N-30D 1 fctfifn30da.txt Annual Report [GRAPHIC OMITTED] MARCH 31, 2002 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND [LOGO OMITTED] FRANKLIN TEMPLETON INVESTMENTS THANK YOU FOR INVESTING WITH FRANKLIN TEMPLETON. WE ENCOURAGE OUR INVESTORS TO MAINTAIN A LONG-TERM PERSPECTIVE AND REMEMBER THAT ALL SECURITIES MARKETS MOVE BOTH UP AND DOWN, AS DO MUTUAL FUND SHARE PRICES. WE APPRECIATE YOUR PAST SUPPORT AND LOOK FORWARD TO SERVING YOUR INVESTMENT NEEDS IN THE YEARS AHEAD. [PHOTO OMITTED] CHARLES B. JOHNSON, center CHAIRMAN FRANKLIN CALIFORNIA TAX-FREE INCOME FUND SHEILA AMOROSO & RAFAEL R. COSTAS JR. SENIOR VICE PRESIDENTS/CO-DIRECTORS FRANKLIN MUNICIPAL BOND DEPARTMENT [GRAPHIC OMITTED] -------------------------------------------------------------------------------- FRANKLINTEMPLETON.COM Electronic delivery is a convenient alternative to receiving these reports through the mail. Visit franklintempleton.com today, click on Account Services and sign up. -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- YOUR FUND'S GOAL: FRANKLIN CALIFORNIA TAX-FREE INCOME FUND SEEKS TO PROVIDE HIGH, CURRENT INCOME EXEMPT FROM REGULAR FEDERAL AND CALIFORNIA STATE PERSONAL INCOME TAXES THROUGH A PORTFOLIO CONSISTING MAINLY OF CALIFORNIA MUNICIPAL BONDS.(1) -------------------------------------------------------------------------------- Dear Shareholder: This annual report for Franklin California Tax-Free Income Fund covers the period ended March 31, 2002. During the 12 months under review, the U.S. economy weakened further as gross domestic product (GDP) growth declined during the first half of 2001 before contracting at a 1.3% annualized rate in the third quarter. In response to this deteriorating economic activity and the fallout from September 11's tragic events, the Federal Reserve Board (the Fed) continued aggressively cutting interest rates, seeking to lower borrowing costs and stimulate economic growth. Eight interest rate cuts during the 12 months under review reduced the federal funds target rate from 5.00% at the beginning of the period to 1.75% on March 31, 2002, its lowest level in more than 40 years. In November 2001, the National Bureau of Economic Research signaled that the country had been in a mild recession since March 2001, ending the longest economic expansion in the nation's history. Significant, broad-based and sustained downward trends in economic activity were 1. For investors subject to the federal alternative minimum tax, a small portion of this income may be subject to such tax. Distributions of capital gains and of ordinary income from accrued market discount, if any, are generally taxable. The dollar value, number of shares or principal value, and complete legal titles of all portfolio holdings are listed in the Fund's Statement of Investments (SOI). The SOI begins on page 27. CONTENTS Shareholder Letter ................ 1 Performance Summary ............... 10 Special Feature: Making Sense of Dividends ......... 14 Municipal Bond Ratings ............ 20 Financial Highlights & Statement of Investments .......... 23 Financial Statements .............. 57 Notes to Financial Statements .............. 60 Independent Auditors' Report .................. 64 Tax Designation ................... 65 Board Members and Officers .......................... 66 [GRAPHIC OMITTED] FUND CATEGORY Global Growth Growth & Income Income Tax-Free Income largely to blame, with employment, industrial production and consumer and business spending dropping substantially. Consequently, consumer confidence fell to multi-year lows. However, the Fed's efforts, businesses restocking their inventories and significant government spending contributed to a surprising first quarter 2002 GDP estimated growth rate of 5.8% annualized. U.S. securities markets experienced mixed results in response to the war on terrorism, the Fed's actions and declining corporate and economic data. Investors' risk aversion increased, and by the end of third quarter 2001, this sentiment led to significant market volatility. The equity indexes experienced their worst quarterly decline, on a percentage basis, since the quarter that included the crash of 1987. The major stock indexes rebounded significantly from September's lows as indications of a potential economic recovery offered investors some optimism. For much of the year under review, fixed income markets, including municipal bonds, generally performed well, aided primarily by falling short-term interest rates and rising investor demand for the perceived safety of bonds versus stocks. Consequently, U.S. Treasuries slightly outperformed the Standard & Poor's 500 Composite Index during the period. The bond market's progress was not a steady rise, however, and overall the Treasury yield curve, representing yields of short- to long-term Treasuries, steepened. The 30-year Treasury bond's yield increased slightly from 5.44% at the beginning of the year under review to 5.80% on March 31, 2002. At the same time, the 10-year Treasury note's yield increased from 4.92% to 2 5.40%, and the 2-year Treasury note's yield fell from 4.18% to 3.71%. Short-term interest rates fell largely due to the Fed's actions and investors' economic worries. The Bond Buyer Municipal Bond Index (Bond Buyer 40), an indicator of municipal bond market performance, experienced volatility before ending the period higher, yielding 5.30% at the beginning of the period and 5.44% on March 31, 2002.(2) On October 31, 2001, the Fed's announcement to discontinue new issuance of 30-year debt exacerbated the already disconnected relationship between the long-term municipal market and the Treasury market, which resulted from the Fed's early-2000 introduction of its 30-year Treasury bond buyback program. Subsequently, the 30-year Treasury bond's price rose more than five points, its largest one-day point gain since the bond began trading on a regular basis; the 10-year Treasury note gained nearly one full point in response, while municipals increased marginally. Municipal bonds did, however, benefit from robust retail and institutional demand, and held up well despite widening Treasury yield spreads and an increase in new-issue supply. At the end of the reporting period, municipal bonds continued to offer attractive tax-equivalent yields over comparable taxable investments. Municipal bond funds continue to be attractive for those investors seeking tax-free income. Depending on your federal and state tax rates, a taxable investment of comparable credit quality would need to offer a higher yield, called the taxable 2. Source: THE BOND BUYER. The unmanaged Bond Buyer 40 is composed of the yield to maturity of 40 bonds. The index attempts to track the new-issue market as closely as possible, so it changes bonds twice a month, adding all new bonds that meet certain requirements and deleting an equivalent number according to their secondary market trading activity. As a result, the average par call date, average maturity date and average coupon rate change over time. The average maturity has generally been about 29-30 years. WHAT DOES "TAXABLE EQUIVALENT" MEAN FOR YOU? FOR YIELD AND DISTRIBUTION RATE, THE TAXABLE EQUIVALENT IS THE AMOUNT A TAXABLE INVESTMENT WOULD HAVE TO EARN TO MATCH A TAX-FREE INVESTMENT SUCH AS MUNICIPAL BONDS.* YOU CAN FIND YOUR FUND'S TAXABLE EQUIVALENT DISTRIBUTION RATE AND YIELD IN THE PERFORMANCE SUMMARY. *For investors subject to the federal or state alternative minimum tax, a portion of this income may be subject to such tax. Distributions of capital gains and of ordinary income from accrued market discount, if any, are generally taxable. 3 equivalent yield, to match the yield on a tax-free investment. Predicting market cycles is very difficult, even for professional economists, which is why we recommend investing for the long term. It is important to remember that over time, the tax-free income received from municipal bonds will ultimately drive the Fund's total return performance. Overall, we believe our professionally managed portfolio can provide investors with high credit quality and valuable, tax-free income, for the long term. CALIFORNIA ECONOMIC UPDATE As the reporting period began, the nation's economy was declining, with California's falling even faster. Although the state's economy benefited over the past several years from positive economic fundamentals, including above-average population and employment growth, improved business diversity and a concentration of high-growth, knowledge-based industries, California experienced a significant slowdown in 2001. The decelerating economy pushed up California's unemployment rate during the reporting period, from 4.8% on March 31, 2001, to 6.4% on March 31, 2002.(3) The weak employment picture can be attributed primarily to the continued contraction in the manufacturing sector and the dramatic slowdown in the services sector one of the state's key economic drivers since the mid-1990s. This recent economic weakness raised the prospect of substantial budget shortfalls in fiscal years 2002 and 2003. The governor attempted to eliminate the 2002 deficit through a variety of methods, including expenditure reductions, increased federal funding and a restructuring of outstanding general obligation debt. 3. Source: Bureau of Labor Statistics. 4 During summer 2001, the state attempted to deal with its energy shortages by entering into long-term contracts with energy suppliers, thus avoiding widespread blackouts. However, California purchased this energy by widening its budget deficit and using money from the general fund, weakening the state's general fund cash position during the period. The long-awaited $12 billion energy bond issue that was supposed to repay the general fund for energy purchases was stalled due to political bickering and pressure from consumer groups; however, the availability of significant amounts of other internally accessible funds helped alleviate the problem. The state's exposure to the high technology industry may continue to temper near-term employment growth as the semiconductor and personal computer manufacturing industries are not expected to rebound as quickly as other economic sectors. However, California may slightly outpace the rest of the nation in terms of near-term economic growth, despite some weakness in tourism. The state's knowledge-based industries are expected to rebound and replace the high technology sector jobs lost during the 12 months under review, and California appears well-positioned for long-term economic growth. Debt levels for the state are expected to remain moderate, despite increasing issuance of general obligation bonds for local schools, higher education and other purposes, proposals for debt restructuring to sharply reduce debt payments in 2003, and a potential, large general obligation bond authorization later in 2002. The state's general obligation and lease debt load was $804 per capita, and even if the new bond authorizations materialize, California's debt levels should still be at moderate levels.(4) 4. Source: Standard & Poor's, RATINGSDIRECT, 3/13/02. This does not indicate Standard & Poor's rating of the Fund. "... CALIFORNIA APPEARS WELL-POSITIONED FOR LONG-TERM ECONOMIC GROWTH." 5 QUALITY BREAKDOWN* Based on Total Long-Term Investments 3/31/02 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: AAA - 53.2% AA - 11.9% A - 15.4% BBB - 17.9% Below Investment Grade - 1.6% *Quality breakdown may include internal ratings for bonds not rated by an independent rating agency. During the 12-month reporting period, Moody's and Standard & Poor's, two independent credit rating agencies, lowered California's general obligation bonds' credit ratings. In April 2001, Standard & Poor's lowered their AA rating to A+.(4) Moody's lowered the state's rating twice in 2001, from Aa2 to Aa3 in May 2001, then again in November to A1.(5) These lower ratings reflected a negative outlook based upon California's faltering economy and a large structural budget gap projected to reach 10% of revenues in fiscal year 2003. Addressing the state's concerns, Governor Gray Davis asked selected state agencies to prepare plans for 15% budget cutbacks. It is important to note that California bonds, even with credit rating adjustments and a negative outlook, continue to be rated investment grade with above-average credit quality. PORTFOLIO NOTES As equity markets rebounded in the latter half of the Fund's fiscal year, bond prices declined, creating challenges for the Fund's share price. For the 12 months ended March 31, 2002, the Bond Buyer 40, a reasonable proxy for the type of securities in the Fund's portfolio, had a -2.30% price return.(2) In comparison, Franklin California Tax-Free Income Fund's Class A share price, as measured by net asset value, declined 2.35%. During the year under review, we maintained the Fund's high credit quality, and at period-end 65.1% of the Fund's total long-term investments were rated AA or better. 5. Source: Moody's Investors Service, CALIFORNIA (STATE OF), 2/15/02. This does not indicate Moody's rating of the Fund. 6 Many issuers took advantage of the still relatively low interest rates during the period to issue bonds to refund those with higher rates. The Fund attempted to take advantage of this situation by purchasing such issues as Puerto Rico Public Finance Corp. and Tobacco Securitization Authority Southern California Tobacco Settlement revenue bonds. Nationally, new bond issuance was up 43% in 2001 to $287 billion, up from $200 billion in 2000. California, which sold the most bonds of any state, issued $32 billion in 2001, compared with $23 billion in 2000, a 34% increase.(6) As 2002 has progressed, the economy has begun to improve, and interest rates have risen. New-issue volume is expected to increase in 2002 from 2001 levels because 2001 state tax receipts declined and municipalities need to issue bonds to finance their deficits. Your Fund combines the advantages of high credit quality and tax-free yields.(1) The Performance Summary beginning on page 10 shows that on March 31, 2002, the Fund's Class A shares' distribution rate was 4.96%, based on an annualization of March's 3.05 cent ($0.0305) per share dividend and the maximum offering price of $7.38 per share on March 31, 2002. This tax-free rate is generally higher than the after-tax return on a comparable quality taxable investment. An investor in the maximum combined federal and California state personal income tax bracket of 44.31% would need to earn 8.91% from a taxable investment to match the Fund's tax-free distribution rate. 6. Source: THE BOND BUYER, 4/1/02. PORTFOLIO BREAKDOWN 3/31/02 % OF TOTAL LONG-TERM INVESTMENTS ------------------------------------ Transportation 17.6% Hospital & Health Care 14.0% Utilities 13.7% Prerefunded 12.2% Tax-Supported 11.9% General Obligation 10.7% Subject to Government Appropriations 10.6% Housing 4.2% Other Revenue 3.4% Higher Education 1.4% Corporate-Backed 0.3% 7 DIVIDEND DISTRIBUTIONS 4/1/01-3/31/02 DIVIDEND PER SHARE --------------------------------------------------------------- MONTH CLASS A CLASS B CLASS C ADVISOR CLASS -------------------------------------------------------------------------------- April 3.10 cents 2.77 cents 2.74 cents May 3.10 cents 2.77 cents 2.74 cents -- June 3.05 cents 2.72 cents 2.72 cents -- July 3.05 cents 2.72 cents 2.72 cents -- August 3.05 cents 2.72 cents 2.72 cents -- September 3.05 cents 2.69 cents 2.70 cents -- October 3.05 cents 2.69 cents 2.70 cents -- November 3.05 cents 2.69 cents 2.70 cents 3.10 cents December 3.05 cents 2.73 cents 2.72 cents 3.10 cents January 3.05 cents 2.73 cents 2.72 cents 3.10 cents February 3.05 cents 2.73 cents 2.72 cents 3.10 cents March 3.05 cents 2.72 cents 2.71 cents 3.09 cents -------------------------------------------------------------------------------- TOTAL 36.70 CENTS 32.68 CENTS 32.61 CENTS 15.49 CENTS The Performance Summary also shows the distribution rates and their taxable equivalents for Classes B, C and Advisor shares. We hold a positive outlook for California municipal bonds and the Fund. As the economy improves, we believe an increase in bond issuance should provide attractive yields. Our ongoing analysis should enable us to find favorable investment opportunities as they arise. We intend to maintain our conservative, buy-and-hold investment strategy as we attempt to provide shareholders with high, current, tax-free income. 8 We encourage you to discuss your financial goals with an investment representative who can address concerns about volatility and help you diversify your investments and stay focused on the long term. We appreciate your support, welcome your questions and comments and look forward to serving your investment needs in the years ahead. Sincerely, /S/SIGNATURE Charles B. Johnson Chairman Franklin California Tax-Free Income Fund /S/SIGNATURE Sheila Amoroso /S/SIGNATURE Rafael R. Costas Jr. Senior Vice Presidents/Co-Directors Franklin Municipal Bond Department -------------------------------------------------------------------------------- A NOTE ABOUT DUPLICATE MAILINGS YOU WILL RECEIVE THE FUND'S SHAREHOLDER REPORT EVERY SIX MONTHS. TO REDUCE FUND EXPENSES, WE TRY TO IDENTIFY RELATED SHAREHOLDERS IN A HOUSEHOLD AND SEND ONLY ONE COPY OF THE REPORT. THIS PROCESS, CALLED "HOUSEHOLDING," WILL CONTINUE INDEFINITELY UNLESS YOU INSTRUCT US OTHERWISE. IF YOU PREFER NOT TO HAVE THESE DOCUMENTS HOUSEHOLDED, PLEASE CALL US AT 1-800/632-2301. AT ANY TIME YOU MAY VIEW CURRENT SHAREHOLDER REPORTS ON OUR WEBSITE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This discussion reflects our views, opinions and portfolio holdings as of March 31, 2002, the end of the reporting period. The information provided is not a complete analysis of every aspect of any state, industry, security or the Fund. Our strategies and the Fund's portfolio composition will change depending on market and economic conditions. Although historical performance is no guarantee of future results, these insights may help you understand our investment and management philosophy. -------------------------------------------------------------------------------- 9 PERFORMANCE SUMMARY AS OF 3/31/02 -------------------------------------------------------------------------------- CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to 7/1/94, Fund shares were offered at a lower initial sales charge; thus actual total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1 plan, which affects subsequent performance. CLASS B: Subject to no initial sales charge, but subject to a contingent deferred sales charge (CDSC) declining from 4% to 0% over six years. These shares have higher annual fees and expenses than Class A shares. CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18 months of investment. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a limited class of investors. -------------------------------------------------------------------------------- DISTRIBUTIONS AND RETURNS WILL VARY BASED ON EARNINGS OF THE FUND'S PORTFOLIO AND ANY PROFITS REALIZED FROM THE SALE OF THE PORTFOLIO'S SECURITIES, AS WELL AS THE LEVEL OF OPERATING EXPENSES FOR EACH CLASS. ALL TOTAL RETURNS INCLUDE REINVESTED DISTRIBUTIONS AT NET ASSET VALUE. THE PERFORMANCE TABLE AND GRAPHS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PRICE AND DISTRIBUTION INFORMATION CLASS A CHANGE 3/31/02 3/31/01 --------------------------------------------------------------- Net Asset Value (NAV) -$0.17 $7.07 $7.24 DISTRIBUTIONS (4/1/01-3/31/02) Dividend Income $0.3670 Long-Term Capital Gain $0.0089 ------- Total $0.3759 CLASS B CHANGE 3/31/02 3/31/01 --------------------------------------------------------------- Net Asset Value (NAV) -$0.18 $7.06 $7.24 DISTRIBUTIONS (4/1/01-3/31/02) Dividend Income $0.3268 Long-Term Capital Gain $0.0089 ------- Total $0.3357 CLASS C CHANGE 3/31/02 3/31/01 --------------------------------------------------------------- Net Asset Value (NAV) -$0.17 $7.06 $7.23 DISTRIBUTIONS (4/1/01-3/31/02) Dividend Income $0.3261 Long-Term Capital Gain $0.0089 ------- Total $0.3350 ADVISOR CLASS CHANGE 3/31/02 10/1/01 --------------------------------------------------------------- Net Asset Value (NAV) -$0.22 $7.07 $7.29 DISTRIBUTIONS (10/1/01-3/31/02) Dividend Income $0.1549 Long-Term Capital Gain $0.0089 ------- Total $0.1638 Franklin California Tax-Free Income Fund paid distributions derived from long-term capital gains of 0.89 cents ($0.0089) per share in December 2001. The Fund hereby designates such distributions as capital gain dividends per Internal Revenue Code Section 852 (b)(3). Past performance does not guarantee future results. 10 PERFORMANCE SUMMARY (CONT.) PERFORMANCE CLASS A 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return(1) +2.87% +31.15% +81.68% Average Annual Total Return(2) -1.49% +4.67% +5.70% Distribution Rate(3) 4.96% Taxable Equivalent Distribution Rate(4) 8.91% 30-Day Standardized Yield(5) 4.22% Taxable Equivalent Yield(4) 7.58% INCEPTION CLASS B 1-YEAR 3-YEAR (1/1/99) -------------------------------------------------------------------------------- Cumulative Total Return(1) +2.15% +10.06% +11.03% Average Annual Total Return(2) -1.75% +2.34% +2.45% Distribution Rate(3) 4.62% Taxable Equivalent Distribution Rate(4) 8.30% 30-Day Standardized Yield(5) 3.84% Taxable Equivalent Yield(4) 6.90% INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) -------------------------------------------------------------------------------- Cumulative Total Return(1) +2.29% +27.34% +42.64% Average Annual Total Return(2) +0.34% +4.75% +5.12% Distribution Rate(3) 4.56% Taxable Equivalent Distribution Rate(4) 8.19% 30-Day Standardized Yield(5) 3.80% Taxable Equivalent Yield(4) 6.82% ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return(1) +2.90% +31.19% +81.74% Average Annual Total Return(2) +2.90% +5.58% +6.16% Distribution Rate(3) 5.24% Taxable Equivalent Distribution Rate(4) 9.41% 30-Day Standardized Yield(5) 4.49% Taxable Equivalent Yield(4) 8.06% For updated performance figures, see "Prices and Performance" at franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236. 1. Cumulative total return represents the change in value of an investment over the periods indicated and does not include sales charges. 2. Average annual total return represents the average annual change in value of an investment over the periods indicated and includes the current, applicable, maximum sales charge(s) for that class. 3. Distribution rate is based on an annualization of the respective class's current monthly dividend and the maximum offering price (NAV for Class B and Advisor Class) per share on 3/31/02. 4. Taxable equivalent distribution rate and yield assume the published rates as of 12/10/01 for the maximum combined federal and California state personal income tax bracket of 44.31%, based on the federal income tax rate of 38.6%. 5. Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 3/31/02. 6. 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 total return of Advisor Class shares was -0.80%. -------------------------------------------------------------------------------- Bond prices, and thus the Fund's share price, generally move in the opposite direction from interest rates. Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, and you may have a gain or loss when you sell your shares. -------------------------------------------------------------------------------- Past performance does not guarantee future results. 11 PERFORMANCE SUMMARY (CONT.) TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIODS SHOWN. IT INCLUDES THE CURRENT, APPLICABLE, MAXIMUM SALES CHARGE(S), FUND EXPENSES, ACCOUNT FEES AND REINVESTED DISTRIBUTIONS. THE UNMANAGED INDEX INCLUDES REINVESTED INTEREST. IT DIFFERS FROM THE FUND IN COMPOSITION AND DOES NOT PAY MANAGEMENT FEES OR EXPENSES. ONE CANNOT INVEST DIRECTLY IN AN INDEX. THE CONSUMER PRICE INDEX (CPI), CALCULATED BY THE U.S. BUREAU OF LABOR STATISTICS, IS A COMMONLY USED MEASURE OF THE INFLATION RATE. Class A (4/1/92-3/31/02) [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Date Franklin California Lehman Brothers CPI Tax-Free Income Fund Municipal Bond Index 4/1/92 $ 9,573 $10,000 $10,000 4/30/92 9,648 10,089 10,014 5/31/92 9,791 10,208 10,028 6/30/92 9,925 10,380 10,064 7/31/92 10,272 10,691 10,085 8/31/92 10,125 10,587 10,113 9/30/92 10,141 10,656 10,142 10/31/92 9,940 10,552 10,177 11/30/92 10,216 10,740 10,192 12/31/92 10,345 10,850 10,184 1/31/93 10,484 10,976 10,234 2/28/93 10,799 11,373 10,270 3/31/93 10,771 11,253 10,306 4/30/93 10,840 11,366 10,335 5/31/93 10,900 11,430 10,349 6/30/93 11,087 11,621 10,364 7/31/93 11,112 11,636 10,364 8/31/93 11,319 11,878 10,393 9/30/93 11,454 12,013 10,415 10/31/93 11,523 12,036 10,457 11/30/93 11,501 11,930 10,465 12/31/93 11,691 12,182 10,465 1/31/94 11,808 12,321 10,493 2/28/94 11,571 12,002 10,529 3/31/94 11,108 11,513 10,565 4/30/94 11,152 11,611 10,579 5/31/94 11,223 11,712 10,587 6/30/94 11,181 11,641 10,623 7/31/94 11,377 11,854 10,651 8/31/94 11,422 11,895 10,694 9/30/94 11,273 11,720 10,723 10/31/94 11,066 11,512 10,730 11/30/94 10,878 11,303 10,744 12/31/94 11,070 11,552 10,744 1/31/95 11,439 11,883 10,787 2/28/95 11,760 12,228 10,830 3/31/95 11,845 12,369 10,866 4/30/95 11,881 12,384 10,902 5/31/95 12,207 12,779 10,924 6/30/95 12,052 12,668 10,946 7/31/95 12,128 12,788 10,946 8/31/95 12,236 12,950 10,974 9/30/95 12,314 13,032 10,996 10/31/95 12,494 13,221 11,032 11/30/95 12,726 13,440 11,025 12/31/95 12,877 13,569 11,017 1/31/96 12,956 13,673 11,082 2/29/96 12,889 13,580 11,117 3/31/96 12,697 13,406 11,175 4/30/96 12,651 13,368 11,219 5/31/96 12,657 13,363 11,240 6/30/96 12,801 13,509 11,247 7/31/96 12,914 13,630 11,268 8/31/96 12,961 13,627 11,290 9/30/96 13,139 13,818 11,326 10/31/96 13,263 13,974 11,362 11/30/96 13,464 14,230 11,384 12/31/96 13,415 14,170 11,384 1/31/97 13,410 14,197 11,420 2/28/97 13,525 14,328 11,455 3/31/97 13,354 14,137 11,484 4/30/97 13,470 14,256 11,498 5/31/97 13,643 14,471 11,491 6/30/97 13,749 14,626 11,505 7/31/97 14,126 15,031 11,519 8/31/97 14,008 14,890 11,540 9/30/97 14,161 15,067 11,569 10/31/97 14,244 15,164 11,598 11/30/97 14,328 15,253 11,591 12/31/97 14,522 15,476 11,577 1/31/98 14,665 15,635 11,599 2/28/98 14,680 15,640 11,621 3/31/98 14,695 15,654 11,643 4/30/98 14,628 15,583 11,664 5/31/98 14,833 15,830 11,685 6/30/98 14,908 15,891 11,699 7/31/98 14,936 15,931 11,713 8/31/98 15,144 16,178 11,728 9/30/98 15,377 16,380 11,742 10/31/98 15,392 16,380 11,770 11/30/98 15,457 16,438 11,770 12/31/98 15,468 16,479 11,763 1/31/99 15,594 16,675 11,791 2/28/99 15,584 16,601 11,805 3/31/99 15,622 16,625 11,840 4/30/99 15,623 16,666 11,927 5/31/99 15,549 16,570 11,927 6/30/99 15,311 16,331 11,927 7/31/99 15,324 16,390 11,963 8/31/99 15,121 16,259 11,991 9/30/99 15,135 16,265 12,049 10/31/99 14,905 16,089 12,071 11/30/99 15,021 16,260 12,078 12/31/99 14,907 16,138 12,078 1/31/00 14,791 16,067 12,114 2/29/00 15,052 16,253 12,186 3/31/00 15,420 16,608 12,286 4/30/00 15,289 16,510 12,293 5/31/00 15,225 16,424 12,308 6/30/00 15,650 16,859 12,372 7/31/00 15,850 17,094 12,400 8/31/00 16,159 17,357 12,400 9/30/00 16,119 17,267 12,465 10/31/00 16,242 17,455 12,486 11/30/00 16,378 17,587 12,493 12/31/00 16,774 18,022 12,486 1/31/01 16,870 18,200 12,564 2/28/01 16,912 18,258 12,615 3/31/01 17,064 18,423 12,644 4/30/01 16,802 18,224 12,694 5/31/01 16,984 18,421 12,751 6/30/01 17,025 18,544 12,773 7/31/01 17,292 18,818 12,737 8/31/01 17,686 19,129 12,737 9/30/01 17,629 19,064 12,795 10/31/01 17,813 19,291 12,751 11/30/01 17,741 19,129 12,729 12/31/01 17,553 18,947 12,680 1/31/02 17,779 19,275 12,709 2/28/02 17,935 19,506 12,760 3/31/02 17,404 19,124 12,831 AVERAGE ANNUAL TOTAL RETURN CLASS A 3/31/02 ---------------------------- 1-Year -1.49% 5-Year +4.67% 10-Year +5.70% Class B (1/1/99-3/31/02) [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Date Franklin California Lehman Brothers CPI Tax-Free Income Fund Municipal Bond Index 1/1/99 $10,000 $10,000 $10,000 1/31/99 10,083 10,119 10,024 2/28/99 10,079 10,074 10,036 3/31/99 10,088 10,089 10,066 4/30/99 10,098 10,114 10,140 5/31/99 10,038 10,055 10,140 6/30/99 9,875 9,910 10,140 7/31/99 9,884 9,946 10,170 8/31/99 9,739 9,866 10,194 9/30/99 9,736 9,870 10,243 10/31/99 9,550 9,764 10,262 11/30/99 9,644 9,867 10,268 12/31/99 9,514 9,793 10,268 1/31/00 9,412 9,750 10,299 2/29/00 9,566 9,863 10,360 3/31/00 9,835 10,078 10,444 4/30/00 9,745 10,019 10,451 5/31/00 9,699 9,967 10,463 6/30/00 9,956 10,231 10,518 7/31/00 10,113 10,373 10,542 8/31/00 10,329 10,533 10,542 9/30/00 10,281 10,478 10,597 10/31/00 10,366 10,592 10,615 11/30/00 10,422 10,673 10,621 12/31/00 10,655 10,936 10,615 1/31/01 10,741 11,045 10,682 2/28/01 10,767 11,080 10,724 3/31/01 10,869 11,180 10,749 4/30/01 10,684 11,059 10,792 5/31/01 10,787 11,178 10,841 6/30/01 10,843 11,253 10,859 7/31/01 11,022 11,420 10,829 8/31/01 11,293 11,608 10,829 9/30/01 11,227 11,569 10,877 10/31/01 11,330 11,707 10,840 11/30/01 11,279 11,608 10,822 12/31/01 11,148 11,498 10,780 1/31/02 11,285 11,697 10,804 2/28/02 11,343 11,837 10,848 3/31/02 10,817 11,605 10,908 AVERAGE ANNUAL TOTAL RETURN CLASS B 3/31/02 ------------------------------ 1-Year -1.75% 3-Year +2.34% Since Inception (1/1/99)+2.45% Past performance does not guarantee future results. 