franklin high yield tax-free income fund–class a

Product Detailsa

Fund Assets $6,469,740,324.01

Fund Inception Date 03/18/1986

Number of Holdings 1728

Investment Style Municipals

Benchmark Bloomberg Municipal Bond Index

Lipper Classification High Yield Municipal Debt Funds

Morningstar Category™ High Yield Muni

Dividend Frequency Monthly, on or near the 3rd business day

CUSIP NASDAQ Symbol

Class A 354 726 887 FHYQX

Maximum Sales Charges

Class A 3.75% initial sales charge

Total Annual Operating Expenses

Class A 0.79%

30-Day SEC Yieldb

Class A 3.13%

Taxable Equivalent Yieldc

Class A 5.29%

Fund Description

The fund seeks to provide investors with a high current yield exempt from federal income taxes. Its secondary goal is capital appreciation to the extent possible and consistent with the fund’s principal investment goal.1

Performance Data2,d,3

Average Annual Total Returns4,5 (%)

Calendar Year Returns (% Without Sales Charges)

1. Dividends are generally subject to state and local taxes, if any. For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. 2. Class A: Prior to 3/1/19, these shares were offered at a higher initial sales charge of 4.25%; thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 3.75%. On 05/01/1994, these shares implemented a Rule 12b-1 plan, which affects subsequent performance. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 3. Effective 09/10/2018 Class A shares closed to new investors, were renamed Class A1 shares, and a new Class A share with a different expense structure became available. Class A performance shown has been calculated as follows: (a) for periods prior to 09/10/2018, a restated figure is used based on the fund’s Class A1 performance and including any Rule 12b-1 rate differential as exists between Class A1 and Class A; and (b) for periods after 09/10/2018, actual Class A performance is used, reflecting all charges and fees applicable to that class. 4. Periods shorter than one year are shown as cumulative total returns. 5. Since inception return for the benchmark is calculated to the fund inception date.

3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs

Since Inception

(03/18/1986)

Class A - With Sales Charges

-10.70 -10.70 -7.04 1.05 2.08 2.93 4.25 5.58

Class A - Without Sales Charges

-7.22 -7.22 -3.42 2.34 2.86 3.33 4.45 5.69

Bloomberg Municipal Bond Index

-6.23 -6.23 -4.47 1.53 2.52 2.88 4.16 5.55

Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund’s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton at (800) DIAL BEN/(800) 342-5236 or visit franklintempleton.com for the most recent month-end performance.

3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs SinceInception

-30%

-20%

-10%

0%

10%

Class A - With Sales Charges

Class A - Without Sales Charges


2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

Class A 4.79 5.59 7.58 1.88 3.77 1.14 3.17 13.86 -6.74 11.07


1.52 5.21 7.54 1.28 5.45 0.25 3.30 9.05 -2.55 6.78

If the sales charge had been included, the returns would have been lower.

Municipals Fixed Income March 31, 2022

Franklin High Yield Tax-Free Income Fund–Class A

Product Profile

Not FDIC Insured | May Lose Value | No Bank Guarantee


Portfolio Manager Insight*,e

Performance Review

QUARTERLY KEY PERFORMANCE DRIVERS

Duration positioning detracted from relative fund performance during the first quarter. An overweight to bonds with 10 or more years to maturity hurt •our results as UST yields rose substantially over the period. In contrast, our underweight to muni bonds with two to five years to maturity boosted returns.

Rating allocations were strong contributors to performance for the quarter. Our overweight holdings of bonds with no external credit rating and those •rated below investment grade were accretive for the period. This was only partially offset by an underweight to AA rated issues, which curbed results. Security selection lifted returns modestly as selection in BBB rated bonds benefited our performance. However, selection in AA rated bonds hurt our returns.

Outlook & Strategy After setting records in 2021, fund flows into tax-exempt muni retail vehicles have turned negative year-to-date (YTD) in 2022. This is consistent with •periods of high UST volatility, but we anticipate conditions to reverse once uncertainty falls. Supply in tax-exempt munis has been limited, with negative net supply so far this year. With higher all-in borrowing costs due to higher yields in the market, issuers now must be wary of increased cost of issuance when determining a project’s financing viability.

