UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03395
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Franklin Federal Tax-Free Income Fund
--------------------------------------------------
(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:_10/31/09
--------
Item 1. Reports to Stockholders.
OCTOBER 31, 2009
SEMIANNUAL REPORT
AND SHAREHOLDER LETTER
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
(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 At Franklin Templeton Investments, we seek to
TRUST consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as the
reliable, accurate and personal service that has helped
us become one of the most trusted names in financial
services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ..................... 1
SEMIANNUAL REPORT
Franklin Federal Tax-Free Income Fund .. 4
Performance Summary .................... 9
Your Fund's Expenses ................... 12
Financial Highlights and
Statement of Investments ............ 14
Financial Statements ................... 53
Notes to Financial Statements .......... 56
Shareholder Information ................ 64
Shareholder Letter
Dear Shareholder:
In the third quarter of 2009, U.S. economic activity improved compared with the
previous quarter. Recent economic releases pointed to an easing of the global
recession. Although most economists predicted positive U.S. growth for the
second half of 2009, many expected growth would be sluggish as consumers and the
financial system continued to climb out of debt.
The federal funds target rate remained unchanged over the period; however, the
Federal Reserve Board (Fed) was very active. In response to the financial crisis
in 2008, the Fed not only cut the federal funds target rate to a 0% to 0.25%
range, it also employed other strategies to help stem the crisis, resulting in a
substantial increase in its balance sheet. The Fed established various lending
and liquidity facilities and through quantitative easing purchased mortgage
securities and Treasuries, all in an effort to encourage long-term interest
rates to move lower.
Most major financial markets showed signs of recovery, and equity markets staged
a strong rally since March. As financial markets moved off their lows, commodity
prices rebounded. Overall inflation, however, remained tame. The Fed chairman
began to prepare markets for the unwinding of the Fed's accommodative policy and
the exit strategy for its lending and liquidity facilities. At this point, the
timing of these actions is uncertain.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
The municipal bond market experienced a healthy rebound in the six-month period
under review; the Barclays Capital (BC) Municipal Bond Index returned +4.99%,
and securities with maturities 22 years and longer, which make up a substantial
portion of our portfolio, returned +9.88%.(1)
Although it looked as if the banking and financial crisis may have turned the
corner and economic recovery was under way, we think a note of caution is
warranted. We believe such areas of the economy as employment, housing, state
and local government budgets, and the finance and banking sector will continue
to face challenges and show signs of pressure for an indefinite period.
We believe it is especially important during uncertain times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. Investors with discipline and a sound investment plan
may find favorable long-term opportunities when markets decline.
Franklin Federal Tax-Free Income Fund's semiannual report goes into greater
detail about prevailing conditions during the period under review. In addition,
you will find performance data, financial information and a discussion from the
portfolio manager. 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.
(1.) 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. The BC Municipal Long Bond
Index is the long (22+ years) component of the BC Municipal Bond Index.
2 | Not part of the semiannual report
Please check our website at franklintempleton.com for special portfolio manager
commentary. Although market conditions are constantly changing, we remain
committed to our disciplined strategy as we manage the 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 OCTOBER 31, 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.
Not part of the semiannual report | 3
Semiannual Report
Franklin Federal Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Federal Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal income taxes as
is consistent with prudent investment management and preservation of capital by
investing at least 80% of its total assets in investment-grade municipal
securities that pay interest free from such taxes.(1)
CREDIT QUALITY BREAKDOWN*
10/31/09
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ---------------------- -----------------------
AAA 27.3%
AA 22.9%
A 26.8%
BBB 11.4%
Below Investment Grade 0.9%
Not Rated by S&P 10.7%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ---------------------- ------- --------
AAA or Aaa 0.2% 1.1%
AA or Aa 3.4% 0.1%
A 3.1% 0.5%
BBB or Baa 1.5% 0.4%
Below Investment Grade 0.2% 0.2%
--- ---
Total 8.4% 2.3%
--- ---
We are pleased to bring you Franklin Federal Tax-Free Income Fund's semi-annual
report for the period ended October 31, 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 18.
4 | Semiannual Report
DIVIDEND DISTRIBUTIONS(2)
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
May 4.50 cents 3.99 cents 4.03 cents 4.58 cents
June 4.45 cents 3.91 cents 3.94 cents 4.54 cents
July 4.45 cents 3.91 cents 3.94 cents 4.54 cents
August 4.45 cents 3.91 cents 3.94 cents 4.54 cents
September 4.45 cents 3.91 cents 3.93 cents 4.55 cents
October 4.45 cents 3.91 cents 3.93 cents 4.55 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, increased from
$11.21 on April 30, 2009, to $11.75 on October 31, 2009. The Fund's Class A
shares paid dividends totaling 26.75 cents per share for the reporting
period.(2) The Performance Summary beginning on page 9 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.35%
based on an annualization of October's 4.45 cent per share dividend and the
maximum offering price of $12.27 on October 31, 2009. An investor in the 2009
maximum federal personal income tax bracket of 35.00% would need to earn a
distribution rate of 6.69% from a taxable investment to match the Fund's Class A
tax-free distribution rate. For the Fund's Class B, C and Advisor shares'
performance, please see the Performance Summary. During the period under review,
renewed investor interest in municipal bonds and limited new-issue supply led to
higher municipal bond prices, which reduced the Fund's income and cause
dividends to decline slightly.
MUNICIPAL BOND MARKET OVERVIEW
During the six-month period ended October 31, 2009, the municipal bond market
posted a +4.99% total return, as measured by the Barclays Capital (BC) Municipal
Bond Index.(3) The municipal bond market posted not only solid absolute
performance but also strong relative performance when compared to
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
(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.
Semiannual Report | 5
the Treasury market, as the BC U.S. Treasury Index had a +0.81% total return for
the reporting period.(4)
Among the many factors that affected municipal bond prices during the six-month
period, confidence over issuers' abilities to repay funds, the purchasing power
of those repaid dollars, and the supply of tax-free municipal bonds had a major
impact on municipal bond prices. Due to a changing economic landscape, rating
downgrades of bond insurers, and reconciliation between corporate and municipal
rating scales, many municipal bonds were re-rated during the period. In the
second and third quarters of 2009, Moody's elevated the rating of 185 state and
local government issues while downgrading 120. Recent positive rating actions
coupled with a long-term default rate for investment-grade municipal bonds of
less than 1% helped remind investors of the asset class's underlying credit
strength.(5) Investor interest also increased for lower investment-grade and
speculative-grade issues during the reporting period, which drove the BC Baa
Municipal Bond Index up 12.68%, compared with the BC Aaa Municipal Bond Index's
+2.81% total return.(6)
From April through October 2009, each month's annualized inflation rate as
measured by the Consumer Price Index (CPI) was negative. In addition, the
Congressional Budget Office (CBO) forecast CPI will remain below 2% through
2019. Historically, a low inflation outlook has provided confidence for fixed
income investors that future cash flow from their bond investments will retain
purchasing power. However, the CBO's estimate for temperate inflation did not
cause the yield curve to level off, and the yield difference between short- and
long-term municipal bonds averaged a spread of 434 basis points (100 basis
points equal one percentage point) for the six-month period, as measured by the
Securities Industry and Financial Market Association (SIFMA) 7-Day Index and the
Bloomberg Fair Value 30-Year AAA Index.(7) The 10-year average using the same
indexes was 247 basis points.(7) If the CBO's estimate of future inflation is
realized, then buyers of longer term bonds will reap the rewards of attractive
returns over inflation.
(4.) Source: (C) 2009 Morningstar. The BC U.S. Treasury Index is the U.S.
Treasury component of the U.S. Government Index and covers public
obligations of the U.S. Treasury with a remaining maturity of one year or
more.
(5.) Source: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2009," RATINGSDIRECT, 3/11/09.
(6.) Source: (C) 2009 Morningstar. The BC Baa Municipal Bond Index is the Baa
credit quality component of the BC Municipal Bond Index. The BC Aaa
Municipal Bond Index is the Aaa credit quality component of the BC
Municipal Bond Index.
(7.) Sources: Thomson Financial; Bloomberg LP. The SIFMA 7-Day Index is produced
by Municipal Market Data and is composed of actual auction rate securities
issues provided by broker dealers and auction agents. The Bloomberg Fair
Value 30-Year AAA Index is an index derived from data points on Bloomberg's
option-free Fair Market Curve consisting of municipal general obligation
bonds.
6 | Semiannual Report
Tax-free bond supply also affected municipal bond market performance over the
past six months. Thus far in 2009, tax-exempt bond issuance contracted 2.2%
compared with the same period in 2008.(8) The lack of tax-free offerings left
investors with fewer bonds to construct their portfolios and helped drive
municipal bond prices higher. Details of the supply of tax-exempt offerings
during 2009 are noteworthy because the way municipalities accessed capital
markets underwent a structural change. In February 2009 the American Recovery
and Reinvestment Act was signed into law, allowing municipalities to issue
taxable bonds and receive a 35% federal government subsidy for all coupon
payments distributed to investors for the life of the bonds. This rebate allowed
municipalities to borrow significantly below their after-tax cost in the
traditional tax-exempt municipal bond market. These new subsidized, taxable
municipal bonds, known as Build America Bonds, are likely to suppress future
supply of tax-exempt municipal bonds as long as the government permits their
use.
Given the various ratings changes, the relatively steep yield curve, and the
reduced supply during the reporting period, we looked for opportunities to keep
the portfolio fully invested in longer term bonds, which helped support the
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.
INVESTMENT STRATEGY
We use a consistent, disciplined strategy in an effort to maximize tax-exempt
income for our shareholders by seeking to maintain exposure to higher coupon
securities. We generally employ a buy-and-hold approach and invest in securities
that we believe should provide the most relative value in the market. As we
invest during different interest rate environments, our portfolio becomes
progressively more diversified with a broad range of securities. This broad
diversification may help mitigate interest rate risk. We do not use leverage or
exotic derivatives, nor do we use hedging techniques that could add volatility
and contribute to underperformance in adverse markets. We generally stay fully
invested to help maximize income distribution.
PORTFOLIO BREAKDOWN
10/31/09
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Utilities 17.5%
Prerefunded 16.3%
Transportation 13.3%
Hospital & Health Care 13.0%
General Obligation 11.5%
Subject to Government Appropriations 10.7%
Other Revenue 5.2%
Tax-Supported 5.1%
Higher Education 4.8%
Corporate-Backed 1.7%
Housing 0.9%
* Does not include short-term investments and other net assets.
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
(8.) Source: THE BOND BUYER, 10/31/09.
Semiannual Report | 7
period. Consistent with our strategy, we 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. 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 OCTOBER 31, 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.
8 | Semiannual Report
Performance Summary as of 10/31/09
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 does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKTIX) CHANGE 10/31/09 4/30/09
- ----------------------- ------ -------- -------
Net Asset Value (NAV) +$0.54 $11.75 $11.21
DISTRIBUTIONS (5/1/09-10/31/09)
Dividend Income $0.2675
CLASS B (SYMBOL: FFTBX) CHANGE 10/31/09 4/30/09
- ----------------------- ------ -------- -------
Net Asset Value (NAV) +$0.53 $11.74 $11.21
DISTRIBUTIONS (5/1/09-10/31/09)
Dividend Income $0.2354
CLASS C (SYMBOL: FRFTX) CHANGE 10/31/09 4/30/09
- ----------------------- ------ -------- -------
Net Asset Value (NAV) +$0.53 $11.74 $11.21
DISTRIBUTIONS (5/1/09-10/31/09)
Dividend Income $0.2371
ADVISOR CLASS (SYMBOL: FAFTX) CHANGE 10/31/09 4/30/09
- ----------------------------- ------ -------- -------
Net Asset Value (NAV) +$0.54 $11.76 $11.22
DISTRIBUTIONS (5/1/09-10/31/09)
Dividend Income $0.2730
Semiannual Report | 9
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 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +7.30% +14.81% +21.58% +65.93%
Average Annual Total Return(2) +2.72% +9.90% +3.09% +4.74%
Avg. Ann. Total Return (9/30/09)(3) +10.20% +3.69% +4.81%
Distribution Rate(4) 4.35%
Taxable Equivalent Distribution Rate(5) 6.69%
30-Day Standardized Yield(6) 3.39%
Taxable Equivalent Yield(5) 5.22%
Total Annual Operating Expenses(7) 0.61%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +6.91% +14.18% +18.25% +58.73%
Average Annual Total Return(2) +2.91% +10.18% +3.07% +4.73%
Avg. Ann. Total Return (9/30/09)(3) +10.48% +3.68% +4.80%
Distribution Rate(4) 4.00%
Taxable Equivalent Distribution Rate(5) 6.15%
30-Day Standardized Yield(6) 3.00%
Taxable Equivalent Yield(5) 4.62%
Total Annual Operating Expenses(7) 1.17%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +6.92% +14.20% +18.19% +56.96%
Average Annual Total Return(2) +5.92% +13.20% +3.40% +4.61%
Avg. Ann. Total Return (9/30/09)(3) +13.50% +4.01% +4.67%
Distribution Rate(4) 4.02%
Taxable Equivalent Distribution Rate(5) 6.18%
30-Day Standardized Yield(6) 2.99%
Taxable Equivalent Yield(5) 4.60%
Total Annual Operating Expenses(7) 1.17%
ADVISOR CLASS(8) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- ------- -------
Cumulative Total Return(1) +7.34% +15.01% +22.22% +67.16%
Average Annual Total Return(2) +7.34% +15.01% +4.09% +5.27%
Avg. Ann. Total Return (9/30/09)(3) +15.21% +4.69% +5.34%
Distribution Rate(4) 4.64%
Taxable Equivalent Distribution Rate(5) 7.14%
30-Day Standardized Yield(6) 3.65%
Taxable Equivalent Yield(5) 5.62%
Total Annual Operating Expenses(7) 0.52%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT franklintempleton.com OR CALL (800) 342-5236.
10 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE SENSITIVE TO INTEREST RATE MOVEMENTS, THE FUND'S
YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES
GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF
BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY
DECLINE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
October dividend and the maximum offering price (NAV for Classes B, C and
Advisor) per share on 10/31/09.
(5.) Taxable equivalent distribution rate and yield assume the 2009 maximum
federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the 30 days ended 10/31/09 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Effective 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 +44.06% and +4.91%.
Semiannual Report | 11
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.
12 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 5/1/09 VALUE 10/31/09 PERIOD* 5/1/09-10/31/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,073.00 $3.19
Hypothetical (5% return before expenses) $1,000 $1,022.13 $3.11
CLASS B
Actual $1,000 $1,069.10 $6.05
Hypothetical (5% return before expenses) $1,000 $1,019.36 $5.90
CLASS C
Actual $1,000 $1,069.20 $6.05
Hypothetical (5% return before expenses) $1,000 $1,019.36 $5.90
ADVISOR CLASS
Actual $1,000 $1,073.40 $2.67
Hypothetical (5% return before expenses) $1,000 $1,022.63 $2.60
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.61%; B: 1.16%; C: 1.16%; and Advisor:
0.51%), multiplied by the average account value over the period, multiplied
by 184/365 to reflect the one-half year period.
Semiannual Report | 13
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 2009 ------------------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 11.21 $ 11.82 $ 12.11 $ 11.99 $ 12.23 $ 11.91
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ............ 0.26 0.53 0.53 0.55 0.53 0.57
Net realized and unrealized gains
(losses) ......................... 0.55 (0.61) (0.29) 0.12 (0.22) 0.31
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ....... 0.81 (0.08) 0.24 0.67 0.31 0.88
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from net investment
income .............................. (0.27) (0.53) (0.53) (0.55) (0.55) (0.56)
---------- ---------- ---------- ---------- ---------- ----------
Redemption fees(c) ..................... -- --(d) --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ......... $ 11.75 $ 11.21 $ 11.82 $ 12.11 $ 11.99 $ 12.23
========== ========== ========== ========== ========== ==========
Total return(e) ........................ 7.30% (0.55)% 2.06% 5.66% 2.55% 7.62%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ............................... 0.61% 0.61% 0.60% 0.61% 0.61% 0.61%
Net investment income .................. 4.54% 4.73% 4.44% 4.58% 4.33% 4.72%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $8,421,053 $7,513,448 $6,901,918 $6,570,140 $6,279,940 $6,324,986
Portfolio turnover rate ................ 3.62% 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
14 | Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 2009 --------------------------------------------------------
CLASS B (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 11.21 $ 11.81 $ 12.10 $ 11.98 $ 12.22 $ 11.90
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............ 0.23 0.47 0.46 0.49 0.46 0.50
Net realized and unrealized gains
(losses) ......................... 0.54 (0.60) (0.29) 0.11 (0.22) 0.31
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 0.77 (0.13) 0.17 0.60 0.24 0.81
-------- -------- -------- -------- -------- --------
Less distributions from net investment
income .............................. (0.24) (0.47) (0.46) (0.48) (0.48) (0.49)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ..................... -- --(d) --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ......... $ 11.74 $ 11.21 $ 11.81 $ 12.10 $ 11.98 $ 12.22
======== ======== ======== ======== ======== ========
Total return(e) ........................ 6.91% (1.02)% 1.49% 5.08% 1.99% 7.00%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ............................... 1.16% 1.17% 1.16% 1.17% 1.17% 1.17%
Net investment income .................. 3.99% 4.17% 3.88% 4.02% 3.77% 4.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $105,867 $130,925 $178,156 $225,834 $260,416 $289,490
Portfolio turnover rate ................ 3.62% 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 15
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 2009 --------------------------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.21 $ 11.81 $ 12.11 $ 11.99 $ 12.23 $ 11.90
---------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.23 0.47 0.46 0.49 0.46 0.50
Net realized and unrealized gains (losses) .. 0.54 (0.60) (0.30) 0.11 (0.22) 0.32
---------- -------- -------- -------- -------- --------
Total from investment operations ............... 0.77 (0.13) 0.16 0.60 0.24 0.82
---------- -------- -------- -------- -------- --------
Less distributions from net investment income .. (0.24) (0.47) (0.46) (0.48) (0.48) (0.49)
---------- -------- -------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d) --(d)
---------- -------- -------- -------- -------- --------
Net asset value, end of period ................. $ 11.74 $ 11.21 $ 11.81 $ 12.11 $ 11.99 $ 12.23
========== ======== ======== ======== ======== ========
Total return(e) ................................ 6.92% (1.01)% 1.41% 5.08% 1.99% 7.09%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ....................................... 1.16% 1.17% 1.16% 1.17% 1.17% 1.17%
Net investment income .......................... 3.99% 4.17% 3.88% 4.02% 3.77% 4.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $1,068,682 $808,779 $594,724 $449,918 $403,084 $371,438
Portfolio turnover rate ........................ 3.62% 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
16 | Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, 2009 ------------------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006 2005
- ------------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.22 $ 11.82 $ 12.12 $ 12.00 $ 12.23 $ 11.92
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.27 0.54 0.54 0.57 0.54 0.58
Net realized and unrealized gains (losses) .. 0.54 (0.60) (0.30) 0.11 (0.21) 0.30
-------- -------- -------- -------- -------- --------
Total from investment operations ............... 0.81 (0.06) 0.24 0.68 0.33 0.88
-------- -------- -------- -------- -------- --------
Less distributions from net investment income .. (0.27) (0.54) (0.54) (0.56) (0.56) (0.57)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................. $ 11.76 $ 11.22 $ 11.82 $ 12.12 $ 12.00 $ 12.23
======== ======== ======== ======== ======== ========
Total return(e) ................................ 7.34% (0.38)% 2.07% 5.76% 2.63% 7.71%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ....................................... 0.51% 0.52% 0.51% 0.52% 0.52% 0.52%
Net investment income .......................... 4.64% 4.82% 4.53% 4.67% 4.42% 4.81%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $734,285 $458,341 $252,943 $191,387 $155,857 $112,032
Portfolio turnover rate ........................ 3.62% 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 17
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS 97.0%
ALABAMA 1.2%
Anniston Regional Medical Center Board Revenue, Series A, AMBAC Insured,
5.125%, 6/01/28 .............................................................. $ 7,000,000 $ 6,603,380
Courtland IDB Solid Waste Disposal Revenue, Champion International Corp. ........