12 PERFORMANCE SUMMARY (CONT.) Class C (5/1/95-3/31/02) [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Date Franklin California Lehman Brothers CPI Tax-Free Income Fund Municipal Bond Index 5/1/95 $ 9,902 $10,000 $10,000 5/31/95 10,140 10,319 10,020 6/30/95 10,060 10,229 10,040 7/31/95 10,121 10,326 10,040 8/31/95 10,211 10,458 10,066 9/30/95 10,286 10,523 10,086 10/31/95 10,406 10,676 10,120 11/30/95 10,569 10,853 10,112 12/31/95 10,675 10,957 10,105 1/31/96 10,723 11,041 10,165 2/29/96 10,668 10,966 10,198 3/31/96 10,562 10,825 10,251 4/30/96 10,537 10,795 10,291 5/31/96 10,542 10,791 10,310 6/30/96 10,649 10,908 10,316 7/31/96 10,728 11,006 10,336 8/31/96 10,747 11,004 10,356 9/30/96 10,873 11,158 10,389 10/31/96 10,984 11,284 10,422 11/30/96 11,127 11,491 10,442 12/31/96 11,100 11,443 10,442 1/31/97 11,104 11,464 10,475 2/28/97 11,202 11,570 10,508 3/31/97 11,096 11,416 10,534 4/30/97 11,179 11,512 10,547 5/31/97 11,309 11,686 10,540 6/30/97 11,393 11,811 10,553 7/31/97 11,667 12,138 10,565 8/31/97 11,590 12,024 10,586 9/30/97 11,722 12,167 10,612 10/31/97 11,788 12,245 10,639 11/30/97 11,872 12,317 10,632 12/31/97 12,027 12,497 10,619 1/31/98 12,128 12,626 10,640 2/28/98 12,130 12,629 10,660 3/31/98 12,149 12,641 10,680 4/30/98 12,098 12,584 10,699 5/31/98 12,264 12,783 10,719 6/30/98 12,309 12,832 10,731 7/31/98 12,342 12,865 10,744 8/31/98 12,510 13,064 10,757 9/30/98 12,679 13,227 10,770 10/31/98 12,679 13,227 10,796 11/30/98 12,729 13,274 10,796 12/31/98 12,719 13,307 10,789 1/31/99 12,835 13,465 10,815 2/28/99 12,831 13,406 10,828 3/31/99 12,841 13,425 10,861 4/30/99 12,852 13,458 10,940 5/31/99 12,774 13,380 10,940 6/30/99 12,566 13,187 10,940 7/31/99 12,577 13,235 10,973 8/31/99 12,394 13,129 10,999 9/30/99 12,389 13,134 11,052 10/31/99 12,152 12,992 11,072 11/30/99 12,273 13,130 11,079 12/31/99 12,107 13,032 11,079 1/31/00 11,977 12,974 11,112 2/29/00 12,173 13,125 11,177 3/31/00 12,516 13,411 11,269 4/30/00 12,402 13,332 11,276 5/31/00 12,325 13,263 11,289 6/30/00 12,672 13,614 11,348 7/31/00 12,871 13,803 11,374 8/31/00 13,146 14,016 11,374 9/30/00 13,067 13,943 11,433 10/31/00 13,194 14,095 11,453 11/30/00 13,265 14,202 11,460 12/31/00 13,562 14,553 11,453 1/31/01 13,671 14,697 11,525 2/28/01 13,705 14,744 11,571 3/31/01 13,814 14,877 11,598 4/30/01 13,579 14,716 11,644 5/31/01 13,728 14,875 11,696 6/30/01 13,800 14,974 11,716 7/31/01 14,028 15,196 11,683 8/31/01 14,373 15,447 11,683 9/30/01 14,289 15,394 11,736 10/31/01 14,420 15,578 11,696 11/30/01 14,355 15,447 11,676 12/31/01 14,189 15,300 11,631 1/31/02 14,362 15,565 11,657 2/28/02 14,436 15,751 11,704 3/31/02 14,125 15,443 11,770 AVERAGE ANNUAL TOTAL RETURN CLASS C 3/31/02 ------------------------------- 1-Year +0.34% 5-Year +4.75% Since Inception (5/1/95) +5.12% Advisor Class (4/1/92-3/31/02) (8) [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Date Franklin California Lehman Brothers CPI Tax-Free Income Fund Municipal Bond Index CPI 4/1/92 $10,000 $10,000 $10,000 4/30/92 $10,058 10,089 10,014 5/31/92 $10,217 10,208 10,028 6/30/92 $10,333 10,380 10,064 7/31/92 $10,624 10,691 10,085 8/31/92 $10,479 10,587 10,113 9/30/92 $10,507 10,656 10,142 10/31/92 $10,343 10,552 10,177 11/30/92 $10,651 10,740 10,192 12/31/92 $10,813 10,850 10,184 1/31/93 $10,931 10,976 10,234 2/28/93 $11,199 11,373 10,270 3/31/93 $11,122 11,253 10,306 4/30/93 $11,197 11,366 10,335 5/31/93 $11,240 11,430 10,349 6/30/93 $11,427 11,621 10,364 7/31/93 $11,410 11,636 10,364 8/31/93 $11,672 11,878 10,393 9/30/93 $11,780 12,013 10,415 10/31/93 $11,807 12,036 10,457 11/30/93 $11,724 11,930 10,465 12/31/93 $11,839 12,182 10,465 1/31/94 $11,962 12,321 10,493 2/28/94 $11,781 12,002 10,529 3/31/94 $11,472 11,513 10,565 4/30/94 $11,515 11,611 10,579 5/31/94 $11,608 11,712 10,587 6/30/94 $11,570 11,641 10,623 7/31/94 $11,730 11,854 10,651 8/31/94 $11,791 11,895 10,694 9/30/94 $11,702 11,720 10,723 10/31/94 $11,564 11,512 10,730 11/30/94 $11,409 11,303 10,744 12/31/94 $11,505 11,552 10,744 1/31/95 $11,789 11,883 10,787 2/28/95 $12,091 12,228 10,830 3/31/95 $12,206 12,369 10,866 4/30/95 $12,235 12,384 10,902 5/31/95 $12,525 12,779 10,924 6/30/95 $12,450 12,668 10,946 7/31/95 $12,532 12,788 10,946 8/31/95 $12,650 12,950 10,974 9/30/95 $12,734 13,032 10,996 10/31/95 $12,907 13,221 11,032 11/30/95 $13,098 13,440 11,025 12/31/95 $13,237 13,569 11,017 1/31/96 $13,303 13,673 11,082 2/29/96 $13,243 13,580 11,117 3/31/96 $13,109 13,406 11,175 4/30/96 $13,086 13,368 11,219 5/31/96 $13,117 13,363 11,240 6/30/96 $13,257 13,509 11,247 7/31/96 $13,344 13,630 11,268 8/31/96 $13,373 13,627 11,290 9/30/96 $13,555 13,818 11,326 10/31/96 $13,681 13,974 11,362 11/30/96 $13,883 14,230 11,384 12/31/96 $13,857 14,170 11,384 1/31/97 $13,868 14,197 11,420 2/28/97 $13,996 14,328 11,455 3/31/97 $13,851 14,137 11,484 4/30/97 $13,961 14,256 11,498 5/31/97 $14,151 14,471 11,491 6/30/97 $14,263 14,626 11,505 7/31/97 $14,592 15,031 11,519 8/31/97 $14,522 14,890 11,540 9/30/97 $14,693 15,067 11,569 10/31/97 $14,784 15,164 11,598 11/30/97 $14,897 15,253 11,591 12/31/97 $15,079 15,476 11,577 1/31/98 $15,211 15,635 11,599 2/28/98 $15,242 15,640 11,621 3/31/98 $15,252 15,654 11,643 4/30/98 $15,217 15,583 11,664 5/31/98 $15,433 15,830 11,685 6/30/98 $15,498 15,891 11,699 7/31/98 $15,526 15,931 11,713 8/31/98 $15,745 16,178 11,728 9/30/98 $15,965 16,380 11,742 10/31/98 $15,972 16,380 11,770 11/30/98 $16,064 16,438 11,770 12/31/98 $16,058 16,479 11,763 1/31/99 $16,212 16,675 11,791 2/28/99 $16,193 16,601 11,805 3/31/99 $16,235 16,625 11,840 4/30/99 $16,256 16,666 11,927 5/31/99 $16,144 16,570 11,927 6/30/99 $15,911 16,331 11,927 7/31/99 $15,934 16,390 11,963 8/31/99 $15,709 16,259 11,991 9/30/99 $15,687 16,265 12,049 10/31/99 $15,417 16,089 12,071 11/30/99 $15,554 16,260 12,078 12/31/99 $15,351 16,138 12,078 1/31/00 $15,192 16,067 12,114 2/29/00 $15,470 16,253 12,186 3/31/00 $15,913 16,608 12,286 4/30/00 $15,752 16,510 12,293 5/31/00 $15,684 16,424 12,308 6/30/00 $16,131 16,859 12,372 7/31/00 $16,393 17,094 12,400 8/31/00 $16,726 17,357 12,400 9/30/00 $16,657 17,267 12,465 10/31/00 $16,827 17,455 12,486 11/30/00 $16,924 17,587 12,493 12/31/00 $17,288 18,022 12,486 1/31/01 $17,460 18,200 12,564 2/28/01 $17,510 18,258 12,615 3/31/01 $17,659 18,423 12,644 4/30/01 $17,368 18,224 12,694 5/31/01 $17,567 18,421 12,751 6/30/01 $17,667 18,544 12,773 7/31/01 $17,966 18,818 12,737 8/31/01 $18,390 19,129 12,737 9/30/01 $18,316 19,064 12,795 10/31/01 $18,469 19,291 12,751 11/30/01 $18,395 19,129 12,729 12/31/01 $18,192 18,947 12,680 1/31/02 $18,423 19,275 12,709 2/28/02 $18,528 19,506 12,760 3/31/02 $18,174 19,124 12,831 AVERAGE ANNUAL TOTAL RETURN ADVISOR CLASS(8) 3/31/02 ------------------------------ 1-Year +2.90% 5-Year +5.58% 10-Year +6.16% 7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index includes about 40,000 bonds from across the country. All bonds included have a minimum credit rating of at least Baa and a maturity of at least two years, and have been issued within the last five years as part of a deal of over $50 million. Bonds subject to the alternative minimum tax or with floating or zero coupons are excluded. Bonds will be added and the index will be updated monthly with a one-month lag. 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. Past performance does not guarantee future results. 13 Q & A SPECIAL FEATURE: MAKING SENSE OF DIVIDENDS FREQUENTLY ASKED QUESTIONS ABOUT THE DIVIDEND POLICY OF FRANKLIN TAX-FREE INCOME FUNDS. Have you ever wondered how your fund earns tax-free income and how much of that income is actually paid to you? Or, have you questioned why your monthly dividends fluctuate? Below you'll find answers to these and other commonly asked questions about dividends paid by Franklin's tax-free funds. Q. WHAT'S FRANKLIN TAX-FREE FUNDS' DIVIDEND POLICY AND HOW DOES IT AFFECT MY DIVIDEND PAYMENTS? A. Franklin tax-free income funds attempt to set dividends on a quarterly basis. This means that once a quarter, in March, June, September and December, we establish a fixed dividend amount per share that the funds will distribute over the next three months. While the income the funds accrue varies day-to-day, we do our best to maintain this fixed dividend each quarter to provide our shareholders with a stable income stream. ----------------------------------------------------- NOT FDIC INSURED O MAY LOSE VALUE O NO BANK GUARANTEE ----------------------------------------------------- NOT PART OF THE SHAREHOLDER REPORT 14 As you know, our goal is to invest for high, current tax-free income. Franklin is one of the few fund companies that work to stabilize dividend payments for three months at a time. Many other tax-free funds distribute dividends on daily income they accrue each month; meaning their dividend payments can fluctuate every month. Q. WHAT ARE THE SOURCES OF THE INCOME MY FUND DISTRIBUTES TO ME AS TAX-FREE DIVIDENDS? A. Your fund earns tax-exempt interest income from its investments in municipal securities, or bonds. A municipal bond is an IOU issued by state and local government agencies to raise money to fund public projects. The issuing municipality makes interest payments to bondholders, in this case the fund, to compensate them for the use of their money until the bond is repaid. Franklin's tax-free funds pay you this investment income as tax-free dividends, less various operating expenses. As you know, these dividends are usually free from federal income taxes.* For a state-specific fund, they may also be free from that state's personal income taxes as well, to the extent dividends are earned from interest on that state's tax-free obligations.* Sometimes, the fund may also pay you accumulated dividends that were not previously distributed. *Alternative minimum taxes may apply. NOT PART OF THE SHAREHOLDER REPORT 15 Q. WHAT OTHER FACTORS CAN AFFECT MY MONTHLY DIVIDENDS? A. Generally, interest rates are the biggest determinant of a tax-free fund's earnings level and the amount of dividends paid to you. For example, when interest rates decline, a fund's investment earnings will decline, as cash flow into the fund must be invested at the lower rates. This means dividend payments will also decrease. However, since bond prices tend to move in the opposite direction of interest rates, your fund's net asset value (NAV) will tend to increase, causing your shares to appreciate in price. Similarly, when interest rates rise, the ability of the funds to increase their dividends will rise. Interest rate trends are primarily determined by economic factors such as inflation, strength of the U.S. dollar and the pace of economic growth. Strong economic growth can lead to inflation, and the Federal Reserve may raise interest rates to cool the economy, as we saw last year. On the other hand, if the economy slows down, the Federal Reserve may lower interest rates to stimulate economic growth, as happened earlier this year. Credit quality and maturity periods of the securities in a fund's portfolio also play a role in determining the amount of income available to distribute to shareholders, as explained below. NOT PART OF THE SHAREHOLDER REPORT 16 Q. WHY DO SOME TAX-FREE FUNDS PAY HIGHER DIVIDENDS THAN OTHERS? A. Dividends are directly related to the composition of a fund's portfolio. First, the credit quality of securities held helps determine a fund's dividend payment ability. High-yield municipal bond funds, for example, can have higher dividend distributions than other tax-free funds. This is because they hold lower credit-quality municipal bonds that must pay higher yields than other securities to compensate investors for taking on additional risk. However, they're also subject to higher risk than funds that hold higher quality bonds in their portfolios. Similarly, long-term bond holdings in a fund's portfolio tend to pay higher interest income than short-term bonds to compensate for uncertainty associated with the future. Q. HOW HAS THE CURRENT DECLINING INTEREST RATE ENVIRONMENT AFFECTED MONTHLY DIVIDEND PAYMENTS? A. When interest rates decline, municipal bond issuers often "call," or redeem, their higher-yielding bonds and replace them with new, lower-yielding securities so they can reduce the amount of interest they have to pay on the debt. Most municipal bonds are callable within 10 to 12 years after they're issued. Because interest rates have generally been declining over the past 15 years, our funds are experiencing bond calls on older, higher-income securities. NOT PART OF THE SHAREHOLDER REPORT 17 Consequently, many of Franklin's tax-free funds have had to reinvest proceeds from these called bonds into lower-yielding bonds, resulting in lower earnings (dividends). Because funds can only pay out what they earn, many of our funds have had to reduce dividend payments. As you can see in the chart below, in the late 1980s and early 1990s, we were able to invest assets at approximately 8%. As these bonds matured or were called, we've had to reinvest the proceeds at approximately 5-3/8%. Because we cannot invest cash flow at the higher levels, we've had to reduce dividends. We continue to pay out the income we earn, but our earnings are lower today because we're reinvesting at a lower rate than was available 10-15 years ago. Many of the securities being called today have provided high levels of income over the past 10 years, as interest rates have trended down. Though we can't predict interest rate cycles, we'll continue to focus on producing the highest monthly tax-free income possible through our disciplined management approach. MONTHLY YIELDS OF BOND BUYER 40 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Date Bond Buyer 40 Yields Jan 85 10.35% Feb 85 10.20% Mar 85 10.01% Apr 85 9.50% May 85 9.43% Jun 85 9.40% Jul 85 9.45% Aug 85 9.80% Sep 85 9.49% Oct 85 9.24% Nov 85 8.92% Dec 85 8.48% Jan 86 8.04% Feb 86 7.82% Mar 86 7.92% Apr 86 8.14% May 86 7.90% Jun 86 7.96% Jul 86 7.88% Aug 86 7.41% Sep 86 7.56% Oct 86 7.36% Nov 86 7.19% Dec 86 7.18% Jan 87 7.11% Feb 87 7.05% Mar 87 7.18% Apr 87 8.10% May 87 8.29% Jun 87 8.19% Jul 87 8.17% Aug 87 8.16% Sep 87 8.87% Oct 87 8.72% Nov 87 8.62% Dec 87 8.40% Jan 88 7.97% Feb 88 7.85% Mar 88 8.17% Apr 88 8.17% May 88 8.20% Jun 88 8.04% Jul 88 8.05% Aug 88 8.11% Sep 88 7.89% Oct 88 7.73% Nov 88 7.90% Dec 88 7.74% Jan 89 7.66% Feb 89 7.73% Mar 89 7.79% Apr 89 7.58% May 89 7.46% Jun 89 7.29% Jul 89 7.16% Aug 89 7.36% Sep 89 7.47% Oct 89 7.38% Nov 89 7.24% Dec 89 7.25% Jan 90 7.45% Feb 90 7.40% Mar 90 7.52% Apr 90 7.74% May 90 7.53% Jun 90 7.50% Jul 90 7.35% Aug 90 7.64% Sep 90 7.79% Oct 90 7.71% Nov 90 7.47% Dec 90 7.47% Jan 91 7.39% Feb 91 7.36% Mar 91 7.34% Apr 91 7.26% May 91 7.21% Jun 91 7.21% Jul 91 7.11% Aug 91 6.97% Sep 91 6.89% Oct 91 6.85% Nov 91 6.90% Dec 91 6.66% Jan 92 6.72% Feb 92 6.76% Mar 92 6.76% Apr 92 6.74% May 92 6.63% Jun 92 6.49% Jul 92 6.19% Aug 92 6.35% Sep 92 6.39% Oct 92 6.68% Nov 92 6.42% Dec 92 6.39% Jan 93 6.31% Feb 93 6.01% Mar 93 6.04% Apr 93 5.96% May 93 5.89% Jun 93 5.76% Jul 93 5.78% Aug 93 5.60% Sep 93 5.47% Oct 93 5.48% Nov 93 5.65% Dec 93 5.52% Jan 94 5.45% Feb 94 5.77% Mar 94 6.36% Apr 94 6.37% May 94 6.40% Jun 94 6.47% Jul 94 6.33% Aug 94 6.36% Sep 94 6.58% Oct 94 6.85% Nov 94 7.16% Dec 94 6.92% Jan 95 6.66% Feb 95 6.42% Mar 95 6.37% Apr 95 6.35% May 95 6.10% Jun 95 6.28% Jul 95 6.19% Aug 95 6.11% Sep 95 6.07% Oct 95 5.91% Nov 95 5.74% Dec 95 5.56% Jan 96 5.57% Feb 96 5.71% Mar 96 5.96% Apr 96 6.05% May 96 6.09% Jun 96 6.01% Jul 96 5.98% Aug 96 6.02% Sep 96 5.89% Oct 96 5.83% Nov 96 5.66% Dec 96 5.72% Jan 97 5.82% Feb 97 5.76% Mar 97 5.95% Apr 97 5.89% May 97 5.74% Jun 97 5.69% Jul 97 5.40% Aug 97 5.55% Sep 97 5.47% Oct 97 5.40% Nov 97 5.36% Dec 97 5.25% Jan 98 5.19% Feb 98 5.24% Mar 98 5.27% Apr 98 5.39% May 98 5.22% Jun 98 5.22% Jul 98 5.26% Aug 98 5.11% Sep 98 4.99% Oct 98 5.13% Nov 98 5.10% Dec 98 5.16% Jan 99 5.09% Feb 99 5.17% Mar 99 5.23% Apr 99 5.28% May 99 5.37% Jun 99 5.53% Jul 99 5.59% Aug 99 5.78% Sep 99 5.89% Oct 99 6.08% Nov 99 6.12% Dec 99 6.22% Jan 00 6.31% Feb 00 6.17% Mar 00 5.94% Apr 00 6.00% May 00 6.13% Jun 00 5.91% Jul 00 5.79% Aug 00 5.72% Sep 00 5.82% Oct 00 5.74% Nov 00 5.75% Dec 00 5.47% Jan 01 5.45% Feb 01 5.40% Mar 01 5.30% Apr 01 5.49% May 01 5.42% June 01 5.38% Jul 01 5.25% Aug 01 5.12% Sep-01 5.22% Oct-01 5.20% Nov-01 5.30% Dec-01 5.44% Jan-02 5.33% Feb-02 5.25% Mar-02 5.41% Source: S&P Micropal (Bond Buyer 40, as of 3/31/02). One cannot invest in an index; indexes are unmanaged. NOT PART OF THE SHAREHOLDER REPORT 18 Q. WHAT OTHER TYPES OF INCOME CAN MY FUND DISTRIBUTE? A. Your fund also earns income from short- and long-term capital gains, which are taxable to shareholders, whether you reinvest them or receive them as cash. Though we work to reduce capital gains, in periods of sustained low interest rates, they are often unavoidable. While short-term capital gains (on securities held in a portfolio for 12 months or less) are treated as ordinary income distributions and taxed at regular income tax rates, long-term capital gains (on securities held in a portfolio for more than 12 months) are taxed at lower rates. Sometimes, a fund may invest part of its portfolio in private activity bonds, which are basically municipal bonds issued to finance private activity. Interest earned from such bonds is exempt from federal income tax, but it's a preference item when calculating your alternative minimum tax (AMT) liability. So, as required by the Internal Revenue Code, this income must be added to your regular tax income to calculate your AMT income and AMT tax liability, if any. In case your fund makes any capital gains distributions, you can find the exact amount of the distributions on your Form 1099. For complete information on your tax liabilities, we suggest you consult a qualified tax professional. [LOGO OMITTED] FRANKLIN TEMPLETON INVESTMENTS DIVQ INS 05/02 NOT PART OF THE SHAREHOLDER REPORT 19 MUNICIPAL BOND RATINGS MOODY'S AAA: Best quality. They carry the smallest degree of investment risk and generally are referred to as "gilt-edged." Interest payments are protected by a large or exceptionally stable margin, and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA: High quality by all standards. Together with the Aaa group, they comprise what generally are known as high-grade bonds. Aa bonds are rated lower than Aaa because margins of protection may not be as large, fluctuation of protective elements may be of greater amplitude, or there may be other elements which make the long-term risks appear larger. A: Possess many favorable investment attributes and are considered upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA: Medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. 20 BA: Contain speculative elements. Often the protection of interest and principal payments may be very moderate and, thereby, not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA: Poor standing. Such issues may be in default, or elements of danger with respect to principal or interest may be present. CA: Obligations that are highly speculative. Such issues are often in default or have other marked shortcomings. C: Lowest-rated class of bonds. Issues rated C can be regarded as having extremely poor prospects of ever attaining any real investment standing. S&P AAA: The highest rating assigned by S&P to a debt obligation and indicates the ultimate degree of protection as to principal and interest. AA: Also qualify as high-grade obligations, and, in the majority of instances, differ from AAA issues only in a small degree. A: Generally regarded as upper medium-grade. They have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions. Interest and principal are regarded as safe. BBB: Regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to 21 pay principal and interest for bonds in this category than for bonds in the A category. BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds likely will have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C: Reserved for income bonds on which no interest is being paid. D: In default, and payment of interest and/or repayment of principal is in arrears. 22 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights
CLASS A --------------------------------------------------------------- YEAR ENDED MARCH 31, 2002 2001 2000 1999 1998 --------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................... $7.24 $6.88 $7.40 $7.35 $7.09 --------------------------------------------------------------- Income from investment operations: Net investment income(a) ............................ .37 .37 .38 .39 .42 Net realized and unrealized gains (losses) .......... (.16) .36 (.53) .07 .27 --------------------------------------------------------------- Total from investment operations ..................... .21 .73 (.15) .46 .69 Less distributions from: Net investment income ............................... (.37) (.37) (.36) (.39) (.42) Net realized gains .................................. (.01) -- (.01) (.02) (.01) --------------------------------------------------------------- Total distributions .................................. (.38) (.37) (.37) (.41) (.43) Net asset value, end of year ......................... $7.07 $7.24 $6.88 $7.40 $7.35 =============================================================== Total return(b) ...................................... 2.87% 10.98% (1.97)% 6.43% 10.10% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ...................... $13,016,197 $13,279,037 $12,859,577 $15,473,713 $14,767,307 Ratio to average net assets: Expenses ............................................ .57% .57% .57% .57% .56% Net investment income ............................... 5.08% 5.31% 5.40% 5.21% 5.71% Portfolio turnover rate .............................. 13.23% 5.83% 12.10% 18.66% 17.29%
(a)Based on average shares outstanding effective March 31, 2000. (b)Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. 23 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
CLASS B ------------------------------------------ YEAR ENDED MARCH 31, 2002 2001 2000 1999(C) ------------------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................................ $7.24 $6.87 $7.39 $7.41 ------------------------------------------ Income from investment operations: Net investment income(a) ......................................... .33 .33 .34 .10 Net realized and unrealized gains (losses) ....................... (.16) .37 (.52) (.03) ------------------------------------------ Total from investment operations .................................. .17 .70 (.18) .07 ------------------------------------------ Less distributions from: Net investment income ............................................ (.33) (.33) (.33) (.09) Net realized gains ............................................... (.01) (.01) ------------------------------------------ Total distributions ............................................... (.34) (.33) (.34) (.09) Net asset value, end of year ...................................... $7.07 $7.24 $6.87 $7.39 ========================================== Total return(b) ................................................... 2.15% 10.51% (2.51)% .88% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ................................... $309,196 $193,428 $110,933 $43,674 Ratio to average net assets: Expenses ......................................................... 1.14% 1.14% 1.14% 1.14%(d) Net investment income ............................................ 4.51% 4.73% 4.87% 4.59%(d) Portfolio turnover rate ........................................... 13.23% 5.83% 12.10% 18.66%
(a)Based on average shares outstanding effective March 31, 2000. (b)Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. (c)For the period January 1, 1999 (effective date) to March 31, 1999. (d)Annualized 24 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
CLASS C --------------------------------------------------- YEAR ENDED MARCH 31, 2002 2001 2000 1999 1998 --------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $7.23 $6.87 $7.39 $7.35 $7.09 --------------------------------------------------- Income from investment operations: Net investment income(a) ............................... .33 .33 .34 .35 .38 Net realized and unrealized gains (losses) ............. (.16) .36 (.53) .06 .27 --------------------------------------------------- Total from investment operations ........................ .17 .69 (.19) .41 .65 --------------------------------------------------- Less distributions from: Net investment income .................................. (.33) (.33) (.32) (.35) (.38) Net realized gains ..................................... (.01) (.01) (.02) (.01) --------------------------------------------------- Total distributions ..................................... (.34) (.33) (.33) (.37) (.39) --------------------------------------------------- Net asset value, end of year ............................ $7.06 $7.23 $6.87 $7.39 $7.35 =================================================== Total return(b) ......................................... 2.29% 10.38% (2.54)% 5.70% 9.49% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $464,108 $393,652 $367,874 $464,535 $295,976 Ratio to average net assets: Expenses ............................................... 1.14% 1.14% 1.14% 1.14% 1.14% Net investment income .................................. 4.52% 4.74% 4.82% 4.61% 5.13% Portfolio turnover rate ................................. 13.23% 5.83% 12.10% 18.66% 17.29%
(a)Based on average shares outstanding effective March 31, 2000. (b)Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. 25 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED) ADVISOR CLASS ----------------- MARCH 31, 2002(C) ----------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ....................... $7.29 ----------------- Income from investment operations: Net investment incomea .................................... .19 Net realized and unrealized losses ........................ (.24) ----------------- Total from investment operations ........................... (.05) ----------------- Less distributions from: Net investment income ..................................... (.16) Net realized gains ........................................ (.01) ----------------- Total distributions ........................................ (.17) ----------------- Net asset value, end of period ............................. $7.07 Total return(b) ............................................ (.80)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .......................... $2,134 Ratio to average net assets: Expenses .................................................. .49%(d) Net investment income ..................................... 5.25%(d) Portfolio turnover rate .................................... 13.23% (a)Based on average shares outstanding. (b)Total return is not annualized for periods less than one year. (c)For the period October 1, 2001 (effective date) to March 31, 2002. (d)Annualized See notes to financial statements. 26 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS 99.4% BONDS 86.6% ABAG Finance Authority for Nonprofit Corps. COP, 6.75%, 8/01/20 ..................................................................................... $ 3,955,000 $ 4,353,269 6.125%, 3/01/21 .................................................................................... 4,245,000 4,618,518 Butte Valley-Tulelake Rural Health, 6.65%, 10/01/22 ................................................ 5,085,000 5,272,026 Episcopal Home Foundation, Refunding, 5.125%, 7/01/13 .............................................. 6,000,000 5,921,400 Episcopal Home Foundation, Refunding, 5.125%, 7/01/18 .............................................. 16,975,000 16,034,246 Home for Jewish Parents, California Mortgage Insured, 5.625%, 5/15/22 .............................. 5,000,000 5,071,300 Lytton Gardens Inc., California Mortgage Insured, 6.00%, 2/15/30 ................................... 5,000,000 5,115,900 Milestones Human Services Inc., California Mortgage Insured, 5.65%, 7/01/22 ........................ 2,000,000 2,019,920 Miramonte Mental Health Services, California Mortgage Insured, 6.60%, 7/01/22 ...................... 1,250,000 1,283,113 Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ...................................... 5,525,000 5,813,626 Rehabilitation Mental Health Services Inc. Project, California Mortgage Insured, 6.50%, 6/01/12 .... 2,000,000 2,050,320 Rehabilitation Mental Health Services Inc. Project, California Mortgage Insured, 6.55%, 6/01/22 .... 2,370,000 2,427,710 Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/23 ............................. 5,000,000 4,678,350 ABAG Finance Authority for Nonprofit Corps. MFHR, Palo Alto Gardens Apartments, Series A, 5.45%, 4/01/39 5,500,000 5,200,140 ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Association, Series A, 6.125%, 8/15/20 .................................................................................... 23,525,000 23,809,417 ABAG Finance Corp. COP, ABAG XXV, 6.80%, 8/01/12 ..................................................... 3,040,000 3,067,086 ABAG Revenue, Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.125%, 9/01/21 ...................... 4,760,000 4,710,734 Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.20%, 9/01/27 ....................... 4,140,000 4,070,986 Tax Allocation, RDA Pool, Series A4, FSA Insured, 5.875%, 12/15/25 ................................. 5,000,000 5,300,700 Tax Allocation, RDA Pool, Series A6, FSA Insured, 5.375%, 12/15/25 ................................. 3,670,000 3,721,637 ABAG Water and Wastewater Revenue, Pooled Financing Program, Series A, FSA Insured, 5.30%, 10/01/21 5,450,000 5,520,632 Agua Mansa Industrial Growth Association Special Tax, CFD No. 8, 8.25%, 9/01/17 ...................... 15,480,000 15,873,656 Alameda Corridor Transportation Authority Revenue, senior lien, Series A, MBIA Insured, 5.00%, 10/01/ 24,490,000 23,263,051 Alameda County COP, Alameda County Medical Center Project, MBIA Insured, 5.00%, 6/01/23 ................................ 19,195,000 18,419,138 Alameda County Medical Center Project, MBIA Insured, 5.30%, 6/01/26 ................................ 7,000,000 7,017,640 Alameda County Medical Center Project, MBIA Insured, 5.00%, 6/01/28 ................................ 8,925,000 8,427,253 Capital Projects, Series 1992, Pre-Refunded, 6.75%, 6/01/16 ........................................ 10,500,000 10,794,315 Alhambra RDA, Tax Allocation, Industrial Redevelopment Project, Refunding, 6.375%, 5/01/23 ........... 2,560,000 2,617,574 Alvord USD, GO, Series A, FGIC Insured, 5.375%, 8/01/27 .............................................. 6,100,000 6,138,064 Anaheim PFA, Lease Revenue, Public Improvements Project, Series A, FSA Insured, 5.00%, 9/01/27 ............................................................................................ 8,900,000 8,481,433 3/01/37 ............................................................................................ 146,010,000 136,653,679 Antioch Area Public Facilities Financing Agency Special Tax, CFD No. 1989-1, MBIA Insured, 5.50%, 8/01/22 ............................................................................................ 4,870,000 5,038,648 Antioch Development Agency Tax Allocation, Project 1, FGIC Insured, Pre-Refunded, 6.40%, 9/01/17 ..... 4,895,000 5,087,422 Antioch PFA, Reassessment Revenue, sub. lien, Refunding, 5.60%, 9/02/09 .......................................................................... 1,270,000 1,310,234 Refunding, Series B, 5.50%, 9/02/08 ................................................................ 1,205,000 1,222,340 Series B, 5.30%, 9/02/06 ........................................................................... 2,165,000 2,194,444 Arcadia Hospital Revenue, Methodist Hospital of Southern California, 6.50%, 11/15/12 .................................................................................... 2,295,000 2,361,853 6.625%, 11/15/22 ................................................................................... 3,750,000 3,843,900 Auburn USD, COP, Land Acquisition Program, Series A, FSA Insured, 7.00%, 9/01/28 ..................... 2,770,000 3,068,384 Azusa PFAR, Water Systems Acquisition Project, Refunding, Series A, FGIC Insured, 5.50%, 7/01/20 ..... 5,200,000 5,303,064
