UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02790
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FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 03/31
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Date of reporting period: 09/30/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
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SEPTEMBER 30, 2004
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN CALIFORNIA
TAX-FREE INCOME FUND Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise
of three world-class investment management
groups--Franklin, Templeton and Mutual
Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups
operates autonomously, relying on its own
research and staying true to the unique
investment disciplines that underlie its
success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing
and also brings expertise in growth- and
value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton
pioneered international investing and, in
1954, launched what has become the industry's
oldest global fund. Today, with research
offices in over 25 countries, they offer
investors the broadest global reach in the
industry.
MUTUAL SERIES. Founded in 1949, Mutual Series
is dedicated to a unique style of value
investing, searching aggressively for
opportunity among undervalued stocks,
arbitrage situations and distressed
companies.
TRUE DIVERSIFICATION Because our management groups work
independently and adhere to distinctly
different investment approaches, Franklin,
Templeton and Mutual Series funds typically
have a low overlap of securities. That's why
our funds can be used to build truly
diversified portfolios covering every major
asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with
exceptional risk-adjusted returns over the
long term, as well as the reliable account
services that have helped us become one of
the most trusted names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the semiannual report
CONTENTS
SHAREHOLDER LETTER ........................................................ 1
SPECIAL FEATURE:
Understanding Your Tax-Free Income Fund ................................... 4
SEMIANNUAL REPORT
Franklin California Tax-Free Income Fund .................................. 7
Performance Summary ....................................................... 13
Your Fund's Expenses ...................................................... 16
Financial Highlights and Statement of Investments ......................... 18
Financial Statements ...................................................... 50
Notes to Financial Statements ............................................. 54
Shareholder Information ................................................... 61
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SHAREHOLDER LETTER
Dear Shareholder:
During the six-month period ended September 30, 2004, the U.S. economy grew,
although somewhat slower than at the beginning of 2004. Growth was supported by
low interest rates, benign inflation, improving economic data and positive
corporate earnings reports.
U.S. bond markets surprisingly posted steady returns when many expected rates to
rise and hurt bonds' performance. At the beginning of the period, the 10-year
Treasury yield was 3.86%. During the six-month period, the 10-year Treasury
yield hit a high of 4.89% as many analysts forecast higher long-term rates
because of inflation fears and the Federal Reserve Board's (Fed's) "measured
pace" of raising short-term rates. The Fed did raise the federal funds target
rate a quarter percentage point (0.25%) in June, August and September. However,
rising oil prices tempered expectations for strong growth and growth-driven
inflation, and yields on the 10-year Treasury declined. At period-end the yield
was 4.14%, a modest rise from the spring's low levels.
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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.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Not part of the semiannual report | 1
We continue to believe that inflation still remains relatively tame and that
there is little reason to fear the high inflation we experienced in the 1970s
and 1980s. Because long-term interest rates are largely driven by the market's
expectation of inflation, we believe there should be a relatively stable
environment for long-term bonds over the next year. As the economy keeps
improving, it is reasonable to expect prices for goods and services to rise.
Although declining somewhat, productivity is strong by historical standards and
there is a perceived slack in the economy that might allow it to grow without
exerting large inflationary pressures.
At times of such volatility, we continue to recommend investors consult their
financial advisors and review their portfolios to design a strategy and
portfolio allocation that meet their individual needs, goals and risk tolerance.
Municipal bonds provide tax-free income and diversification from equities.
Despite periods of volatility, municipal bonds have a solid long-term record of
performance, driven mostly by their income component.
In the enclosed semiannual report for Franklin California Tax-Free Income Fund,
the portfolio manager discusses municipal bond market conditions, investment
decisions and Fund performance during the period. You can also find specific
performance data and financial information about your Fund. Please remember that
all securities markets fluctuate, as do mutual fund share prices.
If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely commentary
from portfolio managers, and find helpful financial planning tools. We hope you
will take advantage of these online services.
[SIDEBAR]
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STATEMENT ON CURRENT
INDUSTRY ISSUES
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In our efforts to fulfill our ongoing commitment to provide you with timely and
accurate information, we have prepared a statement on current industry issues as
they pertain to Franklin Resources, Inc., and our subsidiary companies (Franklin
Templeton Investments). You can find the most updated "Statement on Current
Industry Issues" and a detailed Q&A at franklintempleton.com, or call us at
1-800/632-2301.
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2 | Not part of the semiannual report
We appreciate your confidence in us and encourage you to contact us when you
have questions about your Franklin Templeton tax-free investment.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin California Tax-Free Income Fund
/s/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents/Co-Directors
Franklin Municipal Bond Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF SEPTEMBER 30, 2004. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES
CONSIDERED RELIABLE.
Not part of the semiannual report | 3
SPECIAL FEATURE
UNDERSTANDING YOUR TAX-FREE INCOME FUND--
WHAT CAUSES DIVIDENDS AND FUND PRICES TO FLUCTUATE
DID YOU EVER WONDER WHY YOUR TAX-FREE INCOME FUND SHARE PRICE FLUCTUATES? OR WHY
THE DIVIDENDS YOU RECEIVE FROM YOUR TAX-FREE INCOME FUND AREN'T ALWAYS THE SAME?
AT FRANKLIN TEMPLETON INVESTMENTS, MAXIMIZING TAX-FREE INCOME AND PRESERVING OUR
SHAREHOLDERS' CAPITAL ARE OUR TOP PRIORITIES. EVEN SO, CHANGES IN THE ECONOMY
AND INTEREST RATES CAN HAVE AN IMPACT ON YOUR FUND'S SHARE PRICE AND DIVIDENDS.
BELOW, YOU'LL FIND ANSWERS TO COMMONLY ASKED QUESTIONS ABOUT THE RELATIONSHIP
BETWEEN MUNICIPAL BONDS AND INTEREST RATES. UNDERSTANDING WHAT AFFECTS YOUR
TAX-FREE INCOME FUND MAY HELP YOU BECOME A MORE EFFECTIVE INVESTOR.
Q. WHAT IS THE DIFFERENCE BETWEEN SHORT- AND LONG-TERM INTEREST RATES?
A. The Federal Reserve Board controls the Federal funds target rate (Fed
funds rate), which in turn influences the market for shorter-term
securities. The Fed closely monitors the economy and has the power to
raise or lower the Fed funds rate in order to keep inflation in check or
to help stimulate the economy. The Fed funds rate is the rate that banks
charge other banks for overnight loans.
Long-term interest rates, as represented by yields of the 10-year or
30-year Treasury bond, are market-driven and tend to move in anticipation
of changes in the economy and inflation.
Q. WHAT CAUSES INTEREST RATES TO RISE AND FALL?
A. Interest rate trends are primarily determined by economic factors such as
inflation, the strength of the U.S. dollar and the pace of economic
growth. For example, strong economic growth can lead to inflation. If the
Fed becomes concerned about inflation, it may attempt to cool the economy
by raising the Fed funds rate, as it did in summer 2004. On the other
hand, if the economy slows down, the Fed may lower the Fed funds rate to
stimulate economic growth, as we witnessed from January 2001 to June 2003.
Over the summer of 2003 and again in spring 2004, long-term interest rates
rose from historic lows in response to indications of the beginning of an
economic recovery.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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4 | Not part of the semiannual report
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Q. HOW DO CHANGES IN INTEREST RATES AFFECT BOND PRICES?
