC Insured, ETM, 6.00%, 9/01/24 ...................... 4,000,000 4,777,680
Tarrant County Health Facilities Development Corp. Revenue, Bethesda Living Centers,
Series C, 5.75%,
8/15/18 ...................................................................... 1,570,000 1,332,333
8/15/28 ...................................................................... 3,900,000 2,762,838
Texas City IDC Marine Terminal Revenue, ARCO Pipe Line Co. Project, Refunding,
7.375%, 10/01/20 ................................................................ 500,000 621,035
Texas State GO, Veterans Housing Assistance, Fund II, Series C, 6.15%, 12/01/28 .... 10,000,000 10,050,800
Texas State Revenue, Transportation Commission-Mobility Fund, Series A, 5.00%,
4/01/33 ......................................................................... 10,000,000 10,182,500
Texas State Turnpike Authority Central Texas Turnpike System Revenue, Capital
Appreciation, AMBAC Insured, zero cpn., 8/15/31 ................................. 43,500,000 8,626,920
Texas State University System Financing Revenue, Refunding, FSA Insured, 5.00%,
3/15/26 ......................................................................... 6,425,000 6,604,836
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical
Center, Refunding and Improvement, Series A, 5.25%, 11/01/32 .................... 6,250,000 4,416,563
University of Texas University Revenues, Financing System, Series A, Pre-Refunded,
5.70%, 8/15/20 .................................................................. 1,000,000 1,014,550
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 12,049,200
Wylie ISD, GO,
Pre-Refunded, 7.00%, 8/15/24 .................................................... 660,000 749,265
Refunding, 7.00%, 8/15/24 ....................................................... 340,000 365,578
---------------
657,246,690
---------------
48 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
UTAH 0.8%
Intermountain Power Agency Power Supply Revenue, ETM, 6.15%, 7/01/14 ............... $ 16,000,000 $ 16,002,400
Salt Lake County College Revenue, Westminster College Project, Pre-Refunded, 5.625%,
10/01/28 ........................................................................ 3,305,000 3,407,191
South Jordan Sales Tax Revenue, AMBAC Insured, Pre-Refunded, 5.20%, 8/15/26 ........ 4,770,000 5,227,920
South Valley Water Reclamation Facility Sewer Revenue, AMBAC Insured, 5.00%,
8/15/30 ......................................................................... 5,730,000 5,834,572
St. George Electric Revenue, FSA Insured, 5.00%,
6/01/33 ......................................................................... 5,000,000 5,047,000
6/01/38 ......................................................................... 5,000,000 5,032,450
Uintah County Municipal Building Authority Lease Revenue, 5.50%, 6/01/37 ........... 5,000,000 4,978,500
Utah State Transit Authority Sales Tax Revenue, Series A, FSA Insured, 5.00%,
6/15/36 ......................................................................... 25,000,000 25,586,750
---------------
71,116,783
---------------
VERMONT 0.5%
Burlington Airport Revenue, Series A, MBIA Insured, 5.00%, 7/01/28 ................. 5,780,000 4,945,946
University of Vermont and State Agricultural College Revenue, Refunding, MBIA
Insured, 5.00%, 10/01/30 ........................................................ 12,210,000 12,389,853
Vermont Educational and Health Buildings Financing Agency Revenue, Hospital,
Fletcher Allen Health Care Project,
Refunding, Series B, FSA Insured, 5.00%, 12/01/34 ............................ 12,000,000 10,403,760
Series A, 4.75%, 12/01/36 ....................................................... 5,000,000 3,381,450
Series A, AMBAC Insured, 6.125%, 12/01/27 ....................................... 13,000,000 11,592,100
---------------
42,713,109
---------------
VIRGINIA 0.4%
Greater Richmond Convention Center Authority Hotel Tax Revenue, Refunding, MBIA
Insured, 5.00%, 6/15/30 ......................................................... 12,260,000 12,164,617
Harrisonburg IDAR, Hospital Facilities, Rockingham Memorial Hospital, AMBAC Insured,
5.00%, 8/15/31 .................................................................. 2,000,000 1,606,340
Medical College Hospital Authority Revenue, General Revenue Bonds, MBIA Insured,
5.125%, 7/01/18 ................................................................. 2,000,000 2,000,300
Norfolk Parking System Revenue, Refunding, Series A, MBIA Insured, 5.00%, 2/01/27 .. 5,000,000 5,119,800
Virginia State HDA Commonwealth Mortgage Revenue, Series H, Sub Series H-1,
MBIA Insured, 5.35%, 7/01/31 .................................................... 10,000,000 10,029,500
---------------
30,920,557
---------------
WASHINGTON 3.8%
Bellingham Housing Authority Revenue, Pacific Rim and Cascade Meadows Project,
Refunding, MBIA Insured, 5.20%, 11/01/27 ........................................ 200,000 186,620
Central Puget Sound Regional Transportation Authority Sales and Use Tax Revenue,
Series A, AMBAC Insured, 5.00%, 11/01/30 ........................................ 20,000,000 20,299,400