27 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Bakersfield Hospital Revenue, Adventist Health Systems West, Refunding, MBIA Insured, 5.50%, 3/01/19 . $ 6,085,000 $ 6,210,777 Bakersfield PFAR, Series A, 6.10%, 9/15/10 ........................................................... 10,635,000 10,878,542 Baldwin Park PFAR, Tax Allocation, Series A, 7.75%, 8/01/19 ........................................................................... 5,265,000 5,347,292 Series A, Pre-Refunded, 7.10%, 9/01/24 ............................................................. 2,000,000 2,238,500 Series B, 7.75%, 8/01/21 ........................................................................... 5,795,000 5,884,996 Belmont - Redwood Shores School District, Series A, 5.50%, 9/01/22 ................................... 6,500,000 6,719,245 Belmont RDA, Tax Allocation, Los Costanos Community Development, Series A, Pre-Refunded, 6.70%, 8/01/14 ..................................................................................... 1,235,000 1,368,578 6.80%, 8/01/23 ..................................................................................... 2,310,000 2,565,024 Brea and Olinda USD, COP, High School Refinancing Program, Refunding, Series A, FSA Insured, 6.25%, 8/01/18 .............................................................. 12,645,000 13,027,764 Series B, 7.00%, 8/01/18 ........................................................................... 9,120,000 9,391,594 Brea RDA, Tax Allocation, Redevelopment Project, Refunding, MBIA Insured, 6.125%, 8/01/13 ............ 12,845,000 13,655,391 Brentwood 1915 Act, Infrastructure Financing, Reassessment, Series A, FSA Insured, 5.80%, 9/02/17 .... 5,240,000 5,614,084 Buena Park CRDA, Tax Allocation, Central Business District Project, Refunding, Series A, 7.10%, 9/01/14 7,000,000 7,229,810 Burbank Parking Authority, Special Tax, CFD No. 1, 8.375%, 10/01/06 .................................. 960,000 966,634 Burbank RDA, Tax Allocation, City Center Redevelopment Project, Refunding, Series A, FSA Insured, 5.50%, 12/01/23 ............... 5,000,000 5,104,100 Refunding, Series A, 6.00%, 12/01/23 ............................................................... 6,500,000 6,718,855 Burton Elementary School District COP, Loan Acquisition, Capital Appreciation, Series A, FSA Insured, 6.60%, 9/01/27 .............................................................. 800,000 829,168 Series B, FSA Insured, 6.60%, 9/01/27 .............................................................. 295,000 305,756 Calexico CRDA Revenue, Tax Allocation, Merged Central Business and Residential, Refunding, FSA Insured, 5.80%, 8/01/24 ...................................................................................... 5,840,000 6,074,242 California Counties Lease Financing Authority COP, CSAC Financing Corp., Amador County Project, ETM, 7.70%, 10/01/09 ..................................................................................... 2,355,000 2,705,683 (c)California County Tobacco, Securitization Agency Tobacco Revenue, Asset Backed, Merced Funding Corp., Series A, 5.875%, 6/01/43 .................................................... 10,235,000 10,070,217 Sonoma County Corp., Series A, 5.875%, 6/01/43 ..................................................... 37,405,000 36,802,780 Stanislaus Fund, Series A, 5.875%, 6/01/43 ......................................................... 8,690,000 8,550,091 California Educational Facilities Authority Revenue, Chapman University, Refunding, Connie Lee Insured, 5.125%, 10/01/26 ................................ 10,000,000 9,748,100 Pooled College and University, Series B, 6.75%, 6/01/30 ............................................ 8,000,000 8,489,680 Stanford University, Refunding, Series O, 5.125%, 1/01/31 .......................................... 21,250,000 20,733,200 Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 ....................................... 4,965,000 5,169,508 (c)California GO, Refunding, 5.25%, 2/01/29 ............................................................................................ 10,000,000 9,664,300 2/01/30 ............................................................................................ 50,000,000 48,225,500 California Health Facilities Financing Authority Revenue, AIDS Health Care Foundation, Refunding, Series C, California Mortgage Insured, 6.25%, 9/01/17 ...... 1,750,000 1,801,083 California Autism Foundation Inc., Series A, CHFCLP Insured, 6.25%, 11/01/20 ....................... 3,560,000 3,776,875 Casa Colina, 6.125%, 4/01/32 ....................................................................... 6,300,000 6,244,434 Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.75%, 7/01/15 ........................ 12,500,000 13,523,625 Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 ........................ 7,300,000 8,011,750 Catholic Healthcare West, Series A, 5.00%, 7/01/18 ................................................. 40,000,000 35,345,200 Catholic Healthcare West, Series A, 5.00%, 7/01/28 ................................................. 140,630,000 120,022,080
28 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, (cont.) Catholic Healthcare West, Series A, MBIA Insured, 5.00%, 7/01/17 ................................... $ 5,000,000 $ 4,957,500 Catholic Healthcare West, Series A, MBIA Insured, 5.125%, 7/01/24 .................................. 11,500,000 11,179,380 Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/17 ............................... 8,355,000 8,402,540 Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/27 ............................... 15,600,000 15,178,332 Cedars-Sinai Medical Center, Series B, MBIA Insured, 5.25%, 8/01/27 ................................ 52,500,000 51,987,600 Clinicas Del Camino, Series A, CHFCLP Insured, 6.55%, 5/01/25 ...................................... 4,500,000 4,827,195 County Program, Series B, 7.20%, 1/01/12 ........................................................... 2,205,000 2,238,538 El Proyecto, Series A, CHFCLP Insured, 5.50%, 12/01/22 ............................................. 3,350,000 3,371,976 Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/18 ........................................ 5,000,000 4,927,600 Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/28 ........................................ 25,390,000 23,963,082 Familiesfirst, Series A, California Mortgage Insured, 6.00%, 12/01/25 .............................. 11,365,000 12,265,676 Feedback Foundation Inc., Series A, CHFCLP Insured, 6.50%, 12/01/22 ................................ 4,240,000 4,394,209 Hospital of the Good Samaritan, Refunding, 6.90%, 9/01/07 .......................................... 13,920,000 14,161,373 Hospital of the Good Samaritan, Refunding, 7.00%, 9/01/21 .......................................... 71,050,000 71,724,975 Insured Health Facility, Help Group, Series A, California Mortgage Insured, 6.10%, 8/01/25 ......... 12,905,000 13,964,501 Kaiser Permanente, Series A, 5.40%, 5/01/28 ........................................................ 46,000,000 44,682,560 Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/20 ........................................... 32,295,000 31,428,525 Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/24 ........................................... 136,775,000 130,765,107 Kaiser Permanente, Series B, 5.25%, 10/01/16 ....................................................... 7,515,000 7,462,320 Kaiser Permanente, Series B, 5.00%, 10/01/18 ....................................................... 38,260,000 36,482,058 Kaiser Permanente, Series B, 5.00%, 10/01/20 ....................................................... 38,020,000 35,454,410 Kaiser Permanente, Series B, 5.40%, 5/01/28 ........................................................ 80,000,000 77,816,000 Marshall Hospital, Series A, California Mortgage Insured, 5.30%, 11/01/28 .......................... 5,500,000 5,317,235 Mills-Peninsula Health, Refunding, Series A, Connie Lee Insured, 5.75%, 1/15/15 .................... 11,500,000 12,205,180 Mills-Peninsula Health, Series B, Connie Lee Insured, 5.75%, 1/15/15 ............................... 5,665,000 6,012,378 Northern California Presbyterian, 5.40%, 7/01/28 ................................................... 6,340,000 6,149,166 On Lok Senior Health Services, Series A, CHFCLP Insured, 6.40%, 12/01/12 ........................... 2,000,000 2,080,600 On Lok Senior Health Services, Series A, CHFCLP Insured, 6.50%, 12/01/22 ........................... 7,525,000 7,798,684 Pomona Valley Hospital, Refunding, Series A, MBIA Insured, 5.625%, 7/01/19 ......................... 8,500,000 8,881,820 San Diego Hospital Association, Refunding, Series A, MBIA Insured, 6.20%, 8/01/20 .................. 8,250,000 8,505,503 Scripps Memorial Hospital, Series A, MBIA Insured, 6.375%, 10/01/22 ................................ 9,725,000 10,084,339 Small Facilities Loan, Health Facilities, Refunding, Series B, California Mortgage Insured, 7.50%, 4/01/22 ........................................................................................... 5,000,000 5,506,350 Small Facilities Loan, Health Facilities, Series A, CHFCLP Insured, 6.75%, 3/01/20 ................. 5,500,000 5,628,425 Southern California, Series A, CHFCLP Insured, 5.50%, 12/01/22 ..................................... 3,070,000 3,090,139 St. Francis Medical Center, Refunding, Series H, AMBAC Insured, 6.35%, 10/01/23 .................... 7,000,000 7,679,910 St. Paul's Episcopal Home, CHFCLP Insured, 6.50%, 9/01/14 .......................................... 2,595,000 2,775,482 Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 .................................. 5,750,000 6,207,010 Sutter Health, Series A, FSA Insured, 5.25%, 8/15/27 ............................................... 5,300,000 5,248,325 Sutter Health, Series A, FSA Insured, 5.00%, 8/15/37 ............................................... 61,000,000 57,072,820 Sutter Health, Series A, MBIA Insured, 5.35%, 8/15/28 .............................................. 5,500,000 5,476,515 Sutter Health, Series A, MBIA Insured, 5.375%, 8/15/30 ............................................. 10,100,000 10,077,376 Sutter Health, Series A, MBIA Insured, 5.00%, 8/15/38 .............................................. 25,860,000 24,179,876 The Episcopal Home, 5.30%, 2/01/32 ................................................................. 28,150,000 26,599,498 The Help Group, CHFCLP Insured, 5.40%, 8/01/22 ..................................................... 7,420,000 7,392,175 UCSF-Stanford Health Care, Refunding, Series A, FSA Insured, 5.00%, 11/15/31 ....................... 2,150,000 2,035,620 UCSF-Stanford Health Care, Refunding, Series B, 5.00%, 11/15/31 .................................... 26,920,000 25,487,856
29 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, (cont.) UCSF-Stanford Health Care, Refunding, Series B, AMBAC Insured, 5.00%, 11/15/28 ..................... $ 25,000,000 $ 23,764,250 Valleycare Hospital Corp., Refunding, 5.50%, 5/01/20 ............................................... 11,640,000 11,686,793 Walden House, State Guaranteed, 6.85%, 3/01/22 ..................................................... 3,225,000 3,300,788 California HFA, SFM Purchase, Class I, Series A-1, 6.05%, 8/01/26 ................................................................ 13,935,000 14,096,507 Refunding, Series A-2, FHA Insured, 6.45%, 8/01/25 ................................................. 6,185,000 6,342,903 California HFAR, Home Mortgage, Series A, 6.55%, 8/01/26 ............................................................ 6,975,000 7,188,086 Home Mortgage, Series D, MBIA Insured, 6.15%, 8/01/28 .............................................. 5,250,000 5,351,640 Home Mortgage, Series E, 6.70%, 8/01/25 ............................................................ 885,000 899,133 Home Mortgage, Series E, 6.375%, 8/01/27 ........................................................... 14,090,000 14,415,338 Home Mortgage, Series E, AMBAC Insured, 6.10%, 8/01/29 ............................................. 16,790,000 17,035,638 Home Mortgage, Series E, MBIA Insured, 6.15%, 8/01/25 .............................................. 12,450,000 12,649,325 Home Mortgage, Series F-1, 6.875%, 8/01/15 ......................................................... 870,000 878,700 Home Mortgage, Series H, 6.25%, 8/01/27 ............................................................ 11,835,000 12,093,713 Home Mortgage, Series I, MBIA Insured, 5.75%, 2/01/29 .............................................. 7,355,000 7,402,366 Home Mortgage, Series J, MBIA Insured, 5.55%, 8/01/28 .............................................. 10,000,000 9,849,500 Home Mortgage, Series M, MBIA Insured, 5.60%, 8/01/29 .............................................. 20,100,000 19,876,488 Home Mortgage, Series N, 6.375%, 2/01/27 ........................................................... 2,275,000 2,328,736 Home Mortgage, Series N, FSA Insured, 5.15%, 8/01/18 ............................................... 6,000,000 5,787,660 Home Mortgage, Series R, MBIA Insured, 6.15%, 8/01/27 .............................................. 5,460,000 5,580,393 Home Mortgage, SF, Series A, 10.25%, 2/01/14 ....................................................... 465,000 465,488 Home Mortgage, SF, Series B, 10.625%, 2/01/14 ...................................................... 170,000 170,172 Housing Revenue, Series E, MBIA Insured, 6.625%, 8/01/14 ........................................... 4,365,000 4,562,909 Housing Revenue, Series E, MBIA Insured, 6.75%, 8/01/26 ............................................ 11,855,000 12,291,857 Housing Revenue, Series F, MBIA Insured, 6.90%, 8/01/26 ............................................ 11,345,000 11,790,291 MFHR II, Series A, AMBAC Insured, 6.25%, 2/01/37 ................................................... 5,000,000 5,154,250 MFHR III, Series B, MBIA Insured, 5.50%, 8/01/39 ................................................... 13,345,000 12,853,370 Multi-Unit Rental Housing, Series A, 6.875%, 2/01/22 ............................................... 2,465,000 2,506,018 Series B-1, Class 1, 5.65%, 8/01/28 ................................................................ 13,190,000 13,170,875 SFM, Series C-2, Class 1, FHA Insured, 5.65%, 2/01/25 .............................................. 8,335,000 8,388,844 California Infrastructure and Economic Development Bank Revenue, Kaiser Hospital Assistance I LLC, Series B, 5.50%, 8/01/31 ......................................... 10,000,000 9,674,300 Kaiser Hospital Assistance II LLC, Series A, 5.55%, 8/01/31 ........................................ 24,000,000 23,826,000 California Mobilehome Park Financing Authority Revenue, Series A, FSA Insured, 4.95%, 10/01/02 .................................................................................... 35,000 35,523 5.05%, 10/01/03 .................................................................................... 30,000 30,777 5.15%, 10/01/04 .................................................................................... 35,000 36,317 5.25%, 10/01/05 .................................................................................... 35,000 36,810 6.25%, 10/01/25 .................................................................................... 1,400,000 1,427,300 California PCFA, PCR, Pacific Gas and Electric Co., Series A, 6.625%, 6/01/09 ....................................... 1,750,000 1,742,423 PCR, San Diego Gas and Electric Co., Series A, 5.85%, 6/01/21 ...................................... 32,535,000 32,550,617 PCR, Southern California Edison Co., Refunding, 6.90%, 12/01/17 .................................... 2,510,000 2,488,364 PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 ..................................... 29,000,000 27,957,160 PCR, Southern California Edison Co., Series B, MBIA Insured, 6.40%, 12/01/24 ....................... 12,120,000 12,605,164 Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project, 6.875%, 11/01/27 ................. 17,205,000 16,651,687
30 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Pollution Control Financing Authority Revenue, Pacific Gas and Electric, Refunding, Series A, MBIA Insured, 5.35%, 12/01/16 ...................................................................... $ 31,500,000 $ 32,209,695 California Public Capital Improvement Financing Authority Revenue, Pooled Projects, Joint Powers Agency, Series E, 8.375%, 3/01/03 ..................................................... 4,765,000 4,818,845 Series A, 8.40%, 3/01/08 ........................................................................... 38,935,000 39,215,721 Series A, 8.50%, 3/01/18 ........................................................................... 121,300,000 122,189,129 California Public School District Financing Authority Lease Revenue, Los Banos School, Series A, FSA Insured, 6.20%, 10/01/23 ............................................................. 445,000 473,560 Series B, FSA Insured, Pre-Refunded, 6.20%, 10/01/23 ............................................... 4,445,000 4,743,437 California Resources Efficiency Financing Authority COP, Capital Improvement Program, Refunding, AMBAC Insured, 5.625%, 4/01/22 ..................................................................... 10,365,000 10,849,149 5.75%, 4/01/27 ..................................................................................... 7,885,000 8,403,912 California Special Districts Lease Financing Program COP, Series E, 7.70%, 12/01/09 .................................................................................... 205,000 206,187 7.75%, 12/01/19 .................................................................................... 305,000 306,488 California State Department of Veteran Affairs Home Purchase Revenue, Chase Revenue, Series A, 5.20%, 12/01/27 ........................................................... 31,000,000 29,979,170 Refunding, Series A, 5.40%, 12/01/28 ............................................................... 9,580,000 9,328,525 Refunding, Series B, 5.50%, 12/01/18 ............................................................... 2,500,000 2,516,875 Series B, 5.20%, 12/01/28 .......................................................................... 63,875,000 61,725,606 California State Department of Water Resources Central Valley Project Revenue, Water System, Refunding, Series L, 5.75%, 12/01/19 .......................................................................... 18,000,000 18,761,580 Series L, 5.50%, 12/01/23 .......................................................................... 50,000,000 51,515,500 Series L, 5.875%, 12/01/25 ......................................................................... 40,070,000 41,765,762 Series O, 5.00%, 12/01/22 .......................................................................... 5,500,000 5,307,335 Series O, 4.75%, 12/01/25 .......................................................................... 12,000,000 10,934,280 Series Q, MBIA Insured, 5.375%, 12/01/27 ........................................................... 58,000,000 58,821,860 Series S, 5.00%, 12/01/29 .......................................................................... 24,595,000 23,188,658 Series U, 5.00%, 12/01/29 .......................................................................... 7,500,000 7,071,150 California State GO, 5.25%, 10/01/20 .................................................................................... 10,000,000 9,929,800 5.25%, 9/01/23 ..................................................................................... 22,000,000 21,555,600 5.25%, 10/01/23 .................................................................................... 9,250,000 9,063,243 6.00%, 5/01/24 ..................................................................................... 2,565,000 2,728,852 5.125%, 6/01/24 .................................................................................... 8,250,000 7,917,113 5.00%, 11/01/24 .................................................................................... 11,350,000 10,704,753 5.00%, 11/01/25 .................................................................................... 20,000,000 18,762,000 5.25%, 9/01/26 ..................................................................................... 25,000,000 24,295,250 5.00%, 2/01/27 ..................................................................................... 46,000,000 42,960,780 5.00%, 10/01/27 .................................................................................... 12,100,000 11,291,478 5.125%, 10/01/27 ................................................................................... 39,835,000 37,957,178 5.00%, 2/01/29 ..................................................................................... 15,000,000 13,933,500 5.00%, 11/01/30 .................................................................................... 17,500,000 16,198,350 5.125%, 3/01/31 .................................................................................... 35,000,000 33,060,650 5.00%, 2/01/32 ..................................................................................... 40,000,000 36,916,800 AMBAC Insured, 5.90%, 3/01/25 ...................................................................... 210,000 223,320 AMBAC Insured, 5.125%, 10/01/27 .................................................................... 31,420,000 30,570,089
31 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California State GO, (cont.) FGIC Insured, 6.00%, 8/01/19 ...................................................................... $ 905,000 $ 979,663 FGIC Insured, 5.625%, 10/01/26 ..................................................................... 41,500,000 43,272,880 FSA Insured, 5.50%, 3/01/20 ........................................................................ 5,500,000 5,679,080 FSA Insured, 5.50%, 9/01/29 ........................................................................ 30,000,000 30,543,900 MBIA Insured, 5.00%, 10/01/23 ...................................................................... 5,000,000 4,827,550 MBIA Insured, 5.00%, 8/01/24 ....................................................................... 7,500,000 7,216,425 MBIA Insured, 6.00%, 8/01/24 ....................................................................... 990,000 1,067,012 MBIA Insured, 5.00%, 3/01/28 ....................................................................... 25,985,000 24,716,672 Refunding, 5.625%, 9/01/24 ......................................................................... 10,650,000 10,899,317 Refunding, 5.125%, 6/01/27 ......................................................................... 16,150,000 15,392,242 Refunding, 5.125%, 6/01/31 ......................................................................... 75,000,000 70,827,750 Series BR, 5.25%, 12/01/26 ......................................................................... 5,000,000 4,754,350 Series BR, 5.30%, 12/01/29 ......................................................................... 13,000,000 12,348,700 Various Purposes, FSA Insured, 5.50%, 4/01/19 ...................................................... 5,000,000 5,152,150 Veterans Bonds, Series BD, BE, and BF, AMBAC Insured, 6.20%, 2/01/16 ............................... 11,500,000 11,632,020 Veterans Bonds, Series BD, BE, and BF, AMBAC Insured, 6.375%, 2/01/27 .............................. 45,000,000 45,144,000 Veterans Bonds, Series BH, 5.50%, 12/01/18 ......................................................... 44,250,000 44,392,928 Veterans Bonds, Series BH, 5.60%, 12/01/32 ......................................................... 50,060,000 49,910,321 Veterans Bonds, Series BH, FSA Insured, 5.50%, 12/01/24 ............................................ 16,440,000 16,249,789 Veterans Bonds, Series BM, 5.45%, 12/01/25 ......................................................... 36,635,000 36,583,711 Veterans Bonds, Series BN, 5.375%, 12/01/21 ........................................................ 24,870,000 24,793,400 Veterans Bonds, Series BN, 5.45%, 12/01/28 ......................................................... 21,575,000 21,453,101 California State HFAR, Home Mortgage, Series L, MBIA Insured, 6.40%, 8/01/27 ......................... 10,045,000 10,295,321 California State Local Government Finance Authority Revenue, Marin Valley, Series A, FSA Insured, 5.85%, 10/01/27 ..................................................................................... 6,735,000 7,203,823 California State Public Works Board Lease Revenue, California Science Center, Series A, 5.25%, 10/01/22 ............................................... 8,645,000 8,495,874 California State University, Various Projects, Series A, 6.30%, 10/01/04 ........................... 5,250,000 5,450,340 Department of Corrections, California State Prison at Coalinga, Series B, MBIA Insured, 5.375%, 12/01/19 ................................................................................... 15,250,000 15,524,805 Department of Corrections, Corcoran II Facility, Series A, AMBAC Insured, 5.25%, 1/01/21 ........... 17,405,000 17,426,930 Department of Justice Building, Series A, FSA Insured, 5.625%, 5/01/20 ............................. 5,000,000 5,177,150 Trustees California State University, Refunding, Series A, 5.00%, 10/01/19 ......................... 7,500,000 7,270,425 University of California, Various Projects, Refunding, Series A, 5.50%, 6/01/21 .................... 14,000,000 14,324,520 University of California, Various Projects, Refunding, Series A, 5.00%, 6/01/23 .................... 23,175,000 21,873,029 University of California, Various Projects, Series B, 5.50%, 6/01/19 ............................... 13,000,000 13,351,260 University of California, Various Projects, Series B, Pre-Refunded, 6.625%, 12/01/14 ............... 7,415,000 8,272,767 Various California Community Colleges, Refunding, Series A, 5.90%, 4/01/17 ......................... 8,320,000 8,772,442 California State University at Channel Islands Financing Authority Revenue, East Campus Community, Series A, MBIA Insured, 5.00%, 9/01/31 ............................................................. 11,000,000 10,463,420 California Statewide CDA, COP, California Lutheran Homes, ETM, 5.75%, 11/15/15 ............................................... 5,000,000 5,378,200 COP, Catholic Healthcare West, 6.50%, 7/01/20 ...................................................... 7,990,000 8,195,343 COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 .............................................. 37,685,000 36,100,723 COP, FSA Insured, 5.50%, 8/15/31 ................................................................... 9,000,000 9,186,840 COP, Kaiser Permanente, 5.30%, 12/01/15 ............................................................ 32,200,000 32,604,754