A. Typically, bond prices move in the opposite direction of interest rates.
So, when interest rates rise, bond prices fall, and conversely, when rates
decline, bond prices tend to rise in value.
When rates go up, newly issued bonds, with their new, higher yields become
more attractive than comparable existing bonds with lower yields. So,
investors who want to sell their existing bonds have to reduce their
prices to make them equally attractive.
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Generally, tax-free income fund portfolios comprising municipal bonds with
longer maturities are more sensitive to changes in long-term interest
rates than portfolios with shorter-term municipal bonds. Similarly funds
with shorter-term municipal bonds are typically more influenced by
short-term rate changes than funds with longer-term municipal bonds.
But, while tax-free income fund prices will fluctuate with interest rate
changes, it's important to remember that price movement is only part of
the picture. As a tax-free income fund investor, you also receive monthly
tax-free income(1), which has historically been the largest component of
total return for municipal bonds.(2) Total return includes price movement
(capital appreciation or depreciation) and income. And since bonds
generally pay interest whether prices move up or down, the interest from
municipal bonds can help cushion a fund's overall total return, especially
when rates are rising.
Q. HOW DO INTEREST RATES AFFECT MY TAX-FREE DIVIDENDS?
A. 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 then
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.
(1) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(2) Source: Lehman Brothers Municipal Bond Index, 9/30/04. Total return
includes compounded income and capital appreciation over the 20-year
period ending 9/30/04. Past performance does not guarantee future results.
Not part of the semiannual report | 5
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Higher interest rates may lead to higher dividends. When interest rates
rise, fewer bonds are called and fund managers may have the opportunity to
invest in new, higher-yielding bonds. As a result, the funds' investment
earnings can increase, and they are able to pay out higher dividends to
shareholders over time.
Q. WHAT IS THE BENEFIT OF FRANKLIN'S INVESTMENT APPROACH WHEN INTEREST RATES
ARE VOLATILE?
A. Since 1977, Franklin has consistently adhered to a strategy of investing
for high, current, tax-free income while working to preserve shareholders'
capital.(1)
Our straightforward, "plain-vanilla" approach to investing means we do not
use leverage or invest in speculative derivatives or futures, which could
increase the level of risk for our fund portfolios, especially when
interest rates are volatile. Similarly, we do not try to time the market
and predict interest rate movements. Instead, we carefully select bonds
for our fund portfolios that we believe should provide a high level of
stable income until maturity.
We generally invest in current coupon securities to maximize tax-free
income. 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 rate movements and help to
provide stability to our fund portfolios.
Our tax-free income fund investment strategy cannot eliminate interest
rate risk, but it can help to reduce this risk.
Q. HOW DO STATE BUDGET DEFICITS AND CREDIT RATING DOWNGRADES AFFECT MY
TAX-FREE INCOME FUND?
A. Many states have been facing budget challenges, as the recent economic
slowdown has had an impact on virtually every tax-related revenue source.
As finances for state governments have deteriorated, independent rating
agencies have downgraded debt ratings or issued negative outlooks for some
states' general obligation debt. Rating downgrades may lead to increased
price volatility for certain fund holdings over the short term. However,
over the long term, because of our income-focused strategy, lower-rated
bonds may also present an attractive investment opportunity. Lower ratings
on state debt can translate into higher yields paid to bondholders and
potentially higher dividends to shareholders over time.
Q. WHAT ARE THE KEY BENEFITS OF INVESTING IN TAX-FREE INCOME FUNDS?
A. It's important to remember the reasons to own tax-free income funds don't
change when market conditions change. For long-term investors seeking
monthly, tax-free income and portfolio diversification, we believe
tax-free income funds are an attractive investment option. At Franklin, we
will continue to serve our shareholders by seeking to provide a high level
of tax-free income consistent with prudent investment management and the
preservation of shareholders' capital.
[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
6 | Not part of the semiannual report
SEMIANNUAL REPORT
FRANKLIN CALIFORNIA
TAX-FREE INCOME FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Tax-Free Income Fund
seeks to provide high, current income exempt from federal and California state
personal income taxes consistent with prudent investment management and
preservation of capital by investing at least 80% of its total assets in
securities that pay interest free from such taxes.(1)
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CREDIT QUALITY BREAKDOWN*
Franklin California Tax-Free Income Fund
Based on Total Long-Term Investments as of 9/30/04**
AAA ...................................... 51.3%
AA ....................................... 3.3%
[PIE CHART] A ........................................ 17.2%
BBB ...................................... 18.9%
Below Investment Grade ................... 6.6%
Not Rated by S&P ......................... 2.7%
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* Standard & Poor's (S&P) is the primary independent rating agency.
Securities not rated by an independent rating agency are assigned
comparable internal ratings. Ratings for securities not rated by S&P are
in the table below.
** Does not include short-term investments and other net assets.
RATINGS INTERNAL
AAA or Aaa 0.7%
BBB or Baa 1.4%
Below Investment Grade 0.6%
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Total 2.7%
This semiannual report for Franklin California Tax-Free Income Fund
covers the six months ended September 30, 2004.
(1) For investors subject to the alternative minimum tax, a small portion of
Fund dividends may be taxable. Distributions of capital gains are
generally taxable.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 22.
[SIDEBAR]
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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Semiannual Report | 7
PERFORMANCE OVERVIEW
Because bond yield and price move in opposite directions, as municipal bond
yields rose bond prices fell for the six-month reporting period. The Fund's
Class A share price, as measured by net asset value, declined from $7.32 on
March 31, 2004, to $7.23 on September 30, 2004. The Fund's Class A shares paid
dividends totaling 16.90 cents per share for the same period.(2) The Performance
Summary beginning on page 13 shows that at the end of this reporting period the
Fund's Class A shares' distribution rate was 4.45% based on an annualization of
September's 2.80 cent per share dividend and the maximum offering price of $7.55
on September 30, 2004. An investor in the 2004 maximum combined federal and
California state income tax bracket of 41.05% would need to earn a distribution
rate of 7.55% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class B, C and Advisor shares' performance,
please see the Performance Summary.
STATE UPDATE
California's diverse, wealthy economy was in a trend of moderate economic
recovery in private sector employment and personal income growth. The state's
natural advantages of location on the Pacific Rim and proximity to population
and industry centers, including high technology, trade and entertainment,
continued to power the Golden State's economic progress, though
technology-related industries and regions, namely Silicon Valley, have recovered
more slowly than other sectors and regions since the recession. Public sector
employment fell in the wake of recent budget cuts, but private sector employment
grew at a moderate pace, as did the state's personal income levels, and overall
income grew faster than the national average. California's unemployment rate was
5.9% in September 2004; though still above the 5.4% national average, it marked
a three-year low as it fell below 6.0% for the first time since September
2001.(3)
The state ended fiscal year 2003 with an unreserved general fund deficit of
$15.4 billion.(4) Since then, finances improved as state tax collections for
fiscal
(2) Assumes shares were purchased and held for the entire accrual period.
Since dividends accrue daily, your actual distributions will vary
depending on the date you purchased your shares and any account activity.
All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
(3) Source: Bureau of Labor Statistics.