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 .................... 200,000 190,268
Clark County PUD No. 1 Generating System Revenue, Refunding, FSA Insured, 5.50%,
1/01/25 ......................................................................... 15,015,000 15,203,138
Energy Northwest Electric Revenue, Columbia Generating Station, Refunding,
Series A, 5.00%, 7/01/24 ........................................................ 15,255,000 15,801,282
Series B, FSA Insured, 5.35%, 7/01/18 ........................................... 11,500,000 12,339,730
Goat Hill Properties Lease Revenue, Government Office Building Project, MBIA
Insured, 5.00%, 12/01/33 ....................................................... 18,500,000 18,615,440
Annual Report | 49
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
WASHINGTON (CONTINUED)
Grant County PUD No. 2 Wanapum Hydro Electric Revenue, Refunding,
Second Series A, MBIA Insured, 5.20%, 1/01/23 ................................... $ 250,000 $ 252,037
Series D, FSA Insured, 5.20%, 1/01/23 ........................................... 6,000,000 6,217,680
King County GO, Limited Tax, Sewer, 5.125%, 1/01/33 ................................ 10,000,000 10,240,400
King County Housing Authority Revenue, Woodridge Park Project, 6.25%, 5/01/15 ...... 130,000 130,774
King County Public Hospital District No. 1 GO, Series B, 5.25%, 12/01/37 ........... 5,000,000 5,021,300
Pierce County School District No. 320 Sumner GO, FSA Insured, Pre-Refunded, 6.00%,
12/01/14 ........................................................................ 2,000,000 2,164,460
Pierce County School District No. 403 Bethel GO, FGIC Insured, 5.25%, 12/01/22 ..... 5,000,000 5,184,050
Port Seattle Revenue, Refunding, Series A,
FGIC Insured, 5.00%, 4/01/31 .................................................... 21,680,000 21,423,092
MBIA Insured, 5.00%, 7/01/33 .................................................... 10,000,000 9,779,800
Seattle Municipal Light and Power Revenue, 5.40%, 12/01/25 ......................... 10,000,000 10,203,300
Seattle Water System Revenue, FGIC Insured, 5.00%, 10/01/23 ........................ 300,000 303,069
Snohomish County Housing Authority Revenue, Pooled, 6.30%, 4/01/16 ................. 150,000 151,046
Snohomish County USD No. 6 GO, 6.50%, 12/01/11 ..................................... 7,000,000 7,565,320
Twenty-Fifth Avenue Properties Washington Student Housing Revenue, MBIA Insured,
5.125%, 6/01/22 ................................................................. 2,925,000 2,960,919
5.25%, 6/01/33 .................................................................. 9,770,000 9,222,001
Washington State GO,
AMBAC Insured, 5.00%, 1/01/31 ................................................... 7,925,000 8,059,012
Motor Vehicle Fuel Tax, Series B, FGIC Insured, 5.00%, 7/01/27 .................. 10,000,000 10,240,300
Series A, FGIC Insured, 5.00%, 7/01/27 .......................................... 10,000,000 10,240,300
Various Purpose, Series C, FSA Insured, 5.25%, 1/01/26 .......................... 10,120,000 10,308,738
Washington State Health Care Facilities Authority Revenue,
MultiCare Health System, Refunding, MBIA Insured, 5.00%, 8/15/22 ................ 250,000 239,445
MultiCare Health System, Series B, Assured Guaranty, 6.00%, 8/15/39 ............. 1,500,000 1,523,985
MultiCare Health System, Series B, FSA Insured, 5.00%, 8/15/34 .................. 17,550,000 15,671,448
MultiCare Health System, Series B, FSA Insured, 5.00%, 8/15/41 .................. 9,170,000 8,008,895
Providence Health and Services, Refunding, Series A, FGIC Insured, 5.00%,
10/01/36 ..................................................................... 9,750,000 9,020,505
Providence Health and Services, Refunding, Series C, FSA Insured, 5.25%,
10/01/33 ..................................................................... 10,000,000 10,154,000
Providence Health and Services, Series A, FGIC Insured, Pre-Refunded, 5.00%,
10/01/36 ..................................................................... 250,000 294,597
Providence Services, MBIA Insured, Pre-Refunded, 5.50%, 12/01/26 ................ 6,000,000 6,236,340
Series C, Radian Insured, 5.50%, 8/15/36 ........................................ 16,000,000 11,613,760
Virginia Mason Medical, Series B, ACA Insured, 6.00%, 8/15/37 ................... 30,000,000 23,339,100
Washington State Public Power Supply System Revenue,
Nuclear Project No. 2, Refunding, Series A, 6.30%, 7/01/12 ...................... 7,700,000 8,707,391
Nuclear Project No. 3, Capital Appreciation, Refunding, Series B, zero cpn.,
7/01/14 ...................................................................... 12,450,000 10,586,359
Nuclear Project No. 3, Capital Appreciation, Series B, ETM, zero cpn., 7/01/14 .. 2,550,000 2,261,773
Nuclear Project No. 3, Refunding, Series B, zero cpn., 7/01/12 .................. 6,400,000 5,937,728
Nuclear Project No. 3, Refunding, Series B, zero cpn., 7/01/13 .................. 11,000,000 9,819,700
---------------
335,718,502
---------------
WEST VIRGINIA 0.5%
County Commission of Harrison County Solid Waste Disposal Revenue, Allegheny Energy
