UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-03479
---------

FRANKLIN NEW YORK 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: 5/31
----

Date of reporting period: 5/31/08
-------

ITEM 1. REPORTS TO STOCKHOLDERS.

(GRAPHIC)

MAY 31, 2008

ANNUAL REPORT AND SHAREHOLDER LETTER

TAX-FREE INCOME

FRANKLIN NEW YORK
TAX-FREE INCOME FUND

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FRANKLIN - Templeton - Mutual Series

Annual Report

Franklin New York Tax-Free Income Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin New York Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal, New York state
and New York City personal income taxes as is consistent with prudent management
and preservation of capital by investing at least 80% of its total assets in
securities that pay interest free from such taxes.(1)

CREDIT QUALITY BREAKDOWN*

Based on Total Long-Term Investments as of 5/31/08**

(PIE CHART)

AAA ............... 59.1%
AA ................ 25.5%
A ................. 6.1%
BBB ............... 1.8%
Not Rated by S&P .. 7.5%

* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below.

** Does not include short-term investments and other net assets.

RATINGS MOODY'S INTERNAL
- ------- ------- --------

AAA or Aaa 1.8% 2.0%
AA or Aa 0.6% --
A 1.4% --
BBB or Baa 1.3% 0.2%
Below Investment Grade 0.1% 0.1%
--- ---
Total 5.2% 2.3%

This annual report for Franklin New York Tax-Free Income Fund covers the fiscal
year ended May 31, 2008.

(1.) For investors subject to alternative minimum tax, a small portion of this
income may be taxable. Distributions of capital gains are generally
taxable. To avoid the 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 25.

Annual Report | 7

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS.

INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES
SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR MOST RECENT
MONTH-END PERFORMANCE.

PERFORMANCE OVERVIEW

The Fund's Class A share price, as measured by net asset value, declined from
$11.69 on May 31, 2007, to $11.61 on May 31, 2008. The Fund's Class A shares
paid dividends totaling 50.64 cents per share for the same period.(2) The
Performance Summary beginning on page 14 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.17%, based on an
annualization of the 4.22 cent per share May dividend and the maximum offering
price of $12.13 on May 31, 2008. An investor in the 2008 maximum combined
effective federal and New York state and City personal income tax bracket of
41.82% would need to earn a distribution rate of 7.17% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class B,
C and Advisor shares' performance, please see the Performance Summary.

STATE UPDATE

New York's economic performance and state revenues weakened in tandem with the
national economic slowdown. Although well diversified, the Empire State depends
upon the crucial financial services and insurance industries, which accounted
for 6% of employment while providing more than 20% of total state wages.(3) Both
industries faced significant challenges through 2008's first quarter. Another
fundamental vulnerability is the disparity between upstate and downstate
economic performance. Since 1996, the state's employment base grew by 8.3%
overall, dominated by downstate growth of 11.1% against just 2.5% for overall
upstate employment growth.(3)

While property tax revenue held up, due in part to a more buoyant regional and
New York City real estate market when compared with nearly all other U.S.
regions or cities, other fees slowed and the state's unemployment rate rose. By
May 2008, New York's unemployment rate rose to 5.2% from 4.5% a year earlier,
but remained below the 5.5% national average.(4) Employment weakness was evident
in the construction, manufacturing, retail services, and professional and
business services sectors as well as financial services. Given these conditions,
state legislators expect employment and wage growth to decelerate in 2008. On
the upside, the state expects continued strong growth within its large education
and health sectors, and could benefit from increased international tourism and
trade due to the weak-dollar environment.

(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

(3.) Source: Standard & Poor's, "State Review: New York State," RATINGSDIRECT,
2/6/08.

(4.) Source: Bureau of Labor Statistics.

8 | Annual Report

DIVIDEND DISTRIBUTIONS(2)

DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------

June 2007 4.22 cents 3.68 cents 3.69 cents 4.31 cents
July 2007 4.22 cents 3.68 cents 3.69 cents 4.31 cents
August 2007 4.22 cents 3.68 cents 3.69 cents 4.31 cents
September 2007 4.22 cents 3.69 cents 3.70 cents 4.31 cents
October 2007 4.22 cents 3.69 cents 3.70 cents 4.31 cents
November 2007 4.22 cents 3.69 cents 3.70 cents 4.31 cents
December 2007 4.22 cents 3.67 cents 3.68 cents 4.30 cents
January 2008 4.22 cents 3.67 cents 3.68 cents 4.30 cents
February 2008 4.22 cents 3.67 cents 3.68 cents 4.30 cents
March 2008 4.22 cents 3.67 cents 3.68 cents 4.31 cents
April 2008 4.22 cents 3.67 cents 3.68 cents 4.31 cents
May 2008 4.22 cents 3.67 cents 3.68 cents 4.31 cents

The governor's executive budget for the 2008-2009 fiscal years captures the
risks of recent economic conditions but is not premised on a recession even
though tax revenues are slated to fall from 2007 levels. Thus far in fiscal year
2008, declining projected revenues have coincided with lower-than-expected
expenditures, and the state anticipates closing the year without significantly
drawing down reserves. However, the executive budget also addresses a looming
$4.4 billion gap for fiscal year 2009.(5) As required, the budget must be
balanced, and the governor's most recent proposal seeks to close the projected
deficit through a mixture of spending cuts, recurring tax revenue increases and
one-time savings measures.

New York is a wealthy state with per capita personal income at approximately
117% of the national average.(5) The state ranks fifth in the nation with
respect to net tax-supported debt per capita, and its debt burden as a percent
of personal income was 6.3%.(6) The numbers reflect bonding for state and New
York City budget relief purposes, as well as capital financing for
transportation and other areas. During the period under review, independent
credit rating agency Moody's Investors Service rated New York's general
obligation bonds Aa3 with a stable outlook.(7) Despite its high tax burden,
economically cyclical nature and revenue underperformance in the current fiscal
year, the state's credit strengths include improved finances in recent years and
a long track record of legislative flexibility in raising funds necessary to
close annual budget gaps.

(5.) Source: Standard & Poor's, "Summary: New York State; General Obligation,"
RATINGSDIRECT, 3/12/08.

(6.) Source: Moody's Investors Service, "Special Comment: U.S. Public Debt
Finance, 2008 State Debt Medians," March 2008.

(7.) This does not indicate Moody's rating of the Fund.

Annual Report | 9

MUNICIPAL BOND MARKET OVERVIEW

The year ended May 31, 2008, proved challenging for the municipal bond market. A
measured pullback in the municipal market was exacerbated during the reporting
period, as all financial markets felt the impact of subprime loan defaults. Many
major financial institutions tightened credit and reassessed the risk of their
direct and indirect exposure to subprime loans. A lack of liquidity across most
markets in August 2007 and February 2008 contributed to an increase in overall
volatility and declining values in most asset classes.

The municipal bond insurance industry, which includes seven companies that had
AAA ratings -- MBIA, AMBAC, FSA, FGIC, XLCA, CIFG and Assured Guaranty -- faced
particular difficulties. Rising levels of subprime mortgage defaults during the
reporting period, combined with the bond insurers' exposure to subprime
mortgages, prompted the three major independent credit rating agencies, Standard
& Poor's (S&P), Moody's and Fitch Ratings, to undertake in-depth evaluations of
the bond insurance companies in December 2007. As a result, the rating agencies
downgraded several municipal bond insurers and lowered the outlook for some to
negative. At period-end, MBIA, AMBAC, FSA and Assured Guaranty maintained AAA
ratings by Moody's and S&P.

Illiquidity plagued the financial markets as they felt the impact of the
perceived weakness in the bond insurance industry. This was especially notable
in the municipal bond market. In a marked shift amid recent volatility, high
grade municipal yields were well in excess of Treasury yields, on a nominal
basis, across the yield curve. Insured bonds generally underperformed during the
12 months under review as evidenced by the +3.87% return of the Lehman Brothers
Municipal Bond Index compared with the +3.48% return of the Lehman Brothers
Insured Municipal Bond Index.(8) During the fourth quarter of 2007, the market
appeared to develop a three-tier perception of the bond insurance companies,
which affected the traditional trading spreads of the "Big Four" insurers --
MBIA, AMBAC, FGIC and FSA. FSA and Assured Guaranty became more desirable than
MBIA and AMBAC; MBIA and AMBAC were more desirable than FGIC, XLCA and CIFG.
Historically, the market perceived MBIA, AMBAC, FSA and FGIC as having ample
claims-paying ability and therefore required no extra yield for securities
carrying their

(8.) Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond
Index is a market value-weighted index engineered for the long-term
tax-exempt bond market. All bonds included have a minimum credit rating of
at least Baa3/BBB-. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million. The
bonds must be dated after 12/31/90, and must be at least one year from
their maturity date. Remarketed issues, taxable municipal bonds, bonds with
floating rates and derivatives are excluded from the index. The index has
four main bond sectors: general obligation, revenue, insured and
prerefunded. The Lehman Brothers Insured Municipal Bond Index is composed
of all the insured bonds in the Lehman Brothers Municipal Bond Index with a
maturity of at least one year and ratings of Aaa/AAA.

10 | Annual Report

insurance. Assured Guaranty, XLCA and CIFG are newer entrants to the industry
and were still developing their businesses, so the market generally required
more yield from them.

Investors should be aware that insurance companies insure municipal bonds that
tend to be of very high quality. Many municipal bond issuers use insurance to
appeal to a wider audience of potential buyers. The majority of issuers whose
bonds are insured carry underlying (i.e., prior to insurance) ratings of A or
better, and the historical average default rate for such bonds is less than
1%.(9) Ultimately, the underlying credit quality of state and local governments
and their agencies supports the municipal market, and the underlying credit
quality of an insured bond is not affected by an insurance company's credit
quality.

Bond insurers' problems pressured the short-term municipal market beginning in
January 2008. Money market funds began to eliminate holdings of variable rate
debt with credit providers they deemed to be at risk of downgrade. This caused
dealers to boost yields substantially on some variable rate demand notes
(VRDNs), hoping to entice buyers to hold them rather than put them back to the
remarketing agents who were already struggling with too much inventory on their
balance sheets. Within a few weeks, this lack of liquidity disrupted the auction
rate securities (ARS) market as well. Inventory in the ARS market, primarily for
those with insurance backing, increased dramatically. Auctions have recently
failed due to dealers' liquidity constraints. It is important to note that this
is a liquidity issue and a supply and demand imbalance, not a credit or default
scenario.

Over the 12-month reporting period, municipal bond market returns lagged those
of the U.S. Treasury market as uncertainty regarding the impact of problems
associated with subprime securities drove global investors to the relative
safety of U.S. Treasuries. Furthermore, investors began to require additional
compensation for taking on risk, leading to wider spreads for credit-driven
securities. For the year ended May 31, 2008, the Lehman Brothers Municipal Bond
Index had a +3.87% total return compared with the +9.42% return of the Lehman
Brothers U.S. Treasury Index.(10)

PORTFOLIO BREAKDOWN
5/31/08

% OF TOTAL
LONG-TERM
INVESTMENTS*
------------

Prerefunded 33.0%
Transportation 18.2%
Tax-Supported 9.9%
Utilities 9.3%
Subject to Government Appropriations 8.6%
General Obligation 5.7%
Higher Education 4.9%
Other Revenue 3.9%
Hospital & Health Care 3.4%
Corporate-Backed 2.0%
Housing 1.1%

* Does not include short-term investments and other net assets.

(9.) Sources: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2007," RATINGSDIRECT, 5/3/07; Moody's Investors Service,
March 2007.

(10.) Source: Standard & Poor's Micropal. See footnote 1 for a description of
the Lehman Brothers Municipal Bond Index. The Lehman Brothers 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.

Annual Report | 11

The recent environment contributed to dramatically steeper Treasury and
municipal bond yield curves (spread between short- and longer-term yields). On
May 31, 2008, two-year, 10-year and 30-year Treasury yields were 2.66%, 4.06%
and 4.72%, respectively. The yields on two-year, 10-year and 30-year Treasuries
fell 226, 84 and 29 basis points (100 basis points equal one percentage point),
respectively, over the period. Yields at the short end of the municipal AAA
curve also declined over the period; however, yields increased at the long end
of the curve. The insurers' problems weighed heavily on long maturity insured
municipal bonds, causing a spike in yields. At period-end, the market for these
bonds improved considerably; however, their yields still exceeded long-term
Treasury yields, which is highly unusual.

INVESTMENT STRATEGY

We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, our portfolio becomes well
diversified with a broad range of securities. This broad diversification may
help mitigate interest rate risk. We do not use leverage or exotic derivatives,
nor do we use hedging techniques that could add volatility and contribute to
underperformance in adverse markets. We generally stay fully invested to
maximize income distribution.

MANAGER'S DISCUSSION

Consistent with our income-oriented investment philosophy, the Fund tends to
hold higher-coupon bonds, which generally exhibit less volatility when long-term
interest rates change. These higher coupon bonds generally produce higher levels
of income, which we can distribute to shareholders.

In line with our relative value investment strategy, and to further reduce
volatility, we avoided derivative securities and other exotic investment
vehicles designed to leverage the portfolio. During the period, the Fund had no
exposure to inverse floaters or any other form of leverage. Also, as the
alternative minimum tax (AMT) affects more individuals each year, we continued
to avoid bonds subject to AMT to prevent a taxable situation for individuals
subject to AMT.

12 | Annual Report

We intend to maintain our conservative, buy-and-hold investment strategy as we
attempt to provide shareholders with high, current, tax-free income. Thank you
for your continued participation in Franklin New York 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 MAY 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.

Annual Report | 13

Performance Summary as of 5/31/08

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.

PRICE AND DISTRIBUTION INFORMATION

CLASS A (SYMBOL: FNYTX) CHANGE 5/31/08 5/31/07
- ----------------------- ------ ------- -------

Net Asset Value (NAV) -$0.08 $11.61 $11.69
DISTRIBUTIONS (6/1/07-5/31/08)
Dividend Income $0.5064
Long-Term Capital Gain $0.0191
TOTAL $0.5255

CLASS B (SYMBOL: FTFBX) CHANGE 5/31/08 5/31/07
- ----------------------- ------ ------- -------

Net Asset Value (NAV) -$0.09 $11.58 $11.67
DISTRIBUTIONS (6/1/07-5/31/08)
Dividend Income $0.4413
Long-Term Capital Gain $0.0191
TOTAL $0.4604

CLASS C (SYMBOL: FNYIX) CHANGE 5/31/08 5/31/07
- ----------------------- ------ ------- -------

Net Asset Value (NAV) -$0.09 $11.60 $11.69
DISTRIBUTIONS (6/1/07-5/31/08)
Dividend Income $0.4425
Long-Term Capital Gain $0.0191
TOTAL $0.4616

ADVISOR CLASS (SYMBOL: FNYAX) CHANGE 5/31/08 5/31/07
- ----------------------------- ------ ------- -------

Net Asset Value (NAV) -$0.09 $11.61 $11.70
DISTRIBUTIONS (6/1/07-5/31/08)
Dividend Income $0.5169
Long-Term Capital Gain $0.0191
TOTAL $0.5360

14 | Annual Report

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2%
FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------

Cumulative Total Return(1) +3.92% +18.90% +58.52%
Average Annual Total Return(2) -0.50% +2.63% +4.26%
Avg. Ann. Total Return (6/30/08)(3) -0.88% +2.56% +4.13%
Distribution Rate(4) 4.17%
Taxable Equivalent Distribution Rate(5) 7.17%
30-Day Standardized Yield(6) 3.29%
Taxable Equivalent Yield(5) 5.66%
Total Annual Operating Expenses(7) 0.61%

INCEPTION
CLASS B 1-YEAR 5-YEAR (1/1/99)
- ------- ------ ------ ---------

Cumulative Total Return(1) +3.26% +15.57% +45.95%
Average Annual Total Return(2) -0.71% +2.60% +4.10%
Avg. Ann. Total Return (6/30/08)(3) -1.06% +2.53% +3.99%
Distribution Rate(4) 3.80%
Taxable Equivalent Distribution Rate(5) 6.53%
30-Day Standardized Yield(6) 2.88%
Taxable Equivalent Yield(5) 4.95%
Total Annual Operating Expenses(7) 1.17%

CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------

Cumulative Total Return(1) +3.26% +15.55% +49.87%
Average Annual Total Return(2) +2.27% +2.93% +4.13%
Avg. Ann. Total Return (6/30/08)(3) +1.92% +2.89% +4.00%
Distribution Rate(4) 3.81%
Taxable Equivalent Distribution Rate(5) 6.55%
30-Day Standardized Yield(6) 2.88%
Taxable Equivalent Yield(5) 4.95%
Total Annual Operating Expenses(7) 1.17%

ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------

Cumulative Total Return(1) +3.93% +19.33% +59.42%
Average Annual Total Return(2) +3.93% +3.60% +4.77%
Avg. Ann. Total Return (6/30/08)(3) +3.56% +3.55% +4.65%
Distribution Rate(4) 4.45%
Taxable Equivalent Distribution Rate(5) 7.65%
30-Day Standardized Yield(6) 3.54%
Taxable Equivalent Yield(5) 6.08%
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 1-800/342-5236.