(4) Source: Standard & Poor's, "Research: Gov. Schwarzenegger's Proposed May
Budget Revision Indicates Some Improvement in California Finances,"
RATINGSDIRECT, 5/19/04.
8 | Semiannual Report
year 2004 benefited from economic recovery. Based on actual receipts through
April 2004, the state expected personal income tax and sales tax receipts to
rise 10% and 5.2% for the year.(5) Additionally, Governor Arnold
Schwarzenegger's revised fiscal year 2005 budget proposal released in May 2004
indicated some improvement in California's finances over prior years, with less
reliance on one-time revenues and revised revenue assumptions.
The state averted an immediate liquidity crisis when voters approved $15 billion
of deficit-financing bonds in March 2004.(4) These "Economic Recovery Bonds"
allowed the state to revise its cash flow projections for 2004 and 2005, and for
the time being eliminated the large deficit balances seen in the past two
previous years. Given this position, plus improving economic and tax receipt
trends, it appeared unlikely that any significant liquidity strain will reemerge
for the state during 2005. However, the recent increase in California's
long-term debt resulted in an above-average level of indebtedness relative to
other states. Furthermore, California's net tax-supported debt has doubled since
the end of fiscal year 2001 to $53 billion. However, at 4.5% of aggregate
personal income, the debt burden -- tenth highest among the states -- is not
currently a credit concern.(5)
In light of a now established recovery trend in the state's economy and tax
revenues, as well as an improved budgetary and liquidity outlook, independent
credit rating agencies Moody's Investors Service and Standard & Poor's (S&P)
upgraded California's general obligation bond ratings and credit outlook:
Moody's to A3 from Baa1 with a positive outlook, and S&P to A from BBB with a
stable outlook.(6) However, the state's ratings still remained well below the
50-state credit quality averages, due to significant ongoing fiscal challenges,
plus administrative and legal factors that weaken its financial flexibility
compared with other states.
MUNICIPAL BOND MARKET OVERVIEW
During the six months ended September 30, 2004, lack of new issue supply of
long-term municipal bonds nationally was a prevalent theme in the municipal bond
market. As municipal bonds trended with the general direction of long-term
interest rates, municipal bond prices fell for the first half of the period and
then rose for the remainder. Fewer new issues coupled with good demand
(5) Source: Moody's Investors Service, "New Issue: California (State of),"
9/3/04.
(6) These do not indicate ratings of the Fund.
Semiannual Report | 9
allowed municipal bonds to post a positive return, as measured by the Lehman
Brothers Municipal Bond Index's 1.43% return for the six-month period.(7)
Interest rates rose in the first half of the reporting period, as economic data
indicated continuing U.S. economic recovery. Inflation remained low, labor
market conditions improved, and the financial markets expected the Federal
Reserve Board (Fed) to begin raising the federal funds target rate. Then on June
14, 2004, interest rates changed direction and generally fell through period-end
largely in reaction to weaker-than-expected job creation reports, increased
concerns over potential terrorist activity, higher oil prices and expanding
budget deficits. The latter two were perceived as factors that could stifle
growth. The long-awaited Fed rate increases, quarter-point hikes on June 30,
August 10 and September 21, 2004, had little overall effect on the bond markets.
According to Municipal Market Data, the yield for 30-year AAA bonds increased
from 4.53% at the beginning of the period under review to 5.13% on June 14,
2004, and then fell to 4.68% at period-end.(8) Despite the rise and drop in
yields, long-term interest rates remained near four-decade lows throughout the
reporting period.
Even though open-end municipal bond funds overall experienced net outflows
during the reporting period, demand for municipal bonds outpaced supply as
investors sought to reinvest the relatively heavy bond call, maturity and coupon
payments that occurred in June, July and August. Also, in spite of low supply,
municipal bonds continued to offer attractive yields relative to taxable fixed
income securities, which boosted demand from relative value investors that
looked for opportunities in both the taxable and tax-exempt markets.
(7) Source: Lehman Brothers Inc. The Lehman Brothers Municipal Bond Index is a
market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa.
They must have an outstanding par value of at least $5 million and be
issued as part of a transaction of at least $50 million. The bonds must be
dated after 12/31/90, and must be at least one year from their maturity
date. Remarketed issues, taxable municipal bonds, bonds with floating
rates and derivatives are excluded from the index. The index has four main
bond sectors: general obligation, revenue, insured and prerefunded.
(8) Source: Thomson Financial.
[SIDEBAR]
PORTFOLIO BREAKDOWN
Franklin California Tax-Free Income Fund
9/30/04
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% OF TOTAL
LONG-TERM INVESTMENTS*
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Transportation 21.0%
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Prerefunded 16.9%
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Hospital & Health Care 13.1%
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General Obligation 11.7%
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Utilities 11.6%
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Subject to Government Appropriations 10.6%
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Tax-Supported 7.0%
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Other Revenue 3.8%
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Housing 2.3%
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Higher Education 2.0%
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* Does not include short-term investments and other net assets.
10 | Semiannual Report
Many states coped with financial challenges and budget deficits during the
period under review, according to the Center on Budget and Policy Priorities, a
nonpartisan organization that researches and analyzes a range of government
policies and programs. In fiscal year 2004, which for most states began July 1,
2003, many states experienced some revenue growth, but revenues remained below
pre-recession levels. Most states have a long way to go before correcting the
budget imbalances of the past several years. However, in January 2004, Moody's
Investors Service indicated it believed overall municipal credit quality would
stabilize and possibly improve in 2004. Even with large budgetary swings,
overall municipal debt credit quality remained high, which resulted in Moody's
credit upgrades surpassing downgrades by 269 to 130 in the first half of 2004.
One of the most notable upgrades was the state of California.
INVESTMENT STRATEGY
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, our portfolio becomes well
diversified with a broad range of coupons, calls, and maturities. This broad
diversification may help mitigate interest rate risk. We generally stay fully
invested to maximize income distribution.
Semiannual Report | 11
DIVIDEND DISTRIBUTIONS*
Franklin California Tax-Free Income Fund
4/1/04-9/30/04
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DIVIDEND PER SHARE
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MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
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April 2.85 cents 2.50 cents 2.51 cents 2.90 cents
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May 2.85 cents 2.50 cents 2.51 cents 2.90 cents
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June 2.80 cents 2.47 cents 2.47 cents 2.85 cents
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July 2.80 cents 2.47 cents 2.47 cents 2.86 cents
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August 2.80 cents 2.47 cents 2.47 cents 2.85 cents
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September 2.80 cents 2.46 cents 2.46 cents 2.86 cents
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TOTAL 16.90 CENTS 14.87 CENTS 14.89 CENTS 17.22 CENTS
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* Assumes shares were purchased and held for the entire accrual period.
Since dividends accrue daily, your actual distributions will vary
depending on the date you purchased your shares and any account activity.
All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
MANAGER'S DISCUSSION
Our value-oriented philosophy of investing primarily for income, combined with a
steep yield curve, favored longer-term bonds during the reporting period.
Consistent with our strategy, we sought to remain fully invested in bonds
ranging from 15 to 30 years in maturity with good call features. We also
maintained our conservative, buy-and-hold investment strategy as we attempted to
provide shareholders with high, current, tax-free income. The Fund was forced to
cut its dividend during the reporting period, as declining interest rates
combined with a high volume of bonds being called lowered the income earned.