Supply Co. LLC, Refunding, Series D, 5.50%, 10/15/37 ............................ 9,000,000 7,231,770
Pleasants County PCR, County Commission, Series F, 5.25%, 10/15/37 ................. 14,000,000 11,369,540
50 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
MUNICIPAL BONDS (CONTINUED)
WEST VIRGINIA (CONTINUED)
West Virginia State GO, Series A, FGIC Insured, 5.20%, 11/01/26 .................... $ 10,000,000 $ 10,771,500
West Virginia State Water Development Water Revenue, Loan Program 2, Refunding,
Series B, AMBAC Insured, 5.00%, 11/01/29 ........................................ 7,500,000 7,539,225
West Virginia University Revenues, Improvement, West Virginia University Projects,
Series C, FGIC Insured, 5.00%, 10/01/34 ......................................... 10,000,000 9,872,000
---------------
46,784,035
---------------
WISCONSIN 0.5%
Janesville IDR, Simmons Manufacturing Co., 7.00%, 10/15/17 ......................... 2,200,000 2,021,184
Wisconsin State General Fund Annual Appropriation Revenue, Series A, 6.00%,
5/01/33 ......................................................................... 25,290,000 26,729,507
Wisconsin State Health and Educational Facilities Authority Revenue,
Ministry Health, FSA Insured, 5.00%, 8/01/31 .................................... 1,500,000 1,394,055
Ministry Health, FSA Insured, 5.00%, 8/01/34 .................................... 8,000,000 7,302,080
Thedacare Inc., AMBAC Insured, 5.00%, 12/15/30 .................................. 10,000,000 7,764,200
---------------
45,211,026
---------------
U.S. TERRITORIES 1.7%
PUERTO RICO 1.6%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.375%, 5/15/33 ...................................................... 20,780,000 16,961,052
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, Pre-Refunded,
5.00%, 7/01/36 ............................................................... 62,000,000 73,163,720
5.50%, 7/01/36 ............................................................... 7,000,000 8,490,510
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series K, 5.00%, 7/01/30 ............................................. 19,190,000 16,156,445
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue, Guaynabo Warehouse, Series A,
5.15%, 7/01/19 ............................................................... 850,000 814,895
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.25%, 7/01/27 ............................................. 3,265,000 2,814,854
Refunding, Series N, 5.00%, 7/01/37 ............................................. 20,000,000 15,971,800
Series D, Pre-Refunded, 5.25%, 7/01/27 .......................................... 8,735,000 9,632,521
---------------
144,005,797
---------------
VIRGIN ISLANDS 0.1%
Virgin Islands PFAR, Virgin Islands Matching Fund Loan Notes, senior lien, Refunding,
Series A,
5.50%, 10/01/18 .............................................................. 1,400,000 1,330,126
5.50%, 10/01/22 .............................................................. 5,000,000 4,582,800
5.625%, 10/01/25 ............................................................. 1,900,000 1,744,105
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/18 ......................................................................... 500,000 475,240
---------------
8,132,271
---------------
TOTAL U.S. TERRITORIES ............................................................. 152,138,068
---------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $8,767,149,282) ........................................................... 8,565,982,016
---------------
Annual Report | 51
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
SHORT TERM INVESTMENTS 2.6%
MUNICIPAL BONDS 2.6%
COLORADO 0.1%
(e) Colorado Educational and Cultural Facilities Authority Revenue, National Jewish
Federation Bond Program, Refunding, Series A-8, Daily VRDN and Put, 0.50%,
9/01/35 ......................................................................... $ 4,000,000 $ 4,000,000
---------------
FLORIDA 0.3%
(e) Broward County Educational Facilities Authority Revenue, Nova Southeastern
University, Series A, Daily VRDN and Put, 0.45%, 4/01/38 ........................ 13,400,000 13,400,000
(e) Florida State Municipal Power Agency Revenue, All Requirements Power Supply,
Refunding, Series C, Daily VRDN and Put, 0.45%, 10/01/35 ........................ 10,500,000 10,500,000
---------------
23,900,000
---------------
IOWA 0.0%(b)
(e) Iowa State Finance Authority Health Care Facilities Revenue, Iowa Health Systems,
Refunding, Series C, Daily VRDN and Put, 0.37%, 2/15/35 ......................... 2,000,000 2,000,000
---------------
KENTUCKY 0.0%(b)
(e) Lexington-Fayette Urban County Airport Board General Airport Revenue, Refunding,
Series B, Daily VRDN and Put, 0.45%, 7/01/38 .................................... 1,100,000 1,100,000
(e) Shelby County Lease Revenue, Series A, Daily VRDN and Put, 0.45%, 9/01/34 .......... 700,000 700,000
---------------
1,800,000
---------------
MARYLAND 0.0%(b)
(e) Maryland State Health and Higher Educational Facilities Authority Revenue, Upper
Chesapeake Hospital, Refunding, Series A, Daily VRDN and Put, 0.45%, 1/01/43 .... 3,100,000 3,100,000