Annual Report | 15

Performance Summary (CONTINUED)

TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT

Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.

AVERAGE ANNUAL TOTAL RETURN

CLASS A 5/31/08
- ------- -------

1-Year -0.50%
5-Year +2.63%
10-Year +4.26%

CLASS A (6/1/98-5/31/08)

(PERFORMANCE GRAPH)

FRANKLIN NEW LEHMAN
YORK TAX-FREE BROTHERS
INCOME FUND MUNICIPAL
DATE - CLASS A BOND INDEX CPI
- ------------- ------------- ---------- -------

6/1/1998 $ 9,572 $10,000 $10,000
6/30/1998 $ 9,624 $10,039 $10,012
7/31/1998 $ 9,644 $10,065 $10,025
8/31/1998 $ 9,768 $10,220 $10,037
9/30/1998 $ 9,876 $10,347 $10,049
10/31/1998 $ 9,888 $10,347 $10,074
11/30/1998 $ 9,915 $10,384 $10,074
12/31/1998 $ 9,931 $10,410 $10,068
1/31/1999 $10,024 $10,533 $10,092
2/28/1999 $10,010 $10,488 $10,104
3/31/1999 $10,037 $10,502 $10,135
4/30/1999 $10,065 $10,528 $10,209
5/31/1999 $10,025 $10,467 $10,209
6/30/1999 $ 9,900 $10,317 $10,209
7/31/1999 $ 9,928 $10,354 $10,240
8/31/1999 $ 9,819 $10,271 $10,264
9/30/1999 $ 9,813 $10,275 $10,313
10/31/1999 $ 9,686 $10,164 $10,332
11/30/1999 $ 9,783 $10,272 $10,338
12/31/1999 $ 9,703 $10,196 $10,338
1/31/2000 $ 9,662 $10,151 $10,369
2/29/2000 $ 9,779 $10,269 $10,430
3/31/2000 $ 9,994 $10,494 $10,516
4/30/2000 $ 9,934 $10,432 $10,522
5/31/2000 $ 9,900 $10,377 $10,534
6/30/2000 $10,127 $10,652 $10,590
7/31/2000 $10,238 $10,801 $10,614
8/31/2000 $10,376 $10,967 $10,614
9/30/2000 $10,342 $10,910 $10,670
10/31/2000 $10,426 $11,029 $10,688
11/30/2000 $10,512 $11,112 $10,694
12/31/2000 $10,745 $11,387 $10,688
1/31/2001 $10,812 $11,500 $10,756
2/28/2001 $10,870 $11,536 $10,799
3/31/2001 $10,964 $11,640 $10,823
4/30/2001 $10,900 $11,514 $10,866
5/31/2001 $10,986 $11,637 $10,915
6/30/2001 $11,062 $11,715 $10,934
7/31/2001 $11,206 $11,889 $10,903
8/31/2001 $11,350 $12,085 $10,903
9/30/2001 $11,284 $12,044 $10,952
10/31/2001 $11,391 $12,188 $10,915
11/30/2001 $11,333 $12,085 $10,897
12/31/2001 $11,245 $11,971 $10,854
1/31/2002 $11,410 $12,178 $10,878
2/28/2002 $11,527 $12,325 $10,921
3/31/2002 $11,359 $12,083 $10,983
4/30/2002 $11,507 $12,320 $11,044
5/31/2002 $11,595 $12,394 $11,044
6/30/2002 $11,694 $12,526 $11,050
7/31/2002 $11,833 $12,687 $11,063
8/31/2002 $11,972 $12,839 $11,100
9/30/2002 $12,234 $13,120 $11,118
10/31/2002 $12,059 $12,903 $11,136
11/30/2002 $12,016 $12,849 $11,136
12/31/2002 $12,269 $13,120 $11,112
1/31/2003 $12,235 $13,087 $11,161
2/28/2003 $12,376 $13,270 $11,247
3/31/2003 $12,393 $13,278 $11,314
4/30/2003 $12,494 $13,366 $11,290
5/31/2003 $12,761 $13,679 $11,271
6/30/2003 $12,716 $13,621 $11,284
7/31/2003 $12,280 $13,144 $11,296
8/31/2003 $12,371 $13,242 $11,339
9/30/2003 $12,675 $13,631 $11,376
10/31/2003 $12,650 $13,563 $11,364
11/30/2003 $12,774 $13,704 $11,333
12/31/2003 $12,865 $13,817 $11,321
1/31/2004 $12,946 $13,897 $11,376
2/29/2004 $13,124 $14,106 $11,437
3/31/2004 $13,086 $14,057 $11,511
4/30/2004 $12,787 $13,724 $11,548
5/31/2004 $12,727 $13,674 $11,615
6/30/2004 $12,754 $13,724 $11,652
7/31/2004 $12,914 $13,904 $11,634
8/31/2004 $13,130 $14,183 $11,640
9/30/2004 $13,224 $14,258 $11,665
10/31/2004 $13,341 $14,381 $11,726
11/30/2004 $13,235 $14,262 $11,732
12/31/2004 $13,409 $14,437 $11,689
1/31/2005 $13,538 $14,571 $11,714
2/28/2005 $13,520 $14,523 $11,781
3/31/2005 $13,468 $14,431 $11,873
4/30/2005 $13,644 $14,659 $11,953
5/31/2005 $13,739 $14,763 $11,941
6/30/2005 $13,835 $14,854 $11,947
7/31/2005 $13,782 $14,787 $12,002
8/31/2005 $13,913 $14,936 $12,064
9/30/2005 $13,824 $14,836 $12,211
10/31/2005 $13,758 $14,746 $12,236
11/30/2005 $13,809 $14,816 $12,138
12/31/2005 $13,918 $14,944 $12,088
1/31/2006 $13,945 $14,984 $12,181
2/28/2006 $14,043 $15,085 $12,205
3/31/2006 $13,964 $14,981 $12,273
4/30/2006 $13,967 $14,976 $12,377
5/31/2006 $14,007 $15,042 $12,439
6/30/2006 $13,962 $14,986 $12,463
7/31/2006 $14,098 $15,164 $12,500
8/31/2006 $14,271 $15,389 $12,525
9/30/2006 $14,347 $15,496 $12,463
10/31/2006 $14,436 $15,593 $12,396
11/30/2006 $14,550 $15,723 $12,377
12/31/2006 $14,511 $15,668 $12,396
1/31/2007 $14,490 $15,627 $12,433
2/28/2007 $14,642 $15,833 $12,500
3/31/2007 $14,608 $15,794 $12,614
4/30/2007 $14,648 $15,841 $12,696
5/31/2007 $14,601 $15,771 $12,773
6/30/2007 $14,554 $15,689 $12,798
7/31/2007 $14,657 $15,811 $12,795
8/31/2007 $14,597 $15,743 $12,771
9/30/2007 $14,777 $15,976 $12,807
10/31/2007 $14,843 $16,047 $12,834
11/30/2007 $14,910 $16,149 $12,910
12/31/2007 $14,963 $16,194 $12,901
1/31/2008 $15,081 $16,398 $12,966
2/29/2008 $14,515 $15,647 $13,003
3/31/2008 $14,894 $16,095 $13,116
4/30/2008 $15,080 $16,283 $13,196
5/31/2008 $15,174 $16,381 $13,307
------- ------- -------
Total Returns 51.74% 63.81% 33.07%

AVERAGE ANNUAL TOTAL RETURN

CLASS B 5/31/08
- ------- -------

1-Year -0.71%
5-Year +2.60%
Since Inception (1/1/99) +4.10%

CLASS B (1/1/99-5/31/08)

(PERFORMANCE GRAPH)

FRANKLIN NEW LEHMAN
YORK TAX-FREE BROTHERS
INCOME FUND MUNICIPAL
DATE - CLASS B BOND INDEX CPI
- ------------- ------------- ---------- -------

1/1/1999 $10,000 $10,000 $10,000
1/31/1999 $10,086 $10,119 $10,024
2/28/1999 $10,067 $10,075 $10,037
3/31/1999 $10,090 $10,089 $10,067
4/30/1999 $10,106 $10,114 $10,140
5/31/1999 $10,062 $10,055 $10,140
6/30/1999 $ 9,932 $ 9,911 $10,140
7/31/1999 $ 9,955 $ 9,947 $10,171
8/31/1999 $ 9,841 $ 9,867 $10,195
9/30/1999 $ 9,830 $ 9,871 $10,244
10/31/1999 $ 9,698 $ 9,764 $10,262
11/30/1999 $ 9,790 $ 9,868 $10,268
12/31/1999 $ 9,706 $ 9,794 $10,268
1/31/2000 $ 9,669 $ 9,752 $10,299
2/29/2000 $ 9,781 $ 9,865 $10,360
3/31/2000 $ 9,983 $10,081 $10,445
4/30/2000 $ 9,927 $10,021 $10,451
5/31/2000 $ 9,880 $ 9,969 $10,464
6/30/2000 $10,102 $10,233 $10,519
7/31/2000 $10,217 $10,375 $10,543
8/31/2000 $10,350 $10,535 $10,543
9/30/2000 $10,302 $10,481 $10,598
10/31/2000 $10,391 $10,595 $10,616
11/30/2000 $10,462 $10,675 $10,622
12/31/2000 $10,690 $10,939 $10,616
1/31/2001 $10,751 $11,047 $10,683
2/28/2001 $10,804 $11,082 $10,726
3/31/2001 $10,893 $11,182 $10,750
4/30/2001 $10,824 $11,060 $10,793
5/31/2001 $10,914 $11,179 $10,842
6/30/2001 $10,976 $11,254 $10,860
7/31/2001 $11,114 $11,421 $10,830
8/31/2001 $11,252 $11,609 $10,830
9/30/2001 $11,181 $11,570 $10,879
10/31/2001 $11,282 $11,708 $10,842
11/30/2001 $11,219 $11,609 $10,824
12/31/2001 $11,126 $11,499 $10,781
1/31/2002 $11,285 $11,699 $10,805
2/28/2002 $11,396 $11,840 $10,848
3/31/2002 $11,224 $11,608 $10,909
4/30/2002 $11,365 $11,835 $10,970
5/31/2002 $11,447 $11,907 $10,970
6/30/2002 $11,539 $12,033 $10,976
7/31/2002 $11,671 $12,187 $10,988
8/31/2002 $11,803 $12,334 $11,025
9/30/2002 $12,056 $12,604 $11,043
10/31/2002 $11,878 $12,395 $11,062
11/30/2002 $11,829 $12,343 $11,062
12/31/2002 $12,073 $12,604 $11,037
1/31/2003 $12,034 $12,572 $11,086
2/28/2003 $12,168 $12,748 $11,171
3/31/2003 $12,179 $12,755 $11,239
4/30/2003 $12,272 $12,840 $11,214
5/31/2003 $12,530 $13,140 $11,196
6/30/2003 $12,480 $13,084 $11,208
7/31/2003 $12,046 $12,627 $11,220
8/31/2003 $12,130 $12,721 $11,263
9/30/2003 $12,422 $13,095 $11,300
10/31/2003 $12,392 $13,029 $11,287
11/30/2003 $12,508 $13,165 $11,257
12/31/2003 $12,591 $13,274 $11,245
1/31/2004 $12,665 $13,350 $11,300
2/29/2004 $12,823 $13,551 $11,361
3/31/2004 $12,780 $13,503 $11,434
4/30/2004 $12,491 $13,184 $11,470
5/31/2004 $12,416 $13,136 $11,538
6/30/2004 $12,448 $13,184 $11,574
7/31/2004 $12,588 $13,357 $11,556
8/31/2004 $12,803 $13,625 $11,562
9/30/2004 $12,879 $13,697 $11,586
10/31/2004 $12,987 $13,815 $11,647
11/30/2004 $12,877 $13,701 $11,653
12/31/2004 $13,040 $13,868 $11,611
1/31/2005 $13,171 $13,998 $11,635
2/28/2005 $13,137 $13,951 $11,702
3/31/2005 $13,081 $13,863 $11,794
4/30/2005 $13,256 $14,082 $11,873
5/31/2005 $13,343 $14,182 $11,861
6/30/2005 $13,430 $14,270 $11,867
7/31/2005 $13,361 $14,205 $11,922
8/31/2005 $13,482 $14,348 $11,983
9/30/2005 $13,401 $14,252 $12,129
10/31/2005 $13,331 $14,165 $12,154
11/30/2005 $13,362 $14,233 $12,056
12/31/2005 $13,461 $14,356 $12,007
1/31/2006 $13,481 $14,394 $12,099
2/28/2006 $13,582 $14,491 $12,123
3/31/2006 $13,498 $14,391 $12,190
4/30/2006 $13,495 $14,386 $12,294
5/31/2006 $13,527 $14,450 $12,355
6/30/2006 $13,467 $14,396 $12,379
7/31/2006 $13,604 $14,567 $12,416
8/31/2006 $13,753 $14,783 $12,441
9/30/2006 $13,832 $14,886 $12,379
10/31/2006 $13,899 $14,979 $12,312
11/30/2006 $14,002 $15,104 $12,294
12/31/2006 $13,958 $15,051 $12,312
1/31/2007 $13,938 $15,012 $12,350
2/28/2007 $14,085 $15,210 $12,416
3/31/2007 $14,052 $15,173 $12,529
4/30/2007 $14,092 $15,218 $12,610
5/31/2007 $14,047 $15,150 $12,688
6/30/2007 $14,002 $15,072 $12,712
7/31/2007 $14,101 $15,189 $12,709
8/31/2007 $14,043 $15,123 $12,686
9/30/2007 $14,216 $15,347 $12,721
10/31/2007 $14,280 $15,415 $12,748
11/30/2007 $14,344 $15,513 $12,823
12/31/2007 $14,394 $15,557 $12,815
1/31/2008 $14,508 $15,753 $12,879
2/29/2008 $13,964 $15,032 $12,916
3/31/2008 $14,329 $15,461 $13,028
4/30/2008 $14,506 $15,642 $13,107
5/31/2008 $14,595 $15,737 $13,217
------- ------- -------
Total Returns 45.95% 57.37% 32.17%

16 | Annual Report

Performance Summary (CONTINUED)

AVERAGE ANNUAL TOTAL RETURN

CLASS C 5/31/08
- ------- -------

1-Year +2.27%
5-Year +2.93%
10-Year +4.13%

CLASS C (6/1/98-5/31/08)

(PERFORMANCE GRAPH)

FRANKLIN NEW LEHMAN
YORK TAX-FREE BROTHERS
INCOME FUND MUNICIPAL
DATE - CLASS C BOND INDEX CPI
- ------------- ------------- ---------- -------