Project, Refunding,
6.00%, 8/01/29 ............................................................... 12,000,000 11,221,920
Series A, 6.70%, 11/01/29 .................................................... 4,000,000 4,040,000
East Alabama Health Care Authority Health Care Facilities Revenue,
Mandatory Put 9/01/18, Series B, 5.50%, 9/01/33 .............................. 18,500,000 18,834,850
Fairfield IDB Environmental Improvement Revenue, USX Corp. Project,
Refunding, 5.45%, 9/01/14 .................................................... 1,445,000 1,451,127
Homewood GO, wts., Refunding, FSA Insured, 4.75%, 9/01/30 ....................... 9,265,000 9,396,100
Mobile GO, wts., Refunding and Improvement, AMBAC Insured, 5.00%, 2/15/30 ....... 5,000,000 5,212,900
Montgomery County Public Building Authority Revenue, wts., Facilities
Project, NATL Insured, 5.00%, 3/01/31 ........................................ 6,250,000 6,465,187
Tuscaloosa Public Educational Building Authority Student Housing Revenue,
Ridgecrest Student Housing LLC, Assured Guaranty, 6.75%, 7/01/38 ............. 10,000,000 11,254,200
University of Alabama General Revenue, Series A,
NATL Insured, 5.00%, 7/01/29 ................................................. 10,000,000 10,275,100
NATL Insured, 5.00%, 7/01/34 ................................................. 10,500,000 10,651,725
XLCA Insured, 5.00%, 7/01/28 ................................................. 5,000,000 5,259,600
XLCA Insured, 5.00%, 7/01/32 ................................................. 5,500,000 5,694,755
University of Alabama University Revenues, Hospital, Series A, NATL
Insured, Pre-Refunded, 5.875%, 9/01/31 ....................................... 5,000,000 5,272,900
University of South Alabama University Revenues, Tuition, Capital
Improvement, Refunding, AMBAC Insured, 5.00%, 12/01/36 ....................... 11,570,000 11,658,626
----------------
123,292,370
----------------
ALASKA 0.4%
Alaska State HFC Revenue, General Housing, Series A, FGIC Insured, 5.00%,
12/01/29 ..................................................................... 4,000,000 4,069,720
12/01/30 ..................................................................... 3,500,000 3,548,370
Alaska State International Airports Revenues, Series B, NATL Insured,
5.00%, 10/01/28 .............................................................. 5,100,000 5,153,805
Birmingham Waterworks Board Water Revenue, Series A, Assured Guaranty,
5.125%, 1/01/34 .............................................................. 5,600,000 5,783,512
Matanuska-Susitna Borough Lease Revenue, Goose Creek Correctional Center,
Assured Guaranty, 6.00%, 9/01/32 ............................................. 20,000,000 22,803,200
----------------
41,358,607
----------------
ARIZONA 3.1%
Downtown Phoenix Hotel Corp. Revenue, Senior Series A, FGIC Insured, 5.00%,
7/01/29 ...................................................................... 14,465,000 11,609,754
7/01/36 ...................................................................... 15,000,000 11,426,850
Glendale Western Loop 101 Public Facilities Corp. Excise Tax Revenue,
third lien, Series A, 6.25%, 7/01/38 ......................................... 10,000,000 10,648,400
Maricopa County IDA Health Facility Revenue, Catholic Healthcare West
Project, Refunding, Series A, 5.00%, 7/01/16 ................................. 17,250,000 17,337,802
Maricopa County IDA Hospital Facility Revenue, Mayo Clinic Hospital,
5.25%, 11/15/37 .............................................................. 19,000,000 19,056,810
Maricopa County PCC, PCR, El Paso Electric Co. Project, Series A, 7.25%,
2/01/40 ...................................................................... 10,000,000 11,346,600
18 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Mesa IDAR, Discovery Health System, Series A, NATL Insured,
Pre-Refunded, 5.75%, 1/01/25 ................................................. $ 22,500,000 $ 22,915,125
Navajo County Pollution Control Corp. Revenue, Mandatory Put 6/01/16,
Series E, 5.75%, 6/01/34 ..................................................... 7,200,000 7,515,504
Phoenix Civic Improvement Corp. Airport Revenue, senior lien, Series A,
5.00%, 7/01/33 ............................................................... 28,000,000 28,233,240
Phoenix Civic Improvement Corp. Distribution Revenue, Capital Appreciation,
Civic Plaza, Series B, FGIC Insured, zero cpn. to 7/01/13, 5.50% thereafter,
7/01/32 ...................................................................... 6,000,000 5,018,580
7/01/34 ...................................................................... 5,000,000 4,119,500
7/01/35 ...................................................................... 9,860,000 8,098,018
Phoenix Civic Improvement Corp. Water System Revenue, junior lien, Refunding,
FGIC Insured, 5.00%, 7/01/32 ................................................. 21,095,000 21,646,423
Series A, 5.00%, 7/01/34 ..................................................... 10,000,000 10,191,200
Pima County IDA Lease Revenue,
Metro Police Facility, Nevada Project, Series A, 5.25%, 7/01/31 .............. 8,900,000 9,020,506
Metro Police Facility, Nevada Project, Series A, 5.50%, 7/01/39 .............. 22,500,000 23,040,000
Pima County Arizona, 5.00%, 9/01/39 .......................................... 20,000,000 19,307,600
Salt River Project Agricultural Improvement and Power District Electric
System Revenue, Salt River Project,
Refunding, Series A, 5.125%, 1/01/27 ......................................... 35,000,000 36,391,600
Series A, 5.00%, 1/01/38 ..................................................... 10,000,000 10,393,100
Series B, 5.00%, 1/01/25 ..................................................... 17,500,000 18,092,200
Salt Verde Financial Corp. Senior Gas Revenue, 5.00%, 12/01/37 .................. 10,000,000 8,553,500
University Medical Center Corp. Hospital Revenue, 5.00%, 7/01/35 ................ 7,000,000 6,659,730
----------------
320,622,042
----------------
ARKANSAS 1.0%
Fort Smith Water and Sewer Revenue, Construction, Refunding, FSA
Insured, 5.00%, 10/01/32 ..................................................... 10,000,000 10,370,700
Little Rock Sewer Revenue, Construction, Series A, FSA Insured, 5.00%,
6/01/31 ...................................................................... 8,690,000 9,039,512
Pope County PCR, Arkansas Power and Light Co. Project, Refunding, 6.30%,
12/01/16 ..................................................................... 2,600,000 2,603,536
11/01/20 ..................................................................... 60,500,000 61,064,465
Pulaski County Health Facilities Board Revenue, Nazareth Sisters of Charity,
St. Vincent's Infirmary, NATL Insured, ETM, 6.05%, 11/01/09 .................. 125,000 125,000
University of Arkansas University Revenues,
Construction, University of Arkansas for Medical Sciences Campus, Series B,
NATL Insured, 5.00%, 11/01/28 ............................................. 1,000,000 1,034,770
Various Facility, Fayetteville Campus, AMBAC Insured, 5.00%, 11/01/31 ........ 7,705,000 8,046,639
Various Facility, Fayetteville Campus, FGIC Insured, 5.00%, 12/01/27 ......... 5,000,000 5,125,700
University of Central Arkansas Revenue, FGIC Insured, 5.00%, 11/01/37 ........... 5,020,000 5,026,526
----------------
102,436,848
----------------
CALIFORNIA 10.0%
Alhambra COP, Clubhouse Facility Project, 11.25%, 1/01/10 ....................... 500,000 507,405
Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area,
Refunding,
Series F, 5.00%, 4/01/31 ..................................................... 20,000,000 20,550,600
Series F-1, 5.00%, 4/01/28 ................................................... 24,000,000 25,363,920
Series F-1, 5.00%, 4/01/34 ................................................... 10,000,000 10,240,900
Semiannual Report | 19
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Health Facilities Financing Authority Revenue, Children's
Hospital of Orange County, Series A, 6.50%,
11/01/24 ..................................................................... $ 5,000,000 $ 5,452,700
11/01/38 ..................................................................... 8,000,000 8,426,320
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 28,051,275
(a) California State Economic Recovery Revenue GO, Refunding, Series A,
5.25%, 7/01/21 ............................................................... 50,000,000 52,151,000
California State GO,
6.00%, 5/01/18 ............................................................... 535,000 544,143
6.00%, 5/01/20 ............................................................... 850,000 862,308
5.90%, 4/01/23 ............................................................... 1,200,000 1,211,748
5.00%, 10/01/29 .............................................................. 25,000,000 24,053,500
Pre-Refunded, 5.125%, 6/01/25 ................................................ 24,705,000 26,474,866
Pre-Refunded, 5.25%, 4/01/27 ................................................. 17,500,000 20,167,700
Pre-Refunded, 5.00%, 2/01/32 ................................................. 49,000,000 53,447,730
Refunding, 5.00%, 2/01/26 .................................................... 47,000,000 46,379,130
Various Purpose, 5.25%, 11/01/25 ............................................. 16,260,000 16,493,331
Various Purpose, 5.50%, 11/01/33 ............................................. 2,500,000 2,516,875
Various Purpose, 6.00%, 4/01/38 .............................................. 100,000,000 106,347,000
Various Purpose, Refunding, 5.25%, 3/01/38 ................................... 20,000,000 19,312,600
California State Public Works Board Lease Revenue,
Department of Education, Riverside Campus Project, Series B, 6.125%,
4/01/28 ................................................................... 2,740,000 2,827,762
Department of General Services, Buildings 8 and 9, Series A, 6.00%,
4/01/27 ................................................................... 3,980,000 4,071,580
Department of General Services, Buildings 8 and 9, Series A, 6.125%,
4/01/29 ................................................................... 2,000,000 2,059,640
California Statewide CDA Revenue,
Adventist, Series B, Assured Guaranty, 5.00%, 3/01/37 ........................ 10,000,000 9,624,600
St. Joseph Health System, Series B, FGIC Insured, 5.75%, 7/01/47 ............. 5,000,000 5,102,050
St. Joseph Health System, Series E, FSA Insured, 5.25%, 7/01/47 .............. 10,000,000 10,117,200
Colton Joint USD, GO, Election 2008, Series A, Assured Guaranty, 5.375%,
8/01/34 ...................................................................... 15,000,000 15,026,850
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, 5.85%, 1/15/23 .............................. 35,000,000 35,176,750
Capital Appreciation, Refunding, zero cpn., 1/15/24 .......................... 65,000,000 24,306,100
Refunding, 5.75%, 1/15/40 .................................................... 20,000,000 18,469,600
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Enhanced, Series A, AMBAC Insured, 5.00%, 6/01/45 ............................ 13,255,000 11,406,060
Pre-Refunded, 5.375%, 6/01/28 ................................................ 50,000,000 51,427,000
Series A-1, Pre-Refunded, 6.25%, 6/01/33 ..................................... 21,970,000 24,417,238
Hacienda La Puente USD, GO, Election of 2000, Series B, FSA Insured,
Pre-Refunded, 5.00%, 8/01/27 ................................................. 5,000,000 5,661,650
Hartnell Community College District GO, Capital Appreciation, Election
of 2002, Series D, zero cpn., 8/01/39 ........................................ 45,000,000 5,781,600
Inland Empire Tobacco Asset Securitization Corp. Revenue,
Series A, 5.00%, 6/01/21 ..................................................... 11,320,000 10,165,926
Series C-1, zero cpn., 6/01/36 ............................................... 100,000,000 8,680,000
Los Angeles Regional Airports Improvement Corp. Lease Revenue,
(b) Facilities Lease, United Air Lines Inc., Los Angeles International
Airport, Refunding, 6.875%, 11/15/12 ...................................... 8,400,000 8,465,100
Facilities Sublease, Delta Air Lines Inc., Los Angeles International
Airport, Refunding, 6.35%, 11/01/25 ....................................... 7,500,000 6,638,700
20 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Los Angeles USD, GO,
Election of 2004, Series F, FSA Insured, 5.00%, 7/01/30 ...................... $ 52,475,000 $ 53,784,776
Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/26 .................... 10,250,000 10,619,000
Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/31 .................... 10,000,000 10,140,600
Series A, NATL Insured, Pre-Refunded, 5.00%, 1/01/28 ......................... 25,000,000 28,236,500
Los Angeles Wastewater System Revenue, Refunding, NATL Insured, 5.00%, 6/01/25 .. 10,000,000 10,296,100
M-S-R Energy Authority Gas Revenue, Series B, 6.50%, 11/01/39 ................... 12,500,000 13,364,625
Metropolitan Water District of Southern California Waterworks Revenue,
Series B-2,
FGIC Insured, 5.00%, 10/01/27 ................................................ 9,645,000 10,100,630
New Haven USD, GO, Capital Appreciation, Assured Guaranty, zero cpn.,
8/01/31 ...................................................................... 2,055,000 517,983
8/01/32 ...................................................................... 7,830,000 1,852,421
8/01/33 ...................................................................... 7,660,000 1,704,810
Pajaro Valley USD, GO, Series A, FSA Insured, Pre-Refunded, 5.00%,
8/01/26 ...................................................................... 5,285,000 5,984,364
Pomona USD, GO, Election of 2008, Series A, Assured Guaranty, 5.00%,
8/01/29 ...................................................................... 5,585,000 5,570,703
Sacramento County Airport System Revenue, Senior Series B, FSA
Insured, 5.25%,
7/01/33 ...................................................................... 16,355,000 15,383,840
San Diego Public Facilities Financing Authority Water Revenue, Series
B, 5.375%,
8/01/34 ...................................................................... 15,000,000 15,723,150
San Francisco City and County COP, Multiple Capital Improvement
Project, Series A, 5.25%, 4/01/31 ............................................... 10,000,000 10,147,800
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/21 .................... 50,000,000 48,708,500
senior lien, 5.00%, 1/01/33 .................................................. 5,000,000 4,355,700
senior lien, ETM, zero cpn., 1/01/23 ......................................... 7,000,000 4,056,290
Santa Clara County GO, 5.00%, 8/01/34 ........................................... 25,000,000 25,776,250
Upland USD, Election 2008, Series B, zero cpn., 8/01/39 ......................... 50,075,000 7,012,503
West Contra Costa USD, GO, Election 2005, Series C-1, Assured
Guaranty, zero cpn.,
8/01/29 ...................................................................... 10,000,000 2,955,900
8/01/30 ...................................................................... 20,845,000 5,688,809
8/01/31 ...................................................................... 20,000,000 5,030,600
8/01/32 ...................................................................... 10,730,000 2,499,661
Whittier UHSD, GO, Capital Appreciation Bonds, Refunding, zero cpn.,
8/01/34 ...................................................................... 20,000,000 4,011,400
----------------
1,031,503,372
----------------
COLORADO 2.2%
Aurora Water Improvement Revenue, first lien, Series A, AMBAC Insured,
5.00%,
8/01/32 ...................................................................... 10,000,000 10,382,700
8/01/36 ...................................................................... 41,235,000 41,760,746
8/01/39 ...................................................................... 26,930,000 27,221,113
Colorado Health Facilities Authority Revenue,
Hospital, Refunding, Series B, FSA Insured, 5.25%, 3/01/36 ................... 10,000,000 10,081,400
Valley View Hospital Assn., Refunding, 5.50%, 5/15/28 ........................ 5,000,000 4,948,350
Valley View Hospital Assn., Refunding, 5.75%, 5/15/36 ........................ 7,000,000 6,962,130
Colorado Springs Airport Revenue, Capital Appreciation, Series C, zero
cpn., 1/01/11 ................................................................ 1,450,000 1,397,322
Colorado State Board of Governors University Enterprise System
Revenue, Series A,
FGIC Insured, 5.00%, 3/01/37 ................................................. 10,000,000 10,195,900
FSA Insured, 5.00%, 3/01/37 .................................................. 10,000,000 10,195,900
Semiannual Report | 21
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
COLORADO (CONTINUED)
Colorado State Higher Education Capital Construction Lease Purchase
Financing Program COP, 5.50%, 11/01/27 ....................................... $ 10,000,000 $ 10,763,400
Colorado Water Resources and Power Development Authority Water
Resources Revenue, Arapahoe County Water Improvement, Series E,
NATL Insured, 5.00%, 12/01/35 ................................................ 10,000,000 9,899,000
Denver City and County Airport Revenue, System, Refunding, Series A,
XLCA Insured, 5.00%, 11/15/25 ................................................ 8,000,000 8,137,200
Mesa State College Auxiliary Facilities Enterprise Revenue, XLCA
Insured, 5.00%, 5/15/35 ...................................................... 9,950,000 9,697,768
Northwest Parkway Public Highway Authority Revenue, Series A, AMBAC
Insured, Pre-Refunded, 5.125%, 6/15/31 ....................................... 7,500,000 8,128,875
Park Creek Metropolitan District Revenue, Senior Property Tax Support,
Refunding and Improvement, Assured Guaranty, 6.25%, 12/01/30 ................. 6,000,000 6,508,560
Public Authority for Colorado Energy Natural Gas Purchase Revenue,
6.50%, 11/15/38 .............................................................. 20,000,000 21,252,000
Pueblo County School District No. 060 GO, FGIC Insured, 5.00%, 12/15/22 ......... 5,500,000 5,673,910
Thornton Water Enterprise Revenue, NATL Insured, 5.00%, 12/01/34 ................ 10,000,000 10,219,700
University of Colorado Enterprise System Revenue, Series A, 5.375%,
6/01/32 ...................................................................... 3,500,000 3,795,505
University of Colorado Hospital Authority Revenue, Series A, AMBAC
Insured, 5.00%, 11/15/29 ..................................................... 8,500,000 8,310,535
----------------
225,532,014
----------------
CONNECTICUT 0.0%(c)
Meriden Housing Authority MFR, Connecticut Baptist Housing Project,
GNMA Secured, 5.80%, 8/20/39 .................................................... 2,585,000 2,851,953
----------------
DISTRICT OF COLUMBIA 2.1%
District of Columbia Ballpark Revenue, Series B-1, BHAC Insured, 5.00%,
2/01/24 ...................................................................... 12,120,000 12,789,751
2/01/25 ...................................................................... 7,000,000 7,351,260
2/01/26 ...................................................................... 9,950,000 10,387,999
District of Columbia GO,
Series A, FSA Insured, Pre-Refunded, 5.375%, 6/01/24 ......................... 3,580,000 3,625,860
Series E, NATL Insured, ETM, 6.00%, 6/01/13 .................................. 15,000 15,057
District of Columbia Hospital Revenue, Children's Hospital Obligation,
Sub Series 1, FSA Insured, 5.45%, 7/15/35 .................................... 25,000,000 25,450,250
District of Columbia Income Tax Secured Revenue, Series A, 5.25%,
12/01/34 ..................................................................... 10,000,000 10,702,200
District of Columbia Revenue,
Capital Appreciation, Georgetown University, Growth and Income
Securities, AMBAC Insured, zero cpn. to 3/31/18, 5.00%
thereafter, 4/01/32 ....................................................... 15,370,000 8,940,575
Capital Appreciation, Georgetown University, Series A, NATL Insured,
Pre-Refunded, zero cpn., 4/01/20 .......................................... 8,860,000 5,315,468
Capital Appreciation, Georgetown University, Series A, NATL Insured,
Pre-Refunded, zero cpn., 4/01/22 .......................................... 12,870,000 6,828,307
Capital Appreciation, Georgetown University, Series A, NATL Insured,
Pre-Refunded, zero cpn., 4/01/23 .......................................... 14,160,000 7,064,991
Deed Tax, Housing Product Trust Fund, Series A, NATL Insured, 5.00%,
6/01/32 ................................................................... 5,000,000 5,009,200
Georgetown University, Refunding, Series D, 5.50%, 4/01/36 ................... 5,000,000 5,329,400
Medlantic/Helix, Series B, FSA Insured, 5.00%, 8/15/38 ....................... 20,000,000 19,433,800
District of Columbia Tobacco Settlement FICO Revenue, Asset-Backed
Bonds, Refunding, 6.50%, 5/15/33 ............................................. 35,000,000 33,775,000
22 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
DISTRICT OF COLUMBIA (CONTINUED)
District of Columbia Water and Sewer Authority Public Utility Revenue,
Refunding, Series A, 6.00%, 10/01/35 ......................................... $ 8,000,000 $ 9,169,440
Metropolitan Washington D.C. Airports Authority Airport System Revenue,
Refunding, Series A, 5.375%, 10/01/29 ........................................ 5,000,000 5,136,850
Refunding, Series C, 5.25%, 10/01/27 ......................................... 10,745,000 11,419,786
Series C, 5.00%, 10/01/26 .................................................... 10,235,000 10,721,572
Metropolitan Washington D.C. Airports Authority Dulles Toll Road Revenue,
Capital Appreciation, second lien, Series C, Assured Guaranty, zero cpn.
