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: 05/31/09
---------

ITEM 1. REPORTS TO STOCKHOLDERS.

MAY 31, 2009

ANNUAL REPORT AND SHAREHOLDER LETTER

(GRAPHIC)

TAX-FREE INCOME

FRANKLIN
NEW YORK TAX-FREE INCOME FUND

(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)

FRANKLIN - Templeton - Mutual Series

Franklin Templeton Investments

GAIN FROM OUR PERSPECTIVE(R)

Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.

SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.

FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.

TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.

MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.

TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.

RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.

MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

(GRAPHIC)

Not part of the annual report

Contents

SHAREHOLDER LETTER ....................................................... 1
ANNUAL REPORT
Franklin New York Tax-Free Income Fund ................................... 5
Performance Summary ...................................................... 11
Your Fund's Expenses ..................................................... 16
Financial Highlights and Statement of Investments ........................ 18
Financial Statements ..................................................... 35
Notes to Financial Statements ............................................ 39
Report of Independent Registered Public Accounting Firm .................. 47
Tax Designation .......................................................... 48
Board Members and Officers ............................................... 49
Shareholder Information .................................................. 54

Shareholder Letter

Dear Shareholder:

The 12-month period ended May 31, 2009, was an extraordinary and stressful time
for investors and those of us who have worked in financial markets for many
years. During this turbulent period, the U.S. recession deepened, credit markets
froze and housing prices plummeted. Most stocks and bonds suffered major losses
as investors worried about an uncertain future. With a new president, Barack
Obama, the country and the financial markets were eager to see how effectively
the government could address these problems. Although this environment is bound
to provoke great concern, we think it is important to put short-term market
developments in perspective. Keep in mind that as daunting as current conditions
may be, we have navigated through other periods of high market volatility before
and remain committed to our long-term perspective and disciplined investment
philosophy.

With the economy officially in recession since December 2007, economic growth
contracted during the 12-month reporting period. The national housing market
continued its severe correction with drops in housing starts and prices. The
Conference Board's Consumer Confidence Index dropped to the lowest level since
it began in 1967. The unemployment rate rose from 5.5% to 9.4% over the 12-month
period.(1)

The freezing of credit and financial markets in the U.S. and the rest of the
world was the dominant story. Despite various attempts by the Federal Reserve
Board (Fed) and the Treasury Department to inject liquidity into the system and
"rescue" such companies as Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch
and American International Group, fears and concerns

(1.) Source: Bureau of Labor Statistics.

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

Not part of the annual report | 1

about the health of our major financial institutions created a crisis on Wall
Street that we have not seen since the 1930s. These fears intensified when
Lehman Brothers filed for bankruptcy in September 2008. In early October the
Senate and House approved a troubled asset relief plan, or TARP, providing aid
for financial institutions. As the crisis of confidence and credit freeze spread
around the world, many other countries and central banks took measures to
promote liquidity and help financial institutions within their own borders.
Largely in reaction to financial market upheaval, the 10-year U.S. Treasury
yield experienced considerable volatility and declined from 4.06% to 3.47% over
the period.

On February 17, 2009, President Obama signed into law a $787 billion stimulus
plan known as the American Recovery and Reinvestment Act of 2009, which is
expected by many to cushion the effects of the ongoing recession for taxpayers,
consumers, businesses, and state and local governments. At most, others expect
the Act will end the recession and promote renewed growth.

In response to these economic conditions, the Federal Open Market Committee
lowered the federal funds target rate from 2.00% at the beginning of the period
to a range of 0% to 0.25% by period-end. The Fed's current challenge is to
soften the effects of the economic recession, reduce deflation risks and
maintain a healthy financial system to restart lending throughout the economy.
At period-end, the Fed did not regard inflation as an immediate threat. Rather,
it was DEFLATION, or the threat of it, that began to concern an increasing
number of economists. The Fed and the U.S. Treasury continued to take steps they
thought were necessary to preserve the integrity of U.S. and global financial
markets. In March 2009, they announced measures intended to facilitate lending
by banks and further ease credit markets. These included the Fed's decision to
purchase $300 billion in Treasury bonds in the open markets and Treasury
Secretary Geithner's proposal for a partnership between the government and
private investors to purchase and manage "toxic assets" from U.S. banks.

2 | Not part of the annual report

Almost every major market experienced unusually volatile performance during the
reporting period. The municipal bond market, as measured by the Barclays Capital
(BC) Municipal Bond Index, lost value in the second half of 2008 but has
rebounded so far in 2009. The index returned +3.57% for the 12-month review
period.(2) Long-term municipal bonds, which generally make up a significant
portion of our portfolios, had a -2.50% return for the same period.(3)

We believe it is especially important during difficult times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. Investors with discipline and a sound investment plan
may find favorable long-term opportunities when markets decline.

In the enclosed annual report for Franklin New York Tax-Free Income Fund, the
portfolio managers discuss municipal bond market conditions, investment
decisions and Fund performance during the period. You can also find other
performance data and financial information. Please remember that all securities
markets fluctuate, as do mutual fund share prices. Municipal bonds provide
tax-free income and diversification from equities. Despite periods of
volatility, municipal bonds have a solid long-term record of performance, driven
mostly by their income component.

(2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC Municipal Bond Index is a market value-weighted index engineered for the
long-term tax-exempt bond market. To be included in the index, bonds must
be fixed rate, have at least one year to final maturity and be rated
investment grade (Baa3/BBB- or higher) by at least two of the following
agencies: Moody's, Standard & Poor's or Fitch.

(3.) Source: (C) 2009 Morningstar. The BC Municipal Long Bond Index is the long
(22+ years) component of the BC Municipal Bond Index.

Not part of the annual report | 3

Please check our website at FRANKLINTEMPLETON.COM for special portfolio manager
commentary during this period of uncertainty. Although market conditions are
constantly changing, we remain committed to our disciplined strategy as we
manage the Fund, keeping in mind the trust you have placed in us. We appreciate
your confidence and encourage you to contact us when you have questions about
your Franklin Templeton tax-free investment.

Sincerely,

/s/ Charles B. Johnson

Charles B. Johnson
Chairman
Franklin New York Tax-Free Income Fund

/s/ Sheila Amoroso

Sheila Amoroso

/s/ Rafael R. Costas Jr.

Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department

THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF MAY 31, 2009. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.

4 | Not part of the annual report

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 federal and New York state personal
income taxes and at least 65% of its total assets in securities that pay
interest free from New York City personal income taxes.(1)

CREDIT QUALITY BREAKDOWN*

Based on Total Long-Term Investments as of 5/31/09**

(PIE CHART)

AAA ............... 39.4%
AA ................ 40.4%
A ................. 12.8%
BBB ............... 2.3%
Not Rated by S&P .. 5.1%

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

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

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

AAA or Aaa 0.1% 0.8%
AA or Aa 2.0% --
A 1.3% 0.1%
BBB or Baa 0.3% 0.3%
Below Investment Grade 0.1% 0.1%
--- ---
TOTAL 3.8% 1.3%

This annual report for Franklin New York Tax-Free Income Fund covers the fiscal
year ended May 31, 2009.

(1.) For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid imposition of 28% backup withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W-8BEN.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 22.

Annual Report | 5

DIVIDEND DISTRIBUTIONS(2)

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

June 2008 4.22 cents 3.69 cents 3.71 cents 4.30 cents
July 2008 4.22 cents 3.69 cents 3.71 cents 4.30 cents
August 2008 4.22 cents 3.69 cents 3.71 cents 4.30 cents
September 2008 4.22 cents 3.68 cents 3.69 cents 4.31 cents
October 2008 4.22 cents 3.68 cents 3.69 cents 4.31 cents
November 2008 4.22 cents 3.68 cents 3.69 cents 4.31 cents
December 2008 4.22 cents 3.70 cents 3.71 cents 4.29 cents
January 2009 4.22 cents 3.70 cents 3.71 cents 4.29 cents
February 2009 4.22 cents 3.70 cents 3.71 cents 4.29 cents
March 2009 4.22 cents 3.70 cents 3.71 cents 4.30 cents
April 2009 4.22 cents 3.70 cents 3.71 cents 4.30 cents
May 2009 4.22 cents 3.70 cents 3.71 cents 4.30 cents

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.

PERFORMANCE OVERVIEW

The Fund's Class A share price, as measured by net asset value, decreased from
$11.61 on May 31, 2008, to $11.34 on May 31, 2009. The Fund's Class A shares
paid dividends totaling 50.64 cents per share for the reporting period.(2) The
Performance Summary beginning on page 11 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.28% based on an
annualization of May's 4.22 cent per share dividend and the maximum offering
price of $11.84 on May 31, 2009. An investor in the 2009 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 7.07% 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 broad-based, mature and wealthy economy attracts an educated, global
workforce. However, its highly cyclical economy depends largely on the New York
City-based financial services industry. Thus, the national economic slowdown and
financial industry turmoil negatively impacted the state's economy. The state's
housing and commercial real estate markets weakened as construction and housing
prices dropped. Vacancy rates in New York City started to rise due to a rapidly
deteriorating labor market. The state projected

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

6 | Annual Report

job losses of at least 180,000, of which 60,000 were expected in the financial
services sector.(3) Additional projections indicated that declining company
profits and employment could lead to financial sector bonuses falling more than
50% in first quarter 2009 compared with first quarter 2008.(3) New York's
overall unemployment rate increased from 5.2% in May 2008 to 8.2% in May
2009.(4)

The state's economic and employment slowdown significantly affected revenues and
expenditures. As the economy weakened, it became evident that revenues would not
meet targets. On March 29, 2009, the governor announced an enacted budget for
fiscal year 2010. The budget agreement closed a multi-year $20.1 billion budget
gap -- the largest in New York's history -- and reduced the state's multi-year
deficit by more than 70% from approximately $85 billion to $24 billion.(5) It
also included a record $6.5 billion in recurring spending reductions.(5) Key
priorities and proposed reforms included overhauling the state's Rockefeller
Drug Law, Medicaid reimbursement system and Empire Zone program, and closing
underutilized state facilities such as prisons and youth centers.

Over the past several years, New York's outstanding tax-supported debt has
increased. The state ranked fifth in the nation in terms of net tax-supported
debt per capita and as a percent of personal income.(6) The recent debt increase
reflected capital financing for transportation and other sectors. Independent
credit rating agency Moody's Investors Service assigned New York's general
obligation bonds a rating of Aa3 with a stable outlook.(7) Although the state's
economy and tax revenues trended downward, Moody's believed that receipt of
federal stimulus aid could prevent severely constrained liquidity or reliance on
capital markets to fund operations.

MUNICIPAL BOND MARKET OVERVIEW

The year ended May 31, 2009, was highly unusual for the municipal bond market.
Municipal bonds provide investors with tax-free income and historically have
been a relatively stable, low-volatility investment. Municipal bond funds have
also provided portfolio diversification, helping offset the volatility of higher
risk asset classes, such as equities and many other fixed income securities. For
the 12-month period ended May 31, 2009, the Barclays Capital (BC)

(3.) Source: www.budget.state.ny.us, "2009-2010 Executive Budget Economic and
Revenue Outlook," March 2009.

(4.) Source: Bureau of Labor Statistics.

(5.) Source: www.budget.state.ny.us, "Division of the Budget Releases Enacted
Budget Financial Plan," 4/28/09.

(6.) Source: Moody's Investors Service, "New Issue: New York (State of),"
3/4/09.

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

PORTFOLIO BREAKDOWN
5/31/09

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

Prerefunded 22.4%
Transportation 20.0%
Subject to Government Appropriations 15.2%
Utilities 9.8%
Tax-Supported 9.7%
Higher Education 6.9%
General Obligation 6.3%
Other Revenue 3.7%
Hospital & Health Care 2.9%
Corporate-Backed 1.7%
Housing 1.4%

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

Annual Report | 7

Municipal Bond Index had a +3.57% total return compared with the +7.53% return
of the BC U.S. Treasury Index.(8) However, the year under review, in our
opinion, could not be described as stable or low volatility for the municipal
bond market.

The municipal bond market faced problems relating to credit rating downgrades
for the four major municipal insurers, AMBAC, MBIA, FGIC and FSA. These
companies had been insuring nearly half of new-issue municipal bonds and had
maintained AAA ratings for many years. Although we believe historically they had
been very good risk managers, during 2008 these insurers were downgraded below
AAA. Although investment-grade municipal bonds had a historical default rate of
less than 1%, the downgrades shocked the market.(9) Forced selling by many hedge
funds that had built up large municipal bond positions resulted in a significant
supply/demand imbalance, and the value of insured bonds plummeted. Historically,
insured bonds traded at higher prices than uninsured bonds; however, the value
of insurance eroded considerably. At the same time, the auction rate securities
market collapsed. Although traditional, non-leveraged mutual funds, retail
buyers and property-and-casualty companies continued to support the market, the
selling was overwhelming and helped cause some of the municipal bond market's
worst performance in its history.

The municipal bond market stabilized through the spring and summer of 2008.
Unfortunately, during this time the credit crisis started to spread across the
globe and almost no market was spared. Market psychology turned bearish as the
credit crunch took hold. Access to credit was effectively shut down for close to
a month, which spurred the Treasury and Federal Reserve Board to devise plans to
ease the credit crisis.

September and October brought trends similar to those early in the period. The
municipal bond market had even fewer buyers, mostly plain vanilla mutual funds
and individual investors. Once again, selling by hedge funds and leveraged
investors meeting redemptions was overwhelming and contributed to steep price
declines. The leveraged participants had used a strategy focused on
long-maturity bonds, and as they sold these positions, the long end of the yield
curve was most adversely affected. Interest rates continued to climb higher
toward the end of 2008 as demand waned.

(8.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted to be
accurate, complete or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this information.
The BC Municipal Bond Index is a market value-weighted index engineered for the
long-term tax-exempt bond market. To be included in the index, bonds must be
fixed rate, have at least one year to final maturity and be rated investment
grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody's,
Standard & Poor's or Fitch. The BC U.S. Treasury Index is the U.S. Treasury
component of the U.S. Government Index and covers public obligations of the U.S.
Treasury with a remaining maturity of one year or more.

(9.) Source: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2009," RATINGSDIRECT, 3/11/09.

8 | Annual Report

So far, 2009 appeared more positive. The forced selling by hedge funds and
leveraged funds subsided, and positive cash flows once again characterized the
market. Also helping the municipal bond market were large bond coupon payments
at the beginning of 2009, a small new-issue calendar, and news that municipal
issuers will benefit from the federal government's stimulus package. For
example, the stimulus package allowed municipal issuers to issue bonds in the
taxable bond market through the Build America Bond program. The program provided
issuers with a federal government subsidy that lowered their net borrowing
costs. As a result, many municipal issuers chose to issue taxable Build America
Bonds instead of traditional tax-exempt bonds, decreasing the amount of
new-issue supply and putting downward pressure on tax-exempt yields.

During the reporting period, we had the opportunity to purchase bonds at higher
yields than were available in many years, which supported our Fund's dividend
distributions. At period-end, we continued to be active in the market and felt
that municipal bonds at current yields represented an attractive long-term
opportunity. On May 31, 2009, yields for 10- and 30-year high-grade municipal
bonds continued to exceed comparable Treasury yields, which is highly unusual.

INVESTMENT STRATEGY

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

MANAGER'S DISCUSSION

Our value-oriented philosophy of investing primarily for income and a positive
sloping municipal yield curve favored longer-term bonds during the reporting
period. Consistent with our strategy, we sought to remain fully invested in
bonds ranging from 20 to 30 years in maturity with good call features. We took
advantage of strong retail demand for highly rated essential service bonds, and
sold some AA- and AAA-rated securities that were purchased in a lower municipal
bond interest rate environment. We also sold some of the Fund's highly liquid
prerefunded bonds at a premium as institutional investors

Annual Report | 9

provided liquidity for municipal bonds escrowed in government securities. We
used the proceeds to purchase bonds that we believed were trading at very
attractive relative values in the current, higher interest rate environment.

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 held no
bonds subject to AMT to prevent a taxable situation for individuals subject to
AMT.

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, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.