6/1/1998 $10,000 $10,000 $10,000
6/30/1998 $10,049 $10,039 $10,012
7/31/1998 $10,074 $10,065 $10,025
8/31/1998 $10,199 $10,220 $10,037
9/30/1998 $10,298 $10,347 $10,049
10/31/1998 $10,313 $10,347 $10,074
11/30/1998 $10,329 $10,384 $10,074
12/31/1998 $10,348 $10,410 $10,068
1/31/1999 $10,440 $10,533 $10,092
2/28/1999 $10,420 $10,488 $10,104
3/31/1999 $10,434 $10,502 $10,135
4/30/1999 $10,466 $10,528 $10,209
5/31/1999 $10,420 $10,467 $10,209
6/30/1999 $10,286 $10,317 $10,209
7/31/1999 $10,309 $10,354 $10,240
8/31/1999 $10,192 $10,271 $10,264
9/30/1999 $10,180 $10,275 $10,313
10/31/1999 $10,044 $10,164 $10,332
11/30/1999 $10,140 $10,272 $10,338
12/31/1999 $10,053 $10,196 $10,338
1/31/2000 $10,005 $10,151 $10,369
2/29/2000 $10,121 $10,269 $10,430
3/31/2000 $10,338 $10,494 $10,516
4/30/2000 $10,271 $10,432 $10,522
5/31/2000 $10,232 $10,377 $10,534
6/30/2000 $10,461 $10,652 $10,590
7/31/2000 $10,571 $10,801 $10,614
8/31/2000 $10,709 $10,967 $10,614
9/30/2000 $10,659 $10,910 $10,670
10/31/2000 $10,751 $11,029 $10,688
11/30/2000 $10,824 $11,112 $10,694
12/31/2000 $11,059 $11,387 $10,688
1/31/2001 $11,132 $11,500 $10,756
2/28/2001 $11,177 $11,536 $10,799
3/31/2001 $11,269 $11,640 $10,823
4/30/2001 $11,207 $11,514 $10,866
5/31/2001 $11,290 $11,637 $10,915
6/30/2001 $11,354 $11,715 $10,934
7/31/2001 $11,497 $11,889 $10,903
8/31/2001 $11,649 $12,085 $10,903
9/30/2001 $11,566 $12,044 $10,952
10/31/2001 $11,680 $12,188 $10,915
11/30/2001 $11,615 $12,085 $10,897
12/31/2001 $11,519 $11,971 $10,854
1/31/2002 $11,683 $12,178 $10,878
2/28/2002 $11,787 $12,325 $10,921
3/31/2002 $11,619 $12,083 $10,983
4/30/2002 $11,765 $12,320 $11,044
5/31/2002 $11,840 $12,394 $11,044
6/30/2002 $11,945 $12,526 $11,050
7/31/2002 $12,071 $12,687 $11,063
8/31/2002 $12,219 $12,839 $11,100
9/30/2002 $12,480 $13,120 $11,118
10/31/2002 $12,296 $12,903 $11,136
11/30/2002 $12,246 $12,849 $11,136
12/31/2002 $12,488 $13,120 $11,112
1/31/2003 $12,458 $13,087 $11,161
2/28/2003 $12,586 $13,270 $11,247
3/31/2003 $12,608 $13,278 $11,314
4/30/2003 $12,704 $13,366 $11,290
5/31/2003 $12,970 $13,679 $11,271
6/30/2003 $12,907 $13,621 $11,284
7/31/2003 $12,470 $13,144 $11,296
8/31/2003 $12,556 $13,242 $11,339
9/30/2003 $12,847 $13,631 $11,376
10/31/2003 $12,826 $13,563 $11,364
11/30/2003 $12,935 $13,704 $11,333
12/31/2003 $13,033 $13,817 $11,321
1/31/2004 $13,108 $13,897 $11,376
2/29/2004 $13,272 $14,106 $11,437
3/31/2004 $13,228 $14,057 $11,511
4/30/2004 $12,930 $13,724 $11,548
5/31/2004 $12,852 $13,674 $11,615
6/30/2004 $12,874 $13,724 $11,652
7/31/2004 $13,030 $13,904 $11,634
8/31/2004 $13,241 $14,183 $11,640
9/30/2004 $13,330 $14,258 $11,665
10/31/2004 $13,442 $14,381 $11,726
11/30/2004 $13,329 $14,262 $11,732
12/31/2004 $13,497 $14,437 $11,689
1/31/2005 $13,621 $14,571 $11,714
2/28/2005 $13,597 $14,523 $11,781
3/31/2005 $13,538 $14,431 $11,873
4/30/2005 $13,719 $14,659 $11,953
5/31/2005 $13,797 $14,763 $11,941
6/30/2005 $13,887 $14,854 $11,947
7/31/2005 $13,827 $14,787 $12,002
8/31/2005 $13,952 $14,936 $12,064
9/30/2005 $13,868 $14,836 $12,211
10/31/2005 $13,796 $14,746 $12,236
11/30/2005 $13,828 $14,816 $12,138
12/31/2005 $13,931 $14,944 $12,088
1/31/2006 $13,952 $14,984 $12,181
2/28/2006 $14,043 $15,085 $12,205
3/31/2006 $13,969 $14,981 $12,273
4/30/2006 $13,966 $14,976 $12,377
5/31/2006 $13,987 $15,042 $12,439
6/30/2006 $13,937 $14,986 $12,463
7/31/2006 $14,078 $15,164 $12,500
8/31/2006 $14,232 $15,389 $12,525
9/30/2006 $14,314 $15,496 $12,463
10/31/2006 $14,384 $15,593 $12,396
11/30/2006 $14,490 $15,723 $12,377
12/31/2006 $14,445 $15,668 $12,396
1/31/2007 $14,417 $15,627 $12,433
2/28/2007 $14,561 $15,833 $12,500
3/31/2007 $14,521 $15,794 $12,614
4/30/2007 $14,554 $15,841 $12,696
5/31/2007 $14,513 $15,771 $12,773
6/30/2007 $14,460 $15,689 $12,798
7/31/2007 $14,543 $15,811 $12,795
8/31/2007 $14,477 $15,743 $12,771
9/30/2007 $14,649 $15,976 $12,807
10/31/2007 $14,708 $16,047 $12,834
11/30/2007 $14,768 $16,149 $12,910
12/31/2007 $14,813 $16,194 $12,901
1/31/2008 $14,924 $16,398 $12,966
2/29/2008 $14,357 $15,647 $13,003
3/31/2008 $14,737 $16,095 $13,116
4/30/2008 $14,901 $16,283 $13,196
5/31/2008 $14,987 $16,381 $13,307
------- ------- -------
Total Returns 49.87% 63.81% 33.07%

AVERAGE ANNUAL TOTAL RETURN

ADVISOR
CLASS(8) 5/31/08
- -------- -------

1-Year +3.93%
5-Year +3.60%
10-Year +4.77%

ADVISOR CLASS (6/1/98-5/31/08)(8)

(PERFORMANCE GRAPH)

FRANKLIN NEW LEHMAN
YORK TAX-FREE BROTHERS
INCOME FUND - MUNICIPAL
DATE ADVISOR CLASS BOND INDEX CPI
- ------------- ------------- ---------- -------

6/1/1998 $10,000 $10,000 $10,000
6/30/1998 $10,054 $10,039 $10,012
7/31/1998 $10,075 $10,065 $10,025
8/31/1998 $10,205 $10,220 $10,037
9/30/1998 $10,318 $10,347 $10,049
10/31/1998 $10,330 $10,347 $10,074
11/30/1998 $10,359 $10,384 $10,074
12/31/1998 $10,375 $10,410 $10,068
1/31/1999 $10,472 $10,533 $10,092
2/28/1999 $10,458 $10,488 $10,104
3/31/1999 $10,486 $10,502 $10,135
4/30/1999 $10,515 $10,528 $10,209
5/31/1999 $10,473 $10,467 $10,209
6/30/1999 $10,343 $10,317 $10,209
7/31/1999 $10,371 $10,354 $10,240
8/31/1999 $10,258 $10,271 $10,264
9/30/1999 $10,251 $10,275 $10,313
10/31/1999 $10,119 $10,164 $10,332
11/30/1999 $10,220 $10,272 $10,338
12/31/1999 $10,137 $10,196 $10,338
1/31/2000 $10,094 $10,151 $10,369
2/29/2000 $10,216 $10,269 $10,430
3/31/2000 $10,440 $10,494 $10,516
4/30/2000 $10,378 $10,432 $10,522
5/31/2000 $10,343 $10,377 $10,534
6/30/2000 $10,580 $10,652 $10,590
7/31/2000 $10,695 $10,801 $10,614
8/31/2000 $10,840 $10,967 $10,614
9/30/2000 $10,804 $10,910 $10,670
10/31/2000 $10,893 $11,029 $10,688
11/30/2000 $10,982 $11,112 $10,694
12/31/2000 $11,225 $11,387 $10,688
1/31/2001 $11,295 $11,500 $10,756
2/28/2001 $11,355 $11,536 $10,799
3/31/2001 $11,455 $11,640 $10,823
4/30/2001 $11,387 $11,514 $10,866
5/31/2001 $11,477 $11,637 $10,915
6/30/2001 $11,557 $11,715 $10,934
7/31/2001 $11,707 $11,889 $10,903
8/31/2001 $11,858 $12,085 $10,903
9/30/2001 $11,788 $12,044 $10,952
10/31/2001 $11,910 $12,188 $10,915
11/30/2001 $11,851 $12,085 $10,897
12/31/2001 $11,759 $11,971 $10,854
1/31/2002 $11,933 $12,178 $10,878
2/28/2002 $12,046 $12,325 $10,921
3/31/2002 $11,881 $12,083 $10,983
4/30/2002 $12,036 $12,320 $11,044
5/31/2002 $12,119 $12,394 $11,044
6/30/2002 $12,223 $12,526 $11,050
7/31/2002 $12,369 $12,687 $11,063
8/31/2002 $12,516 $12,839 $11,100
9/30/2002 $12,790 $13,120 $11,118
10/31/2002 $12,619 $12,903 $11,136
11/30/2002 $12,574 $12,849 $11,136
12/31/2002 $12,829 $13,120 $11,112
1/31/2003 $12,805 $13,087 $11,161
2/28/2003 $12,944 $13,270 $11,247
3/31/2003 $12,973 $13,278 $11,314
4/30/2003 $13,079 $13,366 $11,290
5/31/2003 $13,360 $13,679 $11,271
6/30/2003 $13,302 $13,621 $11,284
7/31/2003 $12,859 $13,144 $11,296
8/31/2003 $12,955 $13,242 $11,339
9/30/2003 $13,263 $13,631 $11,376
10/31/2003 $13,248 $13,563 $11,364
11/30/2003 $13,368 $13,704 $11,333
12/31/2003 $13,476 $13,817 $11,321
1/31/2004 $13,561 $13,897 $11,376
2/29/2004 $13,738 $14,106 $11,437
3/31/2004 $13,699 $14,057 $11,511
4/30/2004 $13,398 $13,724 $11,548
5/31/2004 $13,325 $13,674 $11,615
6/30/2004 $13,366 $13,724 $11,652
7/31/2004 $13,523 $13,904 $11,634
8/31/2004 $13,761 $14,183 $11,640
9/30/2004 $13,850 $14,258 $11,665
10/31/2004 $13,973 $14,381 $11,726
11/30/2004 $13,863 $14,262 $11,732
12/31/2004 $14,046 $14,437 $11,689
1/31/2005 $14,194 $14,571 $11,714
2/28/2005 $14,165 $14,523 $11,781
3/31/2005 $14,112 $14,431 $11,873
4/30/2005 $14,308 $14,659 $11,953
5/31/2005 $14,409 $14,763 $11,941
6/30/2005 $14,511 $14,854 $11,947
7/31/2005 $14,444 $14,787 $12,002
8/31/2005 $14,583 $14,936 $12,064
9/30/2005 $14,503 $14,836 $12,211
10/31/2005 $14,435 $14,746 $12,236
11/30/2005 $14,476 $14,816 $12,138
12/31/2005 $14,592 $14,944 $12,088
1/31/2006 $14,621 $14,984 $12,181
2/28/2006 $14,738 $15,085 $12,205
3/31/2006 $14,655 $14,981 $12,273
4/30/2006 $14,660 $14,976 $12,377
5/31/2006 $14,703 $15,042 $12,439
6/30/2006 $14,645 $14,986 $12,463
7/31/2006 $14,801 $15,164 $12,500
8/31/2006 $14,971 $15,389 $12,525
9/30/2006 $15,065 $15,496 $12,463
10/31/2006 $15,146 $15,593 $12,396
11/30/2006 $15,279 $15,723 $12,377
12/31/2006 $15,226 $15,668 $12,396
1/31/2007 $15,205 $15,627 $12,433
2/28/2007 $15,379 $15,833 $12,500
3/31/2007 $15,344 $15,794 $12,614
4/30/2007 $15,388 $15,841 $12,696
5/31/2007 $15,340 $15,771 $12,773
6/30/2007 $15,292 $15,689 $12,798
7/31/2007 $15,388 $15,811 $12,795
8/31/2007 $15,326 $15,743 $12,771
9/30/2007 $15,516 $15,976 $12,807
10/31/2007 $15,587 $16,047 $12,834
11/30/2007 $15,672 $16,149 $12,910
12/31/2007 $15,729 $16,194 $12,901
1/31/2008 $15,854 $16,398 $12,966
2/29/2008 $15,247 $15,647 $13,003
3/31/2008 $15,660 $16,095 $13,116
4/30/2008 $15,856 $16,283 $13,196
5/31/2008 $15,942 $16,381 $13,307
------- ------- -------
Total Returns 59.42% 63.81% 33.07%

Annual Report | 17

Performance Summary (CONTINUED)

ENDNOTES

BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE
STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES
IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

CLASS B: These shares have higher annual fees and expenses than Class A
shares.

CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.

ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.

(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.

(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.

(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.

(4.) Distribution rate is based on an annualization of the respective class's
May dividend and the maximum offering price (NAV for Classes B, C and
Advisor) per share on 5/31/08.

(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/07 for the maximum combined effective federal and New York
state and City personal income tax rate of 41.82%, based on the federal
income tax rate of 35.00%.

(6.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 5/31/08.

(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report.

(8.) Effective 10/1/01, 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 10/1/01, 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 9/30/01, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 10/1/01
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +35.23% and +4.63%.

(9.) Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond
Index is a market value-weighted index engineered for the long-term
tax-exempt bond market. All bonds included have a minimum credit rating of
at least Baa3/BBB-. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million. The
bonds must be dated after 12/31/90, and must be at least one year from
their maturity date. Remarketed issues, taxable municipal bonds, bonds with
floating rates and derivatives are excluded from the index. The index has
four main bond sectors: general obligation, revenue, insured and
prerefunded. The Consumer Price Index (CPI), calculated by the U.S. Bureau
of Labor Statistics, is a commonly used measure of the inflation rate.

18 | Annual Report

Your Fund's Expenses

As a Fund shareholder, you can incur two types of costs:

- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.

ACTUAL FUND EXPENSES

The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.

Annual Report | 19

Your Fund's Expenses (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 12/1/07 VALUE 5/31/08 PERIOD* 12/1/07-5/31/08
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $1,017.70 $2.98
Hypothetical (5% return before expenses) $1,000 $1,022.05 $2.98

CLASS B
Actual $1,000 $1,014.00 $5.79
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.81

CLASS C
Actual $1,000 $1,014.90 $5.79
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.81

ADVISOR CLASS
Actual $1,000 $1,017.30 $2.52
Hypothetical (5% return before expenses) $1,000 $1,022.50 $2.53

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.59% B: 1.15%; C: 1.15%; and Advisor:
0.50%), multiplied by the average account value over the period, multiplied
by 183/366 to reflect the one-half year period.

20 | Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS

YEAR ENDED MAY 31,
----------------------------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- ---------- ---------- ---------- ---------- ----------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.69 $ 11.72 $ 12.01 $ 11.64 $ 12.22
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) .................... 0.51 0.51 0.52 0.54 0.55
Net realized and unrealized gains (losses) .. (0.06) (0.02) (0.29) 0.37 (0.58)
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 0.45 0.49 0.23 0.91 (0.03)
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ....................... (0.51) (0.51) (0.52) (0.54) (0.55)
Net realized gains .......................... (0.02) (0.01) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions ............................ (0.53) (0.52) (0.52) (0.54) (0.55)
---------- ---------- ---------- ---------- ----------
Redemption fees ................................ --(d) --(d) --(d) --(d) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 11.61 $ 11.69 $ 11.72 $ 12.01 $ 11.64
========== ========== ========== ========== ==========

Total return(c) ................................ 3.92% 4.25% 1.95% 7.95% (0.27)%

RATIO TO AVERAGE NET ASSETS
Expenses ....................................... 0.60% 0.61% 0.60% 0.60% 0.60%
Net investment income .......................... 4.38% 4.37% 4.41% 4.50% 4.62%

SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $4,701,098 $4,411,763 $4,351,378 $4,497,924 $4,429,312
Portfolio turnover rate ........................ 11.88% 5.59% 9.71% 10.97% 10.35%

(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.

(d) Amount rounds to less than $0.01 per share.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 21

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS (CONTINUED)

YEAR ENDED MAY 31,
------------------------------------------------------------
CLASS B 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.67 $ 11.70 $ 11.99 $ 11.61 $ 12.20
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.44 0.45 0.45 0.47 0.48
Net realized and unrealized gains (losses) .. (0.07) (0.02) (0.29) 0.38 (0.59)
-------- -------- -------- -------- --------
Total from investment operations ............... 0.37 0.43 0.16 0.85 (0.11)
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.44) (0.45) (0.45) (0.47) (0.48)
Net realized gains .......................... (0.02) (0.01) -- -- --
-------- -------- -------- -------- --------
Total distributions ............................ (0.46) (0.46) (0.45) (0.47) (0.48)
-------- -------- -------- -------- --------
Redemption fees ................................ --(d) --(d) --(d) --(d) --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.58 $ 11.67 $ 11.70 $ 11.99 $ 11.61
======== ======== ======== ======== ========

Total return(c) ................................ 3.26% 3.67% 1.38% 7.46% (0.91)%

RATIO TO AVERAGE NET ASSETS
Expenses ....................................... 1.16% 1.17% 1.16% 1.16% 1.16%
Net investment income .......................... 3.82% 3.81% 3.85% 3.94% 4.06%

SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $148,693 $178,205 $207,209 $231,020 $231,664
Portfolio turnover rate ........................ 1.88% 5.59% 9.71% 10.97% 10.35%

(b) Based on average daily shares outstanding.

(d) Amount rounds to less than $0.01 per share.