Thank you for your participation in Franklin California Tax-Free Income Fund. We
look forward to serving your future investment needs.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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.
12 | Semiannual Report
PERFORMANCE SUMMARY AS OF 9/30/04
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes due on
Fund dividends, capital gain distributions, if any, or any realized gains on the
sale of Fund shares. Total return reflects the Fund's dividend income, capital
gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A CHANGE 9/30/04 3/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.09 $7.23 $7.32
- --------------------------------------------------------------------------------
DISTRIBUTIONS (4/1/04-9/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.1690
- --------------------------------------------------------------------------------
CLASS B CHANGE 9/30/04 3/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.09 $7.22 $7.31
- --------------------------------------------------------------------------------
DISTRIBUTIONS (4/1/04-9/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.1487
- --------------------------------------------------------------------------------
CLASS C CHANGE 9/30/04 3/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.09 $7.22 $7.31
- --------------------------------------------------------------------------------
DISTRIBUTIONS (4/1/04-9/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.1489
- --------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 9/30/04 3/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.09 $7.22 $7.31
- --------------------------------------------------------------------------------
DISTRIBUTIONS (4/1/04-9/30/04)
- --------------------------------------------------------------------------------
Dividend Income $0.1722
- --------------------------------------------------------------------------------
Semiannual Report | 13
PERFORMANCE SUMMARY (CONTINUED)
PERFORMANCE
CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURN INCLUDES MAXIMUM SALES CHARGES.
- -----------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +1.14% +5.74% +34.21% +79.89%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) -3.09% +1.22% +5.14% +5.59%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate(3) 4.45%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(4) 7.55%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(5) 3.81%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(4) 6.46%
- -----------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +0.86% +5.14% +30.33% +26.88%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) -3.10% +1.14% +5.12% +4.09%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate(3) 4.09%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(4) 6.94%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(5) 3.41%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(4) 5.78%
- -----------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/95)
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +0.86% +5.17% +30.37% +63.04%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) -0.13% +4.17% +5.45% +5.33%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate(3) 4.09%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(4) 6.94%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(5) 3.41%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(4) 5.78%
- -----------------------------------------------------------------------------------------------------------
ADVISOR CLASS(6) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +1.19% +5.84% +34.38% +80.11%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +1.19% +5.84% +6.09% +6.06%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate(3) 4.75%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(4) 8.06%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(5) 4.06%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(4) 6.89%
- -----------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
14 | Semiannual Report
PERFORMANCE SUMMARY (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
AND REGULATORY CHANGES IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as
described in the prospectus.
(1) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(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. Six-month return has not been
annualized.
(3) Distribution rate is based on an annualization of the respective class's
September dividend and the maximum offering price (NAV for Classes B, C
and Advisor) per share on 9/30/04.
(4) Taxable equivalent distribution rate and yield assume the published rates
as of 5/28/04 for the maximum combined federal and California state
personal income tax bracket of 41.05%, based on the federal income tax
rate of 35.00%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 9/30/04.
(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 +15.06% and +4.79%.
Semiannual Report | 15
YOUR FUND'S EXPENSES
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
16 | Annual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ----------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 3/31/04 VALUE 9/30/04 PERIOD* 3/31/04-9/30/04
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,011.40 $2.92
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.10 $2.93
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,008.60 $5.77
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.81
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,008.60 $5.77
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.81
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,011.90 $2.51
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.50 $2.53
- ----------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
0.58%; B: 1.15%; C: 1.15%; and Advisor: 0.50%), multiplied by the average
account value over the period, multiplied by 183/366 to reflect the
one-half year period.
Annual Report | 17
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2004 YEAR ENDED MARCH 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $ 7.32 $ 7.24 $ 7.07 $ 7.24 $ 6.88 $ 7.40
---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .......... .17 .35 .35 .37 .37 .38
Net realized and unrealized
gains (losses) ................... (.09) .07 .21 (.16) .36 (.53)
---------------------------------------------------------------------------------------------
Total from investment operations ... .08 .42 .56 .21 .73 (.15)
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............. (.17) (.34) (.36) (.37) (.37) (.36)
Net realized gains ................ -- -- (.03) (.01) -- (.01)
---------------------------------------------------------------------------------------------
Total distributions ................ (.17) (.34) (.39) (.38) (.37) (.37)
---------------------------------------------------------------------------------------------
Redemption fees .................... --(c) -- -- -- -- --
---------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 7.23 $ 7.32 $ 7.24 $ 7.07 $ 7.24 $ 6.88
=============================================================================================
Total return(b) .................... 1.14% 6.04% 8.05% 2.87% 10.98% (1.97)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $12,232,550 $12,784,815 $13,376,339 $13,016,197 $13,279,037 $12,859,577
Ratio to average net assets:
Expenses .......................... .58%(d) .58% .57% .57% .57% .57%
Net investment income ............. 4.79%(d) 4.80% 4.90% 5.08% 5.31% 5.40%
Portfolio turnover rate ............ 6.91% 11.57% 11.92% 13.23% 5.83% 12.10%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Amount is less than $0.001 per share.
(d) Annualized.
18 | See notes to financial statements. | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2004 YEAR ENDED MARCH 31,
CLASS B (UNAUDITED) 2004 2003 2002 2001 2000
-------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...... $ 7.31 $ 7.23 $ 7.07 $ 7.24 $ 6.87 $ 7.39
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ................. .15 .30 .31 .33 .33 .34
Net realized and unrealized gains (losses) (.09) .08 .20 (.16) .37 (.52)
-----------------------------------------------------------------------------------
Total from investment operations .......... .06 .38 .51 .17 .70 (.18)
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (.15) (.30) (.32) (.33) (.33) (.33)
Net realized gains ....................... -- -- (.03) (.01) -- (.01)
-----------------------------------------------------------------------------------
Total distributions ....................... (.15) (.30) (.35) (.34) (.33) (.34)
-----------------------------------------------------------------------------------
Redemption fees ........................... --(c) -- -- -- -- --
-----------------------------------------------------------------------------------
Net asset value, end of period ............ $ 7.22 $ 7.31 $ 7.23 $ 7.07 $ 7.24 $ 6.87
===================================================================================
Total return(b) ........................... .86% 5.44% 7.46% 2.15% 10.51% (2.51)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......... $ 365,774 $ 394,728 $402,085 $309,196 $193,428 $ 110,933
Ratio to average net assets:
Expenses ................................. 1.15%(d) 1.15% 1.14% 1.14% 1.14% 1.14%
Net investment income .................... 4.22%(d) 4.23% 4.33% 4.51% 4.73% 4.87%
Portfolio turnover rate ................... 6.91% 11.57% 11.92% 13.23% 5.83% 12.10%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.001 per share.
(d) Annualized.
