N-30D 1 fctfifn30ds.txt Semi Annual [PHOTO OMITTED] SEPTEMBER 30, 2002 Report FRANKLIN CALIFORNIA TAX-FREE INCOME FUND WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? ----------------------------------------------- ELIGIBLE SHAREHOLDERS CAN SIGN UP FOR EDELIVERY AT FRANKLINTEMPLETON.COM. SEE INSIDE FOR DETAILS. [LOGO OMITTED] FRANKLIN[REGISTRATION MARK] TEMPLETON[REGISTRATION MARK] 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 EDELIVERY DETAILS: Log on at franklintempleton.com and click on Experience eDelivery. Shareholders who are registered at franklintempleton.com can receive these reports via email. Not all accounts are eligible for eDelivery. SHAREHOLDER LETTER CONTENTS -------------------------------------------------------------------------------- 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: We are pleased to bring you Franklin California Tax-Free Income Fund's semiannual report for the period ended September 30, 2002. The U.S. economy began the six months under review slowing to a 1.3% annualized rate for the second quarter of 2002, after growing at a healthy 5.0% annualized rate in the first quarter. Tepid productivity, high unemployment and a dearth of capital investment contributed to the slowdown. The Federal Reserve Board (the Fed) kept short-term interest rates at 1.75% and indicated concern about the weak economy. U.S. securities markets remained volatile during the period, as accounting scandals came to light and huge corporations declared bankruptcy. On the other hand, most fixed income markets, including municipal bonds, generally performed well, aided primarily by declining short-term interest rates and rising investor demand for the perceived safety of bonds versus stocks. 1. For investors subject to the federal alternative minimum tax, a small portion of this income may be taxable. Distributions of capital gains are generally taxable. The dollar value, number of shares or principal amount, and complete legal titles of all portfolio holdings are listed in the Fund's Statement of Investments (SOI). The SOI begins on page 22. CONTENTS Shareholder Letter ......... 1 Performance Summary ........ 8 Special Feature: Understanding Your Tax-Free Income Fund ....... 10 Municipal Bond Ratings ..... 15 Financial Highlights & Statement of Investments ... 18 Financial Statements ....... 52 Notes to Financial Statements ....... 55 [GRAPHIC OMITTED] PYRAMID FUND CATEGORY Global Growth Growth & Income Income Tax-Free Income The news in California over the last two years has generally been unfavorable. Unemployment rates rose, tax revenues fell, expenditures increased, one of the state's two largest utilities remained in bankruptcy proceedings and the state's $23.6 billion budget deficit this year was the largest state budget deficit in more than a decade.(2) In light of these problems, many investors seemed tempted to sell their California municipal bonds or stay away from them. To professional managers like us, however, situations like these can present us with many excellent opportunities for long-term investing. Additionally, many of the factors that have made California a great place to invest in since the Gold Rush endure and, we believe, will eventually lead the state out of its current troubles. California's economy is still larger and more productive than most nations', the state's natural and intellectual resources are still in abundant supply, and its population continues to reflect a remarkable level of cultural diversity. The free exchange of innovative ideas and spirit of entrepreneurship appear alive and well. We expect the state's knowledge-based industries to rebound and replace the high-technology sector jobs lost during the past few years. Thus, we continue to be optimistic about investing in California for the long term. Realistically, however, California's political leaders have to make some tough choices to get the state's financial house in order. The state's political leadership has already taken several positive steps in this direction as it attempted to eliminate California's fiscal year 2002 deficit through a variety of methods, including "ADDITIONALLY, MANY OF THE FACTORS THAT HAVE MADE CALIFORNIA A GREAT PLACE TO INVEST IN SINCE THE GOLD RUSH ENDURE AND, WE BELIEVE, WILL EVENTUALLY LEAD THE STATE OUT OF ITS CURRENT TROUBLES." 2. SOURCES: Bloomberg News, 10/9/02; San Jose Mercury News, 9/17/02. 2 expenditure reductions, increased federal funding, loans from other special funds, a power revenue bond, tobacco settlement-backed bonds and a restructuring of outstanding general obligation debt. The state's outstanding general obligation debt load, at 4.52% of the fiscal year 2002 budget, is expected to remain moderate, despite expected large tobacco and power bond sales later in 2002.(3) Independent credit rating agencies Moody's Investors Service and Standard & Poor's retained their A1 and A+ ratings and negative outlook for California's general obligation bonds.(4) We may see credit rating downgrades in the near future, but we do not seriously expect California to default on its obligations. In California's favor are its moderate debt burden and broadly based, dynamic economy, which appears well-positioned for long-term growth after the current period of weakness has run its course. It is also important to note that the state's bonds continue to be rated investment grade with above-average credit quality. Additionally, there have been very few defaults in the municipal bond business, but even with this possibility, municipal bonds historically have been and are expected to remain the second-safest investment after U.S. Treasuries available to domestic investors. Municipal bonds also tend to perform well over time, and over the past 20 years, they have been second only to U.S. stocks in after-tax return. Those who invested for the long term during the 1990-1991 recession, California's deepest economic slowdown since the Great Depression, were rewarded as the state went on to a decade of very strong growth and wealth creation. 3. Source: Moody's Investors Service, 2002 STATE DEBT MEDIANS, 5/02. 4. These do not indicate ratings of the Fund. 3 Most importantly, 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 equivalent yield, to match the yield on a tax-free investment. We invite you to read the special feature, "Understanding Your Tax-Free Income Fund," which explains why dividends and bond fund prices fluctuate. PORTFOLIO NOTES During the six-month reporting period, the municipal bond market benefited from investors who exited the stock market as the economy began weakening again. The Bond Buyer Municipal Bond Index, an indicator of municipal bond market performance, yielded 5.44% at the beginning of the period and 4.88% on September 30, 2002.(5) Because bond prices rise when yields fall, Franklin California Tax-Free Income Fund's Class A share price, as measured by net asset value, rose from $7.07 on March 31, 2002, to $7.41 on September 30, 2002. During the period under review, we maintained the Fund's high credit quality, and at period-end 64.0% of the Fund's total long-term investments were rated AA or better. In April and May, the Fund purchased what we believed were attractive issues such as California County Tobacco Securitization Agency Revenue for Kern County Corp. and California Statewide CDA Revenue for Sutter Health Obligated Group. California's new bond issuance was large during 2002's first quarter but declined sharply during the second and third quarters. Thus, 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 taxable. Distributions of capital gains are generally taxable. 5. Source: THE BOND BUYER. The unmanaged Bond Buyer Municipal Bond Index 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. 4 the difference in yields between out-of-state bonds and California bonds narrowed due to low supply and increased demand. The state's recently balanced budget includes receipts expected from an $11.8 billion power bond issue and a $4.5 billion tobacco revenue bond sale.(6) The power bond issue is expected to come to market in November, while the tobacco bonds are expected to come to market in January and February 2003. Keep in mind that your Fund combines the advantage of high credit quality with tax-free yields.(1) The Performance Summary beginning on page 8 shows that on September 30, 2002, the Fund's Class A shares' distribution rate was 4.65%, based on an annualization of September's 3.0 cent ($0.03) per share dividend and the maximum offering price of $7.74 per share on September 30, 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 8.35% from a taxable investment to match the Fund's tax-free distribution rate. The Performance Summary also shows the distribution rates and their taxable equivalents for Classes B, C and Advisor shares. Although the Fund was able to invest in long-term AAA-rated bonds with at least 5.00% yield as interest rates declined, this may no longer be possible in the near future, as 25-year AAA California bonds yielded approximately 4.50% at period-end. We will wait to see how much the power bonds yield and how many bonds voters approve in November. However, we will continue to follow our philosophy of searching for the best investments and trying not to predict interest rate movements. We also intend to maintain our conservative, buy-and-hold [GRAPHIC OMITTED] QUALITY BREAKDOWN Based on Total Long-Term Investments 9/30/02 AAA--52.3% AA--11.7% A--15.3% BBB--19.6% Below Investment Grade--1.1% *Quality breakdown may include internal ratings for bonds not rated by an independent rating agency. 6. Source: www.treasurer.ca.gov, UPCOMING BOND SALES CALENDAR, 10/3/02. 5 DIVIDEND DISTRIBUTIONS 4/1/02-9/30/02 DIVIDEND PER SHARE ------------------------------------------------- MONTH CLASS A CLASS B CLASS C ADVISOR CLASS ---------------------------------------------------------------- April 3.05 cents 2.72 cents 2.71 cents 3.10 cents May 3.05 cents 2.72 cents 2.71 cents 3.10 cents June 3.00 cents 2.68 cents 2.68 cents 3.06 cents July 3.00 cents 2.68 cents 2.68 cents 3.04 cents August 3.00 cents 2.68 cents 2.68 cents 3.05 cents September 3.00 cents 2.66 cents 2.66 cents 3.05 cents ---------------------------------------------------------------- TOTAL 18.10 CENTS 16.14 CENTS 16.12 CENTS 18.40 CENTS PORTFOLIO BREAKDOWN 9/30/02 % OF TOTAL LONG-TERM INVESTMENTS ----------------------------- Transportation 17.8% Hospital & Health Care 14.9% Utilities 13.7% General Obligation 11.8% Tax-Supported 11.2% Subject to Government Appropriations 10.5% Prerefunded 10.4% Other Revenue 3.9% Housing 3.8% Higher Education 1.8% Corporate-Backed 0.2% investment strategy as we attempt to provide shareholders with high, current, tax-free income. Although many investors may be wary about purchasing fixed income investments while interest rates are near 40-year lows, we believe there is still a place for fixed income in almost every investor's portfolio. We recommend working with a financial advisor to develop a plan tailored for each individual investor. The past three years' punishing equity markets have shown us the importance of professional investment advice and portfolio diversification. Of course, bond markets could decline sometime in the future, but up and down years happen in every market. Therefore, a level of diversification and a steady program of investing should, in our opinion, provide the best results over the long term. 6 As always, we appreciate your support, welcome your questions and comments and look forward to serving your investment needs in the years ahead. Sincerely, /s/ CHARLES B. JOHNSON ---------------------- Charles B. Johnson Chairman Franklin California Tax-Free Income Fund /s/ SHEILA AMOROSO ------------------ Sheila Amoroso /s/ RAFAEL R. COSTAS JR. ------------------------ 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 September 30, 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. 7 PERFORMANCE SUMMARY AS OF 9/30/02 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. THE PERFORMANCE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- PRICE AND DISTRIBUTION INFORMATION CLASS A CHANGE 9/30/02 3/31/02 --------------------------------------------------------------- Net Asset Value (NAV) +$0.34 $7.41 $7.07 DISTRIBUTIONS (4/1/02-9/30/02) Dividend Income $0.1810 Long-Term Capital Gain $0.0194 ------- Total $0.2004 CLASS B CHANGE 9/30/02 3/31/02 --------------------------------------------------------------- Net Asset Value (NAV) +$0.34 $7.40 $7.06 DISTRIBUTIONS (4/1/02-9/30/02) Dividend Income $0.1614 Long-Term Capital Gain $0.0194 ------- Total $0.1808 CLASS C CHANGE 9/30/02 3/31/02 --------------------------------------------------------------- Net Asset Value (NAV) +$0.34 $7.40 $7.06 DISTRIBUTIONS (4/1/02-9/30/02) Dividend Income $0.1612 Long-Term Capital Gain $0.0194 ------- Total $0.1806 ADVISOR CLASS CHANGE 9/30/02 3/31/02 --------------------------------------------------------------- Net Asset Value (NAV) +$0.33 $7.40 $7.07 DISTRIBUTIONS (4/1/02-9/30/02) Dividend Income $0.1840 Long-Term Capital Gain $0.0194 ------- Total $0.2034 8 Past performance does not guarantee future results. PERFORMANCE SUMMARY (CONT.) PERFORMANCE CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR ------------------------------------------------------------------------------ Cumulative Total Return(1) +7.78% +6.89% +33.27% +86.36% Average Annual Total Return(2) +3.25% +2.41% +5.01% +5.96% Distribution Rate(3) 4.65% Taxable Equivalent Distribution Rate(4) 8.35% 30-Day Standardized Yield(5) 3.77% Taxable Equivalent Yield(4) 6.77% INCEPTION CLASS B 6-MONTH 1-YEAR 3-YEAR (1/1/99) ------------------------------------------------------------------------------ Cumulative Total Return(1) +7.50% +6.31% +22.59% +19.35% Average Annual Total Return(2) +3.50% +2.31% +6.15% +4.12% Distribution Rate(3) 4.31% Taxable Equivalent Distribution Rate(4) 7.75% 30-Day Standardized Yield(5) 3.37% Taxable Equivalent Yield(4) 6.05% INCEPTION CLASS C 6-MONTH 1-YEAR 5-YEAR (5/1/95) ------------------------------------------------------------------------------ Cumulative Total Return(1) +7.49% +6.30% +29.58% +53.33% Average Annual Total Return(2) +5.45% +4.30% +5.12% +5.79% Distribution Rate(3) 4.27% Taxable Equivalent Distribution Rate(4) 7.67% 30-Day Standardized Yield(5) 3.34% Taxable Equivalent Yield(4) 6.00% ADVISOR CLASS(6) 6-MONTH 1-YEAR 5-YEAR 10-YEAR ------------------------------------------------------------------------------ Cumulative Total Return(1) +7.68% +6.83% +33.19% +86.25% Average Annual Total Return(2) +7.68% +6.83% +5.90% +6.42% Distribution Rate(3) 4.95% Taxable Equivalent Distribution Rate(4) 8.88% 30-Day Standardized Yield(5) 4.02% Taxable Equivalent Yield(4) 7.22% 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 any current, applicable, maximum sales charge(s). Six-month return has not been annualized. 3. Distribution rate is based on an annualization of the respective class's current monthly dividend and the maximum offering price (NAV for Classes B and Advisor) per share on 9/30/02. 4. Taxable equivalent distribution rate and yield assume the published rates as of 9/18/02 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 9/30/02. 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 and average annual total returns of Advisor Class shares were +6.82% and +6.84%. -------------------------------------------------------------------------------- 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. 9 SPECIAL FEATURE: UNDERSTANDING YOUR TAX-FREE INCOME FUND -- WHAT CAUSES DIVIDENDS AND FUND PRICES TO FLUCTUATE Q & A DID YOU EVER WONDER WHY THE DIVIDENDS YOU RECEIVE FROM YOUR TAX-FREE INCOME FUND AREN'T ALWAYS THE SAME? OR HAVE YOU NOTICED HOW CHANGES IN INTEREST RATES CAN AFFECT YOUR FUND'S SHARE PRICE? AT FRANKLIN TEMPLETON INVESTMENTS, MAINTAINING A STABLE DIVIDEND AND A RELATIVELY STABLE SHARE PRICE FOR YOUR TAX-FREE FUND IS OUR TOP PRIORITY. UNFORTUNATELY THOUGH, WE CAN'T CONTROL THE ECONOMIC ENVIRONMENT, AND FACTORS SUCH AS CHANGING INTEREST RATES CAN CAUSE YOUR FUND'S SHARE PRICE AND DIVIDEND PAYMENTS TO FLUCTUATE. BELOW YOU'LL FIND ANSWERS TO COMMONLY ASKED QUESTIONS ABOUT THE RELATIONSHIP BETWEEN MUNICIPAL BOND PRICES AND INTEREST RATES. UNDERSTANDING WHAT AFFECTS YOUR TAX-FREE INCOME FUND MAY HELP YOU BECOME A MORE EFFECTIVE INVESTOR. Q. WHAT CAUSES INTEREST RATES TO RISE AND FALL? A. Interest rate trends are primarily determined by economic factors such as inflation, strength of the U.S. dollar and the pace of economic growth. For example, strong economic growth can lead to inflation. If the Federal Reserve Board (the Fed) becomes concerned about inflation, it may attempt to cool the economy by raising short-term interest rates, as it did in 2000. On the other hand, if the economy slows down, the Fed may lower short-term interest rates to stimulate economic growth, as we witnessed in 2001. -------------------------------------------------------------------------------- NOT FDIC INSURED o MAY LOSE VALUE o NO BANK GUARANTEE -------------------------------------------------------------------------------- NOT PART OF THE SHAREHOLDER REPORT 10 It's important to note the Fed only has the power to change short-term interest rates such as the federal funds target rate and the discount rate, which represent the overnight rates charged among banks. Long-term interest rates, as represented by the 10-year or 30-year Treasury bond, are market-driven and tend to move in anticipation of changes in the economy and inflation. Most Franklin tax-free fund portfolios are composed of long-term municipal bonds, whose prices are affected primarily by changes in long-term interest rates. Q. HOW DO CHANGES IN INTEREST RATES AFFECT MY TAX-FREE INCOME FUND? INTEREST RATES AND BOND PRICES: AN INVERSE RELATIONSHIP A. Interest rates and bond prices behave like two sides of a seesaw. When interest rates drop, bond prices usually rise. When rates climb, bond prices usually fall. This is because when rates go up, newly issued bonds, with their new, higher yields become more attractive than comparable existing bonds. So, investors who want to sell their existing bonds have to reduce their prices to make them equally attractive. [GRAPHIC OMITTED] INTEREST RATES MUNICIPAL BOND PRICES NOT PART OF THE SHAREHOLDER REPORT 11 As prices of the municipal bonds in your fund's portfolio adjust to a rise in interest rates, you may see a decline in your fund's share price as measured by net asset value (NAV). Conversely, when interest rates decline, your fund's NAV will tend to increase, as we saw in 2001. INTEREST RATES AND TAX-FREE DIVIDENDS When interest rates decline, municipal bond issuers often "call" or redeem existing higher-yielding bonds and replace them with new, lower yielding bonds, to reduce the amount of interest they pay on the debt. As funds now have to reinvest proceeds from the called bonds into new lower-yielding bonds, their investment earnings decline and the dividends paid out to shareholders also decline over time. When interest rates rise, the situation is reversed. As funds are able to invest cash proceeds in new, higher-yielding bonds, they're able to pay out higher dividends to shareholders. Q. WHY HAVE MY TAX-FREE DIVIDENDS BEEN DECLINING RECENTLY? A. While long-term interest rates have fluctuated over the past 15 years, overall, they've experienced a net decline. Consequently, industry-wide, many tax-free portfolios have had older, higher-yielding municipal bonds "called" away and have had to reinvest their "call" proceeds and new cash inflows in new, lower-yielding bonds. Many of Franklin's tax-free funds have been similarly affected, and because funds can only pay out what they earn, many of our funds have had to reduce dividend payments. For example, in the late 1980s and early 1990s, we were able to invest in bonds yielding approximately 8%. As these NOT PART OF THE SHAREHOLDER REPORT 12 bonds matured or were called, we've had to reinvest the proceeds at lower rates, recently that rate being 4.88%.(1) Because we're investing in bonds with lower yields, we've had to reduce dividends accordingly. 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. Although 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. Q. SHOULD I BE CONCERNED WHEN MY FUND'S SHARE PRICE FLUCTUATES? A. Though interest rates have been volatile over the past 20 years, municipal bond prices have remained relatively stable, as shown in the chart below. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS AS FOLLOWS: DATE INTEREST RATES MUNICIPAL BOND PRICES Oct 1982 10.91% $ 86.14 Nov 1982 10.55% $ 88.55 Dec 1982 10.54% $ 92.05 Jan 1983 10.46% $ 90.42 Feb 1983 10.72% $ 93.23 Mar 1983 10.51% $ 91.15 Apr 1983 10.40% $ 93.42 May 1983 10.38% $ 89.02 Jun 1983 10.85% $ 90.56 Jul 1983 11.38% $ 90.25 Aug 1983 11.85% $ 90.73 Sep 1983 11.65% $ 91.47 Oct 1983 11.54% $ 88.97 Nov 1983 11.69% $ 88.86 Dec 1983 11.83% $ 90.31 Jan 1984 11.67% $ 91.80 Feb 1984 11.84% $ 90.71 Mar 1984 12.32% $ 92.76 Apr 1984 12.63% $ 92.19 May 1984 13.41% $ 88.68 Jun 1984 13.56% $ 87.14 Jul 1984 13.36% $ 89.90 Aug 1984 12.72% $ 86.53 Sep 1984 12.52% $ 91.62 Oct 1984 12.16% $ 93.61 Nov 1984 11.57% $ 92.98 Dec 1984 11.50% $ 93.48 Jan 1985 11.38% $ 96.60 Feb 1985 11.51% $ 92.70 Mar 1985 11.86% $ 94.04 Apr 1985 11.43% $ 95.93 May 1985 10.85% $ 96.82 Jun 1985 10.16% $ 96.21 Jul 1985 10.31% $ 95.75 Aug 1985 10.33% $ 95.42 Sep 1985 10.37% $ 94.26 Oct 1985 10.24% $ 96.13 Nov 1985 9.78% $ 99.29 Dec 1985 9.26% $ 98.66 Jan 1986 9.19% $102.32 Feb 1986 8.70% $103.28 Mar 1986 7.78% $101.67 Apr 1986 7.30% $101.91 May 1986 7.71% $ 99.80 Jun 1986 7.80% $101.71 Jul 1986 7.30% $100.24 Aug 1986 7.17% $103.37 Sep 1986 7.45% $102.20 Oct 1986 7.43% $102.97 Nov 1986 7.25% $103.63 Dec 1986 7.11% $103.02 Jan 1987 7.08% $105.34 Feb 1987 7.25% $104.87 Mar 1987 7.25% $102.99 Apr 1987 8.02% $100.49 May 1987 8.61% $ 99.66 Jun 1987 8.40% $101.15 Jul 1987 8.45% $101.08 Aug 1987 8.76% $100.65 Sep 1987 9.42% $ 97.95 Oct 1987 9.52% $ 99.99 Nov 1987 8.86% $ 99.38 Dec 1987 8.99% $ 99.62 Jan 1988 8.67% $104.13 Feb 1988 8.21% $104.48 Mar 1988 8.37% $102.56 Apr 1988 8.72% $102.17 May 1988 9.09% $101.25 Jun 1988 8.92% $102.00 Jul 1988 9.06% $101.79 Aug 1988 9.26% $101.04 Sep 1988 8.98% $102.18 Oct 1988 8.80% $103.16 Nov 1988 8.96% $101.53 Dec 1988 9.11% $101.88 Jan 1989 9.09% $102.78 Feb 1989 9.17% $100.95 Mar 1989 9.36% $ 99.96 Apr 1989 9.18% $101.72 May 1989 8.86% $103.09 Jun 1989 8.28% $103.97 Jul 1989 8.02% $104.40 Aug 1989 8.11% $102.64 Sep 1989 8.19% $101.82 Oct 1989 8.01% $102.08 Nov 1989 7.87% $103.12 Dec 1989 7.84% $103.29 Jan 1990 8.21% $103.06 Feb 1990 8.47% $103.39 Mar 1990 8.59% $102.95 Apr 1990 8.79% $102.02 May 1990 8.76% $103.34 Jun 1990 8.48% $103.61 Jul 1990 8.47% $103.28 Aug 1990 8.75% $101.26 Sep 1990 8.89% $100.79 Oct 1990 8.72% $101.85 Nov 1990 8.39% $103.26 Dec 1990 8.08% $103.19 Jan 1991 8.09% $103.89 Feb 1991 7.85% $104.02 Mar 1991 8.11% $103.37 Apr 1991 8.04% $103.75 May 1991 8.07% $103.88 Jun 1991 8.28% $103.16 Jul 1991 8.27% $103.66 Aug 1991 7.90% $103.51 Sep 1991 7.65% $104.29 Oct 1991 7.53% $104.61 Nov 1991 7.42% $104.31 Dec 1991 7.09% $105.89 Jan 1992 7.03% $105.46 Feb 1992 7.34% $104.84 Mar 1992 7.54% $104.15 Apr 1992 7.48% $104.49 May 1992 7.39% $105.05 Jun 1992 7.26% $106.32 Jul 1992 6.84% $109.47 Aug 1992 6.59% $107.80 Sep 1992 6.42% $107.82 Oct 1992 6.59% $105.94 Nov 1992 6.87% $107.20 Dec 1992 6.77% $107.69 Jan 1993 6.39% $106.54 Feb 1993 6.03% $109.63 Mar 1993 6.03% $107.91 Apr 1993 6.05% $108.38 May 1993 6.16% $108.15 Jun 1993 5.80% $109.07 Jul 1993 5.83% $105.93 Aug 1993 5.45% $107.34 Sep 1993 5.40% $107.70 Oct 1993 5.43% $107.18 Nov 1993 5.83% $105.41 Dec 1993 5.83% $106.86 Jan 1994 5.70% $107.37 Feb 1994 6.15% $103.87 Mar 1994 6.78% $ 98.94 Apr 1994 6.95% $ 99.25 May 1994 7.12% $ 99.59 Jun 1994 7.34% $ 98.41 Jul 1994 7.12% $ 99.69 Aug 1994 7.19% $ 99.52 Sep 1994 7.62% $ 97.55 Oct 1994 7.81% $ 95.24 Nov 1994 7.91% $ 92.97 Dec 1994 7.84% $ 94.53 Jan 1995 7.60% $ 96.71 Feb 1995 7.22% $ 99.07 Mar 1995 7.20% $ 99.68 Apr 1995 7.07% $ 99.24 May 1995 6.30% $101.87 Jun 1995 6.21% $100.34 Jul 1995 6.45% $100.74 Aug 1995 6.28% $101.47 Sep 1995 6.17% $101.55 Oct 1995 6.03% $102.48 Nov 1995 5.76% $103.63 Dec 1995 5.58% $103.43 Jan 1996 5.60% $103.70 Feb 1996 6.13% $102.47 Mar 1996 6.34% $100.60 Apr 1996 6.66% $ 99.82 May 1996 6.85% $ 99.32 Jun 1996 6.73% $ 99.93 Jul 1996 6.80% $100.37 Aug 1996 6.96% $ 99.85 Sep 1996 6.72% $100.75 Oct 1996 6.37% $100.03 Nov 1996 6.06% $101.35 Dec 1996 6.43% $100.45 Jan 1997 6.53% $100.15 Feb 1997 6.58% $100.50 Mar 1997 6.92% $ 98.61 Apr 1997 6.72% $ 99.01 May 1997 6.67% $100.06 Jun 1997 6.51% $100.65 Jul 1997 6.02% $102.98 Aug 1997 6.34% $101.40 Sep 1997 6.12% $101.60 Oct 1997 5.84% $101.75 Nov 1997 5.86% $101.84 Dec 1997 5.75% $102.73 Jan 1998 5.53% $103.22 Feb 1998 5.62% $102.73 Mar 1998 5.67% $102.30 Apr 1998 5.68% $101.38 May 1998 5.56% $102.40 Jun 1998 5.44% $102.17 Jul 1998 5.50% $101.95 Aug 1998 5.05% $103.09 Sep 1998 4.44% $103.93 Oct 1998 4.64% $103.30 Nov 1998 4.74% $103.20 Dec 1998 4.65% $102.97 Jan 1999 4.66% $103.74 Feb 1999 5.29% $102.67 Mar 1999 5.25% $102.32 Apr 1999 5.36% $102.12 May 1999 5.64% $101.03 Jun 1999 5.81% $ 99.09 Jul 1999 5.92% $ 98.71 Aug 1999 5.98% $ 97.47 Sep 1999 5.90% $ 97.08 Oct 1999 6.06% $ 95.62 Nov 1999 6.18% $ 96.09 Dec 1999 6.28% $ 94.56 Jan 2000 6.68% $ 93.74 Feb 2000 6.42% $ 94.43 Mar 2000 6.03% $ 96.08 Apr 2000 6.23% $ 94.88 May 2000 6.29% $ 93.87 Jun 2000 6.03% $ 95.93 Jul 2000 6.04% $ 96.82 Aug 2000 5.73% $ 97.89 Sep 2000 5.80% $ 96.91 Oct 2000 5.77% $ 97.55 Nov 2000 5.48% $ 97.81 Dec 2000 5.12% $ 99.82 Jan 2001 5.19% $100.36 Feb 2001 4.92% $100.26 Mar 2001 4.95% $100.75 Apr 2001 5.35% $ 99.18 May 2001 5.43% $ 99.79 Jun 2001 5.42% $ 99.82 Jul 2001 5.07% $100.90 Aug 2001 4.79% $102.15 Sep 2001 4.60% $101.40 Oct 2001 4.30% $102.17 Nov 2001 4.78% $100.85 Dec 2001 5.07% $ 99.44 Jan 2002 5.07% $100.70 Feb 2002 4.88% $101.55 Mar 2002 5.42% $ 99.08 Apr 2002 5.11% $100.59 May 2002 5.08% $100.78 Jun 2002 4.86% $100.99 Jul 2002 4.51% $101.93 Aug 2002 4.14% $102.85 Sep 2002 3.63% $104.74 *Source: Standard & Poor's Micropal. Municipal bonds are represented by Lehman Brothers Municipal Bond Index and interest rates are represented by 10-year Treasury bond yields which reflect long-term interest rate movements. For illustrative purposes only, not representative of any Franklin tax-free income fund. 1. Based on the yield of the Bond Buyer 40 Index as of September 30, 2002. NOT PART OF THE SHAREHOLDER REPORT 13 We generally invest in current coupon securities to maximize tax-free income for our shareholders.(2) Over time, as we invest in different interest rate climates, the portfolios become well-diversified with a broad range of securities. As a result of this strategy, we own many older securities with higher coupons which are generally less sensitive to interest rates, and which help to provide stability to our fund portfolios. Q. HOW CAN FRANKLIN'S INVESTMENT APPROACH BENEFIT MY PORTFOLIO WHEN INTEREST RATES ARE VOLATILE? A. For over a quarter of a century, we've consistently adhered to a strategy of investing for high, current, tax-free income while working to preserve shareholders' capital.(3) Our straightforward approach to investing means we avoid speculative derivatives or futures, which can be extremely sensitive to interest-rate movements. Our investment strategy may not immunize fund portfolios from interest rate risk, but it may help to reduce the risk. Overall, we're confident that our professionally managed portfolios will provide long-term investors with relative stability and valuable tax-free income. 2. Coupon refers to the fixed amount of interest income paid out by a municipal security to a bondholder. 3. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. [LOGO OMITTED] FRANKLIN[REGISTRATION MARK] TEMPLETON[REGISTRATION MARK] INVESTMENTS SR TFINS 10/02 NOT PART OF THE SHAREHOLDER REPORT 14 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. 15 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 the 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 pay principal and interest for bonds in this category than for 16 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. 17 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights
CLASS A ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, 2002 --------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ................... $7.07 $7.24 $6.88 $7.40 $7.35 $7.09 ----------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ............. .18 .37 .37 .38 .39 .42 Net realized and unrealized gains (losses) ........................... .36 (.16) .36 (.53) .07 .27 ----------------------------------------------------------------------------- Total from investment operations ...... .54 .21 .73 (.15) .46 .69 ----------------------------------------------------------------------------- Less distributions from: Net investment income ................ (.18) (.37) (.37) (.36) (.39) (.42) Net realized gains ................... (.02) (.01) -- (.01) (.02) (.01) ----------------------------------------------------------------------------- Total distributions ................... (.20) (.38) (.37) (.37) (.41) (.43) ----------------------------------------------------------------------------- Net asset value, end of period ........ $7.41 $7.07 $7.24 $6.88 $7.40 $7.35 ============================================================================= Total return(b) ....................... 7.78% 2.87% 10.98% (1.97)% 6.43% 10.10% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ..... $13,804,819 $13,016,197 $13,279,037 $12,859,577 $15,473,713 $14,767,307 Ratio to average net assets: Expenses ............................. .57%(c) .57% .57% .57% .57% .56% Net investment income ................ 4.94%(c) 5.08% 5.31% 5.40% 5.21% 5.71% Portfolio turnover rate ............... 3.38% 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. cAnnualized. C Annualized 18 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
CLASS B ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, 2002 ----------------------------------- (UNAUDITED) 2002 2001 2000 1999(c) --------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period . $7.07 $7.24 $6.87 $7.39 $7.41 --------------------------------------------------------- Income from investment operations: Net investment income(a) ............ .16 .33 .33 .34 .10 Net realized and unrealized gains (losses) ........................... .35 (.16) .37 (.52) (.03) --------------------------------------------------------- Total from investment operations ..... .51 .17 .70 (.18) .07 --------------------------------------------------------- Less distributions from: Net investment income ............... (.16) (.33) (.33) (.33) (.09) Net realized gains .................. (.02) (.01) -- (.01) -- --------------------------------------------------------- Total distributions .................. (.18) (.34) (.33) (.34) (.09) --------------------------------------------------------- Net asset value, end of period ....... $7.40 $7.07 $7.24 $6.87 $7.39 ========================================================= Total return(b) ...................... 7.50% 2.15% 10.51% (2.51)% .88% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .... $382,137 $309,196 $193,428 $110,933 $43,674 Ratio to average net assets: Expenses ............................ 1.14%(d) 1.14% 1.14% 1.14% 1.14%(d) Net investment income ............... 4.37%(d) 4.51% 4.73% 4.87% 4.59%(d) Portfolio turnover rate .............. 3.38% 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. 19 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
CLASS C ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, 2002 --------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .. $7.06 $7.23 $6.87 $7.39 $7.35 $7.09 ----------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ............. .16 .33 .33 .34 .35 .38 Net realized and unrealized gains (losses) ............................ .36 (.16) .36 (.53) .06 .27 ----------------------------------------------------------------------------- Total from investment operations ...... .52 .17 .69 (.19) .41 .65 Less distributions from: Net investment income ................ (.16) (.33) (.33) (.32) (.35) (.38) Net realized gain .................... (.02) (.01) -- (.01) (.02) (.01) ----------------------------------------------------------------------------- Total distributions ................... (.18) (.34) (.33) (.33) (.37) (.39) Net asset value, end of period ........ $7.40 $7.06 $7.23 $6.87 $7.39 $7.35 ============================================================================= Total return(b) ....................... 7.49% 2.29% 10.38% (2.54)% 5.70% 9.49% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ..... $527,628 $464,108 $393,652 $367,874 $464,535 $295,976 Ratio to average net assets: Expenses ............................. 1.14%(c) 1.14% 1.14% 1.14% 1.14% 1.14% Net investment income ................ 4.37%(c) 4.51% 4.74% 4.82% 4.61% 5.13% Portfolio turnover rate ............... 3.38% 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. c Annualized. 20 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
ADVISOR CLASS ----------------------------------- SIX MONTHS ENDED SEPTEMBER 30, 2002 PERIOD ENDED (UNAUDITED) MARCH 31, 2002C ----------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .................. $7.07 $7.29 ----------------------------------- Income from investment operations: Net investment incomea ............................... .18 .19 Net realized and unrealized gains (losses) ........... .35 (.24) ----------------------------------- Total from investment operations ...................... .53 (.05) Less distributions from: Net investment income ................................ (.18) (.16) Net realized gain .................................... (.02) (0.01) ----------------------------------- Total distributions ................................... (.20) (.17) ----------------------------------- Net asset value, end of period ........................ $7.40 $7.07 =================================== Total return(b) ....................................... 7.68% (.80)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ..................... $14,074 $2,134 Ratio to average net assets: Expenses ............................................. .49%(d) .49%(d) Net investment income ................................ 5.02%(d) 5.24%(d) Portfolio turnover rate ............................... 3.38% 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. 21 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS 97.2% BONDS 86.4% ABAG Finance Authority for Nonprofit Corps. COP, 6.75%, 8/01/20 ............................................................ $ 3,955,000 $ 4,474,212 6.125%, 3/01/21 ........................................................... 4,245,000 4,800,586 Butte Valley-Tulelake Rural Health, 6.65%, 10/01/22 ....................... 5,085,000 5,205,413 Episcopal Home Foundation, Refunding, 5.125%, 7/01/13 ..................... 6,000,000 6,283,680 Episcopal Home Foundation, Refunding, 5.125%, 7/01/18 ..................... 16,975,000 17,195,505 Home for Jewish Parents, California Mortgage Insured, 5.625%, 5/15/22 ..... 5,000,000 5,378,500 Lytton Gardens Inc., California Mortgage Insured, 6.00%, 2/15/30 .......... 5,000,000 5,420,500 Milestones Human Services Inc., California Mortgage Insured, 5.65%, 7/01/22 ........................................................... 2,000,000 2,156,280 Miramonte Mental Health Services, California Mortgage Insured, 6.60%, 7/01/22 ........................................................... 1,250,000 1,280,450 Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ............. 5,525,000 6,121,755 Rehabilitation Mental Health Services Inc. Project, California Mortgage Insured, 6.50%, 6/01/12 .................................................. 2,000,000 2,048,440 Rehabilitation Mental Health Services Inc. Project, California Mortgage Insured, 6.55%, 6/01/22 .............................. 2,370,000 2,427,520 Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/23 .... 5,000,000 5,160,300 ABAG Finance Authority for Nonprofit Corps. MFHR, Palo Alto Gardens Apartments, Series A, Prerefunded, 5.45%, 4/01/39 .......................... 5,500,000 5,585,965 ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Association, Series A, 6.125%, 8/15/20 ...................................... 23,525,000 25,138,580 ABAG Finance Corp. COP, ABAG XXV, 6.80%, 8/01/12 ............................. 3,040,000 3,085,266 ABAG Revenue, Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.125%, 9/01/21 .......................................................... 4,760,000 4,934,502 Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.20%, 9/01/27 ........................................................... 4,140,000 4,269,665 Tax Allocation, RDA Pool, Series A4, FSA Insured, 5.875%, 12/15/25 ........ 5,000,000 5,430,900 Tax Allocation, RDA Pool, Series A6, FSA Insured, 5.375%, 12/15/25 ........ 3,670,000 3,964,297 ABAG Water and Wastewater Revenue, Pooled Financing Program, Series A, FSA Insured, 5.30%, 10/01/21 ................................................ 5,450,000 5,910,253 Agua Mansa Industrial Growth Association Special Tax, CFD No. 8, 8.25%, 9/01/17 .............................................................. 15,180,000 15,561,777 Alameda Corridor Transportation Authority Revenue, senior lien, Series A, MBIA Insured, 5.00%, 10/01/29 ..................................... 24,490,000 25,486,988 Alameda County COP, Alameda County Medical Center Project, MBIA Insured, 5.00%, 6/01/23 ............................................................ 19,195,000 19,993,896 5.30%, 6/01/26 ............................................................ 7,000,000 7,135,380 5.00%, 6/01/28 ............................................................ 8,925,000 9,246,389 Alhambra RDA, Tax Allocation, Industrial Redevelopment Project, Refunding, 6.375%, 5/01/23 ............................................................. 2,560,000 2,620,826 Alvord USD, GO, Series A, FGIC Insured, 5.375%, 8/01/27 ...................... 6,100,000 6,559,757 Anaheim PFA, Lease Revenue, Public Improvements Project, Series A, FSA Insured, 5.00%, 9/01/27 ................................................. 8,900,000 9,217,018 3/01/37 ................................................................... 146,010,000 150,753,865 Antioch Area Public Facilities Financing Agency Special Tax, CFD No. 1989-1, MBIA Insured, 5.50%, 8/01/22 ................................................ 4,870,000 5,335,621 Antioch PFA, Reassessment Revenue, sub. lien, Refunding, 5.60%, 9/02/09 ................................................. 1,225,000 1,344,572 Refunding, Series B, 5.50%, 9/02/08 ....................................... 1,165,000 1,248,449 Series B, 5.30%, 9/02/06 .................................................. 2,095,000 2,206,496 Arcadia Hospital Revenue, Methodist Hospital of Southern California, 6.50%, 11/15/12 ........................................................... 2,295,000 2,347,372 6.625%, 11/15/22 .......................................................... 3,750,000 3,831,938 Auburn USD, COP, Land Acquisition Program, Series A, FSA Insured, 7.00%, 9/01/28 ..................................................................... 2,770,000 3,123,923 Azusa PFAR, Water Systems Acquisition Project, Refunding, Series A, FGIC Insured, 5.50%, 7/01/20 ................................................ 5,200,000 5,392,504
22 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Bakersfield PFAR, Series A, 6.10%, 9/15/10 .................................. $ 10,635,000 $ 10,786,549 Baldwin Park PFAR, Tax Allocation, Series A, 7.75%, 8/01/19 .................................................. 5,265,000 5,378,619 Series A, Pre-Refunded, 7.10%, 9/01/24 .................................... 2,000,000 2,255,200 Series B, 7.75%, 8/01/21 .................................................. 5,795,000 5,916,173 Bakersfield Hospital Revenue, Adventist Health Systems West, Refunding, MBIA Insured, 5.50%, 3/01/19 ................................................ 6,085,000 6,267,915 Belmont - Redwood Shores School District, Series A, 5.50%, 9/01/22 ........... 6,500,000 7,113,990 Belmont RDA, Tax Allocation, Los Costanos Community Development, Series A, Pre-Refunded, 6.70%, 8/01/14 ............................................................ 1,235,000 1,379,162 6.80%, 8/01/23 ............................................................ 2,310,000 2,583,804 Brea RDA, Tax Allocation, Redevelopment Project, Refunding, MBIA Insured, 6.125%, 8/01/13 ............................................................. 12,845,000 13,569,843 Brentwood 1915 Act, Infrastructure Financing, Reassessment, Series A, FSA Insured, 5.80%, 9/02/17 ................................................. 5,240,000 5,934,090 Buena Park CRDA, Tax Allocation, Central Business District Project, Refunding, Series A, 7.10%, 9/01/14 ......................................... 7,000,000 7,165,830 Burbank Parking Authority, Special Tax, CFD No. 1, 8.375%, 10/01/06 .......... 960,000 967,603 Burbank RDA, Tax Allocation, City Center Redevelopment Project, Refunding, Series A, FSA Insured, 5.50%, 12/01/23 .......................................................... 5,000,000 5,219,150 Refunding, Series A, 6.00%, 12/01/23 ...................................... 6,500,000 6,860,035 Burton Elementary School District COP, Loan Acquisition, Capital Appreciation, Series A, FSA Insured, 6.60%, 9/01/27 ..................................... 785,000 804,162 Series B, FSA Insured, 6.60%, 9/01/27 ..................................... 290,000 297,079 Calexico CRDA Revenue, Tax Allocation, Merged Central Business and Residential, Refunding, FSA Insured, 5.80%, 8/01/24 ......................... 5,840,000 6,109,107 California Counties Lease Financing Authority COP, CSAC Financing Corp., Amador County Project, ETM, 7.70%, 10/01/09 ................................. 2,355,000 2,809,609 California County Tobacco Securitization Agency Revenue, Asset Backed Corp., Golden Gate, Series A, 6.00%, 6/01/43 ................. 10,000,000 10,130,700 Asset Backed, Gold Country Funding Corp., 6.00%, 6/01/38 .................. 10,000,000 10,130,700 Asset Backed, Kern County Corp., Series A, 6.125%, 6/01/43 ................ 28,135,000 28,759,597 Asset Backed, Kern County Corp., Series B, 6.25%, 6/01/37 ................. 19,460,000 20,142,462 Asset Backed, Sonoma County Corp., Series A, 5.875%, 6/01/43 .............. 37,405,000 37,954,854 California County Tobacco, Securitization Agency Tobacco Revenue, Asset Backed, Merced Funding Corp., Series A, 5.875%, 6/01/43 ........................... 10,235,000 10,388,525 Stanislaus Fund, Series A, 5.875%, 6/01/43 ................................ 8,690,000 8,817,743 California Educational Facilities Authority Revenue, Chapman University, Refunding, Connie Lee Insured, 5.125%, 10/01/26 ....... 10,000,000 10,453,400 Pooled College and University, Series B, 6.75%, 6/01/30 ................... 8,000,000 8,990,400 Stanford University, Refunding, Series O, 5.125%, 1/01/31 ................. 21,250,000 22,413,863 Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 .............. 4,965,000 5,343,432 California GO, Refunding, 5.25%, 2/01/29 ................................................................... 10,000,000 10,573,400 2/01/30 ................................................................... 50,000,000 52,867,000 California Health Facilities Financing Authority Revenue, AIDS Health Care Foundation, Refunding, Series C, California Mortgage Insured, 6.25%, 9/01/17 .............................. 1,750,000 1,792,123 California Autism Foundation Inc., Series A, CHFCLP Insured, 6.25%, 11/01/20 ................................................................. 3,560,000 3,923,690 Casa Colina, 6.125%, 4/01/32 .............................................. 8,300,000 8,629,925 Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.75%, 7/01/15 ........................................................... 12,500,000 14,273,875