---------------
MASSACHUSETTS 0.1%
(e) Massachusetts State Health and Educational Facilities Authority Revenue, Stonehill
College, Series K, Daily VRDN and Put, 0.40%, 7/01/37 ........................... 12,000,000 12,000,000
---------------
MICHIGAN 0.0%(b)
Michigan Municipal Bond Authority Revenue, Notes, Series A-2, 3.00%, 8/20/09 ....... 3,000,000 3,021,180
---------------
MISSOURI 0.1%
(e) North Kansas City Hospital Revenue, North Kansas City Hospital, Refunding, Daily
VRDN and Put, 0.52%, 11/01/33 ................................................... 5,810,000 5,810,000
---------------
NEW HAMPSHIRE 0.3%
(e) New Hampshire Health and Education Facilities Authority Revenue,
Dartmouth College, Refunding, Series A, Daily VRDN and Put, 0.45%, 6/01/31 ...... 12,800,000 12,800,000
University of North New Hampshire, Daily VRDN and Put, 0.50%, 7/01/33 ........... 11,400,000 11,400,000
---------------
24,200,000
---------------
NEW YORK 0.1%
(e) New York City IDAR, Liberty, One Bryant Park LLC, Series B, Daily VRDN and Put,
1.10%, 11/01/39 ................................................................. 5,800,000 5,800,000
---------------
NORTH CAROLINA 0.3%
(e) Charlotte-Mecklenburg Hospital Authority Health Care System Revenue, Carolinas
HealthCare System, Refunding, Series C, Daily VRDN and Put, 0.45%, 1/15/26 ...... 5,900,000 5,900,000
(e) North Carolina Medical Care Commission Health Care Facilities Revenue, Wake Forest
University, Refunding, Series D, Daily VRDN and Put, 0.45%, 7/01/34 ............. 21,300,000 21,300,000
---------------
27,200,000
---------------
52 | Annual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, APRIL 30, 2009 (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
OHIO 0.3%
(e) Allen County Hospital Facilities Revenue, Catholic Healthcare, Series A, Daily
VRDN and Put, 0.45%, 10/01/31 ................................................... $ 12,000,000 $ 12,000,000
(e) Cuyahoga County Revenue, Cleveland Clinic Health System Obligated Group, Series B,
Sub Series B-1, Daily VRDN and Put, 0.35%, 1/01/39 .............................. 8,340,000 8,340,000
Sub Series B-3, Daily VRDN and Put, 0.35%, 1/01/39 .............................. 6,000,000 6,000,000
---------------
26,340,000
---------------
PENNSYLVANIA 0.1%
(e) Geisinger Authority Health System Revenue, Geisinger Health System, Refunding,
Series A, Daily VRDN and Put, 0.32%, 5/15/35 .................................... 8,400,000 8,400,000
---------------
TENNESSEE 0.5%
(e) Clarksville PBA Revenue, Metropolitan Government Nashville & Davidson, Refunding,
Daily VRDN and Put, 0.45%, 7/01/26 .............................................. 10,700,000 10,700,000
(e) Montgomery County PBA Pooled Financing Revenue, Tennessee County Loan Pool, Daily
VRDN and Put, 0.45%,
4/01/32 ......................................................................... 20,000,000 20,000,000
7/01/34 ......................................................................... 5,200,000 5,200,000
2/01/36 ......................................................................... 10,865,000 10,865,000
---------------
46,765,000
---------------
TEXAS 0.3%
(e) Dallas Performing Arts Cultural Facilities Corp. Cultural Revenue, Dallas Arts
Center Foundation, Refunding, Series B, Daily VRDN and Put, 0.45%, 9/01/41 ...... 2,825,000 2,825,000
(e) Tarrant County Cultural Education Facilities Finance Corp. Revenue, Texas Health
Resources, Refunding,
Series C, Daily VRDN and Put, 0.37%, 11/15/33 ................................... 12,660,000 12,660,000
Series D, Daily VRDN and Put, 0.35%, 11/15/19 ................................... 9,230,000 9,230,000
Series G, Daily VRDN and Put, 0.35%, 11/15/33 ................................... 5,350,000 5,350,000
---------------
30,065,000
---------------
VIRGINIA 0.1%
(e) Virginia Small Business Financing Authority Hospital Revenue, Carilion Clinic
Obligation, Series B, Daily VRDN and Put, 0.45%, 7/01/42 ........................ 6,350,000 6,350,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $230,733,168) ................................... 230,751,180
---------------
TOTAL INVESTMENTS (COST $8,997,882,450) 98.7% ...................................... 8,796,733,196
OTHER ASSETS, LESS LIABILITIES 1.3% ................................................ 114,760,304
---------------
NET ASSETS 100.0% .................................................................. $ 8,911,493,500
===============
See Abbreviations on page 64.
(a) See Note 6 regarding defaulted securities.
(b) Rounds to less than 0.1% of net assets.
(c) Security purchased on a when-issued basis. See Note 1(b).
(d) The Internal Revenue Service has issued a preliminary adverse
determination, ruling that the income generated by the bond is taxable. The
issuer of the bond is contesting this determination and, until such time as
this is finalized, the Fund will continue to recognize interest income
earned on the bond as tax-exempt. The Trust's management believes that the
final outcome of this matter will not have a material adverse impact to the
Fund and/or its shareholders.
