N-30D 1 fctfifundn30da.txt Annual Report [GRAPHIC OMITTED] MARCH 31, 2003 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] FRANKLIN(R) TEMPLETON(R) 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 in at franklintempleton.com and click on eDelivery. Shareholders who are registered at franklintempleton.com can receive these reports via email. Not all accounts are eligible for eDelivery. SHAREHOLDER LETTER -------------------------------------------------------------------------------- YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: 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 annual report for the fiscal year ended March 31, 2003. During the 12 months under review, we saw considerable nervousness in both the U.S. equity and bond markets as a result of rising tensions with North Korea and the onset of war in Iraq. More questions remain about the war's duration and severity, and all the possible scenarios have different implications for the financial markets. The year under review was a period of significant equity market volatility. Gross domestic product grew at an estimated 2.4% rate in 2002. Economic activity in the first half of 2002 led to expectations by many that the stock market was poised to turn around. However, a spate of corporate bankruptcies and accounting scandals, as well as increasing geopolitical tension, led to significant stock market declines CONTENTS Shareholder Letter ................ 1 Performance Summary ............... 10 Special Feature: Understanding Your Tax-Free Income Fund .............. 14 Municipal Bond Ratings ............ 19 Financial Highlights & Statement of Investments .......... 22 Financial Statements .............. 55 Notes to Financial Statements .............. 59 Independent Auditors' Report .................. 63 Tax Designation ................... 64 Board Members and Officers ...................... 65 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PYRAMID GRAPHIC AS FOLLOWS: Global Growth Growth & Income Income Tax-Free Income 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 26. -------------------------------------------------------------------------------- NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE -------------------------------------------------------------------------------- and investor uncertainty. Largely as a result, the bond market performed well as investors diversified into fixed income securities. At the beginning of the reporting period, the 10-year Treasury note yielded 5.42%, which dropped to 3.83% on March 31, 2003. Over the same period, the Dow Jones Industrial Average, Standard & Poor's 500 Composite Index (S&P 500) and Nasdaq Composite Index fell 21.42%, 24.76% and 26.87%, respectively, which tended to steer investors to allocating assets in more conservative investments such as municipal and government bonds. 2 With $357 billion in municipal bonds issued nationwide in 2002, the industry outpaced the $293 billion record set in 1993. 3 This high issuance level can be attributed largely to the low interest rate environment, which created attractive opportunities for municipalities to refinance higher interest rate debt and borrow inexpensively for current finance needs. At the same time, demand was very healthy, due in part to the "flight to quality" resulting from negative equity market performance and uncertainty. Although most investors sought the safety of Treasury obligations, municipal bonds benefited as well. Lower long-term interest rates resulting from increased demand translated into solid price performance for bonds because long-term interest rates and bond prices move in opposite directions. 2. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price-weighted based on the average market price of 30 blue chip stocks of companies that are generally industry leaders. Total return, calculated by Wilshire Associates Inc., includes reinvested dividends. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The Nasdaq Composite Index measures all domestic and international common stocks listed on the Nasdaq Stock Market. The index is market value-weighted and includes over 4,000 companies. 3. Source: THE BOND BUYER. The Bond Buyer 40 comprises 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 29-30 years. 2 During the year under review, the yield for the Bond Buyer Municipal Bond Index (Bond Buyer 40), an indicator of municipal bond market performance, fell from 5.44% at the beginning of the reporting period to 4.99% on March 31, 2003. 3 In our opinion, the government bond market outperformed the municipal bond market primarily for two reasons. First, the government bond market is broader and deeper than the municipal bond market; therefore, more investors turned to U.S. government bonds for safety when financial markets experienced increased volatility. Second, given the low interest rate environment during the period, many municipalities issued debt, substantially increasing supply. Still, relative to Treasuries, municipal bonds continued to offer significant value. For example, during the 12-month period, the Bond Buyer 40 yielded as much as 108% of the 30-year Treasury bond's yield. 3 At that level, investors were essentially getting the tax exemption municipal bonds offer for free. In addition, investors incurred a minimal amount of extra risk because, on a credit quality basis, municipal bonds are considered to be the safest investment after Treasuries. 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. CALIFORNIA ECONOMIC UPDATE During the year under review, California's economy continued to experience a significant slowdown resulting from weaker -------------------------------------------------------------------------------- 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 small portion of this income may taxable. Distributions of capital gains are generally taxable. 3 exports, the sluggish national economy and a poor-performing information technology sector. The state's personal income growth lagged the nation's, partly due to capital gains reductions for the state's many high-technology entrepreneurs. California's exposure to the high-technology sector may continue to temper near-term employment growth as the semiconductor and personal computer manufacturing industries are not expected to rebound as quickly as other economic sectors. Not surprisingly, California's reliance on taxes, particularly capital gains taxes, from a small percentage of wealthy taxpayers exacerbated its revenue problem. In fiscal year 2002, the state experienced a dramatic 16.1% revenue collection decline, largely due to reduced stock market-related tax collections. 4 The governor balanced California's fiscal year 2002 budget through a variety of methods, including expenditure reductions, increased federal funding, loans from other special funds, a power revenue bond, tobacco settlement-backed bonds and a restructuring of outstanding GO debt. Fiscal year 2002 closed with a positive budgetary balance of $72.2 million but with a negative budgetary reserve of $1.4 billion. 5 State tax-supported debt levels are expected to remain moderate, despite increasing issuance of GO bonds for local schools, higher education and other purposes, as well as debt restructuring to partially defer debt payments in fiscal year 2003. The state's GO and lease debt load was $865 per capita as of October 2002, and even as new bond authorizations materialize, California's debt levels should still be at moderate levels. 5 4. Source: Moody's Investors Service, NEW ISSUE: CALIFORNIA (STATE OF), 10/8/02. 5. Source: Standard & Poor's, RATINGSDIRECT, 10/9/02. 4 In November 2002, voters approved over $18 billion worth of California GO bonds. Fears of increased issuance by the state and its municipalities caused California bond prices to drop relative to out-of-state issues. On December 19, 2002, independent credit rating agency Standard & Poor's downgraded California's GO debt to A from A+ with a stable outlook. Moody's Investors Service followed with a similar downgrade to A2 from A1 with a stable outlook on February 14, 2003. 6 In our opinion, it is highly unlikely for 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. We anticipate continued demand strength by retail and institutional investors, who in 2002 purchased a record $49 billion in California bonds. 3 Thus, despite near-term challenges, we expect the state to be able to meet its short-term and long-term debt obligations. PORTFOLIO NOTES For the year ended March 31, 2003, municipal bonds performed well despite very strong municipal bond issuance. Many investors were concerned about the bond market's historically low yields as well as the sustainability of recent performance. Although short-term volatility can be expected, low inflation levels and the economic recovery's sluggish pace should bode well for municipal bonds. Significant economic growth will require increased capital expenditures by business and a reversal in the growing unemployment trend. Because municipal bond yields generally declined during the reporting period, and bond prices rise when yields fall, Franklin QUALITY BREAKDOWN* Based on Total long-Term Investments 3/31/03 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: AAA - 54.0% AA - 6.7% A - 19.7% BBB - 18.6% Below Investment Grade - 1.0% *Quality breakdown may include internal ratings for bonds not rated by an independent rating agency. 6. These do not indicate ratings of the Fund. 5 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 $7.24 on March 31, 2003. During the period under review, we maintained the Fund's high credit quality, and at period-end 60.7% of the Fund's total long-term investments were rated AA or better. Interest rates fluctuated during the period, reaching low points in October and March, as economic expectations rose and fell. California continued battling its budget deficit, and the long-awaited $11 billion California energy bond issuance finally came to market in early November. The Fund partook in this California Department of Water Resources' Power Supply issue, which Moody's and Standard & Poor's rated A3 and BBB+. The state and its municipalities took advantage of intervals of low interest rates by coming to market with large volume. California issued $900 million in GO bonds in early 2003 while the Los Angeles Unified School District (USD) issued $2 billion in February and $500 million in March. These bonds were well received, since the yields were over 100% of Treasury yields and cheaper than similar bonds outside California. Entering the market were many buyers who do not usually buy California bonds because they were too expensive, and they provided liquidity. The Fund purchased bonds from the first Los Angeles USD issue, which Moody's rated Aa3. The Fund was subject to bond calls during the 12-month reporting period as many municipal bond issuers sought to take advantage of lower interest rates and exercised call options on their outstanding higher-coupon bonds. In general, we were 6 limited to reinvesting the proceeds at current, lower interest rates. For example, Los Angeles Wastewater System Revenue came to market with refunding bonds, which caused bonds with 5.70% and 5.80% rates to have a June 2003 call date. The Fund owned a substantial amount of these bonds, so we sold some of them at a premium to pay for new bonds, which were issued at 5.00% due in 2025, 2026 and 2027 with yields less than 4.90%, and at 4.875% due in 2029 priced at par. These types of transactions tended to reduce the Fund's income and cause dividend distributions to decline slightly. We invite you to read the special feature, "Understanding Your Tax-Free Income Fund," which explains why dividends and bond fund prices fluctuate. Keep in mind that your Fund combines the advantage of high credit quality with tax-free yields. 1 The Performance Summary beginning on page 10 shows that the Fund's Class A shares' distribution rate was 4.60%, based on an annualization of March's 2.90 cent ($0.029) per share dividend and the maximum offering price of $7.56 per share on March 31, 2003. 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 8.27% 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 Class B, C and Advisor shares. With the uncertainty brought on by the war, large state and municipal budget deficits, and the slow pace of economic PORTFOLIO BREAKDOWN 3/31/03 % OF TOTAL LONG-TERM INVESTMENTS ---------------------------------------------- Transportation 17.5% Hospital & Health Care 14.5% Utilities 13.9% General Obligation 13.3% Tax-Supported 11.0% Subject to Government Appropriations 10.6% Prerefunded 10.4% Housing 3.5% Other Revenue 3.4% Higher Education 1.9% 7 DIVIDEND DISTRIBUTIONS 4/1/02-3/31/03
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 October 3.00 cents 2.66 cents 2.66 cents 3.05 cents November 3.00 cents 2.66 cents 2.66 cents 3.05 cents December 2.90 cents 2.56 cents 2.56 cents 2.95 cents January 2.90 cents 2.56 cents 2.56 cents 2.95 cents February 2.90 cents 2.56 cents 2.56 cents 2.95 cents March 2.90 cents 2.55 cents 2.56 cents 2.95 cents ------------------------------------------------------------------------------------------------ TOTAL 35.70 CENTS 31.69 CENTS 31.68 CENTS 36.30 CENTS ------------------------------------------------------------------------------------------------
recovery, interest rates will probably continue to fluctuate, in our view. We think the Fund is well positioned to take advantage of opportunities that may arise. 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 investment strategy as we attempt to provide shareholders with high, current, tax-free income. 8 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/SIGNATURE Charles B. Johnson Chairman Franklin California Tax-Free Income Fund /S/SIGNATURE Sheila Amoroso /S/SIGNATURE Rafael R. Costas Jr. Senior Vice Presidents/Co-Directors Franklin Municipal Bond Department -------------------------------------------------------------------------------- A NOTE ABOUT DUPLICATE MAILINGS YOU WILL RECEIVE YOUR 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 analysis, opinions and portfolio holdings as of March 31, 2003, the end of the reporting period. Our strategies and the Fund's portfolio composition will change depending on market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the advisor makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy. -------------------------------------------------------------------------------- 9 PERFORMANCE SUMMARY AS OF 3/31/03 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 AND GRAPHS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PRICE AND DISTRIBUTION INFORMATION CLASS A CHANGE 3/31/03 3/31/02 -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.17 $7.24 $7.07 DISTRIBUTIONS (4/1/02-3/31/03) Dividend Income $0.3570 Long-Term Capital Gain $0.0295 ------- Total $0.3865 CLASS B CHANGE 3/31/03 3/31/02 -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.17 $7.23 $7.06 DISTRIBUTIONS (4/1/02-3/31/03) Dividend Income $0.3169 Long-Term Capital Gain $0.0295 ------- Total $0.3464 CLASS C CHANGE 3/31/03 3/31/02 -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.17 $7.23 $7.06 DISTRIBUTIONS (4/1/02-3/31/03) Dividend Income $0.3168 Long-Term Capital Gain $0.0295 ------- Total $0.3463 ADVISOR CLASS CHANGE 3/31/03 3/31/02 -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.16 $7.23 $7.07 DISTRIBUTIONS (4/1/02-3/31/03) Dividend Income $0.3630 Long-Term Capital Gain $0.0295 ------- Total $0.3925 -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Franklin California Tax-Free Income Fund paid distributions derived from long-term capital gains totaling 2.95 cents ($0.0295) per share in July and December 2002. The Fund hereby designates such distributions as capital gain dividends per Internal Revenue Code Section 852 (b)(3). Past performance does not guarantee future results. 10 PERFORMANCE SUMMARY (CONT.) PERFORMANCE 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). 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 3/31/03. 4. Taxable equivalent distribution rate and yield assume the published rates as of 12/26/02 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 3/31/03. 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 +7.14% and +4.72%. CLASS A 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return 1 +8.05% +28.71% +76.47% Average Annual Total Return 2 +3.52% +4.26% +5.38% Distribution Rate 3 4.60% Taxable Equivalent Distribution Rate 4 8.27% 30-Day Standardized Yield 5 3.77% Taxable Equivalent Yield 4 6.77% INCEPTION CLASS B 1-YEAR 3-YEAR (1/1/99) -------------------------------------------------------------------------------- Cumulative Total Return 1 +7.46% +21.32% +19.31% Average Annual Total Return 2 +3.46% +5.77% +3.84% Distribution Rate 3 4.23% Taxable Equivalent Distribution Rate 4 7.60% 30-Day Standardized Yield 5 3.38% Taxable Equivalent Yield 4 6.07% INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) -------------------------------------------------------------------------------- Cumulative Total Return 1 +7.46% +24.99% +53.29% Average Annual Total Return 2 +5.42% +4.36% +5.41% Distribution Rate 3 4.21% Taxable Equivalent Distribution Rate 4 7.56% 30-Day Standardized Yield 5 3.34% Taxable Equivalent Yield 4 6.00% ADVISOR CLASS 6 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return 1 +8.00% +28.69% +76.44% Average Annual Total Return 2 +8.00% +5.17% +5.84% Distribution Rate 3 4.90% Taxable Equivalent Distribution Rate 4 8.79% 30-Day Standardized Yield 5 4.01% Taxable Equivalent Yield 4 7.20% -------------------------------------------------------------------------------- Ongoing market volatility can significantly affect short-term performance; more recent returns may differ from those shown. 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. -------------------------------------------------------------------------------- For more current performance, see "Funds and Performance" at franklintempleton.com or call 1-800/342-5236. Past performance does not guarantee future results. 11 PERFORMANCE SUMMARY (CONT.) TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER THE PERIODS SHOWN. IT INCLUDES THE CURRENT, APPLICABLE, MAXIMUM SALES CHARGE(S), FUND EXPENSES, ACCOUNT FEES AND REINVESTED DISTRIBUTIONS. THE UNMANAGED INDEX INCLUDES REINVESTED INTEREST. IT DIFFERS FROM THE FUND IN COMPOSITION AND DOES NOT PAY MANAGEMENT FEES OR EXPENSES. ONE CANNOT INVEST DIRECTLY IN AN INDEX. THE CONSUMER PRICE INDEX (CPI), CALCULATED BY THE U.S. BUREAU OF LABOR STATISTICS, IS A COMMONLY USED MEASURE OF THE INFLATION RATE. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: The following line graph compares the performance of Franklin California Tax-Free Income Fund - Class A with that of the Lehman Brothers Municipal Bond Index 7 and CPI 7, based on a $10,000 investment from 4/1/93 to 3/31/03. Franklin California Lehman Brothers Tax-Free Income Municipal Date Fund-Class A Bond Index 7 CPI 7 4/1/93 9,571 10,000 10,000 4/30/93 9,635 10,101 10,028 5/31/93 9,673 10,158 10,042 6/30/93 9,833 10,327 10,056 7/31/93 9,819 10,341 10,056 8/31/93 10,044 10,556 10,084 9/30/93 10,137 10,676 10,105 10/31/93 10,160 10,696 10,147 11/30/93 10,088 10,602 10,154 12/31/93 10,188 10,826 10,154 1/31/94 10,293 10,949 10,181 2/28/94 10,138 10,666 10,216 3/31/94 9,871 10,232 10,251 4/30/94 9,909 10,319 10,265 5/31/94 9,988 10,408 10,272 6/30/94 9,956 10,345 10,307 7/31/94 10,093 10,534 10,335 8/31/94 10,145 10,571 10,376 9/30/94 10,070 10,416 10,404 10/31/94 9,950 10,230 10,412 11/30/94 9,817 10,045 10,425 12/31/94 9,899 10,266 10,425 1/31/95 10,143 10,560 10,467 2/28/95 10,403 10,867 10,509 3/31/95 10,502 10,992 10,543 4/30/95 10,527 11,005 10,578 5/31/95 10,776 11,356 10,599 6/30/95 10,712 11,257 10,621 7/31/95 10,783 11,364 10,621 8/31/95 10,884 11,509 10,648 9/30/95 10,956 11,581 10,670 10/31/95 11,104 11,749 10,705 11/30/95 11,269 11,944 10,697 12/31/95 11,388 12,059 10,690 1/31/96 11,446 12,150 10,753 2/29/96 11,394 12,068 10,787 3/31/96 11,279 11,913 10,843 4/30/96 11,259 11,880 10,886 5/31/96 11,286 11,875 10,906 6/30/96 11,406 12,005 10,913 7/31/96 11,480 12,113 10,934 8/31/96 11,506 12,110 10,954 9/30/96 11,663 12,280 10,989 10/31/96 11,771 12,419 11,025 11/30/96 11,945 12,646 11,045 12/31/96 11,922 12,593 11,045 1/31/97 11,932 12,617 11,081 2/28/97 12,043 12,733 11,115 3/31/97 11,918 12,563 11,143 4/30/97 12,013 12,669 11,156 5/31/97 12,176 12,860 11,150 6/30/97 12,271 12,998 11,163 7/31/97 12,554 13,358 11,176 8/31/97 12,494 13,232 11,198 9/30/97 12,641 13,390 11,226 10/31/97 12,720 13,476 11,254 11/30/97 12,816 13,555 11,247 12/31/97 12,972 13,753 11,233 1/31/98 13,087 13,895 11,255 2/28/98 13,113 13,899 11,276 3/31/98 13,122 13,911 11,298 4/30/98 13,092 13,849 11,318 5/31/98 13,277 14,067 11,338 6/30/98 13,333 14,122 11,352 7/31/98 13,356 14,158 11,366 8/31/98 13,545 14,377 11,379 9/30/98 13,734 14,557 11,393 10/31/98 13,739 14,557 11,420 11/30/98 13,819 14,608 11,420 12/31/98 13,814 14,644 11,413 1/31/99 13,946 14,819 11,441 2/28/99 13,930 14,753 11,454 3/31/99 13,966 14,774 11,489 4/30/99 13,985 14,811 11,573 5/31/99 13,888 14,725 11,573 6/30/99 13,688 14,513 11,573 7/31/99 13,707 14,565 11,607 8/31/99 13,515 14,449 11,635 9/30/99 13,496 14,454 11,691 10/31/99 13,264 14,298 11,712 11/30/99 13,382 14,450 11,719 12/31/99 13,208 14,342 11,719 1/31/00 13,072 14,278 11,754 2/29/00 13,312 14,444 11,824 3/31/00 13,692 14,759 11,921 4/30/00 13,554 14,672 11,928 5/31/00 13,495 14,596 11,942 6/30/00 13,881 14,982 12,004 7/31/00 14,105 15,191 12,032 8/31/00 14,392 15,425 12,032 9/30/00 14,333 15,344 12,094 10/31/00 14,479 15,512 12,115 11/30/00 14,563 15,630 12,122 12/31/00 14,876 16,016 12,115 1/31/01 15,024 16,174 12,191 2/28/01 15,067 16,226 12,240 3/31/01 15,195 16,372 12,268 4/30/01 14,944 16,195 12,317 5/31/01 15,116 16,370 12,373 6/30/01 15,202 16,480 12,394 7/31/01 15,459 16,724 12,359 8/31/01 15,825 17,000 12,359 9/30/01 15,761 16,942 12,415 10/31/01 15,892 17,143 12,372 11/30/01 15,850 16,999 12,351 12/31/01 15,674 16,838 12,303 1/31/02 15,872 17,129 12,332 2/28/02 15,961 17,335 12,381 3/31/02 15,631 16,995 12,450 4/30/02 15,854 17,326 12,520 5/31/02 15,966 17,432 12,520 6/30/02 16,123 17,617 12,527 7/31/02 16,280 17,844 12,541 8/31/02 16,461 18,058 12,583 9/30/02 16,847 18,454 12,604 10/31/02 16,482 18,147 12,625 11/30/02 16,459 18,071 12,625 12/31/02 16,733 18,452 12,598 1/31/03 16,662 18,406 12,653 2/28/03 16,869 18,664 12,750 3/31/03 16,890 18,675 12,827 AVERAGE ANNUAL TOTAL RETURN CLASS A 3/31/03 -------------------------------------------------------------------------------- 1-Year +3.52% 5-Year +4.26% 10-Year +5.38% [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: The following line graph compares the performance of Franklin California Tax-Free Income Fund - Class B with that of the Lehman Brothers Municipal Bond Index 7 and CPI 7, based on a $10,000 investment from 1/1/99 to 3/31/03. Franklin California Lehman Brothers Tax-Free Income Municipal Date Fund-Class B Bond Index 7 CPI 7 1/1/99 10,000 10,000 10,000 1/31/99 10,083 10,119 10,024 2/28/99 10,079 10,074 10,036 3/31/99 10,088 10,089 10,066 4/30/99 10,098 10,114 10,140 5/31/99 10,038 10,055 10,140 6/30/99 9,875 9,910 10,140 7/31/99 9,884 9,946 10,170 8/31/99 9,739 9,866 10,194 9/30/99 9,736 9,870 10,243 10/31/99 9,550 9,764 10,262 11/30/99 9,644 9,867 10,268 12/31/99 9,514 9,793 10,268 1/31/00 9,412 9,750 10,299 2/29/00 9,566 9,863 10,360 3/31/00 9,835 10,078 10,444 4/30/00 9,745 10,019 10,451 5/31/00 9,699 9,967 10,463 6/30/00 9,956 10,231 10,518 7/31/00 10,113 10,373 10,542 8/31/00 10,329 10,533 10,542 9/30/00 10,281 10,478 10,597 10/31/00 10,366 10,592 10,615 11/30/00 10,422 10,673 10,621 12/31/00 10,655 10,936 10,615 1/31/01 10,741 11,045 10,682 2/28/01 10,767 11,080 10,724 3/31/01 10,869 11,180 10,749 4/30/01 10,684 11,059 10,792 5/31/01 10,787 11,178 10,841 6/30/01 10,843 11,253 10,859 7/31/01 11,022 11,420 10,829 8/31/01 11,293 11,608 10,829 9/30/01 11,227 11,569 10,877 10/31/01 11,330 11,707 10,840 11/30/01 11,279 11,608 10,822 12/31/01 11,148 11,498 10,780 1/31/02 11,285 11,697 10,804 2/28/02 11,343 11,837 10,848 3/31/02 11,103 11,605 10,908 4/30/02 11,256 11,831 10,970 5/31/02 11,331 11,904 10,970 6/30/02 11,437 12,030 10,976 7/31/02 11,543 12,185 10,988 8/31/02 11,667 12,331 11,024 9/30/02 11,935 12,601 11,043 10/31/02 11,687 12,392 11,062 11/30/02 11,665 12,340 11,062 12/31/02 11,838 12,600 11,038 1/31/03 11,782 12,569 11,086 2/28/03 11,939 12,745 11,172 3/31/03 11,736 12,753 11,239 AVERAGE ANNUAL TOTAL RETURN CLASS B 3/31/03 -------------------------------------------------------------------------------- 1-Year +3.46% 3-Year +5.77% Since Inception (1/1/99) +3.84% Past performance does not guarantee future results. 