23 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, (cont.) Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 .................................................................. $ 7,300,000 $ 8,346,236 Catholic Healthcare West, Series A, 5.00%, 7/01/18 ........................ 40,000,000 39,144,000 Catholic Healthcare West, Series A, 5.00%, 7/01/28 ........................ 140,630,000 133,592,875 Catholic Healthcare West, Series A, MBIA Insured, 5.00%, 7/01/17 .......... 5,000,000 5,341,600 Catholic Healthcare West, Series A, MBIA Insured, 5.125%, 7/01/24 ......... 11,500,000 12,022,215 Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/17 ...... 8,355,000 8,997,249 Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/27 ...... 15,600,000 16,334,760 Cedars-Sinai Medical Center, Series B, MBIA Insured, 5.25%, 8/01/27 ....... 52,500,000 55,675,725 Clinicas del Camino, Series A, CHFCLP Insured, 6.55%, 5/01/25 ............. 4,500,000 4,952,925 County Program, Series B, 7.20%, 1/01/12 .................................. 2,175,000 2,185,832 El Proyecto, Series A, CHFCLP Insured, 5.50%, 12/01/22 .................... 3,350,000 3,577,465 Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/18 ............... 5,000,000 5,336,000 Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/28 ............... 25,390,000 26,351,012 Episcopal Home, 5.30%, 2/01/32 ............................................ 28,150,000 29,433,359 Familiesfirst, Series A, California Mortgage Insured, 6.00%, 12/01/25 ..... 11,365,000 12,660,269 Feedback Foundation Inc., Series A, CHFCLP Insured, 6.50%, 12/01/22 ....... 4,240,000 4,353,802 Help Group, CHFCLP Insured, 5.40%, 8/01/22 ................................ 7,420,000 7,853,031 Hospital of the Good Samaritan, Refunding, 6.90%, 9/01/07 ................. 13,920,000 14,072,702 Hospital of the Good Samaritan, Refunding, 7.00%, 9/01/21 ................. 71,050,000 71,403,119 Insured Health Facility-Valleycare, Series A, California Mortgage Insured, 5.25%, 5/01/22 .............................. 5,000,000 5,249,300 Kaiser Permanente, Series A, 5.40%, 5/01/28 ............................... 46,000,000 47,284,780 Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/20 .................. 32,295,000 34,187,810 Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/24 .................. 136,775,000 142,144,787 Kaiser Permanente, Series B, 5.25%, 10/01/16 .............................. 7,515,000 7,881,957 Kaiser Permanente, Series B, 5.00%, 10/01/18 .............................. 38,260,000 39,222,622 Kaiser Permanente, Series B, 5.00%, 10/01/20 .............................. 38,020,000 38,696,756 Kaiser Permanente, Series B, 5.40%, 5/01/28 ............................... 80,000,000 82,234,400 Marshall Hospital, California Mortgage Insured, Series A, 5.30%, 11/01/28 . 5,500,000 5,738,370 Mills-Peninsula Health, Refunding, Series A, Connie Lee Insured, 5.75%, 1/15/15 ........................................................... 11,500,000 12,603,655 Mills-Peninsula Health, Series B, Connie Lee Insured, 5.75%, 1/15/15 ...... 5,665,000 6,208,670 Northern California Presbyterian, 5.40%, 7/01/28 .......................... 6,340,000 6,471,111 On Lok Senior Health Services, Series A, CHFCLP Insured, 6.40%, 12/01/12 .. 2,000,000 2,055,720 On Lok Senior Health Services, Series A, CHFCLP Insured, 6.50%, 12/01/22 .. 7,525,000 7,726,971 Pomona Valley Hospital, Refunding, Series A, MBIA Insured, 5.625%, 7/01/19 8,500,000 9,466,620 San Diego Hospital Association, Refunding, Series A, MBIA Insured, 6.20%, 8/01/20 ........................................................... 8,250,000 8,448,495 Scripps Memorial Hospital, Series A, MBIA Insured, 6.375%, 10/01/22 ....... 9,725,000 10,134,325 Small Facilities Loan, Health Facilities, Refunding, Series B, California Mortgage Insured, 7.50%, 4/01/22 .............................. 5,000,000 5,616,800 Small Facilities Loan, Health Facilities, Series A, CHFCLP Insured, 6.75%, 3/01/20 ........................................................... 5,235,000 5,366,503 Southern California, Series A, CHFCLP Insured, 5.50%, 12/01/22 ............ 3,070,000 3,278,453 St. Francis Medical Center, Refunding, Series H, AMBAC Insured, 6.35%, 10/01/23 ................................................................. 7,000,000 7,918,120 St. Paul's Episcopal Home, CHFCLP Insured, 6.50%, 9/01/14 ................. 2,595,000 2,831,820 Sutter Health Project, Series A, MBIA Insured, 5.35%, 8/15/28 ............. 5,500,000 5,850,790 Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 ......... 5,750,000 6,526,365 Sutter Health, Series A, FSA Insured, 5.25%, 8/15/27 ...................... 5,300,000 5,622,240 Sutter Health, Series A, MBIA Insured, 5.375%, 8/15/30 .................... 10,100,000 10,741,249
24 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, (cont.) Sutter Health, Series A, FSA Insured, 5.00%, 8/15/37 ......................$ 61,000,000 $ 63,215,520 Sutter Health, Series A, MBIA Insured, 5.00%, 8/15/38 ..................... 25,860,000 26,719,069 UCSF-Stanford Health Care, Refunding, Series A, FSA Insured, 5.00%, 11/15/31 ................................................................. 2,150,000 2,236,065 UCSF-Stanford Health Care, Refunding, Series B, 5.00%, 11/15/31 ........... 26,920,000 27,997,608 UCSF-Stanford Health Care, Refunding, Series B, AMBAC Insured, 5.00%, 11/15/28 ................................................................. 25,000,000 25,946,250 Valleycare Hospital Corp., Refunding, 5.50%, 5/01/20 ...................... 11,640,000 12,527,084 Walden House, State Guaranteed, 6.85%, 3/01/22 ............................ 3,225,000 3,306,496 California Health Facilities Financing Authority Revenue Insured Health Facility, Help Group, Series A, CAMTG Insured, 6.10%, 8/01/25 ................................................ 12,905,000 14,455,278 California HFA, SFM Purchase, Class I, Series A-1, 6.05%, 8/01/26 ....................................... 13,935,000 14,535,041 Refunding, Series A-2, FHA Insured, 6.45%, 8/01/25 ........................ 5,045,000 5,275,960 California HFAR, Home Mortgage, Series A, 6.55%, 8/01/26 ................................... 6,975,000 7,271,019 Home Mortgage, Series D, MBIA Insured, 6.15%, 8/01/28 ..................... 5,250,000 5,526,938 Home Mortgage, Series E, 6.375%, 8/01/27 .................................. 11,100,000 11,673,537 Home Mortgage, Series E, AMBAC Insured, 6.10%, 8/01/29 .................... 10,825,000 11,346,332 Home Mortgage, Series E, MBIA Insured, 6.15%, 8/01/25 ..................... 6,595,000 6,855,700 Home Mortgage, Series H, 6.25%, 8/01/27 ................................... 6,665,000 6,887,278 Home Mortgage, Series I, MBIA Insured, 5.75%, 2/01/29 ..................... 6,540,000 6,839,467 Home Mortgage, Series J, MBIA Insured, 5.55%, 8/01/28 ..................... 10,000,000 10,312,700 Home Mortgage, Series M, MBIA Insured, 5.60%, 8/01/29 ..................... 20,100,000 20,731,341 Home Mortgage, Series N, FSA Insured, 5.15%, 8/01/18 ...................... 6,000,000 6,154,800 Home Mortgage, Series R, MBIA Insured, 6.15%, 8/01/27 ..................... 3,135,000 3,308,679 Housing Revenue, Series E, MBIA Insured, 6.625%, 8/01/14 .................. 4,365,000 4,625,241 Housing Revenue, Series E, MBIA Insured, 6.75%, 8/01/26 ................... 11,855,000 12,446,209 Housing Revenue, Series F, MBIA Insured, 6.90%, 8/01/26 ................... 11,345,000 11,924,616 MFHR II, Series A, AMBAC Insured, 6.25%, 2/01/37 .......................... 5,000,000 5,284,900 MFHR III, Series B, MBIA Insured, 5.50%, 8/01/39 .......................... 13,345,000 13,728,268 Multi-Unit Rental Housing, Series A, 6.875%, 2/01/22 ...................... 1,625,000 1,656,135 Series B-1, Class 1, 5.65%, 8/01/28 ....................................... 13,190,000 13,633,580 SFM, Series C-2, Class 1, FHA Insured, 5.65%, 2/01/25 ..................... 7,035,000 7,320,973 California Infrastructure and Economic Development Bank Revenue, Kaiser Hospital Assistance I LLC, Series B, 5.50%, 8/01/31 ................ 10,000,000 10,328,900 Kaiser Hospital Assistance II LLC, Series A, 5.55%, 8/01/31 ............... 34,000,000 35,258,340 California Mobilehome Park Financing Authority Revenue, Series A, FSA Insured, 4.95%, 10/01/02 ........................................................... 35,000 35,000 5.05%, 10/01/03 ........................................................... 20,000 20,534 5.15%, 10/01/04 ........................................................... 25,000 26,197 5.25%, 10/01/05 ........................................................... 25,000 26,822 6.25%, 10/01/25 ........................................................... 1,000,000 1,044,320 California PCFA, PCR, Pacific Gas and Electric Co., Series A, 6.625%, 6/01/09 .............. 1,750,000 1,771,000 PCR, San Diego Gas and Electric Co., Series A, 5.85%, 6/01/21 ............. 32,535,000 33,164,878 PCR, Southern California Edison Co., Refunding, 6.90%, 12/01/17 ........... 2,510,000 2,520,467
25 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California PCFA, (cont.) PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 ............$ 29,000,000 $ 29,095,120 PCR, Southern California Edison Co., Series B, MBIA Insured, 6.40%, 12/01/24 .......................................................... 12,120,000 12,459,118 Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project, 6.875%, 11/01/27 ......................................................... 17,205,000 17,277,777 California Pollution Control Financing Authority Revenue, Refunding, Pacific Gas and Electric, Series A, MBIA Insured, 5.35%, 12/01/16 .......... 31,500,000 35,059,500 California Public School District Financing Authority Lease Revenue, Los Banos School, Series A, FSA Insured, 6.20%, 10/01/23 .................................... 445,000 472,127 Series B, FSA Insured, Pre-Refunded, 6.20%, 10/01/23 ...................... 4,445,000 4,714,100 California Resources Efficiency Financing Authority COP, Capital Improvement Program, Refunding, AMBAC Insured, 5.625%, 4/01/22 ........................................................... 10,365,000 11,428,138 5.75%, 4/01/27 ............................................................ 7,885,000 8,814,878 California Special Districts Lease Financing Program COP, Series E, 7.70%, 12/01/09 ........................................................... 205,000 206,866 7.75%, 12/01/19 ........................................................... 305,000 307,437 California State Department of Veteran Affairs Home Purchase Revenue, Refunding, Series A, 5.40%, 12/01/28 ...................................... 9,580,000 9,995,006 Refunding, Series B, 5.50%, 12/01/18 ...................................... 2,500,000 2,623,350 Series A, chase Revenue, Series A, 5.20%, 12/01/27 ........................ 31,000,000 31,451,050 Series B, 5.20%, 12/01/28 ................................................. 63,875,000 64,708,569 California State Department of Water Resources Central Valley Project Revenue, Water System, Refunding, Series Q, MBIA Insured, 5.375%, 12/01/27 ....................... 58,000,000 62,064,060 Refunding, Series S, 5.00%, 12/01/29 ...................................... 24,595,000 25,395,813 Refunding, Series U, 5.00%, 12/01/29 ...................................... 7,500,000 7,754,775 Series Y, FGIC Insured, 5.00%, 12/01/25 ................................... 20,000,000 20,667,000 California State Department of Water Resources Central Valley Project Water System Revenue, Series L, 5.75%, 12/01/19 ................................................. 18,000,000 18,786,780 Series L, 5.50%, 12/01/23 ................................................. 50,000,000 51,774,000 Series L, 5.875%, 12/01/25 ................................................ 40,070,000 41,857,122 Series O, 5.00%, 12/01/22 ................................................. 5,500,000 5,666,100 California State GO, 5.25%, 10/01/20 ........................................................... 10,000,000 10,501,900 5.25%, 9/01/23 ............................................................ 22,000,000 23,206,920 5.25%, 10/01/23 ........................................................... 9,250,000 9,762,358 6.00%, 5/01/24 ............................................................ 2,565,000 2,754,400 5.125%, 6/01/24 ........................................................... 8,250,000 8,621,993 5.00%, 11/01/24 ........................................................... 11,350,000 11,777,214 5.00%, 11/01/25 ........................................................... 20,000,000 20,737,800 5.25%, 9/01/26 ............................................................ 25,000,000 26,303,500 5.00%, 2/01/27 ............................................................ 46,000,000 47,662,440 5.00%, 10/01/27 ........................................................... 12,100,000 12,445,213 5.125%, 10/01/27 .......................................................... 39,835,000 41,299,733 5.00%, 2/01/29 ............................................................ 15,000,000 15,519,000 5.00%, 11/01/30 ........................................................... 17,500,000 18,092,900 5.125%, 3/01/31 ........................................................... 35,000,000 36,416,800 5.00%, 2/01/32 ............................................................ 40,000,000 41,384,000
26 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California State GO, (cont.) AMBAC Insured, 5.90%, 3/01/25 ............................................. $ 210,000 $ 228,579 AMBAC Insured, 5.125%, 10/01/27 ........................................... 31,420,000 32,912,136 FGIC Insured, 6.00%, 8/01/19 .............................................. 905,000 990,016 FGIC Insured, 5.625%, 10/01/26 ............................................ 41,500,000 45,430,880 FSA Insured, 5.50%, 3/01/20 ............................................... 5,500,000 5,809,705 FSA Insured, 5.50%, 9/01/29 ............................................... 30,000,000 32,561,100 MBIA Insured, 5.00%, 10/01/23 ............................................. 5,000,000 5,218,100 MBIA Insured, 5.00%, 8/01/24 .............................................. 7,500,000 7,825,125 MBIA Insured, 6.00%, 8/01/24 .............................................. 990,000 1,078,655 MBIA Insured, 5.00%, 3/01/28 .............................................. 25,985,000 27,088,843 Refunding, 5.625%, 9/01/24 ................................................ 10,650,000 11,465,897 Refunding, 5.125%, 6/01/27 ................................................ 16,150,000 16,842,835 Refunding, 5.125%, 6/01/31 ................................................ 75,000,000 78,108,750 Refunding, AMBAC Insured, 5.00%, 4/01/23 .................................. 6,250,000 6,578,125 Series Br., 5.25%, 12/01/26 ............................................... 5,000,000 5,029,200 Series Br., 5.30%, 12/01/29 ............................................... 13,000,000 13,079,040 Various Purposes, FSA Insured, 5.50%, 4/01/19 ............................. 5,000,000 5,183,400 Veterans Bonds, Series BD, BE, and BF, AMBAC Insured, 6.20%, 2/01/16 ...... 11,500,000 11,671,810 Veterans Bonds, Series BD, BE, and BF, AMBAC Insured, 6.375%, 2/01/27 ..... 45,000,000 45,225,000 Veterans Bonds, Series BH, 5.50%, 12/01/18 ................................ 44,250,000 45,289,875 Veterans Bonds, Series BH, 5.60%, 12/01/32 ................................ 50,060,000 50,895,001 Veterans Bonds, Series BH, FSA Insured, 5.50%, 12/01/24 ................... 16,440,000 16,681,175 Veterans Bonds, Series BM, 5.45%, 12/01/25 ................................ 36,635,000 37,036,153 Veterans Bonds, Series BN, 5.375%, 12/01/21 ............................... 24,870,000 25,194,305 Veterans Bonds, Series BN, 5.45%, 12/01/28 ................................ 21,575,000 21,818,366 California State HFAR, Home Mortgage, Series L, MBIA Insured, 6.40%, 8/01/27 . 9,920,000 10,448,042 California State Local Government Finance Authority Revenue, Marin Valley, Series A, FSA Insured, 5.85%, 10/01/27 ...................................... 6,735,000 7,594,251 California State Public Works Board Lease Revenue, California Science Center, Series A, 5.25%, 10/01/22 ...................... 8,645,000 9,163,354 California State University, Various Projects, Series A, 6.30%, 10/01/04 .. 5,250,000 5,376,683 Department of Corrections, California State Prison at Coalinga, Series B, MBIA Insured, 5.375%, 12/01/19 ........................................... 15,250,000 15,990,235 Department of Corrections, Corcoran II Facility, Series A, AMBAC Insured, 5.25%, 1/01/21 ........................................................... 17,405,000 18,523,097 Department of Justice Building, Series A, FSA Insured, 5.625%, 5/01/20 .... 5,000,000 5,401,850 Trustees California State University, Refunding, Series A, 5.00%, 10/01/19 ................................................................. 7,500,000 7,902,075 University of California, Various Projects, Refunding, Series A, 5.50%, 6/01/21 ........................................................... 14,000,000 14,536,340 University of California, Various Projects, Refunding, Series A, 5.00%, 6/01/23 ........................................................... 23,175,000 23,260,284 University of California, Various Projects, Series B, 5.50%, 6/01/19 ...... 13,000,000 13,506,740 University of California, Various Projects, Series B, Pre-Refunded, 6.625%, 12/01/14 ......................................................... 7,415,000 8,389,183 Various California Community Colleges, Refunding, Series A, 5.90%, 4/01/17 ........................................................... 8,320,000 9,386,458 California State University at Channel Islands Financing Authority Revenue, East Campus Community, Series A, MBIA Insured, 5.00%, 9/01/31 ............... 11,000,000 11,326,370 California Statewide CDA Revenue, COP, Catholic Healthcare West, Obligated, MBIA Insured, 5.50%, 7/01/23 .... 11,240,000 11,684,317 COP, CHFCLP Insured Health Facilities, Unihealth, Series A, AMBAC Insured, Pre-Refunded, ETM, 5.75%, 10/01/25 ........................ 36,000,000 42,099,120
27 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Statewide CDA Revenue, (cont.) COP, CHFCLP Insured Hospital, Triad Health Care, Refunding, ETM, 6.25%, 8/01/06 ........................................................... $ 2,000,000 2,200,640 COP, CHFCLP Insured, ETM, 5.90%, 8/01/21 .................................. 4,000,000 4,517,200 COP, Familiesfirst Inc., CHFCLP Insured, Pre-Refunded, 7.25%, 12/01/22 .... 5,120,000 5,854,618 COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/15 ............ 5,365,000 5,933,797 COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/20 ............ 3,775,000 4,144,157 COP, Salk Institute, Connie Lee Insured, 6.20%, 7/01/24 ................... 7,065,000 7,652,384 COP, Sisters Charity Leavenworth, 5.00%, 12/01/23 ......................... 11,375,000 11,480,105 COP, Southern California Development Corp., 6.10%, 12/01/15 ............... 2,255,000 2,522,015 COP, St. Joseph Health System Group, Pre-Refunded, 6.625%, 7/01/21 ........ 12,500,000 13,900,125 COP, Sutter Health Obligated Group, MBIA Insured, 5.50%, 8/15/22 .......... 25,520,000 27,289,046 COP, Sutter Health Obligated Group, Refunding, MBIA Insured, 5.50%, 8/15/23 ........................................................... 14,000,000 14,524,020 Kaiser Permanente, Series A, 5.50%, 11/01/32 .............................. 21,000,000 21,839,370 Los Angeles Orthopedic Hospital Foundation, AMBAC Insured, 5.75%, 6/01/30 ........................................................... 10,000,000 10,981,100 Mission Community, California Mortgage Insured, 5.375%, 11/01/21 .......... 7,670,000 8,165,329 Mission Community, California Mortgage Insured, 5.375%, 11/01/26 .......... 9,755,000 10,303,133 Series B, 5.625%, 8/15/42 ................................................. 51,000,000 52,812,030 Stovehaven Apartments Project, Series A, 5.875%, 7/01/32 .................. 4,945,000 5,216,678 California Statewide CDA, COP, California Lutheran Homes, ETM, 5.75%, 11/15/15 ...................... 5,000,000 5,656,700 COP, Catholic Healthcare West, 6.50%, 7/01/20 ............................. 7,990,000 8,687,447 COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ..................... 37,685,000 38,785,779 COP, FSA Insured, 5.50%, 8/15/31 .......................................... 9,000,000 9,792,540 COP, Internext Group, 5.375%, 4/01/17 ..................................... 8,000,000 8,166,720 COP, Internext Group, 5.375%, 4/01/30 ..................................... 59,480,000 58,184,526 COP, Kaiser Permanente, 5.30%, 12/01/15 ................................... 32,200,000 33,941,376 COP, MBIA Insured, 5.00%, 4/01/18 ......................................... 7,000,000 7,434,140 COP, MBIA Insured, 5.125%, 4/01/23 ........................................ 6,000,000 6,266,460 COP, St. Joseph Health System, Refunding, 5.125%, 7/01/17 ................. 5,000,000 5,141,600 COP, St. Joseph Health System, Refunding, 5.25%, 7/01/21 .................. 16,250,000 16,741,400 Lease Revenue, Special Facilities, United Airlines, Los Angeles, 5.625%, 10/01/34 ......................................................... 75,805,000 17,055,367 Lease Revenue, Special Facilities, United Airlines, Series A, 5.70%, 10/01/33 .......................................................... 62,325,000 16,198,891 MFHR, Borregas Court Project, Series J, GNMA Secured, 6.30%, 3/20/39 ...... 7,453,000 8,210,821 MFHR, Series E, FNMA Insured, 6.40%, 6/01/28 .............................. 8,000,000 8,476,880 Water and Wastewater Revenue, Pooled Financing Program, Series B, FSA Insured, 5.65%, 10/01/26 ............................................. 5,000,000 5,555,350 Water Revenue, Refunding, Series A, 6.10%, 7/01/21 ........................ 4,615,000 4,899,330 California Valley HFAR, Home Mortgage, MBIA Insured, 5.65%, 2/01/27 .......... 20,000,000 20,713,400 Camarillo COP, Capital Improvement Corp., ETM, 7.625%, 4/01/08 ............... 2,975,000 3,445,913 Campbell Housing Facility Revenue, San Tomas Gardens Project, Series A, 6.625%, 10/20/34 .................................................. 5,615,000 5,849,651 Campbell RDA, Tax Allocation, Central Campbell Redevelopment Project, Series A, 6.00%, 10/01/33 ................................................... 5,000,000 5,246,300 Camrosa Water District COP, Water System Improvement Projects, MBIA Insured, 6.00%, 1/15/20 5,120,000 5,756,467 Capistrano Bay Park and Recreation District COP, Special Lease Finance, Series Q, 6.35%, 8/01/12 .................................................... 2,800,000 2,841,804 Carson RDA, Tax Allocation, Redevelopment Project Area No. 1, Refunding, 6.375%, 10/01/12 .................................................................. 775,000 807,938 10/01/16 .................................................................. 295,000 306,980