(e) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 53
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2009
Assets:
Investments in securities:
Cost ................................................................ $8,997,882,450
--------------
Value ............................................................... $8,796,733,196
Cash ................................................................... 598,879
Receivables:
Capital shares sold ................................................. 33,488,790
Interest ............................................................ 137,795,656
Other assets ........................................................... 14,277
--------------
Total assets ..................................................... 8,968,630,798
--------------
Liabilities:
Payables:
Investment securities purchased ..................................... 44,436,633
Capital shares redeemed ............................................. 7,543,852
Affiliates .......................................................... 4,570,317
Accrued expenses and other liabilities ................................. 586,496
--------------
Total liabilities ................................................ 57,137,298
--------------
Net assets, at value .......................................... $8,911,493,500
==============
Net assets consist of:
Paid-in capital ........................................................ $9,138,503,284
Undistributed net investment income .................................... 6,423,589
Net unrealized appreciation (depreciation) ............................. (201,149,254)
Accumulated net realized gain (loss) ................................... (32,284,119)
--------------
Net assets, at value .......................................... $8,911,493,500
==============
CLASS A:
Net assets, at value ................................................... $7,513,448,196
==============
Shares outstanding ..................................................... 669,978,213
==============
Net asset value per share(a) ........................................... $ 11.21
==============
Maximum offering price per share (net asset
value per share / 95.75%) ........................................... $ 11.71
==============
CLASS B:
Net assets, at value ................................................... $ 130,925,025
==============
Shares outstanding ..................................................... 11,682,175
==============
Net asset value and maximum offering price per share(a) ................ $ 11.21
==============
CLASS C:
Net assets, at value ................................................... $ 808,779,117
==============
Shares outstanding ..................................................... 72,156,226
==============
Net asset value and maximum offering price per share(a) ................ $ 11.21
==============
ADVISOR CLASS:
Net assets, at value ................................................... $ 458,341,162
==============
Shares outstanding ..................................................... 40,847,147
==============
Net asset value and maximum offering price per share ................... $ 11.22
==============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
54 | Annual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended April 30, 2009
Investment income:
Interest ............................................................... $ 432,991,618
--------------
Expenses:
Management fees (Note 3a) .............................................. 36,889,195
Distribution fees: (Note 3c)
Class A ............................................................. 6,381,236
Class B ............................................................. 981,110
Class C ............................................................. 4,431,395
Transfer agent fees (Note 3e) .......................................... 3,490,139
Custodian fees ......................................................... 117,475
Reports to shareholders ................................................ 320,469
Registration and filing fees ........................................... 480,231
Professional fees ...................................................... 179,984
Trustees' fees and expenses ............................................ 147,297
Other .................................................................. 468,511
--------------
Total expenses ...................................................... 53,887,042
--------------
Net investment income ............................................ 379,104,576
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .............................. (19,303,790)
Net change in unrealized appreciation (depreciation) on investments .... (383,243,520)
--------------
Net realized and unrealized gain (loss) ................................... (402,547,310)
--------------
Net increase (decrease) in net assets resulting from operations ........... $ (23,442,734)
==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 55
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
-------------------------------
2009 2008
-------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 379,104,576 $ 333,521,462
Net realized gain (loss) from investments .............. (19,303,790) 11,517,019
Net change in unrealized appreciation (depreciation)
on investments ...................................... (383,243,520) (198,174,563)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations ............................... (23,442,734) 146,863,918
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................. (327,476,118) (296,797,995)
Class B ............................................. (6,368,496) (7,815,031)
Class C ............................................. (28,395,043) (19,060,067)
Advisor Class ....................................... (16,864,421) (10,463,677)
-------------- --------------
Total distributions to shareholders ....................... (379,104,078) (334,136,770)
-------------- --------------
Capital share transactions: (Note 2)
Class A ............................................. 958,248,590 496,511,453
Class B ............................................. (37,762,936) (42,445,082)
Class C ............................................. 246,023,972 156,363,542
Advisor Class ....................................... 219,782,991 67,262,809
-------------- --------------
Total capital share transactions .......................... 1,386,292,617 677,692,722
-------------- --------------
Redemption fees ........................................... 6,691 41,626
-------------- --------------
Net increase (decrease) in net assets ............ 983,752,496 490,461,496
Net assets:
Beginning of year ......................................... 7,927,741,004 7,437,279,508
-------------- --------------
End of year ............................................... $8,911,493,500 $7,927,741,004
============== ==============
Undistributed net investment income included in net assets:
End of year ............................................... $ 6,423,589 $ 6,664,172
============== ==============
The accompanying notes are an integral part of these financial statements.
56 | Annual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS
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 an 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 Trust 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 Trust'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. SECURITY PURCHASED ON A WHEN-ISSUED AND DELAYED DELIVERY BASIS
The Fund may purchase securities on a when-issued and delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
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.
Annual Report | 57
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (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.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of April 30, 2009, and has
determined that no provision for income tax is required in the Fund's financial
statements.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Distributions to shareholders are 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, not
including class specific expenses, are allocated daily to each class of shares
based upon the relative proportion of net assets of each class. Differences in
per share distributions, by class, are generally due to differences in class
specific expenses.
E. INSURANCE
The scheduled payments of interest and principal for each insured municipal
security in the Trust are insured by either a new issue insurance policy or a
secondary insurance policy. Some municipal securities in the Fund are secured by
collateral guaranteed by an agency of the U.S. government. Insurance companies
typically insure municipal bonds that tend to be of very high quality, with the
majority of underlying municipal bonds rated A or better. However, there is a
risk that in the event of an issuer default, the insurer may not be able to
fulfill its obligations under the terms of the policy.
Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security or paid by a third party.