12 PERFORMANCE SUMMARY (CONT.) [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: The following line graph compares the performance of Franklin California Tax-Free Income Fund - Class C with that of the Lehman Brothers Municipal Bond Index 7 and CPI 7, based on a $10,000 investment from 5/1/95 to 3/31/03. Franklin California Lehman Brothers Tax-Free Income Municipal Date Fund-Class C Bond Index 7 CPI 7 5/1/95 9,902 10,000 10,000 5/31/95 10,140 10,319 10,020 6/30/95 10,060 10,229 10,040 7/31/95 10,121 10,326 10,040 8/31/95 10,211 10,458 10,066 9/30/95 10,286 10,523 10,086 10/31/95 10,406 10,676 10,120 11/30/95 10,569 10,853 10,112 12/31/95 10,675 10,957 10,105 1/31/96 10,723 11,041 10,165 2/29/96 10,668 10,966 10,198 3/31/96 10,562 10,825 10,251 4/30/96 10,537 10,795 10,291 5/31/96 10,542 10,791 10,310 6/30/96 10,649 10,908 10,316 7/31/96 10,728 11,006 10,336 8/31/96 10,747 11,004 10,356 9/30/96 10,873 11,158 10,389 10/31/96 10,984 11,284 10,422 11/30/96 11,127 11,491 10,442 12/31/96 11,100 11,443 10,442 1/31/97 11,104 11,464 10,475 2/28/97 11,202 11,570 10,508 3/31/97 11,096 11,416 10,534 4/30/97 11,179 11,512 10,547 5/31/97 11,309 11,686 10,540 6/30/97 11,393 11,811 10,553 7/31/97 11,667 12,138 10,565 8/31/97 11,590 12,024 10,586 9/30/97 11,722 12,167 10,612 10/31/97 11,788 12,245 10,639 11/30/97 11,872 12,317 10,632 12/31/97 12,027 12,497 10,619 1/31/98 12,128 12,626 10,640 2/28/98 12,130 12,629 10,660 3/31/98 12,149 12,641 10,680 4/30/98 12,098 12,584 10,699 5/31/98 12,264 12,783 10,719 6/30/98 12,309 12,832 10,731 7/31/98 12,342 12,865 10,744 8/31/98 12,510 13,064 10,757 9/30/98 12,679 13,227 10,770 10/31/98 12,679 13,227 10,796 11/30/98 12,729 13,274 10,796 12/31/98 12,719 13,307 10,789 1/31/99 12,835 13,465 10,815 2/28/99 12,831 13,406 10,828 3/31/99 12,841 13,425 10,861 4/30/99 12,852 13,458 10,940 5/31/99 12,774 13,380 10,940 6/30/99 12,566 13,187 10,940 7/31/99 12,577 13,235 10,973 8/31/99 12,394 13,129 10,999 9/30/99 12,389 13,134 11,052 10/31/99 12,152 12,992 11,072 11/30/99 12,273 13,130 11,079 12/31/99 12,107 13,032 11,079 1/31/00 11,977 12,974 11,112 2/29/00 12,173 13,125 11,177 3/31/00 12,516 13,411 11,269 4/30/00 12,402 13,332 11,276 5/31/00 12,325 13,263 11,289 6/30/00 12,672 13,614 11,348 7/31/00 12,871 13,803 11,374 8/31/00 13,146 14,016 11,374 9/30/00 13,067 13,943 11,433 10/31/00 13,194 14,095 11,453 11/30/00 13,265 14,202 11,460 12/31/00 13,562 14,553 11,453 1/31/01 13,671 14,697 11,525 2/28/01 13,705 14,744 11,571 3/31/01 13,814 14,877 11,598 4/30/01 13,579 14,716 11,644 5/31/01 13,728 14,875 11,696 6/30/01 13,800 14,974 11,716 7/31/01 14,028 15,196 11,683 8/31/01 14,373 15,447 11,683 9/30/01 14,289 15,394 11,736 10/31/01 14,420 15,578 11,696 11/30/01 14,355 15,447 11,676 12/31/01 14,189 15,300 11,631 1/31/02 14,362 15,565 11,657 2/28/02 14,436 15,751 11,704 3/31/02 14,130 15,443 11,770 4/30/02 14,325 15,744 11,836 5/31/02 14,420 15,840 11,836 6/30/02 14,556 16,008 11,843 7/31/02 14,690 16,214 11,856 8/31/02 14,848 16,409 11,895 9/30/02 15,189 16,768 11,915 10/31/02 14,853 16,490 11,935 11/30/02 14,825 16,421 11,935 12/31/02 15,065 16,767 11,909 1/31/03 14,994 16,725 11,961 2/28/03 15,194 16,959 12,054 3/31/03 15,179 16,969 12,126 AVERAGE ANNUAL TOTAL RETURN CLASS C 3/31/03 -------------------------------------------------------------------------------- 1-Year +5.42% 5-Year +4.36% Since Inception (5/1/95) +5.41% [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: The following line graph compares the performance of Franklin California Tax-Free Income Fund - Advisor Class with that of the Lehman Brothers Municipal Bond Index 7 and CPI 7, based on a $10,000 investment from 4/1/93 to 3/31/03. Franklin California Lehman Brothers Tax-Free Income Fund- Municipal Date Advisor Class Bond Index 7 CPI 7 4/1/93 $10,000 10,000 10,000 4/30/93 $10,067 10,101 10,028 5/31/93 $10,106 10,158 10,042 6/30/93 $10,274 10,327 10,056 7/31/93 $10,259 10,341 10,056 8/31/93 $10,495 10,556 10,084 9/30/93 $10,591 10,676 10,105 10/31/93 $10,615 10,696 10,147 11/30/93 $10,541 10,602 10,154 12/31/93 $10,644 10,826 10,154 1/31/94 $10,755 10,949 10,181 2/28/94 $10,593 10,666 10,216 3/31/94 $10,314 10,232 10,251 4/30/94 $10,353 10,319 10,265 5/31/94 $10,437 10,408 10,272 6/30/94 $10,403 10,345 10,307 7/31/94 $10,546 10,534 10,335 8/31/94 $10,601 10,571 10,376 9/30/94 $10,522 10,416 10,404 10/31/94 $10,398 10,230 10,412 11/30/94 $10,258 10,045 10,425 12/31/94 $10,344 10,266 10,425 1/31/95 $10,600 10,560 10,467 2/28/95 $10,871 10,867 10,509 3/31/95 $10,975 10,992 10,543 4/30/95 $11,001 11,005 10,578 5/31/95 $11,262 11,356 10,599 6/30/95 $11,194 11,257 10,621 7/31/95 $11,268 11,364 10,621 8/31/95 $11,374 11,509 10,648 9/30/95 $11,449 11,581 10,670 10/31/95 $11,605 11,749 10,705 11/30/95 $11,776 11,944 10,697 12/31/95 $11,901 12,059 10,690 1/31/96 $11,961 12,150 10,753 2/29/96 $11,907 12,068 10,787 3/31/96 $11,787 11,913 10,843 4/30/96 $11,765 11,880 10,886 5/31/96 $11,794 11,875 10,906 6/30/96 $11,920 12,005 10,913 7/31/96 $11,997 12,113 10,934 8/31/96 $12,024 12,110 10,954 9/30/96 $12,187 12,280 10,989 10/31/96 $12,301 12,419 11,025 11/30/96 $12,483 12,646 11,045 12/31/96 $12,459 12,593 11,045 1/31/97 $12,469 12,617 11,081 2/28/97 $12,584 12,733 11,115 3/31/97 $12,454 12,563 11,143 4/30/97 $12,552 12,669 11,156 5/31/97 $12,723 12,860 11,150 6/30/97 $12,824 12,998 11,163 7/31/97 $13,120 13,358 11,176 8/31/97 $13,057 13,232 11,198 9/30/97 $13,211 13,390 11,226 10/31/97 $13,293 13,476 11,254 11/30/97 $13,394 13,555 11,247 12/31/97 $13,557 13,753 11,233 1/31/98 $13,676 13,895 11,255 2/28/98 $13,704 13,899 11,276 3/31/98 $13,713 13,911 11,298 4/30/98 $13,682 13,849 11,318 5/31/98 $13,876 14,067 11,338 6/30/98 $13,934 14,122 11,352 7/31/98 $13,960 14,158 11,366 8/31/98 $14,156 14,377 11,379 9/30/98 $14,355 14,557 11,393 10/31/98 $14,360 14,557 11,420 11/30/98 $14,444 14,608 11,420 12/31/98 $14,438 14,644 11,413 1/31/99 $14,576 14,819 11,441 2/28/99 $14,559 14,753 11,454 3/31/99 $14,597 14,774 11,489 4/30/99 $14,616 14,811 11,573 5/31/99 $14,515 14,725 11,573 6/30/99 $14,306 14,513 11,573 7/31/99 $14,326 14,565 11,607 8/31/99 $14,124 14,449 11,635 9/30/99 $14,104 14,454 11,691 10/31/99 $13,862 14,298 11,712 11/30/99 $13,985 14,450 11,719 12/31/99 $13,802 14,342 11,719 1/31/00 $13,660 14,278 11,754 2/29/00 $13,910 14,444 11,824 3/31/00 $14,307 14,759 11,921 4/30/00 $14,163 14,672 11,928 5/31/00 $14,102 14,596 11,942 6/30/00 $14,504 14,982 12,004 7/31/00 $14,739 15,191 12,032 8/31/00 $15,038 15,425 12,032 9/30/00 $14,976 15,344 12,094 10/31/00 $15,129 15,512 12,115 11/30/00 $15,217 15,630 12,122 12/31/00 $15,544 16,016 12,115 1/31/01 $15,698 16,174 12,191 2/28/01 $15,743 16,226 12,240 3/31/01 $15,877 16,372 12,268 4/30/01 $15,615 16,195 12,317 5/31/01 $15,795 16,370 12,373 6/30/01 $15,885 16,480 12,394 7/31/01 $16,153 16,724 12,359 8/31/01 $16,535 17,000 12,359 9/30/01 $16,468 16,942 12,415 10/31/01 $16,605 17,143 12,372 11/30/01 $16,539 16,999 12,351 12/31/01 $16,357 16,838 12,303 1/31/02 $16,564 17,129 12,332 2/28/02 $16,659 17,335 12,381 3/31/02 $16,337 16,995 12,450 4/30/02 $16,571 17,326 12,520 5/31/02 $16,667 17,432 12,520 6/30/02 $16,832 17,617 12,527 7/31/02 $16,997 17,844 12,541 8/31/02 $17,187 18,058 12,583 9/30/02 $17,593 18,454 12,604 10/31/02 $17,236 18,147 12,625 11/30/02 $17,189 18,071 12,625 12/31/02 $17,478 18,452 12,598 1/31/03 $17,405 18,406 12,653 2/28/03 $17,647 18,664 12,750 3/31/03 $17,644 18,675 12,827 AVERAGE ANNUAL TOTAL RETURN ADVISOR CLASS 6 3/31/03 -------------------------------------------------------------------------------- 1-Year +8.00% 5-Year +5.17% 10-Year +5.84% 7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond Index includes about 40,000 bonds from across the country. All bonds included have a minimum credit rating of at least Baa and a maturity of at least two years, and have been issued within the last five years as part of a deal of over $50 million. Bonds subject to the alternative minimum tax or with floating or zero coupons are excluded. Bonds will be added and the index will be updated monthly with a one-month lag. Past performance does not guarantee future results. 13 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 and 2002. -------------------------------------------------------------------------------- NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE -------------------------------------------------------------------------------- NOT PART OF THE SHAREHOLDER REPORT 14 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] NOT PART OF THE SHAREHOLDER REPORT 15 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 and 2002. 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 16 bonds matured or were called, we've had to reinvest the proceeds at lower rates, recently that rate being around 5%. 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 USED IN PRINTED GRAPHIC AS FOLLOWS: The following graph compares municipal bond prices versus interest rates* from April 1983 through March 2003. Date Interest Rates Municipal Bond Prices 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 Oct 2002 3.93% $102.60 Nov 2002 4.22% $101.79 Dec 2002 3.83% $103.55 Jan 2003 4.00% $102.87 Feb 2003 3.71% $103.94 Mar 2003 3.83% $103.58 *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 December 31, 2002. NOT PART OF THE SHAREHOLDER REPORT 17 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(R) TEMPLETON(R) INVESTMENTS SR TFINS 05/03 NOT PART OF THE SHAREHOLDER REPORT 18 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. 19 BA: Contain speculative elements. Often the protection of interest and principal payments may be very moderate and, thereby, not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA: Poor standing. Such issues may be in default, or elements of danger with respect to principal or interest may be present. CA: Obligations that are highly speculative. Such issues are often in default or have other marked shortcomings. C: Lowest-rated class of bonds. Issues rated C can be regarded as having extremely poor prospects of ever attaining any real investment standing. S&P AAA: The highest rating assigned by S&P to a debt obligation and indicates the ultimate degree of protection as to principal and interest. AA: Also qualify as high-grade obligations, and, in the majority of instances, differ from AAA issues only in a small degree. A: Generally regarded as upper medium-grade. They have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions. Interest and principal are regarded as safe. BBB: Regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to 20 pay principal and interest for bonds in this category than for bonds in the A category. BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds likely will have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C: Reserved for income bonds on which no interest is being paid. D: In default and payment of interest and/or repayment of principal is in arears. 21 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights
CLASS A ------------------------------------------------------------ YEAR ENDED MARCH 31, ------------------------------------------------------------ 2003 2002 2001 2000 1999 ------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................... $7.07 $7.24 $6.88 $7.40 $7.35 ------------------------------------------------------------ Income from investment operations: Net investment income a ............................. .35 .37 .37 .38 .39 Net realized and unrealized gains (losses) .......... .21 (.16) .36 (.53) .07 ------------------------------------------------------------ Total from investment operations ..................... .56 .21 .73 (.15) .46 ------------------------------------------------------------ Less distributions from: Net investment income ............................... (.36) (.37) (.37) (.36) (.39) Net realized gains .................................. (.03) (.01) -- (.01) (.02) ------------------------------------------------------------ Total distributions .................................. (.39) (.38) (.37) (.37) (.41) ------------------------------------------------------------ Net asset value, end of year ......................... $7.24 $7.07 $7.24 $6.88 $7.40 ============================================================ Total return b ....................................... 8.05% 2.87% 10.98% (1.97)% 6.43% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ...................... $13,376,339 $13,016,197 $13,279,037 $12,859,577 $15,473,713 Ratio to average net assets: Expenses ............................................ .57% .57% .57% .57% .57% Net investment income ............................... 4.90% 5.08% 5.31% 5.40% 5.21% Portfolio turnover rate .............................. 11.92% 13.23% 5.83% 12.10% 18.66%
aBased on average shares outstanding effective March 31, 2000. bTotal return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. 22 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
CLASS B ---------------------------------------------------- YEAR ENDED MARCH 31, ---------------------------------------------------- 2003 2002 2001 2000 1999 c ---------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $7.07 $7.24 $6.87 $7.39 $7.41 ---------------------------------------------------- Income from investment operations: Net investment income a ................................ .31 .33 .33 .34 .10 Net realized and unrealized gains (losses) ............. .20 (.16) .37 (.52) (.03) ---------------------------------------------------- Total from investment operations ........................ .51 .17 .70 (.18) .07 ---------------------------------------------------- Less distributions from: Net investment income .................................. (.32) (.33) (.33) (.33) (.09) Net realized gains ..................................... (.03) (.01) -- (.01) -- ---------------------------------------------------- Total distributions ..................................... (.35) (.34) (.33) (.34) (.09) ---------------------------------------------------- Net asset value, end of year ............................ $7.23 $7.07 $7.24 $6.87 $7.39 ==================================================== Total return b .......................................... 7.46% 2.15% 10.51% (2.51)% .88% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $402,085 $309,196 $193,428 $110,933 $43,674 Ratio to average net assets: Expenses ............................................... 1.14% 1.14% 1.14% 1.14% 1.14% d Net investment income .................................. 4.33% 4.51% 4.73% 4.87% 4.59% d Portfolio turnover rate ................................. 11.92% 13.23% 5.83% 12.10% 18.66%
aBased on average shares outstanding effective March 31, 2000. bTotal return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. cFor the period January 1, 1999 (effective date) to March 31, 1999. dAnnualized 23 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED)
CLASS C -------------------------------------------------- YEAR ENDED MARCH 31, 2003 2002 2001 2000 1999 -------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $7.06 $7.23 $6.87 $7.39 $7.35 -------------------------------------------------- Income from investment operations: Net investment income a ................................ .31 .33 .33 .34 .35 Net realized and unrealized gains (losses) ............. .21 (.16) .36 (.53) .06 -------------------------------------------------- Total from investment operations ........................ .52 .17 .69 (.19) .41 -------------------------------------------------- Less distributions from: Net investment income .................................. (.32) (.33) (.33) (.32) (.35) Net realized gain ...................................... (.03) (.01) -- (.01) (.02) -------------------------------------------------- Total distributions ..................................... (.35) (.34) (.33) (.33) (.37) -------------------------------------------------- Net asset value, end of year ............................ $7.23 $7.06 $7.23 $6.87 $7.39 ================================================== Total return b .......................................... 7.46% 2.29% 10.38% (2.54)% 5.70% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $538,460 $464,108 $393,652 $367,874 $464,535 Ratio to average net assets: Expenses ............................................... 1.13% 1.14% 1.14% 1.14% 1.14% Net investment income .................................. 4.34% 4.52% 4.74% 4.82% 4.61% Portfolio turnover rate ................................. 11.92% 13.23% 5.83% 12.10% 18.66%
aBased on average shares outstanding effective March 31, 2000. bTotal return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. 24 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Highlights (CONTINUED) ADVISOR CLASS ----------------------------- YEAR ENDED PERIOD ENDED 2003 2002 c ----------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $7.07 $7.29 ----------------------------- Income from investment operations: Net investment income a ....................... .36 .19 Net realized and unrealized gains (losses) .... .19 (.24) ----------------------------- Total from investment operations ............... .55 (.05) ----------------------------- Less distributions from: Net investment income ......................... (.36) (.16) Net realized gain ............................. (.03) (.01) ----------------------------- Total distributions ............................ (.39) (.17) ----------------------------- Net asset value, end of year ................... $7.23 $7.07 ============================= Total return b ................................. 8.00% (.80)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $10,217 $2,134 Ratio to average net assets: Expenses ...................................... .49% .49% d Net investment income ......................... 4.98% 5.25% d Portfolio turnover rate ........................ 11.92% 13.23% aBased on average shares outstanding. bTotal return is not annualized for periods less than one year. cFor the period October 1, 2001 (effective date) to March 31, 2002. dAnnualized See notes to financial statements. 25 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS 99.3% BONDS 87.8% ABAG Finance Authority for Nonprofit Corps. COP, 6.75%, 8/01/20 .......................................................... $ 3,955,000 $ 4,346,426 6.125%, 3/01/21 ......................................................... 4,245,000 4,722,732 Butte Valley-Tulelake Rural Health, 6.65%, 10/01/22 ..................... 855,000 875,503 Episcopal Home Foundation, Refunding, 5.125%, 7/01/13 ................... 6,000,000 6,237,660 Episcopal Home Foundation, Refunding, 5.125%, 7/01/18 ................... 18,625,000 18,574,713 Home for Jewish Parents, California Mortgage Insured, 5.625%, 5/15/22 ........................................................ 5,000,000 5,251,250 Lytton Gardens Inc., California Mortgage Insured, 6.00%, 2/15/30 ......................................................... 5,000,000 5,270,300 Milestones Human Services Inc., California Mortgage Insured, 5.65%, 7/01/22 ....................................... 2,000,000 2,127,340 Miramonte Mental Health Services, California Mortgage Insured, 6.60%, 7/01/22 ....................................... 1,250,000 1,278,375 Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ......................................................... 5,525,000 5,929,430 Rehabilitation Mental Health Services Inc. Project, California Mortgage Insured, 6.50%, 6/01/12 ............................ 2,000,000 2,036,420 Rehabilitation Mental Health Services Inc. Project, California Mortgage Insured, 6.55%, 6/01/22 ............................ 2,370,000 2,413,347 Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/23 ........................................................ 5,000,000 5,010,050 ABAG Finance Authority for Nonprofit Corps. MFHR, Palo Alto Gardens Apartments, Series A, 5.45%, 4/01/39 ................... 5,500,000 5,521,395 ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Association, Series A, 6.125%, 8/15/20 .......................................................... 23,525,000 24,560,806 ABAG Finance Corp. COP, ABAG XXV, 6.80%, 8/01/12 .......................... 3,040,000 3,081,496 ABAG Revenue, BART SFO Extension, Airport Premium A, AMBAC Insured, 5.00%, 8/01/32 ......................................................... 13,720,000 13,995,909 Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.125%, 9/01/21 ........................................... 4,760,000 4,919,270 Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.20%, 9/01/27 ............................................ 4,140,000 4,237,083 Tax Allocation, RDA Pool, Series A4, FSA Insured, 5.875%, 12/15/25 ....................................................... 5,000,000 5,346,900 Tax Allocation, RDA Pool, Series A6, FSA Insured, 5.375%, 12/15/25 ....................................................... 3,670,000 3,917,211 ABAG Water and Wastewater Revenue, Pooled Financing Program, Series A, FSA Insured, 5.30%, 10/01/21 ................................... 5,450,000 5,842,073 Agua Mansa Industrial Growth Association Special Tax, CFD No. 8, 8.25%, 9/01/17 ................................................ 15,180,000 15,399,351 Alameda Corridor Transportation Authority Revenue, senior lien, Series A, MBIA Insured, 5.00%, 10/01/29 ..................... 24,490,000 24,965,351 Alameda County COP, Alameda County Medical Center Project, MBIA Insured, 5.00%, 6/01/23 .......................................................... 19,195,000 20,292,762 5.30%, 6/01/26 .......................................................... 7,000,000 7,081,480 5.00%, 6/01/28 .......................................................... 8,925,000 9,140,182 Alhambra RDA, Tax Allocation, Industrial Redevelopment Project, Refunding, 6.375%, 5/01/23 ............................................... 2,560,000 2,594,893 Alvord USD, GO, Series A, FGIC Insured, 5.375%, 8/01/27 ................... 6,100,000 6,494,975 Anaheim PFA Revenue, Electric Systems Distribution Facilities, MBIA Insured, 5.00%, 10/01/28 ............................................ 10,765,000 10,960,169 Anaheim PFA, Lease Revenue, Public Improvements Project, Series A, FSA Insured, 5.00%, 9/01/27 ................................................................. 8,900,000 9,070,613 3/01/37 ................................................................. 100,000,000 101,474,000 Antioch Area Public Facilities Financing Agency Special Tax, CFD No. 1989-1, MBIA Insured, 5.50%, 8/01/22 ........................ 4,870,000 5,265,736 Antioch PFA, Reassessment Revenue, sub. lien, Refunding, 5.60%, 9/02/09 ............................................... 1,225,000 1,301,403 Refunding, Series B, 5.50%, 9/02/08 ..................................... 1,165,000 1,230,683 Series B, 5.30%, 9/02/06 ................................................ 2,095,000 2,227,781 Arcadia Hospital Revenue, Methodist Hospital of Southern California, 6.50%, 11/15/12 ......................................................... 2,295,000 2,347,142 6.625%, 11/15/22 ........................................................ 3,750,000 3,831,750 Auburn USD, COP, Land Acquisition Program, Series A, FSA Insured, 7.00%, 9/01/28 .............................................. 2,770,000 3,053,980