10 | Annual Report

Performance Summary as of 5/31/09

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table 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 5/31/09 5/31/08
- ----------------------- ------ ------- -------

Net Asset Value (NAV) -$0.27 $11.34 $11.61
DISTRIBUTIONS (6/1/08-5/31/09)
Dividend Income $0.5064
Long-Term Capital Gain $0.0506
TOTAL $0.5570

CLASS B (SYMBOL: FTFBX) CHANGE 5/31/09 5/31/08
- ----------------------- ------ ------- -------

Net Asset Value (NAV) -$0.26 $11.32 $11.58
DISTRIBUTIONS (6/1/08-5/31/09)
Dividend Income $0.4431
Long-Term Capital Gain $0.0506
TOTAL $0.4937

CLASS C (SYMBOL: FNYIX) CHANGE 5/31/09 5/31/08
- ----------------------- ------ ------- -------

Net Asset Value (NAV) -$0.27 $11.33 $11.60
DISTRIBUTIONS (6/1/08-5/31/09)
Dividend Income $0.4446
Long-Term Capital Gain $0.0506
TOTAL $0.4952

ADVISOR CLASS (SYMBOL: FNYAX) CHANGE 5/31/09 5/31/08
- ----------------------------- ------ ------- -------

Net Asset Value (NAV) -$0.26 $11.35 $11.61
DISTRIBUTIONS (6/1/08-5/31/09)
Dividend Income $0.5160
Long-Term Capital Gain $0.0506
TOTAL $0.5666

Annual Report | 11

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; ADVISOR CLASS: NO SALES CHARGES.

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

Cumulative Total Return(1) +2.72% +22.47% +55.48%
Average Annual Total Return(2) -1.68% +3.23% +4.06%
Avg. Ann. Total Return (6/30/09)(3) -1.31% +3.12% +4.15%
Distribution Rate(4) 4.28%
Taxable Equivalent Distribution
Rate(5) 7.07%
30-Day Standardized Yield(6) 3.33%
Taxable Equivalent Yield(5) 5.50%
Total Annual Operating Expenses(7) 0.60%

CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------

Cumulative Total Return(1) +2.23% +19.23% +48.79%
Average Annual Total Return(2) -1.68% +3.24% +4.05%
Avg. Ann. Total Return (6/30/09)(3) -1.34% +3.11% +4.15%
Distribution Rate(4) 3.92%
Taxable Equivalent Distribution
Rate(5) 6.47%
30-Day Standardized Yield(6) 2.90%
Taxable Equivalent Yield(5) 4.79%
Total Annual Operating Expenses(7) 1.16%

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

Cumulative Total Return(1) +2.15% +19.12% +46.93%
Average Annual Total Return(2) +1.17% +3.56% +3.92%
Avg. Ann. Total Return (6/30/09)(3) +1.52% +3.45% +4.02%
Distribution Rate(4) 3.93%
Taxable Equivalent Distribution
Rate(5) 6.49%
30-Day Standardized Yield(6) 2.90%
Taxable Equivalent Yield(5) 4.79%
Total Annual Operating Expenses(7) 1.16%

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

Cumulative Total Return(1) +2.90% +23.11% +56.64%
Average Annual Total Return(2) +2.90% +4.25% +4.59%
Avg. Ann. Total Return (6/30/09)(3) +3.25% +4.11% +4.69%
Distribution Rate(4) 4.55%
Taxable Equivalent Distribution
Rate(5) 7.51%
30-Day Standardized Yield(6) 3.57%
Taxable Equivalent Yield(5) 5.90%
Total Annual Operating Expenses(7) 0.51%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT franklintempleton.com OR CALL (800) 342-5236.

12 | Annual Report

Performance Summary (CONTINUED)

TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT

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

CLASS A (6/1/99-5/31/09)

(PERFORMANCE GRAPH)

FRANKLIN
NEW YORK
TAX-FREE BARCLAYS
INCOME FUND CAPITAL MUNICIPAL
DATE - CLASS A BOND INDEX CPI
- ---------- ----------- ----------------- -------

6/1/1999 $ 9,574 $10,000 $10,000
6/30/1999 $ 9,455 $ 9,856 $10,000
7/31/1999 $ 9,481 $ 9,892 $10,030
8/31/1999 $ 9,377 $ 9,813 $10,054
9/30/1999 $ 9,371 $ 9,817 $10,102
10/31/1999 $ 9,250 $ 9,710 $10,120
11/30/1999 $ 9,343 $ 9,814 $10,126
12/31/1999 $ 9,267 $ 9,741 $10,126
1/31/2000 $ 9,227 $ 9,698 $10,156
2/29/2000 $ 9,339 $ 9,811 $10,217
3/31/2000 $ 9,544 $10,025 $10,301
4/30/2000 $ 9,487 $ 9,966 $10,307
5/31/2000 $ 9,455 $ 9,914 $10,319
6/30/2000 $ 9,672 $10,177 $10,373
7/31/2000 $ 9,777 $10,319 $10,397
8/31/2000 $ 9,909 $10,478 $10,397
9/30/2000 $ 9,877 $10,423 $10,451
10/31/2000 $ 9,958 $10,537 $10,469
11/30/2000 $10,039 $10,617 $10,475
12/31/2000 $10,262 $10,879 $10,469
1/31/2001 $10,326 $10,986 $10,535
2/28/2001 $10,381 $11,021 $10,578
3/31/2001 $10,471 $11,120 $10,602
4/30/2001 $10,410 $11,000 $10,644
5/31/2001 $10,492 $11,118 $10,692
6/30/2001 $10,565 $11,193 $10,710
7/31/2001 $10,702 $11,358 $10,680
8/31/2001 $10,840 $11,545 $10,680
9/30/2001 $10,776 $11,507 $10,728
10/31/2001 $10,879 $11,644 $10,692
11/30/2001 $10,823 $11,546 $10,674
12/31/2001 $10,739 $11,436 $10,632
1/31/2002 $10,897 $11,635 $10,656
2/28/2002 $11,009 $11,775 $10,698
3/31/2002 $10,848 $11,544 $10,758
4/30/2002 $10,989 $11,770 $10,818
5/31/2002 $11,074 $11,841 $10,818
6/30/2002 $11,168 $11,967 $10,824
7/31/2002 $11,301 $12,120 $10,836
8/31/2002 $11,434 $12,266 $10,872
9/30/2002 $11,684 $12,535 $10,890
10/31/2002 $11,517 $12,327 $10,909
11/30/2002 $11,475 $12,276 $10,909
12/31/2002 $11,717 $12,535 $10,884
1/31/2003 $11,685 $12,503 $10,933
2/28/2003 $11,820 $12,678 $11,017
3/31/2003 $11,836 $12,685 $11,083
4/30/2003 $11,932 $12,769 $11,059
5/31/2003 $12,188 $13,068 $11,041
6/30/2003 $12,144 $13,013 $11,053
7/31/2003 $11,728 $12,557 $11,065
8/31/2003 $11,815 $12,651 $11,107
9/30/2003 $12,105 $13,023 $11,143
10/31/2003 $12,081 $12,957 $11,131
11/30/2003 $12,199 $13,092 $11,101
12/31/2003 $12,287 $13,201 $11,089
1/31/2004 $12,364 $13,276 $11,143
2/29/2004 $12,534 $13,476 $11,203
3/31/2004 $12,498 $13,429 $11,276
4/30/2004 $12,212 $13,111 $11,312
5/31/2004 $12,154 $13,063 $11,378
6/30/2004 $12,181 $13,111 $11,414
7/31/2004 $12,333 $13,284 $11,396
8/31/2004 $12,539 $13,550 $11,402
9/30/2004 $12,629 $13,622 $11,426
10/31/2004 $12,741 $13,739 $11,486
11/30/2004 $12,640 $13,625 $11,492
12/31/2004 $12,806 $13,792 $11,450
1/31/2005 $12,929 $13,921 $11,474
2/28/2005 $12,912 $13,874 $11,540
3/31/2005 $12,863 $13,787 $11,631
4/30/2005 $13,030 $14,004 $11,709
5/31/2005 $13,122 $14,103 $11,697
6/30/2005 $13,213 $14,191 $11,703
7/31/2005 $13,162 $14,127 $11,757
8/31/2005 $13,287 $14,269 $11,817
9/30/2005 $13,202 $14,173 $11,961
10/31/2005 $13,140 $14,087 $11,986
11/30/2005 $13,188 $14,155 $11,889
12/31/2005 $13,292 $14,277 $11,841
1/31/2006 $13,318 $14,315 $11,931
2/28/2006 $13,412 $14,411 $11,955
3/31/2006 $13,336 $14,312 $12,022
4/30/2006 $13,339 $14,307 $12,124
5/31/2006 $13,377 $14,371 $12,184
6/30/2006 $13,334 $14,316 $12,208
7/31/2006 $13,464 $14,487 $12,244
8/31/2006 $13,629 $14,702 $12,268
9/30/2006 $13,702 $14,804 $12,208
10/31/2006 $13,787 $14,897 $12,142
11/30/2006 $13,896 $15,021 $12,124
12/31/2006 $13,858 $14,968 $12,142
1/31/2007 $13,838 $14,930 $12,179
2/28/2007 $13,983 $15,126 $12,244
3/31/2007 $13,951 $15,089 $12,356
4/30/2007 $13,989 $15,134 $12,436
5/31/2007 $13,945 $15,067 $12,512
6/30/2007 $13,899 $14,989 $12,536
7/31/2007 $13,998 $15,105 $12,533
8/31/2007 $13,941 $15,040 $12,510
9/30/2007 $14,113 $15,262 $12,545
10/31/2007 $14,176 $15,330 $12,571
11/30/2007 $14,240 $15,428 $12,646
12/31/2007 $14,290 $15,471 $12,638
1/31/2008 $14,403 $15,666 $12,700
2/29/2008 $13,863 $14,949 $12,737
3/31/2008 $14,225 $15,376 $12,848
4/30/2008 $14,402 $15,556 $12,926
5/31/2008 $14,492 $15,650 $13,034
6/30/2008 $14,394 $15,473 $13,166
7/31/2008 $14,447 $15,532 $13,235
8/31/2008 $14,538 $15,714 $13,182
9/30/2008 $13,781 $14,977 $13,164
10/31/2008 $13,746 $14,824 $13,031
11/30/2008 $13,544 $14,871 $12,781
12/31/2008 $13,831 $15,088 $12,649
1/31/2009 $14,209 $15,640 $12,704
2/28/2009 $14,458 $15,722 $12,767
3/31/2009 $14,422 $15,725 $12,798
4/30/2009 $14,765 $16,039 $12,830
5/31/2009 $14,885 $16,209 $12,867

AVERAGE ANNUAL TOTAL RETURN

CLASS A 5/31/09
- ------- -------

1-Year -1.68%
5-Year +3.23%
10-Year +4.06%

CLASS B (6/1/99-5/31/09)

(PERFORMANCE GRAPH)

FRANKLIN
NEW YORK
TAX-FREE BARCLAYS
INCOME FUND CAPITAL MUNICIPAL
DATE - CLASS B BOND INDEX CPI
- ---------- ----------- ----------------- -------

6/1/1999 $10,000 $10,000 $10,000
6/30/1999 $ 9,871 $ 9,856 $10,000
7/31/1999 $ 9,894 $ 9,892 $10,030
8/31/1999 $ 9,781 $ 9,813 $10,054
9/30/1999 $ 9,769 $ 9,817 $10,102
10/31/1999 $ 9,638 $ 9,710 $10,120
11/30/1999 $ 9,730 $ 9,814 $10,126
12/31/1999 $ 9,647 $ 9,741 $10,126
1/31/2000 $ 9,610 $ 9,698 $10,156
2/29/2000 $ 9,721 $ 9,811 $10,217
3/31/2000 $ 9,922 $10,025 $10,301
4/30/2000 $ 9,866 $ 9,966 $10,307
5/31/2000 $ 9,820 $ 9,914 $10,319
6/30/2000 $10,040 $10,177 $10,373
7/31/2000 $10,154 $10,319 $10,397
8/31/2000 $10,287 $10,478 $10,397
9/30/2000 $10,239 $10,423 $10,451
10/31/2000 $10,328 $10,537 $10,469
11/30/2000 $10,398 $10,617 $10,475
12/31/2000 $10,624 $10,879 $10,469
1/31/2001 $10,686 $10,986 $10,535
2/28/2001 $10,738 $11,021 $10,578
3/31/2001 $10,827 $11,120 $10,602
4/30/2001 $10,758 $11,000 $10,644
5/31/2001 $10,847 $11,118 $10,692
6/30/2001 $10,909 $11,193 $10,710
7/31/2001 $11,046 $11,358 $10,680
8/31/2001 $11,184 $11,545 $10,680
9/30/2001 $11,113 $11,507 $10,728
10/31/2001 $11,213 $11,644 $10,692
11/30/2001 $11,150 $11,546 $10,674
12/31/2001 $11,058 $11,436 $10,632
1/31/2002 $11,216 $11,635 $10,656
2/28/2002 $11,326 $11,775 $10,698
3/31/2002 $11,155 $11,544 $10,758
4/30/2002 $11,295 $11,770 $10,818
5/31/2002 $11,377 $11,841 $10,818
6/30/2002 $11,468 $11,967 $10,824
7/31/2002 $11,599 $12,120 $10,836
8/31/2002 $11,731 $12,266 $10,872
9/30/2002 $11,982 $12,535 $10,890
10/31/2002 $11,806 $12,327 $10,909
11/30/2002 $11,757 $12,276 $10,909
12/31/2002 $11,999 $12,535 $10,884
1/31/2003 $11,961 $12,503 $10,933
2/28/2003 $12,094 $12,678 $11,017
3/31/2003 $12,105 $12,685 $11,083
4/30/2003 $12,197 $12,769 $11,059
5/31/2003 $12,453 $13,068 $11,041
6/30/2003 $12,403 $13,013 $11,053
7/31/2003 $11,973 $12,557 $11,065
8/31/2003 $12,056 $12,651 $11,107
9/30/2003 $12,346 $13,023 $11,143
10/31/2003 $12,316 $12,957 $11,131
11/30/2003 $12,431 $13,092 $11,101
12/31/2003 $12,514 $13,201 $11,089
1/31/2004 $12,587 $13,276 $11,143
2/29/2004 $12,745 $13,476 $11,203
3/31/2004 $12,702 $13,429 $11,276
4/30/2004 $12,415 $13,111 $11,312
5/31/2004 $12,340 $13,063 $11,378
6/30/2004 $12,372 $13,111 $11,414
7/31/2004 $12,511 $13,284 $11,396
8/31/2004 $12,725 $13,550 $11,402
9/30/2004 $12,800 $13,622 $11,426
10/31/2004 $12,908 $13,739 $11,486
11/30/2004 $12,799 $13,625 $11,492
12/31/2004 $12,961 $13,792 $11,450
1/31/2005 $13,091 $13,921 $11,474
2/28/2005 $13,057 $13,874 $11,540
3/31/2005 $13,001 $13,787 $11,631
4/30/2005 $13,175 $14,004 $11,709
5/31/2005 $13,261 $14,103 $11,697
6/30/2005 $13,348 $14,191 $11,703
7/31/2005 $13,279 $14,127 $11,757
8/31/2005 $13,400 $14,269 $11,817
9/30/2005 $13,319 $14,173 $11,961
10/31/2005 $13,249 $14,087 $11,986
11/30/2005 $13,280 $14,155 $11,889
12/31/2005 $13,379 $14,277 $11,841
1/31/2006 $13,399 $14,315 $11,931
2/28/2006 $13,499 $14,411 $11,955
3/31/2006 $13,416 $14,312 $12,022
4/30/2006 $13,413 $14,307 $12,124
5/31/2006 $13,445 $14,371 $12,184
6/30/2006 $13,384 $14,316 $12,208
7/31/2006 $13,520 $14,487 $12,244
8/31/2006 $13,669 $14,702 $12,268
9/30/2006 $13,747 $14,804 $12,208
10/31/2006 $13,814 $14,897 $12,142
11/30/2006 $13,917 $15,021 $12,124
12/31/2006 $13,873 $14,968 $12,142
1/31/2007 $13,846 $14,930 $12,179
2/28/2007 $13,985 $15,126 $12,244
3/31/2007 $13,958 $15,089 $12,356
4/30/2007 $13,978 $15,134 $12,436
5/31/2007 $13,939 $15,067 $12,512
6/30/2007 $13,894 $14,989 $12,536
7/31/2007 $13,993 $15,105 $12,533
8/31/2007 $13,936 $15,040 $12,510
9/30/2007 $14,107 $15,262 $12,545
10/31/2007 $14,171 $15,330 $12,571
11/30/2007 $14,234 $15,428 $12,646
12/31/2007 $14,284 $15,471 $12,638
1/31/2008 $14,397 $15,666 $12,700
2/29/2008 $13,857 $14,949 $12,737
3/31/2008 $14,219 $15,376 $12,848
4/30/2008 $14,395 $15,556 $12,926
5/31/2008 $14,486 $15,650 $13,034
6/30/2008 $14,389 $15,473 $13,166
7/31/2008 $14,442 $15,532 $13,235
8/31/2008 $14,533 $15,714 $13,182
9/30/2008 $13,776 $14,977 $13,164
10/31/2008 $13,740 $14,824 $13,031
11/30/2008 $13,538 $14,871 $12,781
12/31/2008 $13,825 $15,088 $12,649
1/31/2009 $14,202 $15,640 $12,704
2/28/2009 $14,451 $15,722 $12,767
3/31/2009 $14,415 $15,725 $12,798
4/30/2009 $14,758 $16,039 $12,830
5/31/2009 $14,879 $16,209 $12,867

