Franklin New Jersey Tax-Free Income Fund–Class A
Transcript of Franklin New Jersey Tax-Free Income Fund–Class A
Product Detailsa
Fund Assets $839,961,764.61
Fund Inception Date 05/12/1988
Number of Holdings 184
Investment Style Municipals
Benchmark Bloomberg Municipal Bond Index
Lipper Classification New Jersey Municipal Debt Funds
Morningstar Category™ Muni New Jersey
Dividend Frequency Monthly, on or near the last business day
CUSIP NASDAQ Symbol
Class A 354 726 796 FNJQX
Maximum Sales Charges
Class A 3.75% initial sales charge
Total Annual Operating Expenses
Class A 0.82%
30-Day SEC Yieldb
Class A 0.81%
Taxable Equivalent Yieldc
Class A 1.67%
Fund Description
The fund seeks to provide investors with as high a level of income exempt from federal income taxes and New Jersey personal income taxes as is consistent with prudent investment management and the preservation of shareholders’ capital.1
Performance Data2,d,3
Average Annual Total Returns4,5 (%)
Calendar Year Returns (% Without Sales Charges)
1. 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
(05/12/1988)
Class A - With Sales Charges
-4.36 -2.57 -0.09 2.81 1.79 2.56 3.68 5.10
Class A - Without Sales Charges
-0.64 1.23 3.81 4.13 2.57 2.95 3.88 5.22
Bloomberg Municipal Bond Index
-0.27 0.79 2.63 5.06 3.26 3.87 4.48 5.76
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
-10%
-5%
0%
5%
10%
Class A - With Sales Charges
Class A - Without Sales Charges
Bloomberg Municipal Bond Index
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Class A 3.77 6.36 1.66 2.62 1.59 1.32 8.91 -5.50 6.13 11.00
Bloomberg Municipal Bond Index
5.21 7.54 1.28 5.45 0.25 3.30 9.05 -2.55 6.78 10.70
If the sales charge had been included, the returns would have been lower.
Municipals Fixed Income
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Franklin New Jersey Tax-Free Income Fund–Class A
Product Profile
Not FDIC Insured | May Lose Value | No Bank Guarantee
Franklin New Jersey Tax-Free Income Fund–Class A
Portfolio Manager Insight*
Performance Review
QUARTERLY KEY PERFORMANCE DRIVERS
During the third quarter, UST rates rose modestly and ratios between muni bond and UST yields cheapened, leading to negative performance from •our overall duration positioning. Our overweight to muni bonds with 10 or more years to maturity detracted from relative fund returns.
Lower-quality issues generally outperformed their higher-rated counterparts during the quarter. Overall rating allocations modestly contributed to •relative fund performance, led by our underweight to AAA rated bonds. Meanwhile, our security selection in AA rated bonds curbed returns.
Sector allocations contributed to fund performance. An underweight to state GO bonds and an overweight to health care-related issues lifted •performance. This was partially offset by our underweight to the leasing sector, which hindered relative results. Security selection within sector allocations was a strong detractor from performance, especially selection in local GO bonds and the transportation segment. However, selection in the education sector boosted our returns.
Outlook & Strategy We continue to see valuations supported by improving fundamentals and strong technical conditions in the tax-exempt muni bond market, though •valuations remain historically lofty. Both supply and demand dynamics continue to provide a substantial base. 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. In our view, increasing household wealth, relative credit quality and lower rate volatility should continue to attract investors into the market. 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, the Biden administration has proposed bold new spending programs that would 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 would expect to see higher net issuance levels to fund infrastructure improvements that could come about through such legislation.
Credit fundamentals across muni issuers continue to improve due largely to federal stimulus and the reopening of economies nationwide. The rapidly •recovering economy and strong stock market are also boosting tax revenue collections for states and local issuers. Indicators of the improving credit environment include the government’s reduced need for short-term cash borrowing and positive rating agency activity. However, new infections from variants of the COVID virus, including breakthrough cases, could stall the strong economic recovery we are currently experiencing.