We continue to expect both supply and demand dynamics to provide a substantial base for the muni market. Investor expectations for higher personal •income tax rates and the persistent need for tax-exempt income by an aging investor cohort have underpinned strong demand for the asset class over the past two years. In our view, increasing household wealth and relative credit quality should continue to attract investors into the market over the medium term. The growth of tax-exempt muni bond exchange-traded funds (ETFs) is further adding to demand for muni bonds across all sectors and rating classifications. Additionally, new infrastructure projects will need to be funded, in part, by increased tax rates on the highest-earning individuals. These measures will likely have significant impact on the demand from more tax-sensitive investors. However, we expect to see higher net issuance levels to fund infrastructure improvements.

Muni fundamentals have been generally stable to positive, in our assessment. Issuers’ balance sheets have benefited from strong fiscal stimulus, •prudent financing activities and strong US consumer activity that has translated into sales tax receipts. One major concern for consumers has been that the rate of price inflation is exceeding current wage growth, leading to falling real wages. The largest single cost for most public entities is employee salaries and benefits. Wage pressure will increase not just current employee wages, but also the contributions to pensions and health care for retirees and employees, compounding the effects of inflation. We feel there is a significant risk that consumers will pull back consumption, slowing the growth of muni issuers’ tax receipts, which had been strong coming out of the last COVID wave. However, the effect of higher oil prices will benefit some state and local muni issuers, as they will see not only higher tax receipts from oil production but also secondary economic effects from increased activity. Given the strong performance seen over the last year, many municipal entities should continue to experience financial growth.

YTD muni debt valuations have cheapened significantly from the near-record rich levels seen in 2021. As such, we see this as a more attractive entry •point into the tax-exempt market. We anticipate technical conditions will remain strong throughout the rest of the year as issuance will be more muted than in the past two years, given higher all-in financing costs for muni issuers.

Our seasoned team of analysts and portfolio managers has weathered times of increased volatility before, and we are using that knowledge to •navigate through this environment.

*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.

Portfolio Characteristics6,7,8

6. The portfolio characteristics listed are based on the fund’s underlying holdings, and do not necessarily reflect the fund’s characteristics. All holdings are subject to change. 7. Turnover Ratio is as of the fund’s fiscal year-end. 8. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.

Duration Quality

HELPEDUnderweight Municipal Bonds with Two to Five Years to Maturity Overweight Bonds with No External Credit Rating

— Overweight Bonds Rated Below Investment Grade

— Security Selection in BBB Rated Bonds

HURTOverweight Municipal Bonds with 10 or More Years to Maturity Underweight AA Rated Bonds

— Security Selection in AA Rated Bonds

— —

Portfolio Bloomberg Municipal Bond Index

AMT Exposure 6.27% 0.00%

Annual Turnover Ratio (02/28/2021) 38.24% -

Average Duration 7.29 Yrs 5.55 Yrs

Average Weighted Maturity 19.00 Yrs 12.92 Yrs

franklintempleton.com 2

March 31, 2022


Portfolio Diversification

9,11. Percentage may not equal 100% due to rounding. All holdings are subject to change. 10,12. The negative cash position reflects a temporary position that is a result of a delay in securities settlement transactions.

State / U.S. Territory Allocation9

Percent of Total

19.2719.27

14.4814.48

8.128.12

6.546.54

5.625.62

3.583.58

3.313.31

8.478.47

28.0928.09

-0.78-0.78

-5% 0% 5% 10% 15% 20% 25% 30% 35%

California

Florida

Texas

New York

Colorado

Illinois

New Jersey

Puerto Rico

Other

Cash & Cash Equivalents10

Sector Allocation11

Percent of Total

-5% 0% 5% 10% 15% 20% 25%

Special Tax

Industrial Dev. Revenue and

Pollution Control

Health Care

Transportation

Housing

Refunded

Utilities

Local

Education

Lease

State General Obligation

Other Revenue Bonds


21.02

14.36

13.16

10.56

8.96

8.10

7.38

6.27

5.32

2.48

1.99

1.19

-0.78


March 31, 2022


13. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations (‘NRSRO’), such as Standard & Poor’s, Moody’s and Fitch. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Refunded category consists of refunded bonds secured by U.S. government or other high-quality securities. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. The Not Applicable category consists of third-party ETFs and securities that only have a short-term rating and are not cash equivalents. Cash includes equivalents, which may be rated. All holdings are subject to change. 14,17. The negative cash position reflects a temporary position that is a result of a delay in securities settlement transactions. 15,16. Percentage may not equal 100% due to rounding. All holdings are subject to change.