32 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Statewide CDA, (cont.) COP, MBIA Insured, 5.00%, 4/01/18 .................................................................. $ 7,000,000 $ 6,864,060 COP, MBIA Insured, 5.125%, 4/01/23 ................................................................. 6,000,000 5,853,120 COP, St. Joseph Health System, Refunding, 5.125%, 7/01/17 .......................................... 5,000,000 4,822,750 COP, St. Joseph Health System, Refunding, 5.25%, 7/01/21 ........................................... 16,250,000 15,620,800 COP, The Internext Group, 5.375%, 4/01/17 .......................................................... 8,000,000 7,593,440 COP, The Internext Group, 5.375%, 4/01/30 .......................................................... 59,480,000 53,192,964 Lease Revenue, Special Facilities, United Airlines, Los Angeles, 5.625%, 10/01/34 .................. 75,805,000 44,635,500 Lease Revenue, Special Facilities, United Airlines, Series A, 5.70%, 10/01/33 ...................... 62,325,000 39,185,597 MFHR, Borregas Court Project, Series J, GNMA Secured, 6.30%, 3/20/39 ............................... 7,453,000 7,844,730 MFHR, Series E, FNMA Insured, 6.40%, 6/01/28 ....................................................... 8,000,000 8,298,240 Water and Wastewater Revenue, Pooled Financing Program, Series B, FSA Insured, 5.65%, 10/01/26 ..... 5,000,000 5,201,100 Water Revenue, Refunding, Series A, 6.10%, 7/01/21 ................................................. 4,615,000 4,967,494 California Statewide CDA Revenue, COP, Catholic Healthcare West, Obligated, MBIA Insured, 5.50%, 7/01/23 ............................. 11,240,000 11,432,316 COP, CHFCLP Insured Health Facilities, AIDS Project, Series A, California Mortgage Insured, 6.25%, 8/01/22 .................................................................................... 2,590,000 2,667,130 COP, CHFCLP Insured, ETM, 5.90%, 8/01/21 ........................................................... 4,000,000 4,260,680 COP, CHFCLP Insured Health Facilities, Unihealth, Series A, AMBAC Insured, Pre-Refunded, ETM, 5.75%, 10/01/25 .............................................................................. 36,000,000 38,465,640 COP, CHFCLP Insured Hospital, Triad Health Care, Refunding, California Mortgage Insured, ETM, 6.25%, 8/01/06 .................................................................................... 2,000,000 2,153,200 COP, Familiesfirst Inc., California Mortgage Insured, Pre-Refunded, 7.25%, 12/01/22 ................ 5,120,000 5,786,675 COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/15 ..................................... 5,365,000 5,778,320 COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/20 ..................................... 3,775,000 4,024,867 COP, Salk Institute, Connie Lee Insured, 6.20%, 7/01/24 ............................................ 7,065,000 7,563,789 COP, Sisters Charity Leavenworth, 5.00%, 12/01/23 .................................................. 11,375,000 10,714,226 COP, Southern California Development Corp., 6.10%, 12/01/15 ........................................ 2,255,000 2,423,223 COP, St. Joseph Health System Group, Pre-Refunded, 6.625%, 7/01/21 ................................. 12,500,000 13,807,875 COP, Sutter Health Obligated Group, MBIA Insured, 5.50%, 8/15/22 ................................... 25,520,000 26,379,258 COP, Sutter Health Obligated Group, Refunding, AMBAC Insured, 6.00%, 8/15/09 ....................... 6,465,000 6,670,199 COP, Sutter Health Obligated Group, Refunding, AMBAC Insured, 6.125%, 8/15/22 ...................... 9,330,000 9,628,653 COP, Sutter Health Obligated Group, Refunding, MBIA Insured, 5.50%, 8/15/23 ........................ 14,000,000 14,248,220 Los Angeles Orthopedic Hospital Foundation, AMBAC Insured, 5.75%, 6/01/30 .......................... 10,000,000 10,452,000 Mission Community, California Mortgage Insured, 5.375%, 11/01/21 ................................... 7,670,000 7,457,081 Mission Community, California Mortgage Insured, 5.375%, 11/01/26 ................................... 9,755,000 9,325,682 Stovehaven Apartments Project, Series A, 5.875%, 7/01/32 ........................................... 5,000,000 4,988,950 California Valley HFAR, Home Mortgage, MBIA Insured, 5.65%, 2/01/27 .................................. 20,000,000 19,971,800 Camarillo COP, Capital Improvement Corp., ETM, 7.625%, 4/01/08 ....................................... 3,395,000 3,786,987 Campbell Housing Facility Revenue, San Tomas Gardens Project, Series A, 6.625%, 10/20/34 ............. 5,615,000 5,775,701 Camrosa Water District COP, Water System Improvement Projects, MBIA Insured, 6.00%, 1/15/20 .......... 5,120,000 5,605,274 Capistrano Bay Park and Recreation District COP, Special Lease Finance, Series Q, 6.35%, 8/01/12 ..... 2,800,000 2,825,060 Carson RDA, Tax Allocation, Redevelopment Project Area No. 1, Refunding, 6.375%, 10/01/12 ........................................................................................... 775,000 801,451 10/01/16 ........................................................................................... 295,000 304,505
33 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Castaic Lake Water Agency COP, Water System Improvement Project, Refunding, Series A, MBIA Insured, 6.125%, 8/01/15 .................................................................................... $ 11,540,000 $ 12,497,012 6.00%, 8/01/18 ..................................................................................... 5,345,000 5,735,773 Cathedral City PFAR, Tax Allocation, Redevelopment Projects, Refunding, Series A, MBIA Insured, 5.70%, 8/1/24 ..................................................................................... 11,210,000 11,683,847 Central California Joint Powers Health Financing Authority COP, Community Hospitals of Central California, 6.00%, 2/01/20 ......................................................................... 5,000,000 5,040,100 2/01/30 ............................................................................................ 20,000,000 20,056,800 Central Joint Powers Health Financing Authority COP, Community Hospitals of Central California, 5.625%, 2/01/21 ......................................... 3,750,000 3,683,513 Community Hospitals of Central California, 5.75%, 2/01/31 .......................................... 8,000,000 7,877,520 Chaffey Community College District COP, Pre-Refunded, 7.40%, 11/01/14 ................................ 5,000,000 5,653,000 Chaffey UHSD, GO, Series B, FGIC Insured, 5.00%, 8/01/25 ............................................. 5,000,000 4,787,250 Chico RDAR, COP, Insured Health Facilities, Sierra Sunrise Lodge, 6.80%, 2/01/11 ..................................................................................... 4,110,000 4,151,758 6.75%, 2/01/21 ..................................................................................... 2,800,000 2,828,196 Chino RDA, Tax Allocation, Central City Redevelopment Project, 7.00%, 9/01/22 ........................ 9,980,000 10,458,042 Chino USD, COP, Land Acquisition, Series A, FSA Insured, 6.60%, 9/01/14 ..................................................................................... 420,000 458,388 6.70%, 9/01/29 ..................................................................................... 2,880,000 3,149,914 Claremont RDA, Tax Allocation, Consolidated Redevelopment Project, Refunding, 5.50%, 8/01/23 ......... 4,950,000 4,786,799 Clayton 1915 Act, Limited Obligation, Contra Costa County, Oakhurst Country Club, 8.20%, 9/02/02 ..................................................................................... 50,000 50,621 8.25%, 9/02/03 ..................................................................................... 50,000 51,677 8.30%, 9/02/04 ..................................................................................... 70,000 72,729 8.30%, 9/02/05 ..................................................................................... 80,000 83,085 8.35%, 9/02/06 ..................................................................................... 80,000 83,121 8.35%, 9/02/07 ..................................................................................... 95,000 98,422 8.375%, 9/02/08 .................................................................................... 100,000 103,599 8.375%, 9/02/09 .................................................................................... 115,000 119,106 8.40%, 9/02/10 ..................................................................................... 15,000 15,534 8.40%, 9/02/11 ..................................................................................... 120,000 124,225 8.40%, 9/02/12 ..................................................................................... 130,000 134,577 8.40%, 9/02/13 ..................................................................................... 150,000 155,276 Coachella Valley USD, COP, 8.25%, 9/01/12 ............................................................ 5,790,000 5,884,667 Colusa County COP, ABAG Finance Corp., Series B, 7.00%, 2/01/18 ...................................... 1,555,000 1,583,223 Commerce Joint Powers Financing Authority Lease Revenue, Community Center, Series A, 6.25%, 10/01/22 .................................................................................... 4,000,000 4,199,800 Commerce Refuse to Energy Authority Revenue, Refunding, Series 1994, 8.75%, 7/01/10 .................. 28,545,000 31,358,110 Compton COP, Civic Center and Capital Improvement, Refunding, Series A, 5.50%, 9/01/15 ............... 5,000,000 5,051,200 Compton CRDA, Tax Allocation, Series 1, FSA Insured, 6.75%, 8/01/13 .................................. 6,150,000 6,742,983 Compton Sewer Revenue, Pre-Refunded, 6.75%, 7/01/23 .................................................. 4,535,000 4,870,273 Concord RDA, Tax Allocation, Central Concord Redevelopment Project, Refunding, Sub Series A, 6.00%, 7/01/19 ..................................................................................... 8,395,000 8,622,588 Contra Costa County COP, Merrithew Memorial Hospital Project, Refunding, MBIA Insured, 5.50%, 11/01/2 11,000,000 11,392,040 Contra Costa County MFHR, Byron Park Project, Refunding, Series C, GNMA Secured, 6.40%, 1/20/31 ...... 5,930,000 6,168,683 Contra Costa Transportation Authority Revenue, Sales Tax, Series A, ETM, 6.875%, 3/01/07 ............................................................................... 13,900,000 15,380,489 FGIC Insured, ETM, 6.50%, 3/01/09 .................................................................. 1,000,000 1,116,970
34 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Corcoran Hospital District Revenue, Series A, 6.55%, 7/01/12 ......................................... $ 1,110,000 $ 1,137,539 Corona 1915 Act, AD No. 79-2, Northeast Area, Series B, 7.85%, 9/02/02 .............................................. 755,000 764,868 AD No. 79-2, Northeast Area, Series B, 7.85%, 9/02/03 .............................................. 810,000 845,681 AD No. 79-2, Northeast Area, Series B, 7.85%, 9/02/04 .............................................. 885,000 919,958 AD No. 79-2 and 80-1, Refunding, 8.10%, 9/02/02 .................................................... 1,165,000 1,181,415 AD No. 79-2 and 80-1, Refunding, 8.10%, 9/02/03 .................................................... 1,260,000 1,316,776 AD No. 79-2 and 80-1, Refunding, 8.10%, 9/02/04 .................................................... 1,355,000 1,415,365 Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ................................... 15,000,000 20,237,700 aVista Hospital System, Refunding, Series C, 7.315%, 7/01/20 ....................................... 22,325,000 8,260,250 Corona RDA, Tax Allocation, Redevelopment Project Area A, Refunding, Series A, FGIC Insured, 6.25%, 9/01/16 ..................................................................................... 3,000,000 3,282,390 Corona-Norco USD, Lease Revenue, Land Acquisition, Series A, FSA Insured, 6.00%, 4/15/29 ............. 18,435,000 20,227,066 CSAC Finance Corp. COP, Sutter County, Health Facilities Program, 7.80%, 1/01/21 ..................... 2,100,000 2,113,335 Culver City USD, GO, MBIA Insured, 5.75%, 8/01/36 .................................................... 5,000,000 5,310,300 Cupertino COP, Refunding, Series A, 5.75%, 1/01/16 ........................................................................... 5,000,000 5,159,150 Series B, 6.25%, 7/01/10 ........................................................................... 3,535,000 3,634,970 Desert Hot Springs RDA, Tax Allocation, Redevelopment Project No. 2, Series A, 6.625%, 9/01/20 ..... 1,230,000 1,203,457 Desert Sands USD, COP, Capital Projects, FSA Insured, 6.45%, 3/01/20 ................................. 6,820,000 7,490,952 Duarte COP, City Civic Center, Refunding, 7.00%, 6/15/22 ....................................................... 5,370,000 5,533,624 Refunding, Series A, 5.25%, 4/01/24 ................................................................ 5,000,000 4,607,750 Series A, 5.25%, 4/01/19 ........................................................................... 5,000,000 4,651,100 Series A, 5.25%, 4/01/31 ........................................................................... 12,500,000 11,282,125 East Bay MUD, Wastewater System Revenue, sub., MBIA Insured, 5.00%, 6/01/38 ...................................... 23,115,000 21,615,761 Water System Revenue, sub., MBIA Insured, 5.00%, 6/01/38 ........................................... 37,620,000 35,179,967 Water System Revenue, sub., Refunding, 6.00%, 6/01/20 .............................................. 15,100,000 15,506,492 East Side UHSD, Santa Clara County, Series D, FGIC Insured, 5.80%, 9/01/21 ........................... 7,100,000 7,470,336 Eastern Municipal Water District, Water and Sewer Revenue COP, Series B, FGIC Insured, 5.00%, 7/01/30 31,370,000 29,733,427 El Cajon RDA, Tax Allocation, Redevelopment Project, Refunding, AMBAC Insured, 5.35%, 10/01/22 ....... 10,285,000 10,392,375 El Camino Hospital District Revenue, Refunding, Series A, ETM, 7.25%, 8/15/09 8,945,000 10,238,089 El Centro Financing Authority Hospital Revenue, El Centro Regional Medical Center Project, 5.25%, 3/01/26 ..................................................................................... 8,500,000 8,099,395 El Dorado County Special Tax, Community Facilities District No. 1992-1, 6.25%, 9/01/29 ............... 19,850,000 19,960,763 Emeryville PFAR, Housing Increment Loan, 6.20%, 9/01/25 ............................................................. 3,115,000 3,259,910 Shellmound Park Redevelopment and Housing Project, Series B, MBIA Insured, 5.00%, 9/01/28 .......... 20,000,000 19,015,000 Empire USD, Special Tax, CFD No. 1987-1, Refunding, Series A, MBIA Insured, 6.50%, 10/01/17 ........ 2,700,000 2,806,218 Escondido COP, Wastewater Project, Refunding, AMBAC Insured, 5.70%, 9/01/26 ..................................................................................... 13,465,000 14,081,024 5.80%, 9/01/26 ..................................................................................... 400,000 427,816 Fairfield PFAR, Fairfield Redevelopment Projects, Series A, 7.80%, 8/01/19 ........................... 2,145,000 2,159,178 Fillmore COP, Water System Improvement Project, AMBAC Insured, 7.70%, 5/01/19 ........................ 2,590,000 2,901,111 Folsom PFAR, Local Agency, 8.00%, 10/01/18 ........................................................... 7,480,000 7,528,321 Fontana RDA, Tax Allocation, Jurupa Hills Redevelopment Project, Refunding, Series A, 5.50%, 10/01/27 ............................................................... 12,500,000 11,892,250 Series A, Pre-Refunded, 7.10%, 10/01/23 ............................................................ 10,000,000 10,451,300
35 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Fontana USD, GO, Convertible Capital Appreciation, Series D, FGIC Insured, 5.80%, 5/01/17 ............ $ 5,000,000 $ 5,333,900 Foothill/Eastern Corridor Agency Toll Road Revenue, Refunding, MBIA Insured, 5.75%, 1/15/40 ............................................................ 395,510,000 390,067,782 senior lien, Series A, 5.00%, 1/01/35 .............................................................. 15,955,000 14,283,714 senior lien, Series A, Pre-Refunded, 6.50%, 1/01/32 ................................................ 108,175,000 121,236,050 senior lien, Series A, Pre-Refunded, 6.00%, 1/01/34 ................................................ 123,695,000 135,963,070 Fort Bragg RDAR, Tax Allocation, Fort Bragg Redevelopment Project, Series A, 6.875%, 5/01/18 ......... 1,900,000 1,976,323 Fortuna and Susanville Cities COP, Series B, 7.375%, 9/01/17 ......................................... 2,000,000 2,031,780 Fresno Health Facilities Revenue, Holy Cross Health Systems Corp., MBIA Insured, 5.625%, 12/01/15 .... 5,000,000 5,211,950 Fresno RDAR, Tax Allocation, Mariposa Redevelopment Project, Series A, 6.625%, 2/01/23 ............... 1,505,000 1,509,967 Glendale USD, COP, Series A, AMBAC Insured, 6.00%, 3/01/19 ........................................... 7,250,000 7,723,280 Hawaiian Gardens RDA, Tax Allocation, Project No. 1, Refunding, 6.35%, 12/01/33 .................................................................................... 13,000,000 13,432,640 ETM, 8.00%, 12/01/10 ............................................................................... 5,730,000 6,590,761 Health Facilities Financing Authority Revenue, Kaiser Permanente, Series C, 5.60%, 5/01/33 ........... 10,000,000 9,941,200 Helix Water District COP, Installment Purchase, Series A, FSA Insured, 5.25%, 4/01/24 ................ 8,925,000 8,878,858 Hemet Valley Hospital District Revenue COP, Hemacinto Community Corp. Project, Series A, 7.75%, 5/01/19 2,400,000 2,400,672 Hesperia PFAR, Highway and Street Improvement, Series A, 6.10%, 10/01/10 ............................. 1,600,000 1,716,528 Hollister RDA, Tax Allocation, Community Development Project, Series B, FSA Insured, 6.625%, 10/01/07 ................................................................................... 1,905,000 1,971,694 6.75%, 10/01/13 .................................................................................... 1,495,000 1,548,252 Huntington Beach PFAR, Huntington Beach Redevelopment Projects, Refunding, 7.00%, 8/01/24 ............ 2,630,000 2,698,643 Huntington Park PFA, Local Agency Revenue, Refunding, Series A, MBIA Insured, 6.45%, 9/01/22 ......... 10,000,000 10,864,800 Industry COP, Refunding, 6.625%, 6/01/06 ............................................................. 11,380,000 12,582,752 Industry Urban Development Agency Tax Allocation, Transportation District No. 3 Project, Refunding, 6.90%, 11/01/07 .................................................................................... 5,860,000 6,000,113 Inglewood PFAR, La Cinega Redevelopment Project, Series A, AMBAC Insured, 6.00%, 5/01/16 ............. 7,410,000 7,577,762 Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ................................................................................ 5,000,000 5,621,100 Pre-Refunded, 6.00%, 8/01/16 ....................................................................... 5,000,000 5,573,000 Intercommunity Hospital Financing Authority COP, Northbay Healthcare System, Refunding, 5.25%, 11/01/19 10,550,000 10,105,740 Irwindale CRDA, Tax Allocation, Individual Development Project, Pre-Refunded, 6.60%, 8/01/18 ....................................... 1,630,000 1,826,823 Individual Development Project, Pre-Refunded, 6.625%, 8/01/26 ...................................... 9,100,000 10,287,732 senior lien, Refunding, FSA Insured, 5.75%, 8/01/26 ................................................ 10,220,000 10,944,087 John C. Fremont Hospital District Health Facilities Revenue, 6.75%, 6/01/23 .......................... 1,760,000 1,899,850 Keppel USD, Special Tax, CFD No. 91-1, Series A, 7.40%, 9/01/16 ...................................... 2,000,000 2,085,920 Kern County Board of Education COP, Refunding, Series A, MBIA Insured, 5.20%, 5/01/28 ................ 8,685,000 8,526,499 Kern County Housing Authority RRMR, Series A, 9.875%, 9/01/08 ........................................ 320,000 321,254 Kern County Housing Authority SFMR, Series A, GNMA Secured, 7.55%, 12/01/07 .................................................................................... 175,000 180,150 7.65%, 12/01/12 .................................................................................... 250,000 256,928 7.70%, 12/01/23 .................................................................................... 1,160,000 1,183,223 7.50%, 10/01/24 .................................................................................... 600,000 610,488 La Mirada RDA, Tax Allocation, Housing, Refunding, Series A, FSA Insured, 5.875%, 8/15/25 ............ 7,100,000 7,535,088 La Mirada SFMR, MBS, Series A, 7.65%, 4/01/24 ........................................................ 1,125,000 1,157,040
36 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) La Palma Community Development Commission Tax Allocation, La Palma Community Development Project No. 1, 7.10%, 6/01/21 ..................................................................................... $ 4,945,000 $ 5,061,306 6.10%, 6/01/22 ..................................................................................... 2,355,000 2,404,573 Lake Arrowhead Community Services District COP, FGIC Insured, 6.50%, 6/01/15 ......................... 6,430,000 6,598,916 Lake Elsinore PFA, Tax Allocation Revenue, Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.80%, 9/01/25 ........................ 6,750,000 7,009,335 Series A, 5.50%, 9/01/30 ........................................................................... 13,050,000 12,181,262 Lake Elsinore USD, COP, Pre-Refunded, 6.90%, 2/01/20 ................................................. 5,150,000 5,455,962 Lakewood RDA, Tax Allocation, Redevelopment Project No.1, Refunding, Series A, FSA Insured, 6.50%, 9/01/17 ..................................................................................... 6,705,000 6,946,782 Lancaster RDA, RMR, Los Angeles County, Series A, ETM, 10.125%, 9/01/16 ........................................... 5,000 7,664 Tax Allocation, Amargosa Redevelopment Project, Refunding, MBIA Insured, 6.85%, 2/01/19 ............ 3,465,000 3,565,346 Tax Allocation, Combined Redevelopment Project Areas, Housing Program, MBIA Insured, 5.80%, 8/01/23 9,125,000 9,499,399 Tax Allocation, Combined Redevelopment Project Areas, Sheriff's Program, MBIA Insured, 5.70%, 8/01/23 ................................................................................... 13,140,000 13,551,676 Lemon Grove CDA, Tax Allocation, 1998 Refunding, 5.75%, 8/01/28 ...................................... 8,115,000 8,081,566 Lemoore Financing Authority Lease Revenue, Water and Wastewater System Improvement Project, AMBAC Insured, 6.20%, 12/01/20 .................................................................................... 4,400,000 4,861,384 Lemoore RDA, Tax Allocation, Refunding, 6.85%, 8/01/25 ............................................... 6,105,000 6,549,932 Liberty UHSD, Series A, FSA Insured, 6.20%, 8/01/19 .................................................. 2,745,000 3,014,422 Little Lake City School District COP, Refunding, Series A, 6.15%, 6/01/06 ..................................................................................... 280,000 281,201 6.20%, 6/01/07 ..................................................................................... 300,000 301,212 6.25%, 6/01/08 ..................................................................................... 315,000 316,257 6.25%, 6/01/09 ..................................................................................... 335,000 336,337 6.25%, 6/01/10 ..................................................................................... 355,000 356,463 Livermore-Amador Valley Water Management Agency Sewer Revenue, Series A, AMBAC Insured, 5.00%, 8/01/31 ..................................................................................... 18,350,000 17,364,422 Local Medical Facilities Financing Authority COP, Insured California Health Clinic Project, 7.55%, 3/01/20 ..................................................................................... 4,220,000 4,246,206 Local Medical Facilities Financing Authority II COP, Insured California Health Clinic Project, 7.55%, 11/01/20 .................................................................................... 2,120,000 2,147,306 Local Medical Facilities Financing Authority III COP, Insured California Health Clinic Project, 6.90%, 7/01/22 ..................................................................................... 3,340,000 3,422,465 Loma Linda Hospital Revenue, Loma Linda University Medical Center, Refunding, Series A, AMBAC Insured, 6.55%, 12/01/18 .................................................................................... 11,525,000 12,036,595 Long Beach Board Financial Authority Lease Revenue, Aquarium of the South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/26 ................................................................................... 20,000,000 19,100,800 Long Beach California Board Finance Authority Lease Revenue, Temple and Willow Facility, Refunding, Series B, MBIA Insured, 5.00%, 10/01/27 ............................................................ 14,935,000 14,232,159 Long Beach Harbor Revenue, MBIA Insured, 5.375%, 5/15/20 .................................................................................... 12,000,000 12,130,080 5.25%, 5/15/25 ..................................................................................... 10,500,000 10,292,730 Long Beach HMR, Series A, 9.60%, 11/01/14 ............................................................ 860,000 868,626 Los Angeles Community College District COP, Refunding, Series A, FSA Insured, 6.00%, 8/15/20 ......... 4,330,000 4,470,725 Los Angeles Community College District GO, Series A, MBIA Insured, 5.00%, 6/01/26 .................... 69,275,000 66,184,642 Los Angeles COP, Department of Public Social Services, Series A, AMBAC Insured, 5.50%, 8/01/24 ............................................................................................ 4,000,000 4,120,280 8/01/31 ............................................................................................ 5,000,000 5,131,650 Los Angeles County Capital Assets Leasing Corp. Leasehold Revenue, Refunding, AMBAC Insured, 6.00%, 12/01/16 ..................................................................................... 6,000,000 6,255,060