58 | Annual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the fund and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Fund, 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 April 30, 2009, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
YEAR ENDED APRIL 30,
-------------------------------------------------------------
2009 2008
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- --------------
CLASS A SHARES:
Shares sold ................. 183,760,044 $ 2,023,595,648 101,551,266 $1,207,913,902
Shares issued in reinvestment
of distributions ......... 17,333,298 193,105,436 14,477,906 171,713,716
Shares redeemed ............. (115,174,267) (1,258,452,494) (74,373,549) (883,116,165)
------------ --------------- ----------- --------------
Net increase (decrease) ..... 85,919,075 $ 958,248,590 41,655,623 $ 496,511,453
============ =============== =========== ==============
CLASS B SHARES:
Shares sold ................. 932,865 $ 10,195,617 421,738 $ 5,009,341
Shares issued in reinvestment
of distributions ......... 354,263 3,955,745 404,145 4,795,550
Shares redeemed ............. (4,693,284) (51,914,298) (4,396,889) (52,249,973)
------------ --------------- ----------- --------------
Net increase (decrease) ..... (3,406,156) $ (37,762,936) (3,571,006) $ (42,445,082)
============ =============== =========== ==============
Annual Report | 59
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
YEAR ENDED APRIL 30,
-------------------------------------------------------
2009 2008
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
CLASS C SHARES:
Shares sold ................. 33,971,494 $ 378,760,984 19,462,689 $230,755,127
Shares issued in reinvestment
of distributions ......... 1,647,982 18,319,466 1,034,743 12,265,251
Shares redeemed ............. (13,822,196) (151,056,478) (7,303,717) (86,656,836)
----------- ------------- ---------- ------------
Net increase (decrease) ..... 21,797,280 $ 246,023,972 13,193,715 $156,363,542
=========== ============= ========== ============
ADVISOR CLASS SHARES:
Shares sold ................. 30,867,546 $ 343,764,397 9,910,900 $118,040,536
Shares issued in reinvestment
of distributions ......... 1,007,637 11,135,603 355,208 4,207,356
Shares redeemed ............. (12,422,841) (135,117,009) (4,663,037) (54,985,083)
----------- ------------- ---------- ------------
Net increase (decrease) ..... 19,452,342 $ 219,782,991 5,603,071 $ 67,262,809
=========== ============= ========== ============
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
- ---------- ----------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
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 $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion
60 | Annual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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.
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 year:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $2,347,278
Contingent deferred sales charges retained ................... $ 612,166
E. TRANSFER AGENT FEES
For the year ended April 30, 2009, the Fund paid transfer agent fees of
$3,490,139, of which $2,141,648 was retained by Investor Services.
Annual Report | 61
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At April 30, 2009, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2012 ....................................................... $11,276,986
2014 ....................................................... 1,937,789
2017 ....................................................... 19,058,829
-----------
$32,273,604
===========
The tax character of distributions paid during the years ended April 30, 2009
and 2008, was as follows:
2009 2008
------------ ------------
Distributions paid from - tax exempt income .. $379,104,078 $334,136,770
At April 30, 2009, the cost of investments, net unrealized appreciation
(depreciation), and undistributed tax exempt and ordinary income for income tax
purposes were as follows:
Cost of investments ......................... $8,996,677,274
==============
Unrealized appreciation ..................... $ 291,490,449
Unrealized depreciation ..................... (491,434,527)
--------------
Net unrealized appreciation (depreciation) .. $ (199,944,078)
==============
Undistributed tax exempt income ............. $ 5,199,484
Undistributed ordinary income ............... 8,410
--------------
Distributable earnings ...................... $ 5,207,894
==============
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.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended April 30, 2009, aggregated $1,860,674,498 and $529,662,745,
respectively.
6. DEFAULTED SECURITIES
The Fund held a defaulted security and/or other securities for which the income
has been deemed uncollectible. At April 30, 2009, the value of this security was
$3,922,296, representing 0.04% of the Fund's net assets. The Fund discontinues
accruing income on securities for which income has been deemed uncollectible and
provides an estimate for losses on interest receivable. The security has been
identified on the accompanying Statement of Investments.
62 | Annual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT FACILITY
Effective January 23, 2009, the Fund, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to
interest charged on any borrowings made by the Fund and other costs incurred by
the Fund, pay its share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Fund incurred commitment fees of $5,314 of its
pro rata portion of the Global Credit Facility, which is reflected in Other
expenses on the Statement of Operations. During the year ended April 30, 2009,
the Fund did not utilize the Global Credit Facility.
8. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on May 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Fund has determined that the implementation
of SFAS 157 did not have a material impact on the Fund's financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At April 30, 2009, all of the Fund's investments in securities carried at fair
value were in Level 2 inputs.
Annual Report | 63
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NEW ACCOUNTING PRONOUNCEMENT
In April 2009, FASB issued FASB Staff Position FSP FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4), which provides additional guidance when the volume and level of
activity for the asset or liability measured at fair value have significantly
decreased. Additionally, FSP FAS 157-4 amends SFAS 157, expanding disclosure
requirements by reporting entities surrounding the major categories of assets
and liabilities carried at fair value. FSP FAS 157-4 is effective for interim
and annual periods ending after June 15, 2009. The Trust is currently evaluating
the impact, if any, of applying FSP FAS 157-4.
ABBREVIATIONS
SELECTED PORTFOLIO
ACA - American Capital Access Holdings Inc.
AMBAC - American Municipal Bond Assurance Corp.
BHAC - Berkshire Hathaway Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co.
(acquired by MBIA in 1989 and no longer
does business under this name)
CDA - Community Development Authority/Agency
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FICO - Financing Corp.
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.
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.
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
PBA - Public Building Authority
PCC - Pollution Control Corp.
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
PUD - Public Utility District
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
USD - Unified/Union School District
XLCA - XL Capital Assurance
64 | Annual Report
Franklin Federal Tax-Free Income Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN FEDERAL TAX-FREE INCOME
FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Federal Tax-Free Income
Fund (the "Fund") at April 30, 2009, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at April 30, 2009 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
June 19, 2009
Annual Report | 65
Franklin Federal Tax-Free Income Fund
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Fund designates
100% of the distributions paid from net investment income as exempt-interest
dividends for the fiscal year ended April 30, 2009. A portion of the Fund's
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2010, shareholders will be notified of amounts for use in preparing
their 2009 income tax returns.