28 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (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 $ 12,632,146 6.00%, 8/01/18 ............................................................ 5,345,000 5,808,412 Cathedral City PFAR, Tax Allocation, Redevelopment Projects, Refunding, Series A, MBIA Insured, 5.70%, 8/01/24 ...................................... 11,210,000 12,074,291 Central California Joint Powers Health Financing Authority COP, Community Hospitals of Central California, 6.00%, 2/01/20 ................................................................... 5,000,000 5,306,450 2/01/30 ................................................................... 22,500,000 23,500,125 Central Joint Powers Health Financing Authority COP, Community Hospitals of Central California, 5.625%, 2/01/21 ................ 6,750,000 6,949,328 Community Hospitals of Central California, 5.75%, 2/01/31 ................. 14,820,000 15,227,698 Chaffey Community College District COP, Pre-Refunded, 7.40%, 11/01/14 ........ 5,000,000 5,709,300 Chaffey UHSD, GO, Series B, FGIC Insured, 5.00%, 8/01/25 ..................... 5,000,000 5,235,850 Chico RDAR, COP, Insured Health Facilities, Sierra Sunrise Lodge, 6.80%, 2/01/11 ............................................................ 4,110,000 4,159,032 6.75%, 2/01/21 ............................................................ 2,800,000 2,833,124 Chino RDA, Tax Allocation, Central City Redevelopment Project, 7.00%, 9/01/22 .............................................................. 9,980,000 10,506,744 Chino USD, COP, Land Acquisition, Series A, FSA Insured, 6.60%, 9/01/14 ............................................................ 405,000 445,788 6.70%, 9/01/29 ............................................................ 2,880,000 3,175,459 Claremont RDA, Tax Allocation, Consolidated Redevelopment Project, Refunding., 5.50%, 8/01/23 .................................................. 4,950,000 5,231,012 Clayton 1915 Act, Limited Obligation, Contra Costa County, Oakhurst Country Club, 8.25%, 9/02/03 ............................................................ 50,000 51,608 8.30%, 9/02/04 ............................................................ 70,000 73,011 8.30%, 9/02/05 ............................................................ 80,000 83,448 8.35%, 9/02/06 ............................................................ 80,000 83,505 8.35%, 9/02/07 ............................................................ 95,000 98,867 8.375%, 9/02/08 ........................................................... 100,000 104,068 8.375%, 9/02/09 ........................................................... 115,000 119,644 8.40%, 9/02/10 ............................................................ 15,000 15,602 8.40%, 9/02/11 ............................................................ 120,000 124,746 8.40%, 9/02/12 ............................................................ 130,000 135,114 8.40%, 9/02/13 ............................................................ 150,000 155,901 Coachella Valley USD, COP, 8.25%, 9/01/12 .................................... 5,790,000 5,908,000 Colusa County COP, ABAG Finance Corp., Series B, 7.00%, 2/01/18 .............. 1,555,000 1,576,817 Commerce Joint Powers Financing Authority Lease Revenue, Community Center, Series A, 6.25%, 10/01/22 ................................. 4,000,000 4,397,520 Commerce Refuse to Energy Authority Revenue, Refunding, Series 1994, 8.75%, 7/01/10 ................................................. 26,345,000 29,007,689 Compton COP, Civic Center and Capital Improvement, Refunding, Series A, 5.50%, 9/01/15 .................................................... 5,000,000 5,432,250 Compton CRDA, Tax Allocation, Series 1, FSA Insured, 6.75%, 8/01/13 .......... 5,825,000 6,605,142 Compton Sewer Revenue, Pre-Refunded, 6.75%, 7/01/23 .......................... 4,535,000 4,809,005 Concord RDA, Tax Allocation, Central Concord Redevelopment Project, Refunding, Sub Series A, 6.00%, 7/01/19 ..................................... 8,395,000 8,710,988 Contra Costa Community College District GO, Election 2002, FGIC Insured, 5.00%, 8/01/26 ................................................ 11,700,000 12,292,722 Contra Costa County COP, Merrithew Memorial Hospital Project, Refunding, MBIA Insured, 5.50%, 11/01/22 .................................... 11,000,000 12,091,200 Contra Costa County MFHR, Byron Park Project, Refunding, Series C, GNMA Secured, 6.40%, 1/20/31 ...................................... 5,930,000 6,281,530 Contra Costa Transportation Authority Revenue, Sales Tax, Series A, ETM, 6.875%, 3/01/07 ...................................................... 13,900,000 15,935,794 FGIC Insured, ETM, 6.50%, 3/01/09 ......................................... 1,000,000 1,186,280
29 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Corcoran Hospital District Revenue, Series A, 6.55%, 7/01/12 ................. $ 1,040,000 $ 1,058,034 Corona 1915 Act, AD No. 79-2, Northeast Area, Series B, 7.85%, 9/02/03 ................................................................... 655,000 682,733 9/02/04 ................................................................... 510,000 532,205 Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 .......... 15,000,000 21,422,250 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 3,307,020 Corona-Norco USD, Lease Revenue, Land Acquisition, Series A, FSA Insured, 6.00%, 4/15/29 ................................................. 18,435,000 21,176,285 CSAC Finance Corp. COP, Sutter County, Health Facilities Program, 7.80%, 1/01/21 ..................................................... 2,100,000 2,117,346 Culver City USD, GO, MBIA Insured, 5.75%, 8/01/36 ............................ 5,000,000 5,599,250 Cupertino COP, Refunding, Series A, 5.75%, 1/01/16 .................................................. 5,000,000 5,144,500 Series B, 6.25%, 7/01/10 .................................................. 3,535,000 3,644,055 Desert Hot Springs RDA, Tax Allocation, Redevelopment Project No. 2, Series A, 6.625%, 9/01/20 ............................................ 1,230,000 1,254,895 Desert Sands USD, COP, Capital Projects, FSA Insured, zero cpn. to 3/01/01, 6.45% thereafter, 3/01/20 ............................. 6,820,000 7,656,405 Duarte COP, Refunding, Series A, 5.25%, 4/01/24 ....................................... 5,000,000 5,000,000 Series A, 5.25%, 4/01/19 .................................................. 5,000,000 5,016,950 Series A, 5.25%, 4/01/31 .................................................. 12,500,000 12,318,250 East Bay MUD, Wastewater System Revenue, sub., MBIA Insured, 5.00%, 6/01/38 ............. 23,115,000 23,928,648 Water System Revenue, sub., MBIA Insured, 5.00%, 6/01/38 .................. 37,620,000 38,944,224 East Side UHSD, Santa Clara County, Series D, FGIC Insured, 5.80%, 9/01/21 ... 7,100,000 7,602,112 Eastern Municipal Water District Water and Sewer Revenue COP, Series B, FGIC Insured, 5.00%, 7/01/30 ...................................... 31,370,000 32,744,947 El Cajon RDA, Tax Allocation, Redevelopment Project, Refunding, AMBAC Insured, 5.35%, 10/01/22 .............................................. 10,285,000 10,840,904 El Camino Hospital District Revenue, Refunding, Series A, ETM, 7.25%, 8/15/09 ......................................................... 8,945,000 10,680,419 El Centro Financing Authority Hospital Revenue, El Centro Regional Medical Center Project, 5.25%, 3/01/26 ............................. 8,500,000 8,875,360 El Dorado County Special Tax, CFD No. 1992-1, 6.25%, 9/01/29 ................. 19,825,000 20,828,740 Emeryville PFA Revenue, Shellmound Park Redevelopment and Housing Project, Series B, MBIA Insured, 5.00%, 9/01/28 ..................... 20,000,000 20,611,400 Emeryville PFAR, Housing Increment Loan, 6.20%, 9/01/25 ...................... 3,115,000 3,391,176 Empire USD, Special Tax, CFD No. 1987-1, Refunding, Series A, MBIA Insured, 6.50%, 10/01/17 ............................................... 2,700,000 2,754,000 Escondido COP, Wastewater Project, Refunding, AMBAC Insured, 5.70%, 9/01/26 ............................................................ 13,465,000 14,768,547 5.80%, 9/01/26 ............................................................ 400,000 446,416 Fairfield PFAR, Fairfield Redevelopment Projects, Series A, 7.80%, 8/01/19 ... 2,145,000 2,164,541 Fillmore COP, Water System Improvement Project, AMBAC Insured, 7.70%, 5/01/19 ..................................................................... 2,590,000 2,900,930 Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A, MBIA Insured, 5.00%, 3/01/33 .......................... 8,715,000 9,121,206 Folsom PFAR, Local Agency, 8.00%, 10/01/18 ................................... 7,480,000 7,536,175 Fontana RDA, Tax Allocation, Jurupa Hills Redevelopment Project, Refunding, Series A, 5.50%, 10/01/27 ...................................... 12,500,000 13,029,750 Series A, Pre-Refunded, 7.10%, 10/01/23 ................................... 10,000,000 10,200,000 Fontana USD, GO, Convertible Capital Appreciation, Series D, FGIC Insured, 5.80%, 5/01/17 ................................................ 5,000,000 5,805,450
30 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Foothill/Eastern Corridor Agency Toll Road Revenue, Refunding, MBIA Insured, 5.75%, 1/15/40 ...................................$395,510,000 $ 411,002,127 senior lien, Series A, 5.00%, 1/01/35 ..................................... 15,955,000 15,123,585 senior lien, Series A, Pre-Refunded, 6.50%, 1/01/32 ....................... 108,175,000 127,885,567 senior lien, Series A, Pre-Refunded, 6.00%, 1/01/34 ....................... 123,695,000 143,728,642 Fort Bragg RDAR, Tax Allocation, Fort Bragg Redevelopment Project, Series A, 6.875%, 5/01/18 ................................................... 1,840,000 1,915,569 Fortuna and Susanville Cities COP, Series B, 7.375%, 9/01/17 ................. 1,600,000 1,637,664 Fresno Health Facilities Revenue, Holy Cross Health Systems Corp., MBIA Insured, 5.625%, 12/01/15 ....................................... 5,000,000 5,309,350 Fresno RDAR, Tax Allocation, Mariposa Redevelopment Project, Series A, 6.625%, 2/01/23 ................................................... 1,505,000 1,512,811 Glendale USD, COP, Series A, AMBAC Insured, 6.00%, 3/01/19 ................... 7,250,000 7,777,510 Hawaiian Gardens RDA, Tax Allocation, Project No. 1, Refunding, 6.35%, 12/01/33 ........................................................... 13,000,000 13,613,470 ETM, 8.00%, 12/01/10 ...................................................... 5,730,000 6,907,630 Health Facilities Financing Authority Revenue, Kaiser Permanente, Series C, 5.60%, 5/01/33 .................................................... 10,000,000 10,143,000 Helix Water District COP, Installment Purchase, Series A, FSA Insured, 5.25%, 4/01/24 ................................................. 8,925,000 9,498,610 Hemet Valley Hospital District Revenue COP, Hemacinto Community Corp. Project, Series A, 7.75%, 5/01/19 ..................................... 2,335,000 2,336,424 Hesperia PFAR, Highway and Street Improvement, Series A, 6.10%, 10/01/10 ..... 1,600,000 1,759,728 Hollister RDA, Tax Allocation, Community Development Project, Series B, FSA Insured, 6.625%, 10/01/07 ..................................... 1,905,000 1,981,276 6.75%, 10/01/13 ........................................................... 1,495,000 1,555,772 Huntington Park PFA, Local Agency Revenue, Refunding, Series A, MBIA Insured, 6.45%, 9/01/22 ...................................... 10,000,000 10,980,700 Industry COP, Refunding, 6.625%, 6/01/06 ..................................... 11,380,000 13,193,858 Industry Urban Development Agency Tax Allocation, Transportation District No. 3 Project, Refunding, 6.90%, 11/01/07 .......................... 5,860,000 5,922,878 Inglewood PFAR, La Cinega Redevelopment Project, Series A, AMBAC Insured, 6.00%, 5/01/16 ................................................. 2,395,000 2,451,043 Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ....................................................... 5,000,000 5,999,950 Pre-Refunded, 6.00%, 8/01/16 .............................................. 5,000,000 5,866,650 Intercommunity Hospital Financing Authority COP, Northbay Healthcare System, Refunding, 5.25%, 11/01/19 .......................................... 10,550,000 11,153,671 Irwindale CRDA, Tax Allocation, Individual Development Project, Pre-Refunded, 6.60%, 8/01/18 .............. 1,630,000 1,888,632 Individual Development Project, Pre-Refunded, 6.625%, 8/01/26 ............. 9,100,000 10,637,536 senior lien, Refunding, FSA Insured, 5.75%, 8/01/26 ....................... 10,220,000 11,393,358 John C. Fremont Hospital District Health Facilities Revenue, 6.75%, 6/01/23 .............................................................. 1,760,000 1,915,883 Kern County Board of Education COP, Refunding, Series A, MBIA Insured, 5.20%, 5/01/28 ................................................ 8,685,000 9,139,747 Kern County Housing Authority SFMR, Series A, GNMA Secured, 7.55%, 12/01/07 ........................................................... 115,000 118,134 7.65%, 12/01/12 ........................................................... 160,000 164,291 7.70%, 12/01/23 ........................................................... 750,000 764,873 7.50%, 10/01/24 ........................................................... 535,000 544,272 La Mirada RDA, Tax Allocation, Housing, Refunding, Series A, FSA Insured, 5.875%, 8/15/25 ............................................... 7,100,000 7,766,193 La Mirada SFMR, MBS, Series A, 7.65%, 4/01/24 ................................ 960,000 987,091 La Palma Community Development Commission Tax Allocation, La Palma Community Development Project No. 1, 6.10%, 6/01/22 ............... 2,355,000 2,410,201 La Quinta RDA Tax Allocation Revenue, Redevelopment Project Area No. 1, AMBAC Insured, 5.125%, 9/01/32 .................................. 5,325,000 5,634,116
31 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Lake Elsinore PFA, Tax Allocation Revenue, Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.80%, 9/01/25 ............................................................ $ 6,750,000 $ 7,071,773 Series A, 5.50%, 9/01/30 .................................................. 15,550,000 15,899,253 Lake Elsinore USD, COP, Pre-Refunded, 6.90%, 2/01/20 ......................... 5,150,000 5,347,297 Lakewood RDA, Tax Allocation, Redevelopment Project No.1, Refunding, Series A, FSA Insured, 6.50%, 9/01/17 ...................................... 2,850,000 2,919,284 Lancaster RDA, RMR, Los Angeles County, Series A, ETM, 10.125%, 9/01/16 .................. 5,000 8,355 Tax Allocation, Amargosa Redevelopment Project, Refunding, MBIA Insured, 6.85%, 2/01/19 ............................................. 3,465,000 3,559,976 Tax Allocation, Combined Redevelopment Project Areas, H Housing Program, MBIA Insured, 5.80%, 8/01/23 ............................ 9,125,000 9,558,711 Tax Allocation, Combined Redevelopment Project Areas, Sheriff's Program, MBIA Insured, 5.70%, 8/01/23 ............................ 13,140,000 13,670,462 Lemon Grove CDA, Tax Allocation, 1998 Refunding, 5.75%, 8/01/28 .............. 8,115,000 8,645,234 Lemoore Financing Authority Lease Revenue, Water and Wastewater System Improvement Project, AMBAC Insured, 6.20%, 12/01/20 .................. 4,400,000 4,938,384 Lemoore RDA, Tax Allocation, Refunding, 6.85%, 8/01/25 ....................... 6,105,000 6,470,934 Liberty UHSD, Series A, FSA Insured, 6.20%, 8/01/19 .......................... 2,745,000 3,043,382 Livermore-Amador Valley Water Management Agency Sewer Revenue, Series A, AMBAC Insured, 5.00%, 8/01/31 ..................................... 18,350,000 19,160,703 Local Medical Facilities Financing Authority COP, Insured California Health Clinic Project, 7.55%, 3/01/20 ............................ 4,220,000 4,248,401 Local Medical Facilities Financing Authority II COP, Insured California Health Clinic Project, 7.55%, 11/01/20 .................... 2,120,000 2,129,370 Local Medical Facilities Financing Authority III COP, Insured California Health Clinic Project, 6.90%, 7/01/22 .................... 2,730,000 2,781,351 Loma Linda Hospital Revenue, Loma Linda University Medical Center, Refunding, Series A, AMBAC Insured, 6.55%, 12/01/18 ......................... 11,525,000 11,843,436 Long Beach Board Financial Authority Lease Revenue, Aquarium of the South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/26 ............. 20,000,000 21,034,200 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 15,564,062 Long Beach Harbor Revenue, MBIA Insured, 5.375%, 5/15/20 ........................................................... 12,000,000 12,668,040 5.25%, 5/15/25 ............................................................ 10,500,000 10,935,435 Long Beach HMR, Series A, 9.60%, 11/01/14 .................................... 500,000 504,905 Los Angeles Community College District GO, Series A, MBIA Insured, 5.00%, 6/01/26 .............................................................. 69,275,000 72,490,746 Los Angeles COP, Department of Public Social Services, Series A, AMBAC Insured, 5.50%, 8/01/24 ............................................... 4,000,000 4,363,120 8/01/31 ................................................................... 5,000,000 5,455,100 Los Angeles County Capital Assets Leasing Corp. Leasehold Revenue, Refunding, AMBAC Insured, 6.00%, 12/01/16 ................................... 6,000,000 6,163,020 Los Angeles County COP, Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%, 11/01/33 ...... 8,000,000 8,519,360 CHFCLP Insured Health Clinic Program, Behavioral Health Service, Refunding, Series F, 5.875%, 1/01/21 ........................................ 7,520,000 8,254,027 CHFCLP Insured Health Clinic Program, Series A, 7.30%, 1/01/21 ............ 990,000 1,001,534 CHFCLP Insured Health Clinic Program, Series B, 7.05%, 8/01/21 ............ 3,550,000 3,611,699 Disney Parking Project, Pre-Refunded, 6.50%, 3/01/23 ...................... 12,060,000 12,558,560 Marina del Rey, Series A, 6.50%, 7/01/08 .................................. 21,615,000 22,708,503 Series 1992, 6.625%, 7/01/22 .............................................. 1,000,000 1,024,360 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 13,541,060 Proposition A, First Tier, Refunding, Senior Series A, MBIA Insured, 5.25%, 7/01/27 ..................................................... 7,840,000 8,247,602
32 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) ` Los Angeles County MTA, Sales Tax Revenue, (cont.) Proposition A, Refunding, Senior Series A, FSA Insured, 5.00%, 7/01/24 .... $ 5,000,000 $ 5,259,650 Proposition A, Refunding, Series A, FGIC Insured, 5.00%, 7/01/21 .......... 116,800,000 117,640,960 Proposition A, Refunding, Series A, MBIA Insured, 5.625%, 7/01/18 ......... 10,060,000 10,576,480 Proposition A, Second Tier, MBIA Insured, Pre-Refunded, 6.00%, 7/01/26 .... 9,200,000 10,733,640 Proposition C, Second Senior Series A, AMBAC Insured, 5.00%, 7/01/25 ...... 42,500,000 43,204,650 Los Angeles County Public Works Financing Authority Revenue, Multiple Capital Facilities Project, Series B, AMBAC Insured, 5.125%, 12/01/29 ..... 26,905,000 28,086,130 Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects, Series A, MBIA Insured, 5.25%, 10/01/19 ................... 30,000,000 31,148,400 5.00%, 10/01/23 ........................................................... 35,750,000 36,011,023 Los Angeles County SFMR, Issue A, GNMA Secured, 7.875%, 8/01/16 .............. 145,000 149,053 Los Angeles County Transportation Commission Lease Revenue, FSA Insured, 7.375%, 12/15/06 ............................................... 7,975,000 8,067,111 Los Angeles CRDA, Financing Authority Revenue, Pooled Financing, Beacon Normandie, Series B, 6.625%, 9/01/14 ................................................... 1,065,000 1,084,170 MFHR, Angelus Plaza Project, Refunding, Series A, 6.40%, 7/01/23 .......... 5,875,000 6,070,344 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.625%, 12/01/18 ............................................................ 20,000,000 21,027,600 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.625%, 12/01/23 ............................................................ 50,090,000 52,356,072 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.60%, 12/01/28 ............................................................. 27,900,000 29,085,750 Tax Allocation, Series G, ETM, 6.75%, 7/01/10 ............................. 8,060,000 8,159,299 Los Angeles Department of Airports Revenue, Ontario International Airport, Series A, FGIC Insured, 6.00%, 5/15/26 ..................................... 10,000,000 11,099,500 Los Angeles Department of Water and Power Electric Plant Revenue, MBIA Insured, 5.875%, 9/01/30 ............................................. 13,670,000 14,443,722 Refunding, MBIA Insured, 5.875%, 9/01/30 .................................. 17,765,000 18,770,499 Refunding, MBIA Insured, 5.375%, 9/01/23 .................................. 53,550,000 55,404,972 Refunding, Second Issue, 5.40%, 11/15/31 .................................. 14,500,000 14,994,740 Series 1993, 6.125%, 1/15/33 .............................................. 52,000,000 53,764,880 Series 1993, MBIA Insured, 5.375%, 9/01/23 ................................ 4,140,000 4,287,591 Los Angeles Department of Water and Power Waterworks Revenue, Refunding, Series 1993, 5.80%, 4/15/24 ...................................... 10,520,000 10,971,518 Los Angeles Department Water and Power Electric Plant Revenue, 5.875%, 9/01/30 ............................................................. 25,415,000 26,853,489 Los Angeles Harbor Department Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 ........................ 15,000,000 15,707,550 Series B, 6.125%, 8/01/18 ................................................. 24,810,000 28,171,259 Series B, 6.20%, 8/01/22 .................................................. 59,835,000 67,869,644 Series B, 5.375%, 11/01/23 ................................................ 7,460,000 7,842,325 Series B, MBIA Insured, 6.20%, 8/01/25 .................................... 35,690,000 40,552,049 Los Angeles MFHR, Refunding, Senior Series G, FSA Insured, 5.75%, 1/01/24 .... 6,815,000 7,006,842 Los Angeles USD, COP, Land Acquisition Program I, Series A, FSA Insured, 5.25%, 4/01/21 .... 8,180,000 8,255,583 Series B, FGIC Insured, 5.00%, 7/01/23 .................................... 5,000,000 5,236,100 Los Angeles Wastewater System Revenue, Refunding, Series A, MBIA Insured, 5.70%, 6/01/20 ......................... 64,445,000 67,032,467 Refunding, Series A, MBIA Insured, 5.80%, 6/01/21 ......................... 35,505,000 37,074,321 Refunding, Series C, MBIA Insured, 5.60%, 6/01/20 ......................... 20,000,000 20,749,400 Refunding, Series D, FGIC Insured, 6.00%, 11/01/14 ........................ 8,000,000 8,515,680