AVERAGE ANNUAL TOTAL RETURN

CLASS B 5/31/09
- ------- -------

1-Year -1.68%
5-Year +3.24%
10-Year +4.05%

Annual Report | 13

Performance Summary (CONTINUED)

CLASS C (6/1/99-5/31/09)

(PERFORMANCE GRAPH)

FRANKLIN
NEW YORK
TAX-FREE BARCLAYS
INCOME FUND CAPITAL MUNICIPAL
DATE - CLASS C BOND INDEX CPI
- ---------- ----------- ----------------- -------

6/1/1999 $10,000 $10,000 $10,000
6/30/1999 $ 9,871 $ 9,856 $10,000
7/31/1999 $ 9,894 $ 9,892 $10,030
8/31/1999 $ 9,781 $ 9,813 $10,054
9/30/1999 $ 9,770 $ 9,817 $10,102
10/31/1999 $ 9,639 $ 9,710 $10,120
11/30/1999 $ 9,731 $ 9,814 $10,126
12/31/1999 $ 9,648 $ 9,741 $10,126
1/31/2000 $ 9,602 $ 9,698 $10,156
2/29/2000 $ 9,713 $ 9,811 $10,217
3/31/2000 $ 9,922 $10,025 $10,301
4/30/2000 $ 9,858 $ 9,966 $10,307
5/31/2000 $ 9,820 $ 9,914 $10,319
6/30/2000 $10,040 $10,177 $10,373
7/31/2000 $10,145 $10,319 $10,397
8/31/2000 $10,277 $10,478 $10,397
9/30/2000 $10,229 $10,423 $10,451
10/31/2000 $10,318 $10,537 $10,469
11/30/2000 $10,388 $10,617 $10,475
12/31/2000 $10,613 $10,879 $10,469
1/31/2001 $10,684 $10,986 $10,535
2/28/2001 $10,727 $11,021 $10,578
3/31/2001 $10,815 $11,120 $10,602
4/30/2001 $10,755 $11,000 $10,644
5/31/2001 $10,835 $11,118 $10,692
6/30/2001 $10,897 $11,193 $10,710
7/31/2001 $11,033 $11,358 $10,680
8/31/2001 $11,180 $11,545 $10,680
9/30/2001 $11,100 $11,507 $10,728
10/31/2001 $11,209 $11,644 $10,692
11/30/2001 $11,147 $11,546 $10,674
12/31/2001 $11,055 $11,436 $10,632
1/31/2002 $11,212 $11,635 $10,656
2/28/2002 $11,312 $11,775 $10,698
3/31/2002 $11,151 $11,544 $10,758
4/30/2002 $11,291 $11,770 $10,818
5/31/2002 $11,363 $11,841 $10,818
6/30/2002 $11,464 $11,967 $10,824
7/31/2002 $11,585 $12,120 $10,836
8/31/2002 $11,726 $12,266 $10,872
9/30/2002 $11,977 $12,535 $10,890
10/31/2002 $11,801 $12,327 $10,909
11/30/2002 $11,753 $12,276 $10,909
12/31/2002 $11,985 $12,535 $10,884
1/31/2003 $11,956 $12,503 $10,933
2/28/2003 $12,079 $12,678 $11,017
3/31/2003 $12,100 $12,685 $11,083
4/30/2003 $12,192 $12,769 $11,059
5/31/2003 $12,447 $13,068 $11,041
6/30/2003 $12,387 $13,013 $11,053
7/31/2003 $11,967 $12,557 $11,065
8/31/2003 $12,050 $12,651 $11,107
9/30/2003 $12,330 $13,023 $11,143
10/31/2003 $12,310 $12,957 $11,131
11/30/2003 $12,414 $13,092 $11,101
12/31/2003 $12,507 $13,201 $11,089
1/31/2004 $12,580 $13,276 $11,143
2/29/2004 $12,737 $13,476 $11,203
3/31/2004 $12,695 $13,429 $11,276
4/30/2004 $12,409 $13,111 $11,312
5/31/2004 $12,334 $13,063 $11,378
6/30/2004 $12,355 $13,111 $11,414
7/31/2004 $12,505 $13,284 $11,396
8/31/2004 $12,708 $13,550 $11,402
9/30/2004 $12,793 $13,622 $11,426
10/31/2004 $12,901 $13,739 $11,486
11/30/2004 $12,792 $13,625 $11,492
12/31/2004 $12,954 $13,792 $11,450
1/31/2005 $13,072 $13,921 $11,474
2/28/2005 $13,049 $13,874 $11,540
3/31/2005 $12,992 $13,787 $11,631
4/30/2005 $13,166 $14,004 $11,709
5/31/2005 $13,241 $14,103 $11,697
6/30/2005 $13,328 $14,191 $11,703
7/31/2005 $13,270 $14,127 $11,757
8/31/2005 $13,390 $14,269 $11,817
9/30/2005 $13,310 $14,173 $11,961
10/31/2005 $13,240 $14,087 $11,986
11/30/2005 $13,271 $14,155 $11,889
12/31/2005 $13,370 $14,277 $11,841
1/31/2006 $13,389 $14,315 $11,931
2/28/2006 $13,477 $14,411 $11,955
3/31/2006 $13,406 $14,312 $12,022
4/30/2006 $13,403 $14,307 $12,124
5/31/2006 $13,424 $14,371 $12,184
6/30/2006 $13,375 $14,316 $12,208
7/31/2006 $13,511 $14,487 $12,244
8/31/2006 $13,659 $14,702 $12,268
9/30/2006 $13,737 $14,804 $12,208
10/31/2006 $13,804 $14,897 $12,142
11/30/2006 $13,906 $15,021 $12,124
12/31/2006 $13,862 $14,968 $12,142
1/31/2007 $13,836 $14,930 $12,179
2/28/2007 $13,974 $15,126 $12,244
3/31/2007 $13,935 $15,089 $12,356
4/30/2007 $13,968 $15,134 $12,436
5/31/2007 $13,928 $15,067 $12,512
6/30/2007 $13,877 $14,989 $12,536
7/31/2007 $13,957 $15,105 $12,533
8/31/2007 $13,893 $15,040 $12,510
9/30/2007 $14,059 $15,262 $12,545
10/31/2007 $14,115 $15,330 $12,571
11/30/2007 $14,173 $15,428 $12,646
12/31/2007 $14,216 $15,471 $12,638
1/31/2008 $14,322 $15,666 $12,700
2/29/2008 $13,778 $14,949 $12,737
3/31/2008 $14,144 $15,376 $12,848
4/30/2008 $14,300 $15,556 $12,926
5/31/2008 $14,383 $15,650 $13,034
6/30/2008 $14,280 $15,473 $13,166
7/31/2008 $14,314 $15,532 $13,235
8/31/2008 $14,410 $15,714 $13,182
9/30/2008 $13,653 $14,977 $13,164
10/31/2008 $13,611 $14,824 $13,031
11/30/2008 $13,405 $14,871 $12,781
12/31/2008 $13,682 $15,088 $12,649
1/31/2009 $14,050 $15,640 $12,704
2/28/2009 $14,290 $15,722 $12,767
3/31/2009 $14,247 $15,725 $12,798
4/30/2009 $14,579 $16,039 $12,830
5/31/2009 $14,693 $16,209 $12,867

AVERAGE ANNUAL TOTAL RETURN

CLASS C 5/31/09
- ------- -------

1-Year +1.17%
5-Year +3.56%
10-Year +3.92%

ADVISOR CLASS (6/1/99-5/31/09)(8)

(PERFORMANCE GRAPH)

FRANKLIN
NEW YORK
TAX-FREE BARCLAYS
INCOME FUND CAPITAL MUNICIPAL
DATE - ADVISOR CLASS BOND INDEX CPI
- ---------- --------------- ----------------- -------

6/1/1999 $10,000 $10,000 $10,000
6/30/1999 $ 9,876 $ 9,856 $10,000
7/31/1999 $ 9,903 $ 9,892 $10,030
8/31/1999 $ 9,795 $ 9,813 $10,054
9/30/1999 $ 9,788 $ 9,817 $10,102
10/31/1999 $ 9,662 $ 9,710 $10,120
11/30/1999 $ 9,759 $ 9,814 $10,126
12/31/1999 $ 9,679 $ 9,741 $10,126
1/31/2000 $ 9,638 $ 9,698 $10,156
2/29/2000 $ 9,755 $ 9,811 $10,217
3/31/2000 $ 9,969 $10,025 $10,301
4/30/2000 $ 9,909 $ 9,966 $10,307
5/31/2000 $ 9,876 $ 9,914 $10,319
6/30/2000 $10,102 $10,177 $10,373
7/31/2000 $10,212 $10,319 $10,397
8/31/2000 $10,350 $10,478 $10,397
9/30/2000 $10,316 $10,423 $10,451
10/31/2000 $10,401 $10,537 $10,469
11/30/2000 $10,486 $10,617 $10,475
12/31/2000 $10,718 $10,879 $10,469
1/31/2001 $10,785 $10,986 $10,535
2/28/2001 $10,843 $11,021 $10,578
3/31/2001 $10,937 $11,120 $10,602
4/30/2001 $10,873 $11,000 $10,644
5/31/2001 $10,959 $11,118 $10,692
6/30/2001 $11,035 $11,193 $10,710
7/31/2001 $11,178 $11,358 $10,680
8/31/2001 $11,322 $11,545 $10,680
9/30/2001 $11,256 $11,507 $10,728
10/31/2001 $11,372 $11,644 $10,692
11/30/2001 $11,316 $11,546 $10,674
12/31/2001 $11,228 $11,436 $10,632
1/31/2002 $11,394 $11,635 $10,656
2/28/2002 $11,502 $11,775 $10,698
3/31/2002 $11,344 $11,544 $10,758
4/30/2002 $11,492 $11,770 $10,818
5/31/2002 $11,572 $11,841 $10,818
6/30/2002 $11,671 $11,967 $10,824
7/31/2002 $11,811 $12,120 $10,836
8/31/2002 $11,951 $12,266 $10,872
9/30/2002 $12,213 $12,535 $10,890
10/31/2002 $12,050 $12,327 $10,909
11/30/2002 $12,007 $12,276 $10,909
12/31/2002 $12,250 $12,535 $10,884
1/31/2003 $12,227 $12,503 $10,933
2/28/2003 $12,359 $12,678 $11,017
3/31/2003 $12,387 $12,685 $11,083
4/30/2003 $12,489 $12,769 $11,059
5/31/2003 $12,757 $13,068 $11,041
6/30/2003 $12,702 $13,013 $11,053
7/31/2003 $12,278 $12,557 $11,065
8/31/2003 $12,370 $12,651 $11,107
9/30/2003 $12,664 $13,023 $11,143
10/31/2003 $12,650 $12,957 $11,131
11/30/2003 $12,765 $13,092 $11,101
12/31/2003 $12,867 $13,201 $11,089
1/31/2004 $12,949 $13,276 $11,143
2/29/2004 $13,118 $13,476 $11,203
3/31/2004 $13,081 $13,429 $11,276
4/30/2004 $12,793 $13,111 $11,312
5/31/2004 $12,723 $13,063 $11,378
6/30/2004 $12,763 $13,111 $11,414
7/31/2004 $12,912 $13,284 $11,396
8/31/2004 $13,140 $13,550 $11,402
9/30/2004 $13,224 $13,622 $11,426
10/31/2004 $13,342 $13,739 $11,486
11/30/2004 $13,237 $13,625 $11,492
12/31/2004 $13,412 $13,792 $11,450
1/31/2005 $13,553 $13,921 $11,474
2/28/2005 $13,525 $13,874 $11,540
3/31/2005 $13,475 $13,787 $11,631
4/30/2005 $13,662 $14,004 $11,709
5/31/2005 $13,759 $14,103 $11,697
6/30/2005 $13,856 $14,191 $11,703
7/31/2005 $13,792 $14,127 $11,757
8/31/2005 $13,924 $14,269 $11,817
9/30/2005 $13,848 $14,173 $11,961
10/31/2005 $13,783 $14,087 $11,986
11/30/2005 $13,823 $14,155 $11,889
12/31/2005 $13,933 $14,277 $11,841
1/31/2006 $13,961 $14,315 $11,931
2/28/2006 $14,072 $14,411 $11,955
3/31/2006 $13,994 $14,312 $12,022
4/30/2006 $13,998 $14,307 $12,124
5/31/2006 $14,039 $14,371 $12,184
6/30/2006 $13,984 $14,316 $12,208
7/31/2006 $14,133 $14,487 $12,244
8/31/2006 $14,295 $14,702 $12,268
9/30/2006 $14,385 $14,804 $12,208
10/31/2006 $14,462 $14,897 $12,142
11/30/2006 $14,589 $15,021 $12,124
12/31/2006 $14,539 $14,968 $12,142
1/31/2007 $14,519 $14,930 $12,179
2/28/2007 $14,684 $15,126 $12,244
3/31/2007 $14,652 $15,089 $12,356
4/30/2007 $14,693 $15,134 $12,436
5/31/2007 $14,648 $15,067 $12,512
6/30/2007 $14,601 $14,989 $12,536
7/31/2007 $14,694 $15,105 $12,533
8/31/2007 $14,634 $15,040 $12,510
9/30/2007 $14,816 $15,262 $12,545
10/31/2007 $14,884 $15,330 $12,571
11/30/2007 $14,964 $15,428 $12,646
12/31/2007 $15,018 $15,471 $12,638
1/31/2008 $15,138 $15,666 $12,700
2/29/2008 $14,559 $14,949 $12,737
3/31/2008 $14,953 $15,376 $12,848
4/30/2008 $15,140 $15,556 $12,926
5/31/2008 $15,223 $15,650 $13,034
6/30/2008 $15,121 $15,473 $13,166
7/31/2008 $15,178 $15,532 $13,235
8/31/2008 $15,275 $15,714 $13,182
9/30/2008 $14,494 $14,977 $13,164
10/31/2008 $14,445 $14,824 $13,031
11/30/2008 $14,234 $14,871 $12,781
12/31/2008 $14,550 $15,088 $12,649
1/31/2009 $14,934 $15,640 $12,704
2/28/2009 $15,197 $15,722 $12,767
3/31/2009 $15,160 $15,725 $12,798
4/30/2009 $15,522 $16,039 $12,830
5/31/2009 $15,664 $16,209 $12,867

AVERAGE ANNUAL TOTAL RETURN

ADVISOR CLASS(8) 5/31/09
- ---------------- -------

1-Year +2.90%
5-Year +4.25%
10-Year +4.59%

14 | Annual Report

Performance Summary (CONTINUED)

ENDNOTES

BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS 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 5/31/09.

(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/29/08 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 5/31/09.

(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.

(8.) Effective 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 +39.15% and +4.41%.

(9.) Source: (C) 2009 Morningstar. The BC Municipal Bond Index is a market
value-weighted index engineered for the long-term tax-exempt bond market.
To be included in the index, bonds must be fixed rate, have at least one
year to final maturity and be rated investment grade (Baa3/BBB- or higher)
by at least two of the following agencies: Moody's, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.

Annual Report | 15

Your Fund's Expenses

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

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

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

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

ACTUAL FUND EXPENSES

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

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

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

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

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

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

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

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

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

16 | Annual Report

Your Fund's Expenses (CONTINUED)

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

BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
12/1/08 5/31/09 12/1/08-5/31/09
--------- --------- ---------------

CLASS A
Actual $1,000 $1,099.00 $3.14
Hypothetical (5% return before expenses) $1,000 $1,021.94 $3.02
CLASS B
Actual $1,000 $1,097.10 $6.06
Hypothetical (5% return before expenses) $1,000 $1,019.15 $5.84
CLASS C
Actual $1,000 $1,096.10 $6.06
Hypothetical (5% return before expenses) $1,000 $1,019.15 $5.84
ADVISOR CLASS
Actual $1,000 $1,100.40 $2.67
Hypothetical (5% return before expenses) $1,000 $1,022.39 $2.57

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.60%; B: 1.16%; C: 1.16%; and Advisor:
0.51%), multiplied by the average account value over the period, multiplied
by 182/365 to reflect the one-half year period.