to 10/01/16, 6.50% thereafter, 10/01/41 ...................................... 25,000,000 16,995,500
----------------
215,462,266
----------------
FLORIDA 7.0%
Brevard County Health Facilities Authority Health Facilities Revenue,
Health First Inc. Project, 7.00%, 4/01/39 .................................... 6,500,000 7,049,185
Brevard County Local Option Fuel Tax Revenue, FGIC Insured, 5.00%,
8/01/37 ...................................................................... 12,245,000 12,063,284
Broward County School Board COP,
NATL Insured, 5.00%, 7/01/28 ................................................. 17,415,000 17,575,915
Series A, FSA Insured, 5.25%, 7/01/24 ........................................ 25,000,000 25,688,750
Broward County Water and Sewer Utility Revenue, Series A, 5.25%, 10/01/34 ....... 8,800,000 9,168,104
Cape Coral Water and Sewer Revenue, AMBAC Insured, 5.00%, 10/01/36 .............. 5,000,000 4,598,600
Citizens Property Insurance Corp. Revenue, Senior Secured,
High-Risk Account, Series A-1, 5.50%, 6/01/17 ................................ 10,000,000 10,394,700
High-Risk Account, Series A-1, 6.00%, 6/01/17 ................................ 25,000,000 26,770,750
Clearwater Water and Sewer Revenue, Series A, 5.25%, 12/01/39 ................... 7,000,000 7,109,200
Florida State Board of Education Capital Outlay GO, Public Education,
Refunding, Series D,
5.75%, 6/01/22 ............................................................... 10,000,000 10,336,100
6.00%, 6/01/23 ............................................................... 17,500,000 21,385,875
Florida State Mid-Bay Bridge Authority Revenue, Series A,
AMBAC Insured, zero cpn., 10/01/23 ........................................... 4,950,000 2,324,273
AMBAC Insured, zero cpn., 10/01/24 ........................................... 2,970,000 1,296,108
Pre-Refunded, zero cpn., 10/01/23 ............................................ 50,000 28,535
Pre-Refunded, zero cpn., 10/01/24 ............................................ 30,000 16,170
Hernando County School Board COP, NATL Insured, 5.00%, 7/01/30 .................. 10,000,000 9,637,500
Hillsborough County Aviation Authority Revenue, Series A, Assured
Guaranty, 5.50%, 10/01/38 .................................................... 5,000,000 4,838,200
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Series A,
5.65%, 5/15/18 ............................................................... 6,500,000 6,996,470
Hillsborough County IDAR, Refunding, Series A, 5.25%, 10/01/24 .................. 13,500,000 13,375,530
Hillsborough County School Board COP,
Master Lease Program, Series B, NATL Insured, 5.00%, 7/01/27 ................. 5,000,000 5,083,150
Refunding, Series A, NATL Insured, 5.00%, 7/01/25 ............................ 5,000,000 5,050,700
Indian River County School Board COP, FGIC Insured, 5.00%, 7/01/27 .............. 16,485,000 16,567,260
Jacksonville Capital Improvement Revenue, Series A, AMBAC Insured,
5.00%, 10/01/30 .............................................................. 20,175,000 20,364,241
Jacksonville Economic Development Commission Health Care Facilities
Revenue, Mayo Clinic, 5.00%, 11/15/36 ........................................ 17,950,000 17,949,641
Jacksonville Excise Taxes Revenue, Series A, AMBAC Insured, 5.00%,
10/01/32 ..................................................................... 6,015,000 6,079,060
Jacksonville Sales Tax Revenue, AMBAC Insured, 5.00%,
10/01/23 ..................................................................... 6,000,000 6,127,800
10/01/26 ..................................................................... 20,000,000 20,492,800
Jacksonville Transportation Revenue, NATL Insured, 5.00%, 10/01/31 ........... 5,000,000 5,057,800
Semiannual Report | 23
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Lee County Transportation Facilities Revenue, Sanibel Bridges and Causeway,
Series B, CIFG Insured, 5.00%, 10/01/35 ...................................... $ 10,645,000 $ 10,671,506
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 13,046,550
Refunding, Series A, 5.50%, 10/01/36 ......................................... 20,000,000 20,227,400
Refunding, Series A, Assured Guaranty, 5.25%, 10/01/33 ....................... 11,000,000 10,736,110
Refunding, Series A, Assured Guaranty, 5.25%, 10/01/38 ....................... 13,000,000 12,568,010
Refunding, Series B, FSA Insured, 5.00%, 10/01/41 ............................ 20,000,000 19,810,000
Miami-Dade County Educational Facilities Authority Revenue, University
of Miami, Series A, 5.50%, 4/01/38 ........................................... 12,500,000 12,626,875
Miami-Dade County GO, Building Better Communities Program, Series B-1, 5.75%,
7/01/33 ...................................................................... 20,000,000 21,493,000
Miami-Dade County Public Facilities Revenue, Jackson Health System,
Series A, NATL Insured, 5.00%, 6/01/30 ....................................... 10,630,000 10,232,970
Miami-Dade County School Board COP, Assured Guaranty, 5.25%, 2/01/27 ............ 10,000,000 10,507,200
Miami-Dade County Special Obligation Revenue,
Juvenile Courthouse Project, Series A, AMBAC Insured, 5.00%, 4/01/32 ......... 10,000,000 9,672,400
Series B, NATL Insured, zero cpn., 10/01/34 .................................. 5,500,000 996,710
Miami-Dade County Transit Sales Surtax Revenue, Refunding, FSA Insured, 5.00%,
7/01/38 ...................................................................... 18,845,000 19,188,544
Orange County Health Facilities Authority Revenue, Hospital, Orlando
Regional Healthcare, Series B, FSA Insured, 5.00%, 12/01/32 .................. 20,000,000 19,334,800
Orange County School Board COP, Series A, Assured Guaranty, 5.50%, 8/01/34 ...... 15,000,000 16,233,000
Orlando Tourist Development Tax Revenue, Orlando, Assured Guaranty,
5.50%, 11/01/38 .............................................................. 23,490,000 24,349,734
Orlando Utilities Commission Water and Electric Revenue, Refunding,
5.00%, 10/01/22 .............................................................. 7,500,000 7,949,025
Orlando-Orange County Expressway Authority Revenue,
Series A, FSA Insured, 5.00%, 7/01/32 ........................................ 12,000,000 12,267,240
Series B, AMBAC Insured, 5.00%, 7/01/28 ...................................... 10,630,000 10,714,083
Palm Beach County School Board COP,
Refunding, Series D, FSA Insured, 5.00%, 8/01/28 ............................. 25,000,000 25,336,750
Series A, FGIC Insured, Pre-Refunded, 6.00%, 8/01/23 ......................... 5,100,000 5,360,151
Palm Beach County Solid Waste Authority Revenue, Improvement, Series B, 5.50%,
10/01/28 ..................................................................... 10,000,000 10,628,700
Pensacola Airport Revenue, Airport Revenue Bonds, Refunding, 6.25%,
10/01/38 ..................................................................... 16,500,000 16,521,120
Port St. Lucie GO, NATL Insured, 5.00%, 7/01/32 ................................. 7,000,000 7,190,330
Port St. Lucie Utility Revenue, System, Refunding, Assured Guaranty,
5.25%, 9/01/35 ............................................................... 3,000,000 3,117,870
South Broward Hospital District Revenue, South Broward Hospital District
Obligated Group, Refunding,
4.75%, 5/01/28 ............................................................... 10,000,000 9,849,500
5.00%, 5/01/36 ............................................................... 12,500,000 12,283,750
South Miami Health Facilities Authority Hospital Revenue, Baptist Health
South Florida Group, 5.00%, 8/15/32 .......................................... 31,070,000 29,047,654
St. Lucie County Transportation Revenue, AMBAC Insured, 5.00%, 8/01/27 .......... 5,785,000 5,814,041
Tallahassee Energy System Revenue, Refunding, NATL Insured, 5.00%,
10/01/37 ..................................................................... 20,000,000 20,273,000
Tampa Bay Water Utility System Revenue,
Refunding and Improvement, Series A, NATL Insured, 5.00%, 10/01/28 ........... 5,000,000 5,062,350
Series B, FGIC Insured, 5.00%, 10/01/26 ...................................... 5,245,000 5,347,015
Series B, FGIC Insured, 5.00%, 10/01/31 ...................................... 10,000,000 10,024,800
Series B, FGIC Insured, Pre-Refunded, 5.00%, 10/01/26 ........................ 4,755,000 5,137,159
----------------
727,045,048
----------------
24 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA 4.6%
Athens-Clarke County Unified Government Water and Sewer Revenue, 5.50%,
1/01/38 ...................................................................... $ 14,500,000 $ 15,611,425
Atlanta Airport Passenger Facility Charge Revenue, General, sub. lien,
Refunding, Series C, FSA Insured, 5.00%, 1/01/33 ............................. 19,500,000 19,781,775
Series J, FSA Insured, 5.00%, 1/01/29 ........................................ 10,000,000 10,236,500
Atlanta Airport Revenue, General, Series A, FGIC Insured, Pre-Refunded, 5.50%,
1/01/26 ...................................................................... 18,295,000 18,626,688
Atlanta Development Authority Revenue,
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%,
1/01/24 ................................................................... 6,385,000 6,308,061
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%,
1/01/25 ................................................................... 6,955,000 6,809,849
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%,
1/01/26 ................................................................... 5,000,000 4,854,000
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%,
1/01/27 ................................................................... 5,000,000 4,815,600
Yamacraw Design Center Project, Series A, NATL Insured, Pre-Refunded,
5.125%, 1/01/27 ........................................................... 5,000,000 5,416,800
Atlanta Development Authority Student Housing Facilities Revenue,
Piedmont Ellis LLC, Series A, XLCA Insured, 5.00%, 9/01/30 ................... 10,000,000 9,922,600
Atlanta Water and Wastewater Revenue, Refunding,
Series A, 6.25%, 11/01/34 .................................................... 20,000,000 21,539,600
Series A, NATL Insured, 5.00%, 11/01/33 ...................................... 13,000,000 12,372,230
Series B, FSA Insured, 5.25%, 11/01/34 ....................................... 30,000,000 30,348,600
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 4,824,850
5.25%, 7/01/38 ............................................................... 10,000,000 9,824,700
Bulloch County Development Authority Revenue, Assured Guaranty, 5.375%,
7/01/39 ...................................................................... 23,075,000 24,104,145
Burke County Development Authority PCR, Oglethorpe Power Corp., Vogtle
Project, Series B, 5.50%, 1/01/33 ............................................ 15,000,000 15,680,250
Series E, 7.00%, 1/01/23 ..................................................... 25,000,000 29,526,000
Clark County Hospital Authority Revenue, Athens Regional Medical Center
Project, NATL Insured, 5.00%, 1/01/27 ........................................ 5,000,000 5,093,000
Clayton County Development Authority Student Housing and Activity Center
Revenue, CSU Foundation Real Estate I LLC Project, XLCA Insured, 5.00%,
7/01/33 ...................................................................... 11,125,000 11,258,389
Cobb County Hospital Authority Revenue, Refunding, AMBAC Insured, 5.00%,
4/01/28 ...................................................................... 18,000,000 18,023,580
DeKalb County Water and Sewer Revenue, Pre-Refunded, 5.25%, 10/01/25 ............ 12,000,000 12,650,040
DeKalb Newton and Gwinnett Counties Joint Development Authority Revenue,
Georgia Gwinnett College Foundation LLC Project, 6.00%, 7/01/34 .............. 10,000,000 10,926,100
Georgia State Higher Education Facilities Authority Revenue, USG Real
Estate Foundation I LLC Project,
5.50%, 6/15/34 ............................................................... 10,000,000 10,354,200
6.25%, 6/15/40 ............................................................... 13,970,000 15,240,432
Assured Guaranty, 5.625%, 6/15/38 ............................................ 5,000,000 5,244,800
Griffin Combined Public Utility Revenue, Refunding and Improvement,
AMBAC Insured, 5.00%, 1/01/25 ................................................ 5,000,000 5,113,650
Gwinnett County Hospital Authority Revenue, Anticipation Certificates,
Gwinnett Hospital Systems Inc. Project, Series B, NATL Insured, Pre-Refunded,
5.30%, 9/01/27 ............................................................... 10,000,000 11,149,200
Gwinnett County Water and Sewer Authority Revenue, Pre-Refunded, 5.25%,
8/01/25 ...................................................................... 20,000,000 22,264,000
Henry County and Henry County Water and Sewer Authority Revenue,
Refunding and Improvement, Series A, NATL Insured, 5.00%, 2/01/26 ............ 5,770,000 6,037,266
Semiannual Report | 25
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Houston County Hospital Authority Revenue, Anticipation Certificates,
Houston Healthcare Project, 5.25%, 10/01/35 .................................. $ 10,485,000 $ 10,152,835
Jefferson Public Building Authority Revenue, Jackson County Facilities,
Series A, XLCA Insured, 5.00%, 3/01/32 ....................................... 6,075,000 6,171,410
Main Street Natural Gas Inc. Gas Project Revenue, Series A, 5.50%, 9/15/28 ...... 5,000,000 4,707,250
Medical Center Hospital Authority Revenue, Anticipation Certificates,
Columbus Regional Healthcare Systems, Refunding, Assured Guaranty,
6.50%, 8/01/38 ............................................................... 10,000,000 11,103,100
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Second
Indenture Series, NATL Insured, Pre-Refunded, 5.00%,
7/01/25 ...................................................................... 12,160,000 13,515,597
7/01/26 ...................................................................... 12,800,000 14,226,944
Private Colleges and Universities Authority Revenue, Emory University,
Refunding, Series C, 5.25%, 9/01/39 .......................................... 21,000,000 22,444,800
Richmond County Development Authority Educational Facilities Revenue,
MCG-PPG Cancer Research Center, Series A, AMBAC Insured, 5.00%, 12/15/29 ..... 5,000,000 5,060,450
----------------
471,340,716
----------------
HAWAII 0.4%
Hawaii State Airports System Revenue, Second Series,
ETM, 6.90%, 7/01/12 .......................................................... 335,000 351,666
NATL Insured, ETM, 6.90%, 7/01/12 ............................................ 245,000 257,189
Hawaii State Department of Budget and Finance Special Purpose Revenue,
Hawaiian Electric Co. and Subsidiary, 6.50%, 7/01/39 ......................... 7,500,000 8,102,175
Wilcox Memorial Hospital Projects, Refunding, 5.25%, 7/01/13 ................. 600,000 606,276
Wilcox Memorial Hospital Projects, Refunding, 5.35%, 7/01/18 ................. 2,040,000 2,050,078
Wilcox Memorial Hospital Projects, Refunding, 5.50%, 7/01/28 ................. 1,470,000 1,471,852
Hawaii State GO,
Refunding, Series BW, 6.375%, 3/01/11 ........................................ 95,000 102,018
Series BW, ETM, 6.375%, 3/01/11 .............................................. 5,000 5,377
Hawaii State Housing Finance and Development Corp. SFM Purchase Revenue,
Refunding,
Series A, FNMA Insured, 5.75%, 7/01/30 ....................................... 165,000 164,982
Honolulu City and County Board of Water Supply Water System Revenue,
Refunding, Series A, NATL Insured, 5.00%, 7/01/36 ............................ 20,000,000 20,720,000
Honolulu City and County GO,
ETM, 6.00%, 12/01/14 ......................................................... 150,000 179,617
Refunding, Series C, FGIC Insured, 5.00%, 7/01/20 ............................ 5,250,000 5,318,565
Honolulu City and County MFHR, Waipahu Towers Project, Series A, 6.90%,
6/20/35 ...................................................................... 1,160,000 1,162,216
Kauai County GO, Refunding, Series C, AMBAC Insured, 5.95%, 8/01/10 ............. 220,000 227,022
----------------
40,719,033
----------------
IDAHO 0.1%
Idaho Health Facilities Authority Revenue, St. Luke's Health System
Project, Series A, 6.75%, 11/01/37 ........................................... 12,500,000 13,523,000
Idaho Housing Agency Revenue, Refunding, Series D-1, 6.45%, 7/01/19 ............. 90,000 90,165
----------------
13,613,165
----------------
ILLINOIS 4.8%
Aurora Waterworks and Sewer Revenue, XLCA Insured, 4.75%, 12/01/36 .............. 7,765,000 7,523,198
Bourbonnais Industrial Project Revenue, Olivet Nazarene University
Project, Radian Insured, 5.125%, 11/01/37 .................................... 5,000,000 4,428,650
26 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Chicago Board of Education GO, Refunding, Series C, FSA Insured, 5.25%,
12/01/23 ..................................................................... $ 15,860,000 $ 16,920,241
Chicago COP, Radian Insured, 7.75%, 7/15/11 ..................................... 4,500,000 4,740,705
Chicago GO, Lakefront Millennium Parking Facilities, NATL Insured, ETM,
5.75%, 1/01/23 ............................................................... 8,955,000 10,769,820
Chicago Midway Airport Revenue, Refunding, Series C, NATL Insured,
5.50%, 1/01/24 ............................................................... 18,460,000 19,483,422
Chicago Wastewater Transmission Revenue, Series A, BHAC Insured, 5.50%,
1/01/38 ...................................................................... 18,000,000 18,927,900
Illinois Development Finance Authority Hospital Revenue, Adventist
Health System, Sunbelt Obligation, Pre-Refunded,
5.65%, 11/15/24 .............................................................. 6,030,000 6,099,948
5.50%, 11/15/29 .............................................................. 20,000,000 20,231,000
Illinois Development Finance Authority Revenue, Provena Health,
Refunding, Series A,
NATL Insured, 5.50%, 5/15/21 ................................................. 10,000,000 9,999,800
Illinois Finance Authority Revenue,
Alexian Brothers Health System, Refunding, Series A, FSA Insured, 5.50%,
1/01/28 ................................................................... 45,000,000 47,420,100
Columbia College, NATL Insured, 5.00%, 12/01/32 .............................. 15,440,000 13,393,428
Resurrection Health Care, Series B, FSA Insured, 5.25%, 5/15/29 .............. 28,650,000 28,766,605
Riverside Health System, 6.25%, 11/15/35 ..................................... 5,000,000 5,176,850
Rush University Medical Center, Refunding, Series B, NATL Insured, 5.75%,
11/01/28 .................................................................. 2,500,000 2,567,050
Rush University Medical Center, Refunding, Series B, NATL Insured, 5.25%,
11/01/35 .................................................................. 3,000,000 2,798,880
Sherman Health System, Series A, 5.50%, 8/01/37 .............................. 5,000,000 4,472,150
Illinois Health Facilities Authority Revenue,
Loyola University Health Systems, Refunding, Series A, NATL Insured,
5.625%, 7/01/18 ........................................................... 7,090,000 7,094,538
Loyola University Health Systems, Series A, NATL Insured, ETM, 5.625%,
7/01/18 ................................................................... 2,105,000 2,562,943
Methodist Medical Center, Refunding, NATL Insured, 5.25%, 11/15/21 ........... 2,885,000 2,889,270
Northwestern Medical Facility Foundation, Refunding, NATL Insured,
5.125%, 11/15/28 .......................................................... 7,500,000 6,648,600
South Suburban Hospital, ETM, 7.00%, 2/15/18 ................................. 4,200,000 5,043,360
Illinois Municipal Electric Agency Power Supply Revenue, Series A, FGIC
Insured, 5.00%, 2/01/35 ...................................................... 20,000,000 19,605,000
Illinois State Finance Authority Revenue, Rush University Medical Center
Obligation Group, Series B, 7.25%, 11/01/38 .................................. 10,000,000 11,311,700
Illinois State GO,
Assured Guaranty, 5.25%, 4/01/34 ............................................. 10,000,000 10,562,800
FSA Insured, 5.00%, 9/01/29 .................................................. 12,000,000 12,403,080
Kane County School District No. 129 GO, Series A, FGIC Insured, Pre-Refunded,
5.25%, 2/01/22 ............................................................... 5,285,000 5,781,579
Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue,
Capital Appreciation, McCormick Place, Refunding, Series B, NATL
Insured, zero cpn. to 6/14/12, 5.50% thereafter, 6/15/20 .................. 8,240,000 7,930,341
Capital Appreciation, McCormick Place, Refunding, Series B, NATL
Insured, zero cpn. to 6/14/12, 5.55% thereafter, 6/15/21 .................. 6,000,000 5,782,620
Capital Appreciation, McCormick Place, Refunding, Series B, NATL
Insured, zero cpn. to 6/14/17, 5.65% thereafter, 6/15/22 .................. 30,000,000 23,388,000
McCormick Place Expansion Project, 6.50%, 6/15/22 ............................ 5,000 5,007
McCormick Place Expansion Project, 6.50%, 6/15/27 ............................ 555,000 557,231
Semiannual Report | 27
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue,
(continued)
McCormick Place Expansion Project, Refunding, NATL Insured, 5.25%,
12/15/28 ..................................................................... $ 39,580,000 $ 40,066,834
McCormick Place Expansion Project, Series A, FGIC Insured, 6.65%, 6/15/12 ....... 250,000 250,393
McCormick Place Expansion Project, Series A, FGIC Insured, ETM, zero cpn.,
6/15/10 ...................................................................... 7,845,000 7,801,852
McCormick Place Expansion Project, Series A, FGIC Insured, ETM, zero cpn.,
6/15/11 ...................................................................... 9,690,000 9,504,727
McCormick Place Expansion Project, Series A, FGIC Insured, zero cpn.,
6/15/10 ...................................................................... 155,000 153,941
McCormick Place Expansion Project, Series A, NATL Insured, 5.00%, 12/15/28 ...... 26,795,000 27,532,666
Metropolitan Pier and Exposition Authority Hospitality Facilities
Revenue, McCormick Place Convention Center, ETM, 7.00%, 7/01/26 .............. 12,000,000 15,978,720
Regional Transportation Authority Revenue, Series A, AMBAC Insured,
7.20%, 11/01/20 .............................................................. 1,000,000 1,202,790
Southwestern Illinois Development Authority Revenue, Capital Appreciation,
Local Government Program, FSA Insured, zero cpn.,
12/01/24 ..................................................................... 3,850,000 1,807,306
12/01/26 ..................................................................... 7,700,000 3,199,504
University of Illinois University Revenues, Auxiliary Facilities System,
AMBAC Insured, zero cpn., 4/01/10 ............................................ 14,250,000 14,200,695
Refunding, Series A, AMBAC Insured, 5.00%, 4/01/30 ........................... 5,000,000 5,033,550
Refunding, Series B, FGIC Insured, 5.125%, 4/01/26 ........................... 3,585,000 3,646,949
Series A, 5.75%, 4/01/38 ..................................................... 7,000,000 7,597,730
Series B, FGIC Insured, Pre-Refunded, 5.125%, 4/01/26 ........................ 8,415,000 8,935,888
Upper River Valley Development Authority Environmental Facilities