Semiannual Report | See notes to financial statements. | 19
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2004 YEAR ENDED MARCH 31,
CLASS C (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 7.31 $ 7.23 $ 7.06 $ 7.23 $ 6.87 $ 7.39
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... .15 .30 .31 .33 .33 .34
Net realized and unrealized gains (losses) ... (.09) .08 .21 (.16) .36 (.53)
-------------------------------------------------------------------------------
Total from investment operations .............. .06 .38 .52 .17 .69 (.19)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.15) (.30) (.32) (.33) (.33) (.32)
Net realized gain ............................ -- -- (.03) (.01) -- (.01)
-------------------------------------------------------------------------------
Total distributions ........................... (.15) (.30) (.35) (.34) (.33) (.33)
-------------------------------------------------------------------------------
Redemption fees ............................... --(c) -- -- -- -- --
-------------------------------------------------------------------------------
Net asset value, end of period ................ $ 7.22 $ 7.31 $ 7.23 $ 7.06 $ 7.23 $ 6.87
===============================================================================
Total return(b) ............................... .86% 5.46% 7.46% 2.29% 10.38% (2.54)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 489,984 $ 523,545 $ 538,460 $ 464,108 $ 393,652 $ 367,874
Ratio to average net assets:
Expenses ..................................... 1.15%(d) 1.15% 1.13% 1.14% 1.14% 1.14%
Net investment income ........................ 4.22%(d) 4.23% 4.34% 4.52% 4.74% 4.82%
Portfolio turnover rate ....................... 6.91% 11.57% 11.92% 13.23% 5.83% 12.10%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.001 per share.
(d) Annualized.
20 | See notes to financial statements. | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------
SIX MONTHS ENDED
SEPTEMBER 30, 2004 YEAR ENDED MARCH 31,
ADVISOR CLASS (UNAUDITED) 2004 2003 2002(d)
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 7.31 $ 7.23 $ 7.07 $ 7.29
---------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ............................. .17 .35 .36 .19
Net realized and unrealized gains (losses) ........... (.09) .08 .19 (.24)
---------------------------------------------------------------------
Total from investment operations ...................... .08 .43 .55 (.05)
---------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.17) (.35) (.36) (.16)
Net realized gain .................................... -- -- (.03) (.01)
---------------------------------------------------------------------
Total distributions ................................... (.17) (.35) (.39) (.17)
---------------------------------------------------------------------
Redemption fees ....................................... --(c) -- -- --
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 7.22 $ 7.31 $ 7.23 $ 7.07
=====================================================================
Total return(b) ....................................... 1.19% 6.13% 8.00% (.80)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 40,463 $ 14,096 $ 10,217 $ 2,134
Ratio to average net assets:
Expenses ............................................. .50%(e) .50% .49% .49%e
Net investment income ................................ 4.87%(e) 4.88% 4.98% 5.25%e
Portfolio turnover rate ............................... 6.91% 11.57% 11.92% 13.23%
(a) Based on average daily shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) Amount is less than $0.001 per share.
(d) For the period October 1, 2001 (effective date) to March 31, 2002.
(e) Annualized.
Semiannual Report | See notes to financial statements. | 21
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 96.6%
BONDS 82.4%
ABAG Finance Authority for Nonprofit Corps. COP,
6.75%, 8/01/20 .............................................................................. $ 3,785,000 $ 3,964,144
6.125%, 3/01/21 ............................................................................. 4,245,000 4,549,197
Butte Valley-Tulelake Rural Health, 6.65%, 10/01/22 ......................................... 835,000 837,722
Episcopal Home Foundation, Refunding, 5.125%, 7/01/13 ....................................... 6,000,000 6,108,420
Episcopal Home Foundation, Refunding, 5.125%, 7/01/18 ....................................... 20,625,000 20,274,169
Home for Jewish Parents, California Mortgage Insured, 5.625%, 5/15/22 ....................... 5,000,000 5,307,500
Lytton Gardens Inc., California Mortgage Insured, 6.00%, 2/15/30 ............................ 5,000,000 5,306,400
Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ............................... 5,525,000 5,880,755
Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/23 ...................... 5,000,000 5,145,400
ABAG Finance Authority for Nonprofit Corps. MFHR, Palo Alto Gardens Apartments,
Series A, 5.45%, 4/01/39 ..................................................................... 5,500,000 5,548,565
ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Association,
Series A, 6.125%, 8/15/20 ................................................................... 23,525,000 25,161,869
Series C, 5.375%, 3/01/21 ................................................................... 5,000,000 5,090,250
ABAG Revenue,
Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.125%, 9/01/21 ............... 4,760,000 4,871,194
Mello-Roos, Refunding and Improvement, Series A, FSA Insured, 5.20%, 9/01/27 ................ 4,140,000 4,201,231
Tax Allocation, RDA Pool, Series A4, FSA Insured, 5.875%, 12/15/25 .......................... 5,000,000 5,143,900
Tax Allocation, RDA Pool, Series A6, FSA Insured, 5.375%, 12/15/25 .......................... 3,670,000 3,878,676
ABAG Water and Wastewater Revenue, Pooled Financing Program, Series A,
FSA Insured, 5.30%, 10/01/21 ................................................................. 5,450,000 5,924,204
Alameda Corridor Transportation Authority Revenue, senior lien, Series A,
MBIA Insured, 5.00%, 10/01/29 ................................................................ 24,490,000 24,967,065
Alameda County COP, Alameda County Medical Center Project, MBIA Insured,
5.00%, 6/01/23 .............................................................................. 19,195,000 20,053,592
5.30%, 6/01/26 .............................................................................. 7,000,000 7,054,530
5.00%, 6/01/28 .............................................................................. 8,925,000 9,293,245
Alvord USD, GO, Series A, FGIC Insured, 5.375%, 8/01/27 ....................................... 6,100,000 6,395,301
Anaheim PFA, Lease Revenue, Public Improvements Project, Series A, FSA Insured, 5.00%,
9/01/27 ..................................................................................... 8,900,000 9,081,738
3/01/37 ..................................................................................... 100,000,000 101,471,000
Anaheim PFAR, Distribution System, Second Lien, MBIA Insured, 5.00%,
10/01/29 .................................................................................... 4,325,000 4,420,539
10/01/34 .................................................................................... 5,500,000 5,603,950
Anaheim UHSD, GO, Series A, FSA Insured, 5.00%, 8/01/25 ....................................... 3,900,000 4,027,140
Antioch Area Public Facilities Financing Agency Special Tax, CFD No. 1989-1,
MBIA Insured, 5.50%, 8/01/22 ................................................................. 4,870,000 5,271,191
Antioch PFA, Reassessment Revenue, sub. lien,
Refunding, Series B, 5.50%, 9/02/08 ......................................................... 1,155,000 1,219,206