26 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Azusa PFAR, Water Systems Acquisition Project, Refunding, Series A, FGIC Insured, 5.50%, 7/01/20 ................................... $ 5,200,000 $ 5,332,704 Bakersfield Hospital Revenue, Adventist Health Systems West, Refunding, MBIA Insured, 5.50%, 3/01/19 ............................ 6,085,000 6,206,700 Bakersfield PFAR, Series A, 6.10%, 9/15/10 ................................ 10,635,000 10,789,739 Baldwin Park PFAR, Tax Allocation, Series A, 7.75%, 8/01/19 ................................................ 5,265,000 5,354,663 Series A, Pre-Refunded, 7.10%, 9/01/24 .................................. 2,000,000 2,204,820 Series B, 7.75%, 8/01/21 ................................................ 5,795,000 5,888,415 Belmont - Redwood Shores School District, Series A, 5.50%, 9/01/22 ........................................................... 6,500,000 7,049,250 Belmont RDA, Tax Allocation, Los Costanos Community Development, Series A, Pre-Refunded, 6.70%, 8/01/14 .......................................................... 1,235,000 1,349,880 6.80%, 8/01/23 .......................................................... 2,310,000 2,527,925 Berkeley COP, Building Acquisition and Improvement Projects, AMBAC Insured, 5.00%, 2/01/33 .................................. 8,170,000 8,341,243 Brea RDA, Tax Allocation, Redevelopment Project, Refunding, MBIA Insured, 6.125%, 8/01/13 ................................. 12,845,000 13,294,575 Brentwood 1915 Act, Infrastructure Financing, Reassessment, Series A, FSA Insured, 5.80%, 9/02/17 .................................... 5,140,000 5,748,936 Buena Park CRDA, Tax Allocation, Central Business District Project, Refunding, Series A, 7.10%, 9/01/14 .................... 6,820,000 6,983,612 Burbank Parking Authority, Special Tax, CFD No. 1, 8.375%, 10/01/06 ......................................................... 795,000 801,535 Burbank RDA, Tax Allocation, City Center Redevelopment Project, Refunding, Series A, FSA Insured, 5.50%, 12/01/23 ........................................... 5,000,000 5,167,650 Refunding, Series A, 6.00%, 12/01/23 .................................... 6,500,000 6,838,195 Burton Elementary School District COP, Loan Acquisition, Capital Appreciation, Series A, FSA Insured, 6.60%, 9/01/27 ................................... 785,000 804,397 Series B, FSA Insured, 6.60%, 9/01/27 ................................... 290,000 297,166 Calexico CRDA Revenue, Tax Allocation, Merged Central Business and Residential, Refunding, FSA Insured, 5.80%, 8/01/24 ........................................................... 5,840,000 6,016,076 California Counties Lease Financing Authority COP, CSAC Financing Corp., Amador County Project, ETM, 7.70%, 10/01/09 .......................................................... 2,130,000 2,576,001 California County California Tobacco Securitization Agency Tobacco Revenue, Asset-Backed, Alameda County, 5.875%, 6/01/35 .......................................................... 7,500,000 6,457,575 California County Tobacco Securitization Agency Revenue, Asset Backed Corp., Golden Gate, Series A, 6.00%, 6/01/43 ............... 10,000,000 8,482,400 Asset-Backed, Gold Country Funding Corp., 6.00%, 6/01/38 ................ 10,000,000 8,516,400 Asset-Backed, Kern County Corp., Series A, 6.125%, 6/01/43 .............. 28,135,000 24,138,705 Asset-Backed, Kern County Corp., Series B, 6.25%, 6/01/37 ............... 19,460,000 17,594,564 Asset-Backed, Sonoma County Corp., Series A, 5.875%, 6/01/43 ............ 30,000,000 24,891,600 California County Tobacco, Securitization Agency Tobacco Revenue, Asset Backed, Merced Funding Corp., Series A, 5.875%, 6/01/43 .......... 10,235,000 8,492,184 Stanislaus Fund, Series A, 5.875%, 6/01/43 .............................. 8,690,000 7,210,267 California Educational Facilities Authority Revenue, Chapman University, Refunding, Connie Lee Insured, 5.125%, 10/01/26 ....................................................... 10,000,000 10,232,800 Pooled College and University, Series B, 6.75%, 6/01/30 ................. 8,000,000 8,803,280 Stanford University, Refunding, Series O, 5.125%, 1/01/31 ............... 21,250,000 21,881,763 Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 ............ 4,965,000 5,294,130 California Health Facilities Financing Authority Revenue Insured Health Facility, Help Group, Series A, California Mortgage Insured, 6.10%, 8/01/25 .............................. 12,905,000 14,218,471
27 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, AIDS Health Care Foundation, Refunding, Series C, California Mortgage Insured, 6.25%, 9/01/17 ............................ $ 1,750,000 $ 1,792,648 California Autism Foundation Inc., Series A, CHFCLP Insured, 6.25%, 11/01/20 ........................................ 3,560,000 3,885,598 Casa Colina, 6.125%, 4/01/32 ............................................ 8,300,000 8,504,512 Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.75%, 7/01/15 ........................................... 12,500,000 14,133,750 Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 ........................................... 7,300,000 8,255,278 Catholic Healthcare West, Series A, 5.00%, 7/01/18 ...................... 40,000,000 38,029,600 Catholic Healthcare West, Series A, 5.00%, 7/01/28 ...................... 140,630,000 125,335,081 Catholic Healthcare West, Series A, MBIA Insured, 5.00%, 7/01/17 ......................................................... 5,000,000 5,287,700 Catholic Healthcare West, Series A, MBIA Insured, 5.125%, 7/01/24 ........................................................ 11,500,000 11,823,610 Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/17 ........................................................ 8,355,000 8,917,208 Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/27 ........................................................ 15,600,000 16,044,288 Cedars-Sinai Medical Center, Series B, MBIA Insured, 5.25%, 8/01/27 ......................................................... 52,500,000 54,497,625 Clinicas Del Camino, Series A, CHFCLP Insured, 6.55%, 5/01/25 ......................................................... 4,500,000 4,859,190 County Program, Series B, 7.20%, 1/01/12 ................................ 2,135,000 2,153,468 El Proyecto, Series A, CHFCLP Insured, 5.50%, 12/01/22 ........................................................ 3,350,000 3,512,140 Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/28 ........................................................ 25,390,000 25,855,399 Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/18 ........................................................ 5,000,000 5,253,050 Familiesfirst, Series A, California Mortgage Insured, 6.00%, 12/01/25 ........................................................ 11,365,000 12,094,974 Feedback Foundation Inc., Series A, CHFCLP Insured, 6.50%, 12/01/22 ........................................................ 4,240,000 4,345,110 Hospital of the Good Samaritan, Refunding, 7.00%, 9/01/21 ............... 71,050,000 70,897,953 Insured Health Facility-Valleycare, Series A, California Mortgage Insured, 5.25%, 5/01/22 ............................ 5,000,000 5,046,500 Kaiser Permanente, Series A, 5.40%, 5/01/28 ............................. 46,000,000 46,435,160 Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/20 ................ 32,295,000 33,734,711 Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/24 ................ 136,775,000 140,072,645 Kaiser Permanente, Series B, 5.25%, 10/01/16 ............................ 7,515,000 7,778,701 Kaiser Permanente, Series B, 5.00%, 10/01/18 ............................ 38,260,000 38,760,823 Kaiser Permanente, Series B, 5.00%, 10/01/20 ............................ 38,020,000 37,888,071 Kaiser Permanente, Series B, 5.40%, 5/01/28 ............................. 80,000,000 80,756,800 Kaiser Permanente, Series C, 5.60%, 5/01/33 ............................. 10,000,000 10,052,000 Marshall Hospital, Series A, California Mortgage Insured, 5.30%, 11/01/28 ............................................... 5,500,000 5,553,790 Mills-Peninsula Health, Refunding, Series A, Connie Lee Insured, 5.75%, 1/15/15 ..................................... 11,500,000 12,559,035 Mills-Peninsula Health, Series B, Connie Lee Insured, 5.75%, 1/15/15 ................................................ 5,665,000 6,118,313 Northern California Presbyterian, 5.40%, 7/01/28 ........................ 6,340,000 6,362,380 On Lok Senior Health Services, Series A, CHFCLP Insured, 6.40%, 12/01/12 ........................................ 2,000,000 2,049,440 On Lok Senior Health Services, Series A, CHFCLP Insured, 6.50%, 12/01/22 ........................................ 7,525,000 7,711,545 Paradise Valley Estates, 5.25%, 1/01/26 ................................. 5,000,000 5,003,350 Pomona Valley Hospital, Refunding, Series A, MBIA Insured, 5.625%, 7/01/19 .......................................... 8,500,000 9,377,795 San Diego Hospital Association, Refunding, Series A, MBIA Insured, 6.20%, 8/01/20 ................................. 8,250,000 8,450,970 Scripps Memorial Hospital, Series A, MBIA Insured, 6.375%, 10/01/22 ....................................................... 9,725,000 10,052,246 Small Facilities Loan, Health Facilities, Refunding, Series B, California Mortgage Insured, 7.50%, 4/01/22 .................. 5,000,000 5,534,950 Small Facilities Loan, Health Facilities, Series A, CHFCLP Insured, 6.75%, 3/01/20 ......................................... 3,800,000 3,867,450 Southern California, Series A, CHFCLP Insured, 5.50%, 12/01/22 ........................................................ 3,070,000 3,218,588 St. Francis Medical Center, Refunding, Series H, AMBAC Insured, 6.35%, 10/01/23 ......................................... 7,000,000 7,802,970 St. Paul's Episcopal Home, CHFCLP Insured, 6.50%, 9/01/14 ............... 2,595,000 2,786,200 Sutter Health Project, Series A, MBIA Insured, 5.35%, 8/15/28 ......................................................... 6,650,000 6,909,882
28 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, (cont.) Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 ........................................................ $ 5,750,000 $ 6,518,603 Sutter Health, Series A, FSA Insured, 5.00%, 8/15/37 .................... 61,000,000 61,632,570 Sutter Health, Series A, FSA Insured, 5.25%, 8/15/27 .................... 5,300,000 5,532,564 Sutter Health, Series A, MBIA Insured, 5.375%, 8/15/30 .................. 10,600,000 11,082,088 The Episcopal Home, 5.30%, 2/01/32 ...................................... 28,150,000 28,384,771 The Help Group, CHFCLP Insured, 5.40%, 8/01/22 .......................... 7,420,000 7,733,940 UCSF-Stanford Health Care, Refunding, Series A, FSA Insured, 5.00%, 11/15/31 ........................................................ 5,750,000 5,848,038 UCSF-Stanford Health Care, Refunding, Series B, 5.00%, 11/15/31 ........................................................ 26,920,000 27,378,986 UCSF-Stanford Health Care, Refunding, Series B, AMBAC Insured, 5.00%, 11/15/28 ......................................... 25,000,000 25,458,250 Valleycare Hospital Corp., Refunding, 5.50%, 5/01/20 .................... 11,640,000 12,339,098 Walden House, State Guaranteed, 6.85%, 3/01/22 .......................... 3,225,000 3,282,695 California HFA, SFM Purchase, Class I, Series A-1, 6.05%, 8/01/26 ..................................... 13,935,000 14,402,519 Refunding, Series A-2, FHA Insured, 6.45%, 8/01/25 ...................... 4,000,000 4,153,160 California HFAR, Home Mortgage, Series A, FHA Insured, 6.55%, 8/01/26 .................... 6,975,000 7,217,591 Home Mortgage, Series D, MBIA Insured, 6.15%, 8/01/28 ................... 4,625,000 4,874,981 Home Mortgage, Series E, AMBAC Insured, 6.10%, 8/01/29 .................. 5,770,000 5,989,779 Home Mortgage, Series E, FHA Insured, 6.375%, 8/01/27 ................... 4,950,000 5,013,756 Home Mortgage, Series E, MBIA Insured, 6.15%, 8/01/25 ................... 435,000 437,549 Home Mortgage, Series H, FHA Insured, 6.25%, 8/01/27 .................... 1,680,000 1,721,782 Home Mortgage, Series I, MBIA Insured, 5.75%, 2/01/29 ................... 5,550,000 5,739,533 Home Mortgage, Series J, MBIA Insured, 5.55%, 8/01/28 ................... 10,000,000 10,216,300 Home Mortgage, Series M, MBIA Insured, 5.60%, 8/01/29 ................... 17,575,000 17,963,232 Home Mortgage, Series N, FSA Insured, 5.15%, 8/01/18 .................... 6,000,000 6,096,120 Housing Revenue, Series E, MBIA Insured, 6.625%, 8/01/14 ................ 4,365,000 4,580,151 Housing Revenue, Series E, MBIA Insured, 6.75%, 8/01/26 ................. 11,855,000 12,346,034 Housing Revenue, Series F, MBIA Insured, 6.90%, 8/01/26 ................. 11,345,000 11,825,915 MFHR II, Series A, AMBAC Insured, 6.25%, 2/01/37 ........................ 5,000,000 5,237,300 MFHR III, Series B, MBIA Insured, 5.50%, 8/01/39 ........................ 13,345,000 13,577,203 Multi-Unit Rental Housing, Series A, 6.875%, 2/01/22 .................... 1,625,000 1,641,250 Series B-1, Class 1, AMBAC Insured, 5.65%, 8/01/28 ...................... 10,620,000 10,879,765 SFM, Series C-2, Class 1, FHA Insured, 5.65%, 2/01/25 ................... 5,540,000 5,711,629 California Infrastructure and Economic Development Bank Revenue, Kaiser Hospital Assistance I LLC, Series B, 5.50%, 8/01/31 .............. 10,000,000 10,204,600 Kaiser Hospital Assistance II LLC, Series A, 5.55%, 8/01/31 ............. 34,000,000 34,775,200 California Mobilehome Park Financing Authority Revenue, Series A, FSA Insured, 5.15%, 10/01/04 ......................................................... 5,000 5,195 5.25%, 10/01/05 ......................................................... 5,000 5,319 6.25%, 10/01/25 ......................................................... 770,000 797,050 California PCFA, PCR, Pacific Gas and Electric Co., Series A, 6.625%, 6/01/09 ............ 1,750,000 1,762,303 PCR, San Diego Gas and Electric Co., Series A, 5.85%, 6/01/21 ........... 32,535,000 32,932,903 PCR, Southern California Edison Co., Refunding, 6.90%, 12/01/17 ......... 2,510,000 2,513,840 PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 .......... 29,000,000 28,828,900
29 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California PCFA, (cont.) PCR, Southern California Edison Co., Series B, MBIA Insured, 6.40%, 12/01/24 .......................................... $ 12,120,000 $ 12,459,724 Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project, 6.875%, 11/01/27 .............................................. 17,205,000 17,052,564 California Pollution Control Financing Authority Revenue, Refunding, Pacific Gas and Electric, Series A, MBIA Insured, 5.35%, 12/01/16 ............................................ 31,500,000 34,277,985 California Public School District Financing Authority Lease Revenue, Los Banos School, Series A, FSA Insured, 6.20%, 10/01/23 .................................. 435,000 452,939 Series B, FSA Insured, Pre-Refunded, 6.20%, 10/01/23 .................... 4,345,000 4,538,396 California Resources Efficiency Financing Authority COP, Capital Improvement Program, Refunding, AMBAC Insured, 5.625%, 4/01/22 ......................................................... 10,365,000 11,351,748 5.75%, 4/01/27 .......................................................... 7,885,000 8,709,456 California Special Districts Lease Financing Program COP, Series E, 7.70%, 12/01/09 ......................................................... 205,000 206,757 7.75%, 12/01/19 ......................................................... 305,000 307,321 California State Department of Veteran Affairs Home Purchase Revenue, Refunding, Series A, 5.40%, 12/01/28 .................................... 9,580,000 9,898,248 Refunding, Series B, 5.50%, 12/01/18 .................................... 2,500,000 2,597,150 Series A, chase Revenue, Series A, 5.20%, 12/01/27 ...................... 31,000,000 31,287,680 Series B, 5.20%, 12/01/28 ............................................... 63,875,000 64,389,194 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 61,135,480 Refunding, Series S, 5.00%, 12/01/29 .................................... 24,595,000 24,993,193 Refunding, Series U, 5.00%, 12/01/29 .................................... 12,000,000 12,189,360 Series Y, FGIC Insured, 5.00%, 12/01/25 ................................. 20,000,000 20,446,600 California State Department of Water Resources Central Valley Project Water System Revenue, Series L, 5.75%, 12/01/19 ............................................... 18,000,000 18,405,000 Series L, 5.875%, 12/01/25 .............................................. 40,070,000 40,979,589 Series O, 5.00%, 12/01/22 ............................................... 5,500,000 5,606,425 California State Department of Water Resources Power Supply Revenue, Series A, 5.25%, 5/01/20 .......................................................... 50,000,000 51,497,000 5.375%, 5/01/21 ......................................................... 22,000,000 22,733,920 5.375%, 5/01/22 ......................................................... 28,000,000 28,889,280 California State GO, 5.25%, 10/01/20 ......................................................... 10,000,000 10,336,300 5.25%, 9/01/23 .......................................................... 22,000,000 22,513,920 5.25%, 10/01/23 ......................................................... 9,250,000 9,468,485 6.00%, 5/01/24 .......................................................... 2,565,000 2,712,616 5.125%, 6/01/24 ......................................................... 8,250,000 8,334,398 5.00%, 11/01/24 ......................................................... 11,350,000 11,373,041 5.00%, 11/01/25 ......................................................... 20,000,000 20,013,000 5.25%, 9/01/26 .......................................................... 25,000,000 25,366,500 5.00%, 2/01/27 .......................................................... 46,000,000 45,869,820 5.00%, 10/01/27 ......................................................... 12,100,000 12,066,120 5.125%, 10/01/27 ........................................................ 39,835,000 40,033,378 5.00%, 2/01/29 .......................................................... 15,000,000 14,912,850 5.00%, 11/01/30 ......................................................... 17,500,000 17,395,525
30 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California State GO, (cont.) 5.125%, 3/01/31 ......................................................... $ 35,000,000 $ 35,168,000 5.00%, 2/01/32 .......................................................... 18,250,000 18,110,935 AMBAC Insured, 5.90%, 3/01/25 ........................................... 210,000 228,045 AMBAC Insured, 5.125%, 10/01/27 ......................................... 31,420,000 32,212,727 FGIC Insured, 6.00%, 8/01/19 ............................................ 905,000 974,558 FGIC Insured, 5.625%, 10/01/26 .......................................... 41,500,000 44,901,340 FSA Insured, 5.50%, 3/01/20 ............................................. 5,500,000 5,803,160 FSA Insured, 5.50%, 9/01/29 ............................................. 30,000,000 31,832,700 MBIA Insured, 5.00%, 10/01/23 ........................................... 5,000,000 5,122,950 MBIA Insured, 5.00%, 8/01/24 ............................................ 7,500,000 7,660,950 MBIA Insured, 6.00%, 8/01/24 ............................................ 990,000 1,062,943 MBIA Insured, 5.00%, 3/01/28 ............................................ 25,985,000 26,373,995 Refunding, 5.625%, 9/01/24 .............................................. 10,650,000 11,178,027 Refunding, 5.00%, 10/01/24 .............................................. 10,000,000 10,189,200 Refunding, 5.125%, 6/01/27 .............................................. 16,150,000 16,261,274 Refunding, 5.25%, 2/01/29 ............................................... 10,000,000 10,147,400 Refunding, 5.25%, 2/01/30 ............................................... 50,000,000 50,737,000 Refunding, 5.125%, 6/01/31 .............................................. 75,000,000 75,367,500 Refunding, AMBAC Insured, 5.00%, 4/01/23 ................................ 6,250,000 6,413,938 Refunding, MBIA Insured, 5.00%, 10/01/32 ................................ 5,000,000 5,064,100 Series BR, 5.25%, 12/01/26 .............................................. 5,000,000 5,010,750 Series BR, 5.30%, 12/01/29 .............................................. 13,000,000 13,030,550 Various Purposes, FSA Insured, 5.50%, 4/01/19 ........................... 5,000,000 5,193,600 Veterans Bonds, Series BD, BE, and BF, AMBAC Insured, 6.20%, 2/01/16 ......................................................... 11,500,000 11,641,565 Veterans Bonds, Series BD, BE, and BF, AMBAC Insured, 6.375%, 2/01/27 ........................................................ 45,000,000 45,238,500 Veterans Bonds, Series BH, 5.50%, 12/01/18 .............................. 44,250,000 44,991,188 Veterans Bonds, Series BH, 5.60%, 12/01/32 .............................. 50,060,000 50,609,659 Veterans Bonds, Series BH, FSA Insured, 5.50%, 12/01/24 ................. 16,440,000 16,604,564 Veterans Bonds, Series BM, 5.45%, 12/01/25 .............................. 36,635,000 36,886,316 Veterans Bonds, Series BN, 5.375%, 12/01/21 ............................. 24,870,000 25,074,183 Veterans Bonds, Series BN, 5.45%, 12/01/28 .............................. 21,575,000 21,719,553 California State HFAR, Home Mortgage, Series L, MBIA Insured, 6.40%, 8/01/27 ............................................. 6,275,000 6,546,833 California State Local Government Finance Authority Revenue, Marin Valley, Series A, FSA Insured, 5.85%, 10/01/27 .......................................................... 6,735,000 7,503,194 California State Public Works Board Lease Revenue, California Science Center, Series A, 5.25%, 10/01/22 .................... 8,645,000 8,826,026 California State University, Various Projects, Series A, 6.30%, 10/01/04 .............................................. 5,250,000 5,378,258 Department General services-Capital East End, Series A, AMBAC Insured, 5.00%, 12/01/27 ............................... 17,250,000 17,579,993 Department of Corrections, California State Prison at Coalinga, Series B, MBIA Insured, 5.375%, 12/01/19 .................. 15,250,000 15,909,715 Department of Corrections, Corcoran II Facility, Series A, AMBAC Insured, 5.25%, 1/01/21 ................................ 17,405,000 18,404,917 Department of Justice Building, Series A, FSA Insured, 5.625%, 5/01/20 ........................................... 5,000,000 5,418,200 Trustees California State University, Refunding, Series A, 5.00%, 10/01/19 .............................................. 7,500,000 7,683,600 University of California, Various Projects, Refunding, Series A, 5.50%, 6/01/21 .................................... 14,000,000 14,349,440 University of California, Various Projects, Refunding, Series A, 5.00%, 6/01/23 .................................... 23,175,000 23,182,416 University of California, Various Projects, Series B, 5.50%, 6/01/19 ............................................... 13,000,000 13,335,660 University of California, Various Projects, Series B, Pre-Refunded, 6.625%, 12/01/14 ............................... 7,415,000 8,236,953 Various California Community Colleges, Refunding, Series A, 5.90%, 4/01/17 ............................................... 8,320,000 9,153,997