Revenue, General Electric Co. Project, 5.45%, 2/01/23 ........................ 3,600,000 3,619,548
----------------
495,818,909
----------------
INDIANA 1.0%
Indiana Bond Bank Revenue, Special Program, Hendricks Regional Health,
Series A, 5.50%, 2/01/29 ..................................................... 9,000,000 9,575,640
Indiana Finance Authority Hospital Revenue, Deaconess Hospital
Obligation, Series A, 6.75%, 3/01/39 ......................................... 9,750,000 10,532,828
Indiana Health and Educational Facility Financing Authority Hospital
Revenue, 5.50%, 3/01/27 ...................................................... 6,500,000 6,378,515
Indiana Health Facility Financing Authority Hospital Revenue,
Community Foundation Northwest Indiana, Refunding, Series A, 6.375%,
8/01/21 ...................................................................... 15,590,000 16,108,679
Community Foundation Northwest Indiana, Series A, Pre-Refunded, 6.375%,
8/01/21 ...................................................................... 1,910,000 2,102,031
Jackson County Schneck Memorial Hospital, Refunding, 5.25%, 2/15/22 .......... 1,200,000 1,181,772
Indiana Health Facility Financing Authority Revenue, Greenwood Village
South Project, Refunding, 5.625%, 5/15/28 .................................... 1,750,000 1,424,255
Indiana Municipal Power Agency Power Supply System Revenue, Indiana
Municipal Power Agency, Series B, 6.00%, 1/01/39 ................................ 4,000,000 4,239,480
Indiana State Development Financing Authority Environmental Revenue,
Refunding, 6.25%, 7/15/30 ....................................................... 2,000,000 2,002,520
Indiana State Educational Facilities Authority Revenue, Valparaiso
University, Refunding, AMBAC Insured, 5.125%, 10/01/23 .......................... 2,015,000 2,037,790
Indiana State Finance Authority Environmental Revenue, Duke Energy
Indiana, Refunding, Series B, 6.00%, 8/01/39 .................................... 10,000,000 10,683,300
Indiana Transportation Finance Authority Highway Revenue, Pre-Refunded,
5.375%, 12/01/25 ................................................................ 15,000,000 15,796,350
28 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
INDIANA (CONTINUED)
(d) Jasper County EDR, Georgia-Pacific Corp. Project,
5.625%, 12/01/27 ............................................................. $ 3,500,000 $ 3,095,505
Refunding, 6.70%, 4/01/29 .................................................... 3,000,000 2,961,330
Jasper County PCR, Northern Indiana Public Service Co., Refunding, Series
C, NATL Insured, 5.60%, 11/01/16 ............................................. 5,000,000 5,432,900
Madison County Authority Anderson Hospital Revenue, Refunding, Series A,
BIG Insured, 8.00%, 1/01/14 ..................................................... 65,000 65,010
Petersburg PCR, 5.75%, 8/01/21 .................................................. 5,000,000 5,244,850
University of Southern Indiana Revenue, Student Fee, Series J, Assured Guaranty,
5.75%, 10/01/28 .............................................................. 2,000,000 2,204,720
----------------
101,067,475
----------------
KANSAS 0.8%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding,
Series A, NATL Insured, 5.30%, 6/01/31 ....................................... 18,000,000 18,476,460
Series B, NATL Insured, 4.85%, 6/01/31 ....................................... 19,325,000 19,324,227
Kansas State Development Finance Authority Health Facilities Revenue,
Stormont-Vail HealthCare Inc., Series L, NATL Insured, 5.125%, 11/15/36 ...... 3,750,000 3,709,350
Kansas State Development Finance Authority Hospital Revenue,
Adventist Health, Refunding, 5.75%, 11/15/38 ................................. 6,250,000 6,456,687
Susan B. Allen Memorial Hospital, Series Z, Radian Insured, 5.25%, 12/15/23 .. 2,000,000 1,885,640
Kansas State Development Finance Authority Revenue, Water Pollution
Control, Revolving Fund, Refunding, Series II, 5.125%, 11/01/18 .............. 3,450,000 3,592,071
Series II, Pre-Refunded, 5.125%, 11/01/18 .................................... 1,550,000 1,683,812
Overland Park Development Corp. Revenue, second tier, Convention,
Refunding, Series B, AMBAC Insured, 5.125%, 1/01/32 ............................. 20,000,000 17,867,400
Wyandotte County Kansas City Unified Government Utility System Revenue,
Series A, BHAC Insured, 5.25%, 9/01/34 .......................................... 5,000,000 5,494,450
----------------
78,490,097
----------------
KENTUCKY 1.4%
Carroll County Environmental Facilities Revenue, AMBAC Insured, 5.75%,
2/01/26 ...................................................................... 12,500,000 12,736,375
Jefferson County Capital Projects Corp. Lease Revenue, Refunding, Series A,
zero cpn.,
8/15/10 ...................................................................... 4,620,000 4,587,752
8/15/13 ...................................................................... 6,825,000 6,199,216
8/15/14 ...................................................................... 6,860,000 5,963,810
8/15/16 ...................................................................... 7,005,000 5,507,051
8/15/17 ...................................................................... 7,115,000 5,320,739
Kentucky Economic Development Finance Authority Health System Revenue, Norton
Healthcare Inc.,
Refunding, Series B, NATL Insured, zero cpn., 10/01/18 ....................... 8,585,000 5,158,726
Refunding, Series C, NATL Insured, 6.05%, 10/01/19 ........................... 7,385,000 7,630,847
Refunding, Series C, NATL Insured, 6.10%, 10/01/21 ........................... 6,050,000 6,227,507
Refunding, Series C, NATL Insured, 6.10%, 10/01/23 ........................... 11,295,000 11,636,222
Series C, NATL Insured, Pre-Refunded, 6.05%, 10/01/19 ........................ 3,695,000 4,328,656
Series C, NATL Insured, Pre-Refunded, 6.10%, 10/01/21 ........................ 2,875,000 3,373,467
Series C, NATL Insured, Pre-Refunded, 6.10%, 10/01/23 ........................ 5,650,000 6,629,597
Semiannual Report | 29
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY (CONTINUED)
Kentucky Economic Development Finance Authority Hospital System Revenue,
Appalachian Regional Health Center Facility, Refunding and Improvement,
5.80%, 10/01/12 .............................................................. $ 1,000,000 $ 986,310
5.85%, 10/01/17 .............................................................. 5,615,000 5,094,209
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 4,354,520
Kentucky State Municipal Power Agency Power System Revenue, Prairie State
Project, Series A, NATL Insured, 5.00%, 9/01/32 .............................. 10,000,000 10,102,700
Kentucky State Property and Buildings Commission Revenues, Project No. 90,
Refunding, 5.50%, 11/01/28 ................................................... 15,000,000 16,260,750
Louisville and Jefferson County Metropolitan Government College Revenue,
Bellarmine University, Refunding and Improvement, Series A, 6.00%, 5/01/33 ... 3,000,000 2,996,220
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 12,008,760
Paducah Electric Plant Board Revenue, Series A, Assured Guaranty, 5.25%,
10/01/35 ..................................................................... 7,000,000 7,349,440
----------------
144,452,874
----------------
LOUISIANA 2.4%
Calcasieu Parish Inc. IDB, PCR, Gulf States Utilities Co. Project,
Refunding, 6.75%, 10/01/12 ................................................... 7,695,000 7,739,631
East Baton Rouge Mortgage Finance Authority SFM Purchase Revenue, Series
A, 6.80%, 10/01/28 ........................................................... 685,000 687,103
East Baton Rouge Parish Sewer Commission Revenue, Refunding, Series A,
5.25%, 2/01/39 ............................................................... 6,000,000 6,194,640
Greater New Orleans Expressway Commission Revenue, Refunding, AMBAC
Insured, 5.00%, 11/01/27 ..................................................... 5,655,000 5,805,027
Jefferson Parish Home Mortgage Authority SFMR, Refunding, Series G-2,
GNMA Secured, 5.55%, 6/01/32 ................................................. 715,000 719,576
Lafayette Communications Systems Revenue, XLCA Insured, 5.25%, 11/01/27 ......... 12,485,000 12,795,876
Lafayette Public Improvement Sales Tax GO, Series B, NATL Insured, 4.75%,
3/01/30 ...................................................................... 5,055,000 5,151,803
Louisiana Local Government Environmental Facilities and CDA Revenue,
Bossier City Public Improvement Projects, AMBAC Insured, 5.00%, 11/01/32 ..... 6,730,000 6,787,340
Jefferson Parking Garage Project, AMBAC Insured, 5.00%, 9/01/31 .............. 4,290,000 3,972,797
NATL Insured, 5.00%, 12/01/26 ................................................ 5,605,000 5,686,048
Louisiana Public Facilities Authority Hospital Revenue, Franciscan
Missionaries, 6.75%, 7/01/39 ................................................. 10,000,000 10,871,300
Louisiana Public Facilities Authority Revenue,
Cleco Power Project, Mandatory Put 12/01/11, 7.00%, 12/01/38 ................. 10,000,000 10,955,300
Millennium Housing LLC Student Housing, CIFG Insured, 5.00%, 11/01/30 ........ 10,000,000 9,537,500
Ochsner Clinic Foundation Project, Series B, 5.25%, 5/15/38 .................. 10,260,000 9,384,104
Ochsner Clinic Foundation Project, Series B, 5.50%, 5/15/47 .................. 10,000,000 9,243,100
Ochsner Clinic Foundation Project, Series B, ETM, 5.75%, 5/15/23 ............. 10,000,000 12,311,000
Tulane University of Louisiana, Series A, AMBAC Insured, Pre-Refunded,
5.00%, 7/01/32 ............................................................ 5,000,000 5,502,500
Louisiana State Gas and Fuels Tax Revenue, Series A,
AMBAC Insured, 5.00%, 6/01/27 ................................................ 19,250,000 19,504,292
FSA Insured, 5.00%, 5/01/35 .................................................. 31,040,000 30,774,608
30 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
LOUISIANA (CONTINUED)
New Orleans GO,
Public Improvement, NATL Insured, 5.00%, 10/01/33 ............................ $ 3,545,000 $ 3,222,015
Radian Insured, 5.00%, 12/01/27 .............................................. 5,935,000 5,649,764
Radian Insured, 5.125%, 12/01/33 ............................................. 11,645,000 10,773,372
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding,
6.70%, 3/01/13 ............................................................... 1,490,000 1,495,439
Rapides Finance Authority Revenue, Cleco Power LLC Project, Mandatory Put
10/01/11, 6.00%, 10/01/38 .................................................... 4,750,000 4,988,735
St. Charles Parish Consolidated Waterworks and Wastewater District No. 1
Revenue, Series A, AMBAC Insured, 5.00%, 7/01/36 ............................. 6,230,000 6,050,950
St. John the Baptist Parish Revenue, Marathon Oil Corp. Project, Series
A, 5.125%, 6/01/37 ........................................................... 40,500,000 36,862,290
West Feliciana Parish PCR, Gulf States Utilities Co. Project, 7.00%,
11/01/15 ..................................................................... 1,350,000 1,359,221
----------------
244,025,331
----------------
MAINE 0.4%
Jay Solid Waste Disposal Revenue, International Paper Co. Project,
Refunding, Series B, 6.20%, 9/01/19 .......................................... 8,000,000 8,036,000
Maine Educational Loan Authority Student Loan Revenue, A, Series A-3,
Assured Guaranty, 5.875%, 12/01/39 ........................................... 23,000,000 24,504,200
Maine Health and Higher Educational Facilities Authority Revenue, Series
A, NATL Insured, 5.00%, 7/01/32 .............................................. 6,045,000 6,137,368
----------------
38,677,568
----------------
MARYLAND 0.7%
Baltimore Convention Center Hotel Revenue, Senior Series A, XLCA Insured,
5.00%, 9/01/32 ............................................................... 3,500,000 2,897,860
Baltimore Project Revenue,
Wastewater Projects, Series D, AMBAC Insured, 5.00%, 7/01/37 ................. 5,000,000 5,156,900
Water Projects, Series C, AMBAC Insured, 5.00%, 7/01/37 ...................... 8,130,000 8,385,119
Maryland State EDC, PCR, Potomac Electric Project, Refunding, 6.20%,
9/01/22 ...................................................................... 5,000,000 5,760,500
Maryland State EDC Student Housing Revenue, University of Maryland
College Park Projects, Refunding, CIFG Insured, 5.00%, 6/01/33 ............... 15,000,000 13,538,700
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Health System, Series A, 6.75%, 7/01/39 ......................... 3,000,000 3,430,200
LifeBridge Health, Refunding, Assured Guaranty, 5.00%, 7/01/28 ............... 3,000,000 3,090,210
Upper Chesapeake Hospitals, Series C, 6.00%, 1/01/38 ......................... 5,000,000 5,293,450
Western Maryland Health, Series A, NATL Insured, 5.00%, 7/01/34 .............. 20,000,000 20,043,600
----------------
67,596,539
----------------
MASSACHUSETTS 3.8%
Massachusetts Bay Transportation Authority Revenue, Assessment,
Refunding, Series A, 5.25%, 7/01/30 .......................................... 2,785,000 2,807,057
Refunding, Series A, 5.25%, 7/01/34 .......................................... 27,630,000 29,778,509
Series A, Pre-Refunded, 5.25%, 7/01/30 ....................................... 14,740,000 15,219,492
Massachusetts Bay Transportation Authority Sales Tax Revenue, Refunding,
Senior Series A, 5.00%, 7/01/28 .............................................. 10,000,000 11,235,000
Massachusetts Educational Financing Authority Education Loan Revenue,
Series H, Assured Guaranty, 6.35%, 1/01/30 ................................... 10,000,000 10,612,200
Series I, 6.00%, 1/01/28 ..................................................... 20,000,000 21,335,400
Semiannual Report | 31
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Development Finance Agency Revenue,
Massachusetts/Saltonstall Redevelopment Building Corp., Series A, NATL
Insured, 5.125%, 8/01/28 .................................................. $ 6,735,000 $ 6,579,826
Worcester Polytechnic Institute, Refunding, NATL Insured, 5.00%, 9/01/37 ..... 10,000,000 10,063,700
Massachusetts State GO,
Consolidated Loan, Series C, AMBAC Insured, 5.00%, 8/01/37 ................... 10,000,000 10,436,100
NATL Insured, Pre-Refunded, 5.00%, 8/01/22 ................................... 4,100,000 4,507,212
Massachusetts State Health and Educational Facilities Authority Revenue,
Berklee College of Music, Refunding, Series A, 5.00%, 10/01/37 ............... 10,000,000 10,012,500
Berkshire Health System, Series E, 6.25%, 10/01/31 ........................... 2,250,000 2,299,500
Berkshire Health System, Series E, Radian Insured, 5.70%, 10/01/25 ........... 4,500,000 4,581,585
Caregroup, Series E-1, 5.125%, 7/01/33 ....................................... 3,000,000 2,859,510
Caregroup, Series E-1, 5.125%, 7/01/38 ....................................... 3,500,000 3,297,105
Emmanuel College, NATL Insured, 5.00%, 7/01/37 ............................... 10,000,000 9,510,800
Harvard University, Refunding, Series A, 5.50%, 11/15/36 ..................... 51,450,000 57,540,136
Harvard University, Series FF, 5.00%, 7/15/22 ................................ 13,550,000 14,501,074
Northeastern University, Series R, 5.00%, 10/01/33 ........................... 6,830,000 6,791,957
Massachusetts State HFA Housing Revenue, Series B, 7.00%, 12/01/38 .............. 10,000,000 11,006,600
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care,
5.65%, 10/01/17 .............................................................. 2,295,000 2,298,397
5.70%, 10/01/27 .............................................................. 7,375,000 7,376,770
Massachusetts State School Building Authority Dedicated Sales Tax Revenue,
Series A,
AMBAC Insured, 4.50%, 8/15/35 ................................................ 30,000,000 29,414,700
FSA Insured, 5.00%, 8/15/30 .................................................. 15,000,000 15,624,900
Massachusetts State Turnpike Authority Metropolitan Highway System
Revenue, Refunding,
Series A, NATL Insured, 5.00%, 1/01/37 ....................................... 52,130,000 49,244,083
Series B, NATL Insured, 5.125%, 1/01/37 ...................................... 21,150,000 20,858,553
Sub Series A, AMBAC Insured, 5.25%, 1/01/29 .................................. 5,000,000 5,013,300
Massachusetts State Water Pollution Abatement Trust Revenue, MWRA
Program, Series A,
5.00%, 8/01/32 ............................................................... 225,000 230,011
Pre-Refunded, 5.00%, 8/01/32 ................................................. 4,775,000 5,283,347
Massachusetts State Water Pollution Abatement Trust Water Pollution
Abatement Revenue, MWRA Program, Refunding, Sub Series A, 5.75%, 8/01/29 ..... 450,000 455,292
Route 3 North Transportation Improvement Assn. Massachusetts Lease
Revenue, NATL Insured, Pre-Refunded, 5.375%, 6/15/29 ......................... 16,405,000 16,909,946
----------------
397,684,562
----------------
MICHIGAN 3.7%
Anchor Bay School District GO, Refunding, 5.00%, 5/01/29 ........................ 6,300,000 6,376,671
Chippewa Valley School GO, Pre-Refunded, 5.125%, 5/01/27 ........................ 5,310,000 5,833,885
Detroit City School District GO, School Building and Site Improvement,
Series A, FGIC Insured, Pre-Refunded, 5.00%, 5/01/23 ......................... 2,000,000 2,237,980
Series A, FSA Insured, Pre-Refunded, 5.125%, 5/01/31 ......................... 14,925,000 16,397,500
Series B, FGIC Insured, 5.00%, 5/01/33 ....................................... 16,870,000 14,828,224
Detroit Sewer Disposal System Revenue,
second lien, Series A, NATL Insured, 5.00%, 7/01/30 .......................... 5,470,000 5,238,564
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.125%, 7/01/31 ........... 10,000,000 10,711,000
32 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Detroit Water Supply System Revenue,
second lien, Series B, FGIC Insured, Pre-Refunded, 5.50%, 7/01/33 ............ $ 5,000,000 $ 5,431,300
second lien, Series B, FSA Insured, 7.00%, 7/01/36 ........................... 5,000,000 5,896,950
senior lien, Refunding, Series B, Assured Guaranty, 5.00%, 7/01/21 ........... 10,000,000 10,192,100
senior lien, Series A, FGIC Insured, 5.00%, 7/01/30 .......................... 17,575,000 17,262,868
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ............ 7,060,000 7,552,153
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ............ 6,170,000 6,626,642
Detroit/Wayne County Stadium Authority Revenue, FGIC Insured, 5.25%,
2/01/27 ...................................................................... 8,625,000 8,547,030
Grand Rapids Public Schools GO, School Building and Site, FSA Insured,
4.50%, 5/01/31 ............................................................... 21,800,000 21,882,404
Jackson County Building Authority Revenue, AMBAC Insured, Pre-Refunded,
5.60%, 5/01/30 ............................................................... 4,145,000 4,252,853
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series I, 5.00%, 10/15/24 ..................... 29,920,000 29,919,102
Facilities Program, Refunding, Series I, 6.25%, 10/15/38 ..................... 15,000,000 16,578,000
Facilities Program, Series I, Pre-Refunded, 5.00%, 10/15/24 .................. 1,430,000 1,545,801
Refunding, Series IA, FGIC Insured, 5.00%, 10/15/31 .......................... 9,475,000 9,240,494
Michigan State GO, Environmental Program, Refunding, Series A,
6.00%, 11/01/24 .............................................................. 1,000,000 1,113,200
5.50%, 11/01/25 .............................................................. 1,000,000 1,069,380
Michigan State HDA, SFMR, Series A, 5.00%, 12/01/19 ............................. 10,000,000 10,182,500
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Series A, NATL Insured, Pre-Refunded, 6.125%,
11/15/23 ..................................................................... 18,000,000 18,211,320
Mid-Michigan Obligation Group, Series A, 6.00%, 6/01/29 ...................... 4,000,000 4,211,000
Mid-Michigan Obligation Group, Series A, 6.125%, 6/01/39 ..................... 5,000,000 5,260,350
Michigan State Strategic Fund Limited Obligation Revenue, Detroit
Education, Refunding, 5.625%, 7/01/20 ........................................ 7,000,000 7,654,290
Michigan State Strategic Fund Resources Recovery Limited Obligation
Revenue, Detroit Education Exempt Facilities, Refunding, Series D, XLCA
Insured, 5.25%, 12/15/32 ..................................................... 10,000,000 10,070,700
Michigan State Trunk Line Revenue, Series A, FSA Insured, Pre-Refunded,
5.25%, 11/01/30 .............................................................. 10,000,000 10,846,400
Michigan Tobacco Settlement Finance Authority Revenue, Tobacco
Settlement Asset,
Senior Series A, 5.25%, 6/01/22 .............................................. 10,000,000 9,153,700
Senior Series A, 6.00%, 6/01/34 .............................................. 42,680,000 36,253,246
Turbo, Series A, 6.875%, 6/01/42 ............................................. 17,500,000 15,139,425
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont
Hospital,
Refunding, 8.25%, 9/01/39 .................................................... 20,000,000 23,526,400
Series M, NATL Insured, 5.25%, 11/15/31 ...................................... 10,000,000 8,843,500
Wayne State University Revenues, General, AMBAC Insured, 5.00%, 11/15/36 ........ 5,000,000 4,919,800
West Ottawa Public School District GO, Series A, 5.00%, 5/01/27 ................. 5,000,000 5,172,450
----------------
378,179,182
----------------
MINNESOTA 1.0%
Cloquet PCR, Potlatch Corp. Projects, Refunding, 5.90%, 10/01/26 ................ 9,100,000 8,066,695
Golden Valley Revenue, Covenant Retirement Communities, Series A, 5.50%,
12/01/29 ..................................................................... 1,500,000 1,320,840
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue,
Series A, FGIC Insured, Pre-Refunded, 5.25%, 1/01/32 ......................... 32,025,000 33,722,005
Series A, FGIC Insured, Pre-Refunded, 5.75%, 1/01/32 ......................... 5,000,000 5,092,650
Series C, FGIC Insured, Pre-Refunded, 5.25%, 1/01/26 ......................... 19,000,000 20,006,810
Semiannual Report | 33
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Minneapolis Health Care System Revenue, Fairview Health Services, Series A,
6.625%, 11/15/28 ............................................................. $ 11,000,000 $ 12,076,460
6.75%, 11/15/32 .............................................................. 6,250,000 6,851,312
Minnesota Agriculture and Economic Development Board Revenue, Health Care
System, Refunding, Series A, NATL Insured, 5.75%, 11/15/26 ................... 510,000 511,622
Minnetonka MFHR, Ridgepointe II Project, Series A, GNMA Secured,
Pre-Refunded, 5.95%, 10/20/33 ................................................ 11,075,000 11,656,327
Roseville MFHR, Rosepointe I Project, Series A, GNMA Secured,
Pre-Refunded, 5.95%, 10/20/33 ................................................ 7,720,000 8,008,265
University of Minnesota Revenue, Series A, ETM, 5.75%, 7/01/13 .................... 1,250,000 1,438,875
----------------
108,751,861
----------------
MISSISSIPPI 0.9%
Claiborne County PCR, Systems Energy Resources Inc. Project, Refunding,
6.20%, 2/01/26 ............................................................... 36,500,000 36,512,410
Jackson County Environmental Improvement Revenue, International Paper Co.