Annual Report | 17

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS

YEAR ENDED MAY 31,
--------------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ---------- ---------- ---------- ---------- ----------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.61 $ 11.69 $ 11.72 $ 12.01 $ 11.64
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) .................... 0.50 0.51 0.51 0.52 0.54
Net realized and unrealized gains (losses) .. (0.21) (0.06) (0.02) (0.29) 0.37
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 0.29 0.45 0.49 0.23 0.91
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ....................... (0.51) (0.51) (0.51) (0.52) (0.54)
Net realized gains .......................... (0.05) (0.02) (0.01) -- --
---------- ---------- ---------- ---------- ----------
Total distributions ............................ (0.56) (0.53) (0.52) (0.52) (0.54)
---------- ---------- ---------- ---------- ----------
Redemption fees(c, d) .......................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 11.34 $ 11.61 $ 11.69 $ 11.72 $ 12.01
========== ========== ========== ========== ==========
Total return(e) ................................ 2.72% 3.92% 4.25% 1.95% 7.95%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.60% 0.60% 0.61% 0.60% 0.60%
Net investment income .......................... 4.53% 4.38% 4.37% 4.41% 4.50%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $4,831,851 $4,701,098 $4,411,763 $4,351,378 $4,497,924
Portfolio turnover rate ........................ 13.12% 11.88% 5.59% 9.71% 10.97%

(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) Effective September 1, 2008, the redemption fee was eliminated.

(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.

The accompanying notes are an integral part of these financial statements.

18 | Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS (CONTINUED)

YEAR ENDED MAY 31,
----------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.58 $ 11.67 $ 11.70 $ 11.99 $ 11.61
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.44 0.44 0.45 0.45 0.47
Net realized and unrealized gains (losses) .. (0.21) (0.07) (0.02) (0.29) 0.38
-------- -------- -------- -------- --------
Total from investment operations ............... 0.23 0.37 0.43 0.16 0.85
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.44) (0.44) (0.45) (0.45) (0.47)
Net realized gains .......................... (0.05) (0.02) (0.01) -- --
-------- -------- -------- -------- --------
Total distributions ............................ (0.49) (0.46) (0.46) (0.45) (0.47)
-------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.32 $ 11.58 $ 11.67 $ 11.70 $ 11.99
======== ======== ======== ======== ========
Total return(e) ................................ 2.23% 3.26% 3.67% 1.38% 7.46%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.16% 1.16% 1.17% 1.16% 1.16%
Net investment income .......................... 3.97% 3.82% 3.81% 3.85% 3.94%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $112,001 $148,693 $178,205 $207,209 $231,020
Portfolio turnover rate ........................ 13.12% 11.88% 5.59% 9.71% 10.97%

(b) Based on average daily shares outstanding.

(d) Effective September 1, 2008, the redemption fee was eliminated.

(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.

The accompanying notes are an integral part of these financial statements.

Annual Report | 19

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS (CONTINUED)

YEAR ENDED MAY 31,
----------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.60 $ 11.69 $ 11.71 $ 12.00 $ 11.63
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.44 0.44 0.45 0.45 0.47
Net realized and unrealized gains (losses) .. (0.22) (0.07) (0.01) (0.29) 0.37
-------- -------- -------- -------- --------
Total from investment operations ............... 0.22 0.37 0.44 0.16 0.84
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.44) (0.44) (0.45) (0.45) (0.47)
Net realized gains .......................... (0.05) (0.02) (0.01) -- --
-------- -------- -------- -------- --------
Total distributions ............................ (0.49) (0.46) (0.46) (0.45) (0.47)
-------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.33 $ 11.60 $ 11.69 $ 11.71 $ 12.00
======== ======== ======== ======== ========
Total return(e) ................................ 2.15% 3.26% 3.76% 1.38% 7.36%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.16% 1.16% 1.17% 1.16% 1.16%
Net investment income .......................... 3.97% 3.82% 3.81% 3.85% 3.94%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $535,898 $398,418 $272,837 $245,444 $235,805
Portfolio turnover rate ........................ 13.12% 11.88% 5.59% 9.71% 10.97%

(b) Based on average daily shares outstanding.

(d) Effective September 1, 2008, the redemption fee was eliminated.

(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.

The accompanying notes are an integral part of these financial statements.

20 | Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL HIGHLIGHTS (CONTINUED)

YEAR ENDED MAY 31,
-------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- ------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.61 $ 11.70 $ 11.73 $ 12.02 $ 11.64
-------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.51 0.52 0.53 0.53 0.55
Net realized and unrealized gains (losses) .. (0.20) (0.07) (0.02) (0.29) 0.38
-------- ------- ------- ------- -------
Total from investment operations ............... 0.31 0.45 0.51 0.24 0.93
-------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.52) (0.52) (0.53) (0.53) (0.55)
Net realized gains .......................... (0.05) (0.02) (0.01) -- --
-------- ------- ------- ------- -------
Total distributions ............................ (0.57) (0.54) (0.54) (0.53) (0.55)
-------- ------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- ------- ------- ------- -------
Net asset value, end of year ................... $ 11.35 $ 11.61 $ 11.70 $ 11.73 $ 12.02
======== ======= ======= ======= =======
Total return ................................... 2.90% 3.93% 4.34% 2.04% 8.14%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.51% 0.51% 0.52% 0.51% 0.51%
Net investment income .......................... 4.62% 4.47% 4.46% 4.50% 4.59%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $102,034 $84,781 $61,547 $44,308 $30,487
Portfolio turnover rate ........................ 13.12% 11.88% 5.59% 9.71% 10.97%

(b) Based on average daily shares outstanding.

(d) Effective September 1, 2008, the redemption fee was eliminated.

The accompanying notes are an integral part of these financial statements.

Annual Report | 21

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009

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

MUNICIPAL BONDS 96.4%
NEW YORK 93.8%
Albany Housing Authority Limited Obligation Revenue, Refunding, 6.25%, 10/01/12 .......... $ 4,320,000 $ 4,320,043
Albany IDA Civic Facility Revenue,
Albany Medical Center Project, 6.00%, 5/01/19 ......................................... 1,270,000 1,165,758
Albany Medical Center Project, 6.00%, 5/01/29 ......................................... 1,460,000 1,183,812
St. Peter's Hospital Project, Series A, 5.25%, 11/15/27 ............................... 5,000,000 4,387,300
St. Peter's Hospital Project, Series A, 5.25%, 11/15/32 ............................... 5,000,000 4,189,750
St. Peter's Hospital Project, Series E, 5.50%, 11/15/27 ............................... 1,135,000 1,026,403
St. Peter's Hospital Project, Series E, 5.25%, 11/15/32 ............................... 1,150,000 963,643
St. Rose Project, Series A, AMBAC Insured, Pre-Refunded, 5.375%, 7/01/31 .............. 2,750,000 3,027,310
Albany Parking Authority Revenue,
Refunding, Series A, 5.625%, 7/15/20 .................................................. 555,000 609,490
Refunding, Series A, 5.625%, 7/15/25 .................................................. 415,000 455,745
Series A, Pre-Refunded, 5.625%, 7/15/20 ............................................... 695,000 762,922
Series A, Pre-Refunded, 5.625%, 7/15/25 ............................................... 585,000 642,172
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 1,468,036
Series A, AMBAC Insured, 5.25%, 8/01/31 ............................................... 5,055,000 5,069,609
Series B, AMBAC Insured, 5.625%, 8/01/20 .............................................. 1,690,000 1,768,653
Series B, AMBAC Insured, 5.75%, 8/01/25 ............................................... 3,050,000 3,180,143
Series B, AMBAC Insured, 5.75%, 8/01/30 ............................................... 3,440,000 3,568,346
Series B, AMBAC Insured, 5.25%, 8/01/31 ............................................... 1,000,000 1,002,890
Battery Park City Authority Revenue, Refunding, Series A, 5.00%,
11/01/24 .............................................................................. 9,000,000 9,475,650
11/01/25 .............................................................................. 12,000,000 12,574,440
11/01/26 .............................................................................. 14,250,000 14,861,467
Clinton County COP, Correctional Facilities Project, 8.125%, 8/01/17 ..................... 4,120,000 4,954,506
Dutchess County IDA Civic Facility Revenue, Vassar College Project, Pre-Refunded, 5.35%,
9/01/40 ............................................................................... 16,000,000 17,644,320
Geneva IDA Civic Facilities Revenue, Colleges of the Seneca Project, AMBAC Insured,
5.00%, 9/01/21 ........................................................................ 2,835,000 2,957,103
5.125%, 9/01/31 ....................................................................... 5,045,000 5,161,792
Hempstead Town IDA Civic Facility Revenue, Adelphi University Civic Facility, 5.00%,
10/01/30 .............................................................................. 3,000,000 2,922,990
10/01/35 .............................................................................. 1,500,000 1,408,095
Ilion Elderly Housing Corp. Mortgage Revenue, 7.25%, 7/01/09 ............................. 245,000 245,931
Liberty Development Corp. Revenue,
5.50%, 10/01/37 ....................................................................... 27,000,000 25,697,520
Goldman Sachs Headquarters, 5.25%, 10/01/35 ........................................... 68,600,000 63,105,826
Long Island Power Authority Electric System General Revenue, Series A, AMBAC Insured,
5.00%, 9/01/34 ........................................................................ 20,670,000 19,727,655
Long Island Power Authority Electric System Revenue,
General, Refunding, Series A, 6.00%, 5/01/33 .......................................... 42,000,000 44,943,780
General, Refunding, Series B, 5.00%, 12/01/35 ......................................... 5,000,000 4,801,500
General, Series C, 5.00%, 9/01/35 ..................................................... 16,000,000 15,366,240
Series A, AMBAC Insured, 5.00%, 9/01/29 ............................................... 24,000,000 23,313,840
Series C, BHAC Insured, 5.00%, 9/01/35 ................................................ 5,000,000 5,041,950
Madison County IDA Civic Facility Revenue, Colgate University Project, Series B, 5.00%,
7/01/33 ............................................................................... 2,000,000 2,011,640

22 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
Middleburg Central School District GO, FGIC Insured,
4.60%, 8/15/17......................................................................... $ 1,045,000 $ 1,069,861
4.625%, 8/15/18........................................................................ 1,155,000 1,180,479
4.625%, 8/15/19........................................................................ 1,210,000 1,233,389
4.75%, 8/15/20......................................................................... 1,270,000 1,294,587
4.75%, 8/15/21......................................................................... 1,330,000 1,355,283
Monroe County IDAR, Civic Facilities, De Paul Community Facilities, 6.50%, 2/01/24........ 1,285,000 1,288,405
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 4,903,748
7/01/34................................................................................ 3,000,000 2,438,280
MTA Commuter Facilities Revenue,
Series 8, Pre-Refunded, 5.50%, 7/01/21................................................. 5,000,000 5,768,900
Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/28................................... 8,655,000 9,402,013
Series A, Pre-Refunded, 6.00%, 7/01/24................................................. 5,575,000 5,599,697
Series A, Pre-Refunded, 5.25%, 7/01/28................................................. 18,300,000 19,938,765
Series A, Pre-Refunded, 6.125%, 7/01/29................................................ 9,625,000 9,668,505
Series C, FGIC Insured, Pre-Refunded, 5.375%, 7/01/27 ................................. 19,100,000 19,175,254
Series R, Pre-Refunded, 5.50%, 7/01/17................................................. 2,000,000 2,388,580
MTA Dedicated Tax Fund Revenue,
Refunding, Series A, 5.00%, 11/15/30................................................... 25,000,000 24,611,500
Series A, 5.50%, 11/15/39.............................................................. 22,845,000 23,436,685
Series A, FGIC Insured, Pre-Refunded, 6.00%, 4/01/30................................... 27,260,000 28,513,142
Series A, FSA Insured, 5.00%, 11/15/28................................................. 41,575,000 42,032,741
Series A, FSA Insured, 5.00%, 11/15/32................................................. 71,685,000 72,066,364
Series A, FSA Insured, Pre-Refunded, 5.00%, 4/01/29.................................... 25,800,000 29,734,758
Series A, MBIA Insured, 5.00%, 11/15/35................................................ 50,430,000 49,990,250
Series A, MBIA Insured, Pre-Refunded, 5.25%, 4/01/26................................... 20,500,000 21,716,265
Series B, 5.00%, 11/15/34.............................................................. 33,000,000 32,670,990
Series B, MBIA Insured, 4.75%, 11/15/26................................................ 5,200,000 5,133,076
MTA Revenue,
New York Dedicated Tax Fund, Series B, MBIA Insured, 5.00%, 11/15/31 .................. 40,000,000 40,097,600
Refunding, Series A, FGIC Insured, 5.00%, 11/15/25..................................... 22,010,000 22,147,783
Refunding, Series A, FGIC Insured, 5.25%, 11/15/31..................................... 34,000,000 34,158,440
Refunding, Series A, FSA Insured, 5.00%, 11/15/30 ..................................... 68,130,000 68,837,189
Refunding, Series A, MBIA Insured, 5.125%, 11/15/31.................................... 15,000,000 15,011,250
Refunding, Series E, 5.25%, 11/15/31................................................... 15,000,000 15,022,950
Refunding, Series U, FGIC Insured, 5.125%, 11/15/31.................................... 5,000,000 5,003,750
Series A, 5.00%, 11/15/37.............................................................. 48,000,000 45,025,440
Series A, FGIC Insured, 5.00%, 11/15/32................................................ 10,355,000 10,035,030
Series B, 5.00%, 11/15/37.............................................................. 25,000,000 23,450,750
Series B, Pre-Refunded, 5.25%, 11/15/32................................................ 28,720,000 33,178,206
Transportation, Series A, 5.00%, 11/15/35.............................................. 43,895,000 41,495,699
Transportation, Series C, 6.50%, 11/15/28.............................................. 15,000,000 16,665,750
Transportation, Series F, 5.00%, 11/15/35.............................................. 11,000,000 10,398,740
MTA Service Contract Revenue,
Commuter Facilities, Series 7, ETM, zero cpn., 7/01/10................................. 7,500,000 7,425,375
Commuter Facilities, Series 7, ETM, zero cpn., 7/01/11................................. 7,590,000 7,367,082
Commuter Facilities, Series 7, ETM, zero cpn., 7/01/13................................. 2,065,000 1,897,136

Annual Report | 23

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
MTA Service Contract Revenue, (continued)
Refunding, Series A, 5.125%, 1/01/29 .................................................. $ 33,105,000 $ 33,083,151
Refunding, Series A, AMBAC Insured, 5.25%, 7/01/31 .................................... 50,000,000 50,492,500
Refunding, Series A, FGIC Insured, 5.00%, 7/01/25 ..................................... 12,760,000 12,871,650
Series B, 5.375%, 1/01/30 ............................................................. 50,000,000 50,286,000
Series B, MBIA Insured, 5.00%, 1/01/31 ................................................ 22,290,000 22,352,189
Transit Facilities, Series 7, ETM, zero cpn., 7/01/09 ................................. 13,125,000 13,116,862
Transit Facilities, Series 7, ETM, zero cpn., 7/01/10 ................................. 9,000,000 8,910,450
Transit Facilities, Series 7, ETM, zero cpn., 7/01/12 ................................. 15,380,000 14,563,630
Transit Facilities, Series 7, ETM, zero cpn., 7/01/13 ................................. 7,935,000 7,289,964
MTA Transit Facilities Revenue, Series A, Pre-Refunded,
6.00%, 7/01/24 ........................................................................ 7,000,000 7,031,010
6.125%, 7/01/29 ....................................................................... 11,595,000 11,647,409
Nassau County Tobacco Settlement Corp. Revenue, Asset Backed, Series A, Pre-Refunded,
6.50%, 7/15/27 ........................................................................ 15,000,000 15,256,500
Nassau Health Care Corp. Health System Revenue, Nassau County Guaranteed, FSA Insured,
Pre-Refunded, 5.75%, 8/01/29 .......................................................... 36,040,000 37,061,374
New York City GO,
Citysavers, Series B, zero cpn., 8/01/09 .............................................. 8,875,000 8,860,977
Citysavers, Series B, zero cpn., 8/01/10 .............................................. 2,690,000 2,651,372
Citysavers, Series B, zero cpn., 6/01/12 .............................................. 1,030,000 1,020,895
Citysavers, Series B, zero cpn., 12/01/12 ............................................. 1,030,000 1,007,155
Citysavers, Series B, zero cpn., 6/01/13 .............................................. 1,030,000 979,221
Citysavers, Series B, zero cpn., 12/01/13 ............................................. 1,030,000 964,276
Citysavers, Series B, zero cpn., 6/01/14 .............................................. 1,030,000 932,449
Citysavers, Series B, zero cpn., 12/01/14 ............................................. 1,030,000 916,546
Citysavers, Series B, zero cpn., 6/01/15 .............................................. 1,030,000 892,989
Citysavers, Series B, zero cpn., 12/01/15 ............................................. 1,030,000 875,994
Citysavers, Series B, zero cpn., 6/01/16 .............................................. 1,030,000 846,856
Citysavers, Series B, zero cpn., 12/01/16 ............................................. 1,030,000 829,562
Citysavers, Series B, zero cpn., 6/01/17 .............................................. 1,030,000 802,967
Citysavers, Series B, zero cpn., 12/01/17 ............................................. 1,030,000 785,684
Citysavers, Series B, zero cpn., 6/01/18 .............................................. 1,030,000 757,194
Citysavers, Series B, zero cpn., 12/01/18 ............................................. 1,005,000 722,022
Citysavers, Series B, zero cpn., 6/01/19 .............................................. 1,030,000 713,193
Citysavers, Series B, zero cpn., 12/01/19 ............................................. 1,030,000 696,960
Citysavers, Series B, zero cpn., 6/01/20 .............................................. 10,000,000 6,058,700
Fiscal 2003, Series I, 5.00%, 3/01/29 ................................................. 10,000,000 10,026,300
Fiscal 2003, Series I, 5.00%, 3/01/30 ................................................. 14,785,000 14,803,925
Pre-Refunded, 5.50%, 5/15/24 .......................................................... 8,920,000 9,437,092
Refunding, 5.50%, 5/15/24 ............................................................. 1,080,000 1,101,168
Refunding, Series G, AMBAC Insured, 5.00%, 8/01/22 .................................... 15,000,000 15,531,450
Series A, FSA Insured, 6.00%, 5/15/30 ................................................. 1,095,000 1,121,499
Series A, FSA Insured, Pre-Refunded, 6.00%, 5/15/30 ................................... 5,155,000 5,478,270
Series B, 7.00%, 2/01/18 .............................................................. 25,000 24,917
Series C, 7.00%, 2/01/12 .............................................................. 705,000 710,760
Series C, FSA Insured, 5.125%, 3/15/25 ................................................ 165,000 167,013
Series C, FSA Insured, Pre-Refunded, 5.125%, 3/15/25 .................................. 6,335,000 6,998,845
Series D, 8.00%, 8/01/17 .............................................................. 5,000 5,041