Credit Quality Ratings13

Percent of Total

Investment Grade Non-Investment Grade

Cash & Cash Equivalents

-20% -10% 0% 10% 20% 30% 40% 50% 60%

AAA

AA

A

BBB

Refunded

BB

B

CCC

D

Not Rated


0.98

6.93

13.51

12.21

8.10

8.68

1.15

0.96

1.44

46.83

-0.78

Maturity Allocation15

Percent of Total

0 to 1 Year

1 to 2 Years

2 to 3 Years

3 to 5 Years

5 to 7 Years

7 to 10 Years

10 to 15 Years

15 to 20 Years

20 to 30 Years

30+ Years

0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 % 40 % 45 %

1.34

2.39

0.74

6.30

4.30

7.65

11.33

17.61

36.85

11.51

Asset Allocation16

Percent of Total

100.78100.78

-0.78-0.78

0% 100%-25% 25% 50% 75% 125%

Fixed Income



March 31, 2022


Performance Statistics

Investment Philosophy

18. Information Ratio and Tracking Error information are displayed for the product versus the Bloomberg Municipal Bond Index. 19. Information Ratio is a way to evaluate a manager’s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio’s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time).

Risk Statistics18,19

Class A

3 Yrs 5 Yrs 10 Yrs

Standard Deviation (%) 6.11 4.95 4.91

Tracking Error (%) 2.17 1.81 1.77

Information Ratio 0.38 0.19 0.25

Sharpe Ratio 0.28 0.37 0.56

Past Performance is not an indicator or a guarantee of future performance.


March 31, 2022


Investment Process

Investment Team

AMT Exposure: Percentage of assets invested in bonds with income subject to the alternative minimum tax (AMT).

Annual Turnover Ratio: Percentage of a fund’s holdings replaced with other holdings during a fund’s most recent full fiscal year.

Average Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years.

Average Weighted Maturity: An estimate of the number of terms to maturity, taking the possibility of early payments into account, for the underlying holdings. Maturity is expressed as a number of years.

Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager’s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark.

Sharpe Ratio: To calculate a Sharpe ratio, an asset’s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset’s standard deviation.

Standard Deviation: A measure of the degree to which returns vary from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that performance will fluctuate from the average return.

Tracking Error: Measure of the deviation of the return of a product compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment is managed, the smaller the tracking error.

Portfolio Manager Years with Firm Years Experience

Benjamin C. Barber, CFA 10 30

Daniel Workman, CFA 18 19

Francisco Rivera 27 28

James Conn, CFA 29 35


March 31, 2022


What Are The Risks?

All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the fund adjust to a rise in interest rates, the fund’s share price may decline. Investments in lower-rated bonds include higher risk of default and loss of principal. Puerto Rico municipal bonds have been impacted by recent adverse economic and market changes, which may cause the fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. These and other risks are detailed in the fund’s prospectus.

Important Information

Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial professional, call us at (800) DIAL BEN/342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. Franklin Distributors, LLC. Member FINRA/SIPC.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute. Source: FactSet. Important data provider notices and terms available at www.franklintempletondatasources.com.

a. All holdings are subject to change. b. The fund’s 30-Day SEC Yield is calculated using the net income (interest and dividends) per share earned over a trailing 30-day period (annualized), divided by the fund’s share price at the end of that period. It may not equal the fund’s actual income distribution rate, which reflects the fund’s past dividends paid to shareholders. Past performance is not an indicator or a guarantee of future performance. c. The Taxable-Equivalent Yield assumes the maximum regular federal income tax rate, maximum state personal income tax and the Medicare tax in effect on June 2021. d. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. e. While Franklin Templeton and our Specialist Investment Managers have environmental, sustainability, and governance (“ESG”) goals and capabilities at the firm-wide level, the product referenced is not specifically managed to an underlying ESG goal or objective and ESG considerations are not governed by the prospectus or product mandate. Some products and strategies may consider ESG factors as part of the investment approach or analysis, without having specific ESG mandates. For more detailed information, please refer to the prospectus.

04/25/2022 04:36:08 PST | 1130 PP 03/22

March 31, 2022

One Franklin Parkway San Mateo, CA 94403-1906 (800) DIAL BEN/342-5236 franklintempleton.com

© 2022 Franklin Templeton. All rights reserved.

franklin high yield tax-free income fund–class a

Documents