33 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Los Angeles Wastewater System Revenue, (cont.) Series A, FGIC Insured, 5.00%, 6/01/28 .................................... $ 8,245,000 $ 8,562,927 Series A, MBIA Insured, 5.875%, 6/01/24 ................................... 45,400,000 48,523,066 Series B, MBIA Insured, 5.70%, 6/01/23 .................................... 75,720,000 78,749,557 Los Angeles Water and Power Revenue, Power System, Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 ......................... 2,000,000 2,070,420 Series A, 5.25%, 7/01/24 .................................................. 5,000,000 5,225,650 Lynwood PFA, Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.90%, 9/01/28 ................................................. 6,470,000 7,347,138 Lynwood RDA, Tax Allocation, Project Area, Series A, Pre-Refunded, 6.50%, 7/01/13 .............................................................. 5,485,000 5,750,968 Madera County COP, Valley Children's Hospital, MBIA Insured, 5.00%, 3/15/23 ............................................................ 8,500,000 8,845,185 5.75%, 3/15/28 ............................................................ 27,500,000 29,593,850 Madera USD, COP, 6.50%, 12/01/07 ............................................. 1,250,000 1,285,275 Madera-Chowchilla Power Authority Hydroelectric Revenue, Refunding, 8.00%, 1/01/14 .............................................................. 2,060,000 2,109,213 Marysville Hospital Revenue, Fremont Rideout Health, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/22 ..................................... 5,000,000 5,252,550 Menlo Park CDA, MFHR, Gateway Project, Series A, FHA Insured, 8.25%, 12/01/28 ............................................................. 3,470,000 3,493,839 Merced Irrigation District COP, Water Facilities Project, 6.40%, 11/01/10 .... 3,580,000 3,849,395 Metropolitan Water District Southern California Waterworks Revenue, 5.00%, 7/01/20 ............................................................ 7,765,000 7,792,178 Series A, 5.00%, 7/01/37 .................................................. 27,830,000 28,610,910 Series A, 5.00%, 7/01/26 .................................................. 47,575,000 49,478,476 Series C, 5.00%, 7/01/37 .................................................. 26,780,000 27,561,173 Mid-Peninsula Regional Open Space District COP, Special District Association Finance Corp., 5.75%, 9/01/20 ............................................... 5,200,000 5,414,188 Milpitas RDA, Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, 5.40%, 1/15/17 ............................................................ 12,155,000 13,326,134 5.50%, 1/15/24 ............................................................ 11,790,000 12,804,765 Milpitas USD, FGIC Insured, 5.875%, 9/01/24 .................................. 11,970,000 13,487,437 Modesto Irrigation District COP, Refunding and Capital Improvements, Series B, 5.30%, 7/01/22 .................................................... 4,770,000 4,789,652 Modesto PFA Lease Revenue, Capital Improvements and Refinancing Project, AMBAC Insured, 5.125%, 9/01/33 .............................................. 5,535,000 5,768,356 Mojave Water Agency COP, Supplemental Water Entitlement, MBIA Insured, 5.55%, 9/01/22 .............................................................. 10,005,000 11,043,619 Montclair RDA, Tax Allocation, Redevelopment Project No. IV, 6.90%, 10/01/22 ............................................................. 1,645,000 1,684,546 Monterey County COP, Natividad Medical Center Improvement Project, Series C, MBIA Insured, Pre-Refunded, 6.50%, 8/01/15 ........................ 3,500,000 4,068,960 6.60%, 8/01/23 ............................................................ 13,250,000 15,440,623 Moreno Valley Special Tax, Towngate Community Facilities 8, Refunding, Series A, FSA Insured, 5.875%, 12/01/15 .......................... 5,830,000 5,988,809 Moreno Valley USD, COP, Refunding, FSA Insured, 5.60%, 3/01/17 ............................................................ 5,000,000 5,380,950 5.70%, 3/01/27 ............................................................ 15,000,000 16,060,950 Mountain View Shoreline Regional Park, Community Tax Allocation, Series A, MBIA Insured, 5.75%, 8/01/18 ................................................ 9,605,000 9,928,881 M-S-R Public Power Agency San Juan Project Revenue, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/20 ........................ 10,750,000 11,287,500 Series E, MBIA Insured, 6.00%, 7/01/22 .................................... 6,330,000 6,355,004 Murrieta COP, Road Improvement Project, 6.00%, 4/01/27 ....................... 8,600,000 9,264,522 Napa Housing Facility Revenue, Napa Park Apartments, Series A, GNMA Secured, 6.35%, 6/20/35 .............................................................. 6,125,000 6,446,991 Napa Mortgage Revenue, Refunding, Creekside II Apartments Project, Series A, MBIA Insured, 6.625%, 7/01/25 ............................................... 2,000,000 2,073,840 Needles PFAR, Tax Allocation, Redevelopment Project, Series A, 7.50%, 8/15/22 .............................................................. 1,580,000 1,607,571
34 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Nevada Power Authority Revenue, Bowman Hydroelectric Project, Refunding, 7.50%, 5/01/13 ................................................... $ 6,050,000 $ 6,312,147 North City West School Facilities Financing Authority Special Tax, CFD No. 1, Series C, AMBAC Insured, 5.30%, 9/01/22 .......................... 10,000,000 10,692,400 9/01/27 ................................................................... 9,900,000 10,576,269 Northern California Power Agency Multiple Capital Facilities Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 .......................... 19,250,000 20,081,215 Northern California Public Power Agency Revenue, Hydroelectric Project No. 1, Refunding, Series A, MBIA Insured, 5.125%, 7/01/23 ................... 7,420,000 7,778,534 5.50%, 7/01/24 ............................................................ 10,000,000 10,412,800 5.00%, 7/01/28 ............................................................ 25,975,000 26,985,947 5.20%, 7/01/32 ............................................................ 43,675,000 45,791,491 Oakland HFR, Issue D-1, 7.10%, 1/01/10 ................................................. 1,425,000 1,442,984 Issue D-2, 7.15%, 1/01/24 ................................................. 3,190,000 3,227,546 Oakland Joint Powers Financing Authority Lease Revenue, Oakland Administration Buildings, AMBAC Insured, 5.75%, 8/01/26 ..................... 24,895,000 27,642,910 Oakland Revenue, 1800 Harrison Foundation, Refunding, Series A, AMBAC Insured, 6.00%, 1/01/29 ........................ 13,825,000 15,446,811 Series B, AMBAC Insured, 6.00%, 1/01/29 ................................... 13,470,000 15,050,166 Oceanside Building Authority Revenue, Refunding, 7.75%, 11/01/04 ............. 2,315,000 2,436,167 Oceanside COP, Oceanside Civic Center Project, Refunding, MBIA Insured, 5.75%, 8/01/15 ... 5,000,000 5,589,650 Refunding, Series A, 6.375%, 4/01/12 ...................................... 4,435,000 4,621,226 Refunding, Series A, 6.625%, 4/01/23 ...................................... 9,000,000 9,227,700 Wastewater Systems Plan, Refunding, AMBAC Insured, 5.80%, 5/01/21 ......... 4,500,000 4,685,310 Water System Project, Refunding, AMBAC Insured, 5.80%, 8/01/21 ............ 4,750,000 4,988,735 Olivenhain Municipal Water District 1915 Act, AD No. 96-1, MBIA Insured, 5.45%, 9/02/27 .............................................................. 11,035,000 11,854,459 Orange Community Facilities District Special Tax, No. 91-2, 6.15%, 10/01/23 ........................................................... 6,225,000 6,429,927 6.25%, 10/01/30 ........................................................... 7,910,000 8,090,585 Orange County Airport Revenue, Refunding, MBIA Insured, 5.625%, 7/01/12 ...... 5,000,000 5,651,050 Orange County Development Agency Tax Allocation, Santa Ana Heights Area Project, Refunding, 6.125%, 9/01/23 ..................................... 6,500,000 6,779,240 Orange County Recovery COP, Series A, MBIA Insured, 5.80%, 7/01/16 ........... 10,380,000 11,757,841 Orange County Recovery, Refunding, Series A, MBIA Insured, 5.75%, 6/01/15 .... 79,010,000 88,213,085 Orange County Water District COP, Refunding, Series A, 5.50%, 8/15/14 ........ 9,430,000 9,905,744 Orange RDA, Tax Allocation Revenue, Northwest Redevelopment Project, Refunding, Series B, 5.70%, 10/01/23 ........................................ 8,530,000 8,849,278 Oroville PFAR, Series A, AMBAC Insured, 6.30%, 9/15/20 ....................... 12,150,000 12,557,876 Oroville Wyandotte Irrigation District Revenue, Hydroelectric Sly Creek Power, Refunding, 6.20%, 1/01/09 ................................................... 6,870,000 6,975,317 Oxnard Harbor District Revenue, ACA Insured, 5.60%, 8/01/19 .................. 10,820,000 11,726,391 Palm Desert Financing Authority Lease Revenue, Blythe County Administrative Project, 6.625%, 8/01/26 .................................................... 5,020,000 5,455,184 Palm Desert Financing Authority Tax Allocation Revenue, Project Area No. 1, Refunding, MBIA Insured, 5.625%, 4/01/23 .................................. 13,000,000 14,208,220 Series A, MBIA Insured, 5.95%, 4/01/24 .................................... 15,075,000 16,438,986 Palm Springs COP, Multiple Capital Facilities Project, Refunding, AMBAC Insured, 5.75%, 4/01/27 ..................................................... 11,570,000 12,934,450 Palmdale Civic Authority Revenue, Merged Redevelopment Project Areas, Refunding, Series A, MBIA Insured, 6.15%, 9/01/24 ........................... 4,730,000 5,151,538
35 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Palmdale CRDA, Tax Allocation, Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/28 .....$ 17,500,000 $ 18,218,200 Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/34 ..... 6,980,000 7,261,713 Series A, MBIA Insured, 5.75%, 9/01/27 .................................... 10,435,000 11,752,627 Palmdale School District COP, 7.40%, 8/01/20 ................................. 495,000 497,282 Palomar Community College District COP, Building Acquisition Project, Connie Lee Insured, Pre-Refunded, 6.75%, 10/01/19 ........................... 4,210,000 4,737,850 Paramount RDA, Tax Allocation, Custodial Receipts, MBIA Insured, 6.25%, 8/01/23 .............................................................. 22,070,000 23,245,007 Pasadena COP, Art Center College of Design, Connie Lee Insured, 6.50%, 1 2/01/19 ..................................................................... 8,250,000 9,125,738 Pasadena Water Revenue, 6.00%, 7/01/13 ....................................... 4,000,000 4,204,360 Perris PFAR, Special Tax, Series A, ETM, 7.55%, 9/01/03 ................................ 110,000 112,673 Special Tax, Series A, ETM, 7.60%, 9/01/04 ................................ 120,000 122,749 Special Tax, Series A, ETM, 7.60%, 9/01/05 ................................ 125,000 127,931 Special Tax, Series A, ETM, 7.80%, 9/01/19 ................................ 1,090,000 1,115,811 Tax Allocation, Refunding, Series, 7.10%, 11/15/17 ........................ 3,330,000 3,419,477 Tax Allocation, Series A, 5.75%, 10/01/31 ................................. 5,000,000 5,314,200 Perris RDA, Tax Allocation, Central and North Perris Redevelopment Project, Series A, Pre-Refunded, 7.875%, 10/01/10 .................................... 2,935,000 2,949,675 Perris Special Tax, CFD No. 8, Series A, Pre-Refunded, 8.30%, 9/01/18 ......................... 6,040,000 6,829,247 CFD No. 91-1, 8.75%, 9/01/21 .............................................. 5,395,000 5,513,312 Petaluma Community Development Commission MFR, Park Lane Apartments, Series A, 6.875%, 11/20/34 .................................................... 4,800,000 5,028,192 Pittsburg PFA, Water Revenue, MBIA Insured, 5.50%, 6/01/27 ................... 2,980,000 3,255,114 Placentia COP, RDA, Refunding, Series A, 6.90%, 1/01/14 ...................... 1,770,000 1,900,219 Placer Hills Union Elementary School District COP, Convertible Capital Appreciation, Series B, 7.125%, 3/01/19 ..................................... 510,000 557,603 Placer Union High School District COP, Capital Appreciation, Series A, 7.125%, 3/01/19 ................................................... 2,095,000 2,290,547 Pleasanton COP, Capital Improvements, 6.70%, 10/01/11 ........................ 2,180,000 2,225,758 Pomona PFAR, Refunding, Series P, 5.75%, 10/01/15 ............................ 6,490,000 7,102,461 Pomona RDA, Tax Allocation, Southwest Pomona Redevelopment Project, ETM, 11.45%, 1/01/07 ........................................................ 8,885,000 11,046,987 Port Hueneme RDA, Tax Allocation, R-76 Project, Refunding, 6.50%, 5/01/23 .... 2,865,000 2,970,289 Port of Oakland Revenue, AMT, Series L, FGIC Insured, 5.375%, 11/01/27 ............................. 25,000,000 26,714,000 Series E, MBIA Insured, 6.25%, 11/01/05 ................................... 1,525,000 1,560,883 Series E, MBIA Insured, 6.30%, 11/01/06 ................................... 1,050,000 1,074,707 Series E, MBIA Insured, 6.40%, 11/01/07 ................................... 500,000 511,800 Series E, MBIA Insured, 6.40%, 11/01/22 ................................... 11,495,000 11,768,926 Series J, MBIA Insured, 5.50%, 11/01/26 ................................... 7,000,000 7,690,970 Series L, FGIC Insured, 5.00%, 11/01/32 ................................... 25,000,000 25,912,750 Port of Oakland Special Facilities Revenue, Mitsui O.S.K. Lines Ltd., Series A, 6.70%, 1/01/07 ............................................................ 6,100,000 6,202,297 6.75%, 1/01/12 ............................................................ 4,890,000 4,968,925 6.80%, 1/01/19 ............................................................ 5,030,000 5,157,561 Porterville COP, Infrastructure Financing Project, AMBAC Insured, 5.00%, 7/01/28 ........... 10,430,000 10,850,120 Public Building Project, Refunding, AMBAC Insured, 6.30%, 10/01/18 ........ 1,950,000 2,034,650
36 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Poway COP, Royal Mobile Home Park Project, Refunding, FSA Insured, 5.875%, 8/01/15 ........................................................... $ 6,250,000 $ 6,980,813 6.00%, 8/01/20 ............................................................ 5,400,000 6,014,952 6.00%, 8/01/28 ............................................................ 15,000,000 16,616,400 Poway RDA, Tax Allocation, Parguay Redevelopment Project, sub. notes, Refunding, FGIC Insured, 5.50%, 12/15/23 ........................................................... 23,000,000 24,012,000 5.75%, 12/15/26 ........................................................... 8,000,000 8,444,720 Puerto Rico Commonwealth GO, Public Improvement, Series A, 5.00%, 7/01/27 .............................. 26,750,000 27,644,520 Public Improvement, Series A, 5.125%, 7/01/31 ............................. 142,925,000 148,684,878 Public Improvement, Series A, FGIC Insured, 5.00%, 7/01/32 ................ 10,000,000 10,414,300 Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y, 5.00%, 7/01/36 .................................................... 63,000,000 65,411,640 Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue, Series A, MBIA Insured, 5.00%, 7/01/38 .................................... 116,975,000 120,984,903 Series B, MBIA Insured, 6.00%, 7/01/31 .................................... 13,000,000 15,699,710 Series B, Pre-Refunded, 6.00%, 7/01/39 .................................... 13,200,000 15,941,244 Series D, 5.375%, 7/01/36 ................................................. 45,000,000 47,892,600 Series D, 5.75%, 7/01/41 .................................................. 20,000,000 22,782,800 Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A, AMBAC Insured, 5.00%, 7/01/28 ............................ 10,000,000 10,381,000 Puerto Rico Electric Power Authority Power Revenue, Series II, 5.25%, 7/01/31 ..................................................................... 48,000,000 50,785,440 Puerto Rico Electric Power Authority Revenue, Series DD, MBIA Insured, 5.00%, 7/01/28 .............................................................. 23,250,000 24,078,398 Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Revenue, Cogen Facilities, 6.625%, 6/01/26 ...................... 6,800,000 7,111,168 Puerto Rico PBA Revenue, Guaranteed, Government Facilities, Series D, 5.375%, 7/01/33 ............................................................. 100,000,000 106,590,000 Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.50%, 8/01/29 ............................................................ 139,995,000 152,334,159 5.75%, 8/01/30 ............................................................ 50,000,000 55,070,000 Rancho Cucamonga RDA, Tax Allocation, Rancho Redevelopment Project, Set-Aside Housing, MBIA Insured, 5.25%, 9/01/21 ............................ 8,330,000 8,892,941 Rancho Cucamonga, Palmdale, Potterville and Colton HFA, SFMR, Series 1986, GNMA Secured, 7.55%, 8/01/18 ................................................. 2,070,000 2,149,405 Rancho Murieta Community Services District 1915 Act, ID No. 1, 8.30%, 9/02/03 ............................................................ 745,000 779,538 8.40%, 9/02/04 ............................................................ 750,000 787,388 8.40%, 9/02/05 ............................................................ 735,000 771,699 8.40%, 9/02/06 ............................................................ 750,000 783,008 Redlands USD, COP, Series A, FSA Insured, 6.15%, 9/01/11 ............................................................ 505,000 507,156 6.25%, 9/01/27 ............................................................ 4,160,000 4,178,179 Rialto COP, FSA Insured, 5.75%, 2/01/22 ...................................... 2,715,000 3,028,202 Rialto RDA, Tax Allocation, Agua Mansa Redevelopment Project, Pre-Refunded, 6.75%, 3/01/24 .............................................................. 3,500,000 3,831,905 Richmond Joint Powers Financing Authority Revenue Lease, Series A, MBIA Insured, 5.00%, 2/01/26 ............................................................ 6,500,000 6,815,640 5.00%, 2/01/31 ............................................................ 7,000,000 7,323,540 Riverside County Asset Leasing Corp. Leasehold Revenue, Hospital Project, Series A, 6.375%, 6/01/09 ........................................................... 23,000,000 23,881,360 6.50%, 6/01/12 ............................................................ 20,125,000 24,629,378
37 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A, 6.65%, 11/01/17 ............................... $ 7,945,000 $ 8,057,819 Riverside County COP, Family Law Court Project, MBIA Insured, 5.75%, 11/01/27 ................... 5,295,000 5,981,126 Historic Courthouse, MBIA Insured, 5.875%, 11/01/27 ....................... 6,000,000 6,812,280 Riverside County Flood Control and Water Conservation District Elsinore Valley AD, Zone 3, 7.875%, 9/01/03 ................................................................... 165,000 174,636 9/01/04 ................................................................... 180,000 200,738 9/01/05 ................................................................... 190,000 222,412 9/01/06 ................................................................... 205,000 249,827 9/01/07 ................................................................... 225,000 281,979 9/01/08 ................................................................... 240,000 310,013 9/01/09 ................................................................... 260,000 341,806 9/01/10 ................................................................... 280,000 372,688 9/01/11 ................................................................... 305,000 411,957 9/01/12 ................................................................... 325,000 443,199 9/01/13 ................................................................... 350,000 482,094 9/01/14 ................................................................... 380,000 527,223 9/01/15 ................................................................... 410,000 573,045 9/01/16 ................................................................... 440,000 616,475 9/01/17 ................................................................... 475,000 663,708 Riverside County Housing Authority Revenue, Breezewood Apartment Project, Refunding, Series C, 6.40%, 6/01/28 ......................................... 4,815,000 4,887,466 Riverside County PFA, COP, 5.75%, 5/15/19 ....................................................... 3,500,000 3,578,435 Tax Allocation Revenue, Redevelopment Projects, Series A, 5.625%, 10/01/33 .................................................................... 11,225,000 11,613,834 Riverside County Public Financing Authority COP, 5.80%, 5/15/29 .............. 14,230,000 14,538,506 Riverside County RDA, Tax Allocation, Jurupa Valley Project Area, AMBAC Insured, 5.00%, 10/01/28 ................ 15,535,000 16,299,167 Jurupa Valley Project Area, AMBAC Insured, 5.125%, 10/01/35 ............... 17,035,000 18,117,745 Riverside County SFMR, Series A, GNMA Secured, 7.20%, 10/01/24 ................................... 925,000 958,300 Series B, GNMA Secured, 7.60%, 11/01/19 ................................... 250,000 257,233 Riverside MFHR, Birchwood Park Apartments, Series A, FNMA Insured, 6.50%, 1/01/18 ......... 2,200,000 2,209,328 Palm Shadows Apartments, Series A, FNMA Insured, 6.50%, 1/01/18 ........... 4,010,000 4,027,002 Riverside RDA, Tax Allocation, Merged Redevelopment Project, Series A, MBIA Insured, 5.625%, 8/01/23 ............................................... 6,000,000 6,175,080 Rohnert Park HFAR, Rancho Feliz Mobile Home Park, FSA Insured, 5.375%, 12/01/26 ............................................................ 8,380,000 8,566,623 Roseville 1915 Act, North Roseville Rocklin District No. 88-3, Refunding, 8.15%, 9/02/03 ...... 130,000 133,558 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/04 ...... 140,000 145,727 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/05 ...... 150,000 156,180 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/06 ...... 160,000 166,912 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/07 ...... 180,000 187,178 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/08 ...... 190,000 197,634 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/09 ...... 160,000 166,381 Rocky Ridge Harding District No. 88-4, Refunding, 8.15%, 9/02/03 .......... 280,000 287,664 Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/04 .......... 300,000 312,273 Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/05 .......... 320,000 333,184