31 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California State University at Channel Islands Financing Authority Revenue, East Campus Community, Series A, MBIA Insured, 5.00%, 9/01/31 ................................... $ 11,000,000 $ 11,135,080 California State University Revenue, Series A, FGIC Insured, 5.00%, 11/01/35 ............................................ 6,650,000 6,765,644 California Statewide CDA Revenue, 5.50%, 1/01/28 .......................................................... 3,615,000 3,680,178 COP, Catholic Healthcare West, Obligated, MBIA Insured, 5.50%, 7/01/23 ......................................................... 11,240,000 11,536,174 COP, CHFCLP Insured Health Facilities, Unihealth, Series A, AMBAC Insured, Pre-Refunded, ETM, 5.75%, 10/01/25 ........................................................ 36,000,000 41,569,560 COP, CHFCLP Insured, ETM, 5.90%, 8/01/21 ................................ 4,000,000 4,653,240 COP, Familiesfirst Inc., CHFCLP Insured, Pre-Refunded, 7.25%, 12/01/22 ........................................................ 5,120,000 5,730,918 COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/15 ......................................................... 5,365,000 5,840,661 COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/20 ......................................................... 3,775,000 4,131,587 COP, Salk Institute, Connie Lee Insured, 6.20%, 7/01/24 ................. 7,065,000 7,554,605 COP, Sisters Charity Leavenworth, 5.00%, 12/01/23 ....................... 11,375,000 11,413,561 COP, Southern California Development Corp., 6.10%, 12/01/15 ........................................................ 2,255,000 2,486,340 COP, St. Joseph Health System Group, Pre-Refunded, 6.625%, 7/01/21 ........................................................ 12,500,000 13,602,500 COP, Sutter Health Obligated Group, MBIA Insured, 5.50%, 8/15/22 ......................................................... 25,520,000 27,307,931 COP, Sutter Health Obligated Group, Refunding, MBIA Insured, 5.50%, 8/15/23 ........................................... 14,000,000 14,382,340 COP, Triad Health Care, CHFCLP Insured, Refunding, ETM, 6.25%, 8/01/06 .................................................... 2,000,000 2,163,900 Kaiser Permanente, Series A, 5.50%, 11/01/32 ............................ 27,000,000 27,238,680 Los Angeles Orthopedic Hospital Foundation, AMBAC Insured, 5.75%, 6/01/30 .......................................... 10,000,000 10,861,100 Mission Community, California Mortgage Insured, 5.375%, 11/01/21 ....................................................... 7,670,000 7,976,800 Mission Community, California Mortgage Insured, 5.375%, 11/01/26 ....................................................... 9,755,000 9,979,853 Series B, 5.625%, 8/15/42 ............................................... 51,000,000 51,981,240 Stovehaven Apartments Project, Series A, 5.875%, 7/01/32 ................ 4,945,000 5,135,383 California Statewide CDA, COP, California Lutheran Homes, ETM, 5.75%, 11/15/15 .................... 5,000,000 5,618,250 COP, Catholic Healthcare West, 6.50%, 7/01/20 ........................... 7,990,000 8,523,972 COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ................... 37,685,000 37,859,858 COP, FSA Insured, 5.50%, 8/15/31 ........................................ 9,000,000 9,570,060 COP, Kaiser Permanente, 5.30%, 12/01/15 ................................. 32,200,000 33,574,296 COP, MBIA Insured, 5.00%, 4/01/18 ....................................... 7,000,000 7,326,130 COP, MBIA Insured, 5.125%, 4/01/23 ...................................... 6,000,000 6,244,140 COP, St. Joseph Health System, Refunding, 5.125%, 7/01/17 ............... 5,000,000 5,086,400 COP, St. Joseph Health System, Refunding, 5.25%, 7/01/21 ................ 16,250,000 16,551,438 COP, The Internext Group, 5.375%, 4/01/17 ............................... 9,000,000 9,078,480 COP, The Internext Group, 5.375%, 4/01/30 ............................... 60,480,000 57,310,243 aLease Revenue, Special Facilities, United Airlines, Series A, 5.70%, 10/01/33 .............................................. 61,325,000 22,877,905 MFHR, Borregas Court Project, Series J, GNMA Secured, 6.30%, 3/20/39 ......................................................... 7,453,000 8,123,994 MFHR, Series E, FNMA Insured, 6.40%, 6/01/28 ............................ 8,000,000 8,397,040 Revenue, 5.50%, 10/01/33 ................................................ 45,465,000 45,917,377 Revenue, East Campus Apartmens LLC, Series A, 5.625%, 8/01/34 ........................................................ 25,000,000 25,812,750 Water and Wastewater Revenue, Pooled Financing Program, Series B, FSA Insured, 5.65%, 10/01/26 ................................. 5,000,000 5,457,800 Water Revenue, Refunding, Series A, 6.10%, 7/01/21 ...................... 4,615,000 4,799,646 California Statewide CDA. Revenue, East Campus Apartments LLC, Series A, 5.50%, 8/01/22 ................................. 11,000,000 11,430,100 California Valley HFAR, Home Mortgage, MBIA Insured, 5.65%, 2/01/27 ........................................................... 20,000,000 20,521,600
32 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Camarillo COP, Capital Improvement Corp., ETM, 7.625%, 4/01/08 .......................................................... $ 2,975,000 $ 3,379,273 Campbell Housing Facility Revenue, San Tomas Gardens Project, Series A, 6.625%, 10/20/34 ...................................... 5,615,000 5,801,755 Campbell RDA, Tax Allocation, Central Campbell Redevelopment Project, Series A, 6.00%, 10/01/33 ......................... 5,000,000 5,185,200 Camrosa Water District COP, Water System Improvement Projects, MBIA Insured, 6.00%, 1/15/20 ................................... 5,120,000 5,648,589 Capistrano Bay Park and Recreation District COP, Special Lease Finance, Series Q, 6.35%, 8/01/12 .......................... 2,800,000 2,838,808 Castaic Lake Water Agency COP, Water System Improvement Project, Refunding, Series A, MBIA Insured, 6.125%, 8/01/15 ......................................................... 11,540,000 12,432,965 6.00%, 8/01/18 .......................................................... 5,345,000 5,742,454 Cathedral City PFAR, Tax Allocation, Redevelopment Projects, Refunding, Series A, MBIA Insured, 5.70%, 8/01/24 ........................................................... 11,210,000 12,254,324 Central California Joint Powers Health Financing Authority COP, Community Hospitals of Central California, 6.00%, 2/01/20 ................................................................. 5,000,000 5,203,750 2/01/30 ................................................................. 25,650,000 26,336,651 Central California Joint Powers Health Financing Authority, COP, Community Hospitals of Central California, 5.625%, 2/01/21 ......................................................... 6,750,000 6,756,413 5.75%, 2/01/31 .......................................................... 17,820,000 17,769,213 Cerritos PFAR, Tax Allocation Redevelopment Project, Series A, AMBAC Insured, 5.00%, 11/01/22 ................................. 6,675,000 7,005,880 Chaffey Community College District COP, Pre-Refunded, 7.40%, 11/01/14 .......................................................... 5,000,000 5,587,900 Chaffey UHSD, GO, Series B, FGIC Insured, 5.00%, 8/01/25 .................. 5,000,000 5,112,450 Chico RDAR, COP, Insured Health Facilities, Sierra Sunrise Lodge, 6.80%, 2/01/11 .......................................................... 3,765,000 3,793,200 6.75%, 2/01/21 .......................................................... 2,800,000 2,820,692 Childrens Trust Fund Tobacco Settlement Revenue, Asset Backed Bonds, Refunding, 5.50%, 5/15/39 .......................................................... 12,500,000 11,359,500 5.625%, 5/15/43 ......................................................... 25,500,000 23,198,370 Chino RDA, Tax Allocation, Central City Redevelopment Project, 7.00%, 9/01/22 .................................................. 9,980,000 10,327,104 Chino USD, COP, Land Acquisition, Series A, FSA Insured, 6.60%, 9/01/14 .......................................................... 405,000 436,278 6.70%, 9/01/29 .......................................................... 2,880,000 3,106,454 Claremont RDA, Tax Allocation, Consolidated Redevelopment Project, Refunding., 5.50%, 8/01/23 ...................................... 4,950,000 5,131,220 Clayton 1915 Act, Limited Obligation, Contra Costa County, Oakhurst Country Club, 8.25%, 9/02/03 .......................................................... 50,000 50,814 8.30%, 9/02/04 .......................................................... 70,000 73,032 8.30%, 9/02/05 .......................................................... 80,000 83,444 8.35%, 9/02/06 .......................................................... 80,000 83,484 8.35%, 9/02/07 .......................................................... 95,000 98,823 8.375%, 9/02/08 ......................................................... 100,000 103,996 8.375%, 9/02/09 ......................................................... 115,000 119,502 8.40%, 9/02/10 .......................................................... 15,000 15,582 8.40%, 9/02/11 .......................................................... 120,000 124,589 8.40%, 9/02/12 .......................................................... 130,000 134,934 8.40%, 9/02/13 .......................................................... 150,000 155,705 Coachella Valley USD, COP, 8.25%, 9/01/12 ................................. 5,490,000 5,540,837 Colusa County COP, ABAG Finance Corp., Series B, 7.00%, 2/01/18 ........................................................... 1,555,000 1,579,211 Commerce Joint Powers Financing Authority Lease Revenue, Community Center, Series A, 6.25%, 10/01/22 .............................. 4,000,000 4,273,680 Commerce Refuse to Energy Authority Revenue, Refunding, Series 1994, 8.75%, 7/01/10 .............................................. 26,345,000 28,296,901
33 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Compton COP, Civic Center and Capital Improvement, Refunding, Series A, 5.50%, 9/01/15 ...................................... $ 5,000,000 $ 5,352,750 Compton CRDA, Tax Allocation, Series 1, FSA Insured, 6.75%, 8/01/13 ........................................................... 5,825,000 6,439,130 Compton Sewer Revenue, Pre-Refunded, 6.75%, 7/01/23 ....................... 4,535,000 4,687,149 Concord RDA, Tax Allocation, Central Concord Redevelopment Project, Refunding, Sub Series A, 6.00%, 7/01/19 ......................... 8,395,000 8,609,576 Contra Costa Community College District GO, Election 2002, FGIC Insured, 5.00%, 8/01/26 ............................................. 11,700,000 11,970,738 Contra Costa County COP, Merrithew Memorial Hospital Project, Refunding, MBIA Insured, 5.50%, 11/01/22 ........................ 11,000,000 11,905,630 Contra Costa County MFHR, Byron Park Project, Refunding, Series C, GNMA Secured, 6.40%, 1/20/31 ................................... 5,930,000 6,243,519 Contra Costa Transportation Authority Revenue, Sales Tax, Series A, ETM, 6.875%, 3/01/07 .................................................... 13,900,000 15,711,031 FGIC Insured, ETM, 6.50%, 3/01/09 ....................................... 1,000,000 1,181,690 Corcoran Hospital District Revenue, Series A, 6.55%, 7/01/12 ........................................................... 1,040,000 1,052,667 Corona 1915 Act, AD No. 79-2, Northeast Area, Series B, 7.85%, 9/02/03 ................................................................. 655,000 668,703 9/02/04 ................................................................. 510,000 534,873 Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ........................................................ 15,000,000 21,060,300 aVista Hospital System, Refunding, Series C, 9.50%, 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 3,250,710 Corona-Norco USD, Lease Revenue, Land Acquisition, Series A, FSA Insured, 6.00%, 4/15/29 .................................... 18,435,000 20,909,346 CSAC Finance Corp. COP, Sutter County, Health Facilities Program, 7.80%, 1/01/21 .................................................. 2,100,000 2,117,178 Culver City USD, GO, MBIA Insured, 5.75%, 8/01/36 ......................... 5,000,000 5,495,150 Desert Hot Springs RDA, Tax Allocation, Redevelopment Project No. 2, Series A, 6.625%, 9/01/20 ................................. 1,230,000 1,212,805 Desert Sands USD, COP, Capital Projects, FSA Insured, 6.45%, 3/01/20 ........................................................... 6,820,000 7,550,831 Duarte COP, Refunding, Series A, 5.25%, 4/01/24 ..................................... 5,000,000 4,839,400 Series A, 5.25%, 4/01/19 ................................................ 5,000,000 4,936,100 Series A, 5.25%, 4/01/31 ................................................ 12,500,000 11,868,250 East Side UHSD, GO, Santa Clara County, Series D, FGIC Insured, 5.80%, 9/01/21 ......................................................... 7,100,000 7,638,961 Santa Clara County GO, Series B, FGIC Insured, 5.00%, 8/01/27 ......................................................... 5,810,000 5,949,033 Eastern Municipal Water District Water and Sewer Revenue COP, Series B, FGIC Insured, 5.00%, 7/01/30 ...................... 31,370,000 31,961,952 El Cajon RDA, Tax Allocation, Redevelopment Project, Refunding, AMBAC Insured, 5.35%, 10/01/22 ................................ 10,285,000 10,817,969 El Camino Hospital District Revenue, Refunding, Series A, ETM, 7.25%, 8/15/09 ............................................ 8,945,000 10,527,549 El Centro Financing Authority Hospital Revenue, El Centro Regional Medical Center Project, 5.25%, 3/01/26 ........................................................... 8,500,000 8,642,630 El Dorado County Special Tax, CFD No. 1992-1, 6.25%, 9/01/29 ........................................................... 19,825,000 20,424,310 Emeryville PFA Revenue, Shellmound Park Redevelopment and Housing Project, Series B, MBIA Insured, 5.00%, 9/01/28 ........................................................... 20,000,000 20,317,000 Emeryville PFAR, Housing Increment Loan, 6.20%, 9/01/25 ................... 3,115,000 3,326,041 Escondido COP, Wastewater Project, Refunding, AMBAC Insured, 5.70%, 9/01/26 .......................................................... 13,465,000 14,675,773 5.80%, 9/01/26 .......................................................... 400,000 442,720 Fairfield PFAR, Fairfield Redevelopment Projects, Series A, 7.80%, 8/01/19 ................................................. 2,145,000 2,162,139 Fillmore COP, Water System Improvement Project, AMBAC Insured, 7.70%, 5/01/19 ............................................ 2,590,000 2,826,182 Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A, MBIA Insured, 5.00%, 3/01/33 ........................................................... 8,715,000 8,920,325 Folsom PFAR, Local Agency, 8.00%, 10/01/18 ................................ 7,480,000 7,538,419
34 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Fontana RDA, Tax Allocation, Jurupa Hills Redevelopment Project, Refunding, Series A, 5.50%, 10/01/27 ............................ $ 12,500,000 $ 12,601,625 Fontana USD, GO, Convertible Capital Appreciation, Series D, FGIC Insured, 5.80%, 5/01/17 ................................... 5,000,000 5,671,200 Foothill/Eastern Corridor Agency Toll Road Revenue, Refunding, MBIA Insured, 5.75%, 1/15/40 ................................. 395,510,000 399,271,300 senior lien, Series A, 5.00%, 1/01/35 ................................... 15,955,000 14,606,324 senior lien, Series A, Pre-Refunded, 6.50%, 1/01/32 ..................... 95,675,000 111,468,072 senior lien, Series A, Pre-Refunded, 6.00%, 1/01/34 ..................... 123,695,000 141,889,298 Fort Bragg RDAR, Tax Allocation, Fort Bragg Redevelopment Project, Series A, 6.875%, 5/01/18 ....................................... 1,840,000 1,881,842 Fortuna and Susanville Cities COP, Series B, 7.375%, 9/01/17 .......................................................... 1,600,000 1,636,320 Fresno Health Facilities Revenue, Holy Cross Health Systems Corp., MBIA Insured, 5.625%, 12/01/15 ..................... 5,000,000 5,223,800 Fresno RDAR, Tax Allocation, Mariposa Redevelopment Project, Series A, 6.625%, 2/01/23 ....................................... 1,505,000 1,513,262 Glendale USD, COP, Series A, AMBAC Insured, 6.00%, 3/01/19 ........................................................... 7,250,000 7,664,410 Hawaiian Gardens RDA, Tax Allocation, Project No. 1, Refunding, 6.35%, 12/01/33 ......................................................... 13,000,000 13,447,200 ETM, 8.00%, 12/01/10 .................................................... 5,270,000 6,412,273 Health Facilities Financing Authority Revenue, Paradise Valley Estates, 5.125%, 1/01/22 ................................. 6,610,000 6,574,042 Helix Water District COP, Installment Purchase, Series A, FSA Insured, 5.25%, 4/01/24 .................................... 8,925,000 9,322,877 Hemet Valley Hospital District Revenue COP, Hemacinto Community Corp. Project, Series A, 7.75%, 5/01/19 ........................ 2,335,000 1,799,701 Hesperia PFAR, Highway and Street Improvement, Series A, 6.10%, 10/01/10 .......................................................... 1,600,000 1,724,528 Hollister RDA, Tax Allocation, Community Development Project, Series B, FSA Insured, 6.625%, 10/01/07 ........................................................ 1,905,000 1,972,399 6.75%, 10/01/13 ......................................................... 1,495,000 1,548,820 Huntington Park PFA, Local Agency Revenue, Refunding, Series A, MBIA Insured, 6.45%, 9/01/22 ................................... 10,000,000 10,825,100 Industry COP, Refunding, 6.625%, 6/01/06 .................................. 11,380,000 12,349,576 Inglewood PFAR, La Cinega Redevelopment Project, Series A, AMBAC Insured, 6.00%, 5/01/16 .................................. 2,395,000 2,429,344 Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ....................................... 5,000,000 5,956,900 Landfill Improvement Financing Project, Series B, FSA Insured, Pre-Refunded, 6.00%, 8/01/16 .............................. 5,000,000 5,803,100 Intercommunity Hospital Financing Authority COP, Northbay Healthcare System, Refunding, 5.25%, 11/01/19 ................... 10,550,000 10,760,895 Irwindale CRDA, Tax Allocation, Individual Development Project, Pre-Refunded, 6.60%, 8/01/18 ............ 1,630,000 1,851,484 Individual Development Project, Pre-Refunded, 6.625%, 8/01/26 ........... 9,100,000 10,429,965 senior lien, Refunding, FSA Insured, 5.75%, 8/01/26 ..................... 10,220,000 11,303,627 John C. Fremont Hospital District Health Facilities Revenue, 6.75%, 6/01/23 ........................................................... 1,760,000 1,883,640 Kern County Board of Education COP, Refunding, Series A, MBIA Insured, 5.20%, 5/01/28 ............................................. 8,685,000 9,044,385 Kern County Housing Authority SFMR, Series A, GNMA Secured, 7.55%, 12/01/07 ......................................................... 85,000 87,125 7.65%, 12/01/12 ......................................................... 120,000 123,108 7.70%, 12/01/23 ......................................................... 555,000 565,895 7.50%, 10/01/24 ......................................................... 115,000 116,973 La Mirada RDA, Tax Allocation, Housing, Refunding, Series A, FSA Insured, 5.875%, 8/15/25 ............................................. 7,100,000 7,691,643 La Mirada SFMR, MBS, Series A, 7.65%, 4/01/24 ............................. 755,000 776,095 La Palma Community Development Commission Tax Allocation, La Palma Community Development Project No. 1, 6.10%, 6/01/22 ........................................................... 2,355,000 2,398,403 La Quinta RDA Tax Allocation Revenue, Redevelopment Project Area No. 1, AMBAC Insured, 5.125%, 9/01/32 ............................... 10,825,000 11,198,246
35 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (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 $ 6,967,620 Series A, 5.50%, 9/01/30 ................................................ 15,550,000 15,718,718 Lakewood RDA, Tax Allocation, Redevelopment Project No.1, Refunding, Series A, FSA Insured, 6.50%, 9/01/17 ......................... 2,850,000 2,920,139 Lancaster RDA, RMR, Los Angeles County, Series A, ETM, 10.125%, 9/01/16 ................ 5,000 8,155 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, Housing Program, MBIA Insured, 5.80%, 8/01/23 .......................... 9,125,000 9,426,673 Tax Allocation, Combined Redevelopment Project Areas, Sheriff's Program, MBIA Insured, 5.70%, 8/01/23 ........................ 13,140,000 13,507,920 Lemon Grove CDA, Tax Allocation, 1998 Refunding, 5.75%, 8/01/28 ........................................................... 8,115,000 8,478,877 Lemoore Financing Authority Lease Revenue, Water and Wastewater System Improvement Project, AMBAC Insured, 6.20%, 12/01/20 .......................................................... 4,400,000 4,857,028 Lemoore RDA, Tax Allocation, Refunding, 6.85%, 8/01/25 .................... 6,105,000 6,328,321 Liberty UHSD, Series A, FSA Insured, 6.20%, 8/01/19 ....................... 2,745,000 2,984,227 Livermore-Amador Valley Water Management Agency Sewer Revenue, Series A, AMBAC Insured, 5.00%, 8/01/31 .................................. 18,350,000 18,686,539 Local Medical Facilities Financing Authority COP, Insured California Health Clinic Project, 7.55%, 3/01/20 ......................... 4,100,000 4,122,140 Local Medical Facilities Financing Authority II COP, Insured California Health Clinic Project, 7.55%, 11/01/20 ........................ 2,065,000 2,076,151 Local Medical Facilities Financing Authority III COP, Insured California Health Clinic Project, 6.90%, 7/01/22 ......................... 2,730,000 2,767,538 Loma Linda Hospital Revenue, Loma Linda University Medical Center, Refunding, Series A, AMBAC Insured, 6.55%, 12/01/18 .......................................................... 11,525,000 11,845,280 Long Beach Bond Finance Authority Lease Revenue, Aquarium of the South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/26 .......................................................... 20,000,000 20,473,200 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 15,215,181 Long Beach Harbor Revenue, MBIA Insured, 5.375%, 5/15/20 ......................................................... 12,000,000 12,584,400 5.25%, 5/15/25 .......................................................... 10,500,000 10,744,860 Long Beach HMR, Series A, 9.60%, 11/01/14 ................................. 395,000 398,784 Los Angeles Community College District GO, Series A, MBIA Insured, 5.00%, 6/01/26 ............................................. 69,275,000 70,736,703 Los Angeles COP, Department of Public Social Services, Series A, AMBAC Insured, 5.50%, 8/01/24 ................................................................. 4,000,000 4,293,760 8/01/31 ................................................................. 5,000,000 5,345,200 Los Angeles County COP, Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%, 11/01/33 ........................................................ 8,000,000 8,287,840 Insured Health Clinic Program, Refunding, Series F, California Mortgage Insured, 5.875%, 1/01/21 ........................... 7,520,000 7,932,622 Insured Health Clinic Program, Series A, California Mortgage Insured, 7.30%, 1/01/21 ....................................... 965,000 969,053 Insured Health Clinic Program, Series B, 7.05%, 8/01/21 ................. 3,550,000 3,593,772 Marina del Rey, Series A, 6.50%, 7/01/08 ................................ 21,615,000 22,252,643 Series 1992, 6.625%, 7/01/22 ............................................ 1,000,000 1,022,760 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 13,244,140 First Tier, Refunding, Senior Series A, MBIA Insured, 5.25%, 7/01/27 ......................................................... 7,840,000 8,148,504 Refunding, Senior Series A, FSA Insured, 5.00%, 7/01/24 ................. 5,000,000 5,129,950 Refunding, Series A, FGIC Insured, 5.00%, 7/01/21 ....................... 116,800,000 117,197,120 Refunding, Series A, MBIA Insured, 5.625%, 7/01/18 ...................... 10,060,000 10,372,564 Second Tier, MBIA Insured, Pre-Refunded, 6.00%, 7/01/26 ................. 9,200,000 10,606,312
36 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Los Angeles County Public Works Financing Authority Revenue, Multiple Capital Facilities Project, Series B, AMBAC Insured, 5.125%, 12/01/29 .......................................... $ 26,905,000 $ 27,597,266 Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects, Series A, 5.00%, 10/01/23 ......................................................... 25,750,000 25,794,548 MBIA Insured, 5.25%, 10/01/19 ........................................... 30,000,000 31,006,200 MBIA Insured, 5.00%, 10/01/23 ........................................... 10,000,000 10,027,000 Los Angeles County Transportation Commission Lease Revenue, FSA Insured, 7.375%, 12/15/06 ............................................ 7,500,000 7,549,125 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 ......................................................... 5,825,000 5,951,170 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.625%, 12/01/18 .......................................... 20,000,000 20,903,400 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.625%, 12/01/23 .......................................... 50,090,000 52,080,076 Tax Allocation, Bunker Hill, Refunding, Series H, FSA Insured, 5.60%, 12/01/28 ........................................... 27,900,000 28,990,611 Tax Allocation, Series G, ETM, 6.75%, 7/01/10 ........................... 8,060,000 8,163,571 Los Angeles Department of Airports Revenue, Ontario International Airport, Series A, FGIC Insured, 6.00%, 5/15/26 ............ 10,000,000 10,920,700 Los Angeles Department of Water and Power Electric Plant Revenue, MBIA Insured, 5.875%, 9/01/30 ........................................... 13,670,000 14,196,158 Refunding, MBIA Insured, 5.375%, 9/01/23 ................................ 53,550,000 55,161,855 Refunding, MBIA Insured, 5.875%, 9/01/30 ................................ 17,765,000 18,448,775 Refunding, Second Issue, 5.40%, 11/15/31 ................................ 14,500,000 14,884,105 Series 1993, MBIA Insured, 5.375%, 9/01/23 .............................. 4,140,000 4,252,277 Los Angeles Department of Water and Power Waterworks Revenue, Refunding, Series 1993, 5.80%, 4/15/24 .......................... 10,520,000 10,746,916 Los Angeles Department Water and Power Electric Plant Revenue, 5.875%, 9/01/30 .......................................................... 25,415,000 26,328,161 Los Angeles Harbor Department Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 ...................... 15,000,000 15,337,350 Series B, 6.125%, 8/01/18 ............................................... 24,810,000 27,765,119 Series B, 6.20%, 8/01/22 ................................................ 59,835,000 66,900,317 Series B, 5.375%, 11/01/23 .............................................. 7,460,000 7,739,302 Series B, MBIA Insured, 6.20%, 8/01/25 .................................. 35,690,000 39,904,275 Los Angeles MFHR, Refunding, Senior Series G, FSA Insured, 5.75%, 1/01/24 ........................................................... 6,815,000 6,950,933 Los Angeles USD GO, Series A, MBIA Insured, 5.00%, 1/01/28 ................ 202,000,000 206,702,560 Los Angeles USD, COP, Administration Building Project, Series B, AMBAC Insured, 5.00%, 10/01/31 ............................................... 28,210,000 28,737,527 COP, Land Acquisition Program I, Series A, FSA Insured, 5.25%, 4/01/21 ......................................................... 8,180,000 8,253,538 Series B, FGIC Insured, 5.00%, 7/01/23 .................................. 5,000,000 5,140,300 Los Angeles Wastewater System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/25 ................................. 28,285,000 28,916,604 Refunding, MBIA, Insured, 5.00%, 6/01/26 ................................ 61,200,000 62,467,452 Refunding, MBIA Insured, 5.00%, 6/01/27 ................................. 49,260,000 50,240,274 Refunding, Series A, FGIC Insured, 5.00%, 6/01/32 ....................... 6,000,000 6,118,920 Refunding, Series A, MBIA Insured, 5.80%, 6/01/21 ....................... 35,505,000 36,483,873 Refunding, Series D, FGIC Insured, 6.00%, 11/01/14 ...................... 8,000,000 8,367,200 Series A, FGIC Insured, 5.00%, 6/01/28 .................................. 8,245,000 8,388,381 Series A, FSA Insured, 4.875%, 6/01/29 .................................. 57,010,000 57,465,510 Series A, MBIA Insured, 5.875%, 6/01/24 ................................. 45,400,000 48,376,878 Series B, MBIA Insured, 5.70%, 6/01/23 .................................. 75,720,000 77,600,128