Refunding, Sub Series B, 5.60%, 9/02/09 ..................................................... 1,215,000 1,286,539
Series B, 5.30%, 9/02/06 .................................................................... 2,080,000 2,150,803
Arcadia Hospital Revenue, Methodist Hospital of Southern California,
6.50%, 11/15/12 ............................................................................. 2,295,000 2,308,426
6.625%, 11/15/22 ............................................................................ 3,750,000 3,772,462
Baldwin Park PFAR, Tax Allocation, Series A, 7.75%, 8/01/19 ................................... 5,265,000 5,314,280
22 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Belmont Redwood Shores School District, Series A, 5.50%, 9/01/22 .............................. $ 6,500,000 $ 6,999,785
Bonita USD, GO, Election of 2004, Series A, MBIA Insured, 5.00%, 8/01/27 ...................... 5,100,000 5,247,237
Brentwood 1915 Act, Infrastructure Financing, Reassessment, Series A,
FSA Insured, 5.80%, 9/02/17 .................................................................. 5,110,000 5,652,682
Burbank Parking Authority, Special Tax, CFD No. 1, 8.375%, 10/01/06 ........................... 620,000 622,523
Calexico USD, GO, Refunding, MBIA Insured, 5.25%, 8/01/33 ..................................... 4,285,000 4,464,970
California Counties Lease Financing Authority COP, CSAC Financing Corp.,
Amador County Project, ETM, 7.70%, 10/01/09 .................................................. 1,890,000 2,149,988
California County Tobacco Securitization Agency Revenue, Asset-Backed,
Alameda County, 5.875%, 6/01/35 ............................................................. 7,500,000 6,398,625
Gold Country Funding Corp., 6.00%, 6/01/38 .................................................. 10,000,000 8,654,200
Golden Gate, Series A, 6.00%, 6/01/43 ....................................................... 10,000,000 8,611,800
Kern County Corp., Series A, 6.125%, 6/01/43 ................................................ 28,135,000 24,693,808
Kern County Corp., Series B, 6.25%, 6/01/37 ................................................. 19,460,000 17,479,361
Merced Funding Corp., Series A, 5.875%, 6/01/43 ............................................. 10,235,000 8,645,197
Sonoma County Corp., Series A, 5.875%, 6/01/43 .............................................. 30,000,000 25,340,100
Stanislaus Fund, Series A, 5.875%, 6/01/43 .................................................. 8,690,000 7,340,182
California Educational Facilities Authority Revenue,
Chapman University, Refunding, Connie Lee Insured, 5.125%, 10/01/26 ......................... 10,000,000 10,262,500
Pooled College and University, Series B, 6.75%, 6/01/30 ..................................... 11,495,000 12,478,627
Stanford University, Refunding, Series O, 5.125%, 1/01/31 ................................... 21,250,000 21,805,262
Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 ................................ 2,980,000 3,147,565
California Health Facilities Financing Authority Revenue,
AIDS Health Care Foundation, Refunding, Series C, California Mortgage Insured,
6.25%, 9/01/17 ............................................................................. 1,750,000 1,756,037
California Autism Foundation Inc., Series A, CHFCLP Insured, 6.25%, 11/01/20 ................ 3,560,000 3,779,474
Casa Colina, 6.125%, 4/01/32 ................................................................ 10,300,000 10,767,826
Catholic Healthcare West, Refunding, Series A, 5.00%, 7/01/18 ............................... 28,095,000 28,400,112
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.75%, 7/01/15 ................. 12,500,000 13,990,375
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 ................. 7,300,000 7,905,681
Catholic Healthcare West, Series A, 5.00%, 7/01/28 .......................................... 140,630,000 134,958,392
Catholic Healthcare West, Series A, MBIA Insured, 5.00%, 7/01/17 ............................ 3,520,000 3,723,456
Catholic Healthcare West, Series A, MBIA Insured, 5.125%, 7/01/24 ........................... 8,375,000 8,667,455
Catholic Healthcare West, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/17 .............. 1,480,000 1,627,423
Catholic Healthcare West, Series A, MBIA Insured, Pre-Refunded, 5.125%, 7/01/24 ............. 3,125,000 3,446,656
Catholic Healthcare West, Series A, Prerefunded, 5.00%, 7/01/18 ............................. 11,905,000 13,177,287
Catholic Healthcare West, Series G, 5.25%, 7/01/23 .......................................... 3,000,000 3,040,860
Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/17 ........................ 8,355,000 8,881,950
Cedars-Sinai Medical Center, Series B, MBIA Insured, 5.25%, 8/01/27 ......................... 52,500,000 53,888,625
Clinicas Del Camino, Series A, CHFCLP Insured, 6.55%, 5/01/25 ............................... 4,500,000 4,708,800
County Program, Series B, 7.20%, 1/01/12 .................................................... 2,050,000 2,058,302
El Proyecto, Series A, CHFCLP Insured, 5.50%, 12/01/22 ...................................... 3,350,000 3,527,684
Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/18 ................................. 5,000,000 5,286,650
Enloe Health System, Series A, FSA Insured, 5.00%, 11/15/28 ................................. 25,390,000 25,856,668
Familiesfirst, Series A, California Mortgage Insured, 6.00%, 12/01/25 ....................... 11,365,000 11,929,272
Feedback Foundation Inc., Series A, CHFCLP Insured, 6.50%, 12/01/22 ......................... 4,240,000 4,274,726
Semiannual Report | 23
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
California Health Facilities Financing Authority Revenue (cont.)
Hospital of the Good Samaritan, Refunding, 7.00%, 9/01/21 ................................... $ 71,050,000 $ 70,213,031
Insured Health Facility Help Group, Series A, California Mortgage Insured,
6.10%, 8/01/25 ............................................................................. 12,905,000 13,886,683
Insured Health Facility-Valleycare, Series A, California Mortgage Insured, 5.25%, 5/01/22 ... 5,000,000 5,234,950
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 ............................................ 46,000,000 47,619,200
Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/20 .................................... 32,295,000 34,315,698
Kaiser Permanente, Series A, FSA Insured, 5.00%, 6/01/24 .................................... 136,775,000 142,364,994
Kaiser Permanente, Series B, 5.40%, 5/01/28 ................................................. 80,000,000 82,816,000
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ........................................... 7,515,000 8,101,020
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/18 ........................................... 38,260,000 40,653,546
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/20 ........................................... 38,020,000 40,107,678
Lucile Salter Packard Hospital, Series C, AMBAC Insured, 5.00%, 8/15/26 ..................... 6,000,000 6,159,540
Marshall Hospital, Series A, California Mortgage Insured, 5.30%, 11/01/28 ................... 5,500,000 5,600,210
Mills-Peninsula Health, Refunding, Series A, Connie Lee Insured, 5.75%, 1/15/15 ............. 11,500,000 11,864,665
Mills-Peninsula Health, Series B, Connie Lee Insured, 5.75%, 1/15/15 ........................ 5,665,000 5,844,637
Northern California Presbyterian, 5.40%, 7/01/28 ............................................ 6,340,000 6,367,072
Paradise Valley Estates, 5.125%, 1/01/22 .................................................... 6,610,000 6,854,438
Paradise Valley Estates, 5.25%, 1/01/26 ..................................................... 5,000,000 5,158,100
Pomona Valley Hospital, Refunding, Series A, MBIA Insured, 5.625%, 7/01/19 .................. 8,500,000 9,347,875