38 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Sacramento 1915 Act, North Natomas AD No. 88-3, 8.20%, 9/02/10 ............................................................ $ 780,000 $ 808,805 8.20%, 9/02/11 ............................................................ 1,730,000 1,792,661 8.25%, 9/02/12 ............................................................ 2,240,000 2,320,730 8.25%, 9/02/13 ............................................................ 2,425,000 2,511,791 8.25%, 9/02/14 ............................................................ 2,620,000 2,713,429 Sacramento City Financing Authority Revenue, Capital Improvement, 5.625%, 6/01/30 ...................................... 6,000,000 6,557,160 Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/32 ............. 26,250,000 27,391,875 Series 1991, 6.60%, 11/01/05 .............................................. 1,300,000 1,318,044 Series 1991, 6.70%, 11/01/11 .............................................. 920,000 932,834 Sacramento City USD, GO, Election of 1999, Series B, FGIC Insured, 5.00%, 7/01/30 .............................................................. 5,250,000 5,501,318 Sacramento County Airport System Revenue, Series A, MBIA Insured, 5.90%, 7/01/24 .............................................................. 6,875,000 7,559,475 Sacramento County COP, Public Facilities Project, Coroner/Crime Laboratory, AMBAC Insured, 6.40%, 10/01/19 .................................................................. 11,000,000 12,257,080 10/01/24 .................................................................. 29,500,000 32,840,285 Sacramento County Sanitation District Financing Authority Revenue, AMBAC Insured, 5.625%, 12/01/30 ............................................. 5,000,000 5,545,250 Sacramento MUD Revenue, Refunding, Series P, FSA Insured, 5.00%, 8/15/23 ..... 7,000,000 7,347,200 Sacramento MUD, Electric Revenue, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ........................ 10,000,000 10,382,000 Series J, AMBAC Insured, 5.60%, 8/15/24 ................................... 10,215,000 11,127,710 Series N, MBIA Insured, 5.00%, 8/15/28 .................................... 34,000,000 35,533,400 sub. lien, Refunding, 8.00%, 11/15/10 ..................................... 16,110,000 16,203,760 Sacramento Regional Transit District COP, Series A, 6.375%, 3/01/04 ................................................................... 1,000,000 1,030,750 3/01/05 ................................................................... 1,100,000 1,133,825 Sacramento USD, COP, Refunding, MBIA Insured, 5.00%, 3/01/31 ................. 6,000,000 6,231,780 Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, Refunding, FSA Insured, 5.25%, 9/01/28 ...................................... 6,800,000 7,211,604 San Bernardino 1915 Act, AD No. 961, Refunding, 7.65%, 9/02/03 ............................................................ 920,000 941,537 7.70%, 9/02/04 ............................................................ 990,000 1,033,738 7.75%, 9/02/05 ............................................................ 1,065,000 1,102,158 San Bernardino County COP, Medical Center Financing Project, Refunding, 5.00%, 8/01/26 ............... 15,045,000 15,069,975 Medical Center Financing Project, Refunding, MBIA Insured, 5.00%, 8/01/28 ..................................................................... 55,065,000 56,943,818 Medical Center Financing, Series A, MBIA Insured, 5.50%, 8/01/22 .......... 40,830,000 43,577,042 West Valley Detention Center Project, MBIA Insured, 6.20%, 11/01/25 ....... 9,275,000 10,183,486 San Bernardino County Housing Authority MFMR, Rancho Meridian, GNMA Secured, 6.75%, 4/20/41 ................................................ 6,920,000 7,837,730 San Bernardino County SFMR, GNMA Secured, 7.50%, 12/01/07 ............................................. 145,000 150,036 GNMA Secured, 7.65%, 6/01/23 .............................................. 785,000 808,526 Series A, GNMA Secured, 6.20%, 5/01/21 .................................... 395,000 418,190 Series B, 5.40%, 5/01/25 .................................................. 275,000 282,659 San Bernardino Joint Powers Financing Authority Lease Revenue, City Hall Project, Refunding, MBIA Insured, 5.70%, 1/01/23 ............................ 6,315,000 6,961,909
39 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Bernardino Joint Powers Financing Authority Revenue COP, Police Station Financing Project, Pre-Refunded, 6.60%, 4/01/20 ............................. $ 4,715,000 $ 5,454,406 San Bernardino Joint Powers Financing Authority Revenue, Tax Allocation, Refunding, Series A, FSA Insured, 5.75%, 10/01/25 ........... 19,915,000 21,806,527 San Carlos Mortgage Revenue, Elms Project, FHA Insured, 6.875%, 8/01/37 ..................................................................... 8,465,000 8,835,259 San Diego County COP, MBIA Insured, 5.00%, 8/15/28 ........................... 24,000,000 24,818,400 San Diego County Regional Transportation Commission Sales Tax Revenue, Series A, ETM, 6.00%, 4/01/08 ...................................... 1,250,000 1,277,600 San Diego County Water Authority Water Revenue COP, Series A, MBIA Insured, 5.00%, 5/01/25 ................................................ 12,440,000 13,119,348 San Diego IDR, San Diego Gas and Electric Co. Project, Series A, 6.40%, 9/01/18 .............................................................. 19,800,000 20,253,618 San Diego Public Facilities Financing Authority Sewer Revenue, Series A, FGIC Insured, 5.25%, 5/15/27 .................................... 21,750,000 22,859,250 Series B, FGIC Insured, 5.25%, 5/15/22 .................................... 5,200,000 5,480,852 San Diego RDA, Tax Allocation, Horton Project, Refunding, Series A, FSA Insured, 6.00%, 11/01/15 ................................................ 5,000,000 5,805,000 San Diego USD, GO, Election of 1998, Series D, FGIC Insured, 5.00%, 7/01/27 .................. 15,000,000 15,742,350 Election of 1998, Series B, MBIA Insured, 5.00%, 7/01/25 .................. 6,975,000 7,269,903 San Elijo Joint Powers Authority Revenue, Water Pollution Control Facilities, Refunding, FGIC Insured, 5.00%, 3/01/20 ..................................... 5,000,000 5,020,900 San Francisco BART, District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/34 ..................................................................... 11,790,000 12,923,137 San Francisco City and County Airport Commission International Airport Revenue, Issue 6, AMBAC Insured, 6.50%, 5/01/18 .................................... 2,500,000 2,702,175 Issue 6, AMBAC Insured, 6.60%, 5/01/24 .................................... 13,250,000 14,279,393 Issue 9A, FGIC Insured, 5.90%, 5/01/25 .................................... 46,415,000 49,858,529 Issue 12A, Second Series, 5.90%, 5/01/26 .................................. 45,000,000 48,415,500 Issue 16A, Second Series, FSA Insured, 5.125%, 5/01/23 .................... 24,635,000 25,615,473 Issue 16A, Second Series, FSA Insured, 5.00%, 5/01/29 ..................... 20,500,000 21,098,190 San Francisco City and County Airports Commission International Airport Revenue, Refunding, Second Series-28A, MBIA Insured, 5.125%, 5/01/32 ........ 28,790,000 29,746,404 Second Series-Issue 23B, FGIC Insured, 5.125%, 5/01/30 .................... 10,000,000 10,461,600 San Francisco City and County COP, San Francisco Courthouse Project, FSA Insured, 5.875%, 4/01/21 ................................................ 2,810,000 3,069,223 San Francisco City and County Public Utilities Commission Water Revenue, Refunding, Series A, 6.50%, 11/01/09 ........................................ 4,000,000 4,096,640 MBIA Insured, 5.00%, 11/01/25 ............................................. 14,155,000 14,898,704 San Francisco City and County RDA, Hotel Tax Revenue, FSA Insured, 6.75%, 7/01/25 ............................ 315,000 347,117 Hotel Tax Revenue, FSA Insured, Pre-Refunded, 6.75%, 7/01/25 .............. 9,100,000 10,138,856 Lease Revenue, George R. Moscone Center, Capital Appreciation, zero cpn. to 7/01/02, 8.50% thereafter, 7/01/14 ....................................... 46,000,000 52,305,680 Lease Revenue, George R. Moscone Center, Refunding, Series 1992, .50%, 7/01/18 ............................................................... 22,170,000 22,249,147 Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.65%, 7/01/24 ....... 5,645,000 5,649,911 San Gabriel Valley Schools Financing Authority Revenue, Oxnard Union High School, Pre-Refunded, 6.60%, 3/01/24 .................... 4,145,000 4,318,054 Pomona USD Financing, 5.80%, 2/01/26 ...................................... 5,150,000 5,409,406 San Joaquin County COP, General Hospital Project, Pre-Refunded, 6.625%, 9/01/20 ............................................................. 36,500,000 39,010,470 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A, 5.50%, 1/15/28 ....................................... 247,300,000 240,373,127 Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ......................... 21,200,000 22,469,456
40 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, (cont.) Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ........................$ 85,500,000 $ 91,034,415 senior lien, 5.00%, 1/01/33 ............................................... 82,040,000 75,008,352 senior lien, Pre-Refunded, 7.00%, 1/01/30 ................................. 85,535,000 88,456,020 senior lien, Pre-Refunded, 6.75%, 1/01/32 ................................. 64,320,000 66,477,936 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.50% thereafter, 1/01/09 ..................................................................... 21,585,000 27,519,364 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.55% thereafter, 1/01/10 ..................................................................... 10,745,000 13,725,556 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.60% thereafter, 1/01/11 ..................................................................... 20,935,000 26,793,660 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.65% thereafter, 1/01/12 ..................................................................... 25,215,000 32,333,447 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.65% thereafter, 1/01/13 ..................................................................... 27,350,000 35,071,179 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.70% thereafter, 1/01/14 ..................................................................... 7,470,000 9,597,157 senior lien, Pre-Refunded, zero cpn. to 1/01/02, 7.70% thereafter, 1/01/15 ..................................................................... 60,155,000 77,284,738 San Jose Airport Revenue, Refunding, MBIA Insured, 5.75%, 3/01/16 .............................................. 13,600,000 13,826,032 Series A, FGIC Insured, 5.00%, 3/01/31 .................................... 10,500,000 10,946,040 San Jose Financing Authority Lease Revenue, MBIA Insured, 5.00%, 9/01/21 ................................................................... 14,045,000 14,765,930 9/01/22 ................................................................... 14,730,000 15,375,174 San Jose Financing Authority Revenue, Fourth and San Fernando Parking Facility, Series A, AMBAC Insured, 5.00%, 9/01/24 ..................................... 5,000,000 5,241,550 San Jose RDA, MFHR, Miraido Village, Series A, GNMA Secured, 5.75%, 7/20/38 ............. 7,110,000 7,376,198 Tax Allocation, Housing, Set-Aside Merged Area, Series E, MBIA Insured, 5.85%, 8/01/27 .............................................................. 7,325,000 7,737,178 Tax Allocation, Merged Area Redevelopment Project, 5.25%, 8/01/29 ......... 7,000,000 7,387,100 Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/26 .............................................................. 15,000,000 15,630,000 Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/31 .............................................................. 2,000,000 2,071,180 Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.00%, 8/01/21 .............................................................. 35,235,000 36,320,590 Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.625%, 8/01/28 ............................................................. 24,135,000 26,541,018 Tax Allocation, Merged Area Redevelopment Project, Refunding, MBIA Insured, 5.00%, 8/01/20 .............................................................. 35,665,000 36,820,189 San Jose USD Santa Clara County GO, Series A, FSA Insured, 5.00%, 8/01/24 ................................................................... 9,200,000 9,681,068 8/01/27 ................................................................... 9,150,000 9,606,036 San Leandro RDA, RMR, Pre-Refunded, 11.25%, 4/01/13 .......................... 55,000 63,983 San Marcos PFAR, Series A, 6.25%, 9/02/22 .................................... 25,000,000 26,580,750 San Marcos Public Facilities Authority Revenue, Refunding, 5.80%, 9/01/18 ................................................. 4,750,000 5,116,510 Senior Tax Increment Project Area-3-A, MBIA Insured, 5.75%, 10/01/29 ...... 5,340,000 6,016,525 Senior Tax Increment Project Area-3-A, MBIA Insured, 5.80%, 10/01/30 ...... 8,035,000 9,080,193 Tax Allocation, Refunding, Series A, FSA Insured, 5.50%, 8/01/23 .......... 13,000,000 13,487,370 San Marcos USD, School Facilities ID No. 1, AMBAC Insured, 5.80%, 11/01/14 ... 5,000,000 5,789,750 San Mateo County Joint Powers Authority Lease Revenue, Capital Projects, Refunding, Series A, FSA Insured, 5.00%, 7/15/29 ............................ 17,500,000 18,197,375 San Mateo RDA, Tax Allocation, 5.60%, 8/01/25 ............................................................ 10,185,000 10,832,766 Merged Area, Series A, 5.70%, 8/01/27 ..................................... 6,330,000 6,832,602 San Mateo Unified High School District GO, Election of 2000, Series A, FGIC Insured, 5.00%, 9/01/25 ..................................................... 13,865,000 14,524,281
41 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Pablo RDA, Tax Allocation, Merged Project Area, FGIC Insured, 6.25%, 12/01/19 ............................................................. $ 3,500,000 $ 3,872,890 San Rafael RDA, Tax Allocation, Central San Rafael Redevelopment, Refunding, FGIC Insured, 6.45%, 12/01/17 .................................... 6,740,000 6,927,979 San Ramon COP, Capital Improvement Projects, Series 1993, 6.00%, 3/01/18 ..... 1,730,000 1,785,516 San Ramon PFA, Tax Allocation Revenue, MBIA Insured, 5.30%, 2/01/28 .............................................. 18,360,000 19,526,227 Pre-Refunded, 6.90%, 2/01/24 .............................................. 6,140,000 6,878,826 Refunding, 6.90%, 2/01/24 ................................................. 6,910,000 7,440,204 San Ramon Valley COP, Fire Protection District, Financing Corp., Refunding, 6.00%, 7/01/19 .............................................................. 6,275,000 6,554,112 San Ramon Valley USD, COP, Refunding, 7.55%, 2/01/04 ......................... 2,885,000 2,943,883 Santa Ana COP, Parking Facilities Project, Refunding, Series A, AMBAC Insured, 6.125%, 6/01/16 .................................................... 2,070,000 2,168,284 Santa Ana Financing Authority Water Revenue, MBIA Insured, 6.125%, 9/01/24 ... 5,000,000 5,272,600 Santa Barbara COP, Harbor Project, Refunding, 6.75%, 10/01/27 ................ 8,090,000 8,251,800 Santa Barbara Housing Authority Revenue, Refunding and Acquisition, 6.25%, 11/15/20 ............................................................. 5,605,000 5,827,462 Santa Barbara SFMR, GNMA Secured, 7.65%, 10/01/23 ............................ 130,000 134,139 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 14,712,490 Santa Clara Housing Authority MFHR, Arastradero Park Apartments Project, Series A, GNMA Secured, 6.65%, 5/20/35 .............................................................. 6,465,000 6,864,343 Elana Gardens Apartments Project, Series A, GNMA Secured, 6.40%, 6/20/35 .............................................................. 5,625,000 5,901,750 Sierra Vista I Apartments Project, Series A, GNMA Secured, 6.65%, 6/20/35 .............................................................. 3,860,000 4,103,141 Santa Clara USD, COP, 5.375%, 7/01/31 ........................................ 7,575,000 8,031,318 Santa Clara Valley Transportation Authority Sales Tax Revenue, Series A, MBIA Insured, 5.00%, 6/01/23 ................................................ 7,325,000 7,681,288 Santa Clarita COP, Refunding, MBIA Insured, 5.00%, 10/01/21 .................. 5,105,000 5,310,578 Santa Cruz City School District COP, Education Center Financing Project, Pre-Refunded, 7.00%, 5/01/24 ................................................ 3,150,000 3,491,177 Santa Cruz County Housing Authority MFHR, Series B, FNMA Insured, 7.75%, 7/01/23 .............................................................. 9,230,000 9,251,598 Santa Maria Bonita School District COP, MBIA Insured, 7.00%, 3/01/16 ......... 480,000 487,051 Santa Monica RDA Tax Allocation, Earthquake Recovery Redevelopment Project, AMBAC Insured, 6.00%, 7/01/29 ............................................... 13,110,000 14,904,235 Shafter Joint Powers Financing Authority Lease Revenue, Community Correctional Facility Project, Series A, 5.95%, 1/01/11 ............................................................ 1,880,000 2,119,963 6.05%, 1/01/17 ............................................................ 5,135,000 5,777,902 Soledad RDA, Tax Allocation, Soledad Redevelopment Project, Pre-Refunded, 7.40%, 11/01/12 ............................................................. 3,465,000 3,551,105 South Gate PFAR, Tax Allocation, Redevelopment Project No. 1, AMBAC Insured, 5.875%, 9/01/24 ............................................ 8,505,000 8,924,892 Refunding, 6.10%, 9/01/03 ................................................. 9,475,000 9,643,181 South Napa Waste Management Authority Revenue, Solid Waste Transfer Facilities Project, 6.50%, 2/15/14 ..................................................... 4,500,000 4,811,355 South Orange County PFA, Special Tax Revenue, Foothill Area, Series C, FGIC Insured, 5.75%, 8/15/18 ..................... 5,000,000 5,394,650 senior lien, Refunding, Series A, MBIA Insured, 6.00%, 9/01/18 ............ 18,850,000 19,972,141 Southern California HFA, SFMR, GNMA Secured, 7.625%, 10/01/22 ............................................ 1,165,000 1,166,130 Series A, GNMA Secured, 6.75%, 9/01/22 .................................... 265,000 267,684 Southern California Public Power Authority Power Project Revenue, 6.75%, 7/01/13 ............................................................ 10,000,000 12,837,100 Multi-Purpose Projects, 6.00%, 7/01/18 .................................... 29,645,000 29,765,359 San Juan Project Unit 3, Series A, MBIA Insured, 5.00%, 1/01/20 ........... 5,790,000 5,803,317