37 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Los Angeles Water and Power Revenue, Power System, Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 ....................... $ 2,000,000 $ 2,042,860 Series A, 5.25%, 7/01/24 ................................................ 5,000,000 5,134,450 Lynwood PFA, Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.90%, 9/01/28 .................................... 6,470,000 7,244,136 Lynwood RDA, Tax Allocation, Project Area, Series A, Pre-Refunded, 6.50%, 7/01/13 ............................................. 5,485,000 5,628,378 Madera County COP, Valley Children's Hospital, MBIA Insured, 5.00%, 3/15/23 .......................................................... 8,500,000 8,679,775 5.75%, 3/15/28 .......................................................... 27,500,000 29,736,300 Madera USD, COP, 6.50%, 12/01/07 .......................................... 1,250,000 1,285,025 Madera-Chowchilla Power Authority Hydroelectric Revenue, Refunding, 8.00%, 1/01/14 ................................................ 2,060,000 2,043,685 Manhattan Beach COP, Metlox Public Improvements, 5.00%, 1/01/33 ........................................................... 6,575,000 6,686,183 Marysville Hospital Revenue, Fremont Rideout Health, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/22 ....................... 5,000,000 5,198,200 Merced Irrigation District COP, Water Facilities Project, 6.40%, 11/01/10 .......................................................... 3,580,000 3,760,074 Metropolitan Water District Southern California Waterworks Revenue, Series A, 5.00%, 7/01/26 ................................................ 49,325,000 50,197,066 Series C, 5.00%, 7/01/37 ................................................ 26,780,000 27,023,430 Mid-Peninsula Regional Open Space District COP, Special District Association Finance Corp., 5.75%, 9/01/20 ....................... 5,200,000 5,352,412 Milpitas RDA, Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, 5.40%, 1/15/17 .......................................................... 12,155,000 13,156,694 5.50%, 1/15/24 .......................................................... 11,790,000 12,650,552 Milpitas USD, FGIC Insured, 5.875%, 9/01/24 ............................... 11,970,000 13,155,150 Modesto Irrigation District COP, Capital Improvements, Series A, FSA Insured, 5.00%, 7/01/31 ............. 7,790,000 7,938,633 Refunding and Capital Improvements, Series B, 5.30%, 7/01/22 ............ 4,770,000 4,789,462 Modesto PFA Lease Revenue, Capital Improvements and Refinancing Project, AMBAC Insured, 5.125%, 9/01/33 ...................... 5,535,000 5,685,275 Mojave Water Agency COP, Supplemental Water Entitlement, MBIA Insured, 5.55%, 9/01/22 ............................................. 10,005,000 10,977,786 Montclair RDA, Tax Allocation, Redevelopment Project No. IV, 6.90%, 10/01/22 .......................................................... 1,645,000 1,685,039 Monterey County COP, Natividad Medical Center Improvement Project, Series C, MBIA Insured, Pre-Refunded, 6.50%, 8/01/15 .......................................................... 3,500,000 3,989,055 6.60%, 8/01/23 .......................................................... 13,250,000 15,131,765 Moreno Valley Special Tax, Towngate Community Facilities 87-1, Refunding, Series A, FSA Insured, 5.875%, 12/01/15 ................................................................. 5,830,000 5,989,509 Moreno Valley USD, COP, Refunding, FSA Insured, 5.60%, 3/01/17 .......................................................... 5,000,000 5,432,050 5.70%, 3/01/27 .......................................................... 15,000,000 16,264,650 Mountain View Shoreline Regional Park, Community Tax Allocation, Series A, MBIA Insured, 5.75%, 8/01/18 ................................... 9,605,000 9,832,446 M-S-R Public Power Agency San Juan Project Revenue, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/20 ...................... 10,750,000 11,080,025 Series E, MBIA Insured, 6.00%, 7/01/22 .................................. 6,330,000 6,384,755 Murrieta COP, Road Improvement Project, 6.00%, 4/01/27 .................... 8,600,000 9,145,584 Napa Housing Facility Revenue, Napa Park Apartments, Series A, GNMA Secured, 6.35%, 6/20/35 ............................................. 6,125,000 6,391,070 Napa Mortgage Revenue, Creekside II Apartments Project, Refunding, Series A, MBIA Insured, 6.625%, 7/01/25 ....................... 2,000,000 2,054,900 Needles PFAR, Tax Allocation, Redevelopment Project, Series A, 7.50%, 8/15/22 ................................................. 1,580,000 1,608,045 Nevada Power Authority Revenue, Bowman Hydroelectric Project, Refunding, 7.50%, 5/01/13 ....................................... 6,050,000 6,260,298 Norco RDA, Tax Allocation, Area No. One, Refunding, MBIA Insured, 5.125%, 3/01/30 ............................................ 13,515,000 13,997,891
38 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) North City West School Facilities Financing Authority Special Tax, CFD No. 1, Series C, AMBAC Insured, 5.30%, 9/01/22 ................................................................. $ 10,000,000 $ 10,617,300 9/01/27 ................................................................. 9,900,000 10,392,624 Northern California Power Agency Multiple Capital Facilities Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 ........................................................... 19,250,000 19,661,180 Northern California Public Power Agency Revenue, Hydroelectric Project No. 1, Refunding, Series A, MBIA Insured, 5.125%, 7/01/23 ......................................................... 7,420,000 7,749,300 5.50%, 7/01/24 .......................................................... 10,000,000 10,268,300 5.00%, 7/01/28 .......................................................... 15,975,000 16,255,361 5.20%, 7/01/32 .......................................................... 43,675,000 45,369,590 Oakland HFR, Issue D-1, 7.10%, 1/01/10 ............................................... 1,355,000 1,369,173 Issue D-2, 7.15%, 1/01/24 ............................................... 3,040,000 3,071,798 Oakland Joint Powers Financing Authority Lease Revenue, Oakland Administration Buildings, AMBAC Insured, 5.75%, 8/01/26 ........................................................... 24,895,000 27,422,340 Oakland Revenue, 1800 Harrison Foundation, Refunding, Series A, AMBAC Insured, 6.00%, 1/01/29 ...................... 13,825,000 15,427,041 Series B, AMBAC Insured, 6.00%, 1/01/29 ................................. 13,470,000 15,041,949 Oceanside Building Authority Revenue, Refunding, 7.75%, 11/01/04 ................................................................. 1,600,000 1,690,480 Oceanside COP, Oceanside Civic Center Project, Refunding, MBIA Insured, 5.75%, 8/01/15 ......................................................... 5,000,000 5,550,150 Refunding, Series A, 6.375%, 4/01/12 .................................... 4,435,000 4,523,700 Refunding, Series A, 6.625%, 4/01/23 .................................... 9,000,000 9,180,000 Wastewater Systems Plan, Refunding, AMBAC Insured, 5.80%, 5/01/21 ......................................................... 4,500,000 4,604,625 Water System Project, Refunding, AMBAC Insured, 5.80%, 8/01/21 ......................................................... 4,750,000 4,912,545 Olivenhain Municipal Water District 1915 Act, AD No. 96-1, MBIA Insured, 5.45%, 9/02/27 ............................................. 10,975,000 11,503,995 Orange Community Facilities District Special Tax, No. 91-2, 6.15%, 10/01/23 ......................................................... 6,225,000 6,420,652 6.25%, 10/01/30 ......................................................... 7,910,000 8,123,254 Orange County Airport Revenue, Refunding, MBIA Insured, 5.625%, 7/01/12 .......................................................... 5,000,000 5,560,550 Orange County Development Agency Tax Allocation, Santa Ana Heights Area Project, Refunding, 6.125%, 9/01/23 ......................... 6,500,000 6,688,890 Orange County Recovery COP, Series A, MBIA Insured, 5.80%, 7/01/16 ........................................................... 10,380,000 11,597,470 Orange County Recovery, Refunding, Series A, MBIA Insured, 5.75%, 6/01/15 ........................................................... 79,010,000 87,652,114 Orange County Water District COP, Refunding, Series A, 5.50%, 8/15/14 ........................................................... 9,430,000 9,742,227 Orange County Water District Revenue, COP, Series B, MBIA Insured, 5.00%, 8/15/34 ............................................. 6,000,000 6,106,560 Orange RDA, Tax Allocation Revenue, Northwest Redevelopment Project, Refunding, Series B, 5.70%, 10/01/23 ............................ 8,530,000 8,772,252 Oroville Wyandotte Irrigation District Revenue, Hydroelectric Sly Creek Power, Refunding, 6.20%, 1/01/09 ............................... 6,085,000 6,145,242 Oxnard Harbor District Revenue, ACA Insured, 5.60%, 8/01/19 ............... 10,820,000 11,149,902 Palm Desert Financing Authority Lease Revenue, Blythe County Administrative Project, 6.625%, 8/01/26 .................................. 5,020,000 5,377,575 Palm Desert Financing Authority Tax Allocation Revenue, Project Area No. 1, Refunding, MBIA Insured, 5.625%, 4/01/23 ............ 13,000,000 14,151,020 Project Area No. 1, Series A, MBIA Insured, 5.95%, 4/01/24 .............. 15,075,000 16,614,459 MBIA Insured, 5.00%, 8/01/33 ............................................ 11,475,000 11,707,369 Palm Springs COP, Multiple Capital Facilities Project, Refunding, AMBAC Insured, 5.75%, 4/01/27 ................................. 11,570,000 12,779,759 Palmdale Civic Authority Revenue, Merged Redevelopment Project Areas, Refunding, Series A, MBIA Insured, 6.15%, 9/01/24 ........................................................... 4,730,000 5,081,865
39 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (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 $ 17,813,600 Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/34 ......................................................... 6,980,000 7,096,357 Series A, MBIA Insured, 5.75%, 9/01/27 .................................. 10,435,000 11,611,129 Palmdale School District COP, 7.40%, 8/01/20 .............................. 495,000 497,430 Palomar Community College District COP, Building Acquisition Project, Connie Lee Insured, Pre-Refunded, 6.75%, 10/01/19 .......................................................... 4,210,000 4,646,451 Paramount RDA, Tax Allocation, Custodial Receipts, MBIA Insured, 6.25%, 8/01/23 ........................................................... 22,070,000 22,821,263 Pasadena COP, Art Center College of Design, Connie Lee Insured, 6.50%, 12/01/19 .......................................................... 8,250,000 9,147,518 Pasadena Water Revenue, 6.00%, 7/01/13 .................................... 4,000,000 4,122,520 Perris PFAR, Special Tax, Series A, ETM, 7.55%, 9/01/03 .............................. 110,000 112,853 Special Tax, Series A, ETM, 7.60%, 9/01/04 .............................. 120,000 122,784 Special Tax, Series A, ETM, 7.60%, 9/01/05 .............................. 125,000 127,926 Special Tax, Series A, ETM, 7.80%, 9/01/19 .............................. 1,090,000 1,114,253 Tax Allocation, Series A, 5.75%, 10/01/31 ............................... 5,000,000 5,187,500 Perris Special Tax, CFD No. 8, Series A, Pre-Refunded, 8.30%, 9/01/18 ....................... 6,040,000 6,640,859 CFD No. 91-1, 8.75%, 9/01/21 ............................................ 5,395,000 5,479,863 Petaluma Community Development Commission MFR, Park Lane Apartments, Series A, 6.875%, 11/20/34 ................................... 4,800,000 4,980,048 Pittsburg PFA, Water Revenue, MBIA Insured, 5.50%, 6/01/27 ................ 2,980,000 3,224,092 Placentia COP, RDA, Refunding, Series A, 6.90%, 1/01/14 ................... 1,770,000 1,857,668 Placer Hills Union Elementary School District COP, Convertible Capital Appreciation, Series B, 7.125%, 3/01/19 .......................... 510,000 542,859 Placer Union High School District COP, Capital Appreciation, Series A, 7.125%, 3/01/19 ................................................ 2,095,000 2,229,981 Pleasanton COP, Capital Improvements, 6.70%, 10/01/11 ..................... 2,180,000 2,217,409 Pomona PFAR, Refunding, Series P, 5.75%, 10/01/15 ......................... 6,490,000 6,995,506 Pomona RDA, Tax Allocation, Southwest Pomona Redevelopment Project, ETM, 11.45%, 1/01/07 ............................................ 7,405,000 8,993,817 Port Hueneme RDA, Tax Allocation, R-76 Project, Refunding, 6.50%, 5/01/23 ........................................................... 2,865,000 2,928,259 Port of Oakland Revenue, AMT, Series L, FGIC Insured, 5.375%, 11/01/27 ........................... 25,000,000 26,072,750 Series J, MBIA Insured, 5.50%, 11/01/26 ................................. 7,000,000 7,524,300 Port of Oakland Special Facilities Revenue, Mitsui O.S.K. Lines Ltd., Series A, 6.70%, 1/01/07 .......................................................... 6,100,000 6,173,444 6.75%, 1/01/12 .......................................................... 4,890,000 4,943,252 6.80%, 1/01/19 .......................................................... 5,030,000 5,106,255 Porterville COP, Infrastructure Financing Project, AMBAC Insured, 5.00%, 7/01/28 .................................................. 10,430,000 10,613,047 Poway COP, Royal Mobile Home Park Project, Refunding, FSA Insured, 5.875%, 8/01/15 ......................................................... 6,250,000 6,887,000 6.00%, 8/01/20 .......................................................... 5,400,000 5,934,330 6.00%, 8/01/28 .......................................................... 15,000,000 16,408,650 Poway RDA, Tax Allocation, Parguay Redevelopment Project, sub. notes, Refunding, FGIC Insured, 5.50%, 12/15/23 ......................................................... 23,000,000 23,920,460 5.75%, 12/15/26 ......................................................... 8,000,000 8,322,400 Puerto Rico Commonwealth GO, Public Improvements, Series A, 5.00%, 7/01/27 ........................... 26,750,000 26,826,505 Public Improvement, Series A, 5.125%, 7/01/31 ........................... 142,925,000 144,301,368
40 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, Series Y, 5.00%, 7/01/36 ................................ $ 63,000,000 $ 63,116,550 Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue, Series A, MBIA Insured, 5.00%, 7/01/38 .................................. 116,975,000 119,749,647 Series B, MBIA Insured, 6.00%, 7/01/31 .................................. 13,000,000 15,532,790 Series B, Pre-Refunded, 6.00%, 7/01/39 .................................. 13,200,000 15,819,276 Series D, 5.375%, 7/01/36 ............................................... 45,000,000 46,468,800 Series D, 5.75%, 7/01/41 ................................................ 20,000,000 21,698,800 Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A, AMBAC Insured, 5.00%, 7/01/28 ........................................................... 10,000,000 10,229,000 Puerto Rico Electric Power Authority Revenue, Series DD, MBIA Insured, 5.00%, 7/01/28 ................................. 23,250,000 23,815,905 Series II, 5.25%, 7/01/31 ............................................... 48,000,000 49,220,160 Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Revenue, Cogen Facilities, AES Puerto Rico Project, 6.625%, 6/01/26 ................................. 6,800,000 6,990,944 Puerto Rico PBA Revenue, Government Facilities, Series D, 5.375%, 7/01/33 .......................................................... 100,000,000 103,640,000 Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, 5.50%, 8/01/29 .......................................................... 139,995,000 145,741,795 5.75%, 8/01/30 .......................................................... 50,000,000 53,957,500 Rancho Cucamonga RDA, Tax Allocation, Rancho Redevelopment Project, Set-Aside Housing, MBIA Insured, 5.25%, 9/01/21 ........................................................... 8,330,000 8,859,288 Rancho Cucamonga, Palmdale, Potterville and Colton HFA, SFMR, Series 1986, GNMA Secured, 7.55%, 8/01/18 ................................ 1,400,000 1,452,752 Rancho Murieta Community Services District 1915 Act, ID No. 1, 8.30%, 9/02/03 .......................................................... 745,000 761,956 8.40%, 9/02/04 .......................................................... 750,000 787,613 8.40%, 9/02/05 .......................................................... 735,000 771,669 8.40%, 9/02/06 .......................................................... 750,000 782,820 Redlands USD, COP, Series A, FSA Insured, 6.15%, 9/01/11 .......................................................... 505,000 507,308 6.25%, 9/01/27 .......................................................... 4,160,000 4,179,427 Rialto COP, FSA Insured, 5.75%, 2/01/22 ................................... 2,715,000 3,003,224 Rialto RDA, Tax Allocation, Agua Mansa Redevelopment Project, Pre-Refunded, 6.75%, 3/01/24 ............................................. 3,500,000 3,747,380 Richmond Joint Powers Financing Authority Revenue Lease, Series A, MBIA Insured, 5.00%, 2/01/26 ................................... 6,500,000 6,643,845 Richmond Joint Powers Financing Authority Revenue, Lease, Series A, MBIA Insured, 5.00%, 2/01/31 ................................... 7,000,000 7,134,680 Riverside County Asset Leasing Corp. Leasehold Revenue, Hospital Project, Series A, 6.375%, 6/01/09 ......................................................... 23,000,000 23,653,430 6.50%, 6/01/12 .......................................................... 20,125,000 24,294,498 Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A, 6.65%, 11/01/17 ...................................... 7,945,000 8,056,548 Riverside County COP, Family Law Court Project, MBIA Insured, 5.75%, 11/01/27 ................. 5,295,000 5,909,008 Historic Courthouse, MBIA Insured, 5.875%, 11/01/27 ..................... 6,000,000 6,727,260 Riverside County Flood Control and Water Conservation District Elsinore Valley AD, Zone 3, 7.875%, 9/01/03 ................................................................. 165,000 169,646 9/01/04 ................................................................. 180,000 195,746 9/01/05 ................................................................. 190,000 217,208 9/01/06 ................................................................. 205,000 244,516 9/01/07 ................................................................. 225,000 275,733
41 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Riverside County Flood Control and Water Conservation District Elsinore Valley AD, Zone 3, 7.875%, (cont.) 9/01/08 ................................................................. $ 240,000 $ 300,754 9/01/09 ................................................................. 260,000 329,937 9/01/10 ................................................................. 280,000 359,346 9/01/11 ................................................................. 305,000 395,027 9/01/12 ................................................................. 325,000 423,839 9/01/13 ................................................................. 350,000 460,338 9/01/14 ................................................................. 380,000 503,515 9/01/15 ................................................................. 410,000 549,810 9/01/16 ................................................................. 440,000 593,626 9/01/17 ................................................................. 475,000 643,620 Riverside County Housing Authority Revenue, Breezewood Apartment Project, Refunding, Series C, 6.40%, 6/01/28 .................................................................. 4,815,000 4,720,722 Riverside County PFA, COP, 5.75%, 5/15/19 ..................................................... 3,500,000 3,517,745 COP, 5.80%, 5/15/29 ..................................................... 14,230,000 14,256,326 Tax Allocation Revenue, Redevelopment Projects, Series A, 5.625%, 10/01/33 ............................................. 11,225,000 11,461,174 Riverside County RDA, Tax Allocation, Jurupa Valley Proect Area, AMBAC Insured, 5.00%, 10/01/28 ............... 15,535,000 15,904,578 Jurupa Valley Project Area, AMBAC Insured, 5.125%, 10/01/35 ............. 17,035,000 17,586,593 Riverside County SFMR, Series A, GNMA Secured, 7.20%, 10/01/24 ................................. 925,000 957,967 Series B, GNMA Secured, 7.60%, 11/01/19 ................................. 190,000 195,413 Riverside MFHR, Palm Shadows Apartments, Series A, FNMA Insured, 6.50%, 1/01/18 .................................................. 3,940,000 3,955,051 Riverside RDA, Tax Allocation, Merged Redevelopment Project, Series A, MBIA Insured, 5.625%, 8/01/23 .................................. 6,000,000 6,141,420 Rohnert Park HFAR, Rancho Feliz Mobile Home Park, FSA Insured, 5.375%, 12/01/26 ......................................................... 8,380,000 8,505,113 Roseville 1915 Act, North Roseville Rocklin District No. 88-3, Refunding, 8.15%, 9/02/03 ......................................................... 130,000 131,830 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/04 ......................................................... 140,000 145,566 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/05 ......................................................... 150,000 156,174 North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/06 ......................................................... 160,000 166,872 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/07 ......................................................... 180,000 187,094 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/08 ......................................................... 190,000 197,497 North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/09 ......................................................... 160,000 166,184 Rocky Ridge Harding District No. 88-4, Refunding, 8.15%, 9/02/03 ......................................................... 280,000 283,942 Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/04 ......................................................... 300,000 311,928 Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/05 ......................................................... 320,000 333,171 Sacramento 1915 Act, Special Assessment, North Natomas AD No. 88-3, 8.20%, 9/02/10 ............................... 760,000 787,079 North Natomas AD No. 88-3, 8.20%, 9/02/11 ............................... 1,685,000 1,743,823 North Natomas AD No. 88-3, 8.25%, 9/02/12 ............................... 2,180,000 2,255,537 North Natomas AD No. 88-3, 8.25%, 9/02/13 ............................... 2,360,000 2,441,396 North Natomas, AD No. 88-3, 8.25%, 9/02/14 .............................. 2,545,000 2,632,243 Sacramento City Financing Authority Revenue, Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/32 ........................................................ 26,250,000 26,723,550 Capital Improvements, 5.625%, 6/01/30 ................................... 6,000,000 6,405,720 Series 1991, 6.60%, 11/01/05 ............................................ 1,300,000 1,318,434 Series 1991, 6.70%, 11/01/11 ............................................ 920,000 933,110