22 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS (CONTINUED)

YEAR ENDED MAY 31,
------------------------------------------------------------
CLASS C 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year.............. $ 11.69 $ 11.71 $ 12.00 $ 11.63 $ 12.22
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b)..................... 0.44 0.45 0.45 0.47 0.48
Net realized and unrealized gains (losses)... (0.07) (0.01) (0.29) 0.37 (0.59)
-------- -------- -------- -------- --------
Total from investment operations................ 0.37 0.44 0.16 0.84 (0.11)
-------- -------- -------- -------- --------
Less distributions from:
Net investment income........................ (0.44) (0.45) (0.45) (0.47) (0.48)
Net realized gains........................... (0.02) (0.01) -- -- --
-------- -------- -------- -------- --------
Total distributions............................. (0.46) (0.46) (0.45) (0.47) (0.48)
-------- -------- -------- -------- --------
Redemption fees................................. --(d) --(d) --(d) --(d) --
-------- -------- -------- -------- --------
Net asset value, end of year.................... $ 11.60 $ 11.69 $ 11.71 $ 12.00 $ 11.63
======== ======== ======== ======== ========
Total return(c)................................. 3.26% 3.76% 1.38% 7.36% (0.91)%

RATIO TO AVERAGE NET ASSETS
Expenses........................................ 1.16% 1.17% 1.16% 1.16% 1.16%
Net investment income........................... 3.82% 3.81% 3.85% 3.94% 4.06%

SUPPLEMENTAL DATA
Net assets, end of year (000's)................. $398,418 $272,837 $245,444 $235,805 $231,051
Portfolio turnover rate......................... 11.88% 5.59% 9.71% 10.97% 10.35%

(b) Based on average daily shares outstanding.

(d) Amount rounds to less than $0.01 per share.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 23

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS (CONTINUED)

YEAR ENDED MAY 31,
-------------------------------------------------------
ADVISOR CLASS 2008 2007 2006 2005 2004
- ------------- ------- ------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year.............. $ 11.70 $ 11.73 $ 12.02 $ 11.64 $ 12.23
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b)..................... 0.52 0.53 0.53 0.55 0.56
Net realized and unrealized gains (losses)... (0.07) (0.02) (0.29) 0.38 (0.59)
------- ------- ------- ------- -------
Total from investment operations................ 0.45 0.51 0.24 0.93 (0.03)
------- ------- ------- ------- -------
Less distributions from:
Net investment income........................ (0.52) (0.53) (0.53) (0.55) (0.56)
Net realized gains........................... (0.02) (0.01) -- -- --
------- ------- ------- ------- -------
Total distributions............................. (0.54) (0.54) (0.53) (0.55) (0.56)
------- ------- ------- ------- -------
Redemption fees ................................ --(c) --(c) --(c) --(c) --
------- ------- ------- ------- -------
Net asset value, end of year.................... $ 11.61 $ 11.70 $ 11.73 $ 12.02 $ 11.64
======= ======= ======= ======= =======

Total return ................................... 3.93% 4.34% 2.04% 8.14% (0.26)%

RATIOS TO AVERAGE NET ASSETS
Expenses........................................ 0.51% 0.52% 0.51% 0.51% 0.51%
Net investment income........................... 4.47% 4.46% 4.50% 4.59% 4.71%

SUPPLEMENTAL DATA
Net assets, end of year (000's)................. $84,781 $61,547 $44,308 $30,487 $22,470
Portfolio turnover rate......................... 11.88% 5.59% 9.71% 10.97% 10.35%

(b) Based on average daily shares outstanding.

24 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS 95.0%
MUNICIPAL BONDS 95.0%
NEW YORK 93.1%
Albany Housing Authority Limited Obligation Revenue,
Refunding, 6.25%, 10/01/12 ............................... $ 5,250,000 $ 5,259,713
Albany IDA Civic Facility Revenue,
Albany Medical Center Project, 6.00%, 5/01/19 ............ 1,270,000 1,281,354
Albany Medical Center Project, 6.00%, 5/01/29 ............ 1,460,000 1,417,631
St. Peter's Hospital Project, Series A, 5.25%, 11/15/27 .. 5,000,000 4,987,750
St. Peter's Hospital Project, Series A, 5.25%, 11/15/32 .. 5,000,000 4,898,700
St. Peter's Hospital Project, Series E, 5.50%, 11/15/27 .. 1,135,000 1,154,193
St. Peter's Hospital Project, Series E, 5.25%, 11/15/32 .. 1,150,000 1,124,413
St. Rose Project, Series A, AMBAC Insured, Pre-Refunded,
5.375%, 7/01/31 ....................................... 2,750,000 2,993,485
Albany Parking Authority Revenue,
Refunding, Series A, 5.625%, 7/15/20 ..................... 555,000 606,321
Refunding, Series A, 5.625%, 7/15/25 ..................... 415,000 453,375
Series A, Pre-Refunded, 5.625%, 7/15/20 .................. 695,000 759,072
Series A, Pre-Refunded, 5.625%, 7/15/25 .................. 585,000 638,931
Amherst IDA Civic Facility Revenue, University of Buffalo
Foundation Faculty-Student Housing Corp.,
Series A, AMBAC Insured, 5.125%, 8/01/20 ................. 1,410,000 1,490,511
Series A, AMBAC Insured, 5.25%, 8/01/31 .................. 5,055,000 5,284,295
Series B, AMBAC Insured, 5.625%, 8/01/20 ................. 1,690,000 1,785,857
Series B, AMBAC Insured, 5.75%, 8/01/25 .................. 3,050,000 3,217,750
Series B, AMBAC Insured, 5.75%, 8/01/30 .................. 3,440,000 3,612,344
Series B, AMBAC Insured, 5.25%, 8/01/31 .................. 1,000,000 1,045,360
Battery Park City Authority Revenue, Refunding,
Series A, 5.00%,
11/01/24 ................................................. 9,000,000 9,451,350
11/01/25 ................................................. 12,000,000 12,572,040
11/01/26 ................................................. 14,250,000 14,894,100
Clinton County COP, Correctional Facilities Project,
8.125%, 8/01/17 .......................................... 4,370,000 5,169,841
Dutchess County IDA Civic Facility Revenue, Vassar College
Project, Pre-Refunded, 5.35%, 9/01/40 .................... 16,000,000 17,437,120
Geneva IDA Civic Facilities Revenue, Colleges of the Seneca
Project, AMBAC Insured,
5.00%, 9/01/21 ........................................... 2,835,000 2,947,776
5.125%, 9/01/31 .......................................... 5,045,000 5,192,667
Hempstead Town IDA Civic Facility Revenue, Adelphi University
Civic Facility, 5.00%,
10/01/30 ................................................. 3,000,000 3,049,470
10/01/35 ................................................. 1,500,000 1,519,170
Ilion Elderly Housing Corp. Mortgage Revenue, 7.25%,
7/01/09 .................................................. 470,000 471,452
Liberty Development Corp. Revenue,
5.50%, 10/01/37 .......................................... 27,000,000 28,889,730
Goldman Sachs Headquarters, 5.25%, 10/01/35 .............. 68,600,000 70,926,912
Long Island Power Authority Electric System Revenue,
General, Series A, AMBAC Insured, Pre-Refunded, 5.25%,
12/01/26 ................................................. 5,000,000 5,050,000
General, Series A, FSA Insured, Pre-Refunded, 5.125%,
12/01/22 ................................................. 28,210,000 28,492,100
General, Series A, MBIA Insured, Pre-Refunded, 5.75%,
12/01/24 ................................................. 15,060,000 15,210,600
General, Series A, MBIA Insured, Pre-Refunded, 5.25%,
12/01/26 ................................................. 9,000,000 9,090,000
General, Series A, Pre-Refunded, 5.75%, 12/01/24 ......... 15,000,000 15,151,650
General, Series B, 5.00%, 12/01/35 ....................... 5,000,000 5,019,600

Annual Report | 25

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
Long Island Power Authority Electric System
Revenue, (continued)
General, Series C, 5.00%, 9/01/35 ........................ $16,000,000 $ 16,063,200
Series A, AMBAC Insured, 5.00%, 9/01/29 .................. 24,000,000 24,448,800
Series A, AMBAC Insured, 5.00%, 9/01/34 .................. 20,670,000 20,944,704
Madison County IDA Civic Facility Revenue, Colgate University
Project, Series B, 5.00%, 7/01/33 ........................ 2,000,000 2,029,440
Middleburg Central School District GO, FGIC Insured,
4.60%, 8/15/17 ........................................... 1,045,000 1,068,471
4.625%, 8/15/18 .......................................... 1,155,000 1,178,608
4.625%, 8/15/19 .......................................... 1,210,000 1,230,001
4.75%, 8/15/20 ........................................... 1,270,000 1,291,654
4.75%, 8/15/21 ........................................... 1,330,000 1,348,088
Monroe County IDAR, Civic Facilities, De Paul Community
Facilities, 6.50%, 2/01/24 ............................... 1,285,000 1,288,508
Montgomery County IDA Lease Revenue, Hamilton Fulton
Montgomery Board of Cooperative Educational Services
Project, Series A, XLCA Insured, 5.00%,
7/01/29 .................................................. 5,710,000 5,739,464
7/01/34 .................................................. 3,000,000 2,999,880
MTA Commuter Facilities Revenue,
Series 8, Pre-Refunded, 5.50%, 7/01/21 ................... 5,000,000 5,571,800
Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/28 ..... 8,655,000 9,283,353
Series A, Pre-Refunded, 6.00%, 7/01/24 ................... 5,575,000 5,827,994
Series A, Pre-Refunded, 5.25%, 7/01/28 ................... 18,300,000 19,712,577
Series A, Pre-Refunded, 6.125%, 7/01/29 .................. 9,625,000 10,074,487
Series C-1, FGIC Insured, Pre-Refunded, 5.375%, 7/01/27 .. 19,100,000 19,829,620
Series R, Pre-Refunded, 5.50%, 7/01/17 ................... 2,000,000 2,276,920
MTA Dedicated Tax Fund Revenue,
Refunding, Series A, 5.00%, 11/15/30 ..................... 25,000,000 25,247,250
Series A, FGIC Insured, Pre-Refunded, 6.00%, 4/01/30 ..... 27,260,000 29,051,527
Series A, FSA Insured, 5.00%, 11/15/28 ................... 41,575,000 42,554,923
Series A, FSA Insured, 5.00%, 11/15/32 ................... 71,685,000 73,026,226
Series A, FSA Insured, Pre-Refunded, 5.00%, 4/01/29 ...... 25,800,000 28,532,220
Series A, MBIA Insured, 5.00%, 11/15/35 .................. 45,430,000 46,338,146
Series A, MBIA Insured, Pre-Refunded, 5.25%, 4/01/26 ..... 20,500,000 21,884,775
Series B, MBIA Insured, 4.75%, 11/15/26 .................. 5,200,000 5,286,736
MTA Revenue,
New York Dedicated Tax Fund, Series B, MBIA Insured,
5.00%, 11/15/31 ....................................... 40,000,000 40,911,600
Refunding, Series A, FGIC Insured, 5.00%, 11/15/25 ....... 22,010,000 22,395,395
Refunding, Series A, FGIC Insured, 5.25%, 11/15/31 ....... 34,000,000 34,578,000
Refunding, Series A, FSA Insured, 5.00%, 11/15/30 ........ 68,130,000 69,240,519
Refunding, Series A, MBIA Insured, 5.125%, 11/15/31 ...... 15,000,000 15,301,050
Refunding, Series E, 5.25%, 11/15/31 ..................... 15,000,000 15,285,000
Refunding, Series U, FGIC Insured, 5.125%, 11/15/31 ...... 5,000,000 5,090,250
Series A, 5.00%, 11/15/37 ................................ 48,000,000 48,430,560
Series A, FGIC Insured, 5.00%, 11/15/32 .................. 10,355,000 10,487,648
Series B, 5.00%, 11/15/37 ................................ 25,000,000 25,224,250
Series B, Pre-Refunded, 5.25%, 11/15/32 .................. 28,720,000 31,944,682
Transportation, Series A, 5.00%, 11/15/35 ................ 26,640,000 26,895,211
Transportation, Series F, 5.00%, 11/15/35 ................ 11,000,000 11,094,930

26 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
MTA Service Contract Revenue,
Commuter Facilities, Series 7, ETM, zero cpn., 7/01/10 ... $ 7,500,000 $ 7,094,025
Commuter Facilities, Series 7, ETM, zero cpn., 7/01/11 ... 7,590,000 6,911,226
Commuter Facilities, Series 7, ETM, zero cpn., 7/01/13 ... 2,065,000 1,731,585
Refunding, Series A, 5.125%, 1/01/29 ..................... 6,000,000 6,106,680
Refunding, Series A, AMBAC Insured, 5.25%, 7/01/31 ....... 50,000,000 51,436,500
Refunding, Series A, FGIC Insured, 5.00%, 7/01/25 ........ 12,760,000 13,037,530
Series B, 5.375%, 1/01/30 ................................ 50,000,000 51,329,500
Series B, MBIA Insured, 5.00%, 1/01/31 ................... 22,290,000 22,559,263
Transit Facilities, Series 7, ETM, zero cpn., 7/01/09 .... 13,125,000 12,830,737
Transit Facilities, Series 7, ETM, zero cpn., 7/01/10 .... 9,000,000 8,512,830
Transit Facilities, Series 7, ETM, zero cpn., 7/01/12 .... 15,380,000 13,421,818
Transit Facilities, Series 7, ETM, zero cpn., 7/01/13 .... 7,935,000 6,653,815
MTA Transit Facilities Revenue, Series A, Pre-Refunded,
5.50%, 7/01/22 ........................................... 16,170,000 16,296,288
6.00%, 7/01/24 ........................................... 7,000,000 7,313,810
5.625%, 7/01/27 .......................................... 14,440,000 14,553,498
6.125%, 7/01/29 .......................................... 11,595,000 12,130,109
Nassau County Tobacco Settlement Corp. Revenue, Asset Backed,
Series A, Pre-Refunded, 6.50%, 7/15/27 ................... 15,000,000 15,882,750
Nassau Health Care Corp. Health System Revenue, Nassau County
Guaranteed, FSA Insured, Pre-Refunded, 5.75%, 8/01/29 .... 36,040,000 38,231,232
New York City GO,
Citysavers, Series B, zero cpn., 8/01/09 ................. 8,875,000 8,639,990
Citysavers, Series B, zero cpn., 8/01/10 ................. 2,690,000 2,515,580
Citysavers, Series B, zero cpn., 6/01/12 ................. 1,030,000 952,400
Citysavers, Series B, zero cpn., 12/01/12 ................ 1,030,000 934,591
Citysavers, Series B, zero cpn., 6/01/13 ................. 1,030,000 910,407
Citysavers, Series B, zero cpn., 12/01/13 ................ 1,030,000 892,732
Citysavers, Series B, zero cpn., 6/01/14 ................. 1,030,000 867,219
Citysavers, Series B, zero cpn., 12/01/14 ................ 1,030,000 849,709
Citysavers, Series B, zero cpn., 6/01/15 ................. 1,030,000 825,185
Citysavers, Series B, zero cpn., 12/01/15 ................ 1,030,000 806,830
Citysavers, Series B, zero cpn., 6/01/16 ................. 1,030,000 782,584
Citysavers, Series B, zero cpn., 12/01/16 ................ 1,030,000 764,497
Citysavers, Series B, zero cpn., 6/01/17 ................. 1,030,000 741,456
Citysavers, Series B, zero cpn., 12/01/17 ................ 1,030,000 723,760
Citysavers, Series B, zero cpn., 6/01/18 ................. 1,030,000 701,533
Citysavers, Series B, zero cpn., 12/01/18 ................ 1,005,000 667,682
Citysavers, Series B, zero cpn., 6/01/19 ................. 1,030,000 662,342
Citysavers, Series B, zero cpn., 12/01/19 ................ 1,030,000 646,315
Citysavers, Series B, zero cpn., 6/01/20 ................. 10,000,000 5,642,200
Fiscal 2003, Series I, 5.00%, 3/01/29 .................... 10,000,000 10,150,900
Fiscal 2003, Series I, 5.00%, 3/01/30 .................... 14,785,000 14,989,329
Pre-Refunded, 5.50%, 5/15/24 ............................. 8,920,000 9,554,569
Refunding, 5.50%, 5/15/24 ................................ 1,080,000 1,125,814
Refunding, Series C, 5.00%, 1/01/26 ...................... 4,045,000 4,161,334
Refunding, Series G, AMBAC Insured, 5.00%, 8/01/22 ....... 15,000,000 15,688,050