Although ratios of muni bond yields versus USTs have been off their lows in June, they remain well below longer-term averages. Even at these rich •levels, we retain a neutral outlook with reasons for optimism for the tax-exempt muni bond market for those investors that can benefit from its income tax advantages. Credit selection will remain a core driver of our muni portfolios. We continue to favor tactically selecting securities from sectors more challenged by COVID, such as transportation, health care and lower-rated state GO bonds.
Our seasoned team of analysts and portfolio managers has weathered difficult times 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 Sector
HELPED— Underweight AAA Rated Bonds Underweight State General Obligation
— — Overweight Health Care
— — Security Selection in Education
HURT
Overweight Municipal Bonds with 10 or More Years to Maturity
Security Selection in AA Rated Bonds Underweight Leasing
— —Security Selection in Local General Obligation
— — Security Selection in Transportation
Portfolio Bloomberg Municipal Bond Index
AMT Exposure 4.84% 0.00%
Annual Turnover Ratio (02/28/2021) 15.41% -
Average Duration 6.38 Yrs 5.19 Yrs
Average Weighted Maturity 5.81 Yrs 5.50 Yrs
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Franklin New Jersey Tax-Free Income Fund–Class A
Portfolio Diversification
9,11,12. Percentage may not equal 100% due to rounding. All holdings are subject to change. 10. 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.
Sector Allocation9
Percent of Total
0% 5% 10% 15% 20% 25% 30%
Transportation
Education
Lease
Health Care
Local
Housing
Refunded
Utilities
State General Obligation
Special Tax
Cash & Cash Equivalents
24.57
18.32
17.80
17.27
7.09
5.52
5.14
1.97
1.13
0.45
0.76
Credit Quality Ratings10
Percent of Total
Investment Grade Non-Investment Grade
Cash & Cash Equivalents
0% 10% 20% 30% 40% 50%
AAA
AA
A
BBB
Refunded
BB
B
D
Cash & Cash Equivalents
6.86
37.79
30.92
16.30
5.14
0.53
1.23
0.46
0.76
Maturity Allocation11
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 % 10 % 20 % 30 % 40 % 50 % 60 %
3.25
3.20
0.75
0.12
2.10
4.93
10.64
25.52
47.75
1.74
State / U.S. Territory Allocation12
Percent of Total
81.9781.97
7.687.68
5.835.83
2.622.62
1.151.15
0.760.76
0% 20% 40% 60% 80% 100%
New Jersey
Pennsylvania
New York
Delaware
Puerto Rico
Cash & Cash Equivalents
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Franklin New Jersey Tax-Free Income Fund–Class A
Performance Statistics
Investment Philosophy
13. Percentage may not equal 100% due to rounding. All holdings are subject to change. 14. Information Ratio and Tracking Error information are displayed for the product versus the Bloomberg Municipal Bond Index. 15. 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).
Asset Allocation13
Percent of Total
99.2499.24
0.760.76
0% 100%25% 50% 75% 125%
Fixed Income
Cash & Cash Equivalents
Risk Statistics14,15
Class A
3 Yrs 5 Yrs 10 Yrs
Standard Deviation (%) 4.48 3.82 3.75
Tracking Error (%) 1.15 1.33 1.25
Information Ratio -0.81 -0.51 -0.73
Sharpe Ratio 0.69 0.39 0.63
Past performance is not an indicator or a guarantee of future performance.
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Franklin New Jersey Tax-Free Income Fund–Class A
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
John Wiley 32 32
Chris Sperry, CFA 25 25
John Bonelli 11 11
Michael Conn 20 28
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Franklin New Jersey Tax-Free Income Fund–Class A
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. Because the fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. 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.
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.
11/01/2021 04:36:47 PST | 1171 PP 09/21
September 30, 2021
One Franklin Parkway San Mateo, CA 94403-1906 (800) DIAL BEN/342-5236 franklintempleton.com
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