Project, 6.70%, 5/01/24 ...................................................... 3,500,000 3,526,985
Mississippi Business Finance Corp. PCR, System Energy Resource Inc. Project,
Refunding,
5.875%, 4/01/22 .............................................................. 40,000,000 40,058,000
5.90%, 5/01/22 ............................................................... 8,250,000 8,261,302
Mississippi State GO, Refunding, 5.75%, 12/01/12 ................................ 2,000,000 2,268,700
----------------
90,627,397
----------------
MISSOURI 1.1%
Jackson County Special Obligation Revenue, NATL Insured, 5.00%, 12/01/22 ........ 9,095,000 9,400,683
Missouri Development Finance Board Cultural Facilities Revenue, Nelson
Gallery Foundation, Series A, NATL Insured, 5.00%, 12/01/30 .................. 11,500,000 11,705,850
Missouri Joint Municipal Electric Utility Commission Power Project
Revenue, Iatan 2 Project, Series A, AMBAC Insured, 5.00%, 1/01/34 ............ 14,000,000 13,560,260
Plum Point Project, NATL Insured, 5.00%, 1/01/34 ............................. 8,000,000 7,271,600
Missouri State Board of Public Buildings Special Obligation Revenue,
Series A, 4.75%, 10/15/28 .................................................... 8,250,000 8,491,890
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 15,331,650
Missouri State Health and Educational Facilities Authority Revenue, SSM
Health Care, Refunding, Series A, NATL Insured, 5.00%, 6/01/22 .................. 230,000 230,129
Series A, AMBAC Insured, Pre-Refunded, 5.25%, 6/01/21 ........................ 9,950,000 10,731,572
Series B, AMBAC Insured, 5.25%, 6/01/21 ...................................... 7,550,000 7,730,218
St. Louis Airport Revenue,
Airport Development Program, Series A, NATL Insured, Pre-Refunded, 5.00%,
7/01/20 ................................................................... 5,000,000 5,345,200
Airport Development Program, Series A, NATL Insured, Pre-Refunded, 5.00%,
7/01/21 ................................................................... 7,250,000 7,750,540
Capital Improvement Program, Series A, NATL Insured, Pre-Refunded, 5.00%,
7/01/27 ................................................................... 12,390,000 13,600,875
Taney County IDA Hospital Revenue, The Skaggs Community Hospital Assn.,
Refunding, 5.40%, 5/15/28 .................................................... 4,000,000 3,725,200
----------------
114,875,667
----------------
34 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (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 $ 28,163,700
Montana Facility Finance Authority Revenue, Benefis Health System,
Refunding, Assured Guaranty, 5.00%, 1/01/37 .................................. 10,000,000 10,113,400
----------------
38,277,100
----------------
NEBRASKA 1.4%
Adams County School District No. 018 GO, Hastings Public Schools, FSA
Insured, 5.00%, 12/15/31 ..................................................... 5,795,000 6,026,684
Lancaster County Correctional Facility Joint Public Agency GO, Building,
5.00%, 12/01/28 .............................................................. 5,000,000 5,295,200
Lancaster County School District No. 001 GO, Lincoln Public Schools,
5.00%, 1/15/36 ............................................................... 24,725,000 25,648,479
Lincoln Electric System Revenue, 5.00%, 9/01/31 ................................. 8,645,000 8,890,518
Madison County Hospital Authority No. 001 Hospital Revenue, Faith
Regional Health Services Project, Series A-1, 6.00%, 7/01/33 ................. 12,000,000 12,585,600
Municipal Energy Agency of Nebraska Power Supply System Revenue,
Refunding, Series A, BHAC Insured, 5.375%, 4/01/39 ........................... 5,000,000 5,372,050
Omaha Convention Hotel Corp. Revenue, Convention Center, first tier,
Refunding, AMBAC Insured, 5.00%, 2/01/35 ..................................... 30,000,000 28,314,900
Series A, AMBAC Insured, Pre-Refunded, 5.125%, 4/01/26 ....................... 12,500,000 13,708,125
Omaha Public Facilities Corp. Lease Revenue, Baseball Stadium Project,
5.00%, 6/01/36 ............................................................... 9,000,000 9,198,990
Omaha Public Power District Separate Electricity Revenue, System,
Nebraska City 2, Series A, AMBAC Insured, 5.00%, 2/01/30 ..................... 12,165,000 12,595,884
University of Nebraska Revenues,
Kearney Student Fees and Facilities, 5.00%, 7/01/30 .......................... 5,000,000 5,214,800
Lincoln Student Fees and Facilities, Series A, 5.25%, 7/01/34 ................ 5,000,000 5,321,100
Omaha Student Facilities Project, 5.00%, 5/15/32 ............................. 5,000,000 5,223,050
University of Nebraska Omaha Health and Recreation Project, 5.00%,
5/15/38 ................................................................... 5,000,000 5,189,750
----------------
148,585,130
----------------
NEVADA 0.9%
Clark County Airport Revenue, sub. lien,
Series A-2, FGIC Insured, 5.125%, 7/01/27 .................................... 10,000,000 10,179,500
Series B, FGIC Insured, Pre-Refunded, 5.25%, 7/01/31 ......................... 20,000,000 21,497,600
Clark County School District GO,
Refunding, Series A, NATL Insured, 5.00%, 6/15/24 ............................ 15,000,000 15,821,100
Series C, FSA Insured, 5.00%, 6/15/21 ........................................ 10,000,000 10,648,800
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 ........................................................... 3,080,000 373,450
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/26 ................ 3,815,000 435,902
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/27 ................ 3,000,000 323,010
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/28 ................ 13,315,000 1,353,336
Las Vegas Monorail Project, AMBAC Insured, zero cpn., 1/01/29 ................ 8,410,000 807,024
Las Vegas Monorail Project, first tier, AMBAC Insured, 5.625%, 1/01/32 ....... 21,995,000 6,238,662
Las Vegas Monorail Project, first tier, AMBAC Insured, 5.625%, 1/01/34 ....... 12,000,000 3,401,760
Nevada State GO, Municipal Bond Bank Project No. 40-41, Series A, ETM,
6.375%, 12/01/17 ............................................................. 10,275,000 10,313,017
Semiannual Report | 35
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
NEVADA (CONTINUED)
Sparks RDA Tax Allocation Revenue, Refunding, Series A, Radian Insured, 6.00%,
1/15/23 ...................................................................... $ 5,000,000 $ 4,625,850
Washoe County GO, Reno Sparks Convention, Refunding, Series A, FGIC Insured,
5.00%, 7/01/24 ............................................................... 5,000,000 5,013,850
----------------
91,032,861
----------------
NEW HAMPSHIRE 0.1%
Nashua Housing Authority MFR, Clocktower Project, Refunding, GNMA Secured, 6.25%,
6/20/33 ...................................................................... 5,363,000 5,367,290
New Hampshire Health and Education Facilities Authority Revenue,
Exeter Project, 6.00%, 10/01/24 .............................................. 2,000,000 2,051,500
Exeter Project, 5.75%, 10/01/31 .............................................. 1,000,000 1,008,630
The Memorial Hospital, Refunding, 5.25%, 6/01/26 ............................. 1,000,000 914,020
The Memorial Hospital, Refunding, 5.25%, 6/01/36 ............................. 1,100,000 936,859
New Hampshire Higher Educational and Health Facilities Authority Revenue,
New Hampshire Catholic Charities, 5.80%, 8/01/22 ............................. 1,000,000 924,370
----------------
11,202,669
----------------
NEW JERSEY 3.2%
Health Care Facilities Financing Authority Revenue, Englewood Hospital,
NATL Insured, 5.00%, 8/01/23 ................................................. 5,000,000 5,030,250
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 ..................................................... 2,100,000 2,000,355
Series 1, 6.00%, 1/01/29 ..................................................... 5,000,000 4,320,600
Series 2, 6.125%, 1/01/19 .................................................... 2,000,000 1,922,000
Series 2, 6.125%, 1/01/29 .................................................... 5,000,000 4,315,450
New Jersey EDA Lease Revenue, International Center for Public Health Project,
University of Medicine and Dentistry, AMBAC Insured, 6.00%, 6/01/32 .......... 5,000,000 4,938,850
New Jersey EDA Revenue,
Cigarette Tax, 5.75%, 6/15/29 ................................................ 20,000,000 19,292,600
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/29 ...... 10,000,000 9,974,500
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/34 ...... 5,000,000 5,030,650
School Facilities Construction, Series C, NATL Insured, 4.75%, 6/15/25 ....... 7,500,000 7,543,575
School Facilities Construction, Series O, 5.125%, 3/01/28 .................... 20,000,000 20,805,600
School Facilities Construction, Series U, 5.00%, 9/01/37 ..................... 22,000,000 22,469,920
New Jersey Health Care Facilities Financing Authority Revenue,
State Contract Hospital Asset Transitions Program, Series A, 5.25%,
10/01/38 ..................................................................... 10,000,000 10,228,000
New Jersey State COP, Equipment Lease Purchase, Series A, 5.25%,
6/15/25 ...................................................................... 20,305,000 21,271,924
6/15/26 ...................................................................... 8,000,000 8,349,360
6/15/27 ...................................................................... 4,000,000 4,171,560
6/15/28 ...................................................................... 2,000,000 2,081,060
New Jersey State Housing and Mortgage Finance Agency Revenue, Series AA, 6.375%,
10/01/28 ..................................................................... 7,415,000 8,051,504
New Jersey State Transportation Trust Fund Authority Revenue, Transportation
System, Series A, 6.00%, 12/15/38 ............................................ 60,000,000 67,524,600
36 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
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 $ 7,767,600
Series A, NATL Insured, Pre-Refunded, 5.60%, 1/01/22 ......................... 7,500,000 7,562,250
Series A, NATL Insured, Pre-Refunded, 5.50%, 1/01/25 ......................... 13,000,000 13,105,820
Series E, 5.25%, 1/01/40 ..................................................... 13,925,000 14,269,922
New Jersey Transportation Trust Fund Authority Revenue, Transportation System,
Series A, FSA Insured, 5.00%, 12/15/34 ....................................... 35,000,000 36,369,900
Tobacco Settlement FICO Revenue, Asset-Backed, Pre-Refunded, 5.75%, 6/01/32 ..... 16,605,000 17,992,514
----------------
326,390,364
----------------
NEW MEXICO 0.1%
New Mexico Finance Authority Revenue, New Mexico Finance Authority, Series B,
5.50%, 6/01/39 ............................................................... 11,000,000 11,008,030
New Mexico State Highway Commission Tax Revenue, senior sub. lien, Series A,
Pre-Refunded, 6.00%, 6/15/13 ................................................. 1,000,000 1,033,980
----------------
12,042,010
----------------
NEW YORK 6.3%
Long Island Power Authority Electric System Revenue, General, Refunding,
Series A, 6.00%, 5/01/33 ..................................................... 12,500,000 13,925,250
MTA Commuter Facilities Revenue, Series A, Pre-Refunded, 5.25%, 7/01/28 ......... 5,000,000 5,387,350
MTA Dedicated Tax Fund Revenue,
Series A, FGIC Insured, Pre-Refunded, 6.00%, 4/01/30 ......................... 12,500,000 12,790,500
Series A, FGIC Insured, Pre-Refunded, 5.00%, 11/15/31 ........................ 14,250,000 15,483,195
Series A, NATL Insured, ETM, 6.25%, 4/01/11 .................................. 1,280,000 1,381,261
Series B, 5.25%, 11/15/28 .................................................... 6,000,000 6,227,400
Series B, 5.25%, 11/15/29 .................................................... 4,000,000 4,164,520
Series B, 5.25%, 11/15/30 .................................................... 3,000,000 3,116,100
Series B, 5.00%, 11/15/34 .................................................... 5,000,000 5,159,200
MTA Revenue,
Refunding, Series E, 5.25%, 11/15/31 ......................................... 10,000,000 10,153,500
Refunding, Series U, 5.125%, 11/15/31 ........................................ 20,720,000 20,965,739
Series A, 5.00%, 11/15/37 .................................................... 25,000,000 24,962,000
Transportation, Series C, 6.50%, 11/15/28 .................................... 15,000,000 16,944,450
MTA Transit Facilities Revenue, Service Contract, Series 8, Pre-Refunded, 5.375%,
7/01/21 ...................................................................... 15,000,000 17,124,600
New York City GO,
Refunding, Series H, 6.125%, 8/01/25 ......................................... 5,000 5,019
Series D, 8.00%, 8/01/16 ..................................................... 5,000 5,070
Series D, 5.50%, 6/01/24 ..................................................... 16,405,000 17,152,248
Series D, Pre-Refunded, 5.50%, 6/01/24 ....................................... 7,535,000 8,384,571
Series E, 6.50%, 12/01/12 .................................................... 20,000 20,076
Series E, Sub Series E-1, 6.25%, 10/15/28 .................................... 10,000,000 11,612,700
Series F, 5.25%, 1/15/23 ..................................................... 14,415,000 15,068,864
Series F, Pre-Refunded, 5.25%, 1/15/23 ....................................... 5,585,000 6,267,990
Semiannual Report | 37
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Pre-Refunded, 5.50%, 6/15/33 ................................................. $ 55,000,000 $ 57,301,750
Refunding, Series D, 5.25%, 6/15/25 .......................................... 10,000,000 10,360,000
Refunding, Series D, 5.00%, 6/15/37 .......................................... 19,800,000 20,245,896
Refunding, Series FF-2, 5.50%, 6/15/40 ....................................... 15,000,000 16,086,750
Series A, 5.75%, 6/15/40 ..................................................... 6,000,000 6,525,900
Series G, FSA Insured, 5.125%, 6/15/32 ....................................... 24,215,000 24,563,696
New York City Transitional Finance Authority Building Aid Revenue, Fiscal 2009,
Series S-2, 6.00%, 7/15/38 ................................................... 20,000,000 22,107,600
Series S-3, 5.25%, 1/15/34 ................................................... 10,170,000 10,660,499
Series S-4, 5.50%, 1/15/34 ................................................... 12,890,000 13,801,065
New York City Transitional Finance Authority Revenue, Future Tax Secured,
Refunding, Series B, 5.00%, 5/01/30 .......................................... 7,205,000 7,383,756
Series B, Pre-Refunded, 6.00%, 11/15/29 ...................................... 10,000,000 10,404,500
Series B, Pre-Refunded, 5.00%, 5/01/30 ....................................... 295,000 323,264
Series C, Pre-Refunded, 5.50%, 11/01/20 ...................................... 5,000,000 5,178,850
Series C, Pre-Refunded, 5.50%, 11/01/24 ...................................... 4,200,000 4,350,234
Series D, 5.00%, 2/01/27 ..................................................... 10,000,000 10,362,200
New York City Transportation Authority MTA Triborough COP, Series A,
AMBAC Insured, Pre-Refunded, 5.40%, 1/01/19 .................................. 15,000,000 15,269,700
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 8,173,760
New York Convention Center Development Corp. Revenue, Hotel Unit Fee Secured,
AMBAC Insured, 5.00%, 11/15/30 ............................................... 10,000,000 10,051,500
New York Liberty Development Corp. Revenue,
5.50%, 10/01/37 .............................................................. 13,000,000 13,091,910
Goldman Sachs Headquarters, 5.25%, 10/01/35 .................................. 25,000,000 24,410,750
New York State Dormitory Authority Lease Revenue, Court Facilities,
Pre-Refunded, 6.00%, 5/15/39 ................................................. 16,000,000 16,642,880
New York State Dormitory Authority Revenues,
City University System Consolidated, Third General, Refunding, Series 1,
5.25%, 7/01/25 ............................................................... 10,000,000 10,059,800
State Supported Debt, Upstate Community Colleges, 6.00%, 7/01/31 ............. 23,215,000 25,529,071
State Supported Debt, Upstate Community Colleges, Refunding, Series A, 5.00%,
7/01/28 ...................................................................... 1,535,000 1,546,558
New York State HFAR, Housing Project Mortgage, Refunding, Series A, FSA Insured,
6.10%, 11/01/15 .............................................................. 4,135,000 4,154,393
6.125%, 11/01/20 ............................................................. 3,510,000 3,518,284
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 1,467,187
New York State Urban Development Corp. Revenue, State Personal Income Tax,
Series B-1, 5.00%, 3/15/36 ................................................... 5,000,000 5,150,500
Onondaga County GO,
5.875%, 2/15/12 .............................................................. 300,000 332,601
ETM, 5.875%, 2/15/12 ......................................................... 700,000 777,581
Sales Tax Asset Receivable Corp. Revenue, Series A, AMBAC Insured, 5.00%,
10/15/29 ..................................................................... 8,000,000 8,362,960
38 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
Triborough Bridge and Tunnel Authority Revenues,
General, Series A-2, 5.25%, 11/15/34 ......................................... $ 7,500,000 $ 7,970,775
General Purpose, 5.25%, 11/15/38 ............................................. 25,000,000 26,279,500
General Purpose, Refunding, Series A, 5.00%, 1/01/27 ......................... 5,000,000 5,111,500
General Purpose, Series A, 5.00%, 1/01/32 .................................... 3,085,000 3,125,074
General Purpose, Series B, Pre-Refunded, 5.50%, 1/01/30 ...................... 15,000,000 18,352,650
General Purpose, Series X, ETM, 6.625%, 1/01/12 .............................. 1,800,000 1,963,044
General Purpose, Series Y, ETM, 6.00%, 1/01/12 ............................... 705,000 745,805
----------------
648,045,346
----------------
NORTH CAROLINA 2.8%
Charlotte Airport Revenue, Series A, NATL Insured, 5.00%, 7/01/34 ............... 6,000,000 6,116,880
Charlotte COP,
Refunding, Series C, 5.00%, 6/01/34 .......................................... 8,000,000 8,346,080
Transit Projects, Phase II, Series E, 5.00%, 6/01/30 ......................... 15,940,000 16,447,530
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series B, 6.00%, 1/01/22 .......................................... 1,250,000 1,426,537
Refunding, Series B, 6.25%, 1/01/23 .......................................... 39,030,000 45,542,155
Refunding, Series B, FGIC Insured, 6.25%, 1/01/23 ............................ 1,280,000 1,283,226
Refunding, Series D, 5.125%, 1/01/23 ......................................... 12,000,000 12,200,160
Refunding, Series D, 5.125%, 1/01/26 ......................................... 3,000,000 3,031,560
Series A, 5.50%, 1/01/26 ..................................................... 4,500,000 4,744,575
Series A, Pre-Refunded, 5.75%, 1/01/26 ....................................... 65,350,000 66,560,935
Series B, Pre-Refunded, 5.75%, 1/01/24 ....................................... 35,140,000 35,791,144
Series D, Pre-Refunded, 6.70%, 1/01/19 ....................................... 2,000,000 2,040,060
Series D, Pre-Refunded, 6.75%, 1/01/26 ....................................... 5,000,000 5,100,550
North Carolina Medical Care Commission Revenue, Rowan Regional
Medical Center, FSA Insured, 4.75%, 9/01/24 .................................. 6,970,000 7,053,431
North Carolina State Capital Improvement Limited Obligation Revenue, 5.00%,
5/01/22 ...................................................................... 5,000,000 5,550,100
5/01/24 ...................................................................... 5,500,000 6,040,210
5/01/25 ...................................................................... 5,750,000 6,276,355
5/01/27 ...................................................................... 4,500,000 4,859,865
5/01/28 ...................................................................... 4,250,000 4,565,520
North Carolina Turnpike Authority Triangle Expressway System Revenue,
Capital Appreciation, Series B, Assured Guaranty, zero cpn., 1/01/33 ......... 25,000,000 5,851,500
Capital Appreciation, Series B, Assured Guaranty, zero cpn., 1/01/34 ......... 15,000,000 3,282,150
Capital Appreciation, Series B, Assured Guaranty, zero cpn., 1/01/35 ......... 15,215,000 3,073,278