Annual Report | 27

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City GO, (continued)
Series A, FSA Insured, 6.00%, 5/15/30 .................... $ 1,095,000 $ 1,162,058
Series A, FSA Insured, Pre-Refunded, 6.00%, 5/15/30 ...... 5,155,000 5,570,545
Series B, 7.00%, 2/01/18 ................................. 25,000 25,086
Series C, 7.00%, 2/01/12 ................................. 705,000 709,970
Series C, FSA Insured, 5.125%, 3/15/25 ................... 165,000 169,518
Series C, FSA Insured, Pre-Refunded, 5.125%, 3/15/25 ..... 6,335,000 6,843,067
Series D, 8.00%, 8/01/17 ................................. 5,000 5,041
Series D, 7.50%, 2/01/18 ................................. 5,000 5,019
Series D, 5.125%, 8/01/19 ................................ 1,985,000 2,049,691
Series D, 5.50%, 6/01/24 ................................. 16,160,000 16,997,411
Series D, 5.00%, 10/15/29 ................................ 5,000,000 5,077,200
Series D, 5.00%, 11/01/34 ................................ 5,000,000 5,057,150
Series D, Pre-Refunded, 5.50%, 6/01/24 ................... 7,785,000 8,536,564
Series D1, 5.125%, 12/01/28 .............................. 5,230,000 5,431,094
Series F, 5.30%, 1/15/26 ................................. 24,070,000 24,923,763
Series F, Pre-Refunded, 5.30%, 1/15/26 ................... 20,930,000 22,941,792
Series H, 7.20%, 2/01/15 ................................. 5,000 5,018
Series H, FSA Insured, 5.375%, 8/01/27 ................... 8,510,000 8,616,375
Series H, MBIA Insured, 5.125%, 8/01/25 .................. 3,645,000 3,685,022
Series H, MBIA Insured, Pre-Refunded, 5.125%, 8/01/25 .... 355,000 360,442
Series J, Sub Series J1, AMBAC Insured, 5.00%, 6/01/23 ... 20,000,000 20,883,400
Series M, 5.00%, 4/01/35 ................................. 10,000,000 10,114,600
Sub Series L-1, 5.00%, 4/01/27 .......................... 13,295,000 13,678,960
New York City IDA Civic Facility Revenue,
College of New Rochelle Project, 5.80%, 9/01/26 .......... 1,500,000 1,526,670
Ethical Culture School Project, Series B-1, XLCA Insured,
5.00%, 6/01/35 ........................................ 7,820,000 7,838,221
Institute of International Education Inc. Project, 5.25%,
9/01/21 ............................................... 1,530,000 1,580,918
Institute of International Education Inc. Project, 5.25%,
9/01/31 ............................................... 5,235,000 5,312,373
New York University Project, AMBAC Insured, 5.00%,
7/01/31 ............................................... 18,000,000 18,275,760
Staten Island University Hospital Project, Series A,
6.375%, 7/01/31 ....................................... 3,860,000 3,770,950
New York City IDAR, Queens Baseball Stadium, Pilot, AMBAC
Insured, 5.00%, 1/01/39 .................................. 8,000,000 8,060,720
New York City Municipal Finance Authority Revenue, Series D,
FSA Insured, 5.00%, 6/15/38 .............................. 59,000,000 60,608,340
New York City Municipal Finance Authority Water and Sewer
System Revenue,
2002, Series B, 5.00%, 6/15/26 ........................... 25,000,000 25,463,500
Second General Resolution, Refunding, Series AA, 5.00%,
6/15/37 ............................................... 10,000,000 10,248,100
Series B, 5.00%, 6/15/36 ................................. 25,000,000 25,580,500
New York City Municipal Water Finance Authority Water and
Sewer System Revenue,
Fiscal 2004, Refunding, Series C, 5.00%, 6/15/35 ......... 10,000,000 10,187,300
Refunding, Series B, 6.10%, 6/15/31 ...................... 11,005,000 11,827,734
Refunding, Series B, 6.00%, 6/15/33 ...................... 6,040,000 6,479,712
Refunding, Series D, 5.00%, 6/15/37 ...................... 14,865,000 15,164,827
Refunding, Series D, AMBAC Insured, 5.00%, 6/15/39 ....... 7,900,000 8,092,602
(a)Refunding, Series DD, 5.00%, 6/15/37 ..................... 30,000,000 30,809,400
Refunding, Series E, MBIA Insured, 5.125%, 6/15/31 ....... 34,175,000 35,131,216
Second General Resolution, Series AA, 4.75%, 6/15/37 ..... 40,000,000 40,105,200
Series A, FGIC Insured, Pre-Refunded, 5.75%, 6/15/31 ..... 19,315,000 20,286,158
Series A, FGIC Insured, Pre-Refunded, 5.50%, 6/15/32 ..... 11,655,000 12,211,410

28 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City Municipal Water Finance Authority Water and
Sewer System Revenue, (continued)
Series A, FGIC Insured, Pre-Refunded, 5.25%, 6/15/33 ..... $ 7,000,000 $ 7,522,340
Series A, Pre-Refunded, 5.75%, 6/15/30 ................... 41,190,000 43,261,033
Series B, Pre-Refunded, 6.10%, 6/15/31 ................... 3,995,000 4,332,578
Series B, Pre-Refunded, 6.00%, 6/15/33 ................... 10,260,000 11,106,758
New York City Transitional Finance Authority Building Aid
Revenue, Series S-2, FGIC Insured, 5.00%, 1/15/37 ........ 22,000,000 22,337,260
New York City Transitional Finance Authority Revenue,
Future Tax Secured, 2004, Series C, Pre-Refunded, 5.50%,
5/01/25 ............................................... 55,000 57,406
Future Tax Secured, 2005, Series B, 5.00%, 5/01/26 ....... 1,515,000 1,532,513
Future Tax Secured, 2005, Series C, 5.00%, 5/01/29 ....... 1,485,000 1,504,572
Future Tax Secured, 2005, Series C, Pre-Refunded, 5.50%,
5/01/25 ............................................... 5,515,000 5,756,281
Future Tax Secured, 2005, Series C, Pre-Refunded, 5.00%,
5/01/29 ............................................... 3,730,000 3,876,477
Future Tax Secured, Refunding, Series B, 5.00%, 5/01/30 .. 7,290,000 7,419,397
Future Tax Secured, Refunding, Series B, AMBAC Insured,
5.00%, 5/01/30 ........................................ 2,900,000 2,965,424
Future Tax Secured, Refunding, Series B, MBIA Insured,
5.00%, 8/01/32 ........................................ 15,000,000 15,354,750
Future Tax Secured, Series A, 5.25%, 8/01/31 ............. 28,205,000 29,206,842
Future Tax Secured, Series A, FGIC Insured, 5.00%,
5/01/28 ............................................... 15,805,000 16,030,379
Future Tax Secured, Series A, FGIC Insured, Pre-Refunded,
5.00%, 5/01/28 ........................................ 260,000 277,215
Future Tax Secured, Series A, Pre-Refunded, 5.625%,
2/15/26 ............................................... 20,000,000 21,309,600
Future Tax Secured, Series A, Pre-Refunded, 6.00%,
8/15/29 ............................................... 29,000,000 30,587,170
Future Tax Secured, Series A, Pre-Refunded, 5.25%,
5/01/31 ............................................... 27,005,000 28,980,686
Future Tax Secured, Series A, Pre-Refunded, 5.25%,
8/01/31 ............................................... 2,400,000 2,656,200
Future Tax Secured, Series B, AMBAC Insured, Pre-Refunded,
5.00%, 5/01/30 ........................................ 100,000 108,625
Future Tax Secured, Series B, Pre-Refunded, 6.00%,
11/15/29 .............................................. 15,000,000 16,209,150
Future Tax Secured, Series B, Pre-Refunded, 5.00%,
5/01/30 ............................................... 230,000 249,838
Future Tax Secured, Series C, Pre-Refunded, 5.50%,
11/01/24 .............................................. 16,800,000 17,974,992
Future Tax Secured, Series C, Pre-Refunded, 5.50%,
5/01/25 ............................................... 4,430,000 4,623,813
Future Tax Secured, Series C, Pre-Refunded, 5.50%,
11/01/29 .............................................. 13,660,000 14,615,380
Future Tax Secured, Series D, 5.00%, 2/01/27 ............. 62,025,000 63,547,093
Future Tax Secured, Series E, 5.00%, 2/01/25 ............. 5,000,000 5,154,550
Future Tax Secured, Series E, 5.00%, 2/01/27 ............. 10,000,000 10,266,600
Future Tax Secured, Series E, 5.00%, 2/01/33 ............. 18,035,000 18,378,747
Future Tax Secured Bonds, Series C, MBIA Insured, 5.00%,
5/01/29 .............................................. 335,000 340,276
Future Tax Secured Bonds, Series C, MBIA Insured,
Pre-Refunded, 5.00%, 5/01/29 .......................... 1,030,000 1,070,448
Series C, MBIA Insured, Pre-Refunded, 5.00%, 5/01/29 ..... 2,270,000 2,359,143
New York City Transportation Authority MTA Triborough Bridge
and Tunnel Authority COP,
Series A, AMBAC Insured, Pre-Refunded, 5.25%, 1/01/29 .... 79,840,000 84,295,072
New York City Trust for Cultural Resources Revenue,
Museum of Modern Art 2001, Series D, AMBAC Insured,
5.125%, 7/01/31 ....................................... 15,500,000 15,844,875
Wildlife Conservation Society, FGIC Insured, 5.00%,
2/01/34 ............................................... 10,500,000 10,690,785
New York Convention Center Development Corp. Revenue, Hotel
Unit Fee Secured,
AMBAC Insured, 5.00%,
11/15/35 .............................................. 33,130,000 33,726,671
11/15/44 .............................................. 31,000,000 31,306,280
New York IDA Parking Facility Revenue, Royal Charter
Presbyterian, FSA Insured, 5.25%,
12/15/32 .............................................. 1,525,000 1,595,608

Annual Report | 29

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Appropriated Tobacco Corp. Revenue, Asset-
Backed, Series A-1, AMBAC Insured, 5.25%, 6/01/21 ........ $18,000,000 $ 18,736,200
New York State Commissioner of General Services Revenue,
People of the State of New York, Certificate of Lease
Assessment, Pre-Refunded,
5.70%, 3/01/29 ........................................ 59,689,965 59,919,175
5.75%, 3/01/29 ........................................ 32,464,013 32,615,295
New York State Dormitory Authority Lease Revenue,
Court Facilities, Pre-Refunded, 6.00%, 5/15/39 ........... 58,245,000 62,881,884
Refunding, Series A, FGIC Insured, 5.00%, 7/01/33 ........ 12,650,000 12,870,489
State University Dormitory Facilities, FGIC Insured,
Pre-Refunded, 5.50%, 7/01/27 .......................... 2,000,000 2,165,980
State University Dormitory Facilities, FGIC Insured,
Pre-Refunded, 5.10%, 7/01/31 .......................... 7,700,000 8,248,702
State University Dormitory Facilities, Pre-Refunded,
5.00%, 7/01/32 ........................................ 5,500,000 5,936,370
State University Dormitory Facilities, Series A,
6.00%, 7/01/30 ........................................ 5,750,000 6,233,403
State University Dormitory Facilities, Series B, MBIA
Insured, Pre-Refunded, 5.125%,
7/01/28 ............................................... 4,800,000 5,020,416
State University Dormitory Facilities, Series C, MBIA
Insured, Pre-Refunded, 5.50%,
7/01/19 ............................................... 5,090,000 5,343,940
State University Dormitory Facilities, Series C, MBIA
Insured, Pre-Refunded, 5.50%,
7/01/29 ............................................... 9,250,000 9,711,482
New York State Dormitory Authority Revenue,
FGIC Insured, Pre-Refunded, 5.125%, 5/15/31 .............. 45,000,000 49,074,750
Mortgage, St. Barnabas, Series A, AMBAC Insured, 5.125%,
2/01/22 ............................................... 4,000,000 4,159,720
Mortgage, St. Barnabas, Series A, AMBAC Insured, 5.00%,
2/01/31 ............................................... 5,500,000 5,588,330
School Districts Financing Program, Series A, MBIA
Insured, 5.00%, 4/01/31 ............................... 9,500,000 9,680,500
Teachers College, MBIA Insured, 5.00%, 7/01/22 ........... 2,885,000 2,982,542
Teachers College, MBIA Insured, 5.00%, 7/01/32 ........... 6,000,000 6,126,000
Upstate Community Colleges, Series A, 5.00%, 7/01/27 ..... 3,720,000 3,794,958
New York State Dormitory Authority Revenues,
Buena Vida Nursing Home, Series A, 5.25%, 7/01/28 ........ 4,730,000 4,763,015
City University System, Consolidated Fourth General
Resolution, Series A, FGIC Insured,
Pre-Refunded, 5.25%, 7/01/30 .......................... 20,705,000 21,935,291
City University System, Consolidated Fourth General
Resolution, Series A, Pre-Refunded,
5.25%, 7/01/31 ........................................ 12,000,000 12,907,920
City University System Consolidated, Series C, 7.50%,
7/01/10 ............................................... 8,415,000 8,811,262
City University System Consolidated, Series D, ETM, 7.00%,
7/01/09 ............................................... 1,020,000 1,044,766
City University System Consolidated, Third General,
Refunding, Series 1, FGIC Insured,
5.25%, 7/01/25 ........................................ 4,100,000 4,185,034
City University System Consolidated, Third General,
Series 1, FSA Insured, Pre-Refunded,
5.50%, 7/01/29 ........................................ 38,375,000 40,289,529
Fashion Institute of Technology Student Housing Corp.,
FGIC Insured, Pre-Refunded,
5.00%, 7/01/29 ........................................ 9,700,000 10,578,529
Fashion Institute of Technology Student Housing Corp.,
FGIC Insured, Pre-Refunded,
5.125%, 7/01/34 ....................................... 15,000,000 16,460,850
Fordham University, MBIA Insured, Pre-Refunded, 5.00%,
7/01/28 ............................................... 4,510,000 4,566,059
Fordham University, Refunding, MBIA Insured, 5.00%,
7/01/28 ............................................... 490,000 495,125
Good Samaritan Hospital Medical Center, Series A, MBIA
Insured, 5.50%, 7/01/24 ............................... 5,000,000 5,005,050
Mental Health Services Facilities Improvement, Refunding,
Series D, MBIA Insured, 5.00%,
8/15/17 ............................................... 22,965,000 23,240,121

30 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
Mental Health Services Facilities Improvement, Series A, AMBAC
Insured, 5.00%, 2/15/30 ................................... $ 5,000,000 $ 5,102,250
Mental Health Services Facilities Improvement, Series B,
5.00%, 2/15/33 ............................................ 35,000,000 35,360,150
Mental Health Services Facilities Improvement, Series B, MBIA
Insured, Pre-Refunded, 6.00%, 2/15/25 ..................... 5,460,000 5,798,848
Mental Health Services Facilities Improvement, Series B, MBIA
Insured, Pre-Refunded, 6.00%, 2/15/30 ..................... 4,300,000 4,566,858
Mental Health Services Facilities Improvement, Series B, MBIA
Insured, Pre-Refunded, 5.25%, 8/15/31 ..................... 3,975,000 4,293,477
Mental Health Services Facilities Improvement, Series D, FSA
Insured, Pre-Refunded, 5.50%, 2/15/21 ..................... 1,015,000 1,085,299
Mental Health Services Facilities Improvement, Series D, FSA
Insured, Pre-Refunded, 5.50%, 8/15/21 ..................... 2,065,000 2,208,022
Mental Health Services Facilities Improvement, Series D, FSA
Insured, Pre-Refunded, 5.25%, 8/15/30 ..................... 4,460,000 4,745,128
Mental Health Services Facilities Improvement, Series D, MBIA
Insured, Pre-Refunded, 5.00%, 8/15/17 ..................... 35,000 35,574
Montefiore Hospital, FGIC Insured, 5.00%, 8/01/29 ............ 6,000,000 6,050,280
New School University, MBIA Insured, 5.00%, 7/01/31 .......... 2,500,000 2,538,300
New York Hospital Medical Center, AMBAC Insured, 5.60%,
2/15/39 ................................................... 4,900,000 5,020,344
New York University, Series 2, AMBAC Insured, 5.00%,
7/01/26 ................................................... 3,500,000 3,570,770
New York University, Series 2, AMBAC Insured, 5.00%,
7/01/31 ................................................... 5,000,000 5,076,600
New York University, Series A, FGIC Insured, 5.00%, 7/01/34 .. 15,200,000 15,111,688
Non-State Supported Debt, Columbia University, 5.00%, 7/01/38 12,000,000 12,432,120
Non-State Supported Debt, Cornell University, Series A, 5.00%,
7/01/31 ................................................... 10,000,000 10,300,900
Non-State Supported Debt, Cornell University, Series A, 5.00%,
7/01/35 ................................................... 10,500,000 10,787,385
Non-State Supported Debt, Fordham University, FGIC Insured,
5.00%, 7/01/27 ............................................ 2,435,000 2,497,093
Non-State Supported Debt, Fordham University, FGIC Insured,
5.00%, 7/01/32 ............................................ 3,125,000 3,173,188
Non-State Supported Debt, Health Quest Systems, Series B,
Assured Guaranty, 5.125%, 7/01/37 ......................... 3,000,000 3,086,490
Non-State Supported Debt, Hospital Special Surgery, MBIA
Insured, 5.00%, 8/15/29 ................................... 7,750,000 7,926,390
Non-State Supported Debt, Hospital Special Surgery, MBIA
Insured, 5.00%, 8/15/33 ................................... 5,200,000 5,291,364
Non-State Supported Debt, Long Island University, Radian
Insured, Pre-Refunded, 5.125%,9 /01/23 .................... 100,000 105,608
Non-State Supported Debt, Long Island University, Radian
Insured, Pre-Refunded, 5.25%, 9/01/28 ..................... 80,000 84,609
Non-State Supported Debt, Long Island University, Refunding,
Radian Insured, 5.125%, 9/01/23 ........................... 1,700,000 1,700,119
Non-State Supported Debt, Long Island University, Refunding,
Radian Insured, 5.25%, 9/01/28 ............................ 1,420,000 1,400,731
Non-State Supported Debt, Montefiore Medical Center, FGIC
Insured, 5.00%, 2/01/28 ................................... 10,060,000 10,138,669
Non-State Supported Debt, Mortgage Hospital, Montefiore, FHA
Insured, 5.00%, 8/01/24 ................................... 2,500,000 2,606,850
Non-State Supported Debt, Mount Sinai School Medical New York
University, Refunding, MBIA Insured, 5.00%, 7/01/35 ....... 5,000,000 5,087,400
Non-State Supported Debt, New York and Presbyterian Hospital,
FSA Insured, 5.00%, 8/15/36 ............................... 14,185,000 14,395,222
Non-State Supported Debt, New York University, AMBAC Insured,
5.00%, 7/01/26 ............................................ 5,475,000 5,735,117