37 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Los Angeles County COP, Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%, 11/01/33 ............................... $ 8,000,000 $ 7,890,320 CHFCLP Insured Health Clinic Program, Behavioral Health Service, Refunding, Series F, 5.875%, 1/01/21 7,520,000 7,800,646 CHFCLP Insured Health Clinic Program, Series A, 7.30%, 1/01/21 ..................................... 990,000 1,009,820 CHFCLP Insured Health Clinic Program, Series B, 7.05%, 8/01/21 ..................................... 3,635,000 3,695,886 Disney Parking Project, Pre-Refunded, 6.50%, 3/01/23 ............................................... 12,060,000 12,780,706 Marina del Rey, Series A, 6.50%, 7/01/08 ........................................................... 21,615,000 22,598,699 Retirement Housing Foundation, Refunding, 6.625%, 4/15/12 .......................................... 3,400,000 3,473,576 Retirement Housing Foundation, Refunding, 6.75%, 4/15/22 ........................................... 7,665,000 7,831,177 Series 1992, 6.625%, 7/01/22 ....................................................................... 1,000,000 1,026,300 Los Angeles County MTA, Sales Tax Revenue, Proposition A, First Tier, Refunding, Senior Series A, AMBAC Insured, 5.00%, 7/01/26 ............... 13,000,000 12,418,900 Proposition A, First Tier, Refunding, Senior Series A, MBIA Insured, 5.25%, 7/01/27 ................ 7,840,000 7,763,560 Proposition A, Refunding, Senior Series A, FSA Insured, 5.00%, 7/01/24 ............................. 5,000,000 4,811,300 Proposition A, Refunding, Series A, FGIC Insured, 5.00%, 7/01/21 ................................... 116,800,000 113,074,080 Proposition A, Refunding, Series A, MBIA Insured, 5.625%, 7/01/18 .................................. 10,060,000 10,468,637 Proposition A, Second Tier, MBIA Insured, Pre-Refunded, 6.00%, 7/01/26 ............................. 9,200,000 10,217,152 Proposition C, Second Senior Series A, AMBAC Insured, 5.00%, 7/01/25 ............................... 42,500,000 40,422,600 Los Angeles County Public Works Financing Authority Revenue, Multiple Capital Facilities Project, Series B, AMBAC Insured, 5.125%, 12/01/29 .......................................................... 26,905,000 26,109,688 Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects, Series A, MBIA Insured, 5.25%, 10/01/19 ..................................................................... 30,000,000 30,400,500 5.00%, 10/01/23 .................................................................................... 35,750,000 34,294,975 Los Angeles County SFMR, Issue A, GNMA Secured, 7.875%, 8/01/16 .................................................................................... 320,000 329,130 8.00%, 3/01/17 ..................................................................................... 100,000 101,206 Los Angeles County Transportation Commission Lease Revenue, FSA Insured, 7.375%, 12/15/06 ............ 8,450,000 8,615,282 Los Angeles CRDA, Financing Authority Revenue, Pooled Financing, Beacon Normandie, Series B, 6.625%, 9/01/14 ........... 7,130,000 7,399,585 MFHR, Angelus Plaza Project, Refunding, Series A, 6.40%, 7/01/23 ................................... 5,920,000 6,070,427 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.625%, 12/01/18 .................... 20,000,000 20,695,800 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.625%, 12/01/23 .................... 50,090,000 51,340,747 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.60%, 12/01/28 ..................... 27,900,000 28,377,090 Tax Allocation, Series G, ETM, 6.75%, 7/01/10 ...................................................... 8,060,000 8,143,824 Los Angeles Department of Airports Revenue, Ontario International Airport, Series A, FGIC Insured, 6.00%, 5/15/26 ..................................................................................... 10,000,000 10,621,300 Los Angeles Department of Water and Power Electric Plant Revenue, 5.875%, 9/01/30 .................................................................................... 25,415,000 26,743,950 MBIA Insured, 5.875%, 9/01/30 ...................................................................... 13,670,000 14,394,510 Refunding, 5.375%, 9/01/23 ......................................................................... 53,550,000 54,136,373 Refunding, MBIA Insured, 5.875%, 9/01/30 ........................................................... 17,765,000 18,706,545 Refunding, Second Issue, 5.40%, 11/15/31 ........................................................... 14,500,000 14,574,675 Series 1993, 6.125%, 1/15/33 ....................................................................... 52,000,000 54,710,240 Series 1993, MBIA Insured, 5.375%, 9/01/23 ......................................................... 4,140,000 4,210,007 Los Angeles Department of Water and Power Waterworks Revenue, Refunding, Series 1993, 5.80%, 4/15/24 . 10,520,000 10,994,873 Los Angeles Harbor Department Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 ................................................. 15,000,000 14,361,750 Series B, 6.125%, 8/01/18 .......................................................................... 24,810,000 26,969,711
38 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Los Angeles Harbor Department Revenue, (cont.) Series B, 6.20%, 8/01/22 ........................................................................... $ 59,835,000 $ 64,971,835 Series B, 5.375%, 11/01/23 ......................................................................... 7,460,000 7,370,555 Series B, MBIA Insured, 6.20%, 8/01/25 ............................................................. 35,690,000 38,827,865 Los Angeles MFHR, Refunding, Senior Series G, FSA Insured, 5.75%, 1/01/24 ............................ 6,865,000 6,924,039 Los Angeles Municipal Improvement Corp. Lease Revenue, Central Library Project, Refunding, Series A, 6.30%, 6/01/18 ..................................................................................... 3,000,000 3,069,360 Los Angeles USD, COP, Dr. Francisco Bravo Medical Facility, Refunding, 6.50%, 6/01/04 ............................... 3,040,000 3,123,995 COP, Dr. Francisco Bravo Medical Facility, Refunding, 6.60%, 6/01/05 ............................... 1,145,000 1,176,820 COP, Dr. Francisco Bravo Medical Facility, Refunding, 6.60%, 6/01/06 ............................... 3,610,000 3,710,322 COP, Dr. Francisco Bravo Medical Facility, Refunding, 6.625%, 6/01/08 .............................. 8,505,000 8,741,694 COP, Land Acquisition Program I, Series A, FSA Insured, 5.25%, 4/01/21 ............................. 8,180,000 8,195,378 Series B, FGIC Insured, 5.00%, 7/01/23 ............................................................. 5,000,000 4,822,700 Los Angeles Wastewater System Revenue, Refunding, Series A, MBIA Insured, 5.70%, 6/01/20 .................................................. 64,445,000 66,693,486 Refunding, Series A, MBIA Insured, 5.80%, 6/01/21 .................................................. 35,505,000 36,977,747 Refunding, Series C, MBIA Insured, 5.60%, 6/01/20 .................................................. 20,000,000 20,592,600 Refunding, Series D, FGIC Insured, 6.00%, 11/01/14 ................................................. 8,000,000 8,527,280 Series A, FGIC Insured, 5.00%, 6/01/28 ............................................................. 8,245,000 7,840,583 Series A, MBIA Insured, 5.875%, 6/01/24 ............................................................ 45,400,000 47,695,424 Series B, AMBAC Insured, 6.00%, 6/01/22 ............................................................ 10,650,000 10,921,256 Series B, MBIA Insured, 5.70%, 6/01/23 ............................................................. 75,720,000 78,502,710 Los Angeles Water and Power Revenue, Power System, Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 .................................................. 2,000,000 1,924,520 Series A, 5.25%, 7/01/24 ........................................................................... 5,000,000 4,973,600 Los Banos USD, COP, Series B, MBIA Insured, 6.50%, 8/01/16 ........................................... 5,000,000 5,550,750 Lynwood PFA, Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.90%, 9/01/28 ........ 6,470,000 6,958,873 Lynwood RDA, Tax Allocation, Project Area, Series A, Pre-Refunded, 6.50%, 7/01/13 .................... 5,820,000 6,162,856 Madera County COP, Valley Children's Hospital, MBIA Insured, 5.00%, 3/15/23 ..................................................................................... 8,500,000 8,158,640 5.75%, 3/15/28 ..................................................................................... 27,500,000 28,820,000 Madera USD, COP, 6.50%, 12/01/07 ..................................................................... 1,250,000 1,300,763 Madera-Chowchilla Power Authority Hydroelectric Revenue, Refunding, 8.00%, 1/01/14 ................... 2,060,000 2,074,873 Marysville Hospital Revenue, Fremont Rideout Health, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/22 5,000,000 4,829,200 Menlo Park CDA, MFHR, Gateway Project, Series A, FHA Insured, 8.25%, 12/01/28 ........................ 3,470,000 3,489,883 Merced Irrigation District COP, Water Facilities Project, 6.40%, 11/01/10 ............................ 3,580,000 3,870,445 Metropolitan Water District Southern California Waterworks Revenue, 5.00%, 7/01/20 ..................................................................................... 7,765,000 7,645,730 Series A, 5.00%, 7/01/26 ........................................................................... 47,575,000 45,138,209 Series A, 5.00%, 7/01/37 ........................................................................... 27,830,000 25,834,311 Series C, 5.00%, 7/01/37 ........................................................................... 26,780,000 24,859,606 Mid-Peninsula Regional Open Space District COP, Special District Association Finance Corp., 5.75%, 9/01/20 ..................................................................................... 5,200,000 5,307,588 Milpitas RDA, Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, 5.40%, 1/15/17 ..................................................................................... 12,155,000 12,550,767 5.50%, 1/15/24 ..................................................................................... 11,790,000 12,131,438 Milpitas USD, FGIC Insured, 5.875%, 9/01/24 .......................................................... 11,970,000 12,605,846
39 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Modesto Irrigation District COP, Refunding and Capital Improvements, Series B, 5.30%, 7/01/22 ........ $ 4,815,000 $ 4,822,656 Modesto PFA Lease Revenue, Capital Improvements and Refinancing Project, AMBAC Insured, 5.125%, 9/01/33 5,535,000 5,354,448 Mojave Water Agency COP, Supplemental Water Entitlement, MBIA Insured, 5.55%, 9/01/22 ................ 10,005,000 10,417,206 Montclair RDA, Tax Allocation, Redevelopment Project No. IV, 6.90%, 10/01/22 ......................... 1,645,000 1,694,383 Monterey County COP, Natividad Medical Center Improvement Project, Series C, MBIA Insured, Pre-Refunded, 6.50%, 8/01/15 ..................................................................................... 3,500,000 3,935,330 6.60%, 8/01/23 ..................................................................................... 13,250,000 14,939,640 Monterey Park RDA, Tax Allocation, Atlantic-Garvey Redevelopment Project No. 1, Refunding, 6.85%, 9/01/14 ..................................................................................... 13,680,000 14,106,679 Moreno Valley Special Tax, Towngate Community Facilities 8, Refunding, Series A, FSA Insured, 5.875%, 12/01/15 ................................................................................... 5,830,000 6,026,646 Moreno Valley USD, COP, Refunding, FSA Insured, 5.60%, 3/01/17 ..................................................................................... 5,000,000 5,199,500 5.70%, 3/01/27 ..................................................................................... 15,000,000 15,637,050 Mount Diablo USD, Special Tax, CFD No. 1, AMBAC Insured, 6.30%, 8/01/22 .............................. 5,000,000 5,160,700 Mountain View Shoreline Regional Park, Community Tax Allocation, Series A, MBIA Insured, 5.75%, 8/01/18 9,605,000 9,861,261 M-S-R Public Power Agency San Juan Project Revenue, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/20 ................................................. 10,750,000 11,348,990 Series E, MBIA Insured, 6.00%, 7/01/22 ............................................................. 6,330,000 6,343,293 Murrieta COP, Road Improvement Project, 6.00%, 4/01/27 ............................................... 8,600,000 8,858,258 Napa Housing Facility Revenue, Napa Park Apartments, Series A, GNMA Secured, 6.35%, 6/20/35 .......... 6,125,000 6,318,428 Napa Mortgage Revenue, Creekside II Apartments Project, Refunding, Series A, MBIA Insured, 6.625%, 7/01 2,000,000 2,058,040 Needles PFAR, Tax Allocation, Redevelopment Project, Series A, 7.50%, 8/15/22 ........................ 1,580,000 1,604,774 Nevada Power Authority Revenue, Bowman Hydroelectric Project, Refunding, 7.50%, 5/01/13 .............. 6,400,000 6,660,736 North City West School Facilities Financing Authority Special Tax, CFD No. 1, Series C, AMBAC Insured, 5.30%, 9/01/22 ........................................................................................... 10,000,000 10,072,600 9/01/27 ........................................................................................... 9,900,000 9,947,718 Northern California Power Agency Multiple Capital Facilities Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 .................................................................................... 19,250,000 18,420,903 Northern California Public Power Agency Revenue, Hydroelectric Project No. 1, Refunding, Series A, MBIA Insured, 5.125%, 7/01/23 ................................................................................... 7,420,000 7,282,804 5.50%, 7/01/24 .................................................................................... 10,000,000 10,165,200 5.00%, 7/01/28 .................................................................................... 25,975,000 24,698,589 5.20%, 7/01/32 .................................................................................... 43,675,000 42,726,816 Oakland COP, Oakland Museum, Refunding, Series A, AMBAC Insured, 6.00%, 4/01/12 8,000,000 8,080,000 Oakland HFR, Issue D-1, 7.10%, 1/01/10 .......................................................................... 1,545,000 1,576,394 Issue D-2, 7.15%, 1/01/24 .......................................................................... 4,220,000 4,281,992 Oakland Joint Powers Financing Authority Lease Revenue, Oakland Administration Buildings, AMBAC Insured, 5.75%, 8/01/26 ..................................................................................... 24,895,000 26,555,994 Oakland Revenue, 1800 Harrison Foundation, Refunding, Series A, AMBAC Insured, 6.00%, 1/01/29 ................................................. 13,825,000 14,720,722 Series B, AMBAC Insured, 6.00%, 1/01/29 ............................................................ 13,470,000 14,342,721 Oceanside Building Authority Revenue, Refunding, 7.75%, 11/01/04 ..................................... 2,315,000 2,456,886 Oceanside COP, Oceanside Civic Center Project, Refunding, MBIA Insured, 5.75%, 8/01/15 ............................ 5,000,000 5,352,600 Refunding, Series A, 6.375%, 4/01/12 ............................................................... 4,435,000 4,637,546
40 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Oceanside COP, (cont.) Refunding, Series A, 6.625%, 4/01/23 ............................................................... $ 9,000,000 $ 9,161,100 Wastewater Systems Plan, Refunding, AMBAC Insured, 5.80%, 5/01/21 .................................. 4,500,000 4,679,955 Water System Project, Refunding, AMBAC Insured, 5.80%, 8/01/21 ..................................... 4,750,000 4,961,328 Olivenhain Municipal Water District 1915 Act, AD No. 96-1, MBIA Insured, 5.45%, 9/02/27 .............. 11,085,000 11,295,172 Orange Community Facilities District Special Tax, No. 91-2, 6.15%, 10/01/23 .................................................................................... 6,225,000 6,261,852 6.25%, 10/01/30 .................................................................................... 7,910,000 7,915,774 Orange County Airport Revenue, Refunding, MBIA Insured, 5.625%, 7/01/12 .............................. 5,000,000 5,296,550 Orange County COP, Juvenile Justice Center Facilities, Refunding, AMBAC Insured, 6.375%, 6/01/11 ..... 5,000,000 5,130,350 Orange County Development Agency Tax Allocation, Santa Ana Heights Area Project, Refunding, 6.125%, 9/01/23 .................................................................................... 6,500,000 6,699,680 Orange County Recovery COP, Series A, MBIA Insured, 5.80%, 7/01/16 ................................... 10,380,000 11,201,266 Orange County Recovery, Refunding, Series A, MBIA Insured, 5.75%, 6/01/15 ............................ 79,010,000 84,516,207 Orange County Water District COP, Refunding, Series A, 5.50%, 8/15/14 ................................ 9,430,000 9,855,104 Orange RDA, Tax Allocation Revenue, Northwest Redevelopment Project, Refunding, Series B, 5.70%, 10/01/ 8,530,000 8,642,937 Oroville PFAR, Series A, AMBAC Insured, 6.30%, 9/15/20 ............................................... 12,150,000 12,716,069 Oroville Wyandotte Irrigation District Revenue, Hydroelectric Sly Creek Power, Refunding, 6.20%, 1/01/0 6,870,000 6,905,243 Oxnard Harbor District Revenue, American Capital Access Insured, 5.60%, 8/01/19 ...................... 10,820,000 10,831,902 Palm Desert 1915 Act, Limited Obligation, AD No. 92-1, Pre-Refunded, 7.60%, 9/02/12 .................. 1,290,000 1,359,479 Palm Desert Financing Authority Lease Revenue, Blythe County Administrative Project, 6.625%, 8/01/26 . 5,020,000 5,287,767 Palm Desert Financing Authority Tax Allocation Revenue, Project Area No. 1, Refunding, MBIA Insured, 5.625%, 4/01/23 ....................................... 13,000,000 13,420,420 Project Area No. 1, Series A, MBIA Insured, 6.625%, 4/01/23 ........................................ 1,075,000 1,096,500 Project Area No. 1, Series A, MBIA Insured, 5.95%, 4/01/24 ......................................... 15,075,000 16,014,776 Project Area No. 4, MBIA Insured, 4.80%, 10/01/31 .................................................. 6,045,000 5,487,167 Palm Springs COP, Multiple Capital Facilities Project, Refunding, AMBAC Insured, 5.75%, 4/01/27 ...... 11,570,000 12,331,422 Palmdale Civic Authority Revenue, Merged Redevelopment Project Areas, Refunding, Series A, MBIA Insured, 6.15%, 9/01/24 ..................................................................................... 4,730,000 5,081,392 Palmdale CRDA, Tax Allocation, Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/28 .............................. 17,500,000 16,638,125 Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/34 .............................. 6,980,000 6,595,262 Series A, MBIA Insured, 5.75%, 9/01/27 ............................................................. 10,435,000 11,156,372 Palmdale School District COP, 7.40%, 8/01/20 ......................................................... 495,000 496,386 Palomar Community College District COP, Building Acquisition Project, Connie Lee Insured, Pre-Refunded, 6.75%, 10/01/19 .................................................................................... 4,210,000 4,685,435 Paramount RDA, Tax Allocation, Custodial Receipts, MBIA Insured, 6.25%, 8/01/23 ...................... 22,070,000 23,348,294 Pasadena COP, Art Center College of Design, Connie Lee Insured, 6.50%, 12/01/19 ...................... 8,250,000 8,999,265 Pasadena Water Revenue, 6.00%, 7/01/13 ............................................................... 4,000,000 4,230,000 Perris PFAR, Special Tax, Series A, ETM, 7.50%, 9/01/02 ......................................................... 100,000 101,986 Special Tax, Series A, ETM, 7.55%, 9/01/03 ......................................................... 110,000 112,152 Special Tax, Series A, ETM, 7.60%, 9/01/04 ......................................................... 120,000 122,272 Special Tax, Series A, ETM, 7.60%, 9/01/05 ......................................................... 125,000 127,371 Special Tax, Series A, ETM, 7.80%, 9/01/19 ......................................................... 1,090,000 1,112,334 Tax Allocation, Refunding, Series B, MBIA Insured, 6.35%, 8/15/17 .................................. 5,280,000 5,458,306 Tax Allocation, Refunding, Series C, 7.10%, 11/15/17 ............................................... 3,330,000 3,444,985 Tax Allocation, Series A, 5.75%, 10/01/31 .......................................................... 5,000,000 4,937,050
41 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Perris RDA, Tax Allocation, Central and North Perris Redevelopment Project, Series A, Pre-Refunded, 7.875%, 10/01/10 ........................................................... $ 2,935,000 $ 3,035,729 Series B, Pre-Refunded, 7.875%, 10/01/14 ........................................................... 4,535,000 4,580,350 Perris Special Tax, CFD No. 8, Series A, ETM, 8.15%, 9/01/02 ........................................................... 100,000 102,616 CFD No. 8, Series A, Pre-Refunded, 8.30%, 9/01/18 .................................................. 6,040,000 6,815,113 CFD No. 91-1, 8.75%, 9/01/21 ....................................................................... 5,395,000 5,496,588 Petaluma Community Development Commission MFR, Park Lane Apartments, Series A, 6.875%, 11/20/34 ...... 4,800,000 4,998,336 Pittsburg PFA, Water Revenue, MBIA Insured, 5.50%, 6/01/27 ........................................... 2,980,000 3,073,989 Placentia COP, RDA, Refunding, Series A, 6.90%, 1/01/14 .............................................. 1,770,000 1,886,059 Placer Hills Union Elementary School District COP, Convertible Capital Appreciation, Series B, 7.125%, 510,000 555,604 Placer Union High School District COP, Capital Appreciation, Series A, 7.125%, 3/01/19 ............... 2,095,000 2,282,335 Pleasanton COP, Capital Improvements, 6.70%, 10/01/11 ................................................ 2,180,000 2,230,358 Pomona PFAR, Refunding, Series P, 5.75%, 10/01/15 .................................................... 6,490,000 6,775,106 Pomona RDA, Tax Allocation, Southwest Pomona Redevelopment Project, ETM, 11.45%, 1/01/07 ............. 8,885,000 10,562,310 Port Hueneme RDA, Tax Allocation, R-76 Project, Refunding, 6.50%, 5/01/23 ............................ 2,930,000 3,025,342 Port of Oakland Revenue, Series E, MBIA Insured, 6.25%, 11/01/05 ............................................................ 1,525,000 1,586,366 Series E, MBIA Insured, 6.30%, 11/01/06 ............................................................ 1,050,000 1,092,242 Series E, MBIA Insured, 6.40%, 11/01/07 ............................................................ 500,000 520,395 Series E, MBIA Insured, 6.40%, 11/01/22 ............................................................ 11,495,000 11,946,868 Series J, MBIA Insured, 5.50%, 11/01/26 ............................................................ 7,000,000 7,236,040 Port of Oakland Special Facilities Revenue, Mitsui O.S.K. Lines Ltd., Series A, 6.70%, 1/01/07 ..................................................................................... 6,100,000 6,245,668 6.75%, 1/01/12 ..................................................................................... 4,890,000 5,005,649 6.80%, 1/01/19 ..................................................................................... 8,075,000 8,264,278 Porterville COP, Infrastructure Financing Project, AMBAC Insured, 5.00%, 7/01/28 .................................... 10,430,000 9,917,470 Public Building Project, Refunding, AMBAC Insured, 6.30%, 10/01/18 ................................. 1,950,000 2,024,802 Porterville UHSD, COP, Capital Appreciation, Land Acquisition, Series A, 6.60%, 9/01/27 .............. 1,275,000 1,326,153 Poway COP, Royal Mobile Home Park Project, Refunding, FSA Insured, 5.875%, 8/01/15 .................................................................................... 6,250,000 6,714,813 6.00%, 8/01/20 ..................................................................................... 5,400,000 5,836,536 6.00%, 8/01/28 ..................................................................................... 15,000,000 16,119,750 Poway RDA, Tax Allocation, Parguay Redevelopment Project, sub. notes, Refunding, FGIC Insured, 5.50%, 12/15/23 .................................................................................... 23,000,000 23,444,360 5.75%, 12/15/26 .................................................................................... 8,000,000 8,321,680 Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.125%, 7/01/31 ........................... 142,925,000 136,560,550 Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y, 5.00%, 7/01/36 ...... 63,000,000 59,267,250 Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue, Series A, MBIA Insured, 5.00%, 7/01/38 ............................................................. 116,975,000 112,246,871 Series B, 6.00%, 7/01/39 ........................................................................... 13,200,000 14,963,652 Series B, MBIA Insured, 6.00%, 7/01/31 ............................................................. 13,000,000 14,736,930 Series D, 5.375%, 7/01/36 .......................................................................... 45,000,000 44,269,200 Series D, 5.75%, 7/01/41 ........................................................................... 20,000,000 20,734,600 Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A, AMBAC Insured, 5.00%, 7/01/28 ...................................................................... 10,000,000 9,686,700
42 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Puerto Rico Electric Power Authority Power Revenue, Series DD, MBIA Insured, 5.00%, 7/01/28 ............................................................ $ 23,250,000 $ 22,521,578 Series II, 5.25%, 7/01/31 .......................................................................... 48,000,000 46,395,840 Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Revenue, Cogen Facilities, 6.625%, 6/01/26 .................................................................................... 6,800,000 7,051,804 Puerto Rico PBA Revenue, Guaranteed, Government Facilities, Series D, 5.375%, 7/01/33 ................ 100,000,000 98,429,000 Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.50%, 8/01/29 ..................................................................................... 139,995,000 140,405,185 5.75%, 8/01/30 ..................................................................................... 50,000,000 50,604,000 Rancho Cucamonga, Palmdale, Potterville and Colton HFA, SFMR, Series 1986, GNMA Secured, 7.55%, 8/01/18 2,465,000 2,561,160 Rancho Cucamonga RDA, Tax Allocation, Rancho Redevelopment Project, Set-Aside Housing, MBIA Insured, 5.25%, 9/01/21 ..................................................................................... 8,330,000 8,415,383 Rancho Murieta Community Services District 1915 Act, ID No. 1, 8.25%, 9/02/02 ..................................................................................... 715,000 724,467 8.30%, 9/02/03 ..................................................................................... 745,000 779,173 8.40%, 9/02/04 ..................................................................................... 750,000 784,320 8.40%, 9/02/05 ..................................................................................... 735,000 768,325 8.40%, 9/02/06 ..................................................................................... 750,000 779,408 Redlands USD, COP, Series A, FSA Insured, 6.15%, 9/01/11 ..................................................................................... 565,000 566,424 6.25%, 9/01/27 ..................................................................................... 4,310,000 4,322,068 Rialto COP, FSA Insured, 5.75%, 2/01/22 .............................................................. 2,715,000 2,894,624 Rialto RDA, Tax Allocation, Agua Mansa Redevelopment Project, Pre-Refunded, 6.75%, 3.01/24 ........... 3,500,000 3,824,555 Richmond Joint Powers Financing Authority Revenue Lease, Series A, MBIA Insured, 5.00%, 2/01/26 ............................................................................................ 6,500,000 6,211,985 2/01/31 ............................................................................................ 7,000,000 6,631,660 Riverside County Asset Leasing Corp. Leasehold Revenue, Hospital Project, Series A, 6.375%, 6/01/09 .................................................................................... 23,000,000 23,909,650 6.50%, 6/01/12 ..................................................................................... 20,125,000 23,040,911 Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A, 6.65%, 11/01/17 .................................................................................... 7,945,000 8,125,034 Riverside County COP, Family Law Court Project, MBIA Insured, 5.75%, 11/01/27 ............................................ 5,295,000 5,668,139 Historic Courthouse, MBIA Insured, 5.875%, 11/01/27 ................................................ 6,000,000 6,459,300 Riverside County Flood Control and Water Conservation District Elsinore Valley AD, Zone 3, 7.875%, 9/01/03 ............................................................................................ 165,000 177,217 9/01/04 ............................................................................................ 180,000 200,257 9/01/05 ............................................................................................ 190,000 216,173 9/01/06 ............................................................................................ 205,000 239,075 9/01/07 ............................................................................................ 225,000 266,193 9/01/08 ............................................................................................ 240,000 288,662 9/01/09 ............................................................................................ 260,000 316,597 9/01/10 ............................................................................................ 280,000 345,551 9/01/11 ............................................................................................ 305,000 380,588 9/01/12 ............................................................................................ 325,000 407,641 9/01/13 ............................................................................................ 350,000 441,928 9/01/14 ............................................................................................ 380,000 482,946