24 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City GO, (continued)
Series D, 7.50%, 2/01/18............................................................... $ 5,000 $ 4,987
Series D, 5.125%, 8/01/19.............................................................. 1,985,000 2,033,275
Series D, 5.50%, 6/01/24............................................................... 16,160,000 16,603,430
Series D, 5.125%, 12/01/28............................................................. 5,230,000 5,314,569
Series D, 5.00%, 10/15/29.............................................................. 5,000,000 5,015,250
Series D, 5.00%, 11/01/34.............................................................. 5,000,000 4,943,050
Series D, Pre-Refunded, 5.50%, 6/01/24................................................. 7,785,000 8,747,148
Series E, Sub Series E-1, 6.00%, 10/15/23.............................................. 7,000,000 7,823,270
Series E, Sub Series E-1, 6.25%, 10/15/28.............................................. 10,000,000 11,090,900
Series F, 5.30%, 1/15/26............................................................... 24,070,000 24,551,881
Series F, Pre-Refunded, 5.30%, 1/15/26................................................. 20,930,000 23,648,179
Series H, 7.20%, 2/01/15............................................................... 5,000 5,001
Series H, FSA Insured, 5.375%, 8/01/27................................................. 7,595,000 7,641,709
Series H, MBIA Insured, 5.125%, 8/01/25................................................ 3,645,000 3,664,100
Series I, Sub Series I-1, 5.375%, 4/01/36.............................................. 17,500,000 17,976,000
(a) Series J, Sub Series J-1, 5.00%, 5/15/33............................................... 19,500,000 19,364,865
(a) Series J, Sub Series J-1, 5.00%, 5/15/36............................................... 7,895,000 7,757,074
Series J, Sub Series J1, AMBAC Insured, 5.00%, 6/01/23................................. 20,000,000 20,594,400
Series M, 5.00%, 4/01/35............................................................... 10,000,000 9,856,600
New York City IDA Civic Facility Revenue,
Ethical Culture School Project, Series B-1, XLCA Insured, 5.00%, 6/01/35............... 7,820,000 5,936,553
Institute of International Education Inc. Project, 5.25%, 9/01/21...................... 1,530,000 1,568,587
Institute of International Education Inc. Project, 5.25%, 9/01/31...................... 5,235,000 5,259,814
New York University Project, AMBAC Insured, 5.00%, 7/01/31............................. 18,000,000 18,108,540
Staten Island University Hospital Project, Series A, 6.375%, 7/01/31................... 3,795,000 3,286,394
New York City IDAR,
Queens Baseball Stadium, Pilot, AMBAC Insured, 5.00%, 1/01/39.......................... 8,000,000 6,414,160
Yankee Stadium, Pilot, Assured Guaranty, 7.00%, 3/01/49................................ 15,000,000 16,405,650
New York City Municipal Finance Authority Revenue, Series D, FSA Insured, 5.00%,
6/15/38................................................................................ 59,000,000 59,625,990
New York City Municipal Finance Authority Water and Sewer System Revenue,
2002, Series B, 5.00%, 6/15/26......................................................... 25,000,000 25,356,250
Series B, 5.00%, 6/15/36............................................................... 25,000,000 25,073,000
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 10,030,700
Refunding, Series B, 6.10%, 6/15/31.................................................... 11,005,000 11,659,908
Refunding, Series B, 6.00%, 6/15/33.................................................... 6,040,000 6,393,219
Refunding, Series B, 5.00%, 6/15/36.................................................... 26,700,000 26,763,546
Refunding, Series D, 5.00%, 6/15/37.................................................... 4,865,000 4,872,443
Refunding, Series D, AMBAC Insured, 5.00%, 6/15/39..................................... 7,900,000 7,814,996
Refunding, Series E, MBIA Insured, 5.125%, 6/15/31..................................... 34,175,000 34,532,470
Second General Resolution, Series AA, 4.75%, 6/15/37................................... 40,000,000 38,094,800
Series A, 5.75%, 6/15/40............................................................... 6,550,000 7,051,402
Series A, FGIC Insured, Pre-Refunded, 5.75%, 6/15/31................................... 19,315,000 19,542,917
Series A, FGIC Insured, Pre-Refunded, 5.50%, 6/15/32................................... 11,655,000 11,791,480
Series A, FGIC Insured, Pre-Refunded, 5.25%, 6/15/33................................... 7,000,000 7,606,200
Series A, Pre-Refunded, 5.75%, 6/15/30................................................. 41,190,000 41,676,042
Series B, Pre-Refunded, 6.10%, 6/15/31................................................. 3,995,000 4,268,058
Series B, Pre-Refunded, 6.00%, 6/15/33................................................. 10,260,000 10,950,703

Annual Report | 25

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City Transitional Finance Authority Building Aid Revenue,
Fiscal 2007, Series S-2, FGIC Insured, 5.00%, 1/15/37 ................................. $ 22,000,000 $ 21,108,780
Fiscal 2008, Refunding, Series S-1, 5.00%, 1/15/34 .................................... 75,000,000 71,822,250
Fiscal 2009, Series S-1, 5.75%, 7/15/38 ............................................... 30,000,000 31,008,000
Fiscal 2009, Series S-2, 6.00%, 7/15/38 ............................................... 50,000,000 52,760,000
Fiscal 2009, Series S-3, 5.25%, 1/15/39 ............................................... 29,485,000 29,090,491
Fiscal 2009, Series S-4, 5.75%, 1/15/39 ............................................... 30,000,000 30,913,800
New York City Transitional Finance Authority Revenue,
Future Tax Secured, 2005, Series B, 5.00%, 5/01/26 .................................... 1,515,000 1,524,181
Future Tax Secured, 2005, Series C, 5.00%, 5/01/29 .................................... 1,485,000 1,495,143
Future Tax Secured, Refunding, Series B, 5.00%, 5/01/30 ............................... 7,290,000 7,357,870
Future Tax Secured, Refunding, Series B, AMBAC Insured, 5.00%, 5/01/30 ................ 2,900,000 2,943,442
Future Tax Secured, Refunding, Series B, MBIA Insured, 5.00%, 8/01/32 ................. 15,000,000 15,088,500
Future Tax Secured, Series A, 5.25%, 8/01/31 .......................................... 28,205,000 28,762,049
Future Tax Secured, Series A, FGIC Insured, 5.00%, 5/01/28 ............................ 15,805,000 15,988,022
Future Tax Secured, Series A, FGIC Insured, Pre-Refunded, 5.00%, 5/01/28 .............. 260,000 279,945
Future Tax Secured, Series A, Pre-Refunded, 5.625%, 2/15/26 ........................... 20,000,000 20,924,600
Future Tax Secured, Series A, Pre-Refunded, 6.00%, 8/15/29 ............................ 29,000,000 29,616,830
Future Tax Secured, Series A, Pre-Refunded, 5.25%, 5/01/31 ............................ 460,000 497,458
Future Tax Secured, Series A, Pre-Refunded, 5.25%, 8/01/31 ............................ 2,400,000 2,752,272
Future Tax Secured, Series B, AMBAC Insured, Pre-Refunded, 5.00%, 5/01/30 ............. 100,000 110,532
Future Tax Secured, Series B, Pre-Refunded, 6.00%, 11/15/29 ........................... 15,000,000 15,940,650
Future Tax Secured, Series B, Pre-Refunded, 5.00%, 5/01/30 ............................ 230,000 253,932
Future Tax Secured, Series C, Pre-Refunded, 5.50%, 11/01/24 ........................... 16,800,000 17,740,968
Future Tax Secured, Series C, Pre-Refunded, 5.50%, 11/01/29 ........................... 13,660,000 14,412,120
Future Tax Secured, Series D, 5.00%, 2/01/27 .......................................... 62,025,000 63,372,183
Future Tax Secured, Series E, 5.00%, 2/01/25 .......................................... 5,000,000 5,144,400
Future Tax Secured, Series E, 5.00%, 2/01/27 .......................................... 10,000,000 10,217,200
Future Tax Secured, Series E, 5.00%, 2/01/33 .......................................... 8,895,000 8,926,844
Future Tax Secured Bonds, Series C, MBIA Insured, 5.00%, 5/01/29 ...................... 335,000 338,387
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 82,758,950
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 15,748,310
Wildlife Conservation Society, FGIC Insured, 5.00%, 2/01/34 ........................... 10,500,000 10,590,510
New York Convention Center Development Corp. Revenue, Hotel Unit Fee Secured, AMBAC
Insured, 5.00%, .......................................................................
11/15/35 .............................................................................. 33,130,000 30,672,417
11/15/44 .............................................................................. 31,000,000 27,413,300
New York IDA Parking Facility Revenue, Royal Charter Presbyterian, FSA Insured, 5.25%,
12/15/32 .............................................................................. 1,525,000 1,553,868
New York State Dormitory Authority Lease Revenue,
Court Facilities, Pre-Refunded, 6.00%, 5/15/39 ........................................ 58,245,000 61,897,544
Refunding, Series A, FGIC Insured, 5.00%, 7/01/33 ..................................... 12,650,000 12,070,503
State University Dormitory Facilities, FGIC Insured, Pre-Refunded, 5.50%, 7/01/27 ..... 2,000,000 2,187,200
State University Dormitory Facilities, FGIC Insured, Pre-Refunded, 5.10%, 7/01/31 ..... 7,700,000 8,357,503
State University Dormitory Facilities, Pre-Refunded, 5.00%, 7/01/32 ................... 5,500,000 6,115,505
State University Dormitory Facilities, Series A, Pre-Refunded, 6.00%, 7/01/30 ......... 5,750,000 6,151,235

26 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Lease Revenue, (continued)
State University Dormitory Facilities, Series B, MBIA Insured, Pre-Refunded, 5.125%,
7/01/28 ............................................................................ $ 4,800,000 $ 4,865,760
State University Dormitory Facilities, Series C, MBIA Insured, Pre-Refunded, 5.50%,
7/01/19 ............................................................................ 5,090,000 5,161,260
State University Dormitory Facilities, Series C, MBIA Insured, Pre-Refunded, 5.50%,
7/01/29 ............................................................................ 9,250,000 9,379,500
New York State Dormitory Authority Revenue,
FGIC Insured, Pre-Refunded, 5.125%, 5/15/31 ........................................... 22,000,000 24,687,080
Mortgage, St. Barnabas, Series A, AMBAC Insured, 5.125%, 2/01/22 ...................... 4,000,000 4,079,760
Mortgage, St. Barnabas, Series A, AMBAC Insured, 5.00%, 2/01/31 ....................... 5,500,000 5,254,425
School Districts Financing Program, Series A, MBIA Insured, 5.00%, 4/01/31 ............ 9,500,000 9,557,190
Teachers College, MBIA Insured, 5.00%, 7/01/22 ........................................ 2,885,000 3,000,746
Teachers College, MBIA Insured, 5.00%, 7/01/32 ........................................ 6,000,000 6,086,820
Upstate Community Colleges, Series A, 5.00%, 7/01/27 .................................. 3,720,000 3,723,906
New York State Dormitory Authority Revenues,
Buena Vida Nursing Home, Series A, 5.25%, 7/01/28 ..................................... 4,730,000 4,735,676
City University System, Consolidated Fourth General Resolution, Series A, Pre-Refunded,
5.25%, 7/01/31 ..................................................................... 12,000,000 13,061,640
City University System Consolidated, Series C, 7.50%, 7/01/10 ......................... 5,885,000 6,065,552
City University System Consolidated, Series D, ETM, 7.00%, 7/01/09 .................... 515,000 517,657
City University System Consolidated, Third General, Refunding, Series 1, FGIC Insured,
5.25%, 7/01/25 ..................................................................... 4,100,000 4,100,738
City University System Consolidated, Third General, Series 1, FSA Insured,
Pre-Refunded,
5.50%, 7/01/29 ..................................................................... 38,375,000 38,912,250
Fashion Institute of Technology Student Housing Corp., FGIC Insured, Pre-Refunded,
5.00%, 7/01/29 ..................................................................... 9,700,000 11,133,660
Fashion Institute of Technology Student Housing Corp., FGIC Insured, Pre-Refunded,
5.125%, 7/01/34 . .................................................................. 15,000,000 17,307,300
Fordham University, Refunding, MBIA Insured, 5.00%, 7/01/28 ........................... 490,000 470,763
Good Samaritan Hospital Medical Center, Series A, MBIA Insured, 5.50%, 7/01/24 ........ 5,000,000 4,584,450
Mental Health Services Facilities Improvement, Series A, AMBAC Insured, 5.00%,
2/15/30 ............................................................................ 5,000,000 4,986,850
Mental Health Services Facilities Improvement, Series B, 5.00%, 2/15/33 ............... 35,000,000 33,182,800
Mental Health Services Facilities Improvement, Series B, MBIA Insured, Pre-Refunded,
6.00%, 2/15/25 ..................................................................... 5,460,000 5,672,285
Mental Health Services Facilities Improvement, Series B, MBIA Insured, Pre-Refunded,
6.00%, 2/15/30 ..................................................................... 4,300,000 4,467,184
Mental Health Services Facilities Improvement, Series B, MBIA Insured, Pre-Refunded,
5.25%, 8/15/31 ..................................................................... 3,975,000 4,347,100
Mental Health Services Facilities Improvement, Series D, FSA Insured, Pre-Refunded,
5.50%, 2/15/21 ..................................................................... 1,015,000 1,076,519
Mental Health Services Facilities Improvement, Series D, FSA Insured, Pre-Refunded,
5.50%, 8/15/21 ..................................................................... 2,065,000 2,190,160
Mental Health Services Facilities Improvement, Series D, FSA Insured, Pre-Refunded,
5.25%, 8/15/30 ..................................................................... 4,460,000 4,716,985
Montefiore Hospital, FGIC Insured, 5.00%, 8/01/29 ..................................... 5,995,000 5,853,218
New School University, MBIA Insured, 5.00%, 7/01/31 ................................... 2,500,000 2,512,125