Annual Report | 31

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
Non-State Supported Debt, New York University, Series A, AMBAC
Insured, 5.00%, 7/01/27 ................................... $ 5,470,000 $ 5,709,039
Non-State Supported Debt, New York University, Series A, AMBAC
Insured, 5.00%, 7/01/32 ................................... 5,000,000 5,154,350
Non-State Supported Debt, New York University, Series A, AMBAC
Insured, 5.00%, 7/01/37 ................................... 18,500,000 19,001,905
Non-State Supported Debt, North Shore L.I. Jewish Obligation
Group, Series A, 5.00%, 5/01/32 ........................... 6,250,000 6,163,938
Non-State Supported Debt, Ozanam Hall of Queens Nursing Home,
5.00%, 11/01/26 ........................................... 2,665,000 2,694,049
Non-State Supported Debt, Ozanam Hall of Queens Nursing Home,
5.00%, 11/01/31 ........................................... 2,500,000 2,486,225
Non-State Supported Debt, School District Financing Program,
Series C, FSA Insured, 5.00%, 10/01/37 .................... 6,550,000 6,756,456
Non-State Supported Debt, School Districts Bond Financing,
Refunding, Series C, MBIA Insured, 5.00%, 4/01/35 ......... 7,525,000 7,699,128
Non-State Supported Debt, School Districts Bond Financing,
Series B, MBIA Insured, 5.00%, 10/01/34 ................... 5,000,000 5,144,800
Non-State Supported Debt, The New York Hospital Medical Center
of Queens, FHA Insured, 4.75%, 2/15/37 .................... 5,000,000 4,848,650
North Shore L.I. Jewish Group, Pre-Refunded, 5.50%, 5/01/33 .. 2,500,000 2,759,200
Nursing Home, Center for Nursing, FHA Insured, Pre-Refunded,
5.55%, 8/01/37 ............................................ 8,435,000 8,653,382
Nursing Home, Wesley Garden, FHA Insured, 6.125%, 8/01/35 .... 1,780,000 1,782,225
Rockefeller University, Series A1, 5.00%, 7/01/32 ............ 11,500,000 11,750,125
Skidmore College, FGIC Insured, 5.00%, 7/01/33 ............... 6,565,000 6,699,057
St. Francis Hospital, Series A, MBIA Insured, 5.50%,
7/01/29 ................................................... 1,000,000 982,820
St. John's University, MBIA Insured, Pre-Refunded, 5.25%,
7/01/25 ................................................... 5,770,000 5,842,817
St. John's University, Series A, MBIA Insured, Pre-Refunded,
5.25%, 7/01/25 ............................................ 5,310,000 5,768,890
State Rehabilitation Assn., Series A, AMBAC Insured, 5.00%,
7/01/23 ................................................... 1,725,000 1,787,428
State Supported Debt, Mental Health, Series D, 6.00%,
8/15/21 ................................................... 25,000 25,315
State Supported Debt, Mental Health, Series D, FSA Insured,
Pre-Refunded, 5.50%, 2/15/21 .............................. 95,000 101,580
State Supported Debt, Mental Health, Series D, FSA Insured,
Pre-Refunded, 5.50%, 8/15/21 .............................. 205,000 219,198
State Supported Debt, Mental Health, Series D, FSA Insured,
Pre-Refunded, 5.25%, 8/15/30 .............................. 165,000 175,548
State Supported Debt, Mental Health Facilities, Series B,
5.00%, 2/15/28 ............................................ 7,690,000 7,822,806
State Supported Debt, Mental Health Facilities, Series B,
Pre-Refunded, 5.00%, 2/15/28 .............................. 1,505,000 1,641,714
State Supported Debt, Mental Health Services, Series B, MBIA
Insured, 6.00%, 2/15/25 ................................... 40,000 42,482
State Supported Debt, Mental Health Services, Series B, MBIA
Insured, 6.00%, 2/15/30 ................................... 30,000 31,862
State Supported Debt, Mental Health Services, Series B, MBIA
Insured, Pre-Refunded, 6.00%, 2/15/25 ..................... 600,000 637,236
State Supported Debt, Mental Health Services, Series B, MBIA
Insured, Pre-Refunded, 6.00%, 2/15/30 ..................... 535,000 568,202
State Supported Debt, Mental Health Services, Series D, FSA
Insured, 5.25%, 8/15/30 ................................... 145,000 148,216
State Supported Debt, Mental Health Services, Series D, FSA
Insured, Pre-Refunded, 5.50%, 2/15/21 ..................... 25,000 26,732
State Supported Debt, Mental Health Services, Series D, FSA
Insured, Pre-Refunded, 5.50%, 8/15/21 ..................... 45,000 48,117

32 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
State Supported Debt, Mental Health Services, Series D, FSA
Insured, Pre-Refunded, 5.25%, 8/15/30 ..................... $ 230,000 $ 244,703
State Supported Debt, Mental Health Services Facilities
Improvement, Series A, FSA Insured, 5.00%, 2/15/32 ........ 28,000,000 28,753,200
State Supported Debt, Mental Health Services Facilities
Improvement, Series B, MBIA Insured, 5.25%, 8/15/31 ....... 3,640,000 3,708,250
State Supported Debt, Mental Health Services Facilities
Improvement, Series B, MBIA Insured, Pre-Refunded, 5.25%,
8/15/31 ................................................... 2,385,000 2,576,086
State Supported Debt, State University Educational Facilities,
Pre-Refunded, 5.125%, 5/15/21 ............................. 10,985,000 11,240,291
State Supported Debt, State University Educational Facilities,
Refunding, 5.00%, 5/15/17 ................................. 3,180,000 3,214,408
State Supported Debt, State University Educational Facilities,
Refunding, 5.125%, 5/15/21 ................................ 1,105,000 1,116,757
State Supported Debt, Upstate Community Colleges, Refunding,
Series A, 5.00%, 7/01/19 .................................. 4,610,000 4,702,062
State Supported Debt, Upstate Community Colleges, Refunding,
Series A, 5.00%, 7/01/28 .................................. 16,360,000 16,521,637
State Supported Debt, Upstate Community Colleges, Series A,
Pre-Refunded, 5.00%, 7/01/19 .............................. 2,620,000 2,735,385
The Highlands Living, FHA Insured, 6.60%, 2/01/34 ............ 3,005,000 3,014,496
W.K. Nursing Home Corp., FHA Insured, 6.05%, 2/01/26 ......... 6,800,000 6,808,704
Yeshiva University, AMBAC Insured, 5.125%, 7/01/29 ........... 13,260,000 13,781,516
Yeshiva University, AMBAC Insured, 5.125%, 7/01/34 ........... 23,510,000 24,333,085
New York State Dormitory Authority State Personal Income Tax
Revenue, Education,
Series A, 5.00%, 3/15/36 ..................................... 7,395,000 7,586,087
Series A, 5.00%, 3/15/37 ..................................... 12,500,000 12,847,875
Series A, AMBAC Insured, 5.00%, 3/15/34 ...................... 10,325,000 10,592,727
Series C, 5.00%, 12/15/31 .................................... 17,305,000 17,850,281
Series C, 5.00%, 12/15/35 .................................... 34,000,000 34,974,440
Series D, 5.00%, 3/15/36 ..................................... 30,000,000 30,816,600
New York State Energy Research and Development Authority PCR,
Niagara Mohawk Power Project, Refunding, Series A, AMBAC
Insured, 5.15%, 11/01/25 ..................................... 20,000,000 20,487,000
New York State Environmental Facilities Corp. PCR, State Water,
Series E, 6.875%, 6/15/14 .................................... 1,190,000 1,192,273
New York State Environmental Facilities Corp. State Clean Water
and Drinking Revenue, Revolving Funds,
New York City Municipal Water, Refunding, Series A, 5.00%,
6/15/37 ................................................... 2,700,000 2,790,342
New York City Municipal Water, Refunding, Series B, 5.00%,
6/15/33 ................................................... 6,510,000 6,733,098
New York City Municipal Water, Refunding, Series B, 5.00%,
6/15/37 ................................................... 5,310,000 5,474,716
Pooled Financing, Series B, 5.25%, 5/15/31 ................... 9,595,000 9,895,515
Series C, 5.25%, 6/15/31 ..................................... 37,600,000 38,809,216
New York State HFA Service Contract Obligation Revenue,
Series A, 6.50%, 3/15/24 ..................................... 330,000 331,069
Series A, 6.50%, 3/15/25 ..................................... 105,000 105,340
Series A, 6.00%, 3/15/26 ..................................... 115,000 116,111
Series C, 6.30%, 3/15/22 ..................................... 1,950,000 1,956,006
Series C, 5.50%, 3/15/25 ..................................... 17,005,000 17,215,862

Annual Report | 33

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State HFA State Personal Income Tax Revenue,
Economic Development and Housing, Series A,
FGIC Insured, 5.00%, 9/15/34 ............................. $11,580,000 $ 11,758,795
Pre-Refunded, 5.125%, 9/15/28 ............................ 12,425,000 13,592,204
New York State HFAR,
Children's Rescue Fund Housing, Series A, 7.625%,
5/01/18 ............................................... 3,875,000 3,882,363
Housing Project Mortgage, Refunding, Series A, FSA
Insured, 6.10%, 11/01/15 .............................. 19,670,000 19,770,317
Housing Project Mortgage, Refunding, Series A, FSA
Insured, 6.125%, 11/01/20 ............................. 26,570,000 26,672,826
MFM, Refunding, Series B, AMBAC Insured, 6.35%, 8/15/23 .. 2,280,000 2,280,547
MFM, Series B, AMBAC Insured, 6.25%, 8/15/14 ............. 80,000 80,019
New York State Medical Care Facilities Finance Agency
Revenue,
Hospital and Nursing Home, Mortgage Revenue, Series C, FHA
Insured, 6.20%, 8/15/23 ............................... 10,235,000 10,266,319
Hospital and Nursing Home, Series A, FHA Insured, 6.30%,
8/15/23 ............................................... 7,200,000 7,222,680
Hospital and Nursing Home, Series A, FHA Insured, 6.375%,
8/15/33 ............................................... 5,880,000 5,898,816
Mortgage Revenue Project, Series E, FHA Insured, 6.375%,
2/15/35 ............................................... 13,200,000 13,242,240
Security Mortgage, 2008, Series A, 6.375%, 11/15/20 ...... 4,915,000 4,923,847
New York State Municipal Bond Bank Agency School Purpose
Revenue, Series C,
5.25%, 6/01/21 ........................................... 5,110,000 5,347,002
5.25%, 12/01/21 .......................................... 8,025,000 8,397,199
5.25%, 6/01/22 ........................................... 3,400,000 3,551,470
5.25%, 12/01/22 .......................................... 5,000,000 5,222,750
5.00%, 6/01/23 ........................................... 5,925,000 6,080,057
5.00%, 12/01/23 .......................................... 3,000,000 3,078,510
New York State Municipal Bond Bank Agency Special Program
Revenue, Buffalo, Series A, AMBAC Insured, 5.25%,
5/15/31 .................................................. 4,145,000 4,259,734
New York State Power Authority Revenue, Series A, 5.25%,
11/15/30 ................................................. 2,000,000 2,039,920
11/15/40 ................................................. 9,000,000 9,169,110
New York State Thruway Authority General Revenue,
AMBAC Insured, 5.00%, 1/01/30 ............................ 10,000,000 10,230,100
Refunding, Series G, FSA Insured, 5.00%, 1/01/30 ......... 10,000,000 10,336,500
Refunding, Series H, FGIC Insured, 5.00%, 1/01/37 ........ 55,810,000 57,173,438
Revenue, Series G, FSA Insured, 5.00%, 1/01/32 ........... 35,000,000 36,092,000
New York State Thruway Authority Highway and Bridge Trust
Fund Revenue,
Refunding, Series C, AMBAC Insured, 5.00%, 4/01/19 ....... 20,000,000 20,911,200
Refunding, Series C, AMBAC Insured, 5.00%, 4/01/20 ....... 18,835,000 19,624,752
Series B-1, FGIC Insured, Pre-Refunded, 5.75%, 4/01/15 ... 2,000,000 2,141,740
Series B-1, FGIC Insured, Pre-Refunded, 5.75%, 4/01/16 ... 2,000,000 2,141,740
New York State Thruway Authority Revenue, State Personal
Income Tax, Transportation, Series A, 5.00%, 3/15/22 ..... 14,270,000 14,669,417
New York State Thruway Authority Service Contract Revenue,
Local Highway and Bridge, AMBAC Insured, Pre-Refunded,
5.375%, 4/01/19 .......................................... 10,555,000 11,242,553
Pre-Refunded, 5.75%, 4/01/19 ............................. 30,000,000 31,281,000
New York State Urban Development Corp. Revenue,
Correctional Facilities Service Contract, Series C, AMBAC
Insured, Pre-Refunded, 6.00%, 1/01/29 ................. 34,135,000 35,304,806
Correctional Facilities Service Contract, Series D, FSA
Insured, Pre-Refunded, 5.25%, 1/01/30 ................. 10,000,000 10,650,600

34 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
------------ --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Urban Development Corp. Revenue, (continued)
FGIC Insured, 5.00%, 3/15/29 ............................. $ 7,000,000 $ 7,193,900
Personal Income Tax, Series C-1, Pre-Refunded, 5.00%,
3/15/25 ............................................... 3,225,000 3,510,122
Personal Income Tax, State Facilities, Series A,
Pre-Refunded, 5.25%, 3/15/32 .......................... 20,000,000 21,693,000
State Personal Income Tax, Series B Empire State, MBIA
Insured, Pre-Refunded, 5.00%, 3/15/33 ................. 11,010,000 11,983,394
State Personal Income Tax, Series B Empire State,
Pre-Refunded, 5.125%, 3/15/29 ......................... 9,000,000 9,845,460
Niagara Falls City School District COP, High School Facility,
Pre-Refunded, 5.375%, 6/15/28 ............................ 5,000,000 5,055,100
Niagara Falls Public Water Authority Revenue, Series A, MBIA
Insured, 5.00%, 7/15/34 .................................. 9,000,000 9,207,180
Orangetown Housing Authority Housing Facilities Revenue,
Senior Housing Center Project, Refunding, MBIA Insured,
zero cpn., 4/01/30 .................................... 21,170,000 5,919,344
Otsego County IDA Civic Facility Revenue, Hartwick College
Project, Series A, Pre-Refunded, 5.50%, 7/01/19 ......... 3,400,000 3,565,886
Port Authority of New York and New Jersey Revenue,
Consolidated,
One Hundred Forty-Eighth Series, FSA Insured, 5.00%,
8/15/34 ............................................... 30,000,000 31,003,500
One Hundred Forty-Eighth Series, FSA Insured, 5.00%,
8/15/37 ............................................... 74,235,000 76,548,905
Rensselaer Municipal Leasing Corp. Leasehold Mortgage
Revenue, Rensselaer County Nursing Home,
Series A, 6.90%, 6/01/24 ................................. 9,210,000 9,262,313
Series B, 6.90%, 6/01/24 ................................. 3,080,000 3,097,494
Sachem Central School District Holbrook GO, Series B, MBIA
Insured, Pre-Refunded, 5.00%,
10/15/27 ................................................. 3,885,000 4,267,206
10/15/28 ................................................. 2,000,000 2,196,760
Sales Tax Asset Receivable Corp. Revenue, Series A, AMBAC
Insured, 5.00%,
10/15/29 ................................................. 5,195,000 5,366,123
10/15/32 ................................................. 104,975,000 107,962,588
St. Lawrence County IDA Civic Facility Revenue, Clarkson
University Project, Series A, 5.50%, 7/01/29 ............. 6,000,000 6,296,040
Suffolk County Judicial Facilities Agency Service Agreement
Revenue, John P. Cohalan Complex, AMBAC Insured, 5.00%,
4/15/16 .................................................. 2,720,000 2,797,139
Syracuse IDA Civic Facility Revenue, Crouse Health Hospital
Inc., Project A,
5.25%, 1/01/16 ........................................... 4,000,000 3,613,240
5.375%, 1/01/23 .......................................... 4,760,000 3,901,486
Tompkins County IDAR, Civic Facility, Cornell University,
Pre-Refunded, 5.75%, 7/01/30 ............................. 7,510,000 8,103,515
Triborough Bridge and Tunnel Authority Revenues,
5.00%, 11/15/24 .......................................... 6,965,000 7,373,358
5.00%, 11/15/37 .......................................... 30,000,000 30,887,100
Convention Center Project, Series E, zero cpn., 1/01/12 21,625,000 18,842,511
General, Refunding, Series B, MBIA Insured, 5.00%,
11/15/27 .............................................. 10,000,000 10,256,000
General, Series A, 5.00%, 11/15/35 ....................... 9,155,000 9,415,185
General Purpose, Refunding, Series A, 5.00%, 1/01/27 ..... 34,500,000 35,188,275
General Purpose, Refunding, Series A, MBIA Insured, 5.00%,
1/01/32 ............................................... 3,770,000 3,833,977
General Purpose, Refunding, Series B, 5.125%, 11/15/29 ... 17,175,000 17,679,601
General Purpose, Refunding, Series B, 5.00%, 11/15/32 .... 10,000,000 10,195,200
General Purpose, Series A, 5.00%, 1/01/32 ................ 6,110,000 6,197,556
General Purpose, Series A, Pre-Refunded, 5.125%, 1/01/31 . 24,310,000 26,159,505
General Purpose, Series A, Pre-Refunded, 5.00%, 1/01/32 .. 34,340,000 36,807,672
General Purpose, Series B, MBIA Insured, Pre-Refunded,
5.20%, 1/01/27 ........................................ 4,110,000 4,576,937