Series A, Assured Guaranty, 5.50%, 1/01/29 ................................... 6,750,000 7,091,280
Series A, Assured Guaranty, 5.75%, 1/01/39 ................................... 10,380,000 10,860,283
Winston-Salem Water and Sewer System Revenue, Pre-Refunded, 5.125%, 6/01/28 ..... 11,000,000 11,878,900
----------------
285,014,264
----------------
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 8,384,665
Refunding, 5.50%, 12/01/20 ................................................... 8,870,000 8,584,031
Refunding, 5.50%, 12/01/24 ................................................... 13,945,000 13,048,755
----------------
30,017,451
----------------
Semiannual Report | 39
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
OHIO 2.9%
Akron Bath Copley Joint Township Hospital District Revenue, Hospital
Improvement Children's Hospital Center, FSA Insured, 5.00%, 11/15/31 ......... $ 9,250,000 $ 9,262,673
Akron Income Tax Revenue, Community Learning, FGIC Insured, 5.00%,
12/01/26 ..................................................................... 6,085,000 6,226,476
12/01/27 ..................................................................... 3,185,000 3,250,707
American Municipal Power Inc. Revenue, Refunding, 5.00%, 2/15/38 ................ 22,500,000 22,634,775
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 9,945,600
Senior Current Interest Turbo Term Bond, Series A-2, 5.75%, 6/01/34 .......... 11,250,000 9,438,413
Senior Current Interest Turbo Term Bond, Series A-2, 6.00%, 6/01/42 .......... 5,000,000 3,893,450
Cleveland Airport System Revenue, Series A, FSA Insured,
5.00%, 1/01/31 ............................................................... 17,930,000 17,982,893
Pre-Refunded, 5.00%, 1/01/31 ................................................. 2,070,000 2,105,728
Cleveland State University General Receipt Revenue, FGIC Insured,
5.00%, 6/01/29 ............................................................... 5,000,000 5,085,600
Columbus City School District GO, School Facilities Construction and
Improvement, FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ..................... 16,000,000 17,948,000
Cuyahoga County Hospital Facilities Revenue, Canton Inc. Project,
7.50%, 1/01/30 ............................................................... 17,100,000 17,360,262
Hamilton County Sales Tax Revenue,
Refunding, Series B, AMBAC Insured, 5.25%, 12/01/32 .......................... 1,995,000 2,000,905
Series B, AMBAC Insured, Pre-Refunded, 5.25%, 12/01/32 ....................... 8,005,000 8,414,776
Kettering City School District GO, School Improvement, FGIC Insured,
Pre-Refunded, 5.00%, 12/01/30 ................................................ 1,860,000 2,117,182
Little Miami Local School District GO, School Improvement, FSA Insured,
Pre-Refunded, 5.00%, 12/01/34 ................................................ 4,000,000 4,636,280
Maple Heights City School District GO, School Facilities Improvement,
5.00%, 1/15/37 ............................................................... 29,370,000 29,931,554
Marysville Wastewater Treatment System Revenue, Refunding, XLCA Insured, 5.00%,
12/01/31 ..................................................................... 8,000,000 7,442,640
12/01/36 ..................................................................... 13,725,000 12,316,403
Montgomery County Hospital Facilities Revenue, Grandview Hospital and
Medical Center, Pre-Refunded,
5.50%, 12/01/10 .............................................................. 1,300,000 1,304,810
5.60%, 12/01/11 .............................................................. 1,000,000 1,003,780
5.65%, 12/01/12 .............................................................. 925,000 928,524
Nordonia Hills Local School District GO, School Improvement, AMBAC Insured,
Pre-Refunded,
5.375%, 12/01/20 ............................................................. 4,275,000 4,544,496
5.45%, 12/01/25 .............................................................. 3,000,000 3,191,550
Ohio State Air Quality Development Authority Revenue, Pollution
Control, FirstEnergy Solutions Corp., Refunding, Series C, 5.625%, 6/01/18 ... 8,500,000 8,854,365
Ohio State GO, Series A, 5.375%, 9/01/28 ........................................ 10,000,000 10,972,300
Ohio State Water Development Authority Pollution Control Facilities
Revenue, FirstEnergy Solutions Corp., Mandatory Put, 6/01/16,
Refunding, Series A, 5.875%, 6/01/33 ......................................... 13,000,000 13,817,050
Pickerington Local School District GO, School Facilities Construction
and Improvement, FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ................. 15,000,000 16,310,100
Scioto County Hospital Revenue, Southern Ohio Medical Center,
Refunding, 5.75%, 2/15/38 .................................................... 17,000,000 17,064,940
40 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Springboro Community City School District GO, School Improvement, NATL
Insured, Pre-Refunded, 5.00%, 12/01/27 ....................................... $ 10,350,000 $ 11,749,424
University of Akron General Receipts Revenue, FGIC Insured, Pre-Refunded,
5.75%, 1/01/29 ............................................................... 11,305,000 11,514,482
University of Cincinnati COP, Jefferson Avenue Residence Hall, NATL
Insured, 5.125%, 6/01/28 ..................................................... 4,000,000 4,011,640
University of Cincinnati General Receipts Revenue, Series A, FGIC
Insured, Pre-Refunded, 5.25%, 6/01/24 ........................................ 5,000,000 5,409,300
----------------
302,671,078
----------------
OKLAHOMA 0.0%(c)
Valley View Hospital Authority Revenue, Valley View Regional Medical
Center, Refunding, 6.00%, 8/15/14 ............................................ 1,845,000 1,816,882
----------------
OREGON 1.2%
Jackson County School District No. 6 Central Point GO, FGIC Insured,
Pre-Refunded, 5.25%, 6/15/20 ................................................. 4,000,000 4,120,080
Lane County School District No. 19 Springfield GO, Refunding, FGIC
Insured, 6.00%, 10/15/13 ..................................................... 1,250,000 1,450,200
Oregon Health and Science University Revenue, Series A,
5.75%, 7/01/39 ............................................................... 5,000,000 5,387,400
NATL Insured, 5.00%, 7/01/26 ................................................. 10,500,000 10,347,645
Oregon State Department of Administrative Services COP, Series A, AMBAC
Insured, Pre-Refunded, 6.00%, 5/01/26 ........................................ 10,000,000 10,364,400
Oregon State Department of Transportation Highway User Tax Revenue,
senior lien, Series A, 4.50%, 11/15/32 ....................................... 30,000,000 30,099,900
Oregon State EDR, Georgia-Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 ....................................... 3,500,000 3,145,800
(d) Series CLVII, 6.35%, 8/01/25 ................................................ 5,500,000 5,293,145
Oregon State GO, State Board of Higher Education, Series A,
5.00%, 8/01/26 ............................................................... 6,630,000 7,019,048
5.00%, 8/01/27 ............................................................... 6,955,000 7,337,456
Pre-Refunded, 5.00%, 8/01/26 ................................................. 12,000,000 12,902,400
Port of Portland International Airport Revenue, Series Nineteen, 5.50%,
7/01/38 ...................................................................... 25,000,000 26,535,250
----------------
124,002,724
----------------
PENNSYLVANIA 3.9%
Allegheny County Hospital Development Authority Revenue, Health System,
Series A, NATL Insured, Pre-Refunded, 6.50%, 11/15/30 ........................ 10,000,000 10,823,700
Allegheny County IDAR, Environmental Improvement, USX Corp., Refunding, 5.50%,
12/01/29 ..................................................................... 10,000,000 9,999,600
Allegheny County Port Authority Special Revenue, Transportation,
Refunding, FGIC Insured, 5.00%, 3/01/29 ...................................... 10,000,000 10,047,200
Butler Area School District GO, FGIC Insured, Pre-Refunded, 5.60%, 4/01/28 ...... 5,000,000 5,104,900
Centennial School District Bucks County GO, Series B, FSA Insured, 5.25%,
12/15/37 ..................................................................... 13,655,000 14,164,878
Coatesville School District GO, FSA Insured, 5.00%, 8/01/24 ..................... 6,420,000 6,839,033
Delaware County Authority University Revenue, Villanova University, Series A,
NATL Insured, 5.00%, 12/01/18 ................................................ 7,090,000 7,097,090
Semiannual Report | 41
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Delaware River Port Authority Pennsylvania and New Jersey Revenue, FSA Insured,
5.75%,
1/01/22 ...................................................................... $ 8,500,000 $ 8,534,425
1/01/26 ...................................................................... 10,000,000 10,037,400
Delaware Valley Regional Finance Authority Local Government Revenue, Series B,
AMBAC Insured, 5.60%, 7/01/17 ................................................ 5,000,000 5,433,600
Erie County Hospital Authority Revenue, Hamot Health Foundation, CIFG Insured,
5.00%, 11/01/37 .............................................................. 5,000,000 4,088,250
Erie Water Authority Water Revenue, Series A, NATL Insured, Pre-Refunded, 5.20%,
12/01/30 ..................................................................... 18,700,000 20,369,536
Montgomery County IDA Retirement Community Revenue, ACTS Retirement-Life
Communities Inc. Obligated Group, 5.25%, 11/15/28 ............................ 2,500,000 2,348,150
Northampton County General Purpose Authority Hospital Revenue, St. Luke's
Hospital Project, Series A, 5.375%, 8/15/28 .................................. 5,000,000 4,955,800
Northampton County General Purpose Authority Revenue, County Agreement, FSA
Insured, 5.25%, 10/01/30 ..................................................... 12,150,000 12,592,989
Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue,
Allegheny Energy Supply Co., LLC Project, 7.00%, 7/15/39 ..................... 20,000,000 21,165,600
Pennsylvania Economic Development Financing Authority Water Facility Revenue,
American Water Co. Project, 6.20%, 4/01/39 ................................... 12,500,000 13,624,000
Pennsylvania State Higher Educational Facilities Authority Revenue, Temple
University, Refunding, NATL Insured, 5.00%, 4/01/33 .......................... 14,225,000 14,379,768
Pennsylvania State Turnpike Commission Revenue, AMBAC Insured, Pre-Refunded,
5.00%, 7/15/31 ............................................................... 5,850,000 6,336,662
Pennsylvania State Turnpike Commission Turnpike Revenue,
Convertible Capital Appreciation, Sub Series C, FSA Insured, zero cpn. to
6/01/16, 6.25% thereafter, 6/01/33 ........................................ 5,000,000 3,679,150
Refunding, Series C, Sub Series C-1, Assured Guaranty, 6.00%, 6/01/28 ........ 5,000,000 5,661,500
Refunding, Series C, Sub Series C-1, Assured Guaranty, 6.25%, 6/01/38 ........ 15,000,000 16,963,800
Series B, 5.75%, 6/01/39 ..................................................... 20,000,000 21,098,400
Philadelphia Authority for Industrial Development Lease Revenue, Series B, FSA
Insured, Pre-Refunded, 5.25%, 10/01/30 ....................................... 15,630,000 17,082,808
Philadelphia Gas Works Revenue,
Fifth Series A-1, FSA Insured, 5.00%, 9/01/29 ................................ 5,000,000 5,081,000
Refunding, First Series A, FSA Insured, 5.00%, 7/01/26 ....................... 5,000,000 4,960,600
Philadelphia GO, 5.00%, 8/01/24 ................................................. 11,000,000 11,254,760
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 2,504,591
5.35%, 1/01/23 ............................................................... 5,690,000 5,723,799
5.375%, 1/01/28 .............................................................. 3,700,000 3,722,126
Philadelphia Municipal Authority Revenue, Lease, 6.375%, 4/01/29 ................ 4,500,000 4,745,340
Philadelphia Parking Authority Airport Parking Revenue, FSA Insured,
5.25%, 9/01/29 ............................................................... 15,000,000 15,110,400
Philadelphia RDAR, Neighborhood Transformation, Series C, FGIC Insured,
5.00%,
4/15/29 ...................................................................... 10,965,000 10,017,843
4/15/30 ...................................................................... 12,000,000 10,852,320
Philadelphia School District GO,
Series A, FSA Insured, Pre-Refunded, 5.75%, 2/01/30 .......................... 14,050,000 14,925,456
Series E, 6.00%, 9/01/38 ..................................................... 25,000,000 26,709,000
42 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Philadelphia Water and Wastewater Revenue, Series A,
5.25%, 1/01/25 ............................................................... $ 1,000,000 $ 1,037,470
5.00%, 1/01/26 ............................................................... 5,000,000 5,069,400
5.00%, 1/01/27 ............................................................... 1,750,000 1,765,243
5.25%, 1/01/32 ............................................................... 5,000,000 5,109,050
FGIC Insured, 5.00%, 11/01/31 ................................................ 8,995,000 9,019,736
Pittsburgh and Allegheny County Public Auditorium Hotel Room Revenue,
AMBAC Insured, 5.125%, 2/01/35 ............................................... 15,000,000 13,092,300
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset
District Sales Tax, AMBAC Insured, 5.25%, 2/01/31 ............................ 5,000,000 4,813,750
----------------
407,942,423
----------------
RHODE ISLAND 1.2%
Narragansett Bay Commission Wastewater System Revenue, Series A, NATL
Insured, 5.00%, 8/01/30 ...................................................... 7,990,000 8,149,081
Rhode Island Convention Center Authority Revenue, Refunding, Series A, Assured
Guaranty, 5.50%, 5/15/27 ..................................................... 17,300,000 18,069,158
Rhode Island Health and Educational Building Corp. Higher Education
Facility Revenue, Brown University Rhode Island, Refunding, Series A, 5.00%,
9/01/39 ...................................................................... 9,695,000 10,138,643
Rhode Island Housing and Mortgage Finance Corp. Revenue, Homeownership
Opportunity,
Refunding, Series 15-A, 6.85%, 10/01/24 ...................................... 620,000 620,062
Refunding, Series 25-A, 4.95%, 10/01/16 ...................................... 110,000 110,359
Series 10-A, 6.50%, 10/01/22 ................................................. 475,000 476,853
Series 10-A, 6.50%, 4/01/27 .................................................. 265,000 265,949
Rhode Island State Economic Development Corp. Airport Revenue, Series B,
NATL Insured, 5.00%,
7/01/27 ...................................................................... 12,280,000 12,490,970
7/01/30 ...................................................................... 14,965,000 15,103,426
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 7,835,229
Higher Education Facility, University of Rhode Island, Refunding, Series A,
AMBAC Insured, 5.00%, 9/15/30 ............................................. 10,000,000 10,249,500
Hospital Financing, Lifespan Obligated Group, 6.375%, 8/15/21 ................ 925,000 951,020
Hospital Financing, Lifespan Obligated Group, Pre-Refunded, 6.375%, 8/15/21 .. 6,075,000 6,780,976
Hospital Financing, Lifespan Obligated Group, Refunding, Series A, FSA
Insured, 5.00%, 5/15/26 ................................................... 5,000,000 5,066,600
Hospital Financing, Lifespan Obligated Group, Refunding, Series A, FSA
Insured, 5.00%, 5/15/32 ................................................... 14,440,000 14,171,849
Hospital Financing, Lifespan Obligated Group, Series A, 7.00%, 5/15/39 ....... 8,200,000 8,994,334
----------------
119,474,009
----------------
SOUTH CAROLINA 1.9%
Charleston Educational Excellence Finance Corp. Revenue, Charleston County School
District, 5.25%, 12/01/30 .................................................... 8,000,000 8,187,440
Dorchester County Waterworks and Sewer System Revenue, Refunding, NATL Insured,
5.00%, 10/01/28 .............................................................. 8,000,000 8,101,520
Greenville County School District Installment Purchase Revenue, Building
Equity Sooner Tomorrow, Refunding, 5.00%, 12/01/28 ........................... 7,500,000 7,611,300
Semiannual Report | 43
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
SOUTH CAROLINA (CONTINUED)
Greenwood Fifty School Facilities Inc. Installment Purchase Revenue, Greenwood
School District 50, Refunding, Assured Guaranty, 4.50%, 12/01/32 ............. $ 7,030,000 $ 6,765,953
Lancaster Educational Assistance Program Inc. Revenue, School District of
Lancaster County Project, 5.00%, 12/01/26 .................................... 12,300,000 12,559,038
Medical University of South Carolina Hospital Authority Hospital Facilities
Revenue, Mortgage, Refunding, Series A, NATL Insured, 5.00%, 8/15/31 ......... 13,860,000 13,952,585
Newberry Investing in Children's Education Installment Revenue, Newberry County
School District Project, 5.00%, 12/01/30 ..................................... 4,000,000 3,519,400
Piedmont Municipal Power Agency Electric Revenue, Series A-2, 5.00%, 1/01/24 .... 10,000,000 10,119,600
Scago Educational Facilities Corp. for Beaufort School District Revenue, Beaufort
School District, FSA Insured, 5.00%, 12/01/31 ................................ 5,340,000 5,536,085
Scago Educational Facilities Corp. for Chesterfield School District Revenue,
School Project, Assured Guaranty, 5.00%, 12/01/29 ............................ 7,500,000 7,629,300
Scago Educational Facilities Corp. for Colleton School District Revenue,
School Project, Assured Guaranty, 5.00%,
12/01/25 ..................................................................... 3,340,000 3,452,391
12/01/26 ..................................................................... 4,000,000 4,117,440
Scago Educational Facilities Corp. for Pickens School District Revenue,
Pickens County Project, FSA Insured, 5.00%,
12/01/25 ..................................................................... 18,900,000 19,594,008
12/01/31 ..................................................................... 10,000,000 10,100,500
South Carolina Jobs EDA Hospital Facilities Revenue, Palmetto Health, Refunding,
Series A, FSA Insured, 5.00%, 8/01/35 ........................................ 20,000,000 19,826,800
South Carolina Jobs EDA Hospital Revenue,
Improvement, Palmetto Health, Refunding, 5.75%, 8/01/39 ...................... 3,000,000 2,932,830
Refunding and Improvement, Anmed Health Series B, Assured Guaranty, 5.375%,
2/01/29 ................................................................... 4,000,000 4,194,080
South Carolina Public Service Authority Revenue, Series B, FSA Insured, 5.25%,
1/01/33 ...................................................................... 31,835,000 32,621,643
South Carolina State Public Service Authority Revenue, Refunding,
Series A, 5.50%, 1/01/38 ..................................................... 7,500,000 8,110,050
Series B, 5.25%, 1/01/34 ..................................................... 6,000,000 6,362,100
Sumter Two School Facilities Inc. Installment Purchase Revenue, Sumter County
School District 2, Refunding, Assured Guaranty, 4.50%, 12/01/32 .............. 6,000,000 5,584,020
----------------
200,878,083
----------------
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 15,652,827
Avera Health Issue, Series B, 5.50%, 7/01/35 ................................. 3,000,000 3,016,170
Avera Health Issue, Series B, 5.25%, 7/01/38 ................................. 5,000,000 4,827,350
Sanford Health, 5.00%, 11/01/27 .............................................. 2,355,000 2,341,176
Sanford Health, 5.00%, 11/01/40 .............................................. 12,945,000 12,561,699
----------------
38,399,222
----------------
TENNESSEE 0.3%
Clarksville Natural Gas Acquisition Corp. Gas Revenue, 5.00%, 12/15/19 .......... 6,000,000 5,733,180
Johnson City Health and Educational Facilities Board Hospital Revenue, first
mortgage, Mountain States Health, Series A, NATL Insured, Pre-Refunded,
6.00%, 7/01/21 ............................................................... 7,000,000 7,221,970
44 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
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 $ 3,040,961
Knox County Health Educational and Housing Facilities Board Revenue,
University Health
System Inc., Refunding, 5.25%, 4/01/27 ....................................... 17,500,000 17,205,300