42 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Sacramento City USD, GO, Election of 1999, Series B, FGIC Insured, 5.00%, 7/01/30 ............................................. $ 5,250,000 $ 5,358,728 Sacramento County Airport System Revenue, Series A, MBIA Insured, 5.90%, 7/01/24 ............................................. 6,875,000 7,543,938 Sacramento County COP, Public Facilities Project, Coroner/Crime Laboratory, AMBAC Insured, 6.40%, 10/01/19 ................................................................ 11,000,000 12,033,010 10/01/24 ................................................................ 29,500,000 32,270,345 Sacramento County Sanitation District Financing Authority Revenue, AMBAC Insured, 5.625%, 12/01/30 ................................. 5,000,000 5,406,450 Sacramento MUD Revenue, Refunding, Series P, FSA Insured, 5.00%, 8/15/23 ........................................................... 7,000,000 7,197,120 Sacramento MUD, Electric Revenue, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ...................... 10,000,000 10,353,100 Series J, AMBAC Insured, 5.60%, 8/15/24 ................................. 10,215,000 11,072,039 Series N, MBIA Insured, 5.00%, 8/15/28 .................................. 63,500,000 64,757,935 sub. lien, Refunding, 8.00%, 11/15/10 ................................... 16,110,000 16,208,593 Sacramento Regional Transit District COP, Series A, 6.375%, 3/01/04 ................................................................. 1,000,000 1,031,220 3/01/05 ................................................................. 1,100,000 1,133,132 Sacramento USD, COP, Refunding, MBIA Insured, 5.00%, 3/01/31 .............. 6,000,000 6,105,600 Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, Refunding, FSA Insured, 5.25%, 9/01/28 ........................................................... 6,800,000 7,057,992 San Bernardino 1915 Act, Special Assessment, AD No. 961, Refunding, 7.65%, 9/02/03 .......................................................... 765,000 774,379 7.70%, 9/02/04 .......................................................... 845,000 873,730 7.75%, 9/02/05 .......................................................... 915,000 943,877 San Bernardino County COP, Medical Center Financing Project, Refunding, 5.00%, 8/01/26 ............. 15,045,000 14,659,848 Medical Center Financing Project, Refunding, MBIA Insured, 5.00%, 8/01/28 ......................................................... 55,065,000 55,806,175 Medical Center Financing Project, Series A, MBIA Insured, 5.50%, 8/01/22 ......................................................... 40,830,000 44,138,863 West Valley Detention Center Project, MBIA Insured, 6.20%, 11/01/25 ........................................................ 9,275,000 10,064,303 San Bernardino County Housing Authority MFMR, Rancho Meridian, GNMA Secured, 6.75%, 4/20/41 ........................... 6,920,000 7,760,849 Series A,GNMA Secured, 6.70%, 3/20/43 ................................... 3,345,000 3,787,610 San Bernardino County SFMR, GNMA Secured, 7.50%, 12/01/07 ........................................... 100,000 103,185 GNMA Secured, 7.65%, 6/01/23 ............................................ 580,000 597,203 Series A, GNMA Secured, 6.20%, 5/01/21 .................................. 315,000 330,211 Series B, 5.40%, 5/01/25 ................................................ 270,000 275,006 San Bernardino Joint Powers Financing Authority Lease Revenue, City Hall Project, Refunding, MBIA Insured, 5.70%, 1/01/23 ........................................................... 6,315,000 6,888,149 San Bernardino Joint Powers Financing Authority Revenue COP, Police Station Financing Project, Pre-Refunded, 6.60%, 4/01/20 ........................................................... 4,715,000 5,344,264 San Bernardino Joint Powers Financing Authority Revenue, Tax Allocation, Refunding, Series A, FSA Insured, 5.75%, 10/01/25 .......................................................... 19,915,000 21,834,806 San Carlos Mortgage Revenue, Elms Project, FHA Insured, 6.875%, 8/01/37 .......................................................... 8,465,000 8,767,624 San Diego County COP, MBIA Insured, 5.00%, 8/15/28 ........................ 24,000,000 24,278,640 San Diego County Regional Transportation Commission Sales Tax Revenue, Series A, ETM, 6.00%, 4/01/08 ............................... 1,250,000 1,278,925 San Diego County Water Authority Water Revenue COP, Series A, MBIA Insured, 5.00%, 5/01/25 ................................... 12,440,000 12,766,550 San Diego County Water Authority, Water Revenue COP, Series A, 5.00%, 5/01/32 ................................................. 20,000,000 20,428,200
43 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Diego IDR, San Diego Gas and Electric Co. Project, Series A, 6.40%, 9/01/18 ................................................. $ 19,800,000 $ 20,218,770 San Diego Public Facilities Financing Authority Sewer Revenue, Series A, FGIC Insured, 5.25%, 5/15/27 .................................. 21,750,000 22,620,000 Series B, FGIC Insured, 5.25%, 5/15/22 .................................. 5,200,000 5,464,108 San Diego Public Facilities Financing Authority Water Rvenue, MBIA Insured, 5.00%, 8/01/26 ............................................. 12,210,000 12,492,539 San Diego RDA, Tax Allocation, Horton Project, Refunding, Series A, FSA Insured, 6.00%, 11/01/15 ................................... 5,000,000 5,742,650 San Diego USD, GO, Election 1998, Series D, FGIC Insured, 5.00%, 7/01/27 ................... 15,000,000 15,321,900 Election of 1998, Series B, MBIA Insured, 5.00%, 7/01/25 ................ 6,975,000 7,114,570 Series C, FSA Insured, 5.00%, 7/01/26 ................................... 6,490,000 6,651,731 San Elijo Joint Powers Authority Revenue, Water Pollution Control Facilities, Refunding, FGIC Insured, 5.00%, 3/01/20 ........................................................... 5,000,000 5,020,050 San Francisco BART, District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/34 ........................................................... 11,790,000 12,657,155 San Francisco City and County Airport Commission International Airport Revenue, Issue 12A, Second Series, 5.90%, 5/01/26 ................................ 45,000,000 47,728,800 Issue 16A, Second Series, FSA Insured, 5.125%, 5/01/23 .................. 24,635,000 25,273,293 Issue 6, AMBAC Insured, 6.50%, 5/01/18 .................................. 2,500,000 2,663,225 Issue 6, AMBAC Insured, 6.60%, 5/01/24 .................................. 13,250,000 14,086,208 Issue 9A, FGIC Insured, 5.90%, 5/01/25 .................................. 46,415,000 50,158,834 San Francisco City and County Airports Commission Airport Revenue, Refunding, Series 28B, MBIA Insured, 5.00%, 5/01/27 ........................................................... 5,050,000 5,160,696 San Francisco City and County Airports Commission International Airport Revenue, Refunding, Second Series-28A, MBIA Insured, 5.125%, 5/01/32 ............. 28,790,000 29,195,651 Second Series, Issue 26B, FGIC Insured, 5.00%, 5/01/30 .................. 6,500,000 6,632,860 Second Series-Issue 23B, FGIC Insured, 5.125%, 5/01/30 .................. 10,000,000 10,302,900 San Francisco City and County COP, 30 Van Ness Avenue Property, Series A, MBIA Insured, 5.00%, 9/01/31 ......................................................... 5,805,000 5,912,509 San Francisco Courthouse Project, FSA Insured, 5.875%, 4/01/21 .......... 2,810,000 3,078,777 San Francisco City and County Public Utilities Commission Water Revenue, Refunding, Series A, MBIA Insured, 5.00%, 11/01/25 .......................................................... 14,155,000 14,511,848 San Francisco City and County RDA, Hotel Tax Revenue, FSA Insured, 6.75%, 7/01/25 .......................... 315,000 340,663 Hotel Tax Revenue, FSA Insured, Pre-Refunded, 6.75%, 7/01/25 ............ 9,100,000 9,916,634 Lease Revenue, George R. Moscone Center, Capital Appreciation, 8.50%, 7/01/14 ......................................................... 46,000,000 50,942,240 Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.65%, 7/01/24 ................................................................ 5,615,000 5,617,695 San Gabriel Valley Schools Financing Authority Revenue, Pomona USD Financing, 5.80%, 2/01/26 ..................................... 5,150,000 5,341,735 San Joaquin County COP, General Hospital Project, Pre-Refunded, 6.625%, 9/01/20 ............................................ 36,500,000 38,051,250 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A, 5.50%, 1/15/28 ..................................... 247,300,000 239,161,357 Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ....................... 21,200,000 22,087,856 Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ...................... 85,500,000 89,621,100 senior lien, 5.00%, 1/01/33 ............................................. 82,040,000 76,060,104 senior lien, Pre-Refunded, 7.50%, 1/01/09 ............................... 21,585,000 26,977,796 senior lien, Pre-Refunded, 7.55%, 1/01/10 ............................... 10,745,000 13,453,492 senior lien, Pre-Refunded, 7.60%, 1/01/11 ............................... 20,935,000 26,258,980 senior lien, Pre-Refunded, 7.65%, 1/01/12 ............................... 25,215,000 31,683,656
44 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, Pre-Refunded, 7.65%, 1/01/13 ............................... $ 27,350,000 $ 34,366,369 senior lien, Pre-Refunded, 7.70%, 1/01/14 ............................... 7,470,000 9,403,087 senior lien, Pre-Refunded, 7.70%, 1/01/15 ............................... 60,155,000 75,721,911 San Jose Airport Revenue, Refunding, Series A, FGIC Insured, 5.00%, 3/01/31 ........................................................... 11,000,000 11,193,600 San Jose Financing Authority Lease Revenue, Civic Center Project, Refunding, Series B, AMBAC Insured, 5.00%, 6/01/32 ......................................................... 18,500,000 18,861,120 Civic Center Project, Series B, AMBAC Insured, 5.00%, 6/01/27 ........... 46,400,000 47,423,584 MBIA Insured, 5.00%, 9/01/21 ............................................ 14,045,000 14,581,519 MBIA Insured, 5.00%, 9/01/22 ............................................ 14,730,000 15,219,625 San Jose Financing Authority Revenue, Fourth and San Fernando Parking Facility, Series A, AMBAC Insured, 5.00%, 9/01/24 ........................................................... 5,000,000 5,120,450 San Jose GO, Library Parks and Public Safety Projects, 5.00%, 9/01/28 ........................................................... 11,600,000 11,852,880 San Jose RDA, MFHR, Miraido Village, Series A, GNMA Secured, 5.75%, 7/20/38 ......................................................... 7,110,000 7,297,917 Tax Allocation, Housing, Set-Aside Merged Area, Series E, MBIA Insured, 5.85%, 8/01/27 ................................. 7,325,000 7,905,506 Tax Allocation, Merged Area Redevelopment Project, 5.25%, 8/01/29 ......................................................... 8,000,000 8,209,680 Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/26 .......................................... 15,000,000 15,284,550 Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/31 .......................................... 2,000,000 2,029,100 Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.00%, 8/01/21 ........................................... 35,235,000 36,119,046 Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.625%, 8/01/28 .......................................... 24,135,000 26,074,489 Tax Allocation, Merged Area Redevelopment Project, Refunding, MBIA Insured, 5.00%, 8/01/20 ................................ 35,665,000 36,708,915 San Jose USD Santa Clara County GO, Series A, FSA Insured, 5.00%, 8/01/24 ................................................................. 9,200,000 9,476,000 8/01/27 ................................................................. 9,150,000 9,354,777 San Juan Basin Authority Lease Revenue, AMBAC Insured, 5.00%, 12/01/34 .......................................................... 5,000,000 5,103,400 San Leandro RDA, RMR, Pre-Refunded, 11.25%, 4/01/13 ....................... 55,000 61,674 San Marcos PFAR, Series A, 6.25%, 9/02/22 ................................. 25,000,000 26,367,500 San Marcos Public Facilities Authority Revenue, Refunding, 5.80%, 9/01/18 ............................................... 4,750,000 4,989,685 Senior Tax Increment Project Area-3-A, MBIA Insured, 5.75%, 10/01/29 ........................................................ 5,340,000 5,847,887 Senior Tax Increment Project Area-3-A, MBIA Insured, 5.80%, 10/01/30 ........................................................ 8,035,000 8,851,677 Tax Allocation, Refunding, Series A, FSA Insured, 5.50%, 8/01/23 ......................................................... 13,000,000 13,349,050 San Marcos USD, School Facilities ID No. 1, AMBAC Insured, 5.80%, 11/01/14 .......................................................... 5,000,000 5,680,500 San Mateo County Joint Powers Authority Lease Revenue,Capital Projects, Refunding, Series A, FSA Insured, 5.00%, 7/15/29 ........................................................... 17,500,000 17,831,450 San Mateo RDA, Tax Allocation, 5.60%, 8/01/25 .......................................................... 10,185,000 10,547,179 Merged Area, Series A, 5.70%, 8/01/27 ................................... 6,330,000 6,721,954 San Mateo Unified High School District GO, Election of 2000, Series A, FGIC Insured, 5.00%, 9/01/25 ................................... 13,865,000 14,179,736 San Pablo RDA, Tax Allocation, Merged Project Area, FGIC Insured, 6.25%, 12/01/19 ............................................ 3,500,000 3,828,930 San Ramon PFA, Tax Allocation Revenue, MBIA Insured, 5.30%, 2/01/28 ............................................ 18,360,000 19,203,091 Pre-Refunded, 6.90%, 2/01/24 ............................................ 6,140,000 6,727,291 Refunding, 6.90%, 2/01/24 ............................................... 6,910,000 7,315,755 San Ramon Valley COP, Fire Protection District, Financing Corp., Refunding, 6.00%, 7/01/19 ......................................... 6,275,000 6,449,633
45 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Ramon Valley USD, COP, Refunding, 7.55%, 2/01/04 .......................................... $ 1,495,000 $ 1,526,829 GO, Election of 2002, FSA Insured, 5.40%, 3/01/28 ....................... 27,410,000 28,940,849 San Ramon Valley USD, GO, Election of 2002, FSA Insured, 5.00%, 8/01/23 ........................................................... 18,365,000 18,901,442 Santa Ana COP, Parking Facilities Project, Refunding, Series A, AMBAC Insured, 6.125%, 6/01/16 ................................. 2,070,000 2,126,594 Santa Ana Financing Authority Water Revenue, MBIA Insured, 6.125%, 9/01/24 .......................................................... 5,000,000 5,189,450 Santa Barbara Housing Authority Revenue, Refunding and Acquisition, 6.25%, 11/15/20 ............................................. 5,470,000 5,417,707 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 14,435,720 Santa Clara Housing Authority MFHR, Arastradero Park Apartments Project, Series A, GNMA Secured, 6.65%, 5/20/35 ................................................ 6,465,000 6,793,939 Elana Gardens Apartments Project, Series A, GNMA Secured, 6.40%, 6/20/35 ......................................................... 5,625,000 5,850,900 Sierra Vista I Apartments Project, Series A, GNMA Secured, 6.65%, 6/20/35 ......................................................... 3,860,000 4,060,759 Santa Clara USD, COP, 5.375%, 7/01/31 ..................................... 7,575,000 7,822,248 Santa Clara Valley Transportation Authority Sales Tax Revenue, Series A, MBIA Insured, 5.00%, 6/01/23 .......................... 7,325,000 7,527,097 Santa Clarita COP, Refunding, MBIA Insured, 5.00%, 10/01/21 ............... 5,105,000 5,260,141 Santa Cruz City School District COP, Education Center Financing Project, Pre-Refunded, 7.00%, 5/01/24 .......................... 3,150,000 3,411,891 Santa Cruz County Housing Authority MFHR, Series B, FNMA Insured, 7.75%, 7/01/23 ............................................. 9,230,000 9,248,368 Santa Maria Bonita School District COP, MBIA Insured, 7.00%, 3/01/16 ........................................................... 480,000 483,898 Santa Monica RDA, Tax Allocation, Earthquake Recovery Redevelopment Project, AMBAC Insured, 6.00%, 7/01/29 ........................................................... 13,110,000 14,818,233 Shafter Joint Powers Financing Authority Lease Revenue, Community Correctional Facility Project, Series A, 5.95%, 1/01/11 .......................................................... 1,880,000 2,074,148 6.05%, 1/01/17 .......................................................... 5,135,000 5,645,060 Solano County COP, GO, MBIA Insured, 5.00%, 11/01/32 ...................... 25,665,000 26,192,672 South Gate PFAR, Tax Allocation, Redevelopment Project No. 1, AMBAC Insured, 5.875%, 9/01/24 .......................................... 8,505,000 8,786,090 Refunding, 6.10%, 9/01/03 ............................................... 9,475,000 9,567,097 South Napa Waste Management Authority Revenue, Solid Waste Transfer Facilities Project, 6.50%, 2/15/14 ........................ 4,500,000 4,727,250 South Orange County PFA, Special Tax Revenue, Foothill Area, Series C, FGIC Insured, 5.75%, 8/15/18 ................... 5,000,000 5,310,700 senior lien, Refunding, Series A, MBIA Insured, 6.00%, 9/01/18 .......... 18,850,000 19,586,847 Southern California HFA, SFMR, GNMA Secured, 7.625%, 10/01/22 .......................................... 925,000 925,897 Series A, GNMA Secured, 6.75%, 9/01/22 .................................. 195,000 195,866 Southern California Public Power Authority Power Project Revenue, 6.75%, 7/01/13 .......................................................... 10,000,000 12,226,000 Multi-Purpose Projects, 6.00%, 7/01/18 .................................. 29,645,000 29,774,252 Southern California Public Power Authority Transmission Project Revenue, Southern Transmission Project, 6.125%, 7/01/18 .......................................................... 1,135,000 1,159,459 Southern Public Power Authority Power Projects Revenue, Series A, AMBAC Insured, 5.00%, 7/01/33 .................................. 45,050,000 45,791,100 Stockton COP, Essential Services Building Parking Facility, 5.875%, 8/01/23 ......................................................... 2,295,000 2,446,378 6.00%, 8/01/31 .......................................................... 6,585,000 7,048,913 Stockton Health Facilities Revenue, St. Joseph Medical Center, Series A, MBIA Insured, 5.50%, 6/01/23 ................................... 5,000,000 5,186,150
46 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A, FSA Insured, 5.95%, 7/01/17 ................... $ 5,095,000 $ 5,768,406 Stockton Revenue COP, Wastewater System Project, Series A, MBIA Insured, 5.20%, 9/01/29 ............................................. 19,160,000 19,972,001 Stockton Revenue, O'Connor Woods Housing Corp., Series A, 6.35%, 11/01/31 .......................................................... 9,110,000 9,435,865 Stockton USD, GO, MBIA Insured, 5.00%, 1/01/28 5,335,000 5,433,537 Suisun City COP, Civic Center Project, Refunding, 6.45%, 11/01/15 ................................................................. 2,105,000 2,189,474 Suisun City RDA, Tax Allocation, Suisun City Redevelopment Project, Refunding, MBIA Insured, 6.00%, 10/01/18 ......................................................... 3,285,000 3,421,098 5.90%, 10/01/23 ......................................................... 3,180,000 3,307,900 Sweetwater UHSD, COP, GO, FSA Insured, 5.00%, 9/01/27 ..................... 7,840,000 8,045,565 Tahoe Forest Hospital District Revenue, Series A, 5.90%, 7/01/29 ........................................................... 7,990,000 8,061,750 Temecula Valley USD, GO, Series D, FGIC Insured, 6.00%, 9/01/14 .................................. 1,250,000 1,286,450 Series D, FGIC Insured, 6.125%, 9/01/19 ................................. 3,110,000 3,202,149 Series E, FSA Insured, 6.35%, 9/01/19 ................................... 5,460,000 6,095,489 Thousand Oaks RDA, MFR, The Shadows Apartments, Refunding, Series A, FNMA Insured, 5.75%, 11/01/27 ........................................................ 7,530,000 7,813,053 Tax Allocation, Thousand Oaks Boulevard Redevelopment, Refunding, MBIA Insured, 5.375%, 12/01/25 ......................................... 24,485,000 25,817,229 Tobacco Securitization Authority Northern California Tobacco Settlement Revenue, Asset-Backed Bonds, Series B, 5.00%, 6/01/28 ........................................................... 17,390,000 14,232,324 Tobacco Securitization Authority Southern California Tobacco Settlement Revenue, Asset Backed Bonds, Senior, Series A, 5.50%, 6/01/36 ........................................ 80,500,000 64,951,425 Senior, Series A, 5.625%, 6/01/43 ....................................... 123,165,000 98,046,730 Subordinate, Series B, 6.00%, 6/01/43 ................................... 63,635,000 52,428,240 Tobacco Securitization Authority Tobacco Settlement Revenue, Seies A, 5.25%, 6/01/31 ................................................. 6,800,000 5,476,924 Series A, 5.375%, 6/01/41 ............................................... 30,250,000 23,109,185 Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.50%, 6/01/31 ................................................. 4,385,000 4,438,146 Trabuco Canyon PFA, Special Tax Revenue, Refunding, Series A, FSA Insured, 6.00%, 10/01/10 .................................. 13,775,000 16,226,675 Series A, FSA Insured, 6.10%, 10/01/15 .................................. 13,220,000 16,074,859 Series C, FSA Insured, 6.00%, 7/01/12 ................................... 3,040,000 3,617,114 Series C, FSA Insured, 6.10%, 7/01/19 ................................... 5,215,000 6,352,026 Tracy CFD Special Tax, No. 98-1 Plan C Properties, 5.875%, 8/01/23 ......................................................... 6,375,000 6,465,780 6.00%, 8/01/26 .......................................................... 8,265,000 8,340,542 Tracy COP, I-205 Corridor Improvement and Refinancing Project, AMBAC Insured, 5.125%, 10/01/27 .......................................... 5,000,000 5,164,800 Tri-City Hospital District Revenue, Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 ............................................ 5,000,000 5,478,650 Tri-Dam Power Authority Revenue, Hydroelectric Sand Bar Project, Refunding, 7.50%, 1/01/17 ................................................ 41,245,000 42,350,778 Trinity County PUD, COP, Electric District Facilities, Refunding, Series 1993, 6.60%, 4/01/11 .......................................................... 2,565,000 2,616,300 6.75%, 4/01/23 .......................................................... 4,000,000 4,080,000 Tulare Local Health Care District Health Facilities Revenue, 5.20%, 12/01/21 .......................................................... 4,455,000 4,619,523 Tustin USD, Special Tax, CFD No. 97-1, 6.375%, 9/01/35 .................... 8,645,000 10,575,342 Union City CRDA, Tax Allocation Revenue, Community Redevelopment Project, AMBAC Insured, 5.75%, 10/01/33 .................................. 5,190,000 5,673,449 Univeristy of California Revenues, Multiple Purpose Projects, Series 0, FGIC Insured, 5.00%, 9/01/23 ................................... 9,200,000 9,485,292