Annual Report | 35

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
Triborough Bridge and Tunnel Authority Revenues, (continued)
General Purpose, Series B, Pre-Refunded, 5.20%, 1/01/27 .. $15,000,000 $ 16,704,150
General Purpose, Series B, Pre-Refunded, 5.50%, 1/01/30 .. 32,185,000 36,974,128
Refunding, MBIA Insured, 5.00%, 11/15/26 ................. 10,000,000 10,296,700
Refunding, MBIA Insured, 5.00%, 11/15/32 ................. 22,875,000 23,358,577
Series A, FGIC Insured, 5.00%, 1/01/32 ................... 1,970,000 1,996,930
sub. bond, AMBAC Insured, 5.00%, 11/15/28 ................ 15,000,000 15,387,450
TSASC Inc. New York Revenue, Tobacco Flexible Amortization
Bonds, Series 1, Pre-Refunded, 6.25%,
7/15/27 .................................................. 35,000,000 36,923,950
7/15/34 .................................................. 40,000,000 42,198,800
United Nations Development Corp. Revenue, senior lien,
Refunding, Series A, 5.25%,
7/01/23 .................................................. 2,500,000 2,505,050
7/01/25 .................................................. 2,000,000 2,004,040
Utica IDA Civic Facility Revenue, Munson-Williams-Proctor
Institute Project,
5.40%, 7/15/30 ........................................... 1,000,000 1,020,980
Series A, 5.50%, 7/15/29 ................................. 5,170,000 5,274,744
Series A, Pre-Refunded, 5.50%, 7/15/29 ................... 4,745,000 5,015,940
Warren and Washington IDA Civic Facility Revenue, Series A,
FSA Insured, 5.00%, 12/01/27 ............................. 8,115,000 8,326,315
Westchester Tobacco Asset Securitization Corp. Revenue,
Capital Appreciation, Pre-Refunded, 6.75%, 7/15/29 ....... 15,000,000 16,479,150
Refunding, 5.00%, 6/01/26 ................................ 2,000,000 1,863,100
Refunding, 5.125%, 6/01/38 ............................... 7,000,000 6,107,220
Yonkers GO,
Refunding, Series B, MBIA Insured, 5.00%, 8/01/30 ........ 7,710,000 7,858,109
Refunding, Series B, MBIA Insured, 5.00%, 8/01/35 ........ 17,130,000 17,396,543
Series A, AMBAC Insured, 5.00%, 9/01/31 .................. 12,490,000 12,742,673
--------------
4,961,786,380
--------------
U.S. TERRITORIES 1.9%
PUERTO RICO 1.8%
Puerto Rico Commonwealth Aqueduct and Sewer Authority
Revenue, senior lien, Series A, 6.00%, 7/01/38 ........... 15,600,000 16,430,856
Puerto Rico Commonwealth GO, Public Improvement, Refunding,
Series A,
5.00%, 7/01/20 ........................................... 11,540,000 11,548,540
5.125%, 7/01/24 .......................................... 17,580,000 17,599,865
MBIA Insured, 5.50%, 7/01/20 ............................. 17,810,000 19,042,986
Puerto Rico Commonwealth Highway and Transportation Authority
Highway Revenue, Series Y, Pre-Refunded,
5.00%, 7/01/36 ........................................... 4,000,000 4,445,520
5.50%, 7/01/36 ........................................... 10,000,000 11,464,100
Puerto Rico Commonwealth Highway and Transportation Authority
Transportation Revenue,
Refunding, Series A, 5.00%, 7/01/38 ...................... 575,000 556,732
Series A, Pre-Refunded, 5.00%, 7/01/38 ................... 11,425,000 11,566,099
Puerto Rico Public Finance Corp. Revenue, Commonwealth
Appropriation, Series A, MBIA Insured, Pre-Refunded,
5.00%, 8/01/31 ........................................... 4,000,000 4,242,920
--------------
96,897,618
--------------

36 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
VIRGIN ISLANDS 0.1%
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding,
Series A, 5.50%,
10/01/15.................................................. $ 2,500,000 $ 2,531,900
10/01/18.................................................. 2,500,000 2,529,025
--------------
5,060,925
--------------
TOTAL U.S. TERRITORIES....................................... 101,958,543
--------------
TOTAL LONG TERM INVESTMENTS (COST $4,877,917,035)............ 5,063,744,923
--------------
SHORT TERM INVESTMENTS 4.1%
MUNICIPAL BONDS 4.1%
NEW YORK 4.1%
(b) Babylon IDA Resource Recovery Revenue, Ogden Martin Project,
Refunding, FSA Insured, Weekly VRDN and Put, 1.55%,
1/01/19................................................... 10,320,000 10,320,000
(b) Long Island Power Authority, Electric System Revenue, Series
7 Sub Series-7-B, Weekly VRDN and Put, MBIA Insured,
2.65%, 4/01/25............................................ 12,700,000 12,700,000
(b) Long Island Power Authority Electric System Revenue,
Sub Series 1B, Daily VRDN and Put, 1.30%, 5/01/33......... 1,000,000 1,000,000
Sub Series 3B, Daily VRDN and Put, 1.19%, 5/01/33 ........ 12,500,000 12,500,000
(b) Monroe County IDA Civic Facility Revenue, St. John Fisher
College Project, Radian Insured, Weekly VRDN and Put,
5.20%, 6/01/34............................................ 2,485,000 2,485,000
(b) New York City GO,
Series B, Sub Series B-5, MBIA Insured, Daily VRDN and
Put, 1.50%, 8/15/22.................................... 6,000,000 6,000,000
Series B, Sub Series B-7, AMBAC Insured, Daily VRDN and
Put, 1.19%, 8/15/18.................................... 16,000,000 16,000,000
Series B2, Sub Series B5, MBIA Insured, Daily VRDN and
Put, 1.50%, 8/15/11.................................... 9,700,000 9,700,000
Series E, Sub Series E-2, Daily VRDN and Put, 1.18%,
8/01/34................................................ 11,500,000 11,500,000
Series H, Sub Series H-3, Daily VRDN and Put, 1.35%,
8/01/22................................................ 2,700,000 2,700,000
Sub Series A-4, Daily VRDN and Put, 1.15%, 8/01/23........ 13,250,000 13,250,000
Sub Series E-3, Daily VRDN and Put, 1.35%, 8/01/23........ 7,500,000 7,500,000
Sub Series H-1, Daily VRDN and Put, 1.15%, 3/01/34........ 10,000,000 10,000,000
Sub Series H-1, Daily VRDN and Put, 1.18%, 1/01/36........ 5,700,000 5,700,000
Sub Series H-2, Daily VRDN and Put, 1.19%, 1/01/36........ 15,900,000 15,900,000
Sub Series L-4, Daily VRDN and Put, 1.15%, 4/01/38........ 3,800,000 3,800,000
Unlimited, Series B, Sub Series B-4, Daily VRDN and Put,
1.50%, 8/15/23......................................... 5,000,000 5,000,000
(b) New York City IDAR, Liberty, 1 Bryant Park LLC, Series B,
Daily VRDN and Put, 1.15%, 11/01/39....................... 2,500,000 2,500,000
(b) New York City Municipal Water Finance Authority Water and
Sewer System Revenue, Fiscal 2003, Refunding, Sub Series C-3,
Daily VRDN and Put, 1.35%, 6/15/18........................ 6,590,000 6,590,000
(b) New York City Transitional Finance Authority Revenue, Future
Tax Secured,
Refunding, Sub Series C5, Daily VRDN and Put,
1.55%, 8/01/31............................................ 5,900,000 5,900,000
Series B, Daily VRDN and Put, 1.15%, 2/01/31................. .12,850,000 12,850,000
Series C, Daily VRDN and Put, 1.55%, 5/01/28................. 1,100,000 1,100,000
(b) New York State Dormitory Authority Revenue, Non-State
Supported Debt, Cornell University, Refunding, Series C,
Daily VRDN and Put, 1.30%, 7/01/37..................... 10,900,000 10,900,000
(b) New York State Dormitory Authority Revenues, Non-State
Supported Debt, University of Rochester, Refunding, Series
A-1, MBIA Insured, Weekly VRDN and Put,
1.75%, 7/01/27............................................ 1,000,000 1,000,000
(b) New York State Dormitory Authority State Personal Income Tax
Revenue, Education, Refunding, Series C, AMBAC Insured,
Weekly VRDN and Put, 2.26%, 3/15/32....................... 8,000,000 8,000,000

Annual Report | 37

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2008 (CONTINUED)

PRINCIPAL
AMOUNT VALUE
----------- --------------

SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
(b) New York State Energy Research and Development Authority PCR,
Orange and Rockland Project, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.55%, 8/01/15....................... $ 2,900,000 $ 2,900,000
(b) New York State GO, Sub Series L6, Daily VRDN and Put, 1.15%,
4/01/32 .................................................. 9,400,000 9,400,000
(b) Triborough Bridge and Tunnel Authority Revenues,
General, Refunding, Sub Series B-4, Weekly VRDN and
Put, 1.45%, 1/01/32....................................... 5,500,000 5,500,000
General Purpose, Series B, AMBAC Insured, Weekly VRDN and
Put, 2.55%, 1/01/32....................................... 5,700,000 5,700,000
--------------
218,395,000
--------------
U.S. TERRITORIES0.0%(c)
PUERTO RICO 0.0%c
(b) Puerto Rico Commonwealth GO, Public Improvement, Refunding,
Series A-4, FSA Insured, Daily VRDN and Put, 1.25%,
7/01/31................................................... 1,400,000 1,400,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $219,795,000) 219,795,000
--------------
TOTAL INVESTMENTS (COST $5,097,712,035) 99.1%................ 5,283,539,923
OTHER ASSETS, LESS LIABILITIES 0.9%.......................... 49,450,478
--------------
NET ASSETS 100.0%............................................ $5,332,990,401
==============

SELECTED PORTFOLIO ABBREVIATIONS
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FSA - Financial Security Assurance Inc.
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFM - Multi-Family Mortgage
MTA - Metropolitan Transit Authority
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
XLCA - XL Capital Assurance

(a) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(b).

(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.

38 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
May 31, 2008

Assets:
Investments in securities:
Cost..................................................... $5,097,712,035
--------------
Value.................................................... $5,283,539,923
Cash ....................................................... 678,483
Receivables:
Capital shares sold ..................................... 18,808,000
Interest................................................. 68,901,795
--------------
Total assets.......................................... 5,371,928,201
--------------
Liabilities:
Payables:
Investment securities purchased.......................... 30,881,700
Capital shares redeemed.................................. 4,808,668
Affiliates............................................... 2,865,803
Accrued expenses and other liabilities...................... 381,629
--------------
Total liabilities..................................... 38,937,800
--------------
Net assets, at value............................... $5,332,990,401
==============
Net assets consist of:
Paid-in capital............................................. $5,128,844,671
Undistributed net investment income......................... 5,201,749
Net unrealized appreciation (depreciation).................. 185,827,888
Accumulated net realized gain (loss)........................ 13,116,093
--------------
Net assets, at value.................................. $5,332,990,401
==============

Annual Report |
The accompanying notes are an integral part of these financial statements. | 39

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
May 31, 2008

CLASS A:
Net assets, at value ......................................... $4,701,098,150
--------------
Shares outstanding............................................ 405,023,226
--------------
Net asset value per share(a).................................. $ 11.61
--------------
Maximum offering price per share (net asset value per
share / 95.75%)............................................ $ 12.13
--------------
CLASS B:
Net assets, at value.......................................... $ 148,692,683
--------------
Shares outstanding............................................ 12,840,205
--------------
Net asset value and maximum offering price per share(a)....... $ 11.58
--------------
CLASS C:
Net assets, at value.......................................... $ 398,418,229
--------------
Shares outstanding............................................ 34,354,194
--------------
Net asset value and maximum offering price per share(a)....... $ 11.60
--------------
ADVISOR CLASS:
Net assets, at value.......................................... $ 84,781,339
--------------
Shares outstanding............................................ 7,301,885
--------------
Net asset value and maximum offering price per share(a)....... $ 11.61
--------------

(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.

40 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended May 31, 2008

Investment income:
Interest...................................................... $250,454,694
------------
Expenses:
Management fees (Note 3a)..................................... 22,952,173
Distribution fees: (Note 3c)
Class A.................................................... 3,967,764
Class B.................................................... 1,046,078
Class C.................................................... 2,020,779
Transfer agent fees (Note 3e)................................. 1,900,649
Custodian fees................................................ 74,406
Reports to shareholders....................................... 152,436
Registration and filing fees.................................. 54,518
Professional fees............................................. 110,300
Trustees' fees and expenses................................... 76,910
Other......................................................... 209,931
------------
Total expenses.......................................... 32,565,944
------------
Net investment income................................ 217,888,750
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .................... 18,145,459
Net change in unrealized appreciation (depreciation) on
investments................................................ (47,540,584)
------------
Net realized and unrealized gain (loss).......................... (29,395,125)
------------
Net increase (decrease) in net assets resulting from operations.. $188,493,625
============

Annual Report |
The accompanying notes are an integral part of these financial statements. | 41

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED MAY 31,
-------------------------------
2008 2007
-------------- --------------

Increase (decrease) in net assets:
Operations:
Net investment income...................................... $ 217,888,750 $ 211,305,061
Net realized gain (loss) from investments.................. 18,145,459 5,260,922
Net change in unrealized appreciation (depreciation) on
investments............................................. (47,540,584) (15,534,012)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations........................................... 188,493,625 201,031,971
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A................................................. (195,176,437) (191,502,107)
Class B................................................. (6,168,210) (7,557,235)
Class C................................................. (11,660,255) (9,704,153)
Advisor Class........................................... (3,302,009) (2,228,955)
Net realized gains:
Class A................................................. (7,349,513) (1,937,898)
Class B................................................. (263,561) (87,429)
Class C................................................. (492,039) (111,585)
Advisor Class........................................... (130,825) (21,060)
-------------- --------------
Total distributions to shareholders........................ (224,542,849) (213,150,422)
-------------- --------------
Capital share transactions: (Note 2)
Class A................................................. 321,465,203 71,162,127
Class B................................................. (28,188,527) (28,690,236)
Class C................................................. 127,486,104 28,184,266
Advisor Class........................................... 23,904,307 17,472,974
-------------- --------------
Total capital share transactions........................... 444,667,087 88,129,131
-------------- --------------
Redemption fees............................................ 19,303 3,574
-------------- --------------
Net increase (decrease) in net assets................ 408,637,166 76,014,254
Net assets:
Beginning of year....................................... 4,924,353,235 4,848,338,981
-------------- --------------
End ofyear.............................................. $5,332,990,401 $4,924,353,235
============== ==============
Undistributed net investment income included in net assets:
End ofyear................................................. $ 5,201,749 $ 4,152,357
============== ==============

42 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin New York Tax-Free Income Fund (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as a diversified,
open-end investment company, consisting of one fund, the Franklin New York
Tax-Free Income Fund (Fund). The Fund offers four classes of shares: Class A,
Class B, Class C, and Advisor Class. Each class of shares differs by its initial
sales load, contingent deferred sales charges, distribution fees, voting rights
on matters affecting a single class and its exchange privilege.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.