42 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Southern California Public Power Authority Transmission Project Revenue, Southern Transmission Project, 6.125%, 7/01/18 .............................. $ 1,135,000 $ 1,171,263 Stockton COP, Essential Services Building Parking Facility, 5.875%, 8/01/23 ........................................................... 2,295,000 2,478,646 6.00%, 8/01/31 ............................................................ 6,585,000 7,167,707 Stockton East Water District COP, 1990 Project, Series B, 7.45%, 4/01/05 ..... 28,575,000 81,482,470 Stockton Health Facilities Revenue, St. Joseph Medical Center, Series A, MBIA Insured, 5.50%, 6/01/23 ................................................ 5,000,000 5,216,200 Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A, FSA Insured, 5.95%, 7/01/17 ....................................... 5,095,000 5,843,252 Stockton Revenue COP, Wastewater System Project, Series A, MBIA Insured, 5.20%, 9/01/29 .............................................................. 19,160,000 20,186,976 Stockton Revenue, O'Connor Woods Housing Corp., Series A, 6.35%, 11/01/31 .... 9,110,000 9,499,635 Suisun City COP, Civic Center Project, Refunding, 6.45%, 11/01/15 ............ 2,105,000 2,231,005 Suisun City RDA, Tax Allocation, Suisun City Redevelopment Project, Refunding, MBIA Insured, 6.00%, 10/01/18 ........................................................... 3,285,000 3,478,815 5.90%, 10/01/23 ........................................................... 3,255,000 3,430,868 Tahoe Forest Hospital District Revenue, Series A, 5.90%, 7/01/29 ............. 7,990,000 8,092,512 Temecula Valley USD, Series D, FGIC Insured, 6.00%, 9/01/14 .................................... 1,250,000 1,297,888 Series D, FGIC Insured, 6.125%, 9/01/19 ................................... 3,110,000 3,230,761 Series E, FSA Insured, 6.35%, 9/01/19 ..................................... 5,460,000 6,176,243 Thousand Oaks RDA, MFR, The Shadows Apartments, Refunding, Series A, FNMA Insured, 5.75%, 11/01/27 .................................................................... 7,530,000 7,904,015 Tax Allocation, Thousand Oaks Boulevard Redevelopment, Refunding, MBIA Insured, 5.375%, 12/01/25 .............................................. 24,485,000 25,981,278 Thousand Oaks SFHMR, Capital Appreciation, Series A, GNMA Secured, 8.00%, 9/01/23 .............. 29,000 74,033 Refunding, Series A, GNMA Secured, 7.625%, 3/01/23 ........................ 10,000 10,076 Tobacco Securitization Authority Tobacco Settlement Revenue, Series A, 5.375%, 6/01/41 ............................................................. 30,250,000 28,719,048 Tobacco Securitization Authority Northern California Tobacco Settlement Revenue, Asset Back Bonds, Series B, 4.375%, 6/01/21 ........................................................... 5,990,000 5,977,601 5.00%, 6/01/28 ............................................................ 17,390,000 17,264,444 Tobacco Securitization Authority Southern California Tobacco Settlement Revenue, Asset Backed Bonds, Senior, Series A, 5.50%, 6/01/36 .......................................... 80,500,000 79,279,620 Senior, Series A, 5.625%, 6/01/43 ......................................... 123,165,000 121,315,062 Subordinate, Series B, 6.00%, 6/01/43 ..................................... 63,635,000 63,767,361 Tobacco Securitization Authority Tobacco Settlement Revenue, Series A, 5.25%, 6/01/31 .............................................................. 9,800,000 9,502,766 Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.50%, 6/01/31 .............................................................. 4,385,000 4,561,277 Trabuco Canyon PFA, Special Tax Revenue, Refunding, Series A, FSA Insured, 6.00%, 10/01/10 .................................... 13,775,000 16,780,567 Series A, FSA Insured, 6.10%, 10/01/15 .................................... 13,220,000 16,673,328 Series C, FSA Insured, 6.00%, 7/01/12 ..................................... 3,040,000 3,761,970 Series C, FSA Insured, 6.10%, 7/01/19 ..................................... 5,215,000 6,505,400 Tracy CFD Special Tax, No. 98-1 Plan C Properties, 5.875%, 8/01/23 ........................................................... 6,385,000 6,582,424 6.00%, 8/01/26 ............................................................ 8,280,000 8,534,113 Tracy COP, I-205 Corridor Improvement and Refinancing Project, AMBAC Insured, 5.125%, 10/01/27 ............................................................ 5,000,000 5,252,400 Tri-City Hospital District Revenue, Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 ............................................................. 5,000,000 5,490,650 Tri-Dam Power Authority Revenue, Hydroelectric Sand Bar Project, Refunding, 7.50%, 1/01/17 ................................................... 42,885,000 44,295,059
43 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Trinity County PUD, COP, Electric District Facilities, Refunding, Series 1993, 6.60%, 4/01/11 ............................................................ $ 2,565,000 $ 2,665,728 6.75%, 4/01/23 ............................................................ 4,000,000 4,140,400 Tulare Local Health Care District Health Facilities Revenue, 5.20%, 12/01/21 .................................................................... 4,455,000 4,657,703 Tustin USD, Special Tax, CFD No. 97-1, 6.375%, 9/01/35 ....................... 8,645,000 10,716,169 Union City CRDA, Tax Allocation Revenue, Community Redevelopment Project, AMBAC Insured, 5.75%, 10/01/33 .............................................. 5,250,000 5,848,920 University of California COP, UCLA Center Chiller/Cogeneration Project, Refunding, 5.50%, 11/01/17 ........................................................... 13,940,000 14,637,697 5.60%, 11/01/20 ........................................................... 14,880,000 15,648,701 University of California Revenue, Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/31 .............. 5,000,000 5,201,800 Series O, FGIC Insured, 5.25%, 9/01/34 .................................... 61,235,000 65,365,913 University of California Revenues, Multi-Purpose Projects, Refunding, Series C, AMBAC Insured, 5.00%, 9/01/23 12,500,000 12,746,875 Multi-Purpose Projects, Series F, FGIC Insured, 5.00%, 9/01/22 ............ 20,575,000 21,337,098 Multi-Purpose Projects, Series F, FGIC Insured, 5.00%, 9/01/27 ............ 62,940,000 64,994,991 U.C. Davis Medical Center, AMBAC Insured, 5.75%, 7/01/20 .................. 44,385,000 49,155,500 Upland COP, Refunding, Mortgage Insured, 5.50%, 1/01/07 ............................... 4,935,000 5,335,031 San Antonio Community Hospital, Refunding, 5.70%, 1/01/11 ................. 11,210,000 12,586,588 Vacaville PFAR, Local Agency, 8.65%, 9/02/18 ................................. 5,390,000 5,119,099 Vallejo RDA, Tax Allocation, Waterfront Redevelopment Project, 7.90%, 5/01/19 ..................................................................... 2,395,000 2,405,466 Victorville RDA, Tax Allocation, Bear Valley Road Redevelopment Project, Refunding, Series A, FSA Insured, 6.125%, 9/01/19 ................................................................... 2,405,000 2,546,318 9/01/24 ................................................................... 3,245,000 3,425,584 Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ..................... 7,000,000 7,122,150 Refunding, Series A, 5.50%, 10/01/14 ...................................... 3,865,000 4,110,350 Vista Community Development Commission Tax Allocation Revenue, Vista Redevelopment Project Area, 5.875%, 9/01/37 .............................................................. 5,000,000 5,333,150 Vista Community Development Commission Tax Allocation Revenue, Vista Redevelopment Project Area, MBIA Insured, 5.50%, 9/01/23 ................................................. 11,810,000 12,630,559 Vista Joint Powers Financing Authority Revenue, Series A, 7.625%, 2/01/20 .... 3,675,000 3,754,637 Washington Township Hospital District Revenue, AMBAC Insured, 5.25%, 7/01/23 ............................................. 5,000,000 5,147,050 HealthCare District Revenue, 5.25%, 7/01/29 ............................... 6,500,000 6,645,795 Watsonville Insured Hospital Revenue, Watsonville Community Hospital, Series A, Pre-Refunded, 6.30%, 7/01/15 ...................................... 3,990,000 4,594,804 6.35%, 7/01/24 ............................................................ 5,435,000 6,266,120 Watsonville RDA, GO, Tax Allocation, Watsonville Redevelopment Project, 6.30%, 8/01/06 .............................................................. 1,745,000 1,771,175 West Basin Municipal Water District Revenue COP, 1992 Project, Refunding, Series A, AMBAC Insured, 5.50%, 8/01/22 ............................................................... 4,000,000 4,348,960 West Hollywood COP, Refunding, MBIA Insured, 5.00%, 2/01/25 .................. 6,250,000 6,502,188 Westlands Water District Revenue COP, 5.00%, 9/01/26 ......................... 13,150,000 13,874,039 Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital, 5.60%, 6/01/22 ............................................................ 13,000,000 13,691,990 5.75%, 6/01/31 ............................................................ 28,000,000 29,391,600
44 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) William S. Hart Joint School Financing Authority Special Tax Revenue, Community Facilities, Refunding, FSA Insured, 6.50%, 9/01/14 ................ $ 4,000,000 $ 4,575,840 --------------- TOTAL BONDS .................................................................. 12,725,130,762 --------------- ZERO COUPON/STEP-UP BONDS 10.8% Anaheim PFA, Lease Revenue, Capital Appreciation, Public Improvement Project, Series C, FSA Insured, 9/01/24 ................................................................... 26,855,000 8,984,877 9/01/26 ................................................................... 9,430,000 2,841,636 9/01/27 ................................................................... 22,860,000 6,535,674 9/01/28 ................................................................... 8,425,000 2,284,860 9/01/32 ................................................................... 13,665,000 3,020,922 9/01/33 ................................................................... 37,070,000 7,792,114 Anaheim Public Financing Authority Lease Revenue, Capital Appreciation, Public Improvement Projects, Series C, FSA Insured, 9/01/34 ............................................... 12,485,000 2,495,127 Anaheim UHSD GO, Capital Appreciation, Series A, FSA Insured, 8/01/26 ........ 8,570,000 2,593,282 Baldwin Park RDA, Tax Allocation, San Gabriel, Refunding, Series A, ETM, 2/01/03 ................................................................... 570,000 567,304 2/01/04 ................................................................... 575,000 562,960 2/01/05 ................................................................... 585,000 562,138 Beaumont USD, COP, Series A, FSA Insured,1/01/29 ............................. 6,835,000 6,842,450 California Educational Facilities Authority Revenue, Loyola Marymount University, MBIA Insured, 10/01/32 ....................... 8,435,000 1,597,505 Loyola Marymount University, MBIA Insured, 10/01/33 ....................... 8,435,000 1,497,803 Loyola Marymount University, MBIA Insured, 10/01/34 ....................... 8,435,000 1,404,343 Loyola Marymount University, MBIA Insured, 10/01/35 ....................... 8,435,000 1,316,704 Loyola Marymount University, MBIA Insured, 10/01/36 ....................... 8,435,000 1,234,462 Loyola Marymount University, MBIA Insured, 10/01/37 ....................... 8,435,000 1,157,451 Loyola Marymount University, MBIA Insured, 10/01/38 ....................... 8,435,000 1,085,163 Loyola Marymount University, MBIA Insured, 10/01/39 ....................... 8,435,000 1,017,430 Loyola Marymount University, Refunding, MBIA Insured, 10/01/26 ............ 7,620,000 2,286,610 Loyola Marymount University, Refunding, MBIA Insured, 10/01/27 ............ 7,365,000 2,096,889 Loyola Marymount University, Refunding, MBIA Insured, 10/01/28 ............ 4,120,000 1,112,647 Loyola Marymount University, Refunding, MBIA Insured, 10/01/30 ............ 5,685,000 1,384,411 Loyola Marymount University, Refunding, MBIA Insured, 10/01/31 ............ 7,615,000 1,763,177 Loyola Marymount University, Refunding, MBIA Insured, 10/01/32 ............ 7,615,000 1,676,442 Santa Clara University, AMBAC Insured, 9/01/26 ............................ 5,800,000 1,747,772 California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A, ETM, 10/01/11 ..................................................... 13,970,000 9,800,654 California HFAR, AMT Home Mortgage, Series K, MBIA Insured, 2/01/33 ........................ 30,810,000 5,018,641 Capital Appreciation, Home Mortgage, Series T, MBIA Insured, 8/01/32 ...... 31,830,000 6,327,804 Capital Appreciation, Series G, MBIA Insured, 2/01/30 ..................... 23,725,000 5,088,064 Home Mortgage, Capital Appreciation, Series A, 8/01/16 .................... 575,000 144,337 Home Mortgage, Series B, MBIA Insured, 2/01/30 ............................ 90,610,000 20,705,291 Home Mortgage, Series F, MBIA Insured, 2/01/30 ............................ 14,440,000 3,295,641 Home Mortgage, Series I, FSA Insured, 8/01/21 ............................. 26,645,000 9,540,509 Home Mortgage, Series N, AMBAC Insured, 8/01/31 ........................... 80,350,000 56,045,732 Home Mortgage, Series Q, AMBAC Insured, 2/01/33 ........................... 54,820,000 10,028,223
45 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) California HFAR, (cont.) Series B, FSA Insured, 8/01/31 ............................................$ 13,865,000 $ 2,852,169 Series E, MBIA Insured, 2/01/32 ........................................... 29,535,000 5,396,635 Series E, MBIA Insured, 2/01/21 ........................................... 9,500,000 3,590,525 Series G, 8/01/22 ......................................................... 52,350,000 16,809,062 Series G, 2/01/33 ......................................................... 45,000,000 7,375,500 California State GO, Principal Eagles II, Series 3, 3/01/09 .................................... 7,500,000 6,149,775 Principal Eagles II, Series 4, 6/01/06 .................................... 10,000,000 9,220,200 Principal Eagles II, Series 6, 3/01/09 .................................... 5,000,000 4,099,850 Principal M-Raes, Series 8, 4/01/09 ....................................... 9,000,000 7,360,740 California Statewide CDA Revenue, COP, Insured Hospital, Triad Health Care, Refunding, ETM, 8/01/09 ................................................................... 6,450,000 5,259,782 8/01/10 ................................................................... 6,745,000 5,236,616 8/01/11 ................................................................... 3,115,000 2,301,144 Campbell USD, Series B, FGIC Insured, 8/01/20 ................................................................... 5,000,000 2,165,200 8/01/21 ................................................................... 6,280,000 2,547,545 Contra Costa County COP, Merrithew Memorial Hospital Project, ETM, 11/01/15 .. 6,810,000 4,056,989 Contra Costa Home Mortgage Finance Authority HMR, Mandatory Sinking Fund, MBIA Insured, Pre-Refunded, 9/01/17 ............... 47,455,000 15,377,473 MBIA Insured, Pre-Refunded, 9/01/17 ....................................... 10,770,000 2,969,289 Contra Costa School Financing Authority Revenue, Capital Appreciation, Antioch USD Community, Series B, 9/01/07 .................................... 830,000 677,396 El Paso de Robles GO, Capital Appreciation, Series A, FGIC Insured, 8/01/16 ................................................................... 2,050,000 1,049,026 8/01/22 ................................................................... 11,485,000 4,002,063 8/01/27 ................................................................... 11,495,000 2,984,792 Elk Grove USD, Special Tax, Capital Appreciation, CFD 1, MBIA Insured, 12/01/19 .................................................................. 2,775,000 1,191,446 12/01/20 .................................................................. 2,765,000 1,120,433 12/01/21 .................................................................. 4,195,000 1,594,226 12/01/22 .................................................................. 4,195,000 1,503,908 12/01/23 .................................................................. 4,195,000 1,411,785 12/01/24 .................................................................. 4,200,000 1,329,048 12/01/25 .................................................................. 6,355,000 1,904,975 12/01/26 .................................................................. 6,355,000 1,804,121 12/01/27 .................................................................. 6,355,000 1,708,351 12/01/28 .................................................................. 6,355,000 1,638,065 Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, 1/15/25 .................................. 57,000,000 15,703,500 Capital Appreciation, Refunding, 1/15/30 .................................. 98,460,000 20,233,530 Capital Appreciation, Refunding, 1/15/31 .................................. 14,635,000 2,791,187 Capital Appreciation, Refunding, 1/15/34 .................................. 100,000,000 15,877,000 Capital Appreciation, Refunding, 1/15/36 .................................. 182,160,000 25,597,123 Capital Appreciation, Refunding, 1/15/38 .................................. 160,560,000 20,010,593
46 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) Foothill/Eastern Corridor Agency Toll Road Revenue, (cont.) Capital Appreciation, Refunding, MBIA Insured, 1/15/21 ....................$ 51,180,000 $ 18,018,943 Capital Appreciation, Refunding, MBIA Insured, 1/15/37 .................... 170,615,000 22,577,483 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.80% thereafter, 1/15/20 ..................................................................... 49,500,000 34,440,615 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/27 ..................................................................... 80,835,000 55,796,359 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/28 ..................................................................... 80,500,000 55,169,065 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/29 ..................................................................... 112,230,000 76,730,529 Capital Appreciation, senior lien, Series A, ETM, 1/01/22 ................. 30,835,000 12,330,300 Capital Appreciation, senior lien, Series A, ETM, 1/01/23 ................. 5,765,000 2,159,338 Capital Appreciation, senior lien, Series A, ETM, 1/01/24 ................. 72,045,000 25,547,877 Capital Appreciation, senior lien, Series A, ETM, 1/01/28 ................. 2,000,000 574,900 Convertible Capital Appreciation, Refunding, 1/15/23 ...................... 10,000,000 6,926,400 Convertible Capital Appreciation, Refunding, 1/15/26 ...................... 30,000,000 20,633,400 Convertible Capital Appreciation, Refunding, 1/15/32 ...................... 100,000,000 17,932,000 Convertible Capital Appreciation, Refunding, 1/15/33 ...................... 132,460,000 22,373,819 Convertible Capital Appreciation, Refunding, 1/15/35 ...................... 20,000,000 2,990,600 Convertible Capital Appreciation, senior lien, Series A, ETM, zero cpn. to 1/01/05, 7.05% thereafter, 1/01/09 ....................................... 10,000,000 10,827,300 Convertible Capital Appreciation, senior lien, Series A, Pre-Refunded, zero cpn. to 1/01/05, 7.15% thereafter, 1/01/14 ............................. 5,500,000 6,225,615 senior lien, Series A, ETM, 1/01/25 ....................................... 20,660,000 6,947,132 senior lien, Series A, ETM, 1/01/26 ....................................... 23,475,000 7,482,187 senior lien, Series A, ETM, 1/01/27 ....................................... 15,000,000 4,540,800 senior lien, Series A, ETM, 1/01/29 ....................................... 35,310,000 9,636,099 senior lien, Series A, Pre-Refunded, 1/01/12 .............................. 8,000,000 9,038,240 Lodi Electric Systems Revenue COP, Capital Appreciation Bond, Series B, MBIA Insured, 1/15/19 ....................................................... 6,360,000 2,919,304 Los Angeles Convention and Exhibition Center Authority COP, Series 1985, ETM, 12/01/05 ............................................................... 26,750,000 25,261,095 Modesto High School District Stanislaus County GO, Capital Appreciation, Series A, FGIC Insured, 8/01/21 ..................... 9,660,000 3,918,676 Capital Appreciation, Series A, FGIC Insured, 8/01/23 ..................... 10,815,000 3,858,684 Capital Appreciation, Series A, FGIC Insured, 5/01/27 ..................... 12,770,000 3,712,622 New Haven USD, GO, Capital Appreciation, Series C, FGIC Insured, 8/01/23 ..... 14,700,000 5,025,783 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 3,086,489 Pasadena Special Tax CFD, No. 1 Civic Center West, Pre-Refunded, 12/01/17 .... 4,090,000 1,737,105 Perris SFMR, Series A, GNMA Secured, ETM, 6/01/23 ............................ 19,095,000 6,869,235 Rancho Water District Financing Authority Revenue, AMBAC Insured, 8/15/16 ................................................................... 8,605,000 4,770,268 8/15/17 ................................................................... 13,605,000 7,071,879 8/15/18 ................................................................... 13,605,000 6,663,185 Rialto USD, GO, Series A, FGIC Insured, 6/01/19 .............................. 13,985,000 6,502,046 Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital Project, MBIA Insured, 6/01/23 .................................... 14,160,000 5,042,801 6/01/24 ................................................................... 13,005,000 4,359,536 Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A, 11/01/05 ................................................ 1,250,000 1,174,661
47 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) Riverside County SFMR, Capital Appreciation Mortgage, Series A, GNMA Secured, ETM, 9/01/14 ......................................$ 20,220,000 $ 12,958,995 Series A, GNMA Secured, ETM, 11/01/20 ..................................... 25,055,000 10,875,875 Series B, GNMA Secured, ETM, 6/01/23 ...................................... 26,160,000 9,410,795 Rocklin USD, GO, Capital Appreciation, Series A, FGIC Insured, 9/01/08 ................................................................... 3,660,000 3,132,555 9/01/09 ................................................................... 4,100,000 3,355,645 9/01/10 ................................................................... 4,595,000 3,582,810 9/01/11 ................................................................... 5,145,000 3,809,870 9/01/12 ................................................................... 5,760,000 4,064,025 9/01/16 ................................................................... 33,960,000 18,790,405 Roseville City School District GO, Capital Appreciation, Series A, 8/01/11 ................................................................... 3,115,000 2,293,170 8/01/17 ................................................................... 30,770,000 15,778,855 Roseville Joint UHSD, Capital Appreciation, Series A, 8/01/10 ................................................................... 1,820,000 1,406,475 8/01/11 ................................................................... 1,965,000 1,440,305 8/01/17 ................................................................... 18,155,000 9,298,265 San Diego USD, GO, Capital Appreciation Bond, Series A, FGIC Insured, 7/01/21 ................................................................... 12,160,000 4,952,525 7/01/22 ................................................................... 8,440,000 3,214,035 7/01/23 ................................................................... 11,120,000 3,983,850 San Francisco City and County RDA, Lease Revenue, George R. Moscone Center, Capital Appreciation, 7/01/05 ................................................................... 12,820,000 12,145,155 7/01/06 ................................................................... 11,320,000 10,418,020 7/01/07 ................................................................... 4,570,000 4,046,640 7/01/08 ................................................................... 7,785,000 6,616,935 Pre-Refunded, 7/01/16 ..................................................... 16,300,000 5,737,435 Pre-Refunded, 7/01/17 ..................................................... 16,300,000 5,279,405 Pre-Refunded, 7/01/18 ..................................................... 16,300,000 4,857,725 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, ETM, 1/01/25 .............................................................. 5,700,000 1,916,680 ETM, 1/01/28 .............................................................. 33,545,000 9,642,510 ETM, 1/01/29 .............................................................. 37,050,000 10,110,945 Refunding, Series A, 1/15/16 .............................................. 19,500,000 14,919,060 Refunding, Series A, 1/15/17 .............................................. 17,000,000 13,004,490 Refunding, Series A, 1/15/18 .............................................. 60,000,000 45,723,600 Refunding, Series A, 1/15/19 .............................................. 57,000,000 43,455,090 Refunding, Series A, 1/15/20 .............................................. 80,000,000 60,758,400 Refunding, Series A, 1/15/22 .............................................. 90,000,000 67,963,500 Refunding, Series A, 1/15/23 .............................................. 80,000,000 60,085,600 Refunding, Series A, 1/15/24 .............................................. 80,000,000 59,751,200 San Mateo UHSD GO, Capital Appreciation Election of 2000, Series B, FGIC Insured, 9/01/22 ....................................................... 5,000,000 1,888,600 Santa Maria Water and Wastewater Revenue, COP, Series A, AMBAC Insured, 8/01/27 ............................................................ 21,000,000 20,140,050