43 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Riverside County Flood Control and Water Conservation District Elsinore Valley AD, Zone 3, 7.875%, (cont.) 9/01/15 ............................................................................................ $ 410,000 $ 520,901 9/01/16 ............................................................................................ 440,000 559,856 9/01/17 ............................................................................................ 475,000 603,849 Riverside County Housing Authority Revenue, Breezewood Apartment Project, Refunding, Series C, 6.40%, 6/01/28 ...................................................................................... 4,890,000 4,733,520 Riverside County PFA, COP, 5.75%, 5/15/19 ................................................................................ 3,500,000 3,465,945 COP, 5.80%, 5/15/29 ................................................................................ 14,230,000 14,037,610 Tax Allocation Revenue, Redevelopment Projects, Series A, 5.625%, 10/01/33 ......................... 9,225,000 9,137,547 Riverside County RDA, Tax Allocation, Jurupa Valley Project Area, AMBAC Insured, 5.00%, 10/01/28 .................................................................................... 15,535,000 14,769,591 5.125%, 10/01/35 ................................................................................... 17,035,000 16,466,542 Riverside County SFMR, Series A, GNMA Secured, 7.20%, 10/01/24 ............................................................ 925,000 958,624 Series B, GNMA Secured, 7.60%, 11/01/19 ............................................................ 265,000 272,778 Riverside MFHR, Birchwood Park Apartments, Series A, FNMA Insured, 6.50%, 1/01/18 .................................. 2,200,000 2,204,994 Palm Shadows Apartments, Series A, FNMA Insured, 6.50%, 1/01/18 .................................... 4,010,000 4,019,103 Riverside RDA, Tax Allocation, Merged Redevelopment Project, Series A, MBIA Insured, 5.625%, 8/01/23 . 6,000,000 6,143,820 Rohnert Park HFAR, Rancho Feliz Mobile Home Park, FSA Insured, 5.375%, 12/01/26 ...................... 8,380,000 8,261,088 Roseville 1915 Act, North Roseville Rocklin District No. 88-3, Refunding, 8.10%, 9/02/02 ............................... 120,000 121,492 North Roseville Rocklin District No. 88-3, Refunding, 8.15%, 9/02/03 ............................... 130,000 133,423 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/04 ............................... 140,000 145,165 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/05 ............................... 150,000 155,502 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/06 ............................... 160,000 166,146 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/07 ............................... 180,000 186,336 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/08 ............................... 190,000 196,743 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/09 ............................... 160,000 165,632 Rocky Ridge Harding District No. 88-4, Refunding, 8.10%, 9/02/02 ................................... 255,000 258,170 Rocky Ridge Harding District No. 88-4, Refunding, 8.15%, 9/02/03 ................................... 280,000 287,372 Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/04 ................................... 300,000 311,067 Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/05 ................................... 320,000 331,738 Sacramento 1915 Act, North Natomas AD No. 88-3, 8.20%, 9/02/10 ..................................................................................... 780,000 805,342 8.20%, 9/02/11 ..................................................................................... 1,730,000 1,785,187 8.25%, 9/02/12 ..................................................................................... 2,240,000 2,311,434 8.25%, 9/02/13 ..................................................................................... 2,425,000 2,501,727 8.25%, 9/02/14 ..................................................................................... 2,620,000 2,702,975 Sacramento City Financing Authority Revenue, Capital Improvements, 5.625%, 6/01/30 .............................................................. 6,000,000 6,122,160 Capital Improvements, Series A, AMBAC Insured, 5.00%, 12/01/32 ..................................... 26,250,000 24,833,288 Series 1991, 6.60%, 11/01/05 ....................................................................... 1,300,000 1,329,640 Series 1991, 6.70%, 11/01/11 ....................................................................... 920,000 939,062 Sacramento City USD, GO, Election of 1999, Series B, FGIC Insured, 5.00%, 7/01/30 .................... 5,250,000 4,976,108 Sacramento County Airport System Revenue, Series A, MBIA Insured, 5.90%, 7/01/24 ..................... 6,875,000 7,263,094
44 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Sacramento County COP, Public Facilities Project, Coroner/Crime Laboratory, AMBAC Insured, 6.40%, 10/01/19 ........................................................................................... $ 11,000,000$ 12,116,280 10/01/24 ........................................................................................... 29,500,000 32,493,660 Sacramento County Sanitation District Financing Authority Revenue, AMBAC Insured, 5.625%, 12/01/30 ... 5,000,000 5,144,100 Sacramento MUD, Electric Revenue, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ................................................. 10,000,000 10,087,800 Series J, AMBAC Insured, 5.60%, 8/15/24 ............................................................ 10,215,000 10,578,756 Series N, MBIA Insured, 5.00%, 8/15/28 ............................................................. 34,000,000 32,326,520 sub. lien, Refunding, 8.00%, 11/15/10 .............................................................. 16,110,000 16,172,829 Sacramento MUD Revenue, Refunding, Series P, FSA Insured, 5.00%, 8/15/23 ............................. 7,000,000 6,758,920 Sacramento Regional Transit District COP, Series A, 6.375%, 3/01/04 ............................................................................................ 1,000,000 1,035,720 3/01/05 ............................................................................................ 1,100,000 1,137,664 Sacramento USD, COP, Refunding, MBIA Insured, 5.00%, 3/01/31 ......................................... 6,000,000 5,680,680 Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, Refunding, FSA Insured, 5.25%, 9/01/28 ..................................................................................... 6,800,000 6,723,024 San Bernardino 1915 Act, AD No. 961, Refunding, 7.60%, 9/02/02 ..................................................................................... 855,000 862,139 7.65%, 9/02/03 ..................................................................................... 920,000 938,713 7.70%, 9/02/04 ..................................................................................... 990,000 1,022,967 7.75%, 9/02/05 ..................................................................................... 1,065,000 1,104,149 San Bernardino County COP, Medical Center Financing Project, Refunding, 5.00%, 8/01/26 ........................................ 15,045,000 13,722,244 Medical Center Financing Project, Refunding, MBIA Insured, 5.00%, 8/01/28 .......................... 55,065,000 51,617,931 Medical Center Financing, Series A, MBIA Insured, 5.50%, 8/01/22 ................................... 40,830,000 41,905,871 West Valley Detention Center Project, MBIA Insured, 6.20%, 11/01/25 ................................ 9,275,000 10,030,078 San Bernardino County Housing Authority MFMR, Rancho Meridian, GNMA Secured, 6.75%, 4/20/41 .......... 6,920,000 7,439,692 San Bernardino County Mortgage Revenue, Don Miguel Apartments Project, Refunding, MBIA Insured, 6.00%, 9/01/03 ..................................................................................... 45,000 46,209 San Bernardino County SFMR, GNMA Secured, 7.50%, 12/01/07 ...................................................................... 230,000 238,630 GNMA Secured, 7.65%, 6/01/23 ....................................................................... 1,145,000 1,199,101 Series A, GNMA Secured, 6.20%, 5/01/21 ............................................................. 505,000 513,944 Series B, 5.40%, 5/01/25 ........................................................................... 275,000 269,517 San Bernardino Joint Powers Financing Authority Lease Revenue, City Hall Project, Refunding, MBIA Insured, 5.70%, 1/01/23 ..................................................................................... 6,315,000 6,612,752 San Bernardino Joint Powers Financing Authority Revenue, Tax Allocation, Refunding, Series A, FSA Insured, 5.75%, 10/01/25 .................................................................................... 19,915,000 21,085,803 San Bernardino Joint Powers Financing Authority Revenue COP, Police Station Financing Project, Pre-Refunded, 6.60%, 4/01/20 ..................................................................................... 4,715,000 5,303,715 San Carlos Mortgage Revenue, Elms Project, FHA Insured, 6.875%, 8/01/37 .............................. 8,465,000 8,749,170 San Diego County COP, MBIA Insured, 5.00%, 8/15/28 ................................................... 24,000,000 22,656,960 San Diego County Regional Transportation Commission Sales Tax Revenue, Series A, ETM, 6.00%, 4/01/08 . 1,250,000 1,284,150 San Diego IDR, San Diego Gas and Electric Co. Project, Series A, 6.40%, 9/01/18 ...................... 19,800,000 20,383,308 San Diego Public Facilities Financing Authority Sewer Revenue, Series A, FGIC Insured, 5.25%, 5/15/27 ............................................................. 21,750,000 21,539,025 Series B, FGIC Insured, 5.25%, 5/15/22 ............................................................. 5,200,000 5,205,824
45 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Diego RDA, Tax Allocation, Horton Project, Refunding, Series A, FSA Insured, 6.00%, 11/01/15 ..... $ 5,000,000 $ 5,553,400 San Diego USD, GO, Election of 1998, Series B, MBIA Insured, 5.00%, 7/01/25 .......................... 6,975,000 6,678,702 San Elijo Joint Powers Authority Revenue, Water Pollution Control Facilities, Refunding, FGIC Insured, 5.00%, 3/01/20 ...................................................................................... 5,000,000 4,895,550 San Francisco BART, District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/34 ......................... 11,790,000 12,151,246 San Francisco City and County Airport Commission International Airport Revenue, Issue 6, AMBAC Insured, 6.50%, 5/01/18 ............................................................. 2,500,000 2,679,250 Issue 6, AMBAC Insured, 6.60%, 5/01/24 ............................................................. 13,250,000 14,146,363 Issue 9A, FGIC Insured, 5.90%, 5/01/25 ............................................................. 46,415,000 48,734,358 Issue 12A, Second Series, 5.90%, 5/01/26 ........................................................... 45,000,000 47,080,350 Issue 16A, Second Series, FSA Insured, 5.125%, 5/01/23 ............................................. 24,635,000 23,430,595 Issue 16A, Second Series, FSA Insured, 5.00%, 5/01/29 .............................................. 20,500,000 18,795,015 Issue 22, Second Series, AMBAC Insured, 4.75%, 5/01/23 ............................................. 10,000,000 8,897,700 Issue 22, Second Series, AMBAC Insured, 4.75%, 5/01/29 ............................................. 44,130,000 38,314,549 Refunding, Second Series-28A, MBIA Insured, 5.125%, 5/01/32 ........................................ 28,790,000 26,849,842 Second Series-Issue 23B, FGIC Insured, 5.125%, 5/01/30 ............................................. 10,000,000 9,618,300 San Francisco City and County COP, San Francisco Courthouse Project, FSA Insured, 5.875%, 4/01/21 .... 2,810,000 2,985,850 San Francisco City and County Public Utilities Commission Water Revenue, Refunding, Series A, 6.50%, 11 4,000,000 4,150,480 San Francisco City and County RDA, Hotel Tax Revenue, FSA Insured, 6.75%, 7/01/25 ..................................................... 315,000 345,023 Hotel Tax Revenue, FSA Insured, Pre-Refunded, 6.75%, 7/01/25 ....................................... 9,100,000 10,076,703 Lease Revenue, George R. Moscone Center, Refunding, Series 1992, 5.50%, 7/01/18 .................... 22,170,000 22,254,024 Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.65%, 7/01/24 ................................ 5,645,000 5,655,217 San Francisco City and County Revenue, Irwin Memorial Blood Center, Series A, 6.80%, 12/01/21 ........ 3,000,000 3,067,800 San Gabriel Valley Schools Financing Authority Revenue, Oxnard Union High School, Pre-Refunded, 6.60%, 3/01/24 ............................................. 4,145,000 4,396,436 Pomona USD Financing, 5.80%, 2/01/26 ............................................................... 5,150,000 5,335,040 San Joaquin Area Flood Control Agency 1915 Act, Flood Protection and Restoration Assessment, FSA Insured, 6.00%, 9/02/14 ...................................................................................... 7,875,000 8,221,658 San Joaquin County COP, General Hospital Project, Pre-Refunded, 6.625%, 9/01/20 ...................... 36,500,000 39,422,920 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A, 5.50%, 1/15/28 ................................................................ 247,300,000 229,326,236 Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ................................................. 85,500,000 85,950,585 Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 .................................................. 21,200,000 20,923,552 senior lien, 5.00%, 1/01/33 ........................................................................ 82,040,000 71,196,773 senior lien, Pre-Refunded, 7.00%, 1/01/30 .......................................................... 85,535,000 90,407,929 senior lien, Pre-Refunded, 6.75%, 1/01/32 .......................................................... 64,320,000 67,865,962 San Jose Airport Revenue, Refunding, MBIA Insured, 5.75%, 3/01/16 ....................................................................... 13,600,000 13,849,424 Series A, FGIC Insured, 5.00%, 3/01/31 ............................................................. 10,500,000 9,873,780 San Jose Financing Authority Lease Revenue, MBIA Insured, 5.00%, 9/01/21 ............................................................................................ 14,045,000 13,603,566 9/01/22 ............................................................................................ 14,730,000 14,217,838 San Jose Financing Authority Revenue, Fourth and San Fernando Parking Facility, Series A, AMBAC Insured, 5.00%, 9/01/24 ...................................................................................... 5,000,000 4,810,700 San Jose RDA, MFHR, Miraido Village, Series A, GNMA Secured, 5.75%, 7/20/38 ...................................... 7,110,000 7,077,081 Tax Allocation, Housing, Set-Aside Merged Area, Series E, MBIA Insured, 5.85%, 8/01/27 ............. 7,325,000 7,450,770
46 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Jose RDA, (cont.) Tax Allocation, Merged Area Redevelopment Project, 5.25%, 8/01/29 .................................. $ 7,000,000 $ 6,869,940 Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/26 ................... 15,000,000 14,328,450 Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/31 ................... 2,000,000 1,894,000 Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.00%, 8/01/21 .................... 35,235,000 34,129,326 Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.625%, 8/01/28 ................... 24,135,000 25,004,101 Tax Allocation, Merged Area Redevelopment Project, Refunding, MBIA Insured, 5.00%, 8/01/20 ......... 35,665,000 35,115,759 San Leandro RDA, RMR, Pre-Refunded, 11.25%, 4/01/13 .................................................. 60,000 70,533 San Marcos Public Facilities Authority Revenue, Capital Improvement, 8.25%, 1/01/19 ................................................................ 510,000 516,227 Refunding, 5.80%, 9/01/18 .......................................................................... 4,750,000 4,734,800 Senior Tax Increment Project Area-3-A, MBIA Insured, 5.75%, 10/01/29 ............................... 5,340,000 5,628,253 Senior Tax Increment Project Area-3-A, MBIA Insured, 5.80%, 10/01/30 ............................... 8,035,000 8,494,361 Series A, 6.25%, 9/02/22 ........................................................................... 25,000,000 26,493,750 Tax Allocation, Refunding, Series A, FSA Insured, 5.50%, 8/01/23 ................................... 13,000,000 13,267,800 San Marcos USD, School Facilities ID No. 1, AMBAC Insured, 5.80%, 11/01/14 ........................... 5,000,000 5,493,900 San Mateo County Joint Powers Authority Lease Revenue, Capital Projects, Refunding, Series A, FSA Insured, 5.00%, 7/15/29 ..................................................................................... 17,500,000 16,624,825 San Mateo RDA, Tax Allocation, 5.60%, 8/01/25 ..................................................................................... 10,185,000 10,053,614 Merged Area, Series A, 5.70%, 8/01/27 .............................................................. 6,330,000 6,393,553 San Mateo Unified High School District GO, Election of 2000, Series A, FGIC Insured, 5.00%, 9/01/25 .. 13,865,000 13,274,351 San Pablo RDA, Tax Allocation, Merged Project Area, FGIC Insured, 6.25%, 12/01/19 .................... 3,500,000 3,819,305 San Rafael RDA, Tax Allocation, Central San Rafael Redevelopment, Refunding, FGIC Insured, 6.45%, 12/01 6,740,000 7,046,266 San Ramon COP, Capital Improvement Projects, Series 1993, 6.00%, 3/01/18 ............................. 1,730,000 1,782,436 San Ramon PFA, Tax Allocation Revenue, MBIA Insured, 5.30%, 2/01/28 ....................................................................... 18,360,000 18,281,786 Pre-Refunded, 6.90%, 2/01/24 ....................................................................... 6,140,000 6,831,610 Refunding, 6.90%, 2/01/24 .......................................................................... 6,910,000 7,322,389 San Ramon Valley COP, Fire Protection District, Financing Corp., Refunding, 6.00%, 7/01/19 ........... 6,275,000 6,515,207 San Ramon Valley USD, COP, Pre-Refunded, 7.70%, 2/01/10 ....................................................................... 6,000,000 6,117,300 Refunding, 7.55%, 2/01/04 .......................................................................... 2,885,000 2,931,593 Santa Ana COP, Parking Facilities Project, Refunding, Series A, AMBAC Insured, 6.125%, 6/01/16 ....... 2,070,000 2,183,415 Santa Ana Financing Authority Water Revenue, MBIA Insured, 6.125%, 9/01/24 ........................... 5,000,000 5,285,650 Santa Barbara COP, Harbor Project, Refunding, 6.75%, 10/01/27 ........................................ 8,090,000 8,360,530 Santa Barbara Housing Authority Revenue, Refunding and Acquisition, 6.25%, 11/15/20 .................. 5,605,000 5,425,136 Santa Barbara SFMR, GNMA Secured, 7.65%, 10/01/23 .................................................... 130,000 134,181 Santa Clara County Financing Authority Lease Revenue, Valley Medical Center Facilities Replacement Project, Series A, AMBAC Insured, Pre-Refunded, 6.75%, 11/15/20 ............................................... 13,000,000 14,524,640 Santa Clara Housing Authority MFHR, Arastradero Park Apartments Project, Series A, GNMA Secured, 6.65%, 5/20/35 ........................ 6,465,000 6,777,066 Elana Gardens Apartments Project, Series A, GNMA Secured, 6.40%, 6/20/35 ........................... 5,625,000 5,799,206 Sierra Vista I Apartments Project, Series A, GNMA Secured, 6.65%, 6/20/35 .......................... 3,860,000 4,048,908 Santa Clara USD, COP, 5.375%, 7/01/31 ................................................................ 7,575,000 7,448,195 Santa Clara Valley Transportation Authority Sales Tax Revenue, Series A, MBIA Insured, 5.00%, 6/01/23 7,325,000 7,074,046 Santa Clarita COP, Refunding, MBIA Insured, 5.00%, 10/01/21 .......................................... 5,105,000 4,944,346
47 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Santa Cruz City School District COP, Education Center Financing Project, Pre-Refunded, 7.00%, 5/01/24 $ 3,150,000 $ 3,480,719 Santa Cruz County Housing Authority MFHR, Series B, FNMA Insured, 7.75%, 7/01/23 ..................... 9,230,000 9,265,351 Santa Maria Bonita School District COP, MBIA Insured, 7.00%, 3/01/16 ................................. 480,000 493,531 Santa Monica RDA Tax Allocation, Earthquake Recovery Redevelopment Project, AMBAC Insured, 6.00%, 7/01/29 ..................................................................................... 13,110,000 14,255,552 Shafter Joint Powers Financing Authority Lease Revenue, Community Correctional Facility Project, Series A, 5.95%, 1/01/11 ..................................................................................... 1,880,000 1,997,293 6.05%, 1/01/17 ..................................................................................... 5,135,000 5,470,880 Shasta Joint Powers Financing Authority Lease Revenue, Courthouse County Improvement Project, Series A, Pre-Refunded, 6.70%, 6/01/23 ........................................................................ 2,500,000 2,569,875 Simi Valley SFRMR, Series A, GNMA Secured, 7.70%, 3/01/25 ............................................ 25,000 25,847 Snowline Joint USD, COP, Pre-Refunded, 7.25%, 4/01/18 ................................................ 1,000,000 1,020,000 Soledad RDA, Tax Allocation, Soledad Redevelopment Project, Pre-Refunded, 7.40%, 11/01/12 ............ 3,465,000 3,642,893 South Gate PFAR, Tax Allocation, Redevelopment Project No. 1, AMBAC Insured, 5.875%, 9/01/24 ..................................................................... 8,505,000 8,853,450 Refunding, 6.10%, 9/01/03 .......................................................................... 9,660,000 9,773,698 South Napa Waste Management Authority Revenue, Solid Waste Transfer Facilities Project, 6.50%, 2/15/14 4,500,000 4,760,280 South Orange County PFA, Special Tax Revenue, Foothill Area, Series C, FGIC Insured, 5.75%, 8/15/18 .............................................. 5,000,000 5,265,550 senior lien, Refunding, Series A, MBIA Insured, 6.00%, 9/01/18 ..................................... 18,850,000 20,098,059 Southern California HFA, SFMR, GNMA Secured, 7.625%, 10/01/22 ..................................................................... 1,625,000 1,633,596 Series A, GNMA Secured, 6.75%, 9/01/22 ............................................................. 285,000 289,811 Southern California Public Power Authority Power Project Revenue, 6.75%, 7/01/13 ..................................................................................... 10,000,000 11,725,900 Multi-Purpose Projects, 6.00%, 7/01/18 ............................................................. 29,645,000 29,767,434 San Juan Project Unit 3, Series A, MBIA Insured, 5.00%, 1/01/20 .................................... 5,790,000 5,669,510 Southern California Public Power Authority Transmission Project Revenue, Southern Transmission Project, 6.125%, 7/01/18 .................................................................................... 22,735,000 23,377,036 Southern Kern USD, COP, Pre-Refunded, 7.10%, 9/01/17 ................................................. 2,250,000 2,344,388 Stockton COP, Essential Services Building Parking Facility, 5.875%, 8/01/23 .................................................................................... 2,295,000 2,347,074 6.00%, 8/01/31 ..................................................................................... 6,585,000 6,806,454 Stockton East Water District COP, 1990 Project, Series A, AMBAC Insured, 6.40%, 4/01/22 .............. 14,095,000 14,376,900 Stockton Health Facilities Revenue, St. Joseph Medical Center, Series A, MBIA Insured, 5.50%, 6/01/23 5,000,000 5,095,700 Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A, FSA Insured, 5.95%, 7/01/17 ..................................................................................... 5,095,000 5,509,529 Stockton Revenue COP, Wastewater System Project, Series A, MBIA Insured, 5.20%, 9/01/29 .............. 19,160,000 18,802,283 Stockton Revenue, O'Connor Woods Housing Corp., Series A, 6.35%, 11/01/31 ............................ 9,110,000 9,025,368 Stockton Special Tax, CFD No. 90-2, Series 6, 7.75%, 8/01/15 ......................................... 3,000,000 3,012,270 Suisun City COP, Civic Center Project, Refunding, 6.45%, 11/01/15 .................................... 2,105,000 2,203,367 Suisun City RDA, Tax Allocation, Suisun City Redevelopment Project, Refunding, MBIA Insured, 6.00%, 10/01/18 .................................................................................... 3,285,000 3,486,305 5.90%, 10/01/23 .................................................................................... 3,255,000 3,406,650 Tahoe Forest Hospital District Revenue, Series A, 5.90%, 7/01/29 ..................................... 7,990,000 7,757,491 Temecula Valley USD, Series D, FGIC Insured, 6.00%, 9/01/14 ............................................................. 1,250,000 1,292,538 Series D, FGIC Insured, 6.125%, 9/01/19 ............................................................ 3,110,000 3,217,388 Series E, FSA Insured, 6.35%, 9/01/19 .............................................................. 5,460,000 5,989,948
48 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Thousand Oaks RDA, MFR, The Shadows Apartments, Refunding, Series A, FNMA Insured, 5.75%, 11/01/27 .................... $ 7,530,000 $ 7,598,598 Tax Allocation, Thousand Oaks Boulevard Redevelopment, Refunding, MBIA Insured, 5.375%, 12/01/25 ... 24,485,000 24,810,651 Thousand Oaks SFHMR, Refunding, Series A, GNMA Secured, 7.45%, 9/01/10 .................................................. 10,000 10,243 Refunding, Series A, GNMA Secured, 7.55%, 9/01/15 .................................................. 15,000 15,316 Refunding, Series A, GNMA Secured, 7.625%, 3/01/23 ................................................. 60,000 60,463 Tobacco Securitization Authority Northern California Tobacco Settlement Revenue, Asset Backed Bonds, Series B, 4.375%, 6/01/21 .................................................................................... 8,750,000 8,637,213 5.00%, 6/01/28 ..................................................................................... 17,390,000 16,833,520 Tobacco Securitization Authority Southern California Tobacco Settlement Revenue, Asset Backed Bonds, senior, Series A, 5.50%, 6/01/36 ................................................................... 80,500,000 78,082,585 senior, Series A, 5.625%, 6/01/43 .................................................................. 123,165,000 118,120,162 Sub Series B, 6.00%, 6/01/43 ....................................................................... 63,635,000 61,650,224 Tobacco Securitization Authority Tobacco Settlement Revenue, Series A, 5.25%, 6/01/31 ..................................................................................... 9,800,000 9,309,118 5.375%, 6/01/41 .................................................................................... 30,250,000 28,267,113 Torrance Hospital Revenue, Little Co. of Mary Hospital, Refunding, ETM, 6.875%, 7/01/15 ....................................... 3,385,000 3,486,618 Torrance Memorial Medical Center, Series A, 5.50%, 6/01/31 ......................................... 4,385,000 4,230,473 Trabuco Canyon PFA, Special Tax Revenue, Refunding, Series A, FSA Insured, 6.00%, 10/01/10 ............................................................. 13,775,000 15,478,830 Series A, FSA Insured, 6.10%, 10/01/15 ............................................................. 13,220,000 15,054,011 Series C, FSA Insured, 6.00%, 7/01/12 .............................................................. 3,040,000 3,424,043 Series C, FSA Insured, 6.10%, 7/01/19 .............................................................. 5,215,000 5,852,847 Tracy CFD Special Tax, No. 98-1 Plan C Properties, 5.875%, 8/01/23 .................................................................................... 6,385,000 6,240,252 6.00%, 8/01/26 ..................................................................................... 8,280,000 8,022,078 Tracy COP, I-205 Corridor Improvement and Refinancing Project, AMBAC Insured, 5.125%, 10/01/27 5,000,000 4,864,750 Travis USD, COP, Foxboro Elementary School Construction Project, Pre-Refunded, 7.00%, 9/01/12 3,670,000 3,821,681 Tri-City Hospital District Revenue, Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 5,000,000 5,226,600 Tri-Dam Power Authority Revenue, Hydroelectric Sand Bar Project, Refunding, 7.50%, 1/01/17 42,885,000 43,927,106 Trinity County PUD, COP, Electric District Facilities, Refunding, Series 1993, 6.60%, 4/01/11 ..................................................................................... 2,565,000 2,673,551 6.75%, 4/01/23 ..................................................................................... 4,000,000 4,144,040 Tulare Local Health Care District Health Facilities Revenue, 5.20%, 12/01/21 ......................... 4,455,000 4,264,326 Tustin USD, Special Tax, CFD No. 97-1, 6.375%, 9/01/35 ............................................... 8,645,000 8,776,318 Union City CRDA, Tax Allocation Revenue, Community Redevelopment Project, AMBAC Insured, 5.75%, 10/01/33 5,250,000 5,560,748 University of California COP, UCLA Center Chiller/Cogeneration Project, Refunding, 5.50%, 11/01/17 .................................................................................... 13,940,000 14,404,760 5.60%, 11/01/20 .................................................................................... 14,880,000 15,408,091 University of California Revenues, Multi-Purpose Projects, Refunding, Series C, AMBAC Insured, 5.00%, 9/01/23 ......................... 12,500,000 11,991,875 Multi-Purpose Projects, Series F, FGIC Insured, 5.00%, 9/01/22 ..................................... 20,575,000 19,984,703 Multi-Purpose Projects, Series F, FGIC Insured, 5.00%, 9/01/27 ..................................... 62,940,000 59,979,932 Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/31 ....................................... 5,000,000 4,734,800 U.C. Davis Medical Center, AMBAC Insured, 5.75%, 7/01/20 ........................................... 44,385,000 46,906,068