The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.

B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS

The Fund may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Fund will generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.

Annual Report | 43

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING 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 May 31, 2008, 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, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.

E. 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 quaility, 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.

44 | Annual Report

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING 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 will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as an addition to paid-in
capital.

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. SHARES OF BENEFICIAL INTEREST

At May 31, 2008, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:

YEAR ENDED MAY 31,
---------------------------------------------------------
2008 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------

CLASS A SHARES:
Shares sold...................... 58,856,521 $ 682,397,923 33,282,533 $ 391,611,132
Shares issued in reinvestment of
distributions................. 10,633,120 122,985,376 9,744,624 114,532,681
Shares redeemed.................. (41,771,078) (483,918,096) (36,980,212) (434,981,686)
----------- ------------- ----------- -------------
Net increase (decrease).......... 27,718,563 $ 321,465,203 6,046,945 $ 71,162,127
=========== ============= =========== =============
CLASS B SHARES:
Shares sold...................... 122,616 $ 1,419,799 106,686 $ 1,249,501
Shares issued in reinvestment of
distributions................. 368,441 4,255,547 430,784 5,053,701
Shares redeemed ................. (2,925,420) (33,863,873) (2,979,539) (34,993,438)
----------- ------------- ----------- -------------
Net increase (decrease).......... (2,434,363) $ (28,188,527) (2,442,069) $ (28,690,236)
=========== ============= =========== =============

Annual Report | 45

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST

YEAR ENDED MAY 31,
------------------------------------------------------
2008 2007
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ------------

CLASS C SHARES:
Shares sold...................... 14,292,971 $165,598,420 5,480,988 $ 64,455,332

Shares issued in reinvestment of
distributions ................ 723,971 8,366,947 545,120 6,404,637
Shares redeemed.................. (4,011,594) (46,479,263) (3,630,049) (42,675,703)
---------- ------------ ---------- ------------
Net increase (decrease).......... 11,005,348 $127,486,104 2,396,059 $ 28,184,266
========== ============ ========== ============
ADVISOR CLASS SHARES:
Shares sold...................... 5,068,423 $ 58,745,600 2,060,729 $ 24,268,873
Shares issued in reinvestment of
distributions................. 77,923 900,288 10,098 118,935
Shares redeemed ................. (3,105,808) (35,741,581) (588,105) (6,914,834)
---------- ------------ ---------- ------------
Net increase (decrease).......... 2,040,538 $ 23,904,307 1,482,722 $ 17,472,974
========== ============ ========== ============

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

Effective January 1, 2008, the Fund pays an investment mangement 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

46 | Annual Report

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Prior to January 1, 2008, the Fund paid fees to Advisers based on the month-end
net assets of the Fund as follows:

ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------

0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion

B. ADMINISTRATIVE FEES

Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.

C. DISTRIBUTION FEES

The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors for costs incurred in connection with the servicing,
sale and distribution of the Fund's shares up to the maximum annual plan rate.
Under the Class A reimbursement distribution plan, costs exceeding the maximum
for the current plan year cannot be reimbursed in subsequent periods.

In addition, under the Fund's Class B and C compensation distribution plans, the
Fund pays Distributors for costs incurred in connection with the servicing, sale
and distribution of the Fund's shares up to the maximum annual plan rate for
each class.

The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:

Class A ......................................... 0.10%
Class B ......................................... 0.65%
Class C ......................................... 0.65%

D. SALES CHARGES/UNDERWRITING AGREEMENTS

Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:

Sales charges retained net of commissions paid to
unaffiliated broker/dealers .................. $1,305,881
Contingent deferred sales charges retained ...... $ 253,946

Annual Report | 47

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

E. TRANSFER AGENT FEES

For the year ended May 31, 2008, the Fund paid transfer agent fees of
$1,900,649, of which $1,266,447 was retained by Investor Services.

4. INCOME TAXES

The tax character of distributions paid during the years ended May 31, 2008 and
2007, was as follows:

2008 2007
------------ ------------

Distributions paid from:
Tax-exempt income ......................... $216,306,911 $210,992,450
Long term capital gain .................... 8,235,938 2,157,972
------------ ------------
$224,542,849 $213,150,422
============ ============

At May 31, 2008, the cost of investments, net unrealized appreciation
(depreciation), undistributed tax exempt income and undistributed long term
capital gains for income tax purposes were as follows:

Cost of investments .......................... $ 5,097,011,934
===============
Unrealized appreciation ...................... $ 205,574,373
Unrealized depreciation ...................... (19,046,384)
---------------
Net unrealized appreciation (depreciation) ... $ 186,527,989
===============
Undistributed tax exempt income .............. $ 3,120,836
Undistributed long term capital gains ........ 14,496,905
---------------
Distributable earnings ....................... $ 17,617,741
===============

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of bond discounts.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
year ended May 31, 2008, aggregated $867,129,483 and $589,633,942, respectively.

48 | Annual Report

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. CONCENTRATION OF RISK

The Fund invests a large percentage of its total assets in obligations of
issuers within New York and U.S. Territories. Such concentration may subject the
Fund to risks associated with industrial or regional matters, and economic,
political or legal developments occurring within New York and U.S. Territories.

7. NEW ACCOUNTING PRONOUNCEMENT

In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The Fund
believes the adoption of SFAS 157 will have no material impact on its financial
statements.

Annual Report | 49

Franklin New York Tax-Free Income Fund

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OFFRANKLIN NEW YORK TAX-FREE INCOME
FUND

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin New York Tax-Free Income
Fund (the "Fund") at May 31, 2008, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2008 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
July 18, 2008

50 | Annual Report

Franklin New York Tax-Free Income Fund

TAX DESIGNATION (UNAUDITED)

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $19,624,758 as a long
term capital gain dividend for the fiscal year ended May 31, 2008.

Under Section 852(b)(5)(A) of the Internal Revenue Code (Code), the Fund
designates 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended May 31, 2008. A portion of
the Fund's exempt-interest dividends may be subject to the federal alternative
minimum tax. In January 2009, shareholders will be notified of amounts for use
in preparing their 2008 income tax returns.

Annual Report | 51

Franklin New York Tax-Free Income Fund

BOARD MEMBERS AND OFFICERS

The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.

INDEPENDENT BOARD MEMBERS

NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------ ----------- ----------- ----------------------- -----------------------------------------

HARRIS J. ASHTON (1932) Trustee Since 1982 143 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and
President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until
1998).

ROBERT F. CARLSON (1928) Trustee Since 2007 122 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Retired; and FORMERLY, Vice President, senior member and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS) (1971-January 2008); member and Chairman of the Board, Sutter Community Hospitals;
member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation.

SAM GINN (1937) Trustee Since 2007 122 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board
and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups
(telephone holding company) (1988-1994).

EDITH E. HOLIDAY (1952) Trustee Since 1998 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals, Inc.
(manufacture and distribution of titani-
um), Canadian National Railway (rail-
road) and White Mountains Insurance
Group, Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and
Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor
to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department
(1988-1989).

52| Annual Report

FRANK W.T. LAHAYE (1929) Trustee Since 2007 122 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).

FRANK A. OLSON (1932) Trustee Since 2006 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and Sentient
San Mateo, CA 94403-1906 Jet (private jet service).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive
Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation
(airlines).

LARRY D. THOMPSON (1945) Trustee Since 2007 143 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and
FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider)
(1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of
Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003).

JOHN B. WILSON (1959) Lead Trustee 122 None
One Franklin Parkway Independent since 2007
San Mateo, CA 94403-1906 Trustee and Lead
Independent
Trustee
since
January
2008

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and
non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000);
Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996);
Executive Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and
Partner, Bain & Company (consulting firm) (1986-1990).

Annual Report | 53

INTERESTED BOARD MEMBERS AND OFFICERS

**CHARLES B. JOHNSON Trustee, Management 143 None
(1933) President Trustee
One Franklin Parkway and Chief since 1982,
San Mateo, CA 94403-1906 Investment President
Officer - since 1983
Investment and Chief
Executive
Officer -
Investment
Management
since 2002

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton
Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments.

**RUPERT H. JOHNSON, JR. Trustee and Since 1983 56 None
(1940) Vice
One Franklin Parkway President
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.
and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment
companies in Franklin Templeton Investments.

SHEILA AMOROSO (1959) Vice Since 1999 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.

RAFAEL R. COSTAS, JR. Vice Since 1999 Not Applicable Not Applicable
(1965) President
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.

JAMES M. DAVIS (1952) Chief Chief Not Applicable Not Applicable
One Franklin Parkway Compliance Compliance
San Mateo, CA 94403-1906 Officer and Officer
Vice since 2004
President and Vice
- AML President
Compliance - AML
Compliance
since 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources,
Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance,
Franklin Resources, Inc. (1994-2001).

54| Annual Report

LAURA F. FERGERSON Treasurer, Treasurer Not Applicable Not Applicable
(1962) Chief since 2004,
One Franklin Parkway Financial Chief
San Mateo, CA 94403-1906 Officer and Financial
Chief Officer and
Accounting Chief
Officer Accounting
Officer
since
February
2008

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President,
Franklin Templeton Services, LLC (1997-2003).

JIMMY D. GAMBILL (1947) Vice Since Not Applicable Not Applicable
500 East Broward Blvd. President February
Suite 2100 2008
Fort Lauderdale,
FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.

DAVID P. GOSS (1947) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.

KAREN L. SKIDMORE (1952) Vice Since 2006 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906 and
Secretary

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in
Franklin Templeton Investments.

CRAIG S. TYLE (1960) Vice Since 2005 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner,
Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).

Annual Report | 55

GALEN G. VETTER (1951) Senior Vice Since Not Applicable Not Applicable
500 East Broward Blvd. President February
Suite 2100 and Chief 2008
Fort Lauderdale, Executive
FL 33394-3091 Officer -
Finance and
Administra
tion

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources,
Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM
McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).

THOMAS WALSH (1961) Vice Since 1999 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.

* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.

** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
investment manager and distributor.

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.

THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.

THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.

56| Annual Report

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT

At a meeting held February 25, 2008, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, and other services provided by the
Investment Manager (Manager) and its affiliates. Information furnished
specifically in connection with the renewal process included a report for the
Fund prepared by Lipper, Inc. (Lipper), an independent organization, as well as
a Fund profitability analysis report prepared by management. The Lipper report
compared the Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates including management's explanation of differences
where relevant and a three-year expense analysis with an explanation for any
increase in expense ratios. Additional material accompanying such report was a
memorandum prepared by management describing project initiatives and capital
investments relating to the services provided to the Fund by the Franklin
Templeton Investments organization, as well as a memorandum relating to
economies of scale and a comparative analysis concerning transfer agent fees
charged the Fund.

In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.

NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
shareholders from being part of the Franklin Templeton family of funds,

Annual Report | 57

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

including the right to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund dividends into other funds
and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted that such systems and
procedures had functioned smoothly during the Florida hurricanes and blackouts
experienced in recent years. Consideration was also given to the experience of
each Fund's portfolio management team, the number of accounts managed and
general method of compensation. In this latter respect, the Board noted that a
primary factor in management's determination of a portfolio manager's bonus
compensation was the relative investment performance of the funds he or she
managed and that a portion of such bonus was required to be invested in a
predesignated list of funds within such person's fund management area so as to
be aligned with the interests of Fund shareholders. The Board also took into
account the quality of transfer agent and shareholder services provided Fund
shareholders by an affiliate of the Manager, noting continuing expenditures by
management to increase and improve the scope of such services, periodic
favorable reports on such service conducted by third parties, the high industry
ranking given to the Franklin Templeton website, and the firsthand experience of
individual Board members who deal with the shareholder services department in
their capacities as shareholders in one or more of the various Franklin
Templeton funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the agreement
renewal. The Lipper report prepared for the Fund showed the investment
performance of its Class A shares during the year ended December 31, 2007, as
well as the previous 10 years ended that date in comparison to a performance
universe consisting of all retail and institutional New York municipal debt
funds as selected by Lipper. The Lipper report showed that both the Fund's
income return and its total return for the one-year period as well as for each
of the previous three-, five- and 10-year periods on an annualized basis were in
the highest quintile of its Lipper performance universe. The Board expressed its
satisfaction with such performance.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Prior to making such comparison, the Board relied upon
a survey showing that the scope of services covered under the Fund's investment
management agreement was similar to those provided by fund managers to other
mutual fund groups that would be used as a basis of comparison in the Lipper
reports. In reviewing comparative costs, emphasis was given to the Fund's
management fee in comparison with the contractual investment management fee that
would have been charged by other funds within its Lipper expense group assuming
they were similar in size to the

58 | Annual Report

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

Fund, as well as the actual total expenses of the Fund in comparison with those
of its Lipper expense group. The Lipper contractual investment management fee
analysis includes administrative charges as being part of a management fee, and
total expenses, for comparative consistency, are shown by Lipper for Fund Class
A shares. The results of such expense comparisons showed that the contractual
investment management fee rate for the Fund was one basis point above the median
of its Lipper expense group, but its actual total expenses were in the least
expensive quintile of its Lipper expense group. The Board was satisfied with the
management fee and total expenses of the Fund in comparison to its Lipper
expense group as shown in the Lipper report.

MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund. Specific attention was given to the methodology followed in allocating
costs to the Fund, it being recognized that allocation methodologies are
inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the allocation methodology was consistent with that
followed in profitability report presentations for the Fund made in prior years
and that the Fund's independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Fund's Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005, when the
offering of such shares was discontinued. Based upon its consideration of all
these factors, the Board determined that the level of profits realized by the
Manager and its affiliates from providing services to the Fund was not excessive
in view of the nature, quality and extent of services provided.

Annual Report | 59

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The fee structure under the Fund's investment
management agreement provides an initial fee of 0.625% on the first $100 million
of assets; 0.50% on the next $150 million of assets; 0.45% on the next $7.25
billion of net assets; 0.44% on the next $2.5 billion of net assets; 0.43% on
the next $2.5 billion of net assets; 0.42% on the next $2.5 billion of net
assets; and thereafter declines by 0.02% for each subsequent $2.5 billion of net
assets until it reaches a final breakpoint of 0.36% for assets in excess of $20
billion. The Fund's net assets were approximately $5 billion at December 31,
2007, and the Board believes that to the extent any economies of scale may be
realized by the Manager and its affiliates, the schedule of fees under the
investment management agreement provides a sharing of benefits with the Fund and
its shareholders.

PROXY VOTING POLICIES AND PROCEDURES

The Fund has established Proxy Voting Policies and Procedures (Policies) that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.

QUARTERLY STATEMENT OF INVESTMENTS

The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.

60 | Annual Report

(FRANKLIN TEMPLETON INVESTMENTS LOGO)
FRANKLIN TEMPLETON INVESTMENTS

One Franklin Parkway
San Mateo, CA 94403-1906

WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.

ANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN NEW YORK
TAX-FREE INCOME FUND

INVESTMENT MANAGER

Franklin Advisers, Inc.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES

1-800/632-2301

Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.

115 A2008 07/08

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.

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $60,035 for the fiscal year ended May 31, 2008 and $50,641 for the fiscal
year ended May 31, 2007.

(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.

There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.

(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.

The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $0 for the fiscal year ended May
31, 2008 and $46,000 for the fiscal year ended May 31, 2007. The services for
which these fees were paid included tax compliance and advice.

(d) All Other Fees
There were no fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4.

There were no fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4.

(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:

(i) pre-approval of all audit and audit related services;

(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;

(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and

(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.

(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(f) No disclosures are required by this Item 4(f).

(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $0 for the fiscal year ended May 31, 2008 and $46,000 for the
fiscal year ended May 31, 2007.

(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A

ITEM 6. SCHEDULE OF INVESTMENTS. N/A

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND
PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. N/A

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END
MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.

ITEM 11. CONTROLS AND PROCEDURES. (A) EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES. The Registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the
Registrant's filings under the Securities Exchange Act of 1934 and the
Investment Company Act of 1940 is recorded, processed, summarized and reported
within the periods specified in the rules and forms of the Securities and
Exchange Commission. Such information is accumulated and communicated to the
Registrant's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Registrant's management, including the principal executive
officer and the principal financial officer, recognizes that any set of controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.

ITEM 12. EXHIBITS.

(a)(1) Code of Ethics

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, 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 NEW YORK TAX-FREE INCOME FUND

By /S/GLANE G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date July 25, 2008

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/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date July 25, 2008

By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date July 25, 2008