Annual Report | 27

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
New York Hospital Medical Center, AMBAC Insured, 5.60%, 2/15/39 ....................... $ 4,900,000 $ 4,816,014
New York University, Series 2, AMBAC Insured, 5.00%, 7/01/26 .......................... 3,500,000 3,563,420
New York University, Series 2, AMBAC Insured, 5.00%, 7/01/31 .......................... 5,000,000 5,052,850
New York University, Series A, FGIC Insured, 5.00%, 7/01/34 ........................... 15,200,000 15,260,192
Non-State Supported Debt, Cornell University, Refunding, Series A, 5.00%, 7/01/34 ..... 10,000,000 10,311,200
Non-State Supported Debt, Cornell University, Refunding, Series A, 5.00%, 7/01/39 ..... 22,000,000 22,541,860
Non-State Supported Debt, Fordham University, FGIC Insured, 5.00%, 7/01/27 ............ 2,435,000 2,496,265
Non-State Supported Debt, Fordham University, FGIC Insured, 5.00%, 7/01/32 ............ 3,125,000 3,156,813
Non-State Supported Debt, Fordham University, Series B, Assured Guaranty, 5.00%,
7/01/33 ............................................................................ 9,000,000 9,071,550
Non-State Supported Debt, Fordham University, Series B, Assured Guaranty, 5.00%,
7/01/38 ............................................................................ 5,000,000 5,003,400
Non-State Supported Debt, Health Quest Systems, Series B, Assured Guaranty, 5.125%,
7/01/37 ............................................................................ 3,000,000 2,885,490
Non-State Supported Debt, Hospital Special Surgery, MBIA Insured, 5.00%, 8/15/29 ...... 7,750,000 7,566,480
Non-State Supported Debt, Hospital Special Surgery, MBIA Insured, 5.00%, 8/15/33 ...... 5,200,000 4,825,236
Non-State Supported Debt, Long Island University, Radian Insured, Pre-Refunded,
5.125%, 9/01/23 .................................................................... 100,000 103,112
Non-State Supported Debt, Long Island University, Radian Insured, Pre-Refunded,
5.25%, 9/01/28 ..................................................................... 80,000 82,514
Non-State Supported Debt, Long Island University, Refunding, Radian Insured, 5.125%,
9/01/23 ............................................................................ 1,700,000 1,626,135
Non-State Supported Debt, Long Island University, Refunding, Radian Insured, 5.25%,
9/01/28 ............................................................................ 1,420,000 1,328,453
Non-State Supported Debt, Montefiore Medical Center, FGIC Insured, 5.00%, 2/01/28 ..... 10,060,000 9,927,208
Non-State Supported Debt, Mortgage Hospital, Montefiore, FHA Insured, 5.00%, 8/01/24 .. 2,500,000 2,424,875
Non-State Supported Debt, Mount Sinai School Medical New York University, Refunding,
MBIA Insured, 5.00%, 7/01/35 ....................................................... 5,000,000 4,830,200
Non-State Supported Debt, Municipal Health Facilities, Lease, Refunding, Series 2,
Sub Series 2-4, 5.00%, 1/15/27 ..................................................... 5,000,000 5,122,850
Non-State Supported Debt, Municipal Health Facilities, Lease, Refunding, Series 2,
Sub Series 2-4, 5.00%, 1/15/28 ..................................................... 5,000,000 5,090,850
Non-State Supported Debt, Municipal Health Facilities, Lease, Refunding, Series 2,
Sub Series 2-5, 5.00%, 1/15/32 ..................................................... 20,000,000 19,891,600
Non-State Supported Debt, New York and Presbyterian Hospital, FSA Insured, 5.00%,
8/15/36 ............................................................................ 14,185,000 13,554,902
Non-State Supported Debt, New York University, AMBAC Insured, 5.00%, 7/01/26 .......... 5,475,000 5,669,746
Non-State Supported Debt, New York University, Series A, 5.00%, 7/01/38 ............... 21,800,000 21,699,720
Non-State Supported Debt, New York University, Series A, AMBAC Insured, 5.00%,
7/01/27 ............................................................................ 5,470,000 5,630,927
Non-State Supported Debt, New York University, Series A, AMBAC Insured, 5.00%,
7/01/32 ............................................................................ 5,000,000 5,006,400
Non-State Supported Debt, New York University, Series A, AMBAC Insured, 5.00%,
7/01/37 ............................................................................ 10,805,000 10,596,788
Non-State Supported Debt, New York University, Series B, 5.00%, 7/01/38 ............... 23,995,000 23,884,623
Non-State Supported Debt, New York University, Series B, 5.25%, 7/01/48 ............... 49,665,000 50,091,126
Non-State Supported Debt, New York University, Series C, 5.00%, 7/01/38 ............... 25,000,000 24,885,000

28 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
Non-State Supported Debt, North Shore L.I. Jewish Obligation Group, Series A, 5.00%,
5/01/32 ............................................................................ $ 6,250,000 $ 5,477,750
Non-State Supported Debt, Ozanam Hall of Queens Nursing Home, 5.00%, 11/01/26 ......... 2,665,000 2,477,251
Non-State Supported Debt, Ozanam Hall of Queens Nursing Home, 5.00%, 11/01/31 ......... 2,500,000 2,161,600
Non-State Supported Debt, Residential Institution for Children, 5.00%, 6/01/38 ........ 5,000,000 4,977,200
Non-State Supported Debt, School District Financing Program, Series C, FSA Insured,
5.00%, 10/01/37 .................................................................... 6,550,000 6,638,621
(a) Non-State Supported Debt, School Districts, Financing Program, Series C, Assured
Guaranty,
5.00%, 10/01/31 .................................................................... 4,000,000 3,973,120
(a) Non-State Supported Debt, School Districts, Financing Program, Series C, Assured
Guaranty,
5.125%, 10/01/36 ................................................................... 5,000,000 4,988,650
Non-State Supported Debt, School Districts Bond Financing, Refunding, Series C,
MBIA Insured, 5.00%, 4/01/35 ....................................................... 7,525,000 7,596,412
Non-State Supported Debt, School Districts Bond Financing, Series B, MBIA Insured,
5.00%, 10/01/34 .................................................................... 5,000,000 5,070,050
Non-State Supported Debt, The New York Hospital Medical Center of Queens, FHA
Insured,
4.75%, 2/15/37 ..................................................................... 5,000,000 4,174,350
North Shore L.I. Jewish Group, Pre-Refunded, 5.50%, 5/01/33 ........................... 2,500,000 2,874,325
Nursing Home, Wesley Garden, FHA Insured, 6.125%, 8/01/35 ............................. 1,705,000 1,705,887
Rockefeller University, Series A, Sub Series A1, 5.00%, 7/01/32 ....................... 11,500,000 11,682,965
Skidmore College, FGIC Insured, 5.00%, 7/01/33 ........................................ 6,565,000 6,605,637
St. Francis Hospital, Series A, MBIA Insured, 5.50%, 7/01/29 .......................... 1,000,000 891,690
St. John's University, Series A, MBIA Insured, Pre-Refunded, 5.25%, 7/01/25 ........... 5,310,000 5,831,867
State Rehabilitation Assn., Series A, AMBAC Insured, 5.00%, 7/01/23 ................... 1,725,000 1,798,537
State Supported Debt, FSA Insured, 5.00%, 2/15/33 ..................................... 13,280,000 13,435,376
State Supported Debt, FSA Insured, 5.00%, 2/15/38 ..................................... 22,260,000 22,274,692
State Supported Debt, Mental Health, Refunding, Series D, MBIA Insured, 5.00%,
8/15/17 ............................................................................ 2,250,000 2,250,248
State Supported Debt, Mental Health, Series D, FSA Insured, Pre-Refunded, 5.50%,
2/15/21 ............................................................................ 95,000 100,758
State Supported Debt, Mental Health, Series D, FSA Insured, Pre-Refunded, 5.50%,
8/15/21 ............................................................................ 205,000 217,425
State Supported Debt, Mental Health, Series D, FSA Insured, Pre-Refunded, 5.25%,
8/15/30 ............................................................................ 165,000 174,507
State Supported Debt, Mental Health Facilities, Series B, 5.00%, 2/15/28 .............. 7,690,000 7,661,701
State Supported Debt, Mental Health Facilities, Series B, Pre-Refunded, 5.00%,
2/15/28 ............................................................................ 1,505,000 1,689,995
State Supported Debt, Mental Health Services, Series B, MBIA Insured, Pre-Refunded,
6.00%, 2/15/25 ..................................................................... 640,000 664,883
State Supported Debt, Mental Health Services, Series B, MBIA Insured, Pre-Refunded,
6.00%, 2/15/30 ..................................................................... 565,000 586,967
State Supported Debt, Mental Health Services, Series D, FSA Insured, 5.25%,
8/15/30 ............................................................................ 145,000 146,483
State Supported Debt, Mental Health Services, Series D, FSA Insured, Pre-Refunded,
5.50%, 8/15/21 ..................................................................... 70,000 74,243
State Supported Debt, Mental Health Services, Series D, FSA Insured, Pre-Refunded,
5.25%, 8/15/30 ..................................................................... 230,000 243,253
State Supported Debt, Mental Health Services Facilities Improvement, Series A,
FSA Insured, 5.00%, 2/15/32 ........................................................ 28,000,000 28,390,880

Annual Report | 29

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
State Supported Debt, Mental Health Services Facilities Improvement, Series B,
FSA Insured, 5.00%, 2/15/32 ........................................................ $ 8,680,000 $ 8,801,173
State Supported Debt, Mental Health Services Facilities Improvement, Series B,
MBIA Insured, 5.25%, 8/15/31 ....................................................... 3,640,000 3,578,812
State Supported Debt, Mental Health Services Facilities Improvement, Series B,
MBIA Insured, Pre-Refunded, 5.25%, 8/15/31 ......................................... 2,385,000 2,608,260
State Supported Debt, Mental Health Services Facilities Improvement, Series E,
5.00%, 2/15/30 ..................................................................... 12,100,000 11,764,588
State Supported Debt, State University Dormitory Facilities, 5.00%, 7/01/33 ........... 14,210,000 14,271,245
State Supported Debt, State University Dormitory Facilities, 5.00%, 7/01/38 ........... 10,785,000 10,719,104
State Supported Debt, State University Educational Facilities, Refunding, 5.00%,
5/15/17 ............................................................................ 3,180,000 3,224,838
State Supported Debt, State University Educational Facilities, Refunding, 5.125%,
5/15/21 ............................................................................ 1,105,000 1,105,530
State Supported Debt, Upstate Community Colleges, 6.00%, 7/01/31 . .................... 20,000,000 21,116,800
State Supported Debt, Upstate Community Colleges, Refunding, Series A, 5.00%,
7/01/19 ............................................................................ 4,610,000 4,657,898
State Supported Debt, Upstate Community Colleges, Refunding, Series A, 5.00%,
7/01/28 ............................................................................ 16,360,000 16,102,494
W.K. Nursing Home Corp., FHA Insured, 6.05%, 2/01/26 .................................. 6,800,000 6,807,208
Yeshiva University, AMBAC Insured, 5.125%, 7/01/29 .................................... 13,260,000 13,169,036
Yeshiva University, AMBAC Insured, 5.125%, 7/01/34 .................................... 23,510,000 22,347,666
New York State Dormitory Authority State Personal Income Tax Revenue, Education,
Refunding, Series C, 5.75%, 3/15/32 ................................................... 30,100,000 32,455,626
Series A, 5.00%, 3/15/36 ........................................................... 7,395,000 7,394,408
Series A, 5.00%, 3/15/37 ........................................................... 17,500,000 17,446,450
Series A, AMBAC Insured, 5.00%, 3/15/34 ............................................ 10,325,000 10,339,661
Series C, 5.00%, 12/15/31 .......................................................... 17,305,000 17,554,019
Series C, 5.00%, 12/15/35 .......................................................... 10,000,000 10,012,200
Series D, 5.00%, 3/15/36 ........................................................... 49,000,000 48,996,080
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 20,281,800
New York State Environmental Facilities Corp. PCR, State Water, Series E, 6.875%,
6/15/14 ............................................................................... 1,190,000 1,189,976
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 2,733,237
New York City Municipal Water, Refunding, Series B, 5.00%, 6/15/33 .................... 6,510,000 6,561,689
New York City Municipal Water, Refunding, Series B, 5.00%, 6/15/37 .................... 5,310,000 5,294,017
Pooled Financing, Series B, 5.25%, 5/15/31 ............................................ 9,595,000 9,736,622
Series C, 5.25%, 6/15/31 .............................................................. 37,600,000 38,177,912
New York State GO, Series A, 5.00%, 2/15/39 .............................................. 6,000,000 6,096,420
New York State HFA Service Contract Obligation Revenue,
Series A, 6.50%, 3/15/24 .............................................................. 330,000 330,036
Series A, 6.50%, 3/15/25 .............................................................. 105,000 105,007
Series A, 6.00%, 3/15/26 .............................................................. 115,000 115,060
Series C, 6.30%, 3/15/22 .............................................................. 1,950,000 1,950,273
Series C, 5.50%, 3/15/25 .............................................................. 17,005,000 17,120,974

30 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

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 $ 11,631,068
Series A, 5.00%, 3/15/34 .............................................................. 10,000,000 10,026,200
Series A, 5.00%, 3/15/38 .............................................................. 15,000,000 14,930,850
New York State HFAR,
Children's Rescue Fund Housing, Series A, 7.625%, 5/01/18 . ........................... 3,585,000 3,598,910
Housing Project Mortgage, Refunding, Series A, FSA Insured, 6.10%, 11/01/15 ........... 19,670,000 19,748,680
Housing Project Mortgage, Refunding, Series A, FSA Insured, 6.125%, 11/01/20 .......... 26,570,000 26,616,497
MFM, Refunding, Series B, AMBAC Insured, 6.35%, 8/15/23 ............................... 2,280,000 2,283,739
MFM, Series B, AMBAC Insured, 6.25%, 8/15/14 .......................................... 80,000 80,070
New York State Medical Care Facilities Finance Agency Revenue,
Hospital and Nursing Home, Mortgage Revenue, Series C, FHA Insured, 6.20%, 8/15/23 .... 5,855,000 5,855,937
Hospital and Nursing Home, Series A, FHA Insured, 6.30%, 8/15/23 ...................... 7,200,000 7,199,280
Hospital and Nursing Home, Series A, FHA Insured, 6.375%, 8/15/33 ..................... 5,880,000 5,886,056
Mortgage Revenue Project, Series E, FHA Insured, 6.375%, 2/15/35 ...................... 13,200,000 13,213,992
Security Mortgage, 2008, Series A, 6.375%, 11/15/20 ................................... 4,915,000 4,918,981
New York State Mortgage Agency Homeowner Mortgage Revenue,
Series 156, SONYMA Insured, 5.20%, 10/01/28 ........................................... 7,500,000 7,599,000
Series 156, SONYMA Insured, 5.35%, 10/01/33 ........................................... 11,440,000 11,497,543
Series 158, SONYMA Insured, 6.60%, 10/01/38 ........................................... 4,000,000 4,293,160
New York State Municipal Bond Bank Agency School Purpose Revenue, Series C,
5.25%, 6/01/21 ........................................................................ 5,110,000 5,278,834
5.25%, 12/01/21 ....................................................................... 8,025,000 8,260,534
5.25%, 6/01/22 ........................................................................ 3,400,000 3,471,094
5.25%, 12/01/22 ....................................................................... 5,000,000 5,104,550
5.00%, 6/01/23 ........................................................................ 5,925,000 5,980,458
5.00%, 12/01/23 ....................................................................... 3,000,000 3,028,080
New York State Municipal Bond Bank Agency Special Program Revenue, Buffalo, Series A,
AMBAC Insured, 5.25%, 5/15/31 . ....................................................... 4,145,000 4,186,118
New York State Power Authority Revenue, Series A, 5.25%,
11/15/30 .............................................................................. 2,000,000 2,020,780
11/15/40 .............................................................................. 9,000,000 9,038,340
New York State Thruway Authority General Revenue,
AMBAC Insured, 5.00%, 1/01/30 ......................................................... 10,000,000 9,974,100
Refunding, Series G, FSA Insured, 5.00%, 1/01/30 ...................................... 10,000,000 10,015,200
Refunding, Series H, FGIC Insured, 5.00%, 1/01/37 ..................................... 54,810,000 51,681,445
Revenue, Series G, FSA Insured, 5.00%, 1/01/32 ........................................ 35,000,000 34,348,300
New York State Thruway Authority Highway and Bridge Trust Fund Revenue,
Refunding, Series C, AMBAC Insured, 5.00%, 4/01/19 .................................... 20,000,000 20,767,200
Refunding, Series C, AMBAC Insured, 5.00%, 4/01/20 .................................... 18,835,000 19,414,176
Series B-1, FGIC Insured, Pre-Refunded, 5.75%, 4/01/15 ................................ 2,000,000 2,107,740
Series B-1, FGIC Insured, Pre-Refunded, 5.75%, 4/01/16 ................................ 2,000,000 2,107,740
New York State Thruway Authority Revenue, State Personal Income Tax, Transportation,
Series A, 5.00%, 3/15/22 .............................................................. 14,270,000 14,683,259
New York State Thruway Authority Service Contract Revenue, Local Highway and Bridge,
AMBAC Insured, Pre-Refunded, 5.375%, 4/01/19 .......................................... 10,555,000 11,095,522

