Franklin Federal Tax-Free Income Fund

Fund Description

The fund seeks to provide investors with as high a level of income exempt from federal income taxes as is consistent with prudent investment management and the preservation of shareholders’ capital.

Strategy Statement

"In the Franklin Muni Department, we are committed to a conservative, disciplined investment strategy. We seek to provide shareholders with a high level of tax-free income while preserving capital."

Carrie Higgins

Fund Commentary

Quarterly Fund Commentary September 30, 2020

  • Municipal bonds, as measured by the Bloomberg Barclays Municipal Bond Index, posted positive total returns in 2020’s third quarter as market technicals continued to support increased valuations. During the quarter, benchmark municipal bond yields touched their 50-year lows. After peaking above 350% in the most recent crisis, the ratio of 10-year municipal bond-to-US Treasury yields descended through 100% in August before retreating somewhat in September. New issuance continued at a brisk pace and was well-subscribed, with several deals being done by issuers that have been severely impacted by COVID-19 shutdowns. Funds continued to flow into retail municipal bond funds, with year-to-date fund flows moving back into positive territory after record-setting outflows in March. Congress was again unable to reach an agreement on another round of fiscal stimulus. Democratic proposals included up to an additional US$1 trillion in support for state and local governments, while the Republicans’ plan had little earmarked for municipal governments. Revenue-related bonds outperformed their general obligation (GO) counterparts, and lower-rated securities outperformed higher-rated issues.
  • For the quarter, the fund’s Advisor Class shares returned 1.02%, and its benchmark, the Bloomberg Barclays Municipal Bond Index, returned 1.23%. Past performance is not an indicator or a guarantee of future performance.

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Important Legal Information

The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager’s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund’s portfolio selection process. Holdings are subject to change.

Your clients should carefully consider a fund's investment goals, risks, charges and expenses before investing. They should read the summary prospectus and/or prospectus carefully before they invest or send money. To obtain a prospectus, which contains this and other information, please call Franklin Templeton Investments at (800) DIAL BEN/(800) 342-5236.

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Benjamin C. Barber, CFA

Benjamin C. Barber, CFA®

  • Joined Franklin Templeton in 1991
  • Managed Fund Since 2020
Carrie Higgins

Carrie Higgins

  • Joined Franklin Templeton in 1990
  • Managed Fund Since 2004
Francisco Rivera

Francisco Rivera

  • Joined Franklin Templeton in 1994
  • Managed Fund Since 1996
Daniel Workman, CFA

Daniel Workman, CFA®

  • Joined Franklin Templeton in 2003
  • Managed Fund Since 2018


Investment Philosophy

Focus on Income

Franklin municipal managers aim to maximize monthly tax-free income for shareholders. Historically, the income return from municipal bonds has contributed much more to municipal bond returns than changes in municipal bond prices. Additionally, Franklin managers generally limit fund exposure to bonds with income that is subject to the Alternative Minimum Tax.

No Leverage, No Derivatives, No Options

Franklin managers avoid investment practices that may expose shareholder capital to unnecessary risk. For example, we don’t use leverage or invest in derivatives or futures, because they can increase portfolio volatility.

Strict Internal Analysis

Our analysts are responsible for conducting research on credit-driven securities in the municipal market. They are responsible for evaluating an issuer’s credit strengths and weaknesses and working with the portfolio managers on select fund purchase and sale decisions.

Buy and Hold for the Long Term

Franklin managers are focused on seeking to maximize income; we don’t actively trade bonds to try to capture capital gains. We typically sell holdings only if we see an opportunity to enhance a fund’s portfolio structure or its income earning potential.

Investment Process

Market AnalysisResearchPortfolio Construction
On a daily basis, we analyze current market conditions, including:
  • Trading activity
  • Yield spreads
  • Call option spreads
  • New offerings
  • Secondary market offerings
  • Credit ratings
  • Event risk
We search for high-quality, undervalued bonds that we believe should provide a high level of income until maturity.

We often make site visits to identify potential problems and opportunities that may not be readily visible on paper.

Analysts focus on credit-driven bond issues where we believe they can add the most value to the security selection process.
We build portfolios with diversification in mind, taking into consideration allocations to sectors, regions, coupons, calls, maturities and quality, as appropriate.

We don’t make significant allocation shifts based on expected market conditions. Rather, we look for the best value in the marketplace from an income-oriented perspective.


Overall Morningstar Rating As of 09/30/2020

Rating Category: Muni National Long

The fund's overall Morningstar Rating measures risk-adjusted returns and is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) rating metrics.

Historical Morningstar Rating As of 09/30/2020

Years Ratings Funds
in category
3 Stars
3 Stars
3 Stars

Morningstar Style Box

We do not publish a style box for this fund.

Strategy, Benefits, Results


  • We take a conservative, income-oriented approach.
  • We don't use leverage or invest in derivatives, which can increase portfolio volatility. 
  • Our analysts search for high-quality, undervalued bonds.
  • We buy and hold for the long term.


  • Monthly income exempt from federal taxes1
  • Portfolio diversification
  • Tenured investment team with expertise across market cycles