Scripps Memorial Hospital, Series A, MBIA Insured, 6.375%, 10/01/22 ......................... 9,725,000 9,942,451
Small Facilities Loan, Health Facilities, Refunding, Series B,
California Mortgage Insured, 7.50%, 4/01/22 ................................................ 5,000,000 5,242,800
Small Facilities Loan, Health Facilities, Series A, CHFCLP Insured, 6.75%, 3/01/20 .......... 1,005,000 1,008,718
Southern California, Series A, CHFCLP Insured, 5.50%, 12/01/22 .............................. 3,070,000 3,232,833
St. Francis Medical Center, Refunding, Series H, AMBAC Insured, 6.35%, 10/01/23 ............. 7,000,000 7,395,360
St. Paul's Episcopal Home, CHFCLP Insured, 6.50%, 9/01/14 ................................... 2,595,000 2,647,653
Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 ........................... 5,750,000 6,318,330
Sutter Health, Series A, FSA Insured, 5.25%, 8/15/27 ........................................ 5,300,000 5,441,245
Sutter Health, Series A, FSA Insured, 5.00%, 8/15/37 ........................................ 61,000,000 61,581,940
Sutter Health, Series A, MBIA Insured, 5.375%, 8/15/30 ...................................... 10,600,000 11,017,852
Sutter Health Project, Series A, MBIA Insured, 5.35%, 8/15/28 ............................... 6,650,000 6,943,863
The Episcopal Home, 5.30%, 2/01/32 .......................................................... 28,150,000 28,557,049
The Help Group, California Mortgage Insured, 5.40%, 8/01/22 ................................. 7,420,000 7,794,265
UCSF-Stanford Health Care, Refunding, Series A, FSA Insured, 5.00%, 11/15/31 ................ 5,750,000 5,809,972
UCSF-Stanford Health Care, Refunding, Series B, 5.00%, 11/15/31 ............................. 26,920,000 27,200,776
UCSF-Stanford Health Care, Refunding, Series B, AMBAC Insured, 5.00%, 11/15/28 .............. 25,000,000 25,526,250
Valleycare Hospital Corp., Refunding, 5.50%, 5/01/20 ........................................ 11,640,000 12,234,571
Walden House, State Guaranteed, 6.85%, 3/01/22 .............................................. 3,225,000 3,237,094
California HFA,
Housing Revenue, Series E, MBIA Insured, 6.625%, 8/01/14 .................................... 4,365,000 4,475,740
Housing Revenue, Series E, MBIA Insured, 6.75%, 8/01/26 ..................................... 11,855,000 12,163,230
Housing Revenue, Series F, MBIA Insured, 6.90%, 8/01/26 ..................................... 11,345,000 11,618,755
MFHR II, Series A, AMBAC Insured, 6.25%, 2/01/37 ............................................ 5,000,000 5,179,450
MFHR III, Series B, MBIA Insured, 5.50%, 8/01/39 ............................................ 12,085,000 12,373,831
Series B-1, Class 1, AMBAC Insured, 5.65%, 8/01/28 .......................................... 4,710,000 4,817,105
SFM, Series C-2, Class 1, FHA Insured, 5.65%, 2/01/25 ....................................... 1,820,000 1,869,213
SFM Purchase, Refunding, Series A-2, FHA Insured, 6.45%, 8/01/25 ............................ 1,080,000 1,095,800
SFM Purchase, Series A-1, Class I, 6.05%, 8/01/26 ........................................... 985,000 1,012,738
24 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
California Infrastructure and Economic Development Bank Revenue,
Bay Area Toll Bridges, first lien, Series A, AMBAC Insured, 5.00%, 7/01/33 .................. $ 5,000,000 $ 5,102,550
Bay Area Toll Bridges, first lien, Series A, FGIC Insured, 5.00%, 7/01/29 ................... 50,985,000 52,177,539
Kaiser Hospital Assistance I LLC, Series B, 5.50%, 8/01/31 .................................. 10,000,000 10,330,800
Kaiser Hospital Assistance II LLC, Series A, 5.55%, 8/01/31 ................................. 34,000,000 35,244,740
California Mobilehome Park Financing Authority Revenue, Series A, FSA Insured,
5.15%, 10/01/04 ............................................................................. 5,000 5,000
5.25%, 10/01/05 ............................................................................. 5,000 5,141
6.25%, 10/01/25 ............................................................................. 165,000 169,371
California PCFA,
PCR, Refunding, Pacific Gas and Electric, Series B, FGIC Insured, 3.50%, 12/01/23 ........... 5,000,000 5,117,200
PCR, San Diego Gas and Electric Co., Series A, 5.85%, 6/01/21 ............................... 32,535,000 33,031,159
PCR, Southern California Edison Co., Refunding, 6.90%, 12/01/17 ............................. 2,510,000 2,523,554
PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 .............................. 29,000,000 29,232,870
PCR, Southern California Edison Co., Series B, MBIA Insured, 6.40%, 12/01/24 ................ 12,120,000 12,217,324
Revenue, Refunding, Pacific Gas and Electric, Series A, MBIA Insured, 5.35%, 12/01/16 ....... 31,500,000 34,169,940
Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project, 6.875%, 11/01/27 .......... 17,205,000 17,369,996
California Resources Efficiency Financing Authority COP, Capital Improvement Program,
Refunding, AMBAC Insured,
5.625%, 4/01/22 ............................................................................. 10,365,000 11,268,102
5.75%, 4/01/27 .............................................................................. 7,885,000 8,571,626
California Special Districts Lease Financing Program COP, Series E,
7.70%, 12/01/09 ............................................................................. 205,000 206,829
7.75%, 12/01/19 ............................................................................. 305,000 307,846
California State Department of Veteran Affairs Home Purchase Revenue,
Refunding, Series A, 5.40%, 12/01/28 ........................................................ 9,580,000 9,852,359
Refunding, Series B, 5.50%, 12/01/18 ........................................................ 2,500,000 2,573,175
Series A, 5.20%, 12/01/27 ................................................................... 31,000,000 31,093,000
Series B, 5.20%, 12/01/28 ................................................................... 5,975,000 5,991,013
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 60,267,800
Series S, 5.00%, 12/01/29 ................................................................... 24,595,000 24,804,303
Series U, 5.00%, 12/01/29 ................................................................... 12,000,000 12,124,080
Series Y, FGIC Insured, 5.00%, 12/01/25 ..................................................... 20,000,000 20,709,200
California State Department of Water Resources Central Valley Project Water System Revenue,
Series O, 5.00%, 12/01/22 .................................................................... 5,500,000 5,619,405
California State Department of Water Resources Power Supply Revenue, Series A,
5.25%, 5/01/20 .............................................................................. 50,000,000 53,738,500
5.375%, 5/01/21 ............................................................................. 22,000,000 23,688,280
5.375%, 5/01/22 ............................................................................. 34,020,000 36,416,369
California State GO,
5.00%, 2/01/22 ........................................................... .................. 7,000,000 7,301,560
5.25%, 9/01/23 .............................................................................. 21,000,000 22,007,580
5.25%, 10/01/23 ............................................................................. 9,250,000 9,699,642
6.00%, 5/01/24 .............................................................................. 2,565,000 2,622,789
5.125%, 4/01/25 ............................................................................. 5,000,000 5,192,200
Semiannual Report | 25
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
California State GO (cont.)