66 | Annual Report
Franklin Federal Tax-Free Income Fund
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- -------------- ------------------ ----------------------- ------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1982 135 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ROBERT F. CARLSON (1928) Trustee Since 1998 112 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement
Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
SAM GINN (1937) Trustee Since 2007 112 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 2005 135 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution
of titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison - United States Treasury Department (1988-1989).
Annual Report | 67
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- -------------- ------------------ ----------------------- ------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1982 112 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
FRANK A. OLSON (1932) Trustee Since 2007 135 Hess Corporation (exploration and
One Franklin Parkway San refining of oil and gas) and
Mateo, CA 94403-1906 Sentient Jet (private jet service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 143 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 112 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate
Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm)
(1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- -------------- ------------------ ----------------------- ------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 135 None
One Franklin Parkway Chairman of 1982 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42
of the investment companies in Franklin Templeton Investments.
68 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- -------------- ------------------ ----------------------- ------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 91 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
SHEILA AMOROSO (1959) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
RAFAEL R. COSTAS, JR. (1965) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
Gardey Gaston (1962) Chief Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer
-Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
GASTON GARDEY (1967) Treasurer, Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Fund Accounting, Franklin Templeton Investments; and officer of 28 of the investment companies in Franklin Templeton
Investments.
Annual Report | 69
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- -------------- ------------------ ----------------------- ------------------------------------
EDWARD L. GEARY (1962) Vice President Since March 2009 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer of 46 of the investment companies in Franklin Templeton Investments.
ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President and Since 2002 Not Applicable Not Applicable
One Franklin Parkway Chief
San Mateo, CA 94403-1906 Executive
Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
70 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- -------------- ------------------ ----------------------- ------------------------------------
THOMAS WALSH (1961) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Fund under the federal securities laws due to his position as officer
and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 71
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 24, 2009, the Board of Directors (Board), including a
majority of non-interested or independent Directors, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, and other services provided by the
Investment Manager (Manager) and its affiliates. Information furnished
specifically in connection with the renewal process included a report for the
Fund prepared by Lipper, Inc. (Lipper), an independent organization, as well as
additional material, including a Fund profitability analysis report prepared by
management. The Lipper report compared the Fund's investment performance and
expenses with those of other mutual funds deemed comparable to the Fund as
selected by Lipper. The Fund profitability analysis report discussed the
profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Fund by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged the Fund. Such material also discussed some of the
actions taken by management in coping with problems arising out of the past
year's financial upheaval.
In considering such materials, the independent Directors received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Directors, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other
72 | Annual Report
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management personnel with the code of ethics adopted throughout the Franklin
Templeton fund complex, the adherence to fair value pricing procedures
established by the Board, and the accuracy of net asset value calculations. The
Board also noted the extent of benefits provided Fund shareholders from being
part of the Franklin Templeton family of funds, including the right to exchange
investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's continuous efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted that such systems and procedures had functioned smoothly during
the Florida hurricanes and blackouts experienced in recent years. Consideration
was also given to the experience of the Fund's portfolio management team, the
number of accounts managed and general method of compensation. In this latter
respect, the Board noted that a primary factor in management's determination of
a portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed and that a portion of such bonus was required to
be invested in a predesignated list of funds within such person's fund
management area so as to be aligned with the interests of Fund shareholders. The
Board also took into account the quality of transfer agent and shareholder
services provided Fund shareholders by an affiliate of the Manager, noting
continuing expenditures by management to increase and improve the scope of such
services, periodic favorable reports on such service conducted by third parties,
and the continuous enhancements to and high industry ranking given the Franklin
Templeton website. Particular attention was given to the overall performance and
actions taken by the Manager and its affiliates in response to problems arising
out of the market turmoil and financial crisis experienced during the past year.
In this respect, the Board noted that management's independent credit analysis
and diligent risk management procedures had minimized exposure of funds within
the Franklin Templeton complex to subprime mortgages and that its continuous
monitoring of counterparty credit risk had limited fund exposure to firms
experiencing financial difficulties like Bear Stearns and AIG. The same type of
conservative approach and attention to risk had also prevented any structured
investment products or other volatile instruments from being held in the
portfolios of any of the money market funds within the Franklin Templeton
complex, including the sweep money fund utilized by many of the funds as part of
their cash management. The Board also took into account, among other things,
management's efforts in establishing a $725 million global credit facility for
the benefit of the funds and other accounts managed by Franklin Templeton
Investments to provide a source of cash for temporary and emergency purposes or
to meet unusual redemption requests as well as the strong financial position of
the Manager's parent company and its commitment to the mutual fund business. The
Board also noted that during the past year Franklin Templeton Investments, like
many other fund managers, had announced a hiring freeze and implemented employee
reductions, and the Board discussed with management the nature of such
reductions and steps being taken to minimize any negative impact on the nature
and quality of services being provided the Fund.
Annual Report | 73
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the agreement
renewal. The Lipper report prepared for the Fund showed its investment
performance of its Class A shares during 2008 as well as the previous 10 years
ended December 31, 2008, in comparison to a performance universe consisting of
all retail and institutional general municipal debt funds as selected by Lipper.
The Lipper report showed the income performance for the Fund during 2008 and on
an annualized basis in each of the previous three-, five- and 10-year periods to
be in the highest or second-highest quintile of its Lipper performance universe.