49 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Upland COP, San Antonio Community Hospital, Refunding, 5.70%, 1/01/11 ..................................................................................... $ 11,210,000 $ 11,816,237 Mortgage Insured, 5.50%, 1/01/07 ................................................................... 4,935,000 5,130,525 Vacaville PFAR, Local Agency, 8.65%, 9/02/18 ......................................................... 5,545,000 4,935,050 Vallejo RDA, Tax Allocation, Waterfront Redevelopment Project, 7.90%, 5/01/19 ........................ 2,425,000 2,431,936 Vallejo Revenue, Golf Course Project, Series A, 7.90%, 6/01/17 ....................................... 6,000,000 6,131,400 Victorville RDA, Tax Allocation, Bear Valley Road Redevelopment Project, Refunding, Series A, FSA Insured, 6.125%, 9/01/19 ........................................................................................... 2,405,000 2,557,934 9/01/24 ........................................................................................... 3,245,000 3,435,027 Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 .............................................. 7,000,000 6,823,740 Refunding, Series A, 5.50%, 10/01/14 ............................................................... 3,865,000 3,970,476 Vista Community Development Commission Tax Allocation Revenue, Vista Redevelopment Project Area, 5.875%, 9/01/37 .................................................................................... 5,000,000 4,930,050 MBIA Insured, 5.50%, 9/01/23 ....................................................................... 11,810,000 12,131,350 Vista Joint Powers Financing Authority Revenue, Series A, 7.625%, 2/01/20 ............................ 3,675,000 3,749,713 Walnut PFA, Tax Allocation Revenue, MBIA Insured, Unrefunded Balance, MBIA Insured, 6.50%, 9/01/22 ... 5,065,000 5,247,644 Washington Township Hospital District Revenue, AMBAC Insured, 5.25%, 7/01/23 ...................................................................... 5,000,000 4,986,900 HealthCare District Revenue, 5.25%, 7/01/29 ........................................................ 6,500,000 6,148,675 Watsonville Insured Hospital Revenue, Watsonville Community Hospital, Series A, Pre-Refunded, 6.30%, 7/01/15 ..................................................................................... 3,990,000 4,445,299 6.35%, 7/01/24 ..................................................................................... 5,435,000 6,063,503 Watsonville RDA, Tax Allocation, Watsonville Redevelopment Project, 6.30%, 8/01/06 ................... 1,745,000 1,759,763 West Basin Municipal Water District Revenue COP, 1992 Project, Refunding, Series A, AMBAC Insured, 5.50%, 8/01/22 ...................................................................................... 4,000,000 4,136,240 West Hollywood COP, Refunding, MBIA Insured, 5.00%, 2/01/25 .......................................... 6,250,000 5,987,000 Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital, 5.60%, 6/01/22 ..................................................................................... 13,000,000 12,587,120 5.75%, 6/01/31 ..................................................................................... 28,000,000 27,340,040 William S. Hart Joint School Financing Authority Special Tax Revenue, Community Facilities, Refunding, FSA Insured, 6.50%, 9/01/14 ............................................................. 4,000,000 4,459,080 --------------- TOTAL BONDS .......................................................................................... 11,950,535,171 --------------- ZERO COUPON/STEP-UP BONDS 12.8% Anaheim PFA, Lease Revenue, Capital Appreciation, Public Improvements Project, Series C, FSA Insured, 9/01/24 ............................................................................................ 26,855,000 7,440,446 9/01/26 ............................................................................................ 9,430,000 2,318,837 9/01/27 ............................................................................................ 22,860,000 5,294,376 9/01/28 ............................................................................................ 8,425,000 1,837,324 9/01/32 ............................................................................................ 13,665,000 2,359,262 9/01/33 ............................................................................................ 37,070,000 6,040,927 Baldwin Park RDA, Tax Allocation, San Gabriel, Refunding, Series A, ETM, 2/01/03 ............................................................................................ 570,000 558,948 2/01/04 ............................................................................................ 575,000 543,461 2/01/05 ............................................................................................ 585,000 529,443 Beaumont USD, COP, Series A, FSA Insured,1/01/29 ..................................................... 6,835,000 6,327,570
50 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) California Educational Facilities Authority Revenue, Loyola Marymount University, MBIA Insured, 10/01/32 ................................................ $ 8,435,000 $ 1,412,103 Loyola Marymount University, MBIA Insured, 10/01/33 ................................................ 8,435,000 1,324,042 Loyola Marymount University, MBIA Insured, 10/01/34 ................................................ 8,435,000 1,241,379 Loyola Marymount University, MBIA Insured, 10/01/35 ................................................ 8,435,000 1,163,861 Loyola Marymount University, MBIA Insured, 10/01/36 ................................................ 8,435,000 1,091,236 Loyola Marymount University, MBIA Insured, 10/01/37 ................................................ 8,435,000 1,023,166 Loyola Marymount University, MBIA Insured, 10/01/38 ................................................ 8,435,000 959,228 Loyola Marymount University, MBIA Insured, 10/01/39 ................................................ 8,435,000 899,340 Loyola Marymount University, Refunding, MBIA Insured, 10/01/30 ..................................... 5,685,000 1,096,409 Loyola-Marymount University, Refunding, MBIA Insured, 10/01/31 ..................................... 7,615,000 1,386,235 Loyola Marymount University, Refunding, MBIA Insured, 10/01/32 ..................................... 7,615,000 1,308,409 Santa Clara University, AMBAC Insured, 9/01/26 ..................................................... 5,800,000 1,426,220 California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A, ETM, 10/01/11 . 13,970,000 8,765,337 California HFAR, Capital Appreciation, Home Mortgage, Series T, MBIA Insured, 8/01/32 ............................... 35,000,000 5,657,750 Capital Appreciation, Series G, MBIA Insured, 2/01/30 .............................................. 45,260,000 8,479,008 Convertible Home Mortgage, FSA Insured, zero cpn. to 2/10/10, 6.70% thereafter, 2/01/31 ............ 18,995,000 11,694,082 Home Mortgage, Capital Appreciation, Series A, 8/01/16 ............................................. 615,000 132,243 Home Mortgage, Series B, MBIA Insured, 2/01/30 ..................................................... 106,355,000 20,033,028 Home Mortgage, Series F, FSA Insured, 8/01/31 ...................................................... 54,360,000 8,313,818 Home Mortgage, Series F, MBIA Insured, 2/01/30 ..................................................... 33,350,000 6,247,789 Home Mortgage, Series I, FSA Insured, 8/01/21 ...................................................... 38,340,000 12,024,958 Home Mortgage, Series N, AMBAC Insured, 8/01/31 .................................................... 80,350,000 51,258,479 Home Mortgage, Series Q, AMBAC Insured, 2/01/33 .................................................... 57,925,000 9,032,245 Series B, FSA Insured, 8/01/31 ..................................................................... 14,410,000 2,544,950 Series E, MBIA Insured, 2/01/21 .................................................................... 9,500,000 3,087,215 Series E, MBIA Insured, 2/01/32 .................................................................... 29,535,000 4,765,768 cSeries G, 8/01/22 ................................................................................. 52,350,000 15,338,550 cSeries G, 2/01/33 ................................................................................. 45,000,000 6,736,950 California State GO, Principal Eagles II, Series 3, 3/01/09 7,500,000 5,484,600 Principal Eagles II, Series 4, 6/01/06 10,000,000 8,515,300 Principal Eagles II, Series 6, 3/01/09 5,000,000 3,656,400 Principal M-Raes, Series 8, 4/01/09 ................................................................ 9,000,000 6,556,770 California Statewide CDA Revenue, COP, Insured Hospital, Triad Health Care, Refunding, ETM, 8/01/09 ............................................................................................ 6,450,000 4,658,513 8/01/10 ............................................................................................ 6,745,000 4,618,436 8/01/11 ............................................................................................ 3,115,000 2,014,066 Campbell USD, Series B, FGIC Insured, 8/01/20 ............................................................................................ 5,000,000 1,791,300 8/01/21 ............................................................................................ 6,280,000 2,115,355 Contra Costa County COP, Merrithew Memorial Hospital Project, ETM, 11/01/15 .......................... 6,810,000 3,423,387 Contra Costa Home Mortgage Finance Authority HMR, Mandatory Sinking Fund, MBIA Insured, Pre-Refunded, 9/01/17 ........................................ 47,455,000 13,905,608 MBIA Insured, Pre-Refunded, 9/01/17 ................................................................ 10,770,000 2,773,921
51 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) Contra Costa School Financing Authority Revenue, Capital Appreciation, Antioch USD Community, Series B, 9/01/07 .................................................................................. $ 1,050,000 $ 795,333 El Paso de Robles GO, Capital Appreciation, Series A, FGIC Insured, 8/01/16 ............................................................................................ 2,050,000 944,825 8/01/22 ............................................................................................ 11,485,000 3,501,317 8/01/27 ............................................................................................ 11,495,000 2,546,602 Elk Grove USD, Special Tax, Capital Appreciation, CFD 1, MBIA Insured, 12/01/19 ........................................................................................... 2,775,000 1,005,743 12/10/20 ........................................................................................... 2,765,000 937,612 12/01/21 ........................................................................................... 4,195,000 1,334,765 12/01/22 ........................................................................................... 4,195,000 1,254,221 12/01/23 ........................................................................................... 4,195,000 1,173,090 12/01/24 ........................................................................................... 4,200,000 1,097,712 12/01/25 ........................................................................................... 6,355,000 1,561,805 12/01/26 ........................................................................................... 6,355,000 1,468,386 12/01/27 ........................................................................................... 6,355,000 1,380,242 12/01/28 ........................................................................................... 6,355,000 1,314,023 Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, 1/15/25 ........................................................... 57,000,000 13,598,490 Capital Appreciation, Refunding, 1/15/30 ........................................................... 98,460,000 16,695,862 Capital Appreciation, Refunding, 1/15/31 ........................................................... 14,635,000 2,328,136 Capital Appreciation, Refunding, 1/15/34 ........................................................... 100,000,000 13,053,000 Capital Appreciation, Refunding, 1/15/36 ........................................................... 182,160,000 20,917,433 Capital Appreciation, Refunding, 1/15/38 ........................................................... 160,560,000 16,221,377 Capital Appreciation, Refunding, MBIA Insured, 1/15/21 ............................................. 51,180,000 15,846,863 Capital Appreciation, Refunding, MBIA Insured, 1/15/37 ............................................. 170,615,000 18,376,942 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.80% thereafter, 1/15/20 ................... 49,500,000 31,873,545 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/27 .................. 80,835,000 51,295,466 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/28 .................. 80,500,000 50,497,650 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/29 .................. 112,230,000 70,086,513 Capital Appreciation, senior lien, Series A, ETM, 1/01/22 .......................................... 30,835,000 10,441,964 Capital Appreciation, senior lien, Series A, ETM, 1/01/23 .......................................... 5,765,000 1,840,649 Capital Appreciation, senior lien, Series A, ETM, 1/01/24 .......................................... 72,045,000 21,679,061 Capital Appreciation, senior lien, Series A, ETM, 1/01/28 .......................................... 2,000,000 476,520 Convertible Capital Appreciation, Refunding, 1/15/23 ............................................... 10,000,000 6,391,200 Convertible Capital Appreciation, Refunding, 1/15/26 ............................................... 30,000,000 18,950,400 Convertible Capital Appreciation, Refunding, 1/15/32 ............................................... 100,000,000 14,923,000 Convertible Capital Appreciation, Refunding, 1/15/33 ............................................... 132,460,000 18,434,458 Convertible Capital Appreciation, Refunding, 1/15/35 ............................................... 20,000,000 2,448,600 Convertible Capital Appreciation, senior lien, Series A, ETM, zero cpn. to 1/01/05, 7.05% thereafter, 1/01/09 ......................................................................... 10,000,000 9,740,100 Convertible Capital Appreciation, senior lien, Series A, Pre-Refunded, zero cpn. to 1/01/05, 7.15% thereafter, 1/01/14 ......................................................................... 5,500,000 5,528,930 senior lien, Series A, ETM, 1/01/25 ................................................................ 20,660,000 5,856,697 senior lien, Series A, ETM, 1/01/26 ................................................................ 23,475,000 6,266,886 senior lien, Series A, ETM, 1/01/27 ................................................................ 15,000,000 3,778,650 senior lien, Series A, ETM, 1/01/29 ................................................................ 35,310,000 7,936,276 senior lien, Series A, Pre-Refunded, 1/01/12 ....................................................... 8,000,000 8,026,400
52 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) Lodi Electric Systems Revenue COP, Capital Appreciation Bond, Series B, MBIA Insured, 1/15/19 ........ $ 6,360,000 $ 2,599,332 Los Angeles Convention and Exhibition Center Authority COP, Series 1985, ETM, 12/01/05 ............... 26,750,000 23,423,638 Los Angeles HMR, Series A, GNMA Secured, 8/25/16 ..................................................... 190,000 57,169 New Haven USD, GO, Capital Appreciation, Series C, FGIC Insured, 8/01/23 ............................. 14,700,000 4,279,905 Palmdale CRDA, Tax Allocation, Merged Project, sub. lien, AMBAC Insured, zero cpn. to 12/01/04, 5.50% thereafter, 12/01/29 ......................................................................... 3,255,000 2,728,601 Pasadena Special Tax CFD, No. 1 Civic Center West, Pre-Refunded, 12/01/17 ............................ 4,090,000 1,557,431 Perris SFMR, Series A, GNMA Secured, ETM, 6/01/23 .................................................... 19,095,000 5,837,151 Rancho Water District Financing Authority Revenue, AMBAC Insured, 8/15/16 ............................................................................................ 8,605,000 4,041,510 8/15/17 ............................................................................................ 13,605,000 5,972,459 8/15/18 ............................................................................................ 13,605,000 5,571,384 Rialto USD, GO, Series A, FGIC Insured, 6/01/19 ...................................................... 13,985,000 5,414,712 Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital Project, MBIA Insured, 6/01/23 ............................................................................................ 14,160,000 4,162,615 6/01/24 ............................................................................................ 13,005,000 3,577,285 Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A, 11/01/05 . 1,250,000 1,096,338 Riverside County SFMR, Capital Appreciation Mortgage, Series A, GNMA Secured, ETM, 9/01/14 ............................................................... 20,220,000 11,020,911 Series A, GNMA Secured, ETM, 11/01/20 .............................................................. 25,055,000 9,045,356 Series B, GNMA Secured, ETM, 6/01/23 ............................................................... 26,160,000 8,112,739 Rocklin USD, GO, Capital Appreciation, Series A, FGIC Insured, 9/01/08 ............................................................................................ 3,660,000 2,798,546 9/01/09 ............................................................................................ 4,100,000 2,973,935 9/01/10 ............................................................................................ 4,595,000 3,160,303 9/01/11 ............................................................................................ 5,145,000 3,353,562 9/01/12 ............................................................................................ 5,760,000 3,533,126 9/01/16 ............................................................................................ 33,960,000 15,912,977 Roseville City School District GO, Capital Appreciation, Series A, 8/01/11 ............................................................................................ 3,115,000 1,992,167 8/01/17 ............................................................................................ 30,770,000 13,420,643 Roseville Joint UHSD, Capital Appreciation, Series A, 8/01/10 ............................................................................................ 1,820,000 1,246,190 8/01/11 ............................................................................................ 1,965,000 1,273,988 8/01/17 ............................................................................................ 18,155,000 7,913,038 San Diego USD, GO, Capital Appreciation Bond, Series A, FGIC Insured, 7/01/21 ............................................................................................ 12,160,000 4,115,187 7/01/22 ............................................................................................ 8,440,000 2,689,322 7/01/23 ............................................................................................ 11,120,000 3,321,099 San Francisco City and County RDA, Lease Revenue, George R. Moscone Center, Capital Appreciation, 7/01/05 ............................................................................................ 12,820,000 11,382,237 7/01/06 ............................................................................................ 11,320,000 9,588,380 7/01/07 ............................................................................................ 4,570,000 3,665,460 7/01/08 ............................................................................................ 7,785,000 5,903,443 7/01/14 ............................................................................................ 46,000,000 51,333,700 Pre-Refunded, 7/01/16 .............................................................................. 16,300,000 5,614,046 Pre-Refunded, 7/01/17 .............................................................................. 16,300,000 5,165,796 Pre-Refunded, 7/01/18 .............................................................................. 16,300,000 4,753,080
53 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) San Gabriel USD, COP, Facilities Development Program, Series B, FSA Insured, 6.75%, 9/01/29 .......... $ 2,250,000 $ 2,460,893 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, ETM, 1/01/25 ....................................................................................... 5,700,000 1,633,848 ETM, 1/01/28 ....................................................................................... 33,545,000 8,032,686 ETM, 1/01/29 ....................................................................................... 37,050,000 8,349,218 Pre-Refunded, zero cpn. to 1/01/02, 7.50% thereafter, 1/01/09 ...................................... 21,585,000 25,968,050 Pre-Refunded, zero cpn. to 1/01/02, 7.55% thereafter, 1/01/10 ...................................... 10,745,000 12,954,279 Pre-Refunded, zero cpn. to 1/01/02, 7.60% thereafter, 1/01/11 ...................................... 20,935,000 25,293,039 Pre-Refunded, zero cpn. to 1/01/02, 7.65% thereafter, 1/01/12 ...................................... 25,215,000 30,528,305 Pre-Refunded, zero cpn. to 1/01/02, 7.65% thereafter, 1/01/13 ...................................... 27,350,000 33,113,192 Pre-Refunded, zero cpn. to 1/01/02, 7.70% thereafter, 1/01/14 ...................................... 7,470,000 9,063,202 Pre-Refunded, zero cpn. to 1/01/02, 7.70% thereafter, 1/01/15 ...................................... 60,155,000 72,984,858 Refunding, Series A, 1/15/16 ....................................................................... 19,500,000 13,788,840 Refunding, Series A, 1/15/17 ....................................................................... 17,000,000 11,989,250 Refunding, Series A, 1/15/18 ....................................................................... 60,000,000 42,054,000 Refunding, Series A, 1/15/19 ....................................................................... 57,000,000 39,880,050 Refunding, Series A, 1/15/20 ....................................................................... 80,000,000 55,642,400 Refunding, Series A, 1/15/22 ....................................................................... 90,000,000 62,002,800 Refunding, Series A, 1/15/23 ....................................................................... 80,000,000 54,719,200 Refunding, Series A, 1/15/24 ....................................................................... 80,000,000 54,324,000 Santa Maria Water and Wastewater Revenue, COP, Series A, AMBAC Insured, 8/01/27 ...................... 21,000,000 18,100,320 Southern California Public Power Authority Power Project Revenue, Refunding, Series A, AMBAC Insured, 7/01/11 ............................................................................................ 12,000,000 7,881,240 7/01/12 ............................................................................................ 16,890,000 10,441,567 7/01/13 ............................................................................................ 16,000,000 9,304,000 Stockton East Water District COP, 1990 Project, Series B, 7.45%, 4/01/05 ............................................................. 28,575,000 76,759,022 Refunding, Series B, 4/01/16 ....................................................................... 103,885,000 45,854,796 Thousand Oaks SFHMR, Capital Appreciation, Series A, GNMA Secured, 8.00%, 9/01/23 .................... 79,000 193,891 --------------- TOTAL ZERO COUPON/STEP-UP BONDS ...................................................................... 1,761,960,499 --------------- TOTAL LONG TERM INVESTMENTS (COST $13,418,262,719) ................................................... 13,712,495,670 --------------- (b)SHORT TERM INVESTMENTS .4% California PCFA, PCR, Shell Oil Co. Project, Refunding, Series A, Daily VRDN and Put, 1.35%, 10/01/06 ........................................................................................... 1,000,000 1,000,000 10/01/08 ........................................................................................... 300,000 300,000 10/01/09 ........................................................................................... 600,000 600,000 Irvine 1915 Act, AD No. 89-10, Daily VRDN and Put, 1.35%, 9/02/15 ................................................... 600,000 600,000 Special Assessment, AD No. 87-8, Daily VRDN and Put, 1.35%, 9/02/24 ................................ 3,300,000 3,300,000 Special Assessment, AD No. 93-14, Daily VRDN and Put, 1.35%, 9/02/25 ............................... 3,800,000 3,800,000 Special Assessment, AD No. 94-15, Daily VRDN and Put, 1.35%, 9/02/20 ............................... 6,400,000 6,400,000 Special Assessment, AD No. 97-13, Daily VRDN and Put, 1.35%, 9/02/23 ............................... 3,500,000 3,500,000 Special Assessment, AD No. 97-16, Daily VRDN and Put, 1.35%, 9/02/22 ............................... 6,600,000 6,600,000 Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Weekly VRDN and Put, 1.30%, 7/01/35 ..................................................................................... 2,800,000 2,800,000
54 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------------------ (b)SHORT TERM INVESTMENTS (CONT.) Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series B-1, Daily VRDN and Put, 1.35%, 7/01/35 ..................................................... $ 8,200,000 $ 8,200,000 Series B-3, Daily VRDN and Put, 1.35%, 7/01/35 ..................................................... 400,000 400,000 Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Daily VRDN and Put, 2.60%, 10/01/22 1,600,000 1,600,000 Orange County Sanitation Districts COP, Refunding, Series A, Daily VRDN and Put, 1.35%, 8/01/29 ....................................................... 13,550,000 13,550,000 Series B, Daily VRDN and Put, 1.35%, 8/01/30 ....................................................... 2,400,000 2,400,000 --------------- SHORT TERM INVESTMENTS (COST $55,050,000) ............................................................ 55,050,000 --------------- TOTAL INVESTMENTS (COST $13,473,312,719) 99.8% ....................................................... 13,767,545,670 OTHER ASSETS, LESS LIABILITIES .2% ................................................................... 24,089,197 --------------- NET ASSETS 100.0% .................................................................................... $13,791,634,867 ===============