47 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) University of California COP, UCLA Center Chiller/Cogeneration Project, Refunding, 5.50%, 11/01/17 ......................................................... $ 13,940,000 $ 14,436,403 5.60%, 11/01/20 ......................................................... 14,880,000 15,425,501 University of California Revenue, Series O, FGIC Insured, 5.25%, 9/01/34 ........................................................... 61,235,000 63,988,126 University of California Revenues, Multiple Purpose Projects, Series O, FGIC Insured, 5.00%, 9/01/26 ................................................................ 13,430,000 13,743,322 Multi-Purpose Projects, Refunding, Series C, AMBAC Insured, 5.00%, 9/01/23 ................................................ 12,500,000 12,629,375 Multi-Purpose Projects, Series F, FGIC Insured, 5.00%, 9/01/22 ......................................................... 20,575,000 21,158,507 Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/31 ............ 5,000,000 5,092,600 U.C. Davis Medical Center, AMBAC Insured, 5.75%, 7/01/20 ................ 44,385,000 50,819,493 Upland COP, Refunding, Mortgage Insured, 5.50%, 1/01/07 ............................. 4,935,000 5,314,205 San Antonio Community Hospital, Refunding, 5.70%, 1/01/11 ............... 11,210,000 12,467,650 Vacaville PFAR, Local Agency, 8.65%, 9/02/18 .............................. 5,390,000 4,372,961 Vallejo RDA, Tax Allocation, Waterfront Redevelopment Project, 7.90%, 5/01/19 ........................................................... 2,395,000 2,405,299 Victorville RDA, Tax Allocation, Bear Valley Road Redevelopment Project, Refunding, Series A, FSA Insured, 6.125%, 9/01/19 ................................................................. 2,405,000 2,499,204 9/01/24 ................................................................. 3,245,000 3,367,953 Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ................... 7,000,000 7,094,290 Refunding, Series A, 5.50%, 10/01/14 .................................... 3,865,000 4,048,858 Vista Community Development Commision Tax Allocation Revenue, Vista Redevelopment Project Area, 5.875%, 9/01/37 .......................................................... 5,000,000 5,242,700 Vista Community Development Commission Tax Allocation Revenue, Vista Redevelopment Project Area, MBIA Insured, 5.50%, 9/01/23 ............................................. 11,810,000 12,571,273 Vista Joint Powers Financing Authority Revenue, Series A, 7.625%, 2/01/20 .......................................................... 3,675,000 3,755,666 Washington Township Hospital District Revenue, AMBAC Insured, 5.25%, 7/01/23 ........................................... 5,000,000 5,114,250 HealthCare District Revenue, 5.25%, 7/01/29 ............................. 6,500,000 6,520,995 Watsonville Insured Hospital Revenue, Watsonville Community Hospital, Series A, Pre-Refunded, 6.30%, 7/01/15 .......................................................... 3,990,000 4,508,261 6.35%, 7/01/24 .......................................................... 5,435,000 6,146,931 Watsonville RDA, Tax Allocation, Watsonville Redevelopment Project, 6.30%, 8/01/06 .................................................. 1,745,000 1,770,774 West Basin Municipal Water District Revenue COP, 1992 Project, Refunding, Series A, AMBAC Insured, 5.50%, 8/01/22 ........................................................... 4,000,000 4,324,400 West Hollywood COP, Refunding, MBIA Insured, 5.00%, 2/01/25 ............... 6,250,000 6,369,000 Westlands Water District COP Revenue, MBIA Insured, 5.00%, 9/01/34 ........................................................... 13,500,000 13,796,325 Westlands Water District Revenue COP, 5.00%, 9/01/26 ...................... 13,150,000 13,427,860 Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital, 5.60%, 6/01/22 .......................................................... 14,285,000 14,437,421 5.75%, 6/01/31 .......................................................... 28,000,000 28,319,480 William S. Hart Joint School Financing Authority Special Tax Revenue, Community Facilities, Refunding, FSA Insured, 6.50%, 9/01/14 .............................................. 4,000,000 4,498,840 --------------- TOTAL BONDS ............................................................... 12,573,592,752 ---------------
48 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON BONDS/STEP-UP BONDS 11.5% Anaheim PFA, Lease Revenue, Capital Appreciation, Public Improvement Project, Series C, 9/01/32 ........................... $ 13,665,000 $ 2,802,555 Public Improvements Project, Series C, FSA Insured, 9/01/24 ................................................................ 26,855,000 8,617,232 9/01/26 ................................................................ 29,430,000 8,414,920 9/01/27 ................................................................ 22,860,000 6,181,344 9/01/28 ................................................................ 8,425,000 2,153,936 9/01/33 ................................................................ 37,070,000 7,161,553 Anaheim Public Financing Authority Lease Revenue, Capital Appreciation, Public Improvement Projects, Series C, FSA Insured, 9/01/34 ........................................... 12,485,000 2,285,005 Anaheim UHSD, GO, Capital Appreciation, Series A, FSA Insured, 8/01/26 ..................................................... 8,570,000 2,489,499 Baldwin Park RDA, Tax Allocation, San Gabriel, Refunding, Series A, ETM, 2/1/04 .................................................................. 575,000 568,773 2/1/05 .................................................................. 585,000 568,310 Beaumont USD, COP, Series A, FSA Insured, zero cpn. to 1/01/04, 6.40% thereafter, 1/01/29 ................................................ 6,835,000 6,947,914 California Educational Facilities Authority Revenue, Loyola Marymount University, MBIA Insured, 10/01/32 ..................... 8,435,000 1,594,974 Loyola Marymount University, MBIA Insured, 10/01/33 ..................... 8,435,000 1,495,441 Loyola Marymount University, MBIA Insured, 10/01/34 ..................... 8,435,000 1,402,066 Loyola Marymount University, MBIA Insured, 10/01/35 ..................... 8,435,000 1,314,595 Loyola Marymount University, MBIA Insured, 10/01/36 ..................... 8,435,000 1,232,522 Loyola Marymount University, MBIA Insured, 10/01/37 ..................... 8,435,000 1,155,595 Loyola Marymount University, MBIA Insured, 10/01/38 ..................... 8,435,000 1,083,391 Loyola Marymount University, MBIA Insured, 10/01/39 ..................... 8,435,000 1,015,827 Loyola-Marymount University, Refunding, MBIA Insured, 10/01/26 .......... 7,620,000 2,194,103 Loyola-Marymount University, Refunding, MBIA Insured, 10/01/27 .......... 7,365,000 2,006,447 Loyola-Marymount University, Refunding, MBIA Insured, 10/01/28 .......... 4,120,000 1,061,724 Loyola Marymount University, Refunding, MBIA Insured, 10/01/30 .......... 5,685,000 1,313,690 Loyola-Marymount University, Refunding, MBIA Insured, 10/01/31 .......... 7,615,000 1,663,725 Loyola Marymount University, Refunding, MBIA Insured, 10/01/32 .......... 7,615,000 1,577,219 Santa Clara University, AMBAC Insured, 9/01/26 .......................... 5,800,000 1,677,418 California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A, ETM, 10/01/11 ............................... 13,970,000 9,461,881 California HFAR, AMT Home Mortgage, Series K, MBIA Insured, 2/01/33 ...................... 30,810,000 5,105,833 Capital Appreciation, Home Mortgage, Series T, MBIA Insured, 8/01/32 ................................................................ 30,710,000 6,059,697 Capital Appreciation, Series G, MBIA Insured, 2/01/30 ................... 1,310,000 284,178 Home Mortgage, Capital Appreciation, Series A, 8/01/16 .................. 575,000 156,624 Home Mortgage, Series B, MBIA Insured, 2/01/30 .......................... 50,695,000 11,671,510 Home Mortgage, Series I, FSA Insured, 8/01/21 ........................... 10,475,000 3,512,791 Home Mortgage, Series N, AMBAC Insured, 8/01/31 ......................... 55,450,000 36,475,010 Home Mortgage, Series Q, AMBAC Insured, 2/01/33 ......................... 54,820,000 10,196,520 Series B, FSA Insured, 8/01/31 .......................................... 13,095,000 2,740,914 Series E, MBIA Insured, 2/01/21 ......................................... 9,500,000 3,457,905 Series E, MBIA Insured, 2/01/32 ......................................... 29,535,000 5,492,329 Series G, 8/01/22 ....................................................... 52,350,000 17,090,705 Series G, 2/01/33 ....................................................... 39,780,000 6,628,144
49 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON BONDS/STEP-UP BONDS (CONT.) California State GO, Principal Eagles II, Series 3, 3/01/09 .................................. $ 7,500,000 $ 6,109,275 Principal Eagles II, Series 4, 6/01/06 .................................. 10,000,000 9,331,700 Principal Eagles II, Series 6, 3/01/09 .................................. 5,000,000 4,072,850 Principal M-Raes, Series 8, 4/01/09 ..................................... 9,000,000 7,331,490 California Statewide CDA Revenue, COP, Insured Hospital, Triad Health Care, Refunding, ETM, 8/1/09 .................................................................. 6,450,000 5,315,703 8/1/10 .................................................................. 6,745,000 5,268,520 8/1/11 .................................................................. 3,115,000 2,314,258 Campbell USD, Series B, FGIC Insured, 8/1/20 .................................................................. 5,000,000 2,117,700 8/1/21 .................................................................. 6,280,000 2,495,232 Contra Costa County COP, Merrithew Memorial Hospital Project, ETM, 11/01/15 ............................................................ 6,810,000 4,007,685 Contra Costa Home Mortgage Finance Authority HMR, Mandatory Sinking FundMBIA Insured, Pre-Refunded, 9/01/17 ............... 7,700,000 2,638,713 Mandatory Sinking FundMBIA Insured, Pre-Refunded, 9/01/17 ............... 9,635,000 2,913,913 Mandatory Sinking FundMBIA Insured, Pre-Refunded, 9/01/17 ............... 6,275,000 2,236,096 Mandatory Sinking FundMBIA Insured, Pre-Refunded, 9/01/17 ............... 8,095,000 2,553,973 Mandatory Sinking FundMBIA Insured, Pre-Refunded, 9/01/17 ............... 7,135,000 2,388,655 Mandatory Sinking FundMBIA Insured, Pre-Refunded, 9/01/17 ............... 8,615,000 2,770,153 MBIA Insured, Pre-Refunded, 9/01/17 ..................................... 10,770,000 3,024,324 Contra Costa School Financing Authority Revenue, Capital Appreciation, Antioch USD Community, Series B, 9/01/07 ................... 830,000 687,979 El Paso de Robles GO, Capital Appreciation, Series A, FGIC Insured, 8/1/16 .................................................................. 2,050,000 1,052,921 8/1/22 .................................................................. 11,485,000 4,042,375 8/1/27 .................................................................. 11,495,000 3,009,506 Elk Grove USD, Special Tax, Capital Appreciation, CFD 1, MBIA Insured, 12/1/19 ................................................................. 2,775,000 1,193,278 12/1/20 ................................................................. 2,765,000 1,112,885 12/1/21 ................................................................. 4,195,000 1,580,466 12/1/22 ................................................................. 4,195,000 1,471,480 12/1/23 ................................................................. 4,195,000 1,375,624 12/1/24 ................................................................. 4,200,000 1,288,518 12/1/25 ................................................................. 6,355,000 1,837,993 12/1/26 ................................................................. 6,355,000 1,732,119 12/1/27 ................................................................. 6,355,000 1,635,586 12/1/28 ................................................................. 6,355,000 1,544,138 Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, 1/15/25 ................................ 57,000,000 15,753,090 Capital Appreciation, Refunding, 1/15/30 ................................ 98,460,000 20,211,869 Capital Appreciation, Refunding, 1/15/31 ................................ 14,635,000 2,800,700 Capital Appreciation, Refunding, 1/15/34 ................................ 100,000,000 15,931,000 Capital Appreciation, Refunding, 1/15/36 ................................ 182,160,000 25,684,560 Capital Appreciation, Refunding, 1/15/38 ................................ 160,560,000 20,078,028 Capital Appreciation, Refunding, MBIA Insured, 1/15/21 .................. 51,180,000 18,071,146 Capital Appreciation, Refunding, MBIA Insured, 1/15/37 .................. 170,615,000 22,654,260
50 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON BONDS/STEP-UP BONDS (CONT.) Foothill/Eastern Corridor Agency Toll Road Revenue, (cont.) Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.80% thereafter, 1/15/20 .............................................. $ 49,500,000 $ 35,362,800 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/27 ............................................. 80,835,000 56,991,100 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/28 ............................................. 80,500,000 56,754,915 Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/29 ............................................. 112,230,000 78,673,230 Capital Appreciation, senior lien, Series A, ETM, 1/01/22 ............... 30,835,000 12,330,608 Capital Appreciation, senior lien, Series A, ETM, 1/01/23 ............... 5,765,000 2,141,063 Capital Appreciation, senior lien, Series A, ETM, 1/01/24 ............... 72,045,000 25,243,127 Capital Appreciation, senior lien, Series A, ETM, 1/01/28 ............... 2,000,000 564,220 Convertible Capital Appreciation, Refunding, 1/15/23 .................... 10,000,000 7,163,000 Convertible Capital Appreciation, Refunding, 1/15/26 .................... 30,000,000 21,272,400 Convertible Capital Appreciation, Refunding, 1/15/32 .................... 100,000,000 17,993,000 Convertible Capital Appreciation, Refunding, 1/15/33 .................... 132,460,000 22,450,645 Convertible Capital Appreciation, Refunding, 1/15/35 .................... 20,000,000 3,000,800 Convertible Capital Appreciation, senior lien, Series A, ETM, zero cpn. to 1/01/05, 7.05% thereafter, 1/01/09 ................... 10,000,000 10,950,200 Convertible Capital Appreciation, senior lien, Series A, Pre-Refunded, zero cpn. to 1/01/05, 7.15% thereafter, 1/01/14 ................................................................ 5,500,000 6,142,290 senior lien, Series A, ETM, 1/01/25 ..................................... 20,660,000 6,852,715 senior lien, Series A, ETM, 1/01/26 ..................................... 23,475,000 7,352,135 senior lien, Series A, ETM, 1/01/27 ..................................... 15,000,000 4,464,000 senior lien, Series A, ETM, 1/01/29 ..................................... 35,310,000 9,464,846 senior lien, Series A, Pre-Refunded, 1/01/12 ............................ 8,000,000 8,917,120 Lodi Electric Systems Revenue COP, Capital Appreciation Bond, Series B, MBIA Insured,1/15/19 ........................................... 6,360,000 2,910,718 Los Angeles Convention and Exhibition Center Authority COP, Series 1985, ETM,12/01/05 ................................................ 26,750,000 25,646,028 Modesto High School District Stanislaus County GO, Capiital Appreciation, Series A, FGIC Insured, 8/01/21 .................. 9,660,000 3,838,208 Capital Appreciation, Series A, FGIC Insured, 8/01/23 ................... 10,815,000 3,756,698 Capital Appreciation, Series A, FGIC Insured, 5/01/27 ................... 12,770,000 3,556,700 New Haven USD, GO, Capital Appreciation, Series C, FGIC Insured, 8/01/23 .................................................... 14,700,000 4,907,889 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 3,068,261 Pasadena Special Tax CFD, No. 1 Civic Center West, Pre-Refunded, 12/01/17 ................................................... 4,090,000 1,756,696 Perris SFMR, Series A, GNMA Secured, ETM,6/01/23 .......................... 19,095,000 6,809,850 Rancho Water District Financing Authority Revenue, AMBAC Insured, 8/15/16 ................................................................. 8,605,000 4,685,336 8/15/17 ................................................................. 13,605,000 6,979,773 8/15/18 ................................................................. 13,605,000 6,573,528 Rialto USD, GO, Series A, FGIC Insured ,6/01/19 ........................... 13,985,000 6,365,552 Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital Project, MBIA Insured, 6/1/23 .................................................................. 14,160,000 4,912,954 6/1/24 .................................................................. 13,005,000 4,228,706 Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A, 11/01/05 ................................... 905,000 837,921 Riverside County SFMR, Capital Appreciation Mortgage, Series A, GNMA Secured, ETM, 9/01/14 .................................... 20,220,000 12,753,158 Series A, GNMA Secured, ETM, 11/01/20 ................................... 25,055,000 10,409,350 Series B, GNMA Secured, ETM, 6/01/23 .................................... 26,160,000 9,058,685
51 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON BONDS/STEP-UP BONDS (CONT.) Rocklin USD, GO, Capital Appreciation, Series A, FGIC Insured, 9/1/08 .................................................................. $ 3,660,000 $ 3,140,353 9/1/09 .................................................................. 4,100,000 3,334,407 9/1/10 .................................................................. 4,595,000 3,540,218 9/1/11 .................................................................. 5,145,000 3,748,647 9/1/12 .................................................................. 5,760,000 3,978,778 9/1/16 .................................................................. 33,960,000 18,453,524 Roseville City School District GO, Capital Appreciation, Series A, 8/1/11 .................................................................. 3,115,000 2,239,841 8/1/17 .................................................................. 30,770,000 14,673,905 Roseville Joint UHSD, Capital Appreciation, Series A, 8/1/10 .................................................................. 1,820,000 1,391,226 8/1/11 .................................................................. 1,965,000 1,418,710 8/1/12 .................................................................. 18,155,000 8,650,676 San Diego USD, GO, Capital Appreciation Bond, Series A, FGIC Insured, 7/1/21 .................................................................. 12,160,000 4,851,840 7/1/22 .................................................................. 8,440,000 3,142,634 7/1/23 .................................................................. 11,120,000 3,879,434 San Francisco City and County RDA, Lease Revenue, George R. Moscone Center, Capital Appreciation, 7/1/05 .................................................................. 12,820,000 12,284,509 7/1/06 .................................................................. 11,320,000 10,527,374 7/1/07 .................................................................. 4,570,000 4,069,768 7/1/08 .................................................................. 7,785,000 6,608,064 Pre-Refunded, 7/01/16 ................................................... 16,300,000 5,780,469 Pre-Refunded, 7/01/17 ................................................... 16,300,000 5,318,853 Pre-Refunded, 7/01/18 ................................................... 16,300,000 4,894,075 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, ETM, 1/01/25 ............................................................ 5,700,000 1,890,633 ETM, 1/01/28 ............................................................ 33,545,000 9,372,808 ETM, 1/01/29 ............................................................ 37,050,000 9,831,959 Refunding, Series A, 1/15/16 ............................................ 19,500,000 15,034,695 Refunding, Series A, 1/15/17 ............................................ 17,000,000 13,091,870 Refunding, Series A, 1/15/18 ............................................ 60,000,000 45,985,800 Refunding, Series A, 1/15/19 ............................................ 57,000,000 43,665,990 Refunding, Series A, 1/15/20 ............................................ 80,000,000 61,001,600 Refunding, Series A, 1/15/23 ............................................ 80,000,000 60,289,600 Refunding, Series A, 1/15/24 ............................................ 80,000,000 59,922,400 San Joaquin Hills Transportation Corridor Agency TollRoad Revenue, senior lien, Refunding, Series A,1/15/22 ........................ 90,000,000 68,234,400 San Jose USD, COP, Refunding, FSA Insured, 1/01/27 ........................ 7,105,000 2,014,196 San Jose USD COP, Refunding, FSA Insured, 1/01/29 ......................... 7,105,000 1,802,254 San Mateo UHSD, GO, Capital Appreciation Election of 2000, Series B, FGIC Insured, 9/01/22 .......................................... 5,000,000 1,845,900 Santa Maria Water and Wastewater Revenue, COP, Series A, AMBAC Insured, 8/01/27 ................................................... 21,000,000 20,307,210 Southern California Public Power Authority Power Project Revenue, Refunding, Series A, AMBAC Insured, 7/1/11 .................................................................. 12,000,000 8,798,280 7/1/12 .................................................................. 16,890,000 11,743,617 7/1/13 .................................................................. 16,000,000 10,378,720
52 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON BONDS/STEP-UP BONDS (CONT.) Stockton East Water District COP, 1990 Project Series B, 7.45%, 4/01/05 ................................... $ 28,575,000 $ 82,407,157 Refunding, Series B, 4/01/16 ............................................ 103,885,000 53,314,821 Suisun City PFA, Tax Allocation Revenue, Capital Appreciation, Redevelopment Project, Series A, 10/01/28 ................................ 17,855,000 4,324,481 Thousand Oaks SFHMR, Capital Appreciation, Series A, GNMA Secured, 8.00%, 9/01/23 ........................................................... 16,000 42,486 --------------- TOTAL ZERO COUPON/STEP-UP BONDS ........................................... 1,648,321,987 --------------- TOTAL LONG TERM INVESTMENTS (COST $13,522,085,530) ........................ 14,221,914,739 --------------- SHORT TERM INVESTMENTS .2% b California State Department Water Resource Power Supply Revenue, Daily VRDN and Put, 1.15%, 5/01/22 ....................................... 7,000,000 7,000,000 b Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Weekly VRDN and Put, .95%, 7/01/35 ............................................................ 21,600,000 21,600,000 b Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series B-1, Daily VRDN and Put, .95%, 7/01/35 ............................................................ 3,900,000 3,900,000 b Orange County Sanitation Districts COP, Refunding, Series A, Daily VRDN and Put, 1.00%, 8/01/29 ....................................... 2,800,000 2,800,000 --------------- TOTAL SHORT TERM INVESTMENTS (COST $35,300,000) ........................... 35,300,000 --------------- TOTAL INVESTMENTS (COST $13,557,385,530) 99.5% ............................ 14,257,214,739 OTHER ASSETS, LESS LIABILITIES .5% ........................................ 69,886,660 --------------- NET ASSETS 100.0% ......................................................... $14,327,101,399 ===============