Tennessee HDA Revenue, Homeownership Program, Refunding, Series 1D, 4.70%,
7/01/15 ...................................................................... 230,000 230,789
----------------
33,432,200
----------------
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 9,013,151
Austin Electric Utility System Revenue, Refunding, NATL Insured, 5.00%, 11/15/28 10,000,000 10,145,100
Bexar County GO, Certificates of Obligation, Combined Flood Control Tax,
FSA Insured,
5.00%, 6/15/37 ............................................................... 20,000,000 20,623,400
Bexar County HFC, MFHR,
American Opportunity Housing, Series A, NATL Insured, 5.80%, 1/01/31 ......... 6,000,000 4,997,580
Honey Creek Apartments Project, Series A, NATL Insured, 6.20%, 4/01/30 ....... 2,845,000 2,190,934
Bexar County Hospital District GO, Certificates of Obligation, 5.00%, 2/15/38 ... 10,000,000 9,894,700
Bridge City ISD, GO, Pre-Refunded, 5.375%, 2/15/32 .............................. 1,930,000 2,047,363
Carrollton GO, Improvement, FSA Insured, 5.25%, 8/15/19 ......................... 1,000,000 1,042,750
Crowley ISD, GO, School Building, 5.00%, 8/01/36 ................................ 13,900,000 14,498,951
Dallas Civic Center Revenue, Refunding and Improvement, Assured Guaranty, 5.25%,
8/15/34 ...................................................................... 18,975,000 19,514,459
Dallas County Utility and Reclamation District GO, Refunding, Series A,
AMBAC Insured,
5.375%, 2/15/29 .............................................................. 28,325,000 26,877,876
Dallas ISD, GO, Refunding, 5.25%, 2/15/20 ....................................... 2,000,000 2,093,420
Dallas-Fort Worth International Airport Revenue, Refunding and Improvement,
Series A, FGIC Insured, 5.625%, 11/01/26 ..................................... 85,000,000 85,562,700
Denton ISD, GO, School Building, 5.00%, 8/15/38 ................................. 15,710,000 16,282,472
Duncanville ISD, GO, Series B, Pre-Refunded, 5.25%, 2/15/32 ..................... 9,850,000 10,803,184
Edcouch Elsa ISD, GO, Pre-Refunded, 5.50%, 2/15/30 .............................. 2,000,000 2,029,140
Forney ISD, GO, School Building, Series A, 6.00%, 8/15/37 ....................... 2,000,000 2,226,200
Gulf Coast Waste Disposal Authority Environmental Improvement Revenue, USX Corp.
Projects, Refunding, 5.50%, 9/01/17 .......................................... 3,250,000 3,260,920
Gulf Coast Waste Disposal Authority Revenue, Valero Energy Corp. Project, 5.70%,
4/01/32 ...................................................................... 3,000,000 2,712,090
Harris County Health Facilities Development Corp. Hospital Revenue,
Memorial Hermann Healthcare System, Refunding, Series B, 7.25%, 12/01/35 .... 13,500,000 15,118,110
Harris County Hospital District Revenue, senior lien, Refunding, Series A,
NATL Insured,
5.125%, 2/15/32 .............................................................. 10,215,000 9,738,164
Harris County MTA Revenue, Contractual Obligations, Series B, 5.00%, 11/01/33 ... 10,000,000 10,317,500
Hays Consolidated ISD, GO, Capital Appreciation, Pre-Refunded, zero cpn.,
8/15/19 ...................................................................... 5,285,000 3,242,295
8/15/21 ...................................................................... 8,420,000 4,558,504
8/15/22 ...................................................................... 8,470,000 4,311,823
Hidalgo County GO, Certificates of Obligation, FSA Insured, Pre-Refunded, 5.25%,
8/15/21 ...................................................................... 2,500,000 2,703,225
Semiannual Report | 45
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Houston Airport System Revenue,
Refunding, second lien, Series A, 5.50%, 7/01/34 ............................. $ 5,000,000 $ 5,234,400
Refunding, second lien, Series A, 5.50%, 7/01/39 ............................. 7,000,000 7,287,980
sub. lien, Series B, FSA Insured, Pre-Refunded, 5.50%, 7/01/30 ............... 2,000,000 2,067,660
Houston Area Water Corp. Contract Revenue, Northeast Water Purification Project,
FGIC Insured, Pre-Refunded, 5.125%, 3/01/28 .................................. 15,000,000 16,400,100
Houston GO, Public Improvement, Refunding, NATL Insured, 5.00%, 3/01/25 ......... 5,000,000 5,143,300
Houston Water and Sewer Systems Revenue, junior lien, Series B, FGIC Insured,
Pre-Refunded, 5.25%, 12/01/30 ................................................ 14,000,000 14,724,500
Keller ISD, GO,
Pre-Refunded, 5.375%, 8/15/25 ................................................ 1,330,000 1,382,575
School Building, 5.50%, 2/15/35 .............................................. 10,000,000 10,533,800
Kerrville ISD, GO, Pre-Refunded, 6.00%, 8/15/13 ................................. 1,000,000 1,044,400
Lower Colorado River Authority Revenue,
Improvement, Series A, NATL Insured, Pre-Refunded, 5.00%, 5/15/26 ............ 130,000 138,496
Refunding and Improvement, Series A, NATL Insured, 5.00%, 5/15/26 ............ 1,870,000 1,913,945
Lower Colorado River Authority Transmission Contract Revenue,
LCRA Transmission Services Corp. Project, Refunding,
5.50%, 5/15/36 ............................................................... 15,310,000 15,720,920
Series B, FSA Insured, 5.00%, 5/15/31 ........................................ 10,000,000 10,051,700
Lubbock Educational Facilities Authority Revenue, Lubbock Christian,
Refunding and Improvement, 5.125%, 11/01/27 .................................. 1,000,000 908,600
Manor ISD, GO, School Building, 5.00%, 8/01/37 .................................. 8,175,000 8,443,467
Matagorda County Hospital District Revenue, FHA Insured, 5.00%, 2/15/35 ......... 10,000,000 9,816,200
North Central Texas Health Facility Development Corp. Revenue, Children's
Medical Center Dallas, Refunding, AMBAC Insured, 5.25%, 8/15/24 .............. 19,335,000 19,852,985
North Fort Bend Water Authority Water System Revenue, Assured Guaranty, 5.25%,
12/15/34 ..................................................................... 20,000,000 20,892,800
North Harris County Regional Water Authority Revenue, senior lien,
5.25%, 12/15/33 .............................................................. 27,000,000 27,290,790
5.50%, 12/15/38 .............................................................. 25,000,000 25,519,250
North Texas Tollway Authority Revenue,
Capital Appreciation, System, first tier, Refunding, Series I, zero cpn. to
1/01/15, 6.50% thereafter, 1/01/43 ........................................... 25,000,000 19,209,250
System, first tier, Refunding, Series A, 6.25%, 1/01/39 ...................... 12,500,000 13,194,000
System, first tier, Refunding, Series A, 5.75%, 1/01/40 ...................... 35,000,000 35,497,000
System, first tier, Refunding, Series K-2, 6.00%, 1/01/38 .................... 15,000,000 15,631,200
System, second tier, Refunding, Series F, 5.75%, 1/01/38 ..................... 30,000,000 30,269,400
Northside ISD, GO,
Pre-Refunded, 5.00%, 2/15/26 ................................................. 1,345,000 1,420,374
Refunding, 5.00%, 2/15/26 .................................................... 1,155,000 1,175,721
Pasadena GO, Certificates of Obligation, FGIC Insured, Pre-Refunded,
5.25%, 4/01/32 ............................................................... 3,000,000 3,193,140
Port Corpus Christi IDC Revenue, Valero, Refunding, Series B, 5.40%, 4/01/18 .... 4,000,000 3,936,200
Port Corpus Christi Nueces County General Revenue, Union Pacific,
Refunding, 5.65%, 12/01/22 ................................................... 15,000,000 15,401,700
Port Houston Authority Harris County GO, Refunding, Series A, 5.625%, 10/01/38 .. 14,000,000 14,591,500
Richardson GO, Hotel Occupancy Certificates, Series A, FGIC Insured,
Pre-Refunded, 5.75%, 2/15/21 ................................................. 2,500,000 2,537,800
46 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Rio Grande City Consolidated ISD, GO, School Building, 5.00%, 8/15/37 ........... $ 10,510,000 $ 10,888,045
San Antonio Water Revenue, Systems, Refunding, FSA Insured, 5.00%,
5/15/25 ...................................................................... 5,000,000 5,153,150
5/15/28 ...................................................................... 5,000,000 5,125,200
Southmost Regional Water Authority Water Supply Contract Revenue, NATL Insured,
5.00%, 9/01/25 ............................................................... 5,000,000 5,077,250
Tarrant County Health Facilities Development Corp. Health System Revenue, Harris
Methodist Health System, FGIC Insured, ETM, 6.00%, 9/01/24 ................... 4,000,000 4,773,480
Tarrant County Health Facilities Development Corp. Revenue, Bethesda Living
Centers, Series C, 5.75%,
8/15/18 ...................................................................... 1,570,000 1,472,016
8/15/28 ...................................................................... 3,900,000 3,210,987
(a) Texas A&M University Revenue, Financing System, Series D, 5.00%, 5/15/34 .... 5,000,000 5,224,600
Texas City IDC Marine Terminal Revenue, ARCO Pipe Line Co. Project, Refunding,
7.375%, 10/01/20 ............................................................. 500,000 617,450
Texas State GO,
Veterans Housing Assistance, Fund II, Series C, 6.15%, 12/01/28 .............. 10,000,000 10,041,900
Water Financial Assistance, Refunding, Series C-1, 5.00%, 8/01/34 ............ 7,000,000 7,357,700
Texas State Revenue, Transportation Commission-Mobility Fund, Series A, 5.00%,
4/01/33 ...................................................................... 10,000,000 10,452,600
Texas State Turnpike Authority Central Texas Turnpike System Revenue,
Capital Appreciation, AMBAC Insured, zero cpn., 8/15/31 ...................... 43,500,000 11,100,330
Texas State University System Financing Revenue, Refunding, FSA Insured, 5.00%,
3/15/26 ...................................................................... 6,425,000 6,723,698
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas
Medical Center, Refunding and Improvement, Series A, 5.25%, 11/01/32 ......... 6,250,000 5,930,375
Waco Health Facilities Development Corp. FHA Insured Mortgage Revenue,
Hillcrest Health System Project, Series A, NATL Insured, 5.00%, 8/01/31 ...... 12,500,000 12,034,000
Wylie ISD, GO,
Pre-Refunded, 7.00%, 8/15/24 ................................................. 660,000 734,065
Refunding, 7.00%, 8/15/24 .................................................... 340,000 361,801
----------------
762,509,811
----------------
UTAH 0.8%
Intermountain Power Agency Power Supply Revenue, ETM, 6.15%, 7/01/14 ............ 15,515,000 15,517,948
South Jordan Sales Tax Revenue, AMBAC Insured, Pre-Refunded, 5.20%, 8/15/26 ..... 4,770,000 5,157,992
South Valley Water Reclamation Facility Sewer Revenue, AMBAC Insured, 5.00%,
8/15/30 ...................................................................... 5,730,000 5,953,814
St. George Electric Revenue, FSA Insured, 5.00%,
6/01/33 ...................................................................... 5,000,000 5,183,250
6/01/38 ...................................................................... 5,000,000 5,147,350
Uintah County Municipal Building Authority Lease Revenue, 5.50%, 6/01/37 ........ 5,000,000 5,095,550
Utah Associated Municipal Power Systems Revenue, Central St. George Project,
Refunding,
5.25%, 12/01/27 .............................................................. 9,735,000 9,979,640
Utah State Transit Authority Sales Tax Revenue, Series A, FSA Insured,
5.00%, 6/15/36 ............................................................... 25,000,000 26,010,000
----------------
78,045,544
----------------
Semiannual Report | 47
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
VERMONT 0.4%
Burlington Airport Revenue, Series A, NATL Insured, 5.00%, 7/01/28 .............. $ 5,780,000 $ 5,317,253
University of Vermont and State Agricultural College Revenue, Refunding,
NATL Insured, 5.00%, 10/01/30 ................................................ 12,210,000 12,651,270
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 11,065,920
Series A, 4.75%, 12/01/36 .................................................... 5,000,000 4,127,850
Series A, AMBAC Insured, 6.125%, 12/01/27 .................................... 13,000,000 13,075,790
----------------
46,238,083
----------------
VIRGINIA 0.3%
Greater Richmond Convention Center Authority Hotel Tax Revenue, Refunding, NATL
Insured, 5.00%, 6/15/30 ...................................................... 12,260,000 12,402,829
Harrisonburg IDAR, Hospital Facilities, Rockingham Memorial Hospital, AMBAC
Insured, 5.00%, 8/15/31 ...................................................... 2,000,000 1,842,820
Medical College Hospital Authority Revenue, General Revenue Bonds, NATL Insured,
5.125%, 7/01/18 .............................................................. 2,000,000 2,027,460
Norfolk Parking System Revenue, Refunding, Series A, NATL Insured, 5.00%,
2/01/27 ...................................................................... 5,000,000 4,886,650
Virginia State HDA Commonwealth Mortgage Revenue, Series H, Sub Series H-1,
NATL Insured, 5.35%, 7/01/31 ................................................. 10,000,000 10,055,900
----------------
31,215,659
----------------
WASHINGTON 4.1%
Bellingham Housing Authority Revenue, Pacific Rim and Cascade Meadows Project,
Refunding, NATL Insured, 5.20%, 11/01/27 ..................................... 200,000 193,288
Central Puget Sound Regional Transportation Authority Sales and Use Tax Revenue,
Series A, AMBAC Insured, 5.00%, 11/01/30 ..................................... 20,000,000 20,678,200
Clark County PUD No. 1 Generating System Revenue, Refunding, FSA Insured, 5.50%,
1/01/25 ...................................................................... 15,015,000 15,100,886
Energy Northwest Electric Revenue, Columbia Generating Station, Refunding,
Series A, 5.00%, 7/01/24 ..................................................... 15,255,000 16,266,712
Series B, FSA Insured, 5.35%, 7/01/18 ........................................ 11,500,000 12,389,870
FYI Properties Lease Revenue, Washington State District Project, 5.50%,
6/01/34 ...................................................................... 5,000,000 5,309,350
6/01/39 ...................................................................... 16,250,000 17,152,687
Goat Hill Properties Lease Revenue, Government Office Building Project, NATL
Insured, 5.00%, 12/01/33 ..................................................... 18,500,000 18,931,790
Grant County PUD No. 2 Wanapum Hydro Electric Revenue, Refunding, Second
Series A, NATL Insured, 5.20%, 1/01/23 ....................................... 250,000 250,553
Series D, FSA Insured, 5.20%, 1/01/23 ........................................ 6,000,000 6,202,380
King County GO, Limited Tax, Sewer, 5.125%, 1/01/33 ............................. 10,000,000 10,603,000
King County Public Hospital District No. 1 GO, Series B, 5.25%, 12/01/37 ........ 5,000,000 5,210,000
Pierce County School District No. 320 Sumner GO, FSA Insured, Pre-Refunded,
6.00%, 12/01/14 .............................................................. 2,000,000 2,120,680
Pierce County School District No. 403 Bethel GO, FGIC Insured, 5.25%,
12/01/22 ........................................................................ 5,000,000 5,235,000
Port Seattle Revenue, Refunding, Series A,
FGIC Insured, 5.00%, 4/01/31 ................................................. 21,680,000 21,776,910
NATL Insured, 5.00%, 7/01/33 ................................................. 10,000,000 10,072,400
48 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
WASHINGTON (CONTINUED)
Seattle Municipal Light and Power Revenue, 5.40%, 12/01/25 ...................... $ 10,000,000 $ 10,194,200
Seattle Water System Revenue, FGIC Insured, 5.00%, 10/01/23 ..................... 300,000 300,117
Snohomish County Housing Authority Revenue, Pooled, 6.30%, 4/01/16 .............. 150,000 151,067
Snohomish County USD No. 6 GO, 6.50%, 12/01/11 .................................. 7,000,000 7,417,480
Spokane County School District No. 81 Spokane GO, 5.00%, 12/01/26 ............... 17,000,000 18,354,900
Twenty-Fifth Avenue Properties Washington Student Housing Revenue, NATL Insured,
5.125%, 6/01/22 .............................................................. 2,925,000 2,963,200
5.25%, 6/01/33 ............................................................... 9,770,000 9,717,242
Washington State GO,
AMBAC Insured, 5.00%, 1/01/31 ................................................ 7,925,000 8,304,924
Credit, Series C, FSA Insured, 5.00%, 1/01/30 ................................ 17,435,000 18,233,872
Motor Vehicle Fuel Tax, Series B, FGIC Insured, 5.00%, 7/01/27 ............... 10,000,000 10,440,500
Series A, FGIC Insured, 5.00%, 7/01/27 ....................................... 10,000,000 10,440,500
Various Purpose, Series C, FSA Insured, 5.25%, 1/01/26 ....................... 10,120,000 10,662,331
Washington State Health Care Facilities Authority Revenue,
Central Washington Health Services, 6.75%, 7/01/29 ........................... 5,000,000 5,293,900
MultiCare Health System, Refunding, NATL Insured, 5.00%, 8/15/22 ............. 250,000 242,178
MultiCare Health System, Series B, Assured Guaranty, 6.00%, 8/15/39 .......... 1,500,000 1,582,710
MultiCare Health System, Series B, FSA Insured, 5.00%, 8/15/34 ............... 17,550,000 17,573,341
MultiCare Health System, Series B, FSA Insured, 5.00%, 8/15/41 ............... 9,170,000 9,111,495
Providence Health and Services, Refunding, Series A, FGIC Insured, 5.00%,
10/01/36 ..................................................................... 9,750,000 9,789,097
Providence Health and Services, Refunding, Series C, FSA Insured, 5.25%,
10/01/33 ..................................................................... 10,000,000 10,098,800
Providence Health and Services, Series A, FGIC Insured, Pre-Refunded, 5.00%,
10/01/36 ..................................................................... 250,000 289,768
Providence Services, NATL Insured, Pre-Refunded, 5.50%, 12/01/26 ............. 6,000,000 6,082,860
Series C, Radian Insured, 5.50%, 8/15/36 ..................................... 16,000,000 15,080,800
Virginia Mason Medical, Series B, ACA Insured, 6.00%, 8/15/37 ................ 30,000,000 30,107,700
(a) Washington State Higher Education Facilities Authority Revenue, Whitworth
University Project, Refunding,
5.375%, 10/01/29 ............................................................. 3,000,000 2,947,680
5.875%, 10/01/34 ............................................................. 6,000,000 6,105,540
Washington State Public Power Supply System Revenue,
Nuclear Project No. 2, Refunding, Series A, 6.30%, 7/01/12 ................... 7,700,000 8,678,824
Nuclear Project No. 3, Capital Appreciation, Refunding, Series B, zero cpn.,
7/01/14 ...................................................................... 12,450,000 10,738,498
Nuclear Project No. 3, Capital Appreciation, Series B, ETM, zero cpn.,
7/01/14 ...................................................................... 2,550,000 2,287,044
Nuclear Project No. 3, Refunding, Series B, zero cpn., 7/01/12 ............... 6,400,000 6,032,000
Nuclear Project No. 3, Refunding, Series B, zero cpn., 7/01/13 ............... 11,000,000 9,961,160
----------------
426,677,434
----------------
WEST VIRGINIA 0.5%
Campbell County Solid Waste Facilities Revenue, Basin Electric Power
Cooperative, Series A,
5.75%, 7/15/39 ............................................................... 5,500,000 5,783,250
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 8,347,590
Pleasants County PCR, County Commission, Series F, 5.25%, 10/15/37 .............. 14,000,000 13,105,540
West Virginia State GO, Series A, FGIC Insured, 5.20%, 11/01/26 ................. 10,000,000 11,062,900
Semiannual Report | 49
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
MUNICIPAL BONDS (CONTINUED)
WEST VIRGINIA (CONTINUED)
West Virginia State Water Development Water Revenue, Loan Program 2, Refunding,
Series B, AMBAC Insured, 5.00%, 11/01/29 ..................................... $ 7,500,000 $ 7,629,075
West Virginia University Revenues, Improvement, West Virginia University
Projects, Series C, FGIC Insured, 5.00%, 10/01/34 ............................ 10,000,000 10,055,700
----------------
55,984,055
----------------
WISCONSIN 0.5%
Janesville IDR, Simmons Manufacturing Co., 7.00%, 10/15/17 ...................... 2,200,000 2,207,722
Wisconsin State General Fund Annual Appropriation Revenue, Series A, 6.00%,
5/01/33 ...................................................................... 25,290,000 28,194,304
Wisconsin State Health and Educational Facilities Authority Revenue,
Ministry Health, FSA Insured, 5.00%, 8/01/31 ................................. 1,500,000 1,482,255