Annual Report | 31

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Urban Development Corp. Revenue,
Correctional Facilities Service Contract, Series D, FSA Insured, Pre-Refunded,
5.25%, 1/01/30 ..................................................................... $ 10,000,000 $ 10,681,500
Empire State Development Corp., Series B, 5.00%, 1/01/26 .............................. 8,830,000 8,945,408
Empire State Development Corp., Series B, 5.00%, 1/01/27 .............................. 7,730,000 7,780,168
Empire State Development Corp., Series B, 5.00%, 1/01/28 .............................. 5,460,000 5,459,782
FGIC Insured, 5.00%, 3/15/29 .......................................................... 7,000,000 7,091,490
Personal Income Tax, Series C-1, Pre-Refunded, 5.00%, 3/15/25 ......................... 3,225,000 3,633,511
Personal Income Tax, State Facilities, Series A, Pre-Refunded, 5.25%, 3/15/32 ......... 20,000,000 22,193,000
Refunding, Series D, 5.625%, 1/01/28 .................................................. 3,780,000 3,957,887
State Personal Income Tax, Series B-1, 5.00%, 3/15/36 ................................. 10,000,000 10,037,700
Niagara Falls Public Water Authority Revenue, Series A, MBIA Insured, 5.00%, 7/15/34 ..... 9,000,000 9,012,780
Orangetown Housing Authority Housing Facilities Revenue, Senior Housing Center Project,
Refunding, MBIA Insured, zero cpn., 4/01/30 ........................................... 21,170,000 5,691,554
Otsego County IDA Civic Facility Revenue, Hartwick College Project, Series A,
Pre-Refunded,
5.50%, 7/01/19 ........................................................................ 3,400,000 3,447,464
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 30,482,100
8/15/37 ............................................................................... 74,235,000 75,226,780
Rensselaer Municipal Leasing Corp. Leasehold Mortgage Revenue, Rensselaer County
Nursing Home,
Series A, 6.90%, 6/01/24 .............................................................. 8,910,000 8,715,049
Series B, 6.90%, 6/01/24 .............................................................. 2,980,000 2,914,798
Sachem Central School District Holbrook GO, Series B, MBIA Insured, Pre-Refunded, 5.00%,
10/15/27 .............................................................................. 3,885,000 4,427,540
10/15/28 2,000,000 2,279,300
Sales Tax Asset Receivable Corp. Revenue, Series A, AMBAC Insured, 5.00%,
10/15/29 .............................................................................. 5,195,000 5,382,488
10/15/32 .............................................................................. 94,975,000 97,348,425
Saratoga County Water Authority Revenue, Water System, 5.00%, 9/01/48 .................... 7,225,000 7,007,094
St. Lawrence County IDA Civic Facility Revenue, Clarkson University Project, Series A,
Pre-Refunded, 5.50%, 7/01/29 .......................................................... 6,000,000 6,083,460
Suffolk County Judicial Facilities Agency Service Agreement Revenue, John P. Cohalan
Complex,
AMBAC Insured, 5.00%, 4/15/16 ......................................................... 2,720,000 2,766,730
Syracuse IDA Civic Facility Revenue, Crouse Health Hospital Inc., Project A,
5.25%, 1/01/16 ........................................................................ 4,000,000 3,558,160
5.375%, 1/01/23 ....................................................................... 4,760,000 3,732,840
Tobacco Settlement Financing Corp. Revenue, Asset-Backed, Series A-1, AMBAC Insured,
5.25%, 6/01/21 ........................................................................ 18,000,000 18,389,520
Tompkins County IDAR, Civic Facility, Cornell University Lake, Pre-Refunded, 5.75%,
7/01/30 ............................................................................... 7,510,000 8,013,846
Triborough Bridge and Tunnel Authority Revenues,
5.00%, 11/15/24 ....................................................................... 6,965,000 7,393,417
5.00%, 11/15/37 ....................................................................... 30,000,000 29,908,800
Convention Center Project, Series E, zero cpn., 1/01/12 ............................... 21,625,000 20,124,009
General, Refunding, Series B, MBIA Insured, 5.00%, 11/15/27 ........................... 10,000,000 10,183,500
General, Series A, 5.00%, 11/15/35 .................................................... 9,155,000 9,165,986

32 | Annual Report

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
Triborough Bridge and Tunnel Authority Revenues, (continued)
General, Series A-2, 5.25%, 11/15/34 .................................................. $ 10,000,000 $ 10,254,300
General Purpose, Refunding, Series A, 5.00%, 1/01/27 .................................. 34,500,000 34,956,090
General Purpose, Refunding, Series A, MBIA Insured, 5.00%, 1/01/32 .................... 3,770,000 3,785,231
General Purpose, Refunding, Series B, 5.125%, 11/15/29 ................................ 17,175,000 17,475,562
General Purpose, Refunding, Series B, 5.00%, 11/15/32 . ............................... 10,000,000 10,050,000
General Purpose, Series A, 5.00%, 1/01/32 ............................................. 6,110,000 6,125,825
General Purpose, Series A, Pre-Refunded, 5.125%, 1/01/31 .............................. 24,310,000 26,672,446
General Purpose, Series B, MBIA Insured, Pre-Refunded, 5.20%, 1/01/27 ................. 4,110,000 4,927,232
General Purpose, Series B, Pre-Refunded, 5.20%, 1/01/27 ............................... 15,000,000 17,982,600
General Purpose, Series B, Pre-Refunded, 5.50%, 1/01/30 ............................... 32,185,000 39,657,713
Refunding, MBIA Insured, 5.00%, 11/15/26 .............................................. 10,000,000 10,215,600
Refunding, MBIA Insured, 5.00%, 11/15/32 .............................................. 22,875,000 22,996,695
Series A, FGIC Insured, 5.00%, 1/01/32 ................................................ 1,970,000 1,977,959
Series D, 5.00%, 11/15/31 ............................................................. 48,955,000 49,616,382
sub. bond, AMBAC Insured, 5.00%, 11/15/28 ............................................. 15,000,000 15,292,950
TSASC Inc. New York Revenue, Tobacco Flexible Amortization Bonds, Series 1,
Pre-Refunded, 6.25%,
7/15/27 ............................................................................... 35,000,000 35,588,350
7/15/34 ............................................................................... 40,000,000 40,672,400
United Nations Development Corp. Revenue, senior lien, Refunding, Series A, 5.25%,
7/01/23 ............................................................................... 2,500,000 2,499,900
7/01/25 ............................................................................... 2,000,000 1,999,900
Utica IDA Civic Facility Revenue, Munson-Williams-Proctor Institute Project,
5.40%, 7/15/30 ........................................................................ 1,000,000 1,011,350
Series A, 5.50%, 7/15/29 .............................................................. 5,170,000 5,229,300
Series A, Pre-Refunded, 5.50%, 7/15/29 ................................................ 4,745,000 4,868,323
Warren and Washington IDA Civic Facility Revenue, Series A, FSA Insured, 5.00%,
12/01/27 .............................................................................. 8,115,000 8,304,972
Westchester Tobacco Asset Securitization Corp. Revenue,
Capital Appreciation, Pre-Refunded, 6.75%, 7/15/29 .................................... 15,000,000 16,204,050
Refunding, 5.00%, 6/01/26 ............................................................. 2,000,000 1,507,560
Refunding, 5.125%, 6/01/38 ............................................................ 7,000,000 4,934,860
Yonkers GO,
Refunding, Series B, MBIA Insured, 5.00%, 8/01/30 ..................................... 7,710,000 6,511,789
Refunding, Series B, MBIA Insured, 5.00%, 8/01/35 ..................................... 17,130,000 13,806,266
Series A, AMBAC Insured, 5.00%, 9/01/31 ............................................... 12,490,000 10,415,661
-----------------
5,235,362,527
-----------------
U.S. TERRITORIES 2.6%
PUERTO RICO 2.5%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/38 ........................................................................ 15,600,000 15,514,044
Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series A, 5.00%, 7/01/20 ............................... 11,540,000 11,102,519
Public Improvement, Refunding, Series A, 5.125%, 7/01/24 .............................. 17,580,000 16,204,189
Public Improvement, Refunding, Series A, MBIA Insured, 5.50%, 7/01/20 ................. 17,810,000 17,867,704
Refunding, Series C, Sub Series C-7, MBIA Insured, 6.00%, 7/01/27 ..................... 10,500,000 10,705,380

Annual Report | 33

Franklin New York Tax-Free Income Fund

STATEMENT OF INVESTMENTS, MAY 31, 2009 (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, Pre-Refunded,
5.00%, 7/01/36 ........................................................................ $ 4,000,000 $ 4,707,360
5.50%, 7/01/36 ........................................................................ 10,000,000 12,093,500
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding,
Series A, 5.00%, 7/01/38 .............................................................. 575,000 475,508
Series N, MBIA Insured, 5.25%, 7/01/32 ................................................ 24,225,000 21,419,260
Puerto Rico Electric Power Authority Power Revenue, Series WW, 5.25%, 7/01/33 ............ 32,250,000 30,725,220
-----------------
140,814,684
-----------------
VIRGIN ISLANDS 0.1%
Virgin Islands PFAR, Virgin Islands Matching Fund Loan Notes, senior lien, Refunding,
Series A,
5.50%,
10/01/15 .............................................................................. 2,500,000 2,439,325
10/01/18 .............................................................................. 2,500,000 2,453,375
-----------------
4,892,700
-----------------
TOTAL U.S. TERRITORIES ................................................................... 145,707,384
-----------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $5,308,259,854) ................................................................. 5,381,069,911
-----------------
SHORT TERM INVESTMENTS 2.8%
MUNICIPAL BONDS 2.8%
NEW YORK 2.8%
(b) New York City GO,
Series A, Sub Series A-8, Daily VRDN and Put, 0.15%, 8/01/18 .......................... 5,785,000 5,785,000
Series E, Sub Series E-2, Daily VRDN and Put, 0.20%, 8/01/34 .......................... 16,100,000 16,100,000
Series E, Sub Series E-5, Daily VRDN and Put, 0.25%, 8/01/17 .......................... 1,700,000 1,700,000
(b) New York City IDAR, Liberty, One Bryant Park LLC, Series B, Daily VRDN and Put,
0.28%, 11/01/39 ....................................................................... 90,250,000 90,250,000
(b) New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Refunding, Series B, Sub Series B-3, Daily VRDN and Put, 0.20%, 6/15/25 ............... 21,300,000 21,300,000
Second General Resolution, Refunding, Series CC, Sub Series CC-1, Daily VRDN and
Put, 0.20%, 6/15/38 ................................................................ 4,125,000 4,125,000
(b) New York State Local Government Assistance Corp. Revenue, Series G, Weekly VRDN and
Put, 0.15%, 4/01/25 ...................................................................... 1,500,000 1,500,000
(b) Syracuse IDA Civic Facility Revenue, Syracuse University Project, Series A-2, Daily
VRDN and Put, 0.15%, 12/01/37 ............................................................ 15,700,000 15,700,000
-----------------
TOTAL SHORT TERM INVESTMENTS (COST $156,460,000) ......................................... 156,460,000
-----------------
TOTAL INVESTMENTS (COST $5,464,719,854) 99.2% ............................................ 5,537,529,911
-----------------
OTHER ASSETS, LESS LIABILITIES 0.8% ...................................................... 44,254,248
-----------------
NET ASSETS 100.0% ........................................................................ $ 5,581,784,159
=================

See Abbreviations on page 46.

(a) Security purchased on a when-issued 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.

The accompanying notes are an integral part of these financial statements.

34 | Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
May 31, 2009

Assets:
Investments in securities:
Cost ................................................... $5,464,719,854
--------------
Value .................................................. $5,537,529,911
Cash ...................................................... 2,600
Receivables:
Capital shares sold .................................... 17,025,745
Interest ............................................... 74,904,280
Other assets .............................................. 8,216
--------------
Total assets ........................................ 5,629,470,752
--------------
Liabilities:
Payables:
Investment securities purchased ........................ 36,495,829
Capital shares redeemed ................................ 7,794,819
Affiliates ............................................. 3,018,031
Accrued expenses and other liabilities .................... 377,914
--------------
Total liabilities ................................... 47,686,593
--------------
Net assets, at value ............................. $5,581,784,159
==============
Net assets consist of:
Paid-in capital ........................................... $5,511,679,211
Undistributed net investment income ....................... 4,243,302
Net unrealized appreciation (depreciation) ................ 72,810,057
Accumulated net realized gain (loss) ...................... (6,948,411)
--------------
Net assets, at value ............................. $5,581,784,159
==============

The accompanying notes are an integral part of these financial statements.

Annual Report | 35

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
May 31, 2009

CLASS A:
Net assets, at value ...................................... $4,831,851,126
==============
Shares outstanding ........................................ 425,994,207
==============
Net asset value per share(a) .............................. $ 11.34
==============
Maximum offering price per share (net asset value per
share / 95.75%) ........................................ $ 11.84
==============
CLASS B:
Net assets, at value ...................................... $ 112,000,841
==============
Shares outstanding ........................................ 9,897,520
==============
Net asset value and maximum offering price per share(a) ... $ 11.32
==============
CLASS C:
Net assets, at value ...................................... $ 535,897,896
==============
Shares outstanding ........................................ 47,289,419
==============
Net asset value and maximum offering price per share(a) ... $ 11.33
==============
ADVISOR CLASS:
Net assets, at value ...................................... $ 102,034,296
==============
Shares outstanding ........................................ 8,993,282
==============
Net asset value and maximum offering price per share ...... $ 11.35
==============

(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.

The accompanying notes are an integral part of these financial statements.

36 | Annual Report

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended May 31, 2009

Investment income:
Interest .................................................. $ 273,219,372
-------------
Expenses:
Management fees (Note 3a) ................................. 24,272,411
Distribution fees: (Note 3c)
Class A ................................................ 4,058,511
Class B ................................................ 830,221
Class C ................................................ 2,953,400
Transfer agent fees (Note 3e) ............................. 1,973,770
Custodian fees ............................................ 71,626
Reports to shareholders ................................... 147,101
Registration and filing fees .............................. 64,734
Professional fees ......................................... 130,469
Trustees' fees and expenses ............................... 122,171
Other ..................................................... 258,895
-------------
Total expenses ...................................... 34,883,309
-------------
Net investment income ............................ 238,336,063
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ................. 3,604,211
Net change in unrealized appreciation (depreciation)
on investments ......................................... (113,017,831)
-------------
Net realized and unrealized gain (loss) ...................... (109,413,620)
-------------
Net increase (decrease) in net assets resulting from
operations ................................................ $ 128,922,443
=============

The accompanying notes are an integral part of these financial statements.

Annual Report | 37

Franklin New York Tax-Free Income Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED MAY 31,
-------------------------------
2009 2008
-------------- --------------

Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 238,336,063 $ 217,888,750
Net realized gain (loss) from investments .............. 3,604,211 18,145,459
Net change in unrealized appreciation (depreciation) on
investments ......................................... (113,017,831) (47,540,584)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations ............................... 128,922,443 188,493,625
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................. (211,229,061) (195,176,437)
Class B ............................................. (5,157,857) (6,168,210)
Class C ............................................. (18,003,571) (11,660,255)
Advisor Class ....................................... (4,347,694) (3,302,009)
Net realized gains:
Class A ............................................. (21,100,747) (7,349,513)
Class B ............................................. (582,711) (263,561)
Class C ............................................. (2,081,118) (492,039)
Advisor Class ....................................... (460,466) (130,825)
-------------- --------------
Total distributions to shareholders ....................... (262,963,225) (224,542,849)
-------------- --------------
Capital share transactions: (Note 2)
Class A ............................................. 247,185,529 321,465,203
Class B ............................................. (32,427,944) (28,188,527)
Class C ............................................. 148,126,368 127,486,104
Advisor Class ....................................... 19,941,580 23,904,307
-------------- --------------
Total capital share transactions .......................... 382,825,533 444,667,087
-------------- --------------
Redemption fees ........................................... 9,007 19,303
-------------- --------------
Net increase (decrease) in net assets ............ 248,793,758 408,637,166
Net assets:
Beginning of year ......................................... 5,332,990,401 4,924,353,235
-------------- --------------
End of year ............................................... $5,581,784,159 $5,332,990,401
============== ==============
Undistributed net investment income included in net assets:
End of year ............................................... $ 4,243,302 $ 5,201,749
============== ==============

The accompanying notes are an integral part of these financial statements.

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

B. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS

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

Annual Report | 39

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, 2009, and has determined
that no provision for income tax is required in the Fund's financial statements.

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Distributions to shareholders are recorded on the ex-dividend date and
are determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.

Realized and unrealized gains and losses and net investment income, not
including class specific expenses, are allocated daily to each class of shares
based upon the relative proportion of net assets of each class. Differences in
per share distributions, by class, are generally due to differences in class
specific expenses.

E. INSURANCE

The scheduled payments of interest and principal for each insured municipal
security in the Trust are insured by either a new issue insurance policy or a
secondary insurance policy. Some municipal securities in the Fund are secured by
collateral guaranteed by an agency of the U.S. government. Insurance companies
typically insure municipal bonds that tend to be of very high quality, with the
majority of underlying municipal bonds rated A or better. However, there is a
risk that in the event of an issuer default, the insurer may not be able to
fulfill its obligations under the terms of the policy.

Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security or paid by a third party.

40| 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 was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the fund and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.

H. GUARANTEES AND INDEMNIFICATIONS

Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Fund, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At May 31, 2009, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:

YEAR ENDED MAY 31,
------------------------------------------------------------
2009 2008
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ -------------

CLASS A SHARES:
Shares sold .................... 72,833,499 $ 811,336,906 58,856,521 $ 682,397,923
Shares issued in reinvestment of
distributions ................ 13,025,932 143,664,727 10,633,120 122,985,376
Shares redeemed ................ (64,888,450) (707,816,104) (41,771,078) (483,918,096)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 20,970,981 $ 247,185,529 27,718,563 $ 321,465,203
=========== ============= =========== =============
CLASS B SHARES:
Shares sold .................... 297,363 $ 3,295,800 122,616 $ 1,419,799
Shares issued in reinvestment of
distributions ................ 350,106 3,854,036 368,441 4,255,547
Shares redeemed ................ (3,590,154) (39,577,780) (2,925,420) (33,863,873)
----------- ------------- ----------- -------------
Net increase (decrease) ........ (2,942,685) $ (32,427,944) (2,434,363) $ (28,188,527)
=========== ============= =========== =============

Annual Report | 41

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

YEAR ENDED MAY 31,
---------------------------------------------------------
2009 2008
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------

CLASS C SHARES:
Shares sold .................... 20,598,895 $231,064,373 14,292,971 $165,598,420
Shares issued in reinvestment of
distributions ................ 1,274,313 14,029,190 723,971 8,366,947
Shares redeemed ................ (8,937,983) (96,967,195) (4,011,594) (46,479,263)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 12,935,225 $148,126,368 11,005,348 $127,486,104
========== ============ ========== ============
ADVISOR CLASS SHARES:

Shares sold .................... 5,000,769 $ 55,643,726 5,068,423 $ 58,745,600
Shares issued in reinvestment of
distributions ................ 230,784 2,531,998 77,923 900,288
Shares redeemed ................ (3,540,156) (38,234,144) (3,105,808) (35,741,581)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 1,691,397 $ 19,941,580 2,040,538 $ 23,904,307
========== ============ ========== ============

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of the following
subsidiaries:

SUBSIDIARY AFFILIATION
- ---------- ----------------------

Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

A. MANAGEMENT FEES

The Fund pays an investment management fee to Advisers based on the month-end
net assets of the Fund as follows:

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

0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% Over $10 billion, up to and including $ 12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $ 17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion

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.

42| Annual Report

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

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 .................. $1,424,118
Contingent deferred sales charges retained ...... $ 450,348

E. TRANSFER AGENT FEES

For the year ended May 31, 2009, the Fund paid transfer agent fees of
$1,973,770, of which $1,287,200 was retained by Investor Services.

4. INCOME TAXES

For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At May 31, 2009, the Fund deferred realized capital losses of
$5,579,906.

The tax character of distributions paid during the years ended May 31, 2009 and
2008, was as follows:

2009 2008
------------ ------------

Distributions paid from:
Tax-exempt income ............ $238,738,183 $216,306,911
Long term capital gain ....... 24,225,042 8,235,938
------------ ------------
$262,963,225 $224,542,849
============ ============

Annual Report | 43

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONTINUED)

At May 31, 2009, 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 .................................. $5,464,328,271
==============
Unrealized appreciation .............................. $ 167,668,297
Unrealized depreciation .............................. (94,466,657)
--------------
Net unrealized appreciation (depreciation) ........... $ 73,201,640
==============
Undistributed tax exempt income ...................... $ 2,470,906
Undistributed long term capital gains ................ 12,307
--------------
Distributable earnings ............................... $ 2,483,213
==============

Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatment of bond discounts.

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

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
year ended May 31, 2009, aggregated $1,101,466,085 and $678,375,434,
respectively.

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. CREDIT FACILITY

Effective January 23, 2009, the Fund, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.

44| Annual Report

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. CREDIT FACILITY (CONTINUED)

Under the terms of the Global Credit Facility, the Fund shall, in addition to
interest charged on any borrowings made by the Fund and other costs incurred by
the Fund, pay its share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Fund incurred commitment fees of $4,563 of its
pro rata portion of the Global Credit Facility, which is reflected in Other
expenses on the Statement of Operations. During the year ended May 31, 2009, the
Fund did not utilize the Global Credit Facility.

8. FAIR VALUE MEASUREMENTS

The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on June 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Fund has determined that the implementation
of SFAS 157 did not have a material impact on the Fund's financial statements.

SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Trust's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:

- Level 1 - quoted prices in active markets for identical securities

- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)

- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.

At May 31, 2009, all of the Fund's investments in securities carried at fair
value were in Level 2 inputs.

Annual Report | 45

Franklin New York Tax-Free Income Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. NEW ACCOUNTING PRONOUNCEMENTS

In April 2009, FASB issued FASB Staff Position FSP FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4), which provides additional guidance when the volume and level of
activity for the asset or liability measured at fair value have significantly
decreased. Additionally, FSP FAS 157-4 amends SFAS 157, expanding disclosure
requirements by reporting entities surrounding the major categories of assets
and liabilities carried at fair value. FSP FAS 157-4 is effective for interim
and annual periods ending after June 15, 2009. The Trust believes applying FSP
FAS 157-4 will not have a material impact on its financial statements.

In May 2009, FASB issued Statement No. 165, "Subsequent Events", which is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the statements are
issued or are available to be issued. FASB 165 is effective for interim or
annual financial periods ending after June 15, 2009, the adoption of FASB 165
will not have a material impact on the financial statements.

ABBREVIATIONS

SELECTED PORTFOLIO

AMBAC - American Municipal Bond Assurance Corp.
BHAC - Berkshire Hathaway 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. (effective February 18, 2009,
MBIA spun-off and established National Public Financial Guarantee
Corp. as a subsidiary under MBIA)
MFM - Multi-Family Mortgage
MTA - Metropolitan Transit Authority
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
XLCA - XL Capital Assurance

46 | Annual Report

Franklin New York Tax-Free Income Fund

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE FRANKLIN 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 The Franklin New York Tax-Free
Income Fund (the "Fund") at May 31, 2009, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2009 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
July 17, 2009

Annual Report | 47

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 $24,225,042 as a long
term capital gain dividend for the fiscal year ended May 31, 2009.

Under Section 852(b)(5)(A) of the Code, the Fund designates 100% of the
distributions paid from net investment income as exempt-interest dividends for
the fiscal year ended May 31, 2009. A portion of the Fund's exempt-interest
dividends may be subject to the federal alternative minimum tax. In January
2010, shareholders will be notified of amounts for use in preparing their 2009
income tax returns.

48 | Annual Report

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 134 Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

ROBERT F. CARLSON (1928) Trustee Since 2007 111 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

SAM GINN (1937) Trustee Since 2007 111 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 134 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J.
San Mateo, CA 94403-1906 Heinz Company (processed foods and
allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

Annual Report | 49

FRANK W.T. LAHAYE (1929) Trustee Since 2007 111 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 134 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and
San Mateo, CA 94403-1906 Sentient Jet (private jet
service).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

LARRY D. THOMPSON (1945) Trustee Since 2007 142 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

JOHN B. WILSON (1959) Lead Trustee since 111 None
One Franklin Parkway Independent 2007 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

50 | Annual Report

INTERESTED BOARD MEMBERS AND OFFICERS

**CHARLES B. JOHNSON (1933) Trustee, Trustee since 134 None
One Franklin Parkway President, 1982, President
Chief since 1983 and
San Mateo, CA 94403-1906 Investment Chief Executive
Officer - Officer -
Investment Investment
Management Management since
and Chairman 2002 and
of the Board Chairman of the
Board since 2007

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 41
of the investment companies in Franklin Templeton Investments.

**RUPERT H. JOHNSON, JR. (1940) Trustee and Since 1983 51 None
One Franklin Parkway Vice 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 43 of the investment companies in Franklin
Templeton Investments.

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

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

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

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

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

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
45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).

Annual Report | 51

LAURA F. FERGERSON (1962) Chief Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Finance and
Administration

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).

GASTON GARDEY (1967) Treasurer, Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Chief
San Mateo, CA 94403-1906 Financial
Officer and
Chief
Accounting
Officer

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton
Investments.

EDWARD L. GEARY (1962) Vice President Since March 2009 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President, Franklin Templeton Services, LLC; director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer of 45 of the investment companies in Franklin Templeton Investments.

ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).

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

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.

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

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Associate General Counsel, Franklin Templeton Investments; and officer of 29 of the investment companies in Franklin
Templeton Investments.

52| Annual Report

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

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 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).

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

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

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

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

** Charles B. Johnson 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 2007. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.

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

Annual Report | 53

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT

At a meeting held February 24, 2009, 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
additional material, including a Fund profitability analysis report prepared by
management. The Lipper report compared the Fund's investment performance and
expenses with those of other mutual funds deemed comparable to the Fund as
selected by Lipper. The Fund profitability analysis report discussed the
profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Fund by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged the Fund. Such material also discussed some of the
actions taken by management in coping with problems arising out of the past
year's financial upheaval.

In considering such materials, the independent 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 it showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other 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

54 | Annual Report

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

of net asset value calculations. The Board also noted the extent of benefits
provided Fund shareholders from being part of the Franklin Templeton family of
funds, including the right to exchange investments between the same class of
funds without a sales charge, the ability to reinvest Fund dividends into other
funds and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted that such systems and
procedures had functioned smoothly during the Florida hurricanes and blackouts
experienced in recent years. Consideration was also given to the experience of
the Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, and the continuous enhancements to and
high industry ranking given to the Franklin Templeton website. Particular
attention was given to the overall performance and actions taken by the Manager
and its affiliates in response to problems arising out of the market turmoil and
financial crisis experienced during the past year. In this respect, the Board
noted that management's independent credit analysis and diligent risk management
procedures had minimized exposure of funds within the Franklin Templeton complex
to subprime mortgages and that its continuous monitoring of counterparty credit
risk had limited fund exposure to firms experiencing financial difficulties like
Bear Stearns and AIG. The same type of conservative approach and attention to
risk had also prevented any structured investment products or other volatile
instruments from being held in the portfolios of any of the money market funds
within the Franklin Templeton complex, including the sweep money fund utilized
by many of the funds as part of their cash management. The Board also took into
account, among other things, management's efforts in establishing a $725 million
global credit facility for the benefit of the funds and other accounts managed
by Franklin Templeton Investments to provide a source of cash for temporary and
emergency purposes or to meet unusual redemption requests as well as the strong
financial position of the Manager's parent company and its commitment to the
mutual fund business. The Board also noted that during the past year Franklin
Templeton Investments, like many other fund managers, had announced a hiring
freeze and implemented employee reductions, and the Board discussed with
management the nature of such reductions and steps being taken to minimize any
negative impact on the nature and quality of services being provided the Fund.

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

Annual Report | 55

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

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, 2008, 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 the Fund's 2008 income return to be in the second-highest quintile
of its Lipper performance universe, and its 2008 total return to be in the
highest quintile of such universe. The Lipper report showed that both the Fund's
income return and its total return for each of the previous three-, five- and
10-year periods on an annualized basis were in the highest quintile of the
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. Lipper expense data is based upon historical
information taken from each fund's most recent annual report and, as a result of
the severe decline in mutual fund industry assets during the last quarter of
2008, is based on asset levels that are higher than the level currently existing
for most funds. While recognizing the limitations inherent in Lipper's
methodology and recognizing that current expense ratios may increase as assets
decline, the Board believed that the independent analysis conducted by Lipper
remained an appropriate measure of comparative expenses. In reviewing
comparative costs, Lipper provides information on the Fund's management fee in
comparison with the contractual investment management fee that would have been
charged by other funds within its Lipper expense group assuming they were
similar in size to the Fund, as well as the actual total expenses of the Fund in
comparison with those of its Lipper expense group. The Lipper contractual
investment management fee analysis includes administrative charges as being part
of a management fee, and total expenses, for comparative consistency, are shown
by Lipper for Fund Class A shares. The results of such expense comparisons
showed that the contractual investment management fee rate for the Fund was the
second least expensive in its Lipper expense group, and that its actual total
expense rate was the least expensive in such expense group. The Board was
satisfied with the 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 during the 12-month period ended September 30, 2008, being the most
recent fiscal year end for Franklin Resources, Inc., the Manager's parent.
During such period, the assets of the Franklin Templeton U.S. fund business were
significantly higher than currently existing, and to such extent the
profitability analysis does not reflect current fund operations. While taking
this into account in assessing the significance of the Fund profitability
analysis, the Board

56 | Annual Report

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

recognized such analysis was made at a given point in time and that the decline
in assets and effect on profitability would be reflected in the profitability
analysis covering Franklin Resources' 2009 fiscal year period. In reviewing the
analysis, attention was given to the methodology followed in allocating costs to
the Fund, it being recognized that allocation methodologies are inherently
subjective and various allocation methodologies may each be reasonable while
producing different results. In this respect, the Board noted that, while being
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 each Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. The Board also took into
account management's expenditures in improving shareholder services provided the
Fund, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis as
compared to other publicly held managers broken down to show profitability from
management operations exclusive of distribution expenses, as well as
profitability including distribution expenses. The Board also considered the
extent to which the Manager and its affiliates might derive ancillary benefits
from fund operations, including its interest in a joint venture entity that
financed up-front commissions paid to brokers/dealers who sold fund Class B
shares prior to February 2005 when the offering of such shares was discontinued.
Based upon its consideration of all these factors, the Board determined that the
level of profits realized by the Manager and its affiliates from providing
services to the Fund was not excessive in view of the nature, quality and extent
of services provided.

ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund 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

Annual Report | 57

Franklin New York Tax-Free Income Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

$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 $5.1
billion at December 31, 2008, and the Board believes that to the extent any
economies of scale may be realized by the Manager and its affiliates, the
schedule of fees under the investment management agreement provides a sharing of
benefits with the Fund and its shareholders.

PROXY VOTING POLICIES AND PROCEDURES

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

QUARTERLY STATEMENT OF INVESTMENTS

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

58 | Annual Report

This page intentionally left blank.

Franklin Templeton Funds

LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.

VALUE

Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund
Mutual Recovery Fund(2)
Mutual Shares Fund

BLEND

Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund

GROWTH

Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund

SECTOR

Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund

GLOBAL

Mutual Global Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

INTERNATIONAL

Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund

HYBRID

Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund

ASSET ALLOCATION

Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund

FIXED INCOME

Franklin Adjustable U.S. Government Securities Fund(3)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(3)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(3)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund

TAX-FREE INCOME(4)

NATIONAL

Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(5)

LIMITED-/INTERMEDIATE-TERM

California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund

STATE-SPECIFIC

Alabama
Arizona
California(6)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(6)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia

INSURANCE FUNDS

Franklin Templeton Variable Insurance Products Trust(8)

(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.

(2.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.

(3.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

(4.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.

(5.) The fund invests primarily in insured municipal securities.

(6.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.

(7.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/17/09.

(8.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.

04/09

Not part of the annual report

(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906

Log onto franklintempleton.com and click "My Profile"

ANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN NEW YORK
TAX-FREE INCOME FUND

INVESTMENT MANAGER
Franklin Advisers, Inc.

DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES
(800) 632-2301

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

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

115 A2009 07/09

ITEM 2. CODE OF ETHICS.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(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 $49,561 for the fiscal year ended May 31, 2009 and $48,567 for the fiscal
year ended May 31, 2008.

(b) Audit-Related Fees

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

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

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

The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $6,000 for the fiscal year ended
May 31, 2009 and $0 for the fiscal year ended May 31, 2008. The services for
which these fees were paid included tax compliance and advice.

(d) All Other Fees

The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $1,311 for the fiscal year ended May 31, 2009
and $0 for the fiscal year ended May 31, 2008. The services for which these fees
were paid included review of materials provided to the fund Board in connection
with the investment management contract renewal process.

The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $282,766 for the fiscal
year ended May 31, 2009 and $0 for the fiscal year ended May 31, 2008. The
services for which these fees were paid included review of materials provided to
the fund Board in connection with the investment management contract renewal
process.

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

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

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

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

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

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

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

(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $290,077 for the fiscal year ended May 31, 2009 and $0 for the
fiscal year ended May 31, 2008.

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

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

ITEM 6. SCHEDULE OF INVESTMENTS. N/A

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

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

N/A

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

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.

ITEM 11. CONTROLS AND PROCEDURES.

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

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

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

ITEM 12. EXHIBITS.

(a)(1) Code of Ethics

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

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN NEW YORK TAX-FREE INCOME FUND

By /s/LAURA F. FERGERSON
--------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date July 27, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By /s/LAURA F. FERGERSON
--------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date July 27, 2009

By /s/GASTON GARDEY
---------------------
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date July 27, 2009