See glossary of terms on next page. aSee Note 6 regarding defaulted securities. bVariable 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. 53 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.) GLOSSARY OF TERMS -------------------------------------------------------------------------------- 1915 ACT - Improvement Bond Act of 1915 ABAG - The Association of Bay Area Governments AD - Assessment District AMBAC - American Municipal Bond Assurance Corp. BART - Bay Area Rapid Transit CDA - Community Development Authority/Agency CFD - Community Facilities District CHFCLP - California Health Facilities Construction Loan Program COP - Certificate of Participation CRDA - Community Redevelopment Authority/Agency CSAC - County Supervisors Association of California ETM - Escrow to Maturity FGIC - Financial Guaranty Insurance Co. FHA - Federal Housing Authority/Agency FNMA - Federal National Mortgage Association FSA - Financial Security Assistance GNMA - Government National Mortgage Association GO - General Obligation HFA - Housing Finance Authority/Agency HFAR - Housing Finance Authority/Agency Revenue HFR - Home Financial Revenue HMR - Home Mortgage Revenue IDR - Industrial Development Revenue MBIA - Municipal Bond Investors Assurance Corp. MBS - Mortgage-Backed Securities MFHR - Multi-Family Housing Revenue MFMR - Multi-Family Mortgage Revenue MFR - Multi-Family Revenue MTA - Metropolitan Transit Authority MUD - Municipal Utility District 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 SFHMR - Single Family Home Mortgage Revenue SFM - Single Family Mortgage SFMR - Single Family Mortgage Revenue UHSD - Unified High School District USD - Unified School District VRDN - Variable Rate Demand Notes 54 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2003 Assets: Investments in securities: Cost ...................................................... $13,557,385,530 ---------------- Value ..................................................... 14,257,214,739 Receivables: Investment securities sold ................................ 14,694,751 Capital shares sold ....................................... 21,011,865 Interest .................................................. 177,358,090 ---------------- Total assets .......................................... 14,470,279,445 ---------------- Liabilities: Payables: Investment securities purchased ........................... 116,818,658 Capital shares redeemed ................................... 12,806,042 Affiliates ................................................ 8,450,246 Shareholders .............................................. 4,820,518 Other liabilities ......................................... 282,582 ---------------- Total liabilities ..................................... 143,178,046 ---------------- Net assets, at value ................................. $14,327,101,399 ---------------- Net assets consist of: Undistributed net investment income ....................... $ 23,421,799 Net unrealized appreciation (depreciation) ................ 699,829,209 Accumulated net realized gain (loss) ...................... (25,622,959) Capital shares ............................................ 13,629,473,350 ---------------- Net assets, at value ................................. $14,327,101,399 ================ 55 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENT OF ASSETS AND LIABILITIES (CONT.) MARCH 31, 2003 CLASS A: Net assets, at value ....................................... $13,376,338,893 ================ Shares outstanding ......................................... 1,847,197,883 ================ Net asset value per share* ................................. $7.24 ================ Maximum offering price per share (net asset value per share / 95.75%, respectively) .............................. $7.56 ================ CLASS B: Net assets, at value ....................................... $ 402,085,391 ================ Shares outstanding ......................................... 55,581,048 ================ Net asset value and maximum offering price per share* ...... $7.23 ================ CLASS C: Net assets, at value ....................................... $ 538,459,787 ================ Shares outstanding ......................................... 74,453,310 ================ Net asset value per share* ................................. $7.23 ================ Maximum offering price per share (net asset value per share / 99.00%, respectively) .............................. $7.30 ================ ADVISOR CLASS: Net assets, at value ....................................... $ 10,217,328 ================ Shares outstanding ......................................... 1,412,514 ================ Net asset value and maximum offering price per share ....... $7.23 ================ *Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 56 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2003 Investment income: Interest ................................................... $ 778,239,433 --------------- Expenses: Management fees (Note 3) ................................... 63,771,436 Distribution fees (Note 3) Class A ................................................... 10,965,739 Class B ................................................... 2,373,795 Class C ................................................... 3,282,316 Transfer agent fees (Note 3) ............................... 3,877,744 Custodian fees ............................................. 141,452 Reports to shareholders .................................... 405,453 Registration and filing fees ............................... 93,064 Professional fees .......................................... 178,872 Directors' fees and expenses ............................... 134,059 Other ...................................................... 694,622 --------------- Total expenses ........................................ 85,918,552 --------------- Net investment income ................................ 692,320,881 --------------- Realized and unrealized gains (losses): Net realized gain (loss) from investments .................. (6,502,457) Net unrealized appreciation (depreciation) on investments .. 405,596,258 --------------- Net realized and unrealized gain (loss) ..................... 399,093,801 --------------- Net increase (decrease) in net assets resulting from operations ............................................ $1,091,414,682 =============== See notes to financial statements. 57 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Financial Statements (CONTINUED) STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
2003 2002 ----------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ................................................ $ 692,320,881 $ 704,499,483 Net realized gain (loss) from investments ............................ (6,502,457) 62,087,625 Net unrealized appreciation (depreciation) on investments ........................................................ 405,596,258 (379,336,633) ----------------------------------------- Net increase (decrease) in net assets resulting from operations ................................................. 1,091,414,682 387,250,475 Distributions to shareholders from: Net investment income: Class A ............................................................. (661,377,957) (673,191,575) Class B ............................................................. (15,911,485) (11,406,767) Class C ............................................................. (22,257,958) (19,234,450) Advisor Class ....................................................... (418,817) (25,328) Net realized gains: Class A ............................................................. (54,587,523) (16,372,051) Class B ............................................................. (1,463,744) (343,391) Class C ............................................................. (2,055,421) (548,755) Advisor Class ....................................................... (29,533) (866) ----------------------------------------- Total distributions to shareholders ................................... (758,102,438) (721,123,183) Capital share transactions: (Note 2) Class A ............................................................. 45,990,498 52,809,934 Class B ............................................................. 85,056,403 122,806,232 Class C ............................................................. 63,053,201 81,588,572 Advisor Class ....................................................... 8,054,186 2,185,500 ----------------------------------------- Total capital share transactions ...................................... 202,154,288 259,390,238 Net increase (decrease) in net assets ............................ 535,466,532 (74,482,470) Net assets Beginning of year ..................................................... 13,791,634,867 13,866,117,337 ----------------------------------------- End of year ........................................................... $14,327,101,399 $13,791,634,867 ========================================= Undistributed net investment income included in net assets: End of year ........................................................... $ 23,421,799 $ 32,416,026 =========================================
See notes to financial statements. 58 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin California Tax-Free Income Fund (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company. The Fund seeks to provide tax-free income. The following summarizes the Fund's significant accounting policies. A. SECURITY VALUATION Tax-free bonds generally trade in the over-the-counter market and are valued within the range of the latest quoted bid and asked prices. In the absence of a sale or reported bid and asked prices, information with respect to bond and note transactions, quotations from bond dealers, market transactions in comparable securities, and various relationships between securities are used to determine the value of the security. The Fund may utilize a pricing service, bank or broker/dealer experienced in such matters to perform any of the pricing functions under procedures approved by the Board of Directors. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Directors. B. INCOME TAXES No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable 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. 59 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor Class. Each class of shares differs by its initial sales load, distribution fees, voting rights on matters affecting a single class and its exchange privilege. At March 31, 2003, there were five billion shares authorized ($.01 par value). Transactions in the Funds' shares were as follows:
YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------- CLASS A SHARES: Shares sold ............................ 167,312,490 $ 1,205,385,749 174,943,242 $ 1,262,246,966 Shares issued in reinvestment of distributions ....................... 47,730,322 342,821,510 40,982,687 295,540,527 Shares redeemed ........................ (208,368,553) (1,502,216,761) (208,819,360) (1,504,977,559) ------------------------------------------------------------------------- Net increase (decrease) ................ 6,674,259 $ 45,990,498 7,106,569 $ 52,809,934 ========================================================================= CLASS B SHARES: Shares sold ............................ 14,731,939 $ 106,052,670 19,095,111 $ 137,674,683 Shares issued in reinvestment of distributions ....................... 1,562,114 11,211,294 1,015,426 7,323,863 Shares redeemed ........................ (4,472,770) (32,207,561) (3,076,561) (22,192,314) ------------------------------------------------------------------------- Net increase (decrease) ................ 11,821,283 $ 85,056,403 17,033,976 $ 122,806,232 ========================================================================= CLASS C SHARES: Shares sold ............................ 17,491,215 $ 126,020,261 17,896,658 $ 129,190,346 Shares issued in reinvestment of distributions ....................... 2,218,614 15,920,546 1,703,765 12,279,668 Shares redeemed ........................ (10,960,455) (78,887,606) (8,309,791) (59,881,442) ------------------------------------------------------------------------- Net increase (decrease) ................ 8,749,374 $ 63,053,201 11,290,632 $ 81,588,572 ========================================================================= ADVISOR CLASS SHARES: a Shares sold ............................ 2,561,501 $ 18,470,939 342,512 $ 2,473,617 Shares issued in reinvestment of distributions ....................... 47,443 341,548 3,067 22,087 Shares redeemed ........................ (1,498,419) (10,758,301) (43,590) (310,204) ------------------------------------------------------------------------- Net increase (decrease) ................ 1,110,525 $ 8,054,186 301,989 $ 2,185,500 =========================================================================
aFor 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, Inc. (Investor Services), and Franklin Templeton Services, Inc. (FT Services), the Fund's investment manager, principal underwriter, transfer agent, and administrative manager, respectively. 60 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (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's shares, and received contingent deferred sales charges for the year of $4,199,247 and $830,596, respectively. The Fund paid transfer agent fees of $3,877,744, of which $3,069,326 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 losses differ for financial statement and tax purposes primarily due to differing treatments of wash sales, bond workout expenditures, bond discounts, and losses realized subsequent to October 31 on sale of securities. At March 31, 2003, the Fund had deferred capital losses occurring subsequent to October 31, 2002 of $25,301,110. For tax purposes, such losses will be reflected in the year ending March 31, 2004. 61 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Notes to Financial Statements (CONTINUED) 4. INCOME TAXES (CONT.) At March 31, 2003, the cost of investments, net unrealized appreciation (depreciation) and undistributed tax-exempt income for income tax purposes were as follows: Investments at cost .................. $13,547,521,872 ================ Unrealized appreciation .............. 881,926,922 Unrealized depreciation .............. (172,234,055) ================ Net unrealized appreciation (depreciation) ...................... $ 709,692,867 ================ Distributable earnings - tax-exempt income .............................. $ 13,306,478 ================ The tax character of distributions paid during the year ended March 31, 2002 and 2003, was as follows: 2003 2002 -------------------------------- Distributions paid from: Tax-exempt income ............ $699,966,217 $703,858,120 Long-term capital gains ...... $ 58,136,221 $ 17,265,063 -------------------------------- Total ........................ $758,102,438 $721,123,183 ================================ 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended March 31, 2003 aggregated $1,679,938,244 and $1,666,031,719, respectively. 6. DEFAULTED SECURITIES At March 31, 2003, the Fund held two defaulted securities with a value of $31,138,155 representing .22% 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 those bonds for which the income is deemed uncollectible and provides an estimate for losses on interest receivable. 62 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Independent Auditors' Report TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FRANKLIN CALIFORNIA TAX-FREE INCOME FUND In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Franklin California Tax-Free Income Fund (hereafter referred to as the "Fund") at March 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California May 2, 2003 63 FRANKLIN CALIFORNIA TAX-FREE INCOME FUND Tax Designation (unaudited) Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby designates $58,136,221 as a capital gain dividend for the fiscal year ended March 31, 2003. Under section 852(b)(5)(A) of the Internal Revenue Code, the Fund hereby designates 100% of the distributions paid from net investment income as exempt-interest dividends for the fiscal year ended March 31, 2003. 64 BOARD MEMBERS AND OFFICERS The name, age and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Each board member will serve until the person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ HARRIS J. ASHTON (70) Director Since 1977 135 Director, Bar-S Foods (meat packing One Franklin Parkway company). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ------------------------------------------------------------------------------------------------------------------------------------ S. JOSEPH FORTUNATO (70) Director Since 1981 136 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch. ------------------------------------------------------------------------------------------------------------------------------------ EDITH E. HOLIDAY (51) Director Since 1998 82 Director, Amerada Hess Corporation One Franklin Parkway (exploration and refining of oil and San Mateo, CA 94403-1906 gas); Hercules Incorporated (chemicals, fibers and resins); Beverly Enterprises, Inc. (health care); H.J. Heinz Company (processed foods and allied products); RTI International Metals, Inc. (manufacture and distribution of titanium); Digex Incorporated (web hosting provider); and Canadian National Railway (railroad). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). ------------------------------------------------------------------------------------------------------------------------------------ GORDON S. MACKLIN (74) Director Since 1992 135 Director, White Mountains Insurance One Franklin Parkway Group, Ltd. (holding company); Martek San Mateo, CA 94403-1906 Biosciences Corporation; MedImmune, Inc. (biotechnology); Overstock.com (Internet services); and Spacehab, Inc. (aerospace services). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation (financial services) (until 1998) and Hambrecht & Quist Group (investment banking) (until 1992); and President, National Association of Securities Dealers, Inc. (until 1987). ------------------------------------------------------------------------------------------------------------------------------------
65
INTERESTED BOARD MEMBERS AND OFFICERS NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ **CHARLES B. JOHNSON (70) Director Director, 135 None One Franklin Parkway since 1977, President, San Mateo, CA 94403-1906 President and Chief since 1984 and Executive Chief Executive Officer Officer - - Investment Management Investment since 2002 Management PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ **RUPERT H. JOHNSON, JR. (62) Director and Director 117 None One Franklin Parkway Vice President since 1983 San Mateo, CA 94403-1906 and Vice President since 1982 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ SHEILA AMOROSO (43) Vice President Since 1999 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ HARMON E. BURNS (58) Vice President Since 1987 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ RAFAEL R. COSTAS, JR. (38) Vice President Since 1999 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------
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NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ MARTIN L. FLANAGAN (42) Vice President Since 1995 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Chief Financial Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 49 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ JIMMY D. GAMBILL (55) Senior Vice President Since 2002 Not Applicable None 500 East Broward Blvd. and Chief Executive Suite 2100 Officer - Finance and Fort Lauderdale, FL 33394-3091 Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 50 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. GOSS (55) Vice President Since 2000 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Resources, Inc.; Officer and director of one of the subsidiaries of Franklin Resources, Inc.; officer of 50 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000). ------------------------------------------------------------------------------------------------------------------------------------ BARBARA J. GREEN (55) Vice President Since 2000 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice President, Templeton Worldwide, Inc.; officer of one of the other subsidiaries of Franklin Resources, Inc. and of 50 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979). ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL O. MAGDOL (65) Vice President - Since 2002 Not Applicable Director, FTI Banque, Arch Chemicals, 600 Fifth Avenue AML Compliance Inc. and Lingnan Foundation Rockefeller Center New York, NY 10048-0772 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------
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NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD ------------------------------------------------------------------------------------------------------------------------------------ KIMBERLEY MONASTERIO (39) Treasurer and Chief Treasurer Not Applicable None One Franklin Parkway Financial Officer since 2000 San Mateo, CA 94403-1906 and Chief Financial Officer since 2002 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; and officer of 49 of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------ MURRAY L. SIMPSON (65) Vice President Since 2000 Not Applicable None One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer of 50 of the investment companies in Franklin Templeton Investments; and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999). ------------------------------------------------------------------------------------------------------------------------------------ THOMAS WALSH (41) Vice President Since 1999 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments. ------------------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the registered investment companies comprising the Franklin Templeton Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers. **Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested persons of the Fund under the federal securities laws due to their positions as officers and directors and major shareholders of Franklin Resources, Inc., which is the parent company of the Fund's adviser and distributor. Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. -------------------------------------------------------------------------------- The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call 1-800/DIAL BEN (1-800/342-5236) to request the SAI. -------------------------------------------------------------------------------- 68 LITERATURE REQUEST For a brochure and prospectus, which contain more complete information, including charges and expenses, call Franklin Templeton Investments at 1-800/DIAL BEN (R) (1-800/342-5236). Please read the prospectus carefully before investing or sending money. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS GLOBAL GROWTH Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Franklin Global Health Care Fund Mutual Discovery Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton International (Ex EM) 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 Franklin U.S. Long-Short Fund 3 GROWTH & INCOME Franklin Balance Sheet Investment Fund 4 Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund 4 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 5 Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 6 Franklin Short-Intermediate U.S. Government Securities Fund 5 Franklin Strategic Income Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 5 Franklin Federal Money Fund 5,7 Franklin Money Fund 5,7 TAX-FREE INCOME 8 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 9 Tax-Exempt Money Fund 5,7 STATE-SPECIFIC TAX-FREE INCOME 8 Alabama Arizona California 10 Colorado Connecticut Florida 10 Georgia Kentucky Louisiana Maryland Massachusetts 9 Michigan 9 Minnesota 9 Missouri New Jersey New York 10 North Carolina Ohio 9 Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust 11 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. Upon reaching approximately $350 million in assets, the fund will close to all investors. 4. The fund is only open to existing shareholders as well as select retirement plans. 5. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 6. 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. 7. 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. 8. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 9. Portfolio of insured municipal securities. 10. 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). 11. 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. 12/02 [LOGO] FRANKLIN(R) TEMPLETON(R) 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. ANNUAL REPORT FRANKLIN CALIFORNIA TAX-FREE INCOME FUND INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. 1-800/DIAL BEN (R) franklintempleton.com SHAREHOLDER SERVICES 1-800/632-2301 This report must be preceded or accompanied by the current Franklin California Tax-Free Income Fund prospectus, which contains more complete information including charges and expenses. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. 112 A2003 05/03 [RECYCLE LOGO OMITTED] Printed on recycled paper