The Lipper report showed the Fund's total return during 2008 to be above the
median of the Lipper performance universe and to be in the highest or
second-highest quintile of such universe in each of the previous three-, five-
and 10-year periods on an annualized basis. The Board expressed its satisfaction
with such performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Lipper expense data is based upon historical
information taken from each fund's most recent annual report and, as a result of
the severe decline in mutual fund industry assets during the last quarter of
2008, is based on asset levels that are higher than the level currently existing
for most funds. While recognizing the limitations inherent in Lipper's
methodology and recognizing that current expense ratios may increase as assets
decline, the Board believed that the independent analysis conducted by Lipper
remained an appropriate measure of comparative expenses. In reviewing
comparative costs, Lipper provides information on the Fund's contractual
investment management fee in comparison with the contractual investment
management fee that would have been charged by other funds within its Lipper
expense group assuming they were similar in size to the Fund, as well as the
actual total expenses of the Fund in comparison with those of its Lipper expense
group. The Lipper contractual investment management fee analysis includes
administrative charges as being part of a management fee, and total expenses,
for comparative consistency, are shown by Lipper for Fund Class A shares. The
results of such expense comparisons showed the contractual investment management
fee rate for the Fund to be less than four basis points above its Lipper expense
group median, and its actual total expense rate to be in the least expensive
quintile of such expense group. The Board was satisfied with the expenses of the
Fund in comparison to its expense group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund during the 12-month period ended September 30, 2008, being the most
recent fiscal
74 | Annual Report
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
year end for Franklin Resources, Inc., the Manager's parent. During such period,
the assets of the Franklin Templeton U.S. fund business were significantly
higher than currently existing, and to such extent the profitability analysis
does not reflect current fund operations. While taking this into account in
assessing the significance of the Fund profitability analysis, the Board
recognized such analysis was made at a given point in time and that the decline
in assets and effect on profitability would be reflected in the profitability
analysis covering Franklin Resources' 2009 fiscal year period. In reviewing the
analysis, attention was given to the methodology followed in allocating costs to
the Fund, it being recognized that allocation methodologies are inherently
subjective and various allocation methodologies may each be reasonable while
producing different results. In this respect, the Board noted that, while being
continually refined and reflecting changes in the Manager's own cost accounting,
the allocation methodology was consistent with that followed in profitability
report presentations for the Fund made in prior years and that the Fund's
independent registered public accounting firm had been engaged by the Manager to
perform certain procedures on a biennial basis, specified and approved by the
Manager and the Fund's Board solely for their purposes and use in reference to
the profitability analysis. In reviewing and discussing such analysis,
management discussed with the Board its belief that costs incurred in
establishing the infrastructure necessary for the type of mutual fund operations
conducted by the Manager and its affiliates may not be fully reflected in the
expenses allocated to the Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. The Board also took into
account management's expenditures in improving shareholder services provided the
Fund, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis as
compared to other publicly held managers broken down to show profitability from
management operations exclusive of distribution expenses, as well as
profitability including distribution expenses. The Board also considered the
extent to which the Manager and its affiliates might derive ancillary benefits
from fund operations, including its interest in a joint venture entity that
financed up-front commissions paid to brokers/dealers who sold fund Class B
shares prior to February 2005 when the offering of such shares was discontinued.
Based upon its consideration of all these factors, the Board determined that the
level of profits realized by the Manager and its affiliates from providing
services to the Fund was not excessive in view of the nature, quality and extent
of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund
Annual Report | 75
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
grows in size, its effective management fee rate declines. The fee structure
under the Fund's investment management agreement provides an initial fee of
0.625% on the first $100 million of assets; 0.50% on the next $150 million of
assets; 0.45% on the next $7.25 billion of assets; 0.44% on the next $2.5
billion of assets, with breakpoints continuing in stages thereafter until
declining to a final breakpoint of 0.36% on assets in excess of $20 billion. The
Fund had assets of approximately $7.9 billion at the end of 2008 and the Board
believes that to the extent any economies of scale may be realized by the
Manager and its affiliates, the schedule of fees under the investment management
agreement provides a sharing of benefits with the Fund and its shareholders.
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (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 (800)
SEC-0330.
76 | Annual Report
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(3)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(3)
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(3)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(4)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(5)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(6)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(6)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) 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.
(3.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(4.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(5.) The fund invests primarily in insured municipal securities.
(6.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(7.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/17/09.
(8.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/09 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
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ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN FEDERAL TAX-FREE INCOME FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(800) 632-2301
Authorized for distribution only when accompanied or preceded by a 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 A2009 06/09
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $292,534 for the fiscal year ended April 30, 2009 and $325,694 for the
fiscal year ended April 30, 2008.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $6,000 for the fiscal year ended
April 30, 2009 and $0 for the fiscal year ended April 30, 2008. The services for
which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $10,704 for the fiscal year ended April 30,
2009 and $0 for the fiscal year ended April 30, 2008. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $273,373 for the fiscal
year ended April 30, 2009 and $0 for the fiscal year ended April 30, 2008. The
services for which these fees were paid included review of materials provided to
the fund Board in connection with the investment management contract renewal
process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $290,077 for the fiscal year ended April 30, 2009 and $0 for the
fiscal year ended April 30, 2008.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gardey Gaston, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gardey Gaston, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
By /s/Laura F. Fergerson
------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date June 25, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/Laura F. Fergerson
------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date June 25, 2009
By /s/Gardey Gaston
---------------------
Gardey Gaston
Chief Financial Officer and Chief Accounting Officer
Date June 25, 2009