Ministry Health, FSA Insured, 5.00%, 8/01/34 ................................. 8,000,000 7,745,600
Thedacare Inc., AMBAC Insured, 5.00%, 12/15/30 ............................... 10,000,000 8,226,000
Thedacare Inc., Series A, 5.50%, 12/15/38 .................................... 5,000,000 5,077,200
----------------
52,933,081
----------------
U.S. TERRITORIES 1.6%
PUERTO RICO 1.6%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.375%, 5/15/33 ................................................... 19,600,000 18,513,376
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, Pre-Refunded,
5.00%, 7/01/36 ............................................................... 62,000,000 71,738,960
5.50%, 7/01/36 ............................................................... 7,000,000 8,313,550
Puerto Rico Commonwealth Highway and Transportation Authority Transportation
Revenue, Refunding, Series K, 5.00%, 7/01/30 ................................. 19,190,000 18,194,231
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue, Guaynabo Warehouse,
Series A, 5.15%, 7/01/19 ..................................................... 850,000 867,366
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.25%, 7/01/27 .......................................... 3,265,000 3,227,746
Refunding, Series N, 5.00%, 7/01/37 .......................................... 20,000,000 18,320,800
Series D, Pre-Refunded, 5.25%, 7/01/27 ....................................... 8,735,000 9,585,352
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, Convertible Capital
Appreciation, First Subordinate, Series A, zero cpn. to 8/01/16, 6.75%
thereafter, 8/01/32 .......................................................... 25,000,000 18,267,000
----------------
167,028,381
----------------
VIRGIN ISLANDS 0.0%(c)
Virgin Islands Water and Power Authority Electric System Revenue, Refunding,
5.30%, 7/01/18 ............................................................... 500,000 502,965
----------------
TOTAL U.S. TERRITORIES .......................................................... 167,531,346
----------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $9,763,622,319) ........................................................ 10,016,383,725
----------------
SHORT TERM INVESTMENTS 2.0%
MUNICIPAL BONDS 2.0%
CALIFORNIA 0.7%
California State Revenue, RAN, Sub Series A-1, 3.00%, 5/25/10 ................... 70,000,000 70,704,200
----------------
50 | Semiannual Report
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ----------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
FLORIDA 0.2%
(e) Jacksonville Health Facilities Authority Hospital Revenue, Series A,
Daily VRDN and Put, 0.19%, 8/15/33 ........................................... $ 15,770,000 $ 15,770,000
----------------
KENTUCKY 0.2%
(e) Breckinridge County Lease Program Revenue, Kentucky Assn. Counties Leasing Trust,
Series A, Daily VRDN and Put, 0.20%, 2/01/32 ................................. 1,000,000 1,000,000
(e) Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
Baptist Healthcare System, Refunding, Series B-2, Daily VRDN and Put, 0.18%,
8/15/38 ...................................................................... 3,000,000 3,000,000
(e) Lexington-Fayette Urban County Airport Board General Airport Revenue,
Refunding, Series B, Daily VRDN and Put, 0.20%, 7/01/38 ...................... 11,475,000 11,475,000
----------------
15,475,000
----------------
MISSOURI 0.3%
(e) Missouri Development Finance Board Cultural Facilities Revenue, The Nelson
Gallery Foundation, Refunding, Series A, Daily VRDN and Put, 0.20%,
12/01/37 ..................................................................... 29,600,000 29,600,000
(e) North Kansas City Hospital Revenue, North Kansas City Hospital, Refunding,
Daily VRDN and Put, 0.20%, 11/01/33 .......................................... 165,000 165,000
----------------
29,765,000
----------------
NEW HAMPSHIRE 0.1%
(e) New Hampshire Health and Education Facilities Authority Revenue, Dartmouth
College, Refunding, Series A, Daily VRDN and Put, 0.16%, 6/01/31 ............. 12,400,000 12,400,000
----------------
NEW JERSEY 0.2%
(e) Mercer County Improvement Authority Revenue, Atlantic Foundation Project,
Refunding, Daily VRDN and Put, 0.16%, 9/01/28 ................................ 900,000 900,000
(e) New Jersey EDA School Revenue, School Facilities Construction, Series R, Sub
Series R-1, Daily VRDN and Put, 0.19%, 9/01/31 ............................... 24,500,000 24,500,000
----------------
25,400,000
----------------
NEW YORK 0.1%
(e) New York City GO, Refunding, Series J, Sub Series J-4, Daily VRDN and Put, 0.18%,
8/01/25 ...................................................................... 7,000,000 7,000,000
----------------
NORTH CAROLINA 0.1%
(e) North Carolina Medical Care Commission Health Care Facilities Revenue, Cleveland
County Health, Daily VRDN and Put, 0.20%, 1/01/33 ............................ 11,625,000 11,625,000
----------------
OHIO 0.0%(c)
(e) Allen County Hospital Facilities Revenue, Catholic Healthcare, Series A, Daily
VRDN and Put, 0.20%, 10/01/31 ................................................ 5,000,000 5,000,000
----------------
OREGON 0.1%
(e) Medford Hospital Facilities Authority Revenue, Rogue Valley Manor Project, Daily
VRDN and Put, 0.25%, 8/15/37 ................................................. 13,400,000 13,400,000
----------------
TOTAL SHORT TERM INVESTMENTS (COST $206,513,600) ................................ 206,539,200
----------------
TOTAL INVESTMENTS (COST $9,970,135,919) 99.0% ................................... 10,222,922,925
----------------
OTHER ASSETS, LESS LIABILITIES 1.0% ............................................. 106,964,839
----------------
NET ASSETS 100.0% ............................................................... $ 10,329,887,764
================
Semiannual Report | 51
Franklin Federal Tax-Free Income Fund
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (UNAUDITED) (CONTINUED)
See Abbreviations on page 63.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) See Note 6 regarding defaulted securities.
(c) Rounds to less than 0.1% of net assets.
(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.
52 | Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2009 (unaudited)
Assets:
Investments in securities:
Cost ................................................................ $ 9,970,135,919
---------------
Value ............................................................... $10,222,922,925
Cash ................................................................... 128,632
Receivables:
Capital shares sold ................................................. 35,283,589
Interest ............................................................ 156,395,377
Other assets ........................................................... 4,475
---------------
Total assets ..................................................... 10,414,734,998
---------------
Liabilities:
Payables:
Investment securities purchased ..................................... 66,502,360
Capital shares redeemed ............................................. 12,554,583
Affiliates .......................................................... 5,383,560
Accrued expenses and other liabilities ................................. 406,731
---------------
Total liabilities ................................................ 84,847,234
---------------
Net assets, at value .......................................... $10,329,887,764
===============
Net assets consist of:
Paid-in capital ........................................................ $10,108,379,550
Undistributed net investment income .................................... 4,815,303
Net unrealized appreciation (depreciation) ............................. 252,787,006
Accumulated net realized gain (loss) ................................... (36,094,095)
---------------
Net assets, at value .......................................... $10,329,887,764
===============
CLASS A:
Net assets, at value ................................................... $ 8,421,053,364
===============
Shares outstanding ..................................................... 716,644,729
===============
Net asset value per share(a) ........................................... $ 11.75
===============
Maximum offering price per share (net asset value per share / 95.75%) .. $ 12.27
===============
CLASS B:
Net assets, at value ................................................... $ 105,867,001
===============
Shares outstanding ..................................................... 9,014,959
===============
Net asset value and maximum offering price per share(a) ................ $ 11.74
===============
CLASS C:
Net assets, at value ................................................... $ 1,068,682,253
===============
Shares outstanding ..................................................... 91,006,070
===============
Net asset value and maximum offering price per share(a) ................ $ 11.74
===============
ADVISOR CLASS:
Net assets, at value ................................................... $ 734,285,146
===============
Shares outstanding ..................................................... 62,448,922
===============
Net asset value and maximum offering price per share ................... $ 11.76
===============
(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.
Semiannual Report | 53
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended October 31, 2009 (unaudited)
Investment income:
Interest ............................................................... $250,800,941
------------
Expenses:
Management fees (Note 3a) .............................................. 22,013,850
Distribution fees: (Note 3c)
Class A ............................................................. 3,896,727
Class B ............................................................. 391,283
Class C ............................................................. 3,059,736
Transfer agent fees (Note 3e) .......................................... 1,954,982
Custodian fees ......................................................... 62,360
Reports to shareholders ................................................ 168,119
Registration and filing fees ........................................... 256,307
Professional fees ...................................................... 97,639
Trustees' fees and expenses ............................................ 81,006
Other .................................................................. 254,248
------------
Total expenses ................................................... 32,236,257
------------
Net investment income ......................................... 218,564,684
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .............................. (3,809,976)
Net change in unrealized appreciation (depreciation) on investments .... 453,936,260
------------
Net realized and unrealized gain (loss) ................................... 450,126,284
------------
Net increase (decrease) in net assets resulting from operations ........... $668,690,968
============
The accompanying notes are an integral part of these financial statements.
54 | Semiannual Report
Franklin Federal Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
OCTOBER 31, 2009 YEAR ENDED
(UNAUDITED) APRIL 30, 2009
---------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 218,564,684 $ 379,104,576
Net realized gain (loss) from investments ........................... (3,809,976) (19,303,790)
Net change in unrealized appreciation (depreciation) on
investments ...................................................... 453,936,260 (383,243,520)
--------------- --------------
Net increase (decrease) in net assets resulting from
operations ................................................. 668,690,968 (23,442,734)
--------------- --------------
Distributions to shareholders from:
Net investment income:
Class A .......................................................... (185,192,701) (327,476,118)
Class B .......................................................... (2,494,154) (6,368,496)
Class C .......................................................... (18,876,431) (28,395,043)
Advisor Class .................................................... (13,609,684) (16,864,421)
--------------- --------------
Total distributions to shareholders .................................... (220,172,970) (379,104,078)
--------------- --------------
Capital share transactions: (Note 2)
Class A ............................................................. 534,983,917 958,248,590
Class B ............................................................. (30,728,752) (37,762,936)
Class C ............................................................. 217,213,302 246,023,972
Advisor Class ....................................................... 248,407,799 219,782,991
--------------- --------------
Total capital share transactions ....................................... 969,876,266 1,386,292,617
--------------- --------------
Redemption fees ........................................................ -- 6,691
--------------- --------------
Net increase (decrease) in net assets ............................ 1,418,394,264 983,752,496
Net assets:
Beginning of period ................................................. 8,911,493,500 7,927,741,004
--------------- --------------
End of period ....................................................... $10,329,887,764 $8,911,493,500
=============== ==============
Undistributed net investment income included in net assets:
End of period ....................................................... $ 4,815,303 $ 6,423,589
=============== ==============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 55
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES
Franklin Federal Tax-Free Income Fund (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as 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 Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
The Fund 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 Fund's Board of
Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
The Fund may purchase securities on a when-issued basis, with payment and
delivery scheduled for a future date. These transactions are subject to market
fluctuations and are subject to the risk that the value at delivery may be more
or less than the trade date purchase price. Although the Fund will generally
purchase these securities with the intention of holding the securities, it may
sell the securities before the settlement date. Sufficient assets have been
segregated for these securities.
56 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its income and net realized
gains.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of October 31, 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.
Semiannual Report | 57
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 October 31, 2009, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 2009 APRIL 30, 2009
--------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ ---------------
CLASS A SHARES:
Shares sold 86,997,836 $ 997,906,481 183,760,044 $ 2,023,595,648
Shares issued in reinvestment
of distributions 9,664,013 110,394,854 17,333,298 193,105,436
Shares redeemed (49,995,333) (573,317,418) (115,174,267) (1,258,452,494)
----------- ------------- ------------ ---------------
Net increase (decrease) 46,666,516 $ 534,983,917 85,919,075 $ 958,248,590
=========== ============= ============ ===============
CLASS B SHARES:
Shares sold 256,332 $ 2,939,313 932,865 $ 10,195,617
Shares issued in reinvestment
of distributions 144,050 1,642,399 354,263 3,955,745
Shares redeemed (3,067,598) (35,310,464) (4,693,284) (51,914,298)
----------- ------------- ------------ ---------------
Net increase (decrease) (2,667,216) $ (30,728,752) (3,406,156) $ (37,762,936)
=========== ============= ============ ===============
58 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 2009 APRIL 30, 2009
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
CLASS C SHARES:
Shares sold ................. 23,679,901 $ 272,803,002 33,971,494 $ 378,760,984
Shares issued in reinvestment
of distributions ......... 1,094,337 12,512,013 1,647,982 18,319,466
Shares redeemed ............. (5,924,394) (68,101,713) (13,822,196) (151,056,478)
---------- ------------- ----------- -------------
Net increase (decrease) ..... 18,849,844 $ 217,213,302 21,797,280 $ 246,023,972
========== ============= =========== =============
ADVISOR CLASS SHARES:
Shares sold ................. 29,680,128 $ 341,168,526 30,867,546 $ 343,764,397
Shares issued in reinvestment
of distributions ......... 880,361 10,078,514 1,007,637 11,135,603
Shares redeemed ............. (8,958,714) (102,839,241) (12,422,841) (135,117,009)
---------- ------------- ----------- -------------
Net increase (decrease) ..... 21,601,775 $ 248,407,799 19,452,342 $ 219,782,991
========== ============= =========== =============
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
Semiannual Report | 59
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 period:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $1,888,983
Contingent deferred sales charges retained ................... $ 176,990
E. TRANSFER AGENT FEES
For the period ended October 31, 2009, the Fund paid transfer agent fees of
$1,954,982, of which $1,202,029 was retained by Investor Services.
60 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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
===========
At October 31, 2009, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments........................... $9,968,789,884
==============
Unrealized appreciation....................... $ 428,846,658
Unrealized depreciation....................... (174,713,617)
--------------
Net unrealized appreciation (depreciation).... $ 254,133,041
==============
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
period ended October 31, 2009, aggregated $1,331,329,668 and $339,490,968,
respectively.
6. DEFAULTED SECURITIES
The Fund held a defaulted security and/or other securities for which the income
has been deemed uncollectible. At October 31, 2009, the value of this security
was $8,465,100, representing 0.08% of the Fund's net assets. The Fund
discontinues accruing income on securities for which income has been deemed
uncollectible and provides an estimate for losses on interest receivable. The
security has been identified on the accompanying Statement of Investments.
7. 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
Semiannual Report | 61
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. CREDIT FACILITY (CONTINUED)
(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 $10,080 of its
pro rata portion of the Global Credit Facility, which is reflected in other
expenses on the Statement of Operations. During the period ended October 31,
2009, the Fund did not utilize the Global Credit Facility.
8. FAIR VALUE MEASUREMENTS
The Fund follows 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 October 31, 2009, all of the Fund's investments in securities carried at fair
value were in Level 2 inputs.
9. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through December 17, 2009, the issuance
date of the financial statements and determined that no events have occurred
that require disclosure.
62 | Semiannual Report
Franklin Federal Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
NATL - National Public Financial Guarantee Corp.
PBA - Public Building Authority
PCC - Pollution Control Corp.
PCR - Pollution Control Revenue
PUD - Public Utility District
RAN - Revenue Anticipation Note
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
UHSD - Unified/Union High School District
USD - Unified/Union School District
XLCA - XL Capital Assurance
Semiannual Report | 63
Franklin Federal Tax-Free Income Fund
SHAREHOLDER INFORMATION
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.
64 | Semiannual 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 semiannual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com
SEMIANNUAL 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 S2009 12/09
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. N/A
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
Item 11. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
Item 12. Exhibits.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Laura F. FergersonChief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. FergersonChief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN FEDERAL TAX-FREE INCOME FUND
By /s/LAURA F. FERGERSON
-------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date December 28, 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 December 28, 2009
By /s/GASTON GARDEY
--------------------------
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date December 28, 2009