48 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) Southern California Public Power Authority Power Project Revenue, Refunding, Series A, AMBAC Insured, 7/01/11 ...................................................................$ 12,000,000 $ 8,936,040 7/01/12 ................................................................... 16,890,000 11,987,000 7/01/13 ................................................................... 16,000,000 10,733,920 Stockton East Water District COP, Refunding, Series B, 4/01/16 ............... 103,885,000 54,056,560 --------------- TOTAL ZERO COUPON/STEP-UP BONDS .............................................. 1,597,753,496 --------------- TOTAL LONG TERM INVESTMENTS (COST $13,327,285,683) ........................... 14,322,884,258 --------------- bSHORT TERM INVESTMENTS 1.8% California HFAR, MFH, Series D, Daily VRDN and Put, 2.00%, 2/01/31 .......... 4,605,000 4,605,000 California PCFA, PCR, Shell Oil Co. Project, Refunding, Series A, Daily VRDN and Put, 1.80%, 10/01/07 ........................................................... 2,300,000 2,300,000 1.80%, 10/01/10 ........................................................... 1,000,000 1,000,000 California Statewide CDA Revenue, COP, Sutter Health Obligated Group, AMBAC Insured, Daily VRDN and Put, 1.85%, 7/01/15 ................................. 16,300,000 16,300,000 Irvine 1915 Act, Special Assessment, AD No. 00-18, Series A, Daily VRDN and Put, 1.85%, 9/02/26 ................ 3,000,000 3,000,000 AD No. 87-8, Daily VRDN and Put, 1.85%, 9/02/24 ........................... 6,470,000 6,470,000 AD No. 93-14, Daily VRDN and Put, 1.80%, 9/02/25 .......................... 3,000,000 3,000,000 AD No. 94-15, Daily VRDN and Put, 1.85%, 9/02/20 .......................... 5,216,000 5,216,000 AD No. 97-13, Daily VRDN and Put, 1.85%, 9/02/23 .......................... 2,100,000 2,100,000 AD No. 97-16, Daily VRDN and Put, 1.85%, 9/02/22 .......................... 3,207,000 3,207,000 Irvine Ranch Water District COP, Capital Improvement Project, Daily VRDN and Put, 1.80%, 8/01/16 .............................................................. 1,900,000 1,900,000 Irvine Ranch Water District GO, ID No. 284, Series A, Daily VRDN and Put, 1.80%, 11/15/13 ................. 700,000 700,000 Nos. 105, 140, 240 and 250, Daily VRDN and Put, 1.80%, 1/01/21 ............ 18,570,000 18,570,000 Irvine Ranch Water District Revenue, Joint Powers Agency, Consolidated Bonds, DATES, Series C, Daily VRDN and Put, 1.85%, 10/01/10 ............................................................. 2,700,000 2,700,000 Nos. 140, 105, and 250, Daily VRDN and Put, 1.85%, 4/01/33 ............... 3,600,000 3,600,000 Los Angeles County MTA, Sales Tax Revenue, Proposition C, Refunding, Second Series A, MBIA Insured, Weekly VRDN and Put, 1.55%, 7/01/20 .......... 37,800,000 37,800,000 Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Weekly VRDN and Put, 1.80%, 7/01/35 ......................................... 5,800,000 5,800,000 Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series A, AMBAC Insured, Weekly VRDN and Put, 1.50%, 6/01/23 ... 6,000,000 6,000,000 Refunding, Series B-1, Daily VRDN and Put, 1.80%, 7/01/35 ................. 1,300,000 1,300,000 Series C-1, Daily VRDN and Put, 1.95%, 7/01/36 ............................ 35,250,000 35,250,000 Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Daily VRDN and Put, 1.75%, 10/01/22 ............................................................. 3,600,000 3,600,000 Orange County Sanitation Districts COP, Nos. 1-3, 5-7 and 11, Refunding, AMBAC Insured, Daily VRDN and Put, 1.85%, 8/01/16 .............................................................. 8,450,000 8,450,000 Refunding, Series A, Daily VRDN and Put, 1.85%, 8/01/29 ................... 4,200,000 4,200,000 Refunding, Series B, Daily VRDN and Put, 1.85%, 8/01/30 ................... 11,500,000 11,500,000 Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center, Series A, Daily VRDN and Put, 1.75%, 1/01/26 ........................ 3,300,000 3,300,000 Sacramento County MFHR, Series C, Weekly VRDN and Put, 1.50%, 4/15/07 ........ 11,400,000 11,400,000 Sacramento County Sanitation District Financing Authority Revenue, Series C, Weekly VRDN and Put, 1.55%, 12/01/30 ....................................... 17,500,000 17,500,000
49 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------- bSHORT TERM INVESTMENTS (CONT.) San Diego County MFHR, Nationwide, Series C, Weekly VRDN and Put, 1.55%, 4/15/05 ..................................................... $ 5,700,000 $ 5,700,000 San Leandro MFR, Parkside Commons, Series A, Weekly VRDN and Put, 1.55%, 7/15/18 .............................................................. 5,125,000 5,125,000 Southern California Public Power Authority Transmission Project Revenue, Southern Transmission, Refunding, Series A, Weekly VRDN and Put, 1.55%, 7/01/23 ..................................................... 9,600,000 9,600,000 Stanislaus Waste to Energy Financing Agency Revenue, Solid Waste Facility, Ogden Martin Systems Project, Refunding, MBIA Insured, Weekly VRDN and Put, 1.55%, 1/01/10 ........................... 16,300,000 16,300,000 Sulphur Springs USD, COP, Bridge Funding Program, FSA Insured, Weekly VRDN and Put, 3/01/27 ................................................ 5,000,000 5,000,000 --------------- TOTAL SHORT TERM INVESTMENTS (COST $262,493,000) ............................. 262,493,000 .............................................................................. --------------- TOTAL INVESTMENTS (COST $13,589,778,683) 99.0% ............................... 14,585,377,258 OTHER ASSETS, LESS LIABILITIES 1.0% .......................................... 143,281,190 .............................................................................. --------------- NET ASSETS 100.0% ............................................................ $14,728,658,448 ===============
See glossary of terms on page 51. 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. See notes to financial statements. 50 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2002 (UNAUDITED) (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 Revenue HFR - Home Financial Revenue HMR - Home Mortgage Revenue ID - Improvement District IDR - Industrial Development Revenue ISD - Independent School District LLC - Limited Liability Corporation LP - Limited Partnership MAC - Municipal Assistance Corporation MBIA - Municipal Bond Investors Assurance Corp. MBS - Mortgage-Backed Securities MFHR - Multi-Family Housing Revenue MFMR - Multi-Family Mortgage Revenue MFR - Multi-Family Revenue 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 Scool District USD - Unified Scool District VRDN - Variable Rate Demand Note 51 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2002 (UNAUDITED) Assets: Investments in securities: Cost ..................................................................... $13,589,778,683 =============== Value .................................................................... 14,585,377,258 Cash ...................................................................... 99,018 Receivables: Investment securities sold ............................................... 55,000 Capital shares sold ...................................................... 15,257,195 Interest ................................................................. 182,234,161 --------------- Total assets ......................................................... 14,783,022,632 --------------- Liabilities: Payables: Investment securities purchased .......................................... 19,453,511 Capital shares redeemed .................................................. 20,010,131 Affiliates ............................................................... 8,885,620 Shareholders ............................................................. 6,014,922 --------------- Total liabilities .................................................... 54,364,184 --------------- Net assets, at value ................................................ $14,728,658,448 =============== Net assets consist of: Undistributed net investment income ....................................... $ 27,383,463 Net unrealized appreciation ............................................... 995,598,575 Accumulated net realized gain ............................................. 8,905,190 Capital shares ............................................................ 13,696,771,220 --------------- Net assets, at value ................................................ $14,728,658,448 =============== CLASS A: Net asset value per share ($13,804,818,699 (DIVIDE) 1,863,096,125)(a) ..... $7.41 =============== Maximum offering price per share ($7.41 (DIVIDE) 95.75%) .................. $7.74 =============== CLASS B: Net asset value and maximum offering price per share ($382,137,104 (DIVIDE) 51,624,769)(a) ..................................... $7.40 =============== CLASS C: Net asset value per share ($527,628,201 (DIVIDE) 71,299,274)(a) ........... $7.40 =============== Maximum offering price per share ($7.40 (DIVIDE) 99.00%) .................. $7.47 =============== ADVISOR CLASS: Net asset value and maximum offering price per share ($14,074,444 (DIVIDE) 1,901,054) .......................................... $7.40 ===============
a Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 52 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
Investment income: Interest .................................................................. $ 391,182,095 -------------- Expenses: Management fees (Note 3) .................................................. 31,818,338 Distribution fees (Note 3) Class A .................................................................. 5,480,999 Class B .................................................................. 1,119,945 Class C .................................................................. 1,586,983 Transfer agent fees (Note 3) .............................................. 2,096,327 Custodian fees ............................................................ 70,493 Reports to shareholders ................................................... 146,547 Registration and filing fees .............................................. 77,979 Professional fees ......................................................... 69,336 Directors' fees and expenses .............................................. 63,312 Other ..................................................................... 169,063 -------------- Total expenses ....................................................... 42,699,322 -------------- Net investment income ............................................... 348,482,773 -------------- Realized and unrealized gains: Net realized gain from investments ........................................ 9,347,379 Net unrealized appreciation on investments ................................ 701,365,624 -------------- Net realized and unrealized gain ........................................... 710,713,003 -------------- Net increase in net assets resulting from operations ....................... $1,059,195,776 ==============
See notes to financial statements. 53 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) AND THE YEAR ENDED MARCH 31, 2002
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2002 MARCH 31, 2002 ---------------------------------------------- Operations: Net investment income .................................................... $ 348,482,773 $ 704,499,483 Net realized gain from investments ....................................... 9,347,379 62,087,625 Net unrealized appreciation (depreciation) on investments ................ 701,365,624 (379,336,633) ---------------------------------------------- Net increase in net assets resulting from operations ................. 1,059,195,776 387,250,475 Distributions to shareholders from: Net investment income: Class A .................................................................. (334,822,444) (673,191,575) Class B .................................................................. (7,603,767) (11,406,767) Class C .................................................................. (10,926,661) (19,234,450) Advisor Class ............................................................ (162,464) (25,328) Net realized gains: Class A .................................................................. (35,844,106) (16,372,051) Class B .................................................................. (925,547) (343,391) Class C .................................................................. (1,323,515) (548,755) Advisor Class ............................................................ (15,849) (866) ---------------------------------------------- Total distributions to shareholders ....................................... (391,624,353) (721,123,183) Capital share transactions (Note 2): Class A ................................................................. 161,163,386 52,809,934 Class B ................................................................. 56,483,845 122,806,232 Class C ................................................................. 40,299,631 81,588,572 Advisor Class ........................................................... 11,505,296 2,185,500 ---------------------------------------------- Total capital share transactions .......................................... 269,452,158 259,390,238 Net increase (decrease) in net assets ................................ 937,023,581 (74,482,470) Net assets Beginning of period ....................................................... 13,791,634,867 1,866,117,337 ---------------------------------------------- End of period ............................................................. $14,728,658,448 $13,791,634,867 ============================================== Undistributed net investment income included in net assets: End of period ............................................................. $ 27,383,463 $ 32,416,026 ==============================================
See notes to financial statements. 54 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (unaudited) 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. 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. 55 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (unaudited) (CONTINUED) 2. CAPITAL STOCK (CONT.) At September 30, 2002, there were five billion shares authorized ($.01 par value) for each class. Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2002 MARCH 31, 2002 -------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- CLASS A SHARES: Shares sold ......................................... 94,209,224 $ 677,356,699 174,943,242 $ 1,262,246,966 Shares issued in reinvestment of distributions ...... 24,357,935 174,201,978 40,982,687 295,540,527 Shares redeemed ..................................... (95,994,658) (690,395,290) (208,819,360) (1,504,977,559) -------------------------------------------------------------------- Net increase ........................................ 22,572,501 $ 161,163,387 7,106,569 $ 52,809,934 ==================================================================== CLASS B SHARES: Shares sold ......................................... 8,908,635 $ 64,018,062 19,095,111 $ 137,674,683 Shares issued in reinvestment of distributions ...... 771,235 5,510,854 1,015,426 7,323,863 Shares redeemed ..................................... (1,814,866) (13,045,071) (3,076,561) (22,192,314) -------------------------------------------------------------------- Net increase ........................................ 7,865,004 $ 56,483,845 17,033,976 $ 122,806,232 ==================================================================== CLASS C SHARES: Shares sold ......................................... 9,608,165 $ 69,122,157 17,896,658 $ 129,190,346 Shares issued in reinvestment of distributions ...... 1,119,297 7,996,885 1,703,765 12,279,668 Shares redeemed ..................................... (5,132,124) (36,819,412) (8,309,791) (59,881,442) -------------------------------------------------------------------- Net increase ........................................ 5,595,338 $ 40,299,630 11,290,632 $ 81,588,572 ==================================================================== ADVISOR CLASS:(a) Shares sold ......................................... 1,669,397 $ 12,010,745 342,512 $ 2,473,617 Shares issued in reinvestment of distributions ...... 20,472 146,832 3,067 22,087 Shares redeemed ..................................... (90,804) (652,281) (43,590) (310,204) -------------------------------------------------------------------- Net increase ........................................ 1,599,065 $ 11,505,296 301,989 $ 2,185,500 ====================================================================
a For the period October 1, 2001 (effective date) to March 31, 2002. 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. 56 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (unaudited) (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONT.) 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 the Fund shares, and received contingent deferred sales charges for the year of $2,603,224 and $369,329, respectively. The Fund paid transfer agent fees of $2,096,327 of which $1,504,690 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 treatment of wash sales, bond workout expenditures, and bond discounts. At September 30, 2002, the cost of investment and net unrealized appreciation for income tax purposes were as follows: Cost of investments ............... $13,579,682,213 ================ Unrealized appreciation ........... $ 1,138,645,738 Unrealized depreciation ........... (132,950,693) ---------------- Net unrealized appreciation ....... $ 1,005,695,045 ================ 57 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (unaudited) (CONTINUED) 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended September 30, 2002 aggregated $470,667,396 and $618,678,981, respectively. 6. DEFAULTED SECURITIES At September 30, 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. 58 This page intentionally left blank. This page intentionally left blank. 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[REGISTRATION MARK] (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 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 Capital Growth Fund(1) Franklin DynaTech Fund Franklin Flex Cap Growth Fund(2) Franklin Gold and Precious Metals Fund Franklin Growth Fund Franklin Large Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Technology Fund GROWTH & INCOME 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 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(3) Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust(4) Franklin Short-Intermediate U.S. Government Securities Fund(3) Franklin Strategic Income Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund3 Franklin Federal Money Fund(3,5) Franklin Money Fund(3,5) TAX-FREE INCOME(6) 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(7) Tax-Exempt Money Fund(3,5) STATE-SPECIFIC TAX-FREE INCOME(6) Alabama Arizona California(8) Colorado Connecticut Florida(8) Georgia Kentucky Louisiana Maryland Massachusetts(7) Michigan(7) Minnesota(7) Missouri New Jersey New York(8) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(9) 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 California Growth Fund. Effective 9/1/02, the fund's name changed and its investment criteria was modified to invest a majority of its net assets in California companies, as opposed to at least 80% of net assets. 3. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 4. 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. 5. No assurance exists that the fund's $1.00 per share price will be maintained. It is possible to lose money by investing in the fund. 6. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 7. Portfolio of insured municipal securities. 8. 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). 9. 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. 09/02 [LOGO OMITTED] FRANKLIN[REGISTRATION MARK] TEMPLETON[REGISTRATION MARK] INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? ----------------------------------------------- ELIGIBLE SHAREHOLDERS CAN SIGN UP FOR EDELIVERY AT FRANKLINTEMPLETON.COM. SEE INSIDE FOR DETAILS. SEMIANNUAL REPORT FRANKLIN CALIFORNIA TAX-FREE INCOME FUND INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. 1-800/DIAL BEN[REGISTRATION MARK] 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 S2002 11/02 [LOGO OMITTED] Printed on recycled paper