See glossary of terms on page 56. (a)See Note 6 regarding defaulted securities. (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. (c)Sufficient collateral has been segregated for securities traded on a when issued or delayed delivery basis. See notes to financial statements. 55 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.) GLOSSARY OF TERMS -------------------------------------------------------------------------------- 1915 ACT - Improvement Bond Act of 1915 ABAG - The Association of Bay Area Governments AD - Assessment District AMBAC - American Municipal Bond Assurance Corp. BART - Bay Area Rapid Transit CDA - Community Development Authority/Agency CFD - Community Facilities District CHFCLP - California Health Facilities Construction Loan Program COP - Certificate of Participation CRDA - Community Redevelopment Authority/Agency CSAC - County Supervisors Association of California ETM - Escrow to Maturity FGIC - Financial Guaranty Insurance Co. FHA - Federal Housing Authority/Agency FNMA - Federal National Mortgage Association FSA - Financial Security Assistance GNMA - Government National Mortgage Association GO - General Obligation HFA - Housing Finance Authority/Agency HFAR - Housing Finance Authority/Agency Revenue HFR - Home Financial Revenue HMR - Home Mortgage Revenue ID - Improvement District IDR - Industrial Development Revenue MBIA - Municipal Bond Investors Assurance Corp. MBS - Mortgage-Backed Securities MFHR - Multi-Family Housing Revenue MFMR - Multi-Family Mortgage Revenue MFR - Multi-Family Revenue MTA - Metropolitan Transit Authority MUD - Municipal Utility District PBA - Public Building Authority PCFA - Pollution Control Financing Authority PCR - Pollution Control Revenue PFA - Public Financing Authority PFAR - Public Financing Authority Revenue PUD - Public Utility District RDA - Redevelopment Authority/Agency RDAR - Redevelopment Agency Revenue RMR - Residential Mortgage Revenue RRMR - Residential Rental Mortgage Revenue SF - Single Family SFHMR - Single Family Home Mortgage Revenue SFM - Single Family Mortgage SFMR - Single Family Mortgage Revenue SFRMR - Single Family Residential Mortgage Revenue UHSD - Unified High School District USD - Unified School District VRDN - Variable Rate Demand Notes 56 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2002 Assets: Investments in securities: Cost ................................................................................................ $13,473,312,719 =============== Value ............................................................................................... 13,767,545,670 Cash ................................................................................................. 27,473 Receivables: Capital shares sold ................................................................................. 15,415,885 Interest ............................................................................................ 181,062,273 =============== Total assets .................................................................................... 13,964,051,301 =============== Liabilities: Payables: Investment securities purchased ..................................................................... 136,383,991 Capital shares redeemed ............................................................................. 21,441,865 Affiliates .......................................................................................... 7,814,596 Shareholders ........................................................................................ 6,063,891 Other liabilities .................................................................................... 712,091 =============== Total liabilities ............................................................................... 172,416,434 =============== Net assets, at value ........................................................................... $13,791,634,867 =============== Net assets consist of: Undistributed net investment income .................................................................. $ 32,416,026 Net unrealized appreciation .......................................................................... 294,232,951 Accumulated net realized gain ........................................................................ 37,666,828 Capital shares ....................................................................................... 13,427,319,062 =============== Net assets, at value ........................................................................... $13,791,634,867 =============== CLASS A: Net asset value per share ($13,016,196,824 /1,840,523,624 shares outstanding)(a) ..................... $7.07 =============== Maximum offering price per share ($7.07 / 95.75%) .................................................... $7.38 =============== CLASS B: Net asset value and maximum offering price per share ($309,195,636 / 43,759,765 shares outstanding)(a) $7.07 =============== CLASS C: Net asset value per share ($464,107,948 / 65,703,936 shares outstanding)a ............................ $7.06 =============== Maximum offering price per share ($7.06 / 99%) ....................................................... $7.13 =============== ADVISOR CLASS: Net asset value and maximum offering price per share ($2,134,459 / 301,989 shares outstanding) ....... $7.07 ===============
(a)Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 57 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2002 Investment income: Interest ................................................. $ 787,517,839 -------------- Expenses: Management fees (Note 3) ................................. 62,343,867 Distribution fees (Note 3) Class A ................................................. 10,666,048 Class B ................................................. 1,666,864 Class C ................................................. 2,778,166 Transfer agent fees (Note 3) ............................. 4,480,007 Custodian fees ........................................... 138,636 Reports to shareholders .................................. 305,057 Registration and filing fees ............................. 84,844 Professional fees ........................................ 129,077 Directors' fees and expenses ............................. 119,813 Other .................................................... 305,977 -------------- Total expenses ...................................... 83,018,356 Net investment income .............................. 704,499,483 Realized and unrealized gains (losses): Net realized gain from investments ....................... 62,087,625 Net unrealized depreciation on investments ............... (379,336,633) -------------- Net realized and unrealized loss .......................... (317,249,008) Net increase in net assets resulting from operations ...... $ 387,250,475 ============== See notes to financial statements. 58 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001
2002 2001 ---------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ............................................... $ 704,499,483 $ 707,378,504 Net realized gain from investments .................................. 62,087,625 3,659,156 Net unrealized appreciation (depreciation) on investments ........... (379,336,633) 687,450,853 --------------------------------- Net increase in net assets resulting from operations ............ 387,250,475 1,398,488,513 Distributions to shareholders from: Net investment income: Class A ............................................................ (673,191,575) (683,401,460) Class B ............................................................ (11,406,767) (6,669,455) Class C ............................................................ (19,234,450) (17,593,690) Advisor Class ...................................................... (25,328) -- Net realized gains: Class A ............................................................ (16,372,051) -- Class B ............................................................ (343,391) -- Class C ............................................................ (548,755) -- Advisor Class ...................................................... (866) -- --------------------------------- Total distributions to shareholders .................................. (721,123,183) (707,664,605) Capital share transactions: (Note 2) Class A ............................................................ 52,809,934 (244,549,724) Class B ............................................................ 122,806,232 74,685,967 Class C ............................................................ 81,588,572 6,772,833 Advisor Class ...................................................... 2,185,500 --------------------------------- Total capital share transactions ..................................... 259,390,238 (163,090,924) Net increase (decrease) in net assets ........................... (74,482,470) 527,732,984 Net assets: Beginning of year .................................................... 13,866,117,337 13,338,384,353 --------------------------------- End of year .......................................................... $13,791,634,867 $13,866,117,337 ================================= Undistributed net investment income included in net assets: End of year .......................................................... $ 32,416,026 $ 23,568,918 =================================
See notes to financial statements. 59 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin California Tax-Free Income Fund (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company. The Fund seeks to provide tax-free income. The following summarizes the Fund's significant accounting policies. A. SECURITY VALUATION Tax-free bonds generally trade in the over-the-counter market and are valued within the range of the latest quoted bid and asked prices. In the absence of a sale or reported bid and asked prices, information with respect to bond and note transactions, quotations from bond dealers, market transactions in comparable securities, and various relationships between securities are used to determine the value of the security. The Fund may utilize a pricing service, bank or broker/dealer experienced in such matters to perform any of the pricing functions under procedures approved by the Board of Directors. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Directors. B. INCOME TAXES No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its income. C. 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. Bond discount and premium are amortized on a yield to maturity basis. Distributions to shareholders are recorded on the ex-dividend date. Realized and unrealized gains and losses and net investment income, other than class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. D. 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 expense during the reporting period. Actual results could differ from those estimates. E. AUDIT GUIDE In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued, and is effective for fiscal years beginning after December 15, 2000. The revised Guide requires the Fund to amortize all premium and discount on fixed-income securities. Such amortization is included in net investment income but did not impact the net assets or the distributions of the Fund. Prior to April 1, 2001, de minimus market discount on fixed-income securities was included in realized gains and losses. The cumulative effect of this accounting change resulted in an increase of $9,319,364 in the recorded cost of investments and a corresponding decrease in net unrealized appreciation. 60 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) E. AUDIT GUIDE (CONT.) The effect of this change for the year ended March 31, 2002 was to increase net investment income by $2,318,825, decrease unrealized gains by $1,224,340, and decrease realized gains by $1,094,485. The per share effect of this change for the year ended March 31, 2002, was less than $.005. The Statement of Changes in Net Assets and the Financial Highlights for prior periods have not been restated to reflect this change in accounting policy. 2. CAPITAL STOCK The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor Class. Effective October 1, 2001, the Fund began offering a new class of shares, Advisor Class. Each class of shares differs by its initial sales load, distribution fees, voting rights on matters affecting a single class and its exchange privilege. At March 31, 2002, there were five billion shares authorized ($.01 par value) for each class. Transactions in the Fund's shares were as follows:
YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------- CLASS A SHARES: Shares sold .................................. 174,943,242 $ 1,262,246,966 201,976,580 $ 1,416,133,849 Shares issued in reinvestment of distributions 40,982,687 295,540,527 41,786,514 291,523,533 Shares redeemed .............................. (208,819,360) (1,504,977,559) (279,385,393) (1,952,207,106) ------------------------------------------------------------------- Net increase (decrease) ...................... 7,106,569 $ 52,809,934 (35,622,299) $ (244,549,724) =================================================================== CLASS B SHARES: Shares sold .................................. 19,095,111 $ 137,674,683 12,031,321 $ 84,818,804 Shares issued in reinvestment of distributions 1,015,426 7,323,863 576,680 4,033,769 Shares redeemed .............................. (3,076,561) (22,192,314) (2,020,815) (14,166,606) ------------------------------------------------------------------- Net increase ................................. 17,033,976 $ 122,806,232 10,587,186 $ 74,685,967 =================================================================== CLASS C SHARES: Shares sold .................................. 17,896,658 $ 129,190,346 8,273,562 $ 58,194,241 Shares issued in reinvestment of distributions 1,703,765 12,279,668 1,590,915 11,087,353 Shares redeemed .............................. (8,309,791) (59,881,442) (8,971,031) (62,508,761) ------------------------------------------------------------------- Net increase ................................. 11,290,632 $ 81,588,572 893,446 $ 6,772,833 =================================================================== ADVISOR CLASS SHARES:(a) Shares sold .................................. 342,512 $ 2,473,617 Shares issued in reinvestment of distributions 3,067 22,087 Shares redeemed .............................. (43,590) (310,204) -------------------------------- Net increase ................................. 301,989 $ 2,185,500 ================================
(a)For the period October 1, 2001 (effective date) to March 31, 2002. 61 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES Certain officers and directors of the Fund are also officers and/or directors of Franklin Advisers, Inc. (Advisers), Franklin/ Templeton Distributors, Inc. (Distributors), Franklin/Templeton Investor Services, LLC (Investor Services), and Franklin Templeton Services, LLC (FT Services), the Fund's investment manager, principal underwriter, transfer agent, and administrative manager, respectively. The Fund pays an investment management fee to Advisers based on the net assets of the Fund as follows: ANNUALIZED FEE RATE MONTH-END NET ASSETS ---------------------------------------------------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% Over $250 million, up to and including $10 billion .440% Over $10 billion, up to and including $12.5 billion .420% Over $12.5 billion, up to and including $15 billion .400% Over $15 billion, up to and including $17.5 billion Fees are further reduced on net assets over $17.5 billion. 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. The Fund reimburses Distributors up to .10%, .65%, and .65% per year of the average daily net assets of Class A, Class B and Class C, respectively, for costs incurred in marketing the Fund's shares. Distributors paid net commissions on sales of Fund shares, and received contingent deferred sales charges for the year of $6,050,039 and $678,302, respectively. The Fund paid transfer agent fees of $4,480,007, of which $3,136,073 was paid to Investor Services. 4. INCOME TAXES Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities and bond discounts. Net realized gains differ for financial statement and tax purposes primarily due to differing treatments of wash sales, bond workout expenditures, and bond discounts. The tax character of distributions paid during the year ended March 31, 2002, were the same for financial statement and tax purposes. 62 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (CONTINUED) 4. INCOME TAXES (CONT.) At March 31, 2002, the cost of investments, net unrealized appreciation, undistributed tax-exempt income and undistributed long term capital gains for income tax purposes were as follows: Investments at cost ......................... $13,463,090,865 ================ Unrealized appreciation ..................... $ 567,011,893 Unrealized depreciation ..................... (262,557,088) ---------------- Net unrealized appreciation ................. $ 304,454,805 ================ Undistributed tax-exempt income ............. $ 21,908,592 Undistributed long-term capital gains ....... $ 37,988,677 ---------------- Distributable earnings ...................... $ 59,897,269 ================ 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended March 31, 2002 aggregated $2,160,514,954 and $1,813,150,029, respectively. 6. DEFAULTED SECURITIES At March 31, 2002, the Fund held a defaulted security with a value of $8,260,250 representing .06% of the Fund's net assets. For information as to the specific security, see the accompanying Statement of Investments. For financial reporting purposes, the Fund discontinues accruing income on defaulted bonds and provides an estimate for losses on interest receivable. 63 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Independent Auditors' Report TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FRANKLIN CALIFORNIA 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 California Tax-Free Income Fund (hereafter referred to as the "Fund") at March 31, 2002, 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 periods presented, 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 auditing standards generally accepted in the United States of America, which 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 March 31, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California May 7, 2002 64 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Tax Designation Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby designates $55,253,740 as a capital gain dividend for the fiscal year ended March 31, 2002. Under section 852(b)(5)(A) of the Internal Revenue Code, the Fund hereby designates 100% of the distributions paid from net investment income as exempt-interest dividends for the fiscal year ended March 31, 2002. 65 BOARD MEMBERS AND OFFICERS The name, age and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton fund complex are shown below. Each board member will serve until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ HARRIS J. ASHTON (69) Director Since 1977 138 Director, RBC Holdings, Inc. (bank holding holding One Franklin Parkway company) and Bar-S Foods (meat packing company). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ------------------------------------------------------------------------------------------------------------------------------------ S. JOSEPH FORTUNATO (69) Director Since 1981 139 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Member of the law firm of Pitney, Hardin, Kipp & Szuch. ------------------------------------------------------------------------------------------------------------------------------------ EDITH E. HOLIDAY (50) Director Since 1998 84 Director, Amerada Hess Corporation (exploration One Franklin Parkway and refining of oil and gas); Hercules San Mateo, CA 94403-1906 Incorporated (chemicals, fibers and resins); Beverly Enterprises, Inc. (health care); H.J. Heinz Company (processed foods and allied products); RTI International Metals, Inc. (manufacture and distribution of titanium); Digex Incorporated (web hosting provider); and Canadian National Railway (railroad). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; 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). ------------------------------------------------------------------------------------------------------------------------------------ GORDON S. MACKLIN (73) Director Since 1992 138 Director, Martek Biosciences Corporation; One Franklin Parkway WorldCom, Inc. (communications services); San Mateo, CA 94403-1906 MedImmune, Inc. (biotechnology); Overstock.com (Internet services); and Spacehab, Inc. (aerospace services). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Deputy Chairman and Director, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation (financial services) (until 1998) and Hambrecht & Quist Group (investment banking) (until 1992); and President, National Association of Securities Dealers, Inc. (until 1987). ------------------------------------------------------------------------------------------------------------------------------------
66 INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ **CHARLES B. JOHNSON (69) President Since 1977 138 None One Franklin Parkway and Director San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ **RUPERT H. JOHNSON, Vice Since 1983 120 None JR. (61) President One Franklin Parkway and Director San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc.; and officer of 51 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ SHEILA AMOROSO (42) Vice Since 2000 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ HARMON E. BURNS (57) Vice Since 1987 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ RAFAEL R. COSTAS, JR. (37) Vice Since 2000 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ MARTIN L. FLANAGAN (41) Vice Since 1995 Not Applicable None One Franklin Parkway President and San Mateo, CA 94403-1906 Chief Financial Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Member - Office of the President, Chief Financial Officer and Chief Operating Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; Executive Vice President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee, as the case may be, of 52 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------
67
NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. GOSS (54) Vice Since 2000 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive Officer and Director, Property Resources, Inc. and Franklin Properties, Inc.; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; officer of 53 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000). ------------------------------------------------------------------------------------------------------------------------------------ BARBARA J. GREEN (54) Vice Since 2000 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President and Deputy General Counsel, Franklin Resources, Inc.; and Senior Vice President, Templeton Worldwide, Inc.; officer of 53 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979). ------------------------------------------------------------------------------------------------------------------------------------ KIMBERLEY MONASTERIO (38) Treasurer Since 1999 Not Applicable None One Franklin Parkway and Principal San Mateo, CA 94403-1906 Accounting Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; and officer of 34 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ MURRAY L. SIMPSON (64) Vice Since 2000 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 and Secretary PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer of 53 of the investment companies in Franklin Templeton Investments; and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999). ------------------------------------------------------------------------------------------------------------------------------------ THOMAS WALSH (40) Vice Since 2000 Not Applicable None One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the registered investment companies comprising the Franklin Templeton Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers. **Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested persons of the Fund 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 adviser and distributor. Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. -------------------------------------------------------------------------------- The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call 1-800/DIAL-BEN (1-800/342-5236) to request the SAI. -------------------------------------------------------------------------------- 68 LITERATURE REQUEST For a brochure and prospectus, which contain more complete information, including charges and expenses, call Franklin Templeton Investments at 1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before investing or sending money. 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 determined by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS GLOBAL GROWTH Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Franklin Global Health Care Fund Mutual Discovery Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton International (Ex EM) Fund Templeton Latin America Fund Templeton Pacific Growth Fund Templeton World Fund GLOBAL GROWTH & INCOME Franklin Global Communications Fund Mutual European Fund Templeton Global Bond Fund GLOBAL INCOME Franklin Templeton Hard Currency Fund GROWTH Franklin Aggressive Growth Fund Franklin Biotechnology Discovery Fund Franklin Blue Chip Fund Franklin California Growth Fund Franklin Capital Growth Fund(1) Franklin DynaTech Fund Franklin Gold and Precious Metals Fund Franklin Growth Fund Franklin Large Cap Growth Fund Franklin Small-Mid Cap Growth Fund(2) Franklin Small Cap Growth Fund II(3) Franklin Technology Fund GROWTH & INCOME Franklin Balance Sheet Investment Fund(4) Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Franklin Large Cap Value Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Rising Dividends Fund Franklin Small Cap Value Fund(5) Franklin Utilities Fund Mutual Beacon Fund Mutual Financial Services Fund Mutual Qualified Fund Mutual Shares Fund FUND ALLOCATOR SERIES Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund(6) Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust(7) Franklin Short-Intermediate U.S. Government Securities Fund(6) Franklin Strategic Income Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(6) Franklin Federal Money Fund(6,8) Franklin Money Fund(6,8) TAX-FREE INCOME(9) Double Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(10) Tax-Exempt Money Fund(6,8) STATE-SPECIFIC TAX-FREE INCOME(9) Alabama Arizona California(11) Colorado Connecticut Florida11 Georgia Kentucky Louisiana Maryland Massachusetts(10) Michigan(10) Minnesota(10) Missouri New Jersey New York11 North Carolina Ohio(10) Oregon Pennsylvania Tennessee Texas Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(12) 1. Formerly Franklin Growth and Income Fund. Effective 5/1/02, the fund's name changed; investment goal and strategy remained the same. 2. Formerly Franklin Small Cap Growth Fund I. Effective 9/1/01, the fund's name changed and its investment criteria expanded. 3. The fund is closed to most new investors, with the exception of retirement plan accounts and wrap program accounts. Existing shareholders can continue adding to their account. 4. Effective 5/1/02, the fund is closed to all new investors. Existing shareholders, however, will be able to continue adding to their accounts through exchanges and purchases. In addition, retirement plans with an existing account in the fund will be allowed to open new participant accounts. 5. Effective 4/1/02, the fund expanded its investment universe to include companies with market capitalizations up to $2.5 billion. 6. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 7. 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. 8. No assurance exists that the fund's $1.00 per share price will be maintained. 9. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 10. Portfolio of insured municipal securities. 11. These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and intermediate-term and money market portfolios (CA and NY). 12. The funds of the Franklin Templeton Variable Insurance Products Trust are generally only available as investment options in variable annuity or variable life insurance contracts. 05/02 [LOGO OMITTED] FRANKLIN TEMPLETON INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 -------------------- PRESORTED STANDARD US POSTAGE PAID SO. SAN FRANCISCO CA PERMIT NO. 655 -------------------- ANNUAL REPORT FRANKLIN CALIFORNIA TAX-FREE INCOME FUND INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin/Templeton Distributors, Inc. 1-800/DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES 1-800/632-2301 This report must be preceded or accompanied by the current Franklin California Tax-Free Income Fund prospectus, which contains more complete information including charges and expenses. 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. 112 A2002 05/02 [LOGO OMITTED] Printed on recycled paper.