5.00%, 2/01/27 .............................................................................. $ 46,000,000 $ 46,559,360
5.00%, 2/01/29 .............................................................................. 13,000,000 13,126,100
AMBAC Insured, 5.90%, 3/01/25 ............................................................... 210,000 215,666
FGIC Insured, 6.00%, 8/01/19 ................................................................ 905,000 935,480
FGIC Insured, 5.625%, 10/01/26 .............................................................. 41,500,000 43,616,500
FSA Insured, 5.50%, 4/01/19 ................................................................. 2,995,000 3,059,662
FSA Insured, 5.50%, 3/01/20 ................................................................. 4,620,000 4,742,199
FSA Insured, 5.50%, 9/01/29 ................................................................. 30,000,000 31,983,600
FSA Insured, Pre-refunded, 5.50%, 4/01/19 ................................................... 2,005,000 2,025,050
MBIA Insured, 5.00%, 10/01/23 ............................................................... 5,000,000 5,143,650
MBIA Insured, 6.00%, 8/01/24 ................................................................ 990,000 1,023,343
Refunding, 5.625%, 9/01/24 .................................................................. 10,650,000 11,142,882
Refunding, 5.25%, 2/01/29 ................................................................... 54,000,000 55,684,500
Refunding, 5.25%, 2/01/30 ................................................................... 30,000,000 30,897,900
Refunding, 5.25%, 4/01/32 ................................................................... 10,000,000 10,292,900
Refunding, AMBAC Insured, 5.00%, 4/01/23 .................................................... 6,250,000 6,503,187
Refunding, MBIA Insured, 5.00%, 10/01/32 .................................................... 5,000,000 5,092,250
Series BR, 5.30%, 12/01/29 .................................................................. 13,000,000 13,002,340
Various Purpose, 5.125%, 4/01/24 ............................................................ 10,000,000 10,435,900
Various Purpose, 5.20%, 4/01/26 ............................................................. 17,000,000 17,644,640
Various Purpose, 5.25%, 12/01/26 ............................................................ 12,915,000 13,511,415
Various Purpose, 5.25%, 4/01/27 ............................................................. 5,000,000 5,208,550
Various Purpose, 5.25%, 4/01/29 ............................................................. 5,580,000 5,795,444
Various Purpose, 5.25%, 4/01/34 ............................................................. 20,000,000 20,710,200
Various Purpose, AMBAC Insured, 5.00%, 4/01/31 .............................................. 30,000,000 30,659,400
Veterans Bonds, Series BH, 5.50%, 12/01/18 .................................................. 44,250,000 44,433,195
Veterans Bonds, Series BH, 5.60%, 12/01/32 .................................................. 50,060,000 50,233,208
Veterans Bonds, Series BH, FSA Insured, 5.50%, 12/01/24 ..................................... 16,440,000 16,592,563
California State Local Government Finance Authority Revenue, Marin Valley, Series A,
FSA Insured, 5.85%, 10/01/27 ................................................................. 6,735,000 7,407,153
California State Public Works Board Lease Revenue,
California Science Center, Series A, 5.25%, 10/01/22 ........................................ 8,645,000 9,055,119
California State University, Various Projects, Series A, 6.30%, 10/01/04 .................... 5,250,000 5,250,000
Department of Corrections, Corcoran II Facility, Series A, AMBAC Insured, 5.25%,
1/01/21 .................................................................................... 17,405,000 17,900,520
Department of Corrections, Series C, 5.00%, 6/01/24 ......................................... 12,225,000 12,448,962
Department of Corrections, Series C, 5.00%, 6/01/25 ......................................... 4,810,000 4,891,000
Department of Corrections, Series C, 5.25%, 6/01/28 ......................................... 25,475,000 26,086,909
Department of Justice Building, Series A, FSA Insured, 5.625%, 5/01/20 ...................... 5,000,000 5,160,750
Department of Mental Health, Coalinga, Series A, 5.00%, 6/01/25 ............................. 12,000,000 12,164,400
Department of Mental Health, Coalinga, Series A, 5.125%, 6/01/29 ............................ 56,500,000 57,291,000
Trustees California State University, Refunding, Series A, 5.00%, 10/01/19 .................. 7,500,000 7,818,225
University of California, Various Projects, Refunding, Series A, 5.50%, 6/01/21 ............. 14,000,000 14,211,260
University of California, Various Projects, Refunding, Series A, 5.00%, 6/01/23 ............. 23,175,000 23,282,764
University of California, Various Projects, Series B, 5.50%, 6/01/19 ........................ 13,000,000 13,195,780
University of California, Various Projects, Series B, Pre-Refunded, 6.625%, 12/01/14 ........ 7,415,000 7,625,734
Various California Community Colleges, Refunding, Series A, 5.90%, 4/01/17 .................. 8,320,000 9,176,294
26 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 11,290,070
California State University Revenue, Systemwide, Series A, FSA Insured, 5.00%,
11/01/29 ..................................................................................... 10,000,000 10,252,000
California Statewide CDA Revenue,
5.50%, 1/01/28 .............................................................................. 3,615,000 3,760,287
5.50%, 10/01/33 ............................................................................. 45,465,000 47,085,373
COP, CHFCLP Insured Health Facilities, Unihealth, Series A, AMBAC Insured,
Pre-Refunded, ETM, 5.75%, 10/01/25 ......................................................... 24,545,000 28,439,064
COP, CHFCLP Insured, ETM, 5.90%, 8/01/21 .................................................... 4,000,000 4,467,320
COP, Familiesfirst Inc., CHFCLP Insured, Pre-Refunded, 7.25%, 12/01/22 ...................... 5,120,000 5,269,658
COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/15 .............................. 5,365,000 5,557,711
COP, Gemological Institute, Connie Lee Insured, 6.00%, 5/01/20 .............................. 3,775,000 3,910,598
COP, Salk Institute, Connie Lee Insured, 6.20%, 7/01/24 ..................................... 7,065,000 7,248,337
COP, Southern California Development Corp., 6.10%, 12/01/15 ................................. 2,255,000 2,398,689
COP, Sutter Health Obligated Group, MBIA Insured, 5.50%, 8/15/22 ............................ 25,520,000 26,649,005
COP, Triad Health Care, CHFCLP Insured, Refunding, ETM, 6.25%, 8/01/06 ...................... 1,040,000 1,095,994
East Campus Apartments LLC, Series A, 5.50%, 8/01/22 ........................................ 11,000,000 11,496,430
Insured Health Facility, Jewish Home, 5.50%, 11/15/33 ....................................... 20,400,000 21,122,976
Kaiser Permanente, Series A, 5.50%, 11/01/32 ................................................ 27,000,000 27,977,130
Los Angeles Orthopedic Hospital Foundation, AMBAC Insured, 5.75%, 6/01/30 ................... 10,000,000 10,711,900
Mission Community, California Mortgage Insured, 5.375%, 11/01/21 ............................ 7,670,000 8,110,488
Mission Community, California Mortgage Insured, 5.375%, 11/01/26 ............................ 9,755,000 10,158,857
Series B, 5.625%, 8/15/42 ................................................................... 51,000,000 52,813,050
Stovehaven Apartments Project, Series A, 5.875%, 7/01/32 .................................... 4,945,000 5,215,640
California Statewide CDA Water and Wastewater Revenue,
Pooled Financing Program, Series B, FSA Insured, 5.65%, 10/01/26 ............................ 5,000,000 5,468,500
Pooled Financing Project, Series A, FSA Insured, 5.25%, 10/01/24 ............................ 5,000,000 5,348,850
Pooled Financing Project, Series A, FSA Insured, 5.00%, 10/01/29 ............................ 3,000,000 3,078,300
California Statewide CDA,
COP, California Lutheran Homes, ETM, 5.75%, 11/15/15 ........................................ 5,000,000 5,444,250
COP, Catholic Healthcare West, 6.50%, 7/01/20 ............................................... 7,990,000 8,890,073
COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ....................................... 37,685,000 38,267,987
COP, FSA Insured, 5.50%, 8/15/31 ............................................................ 9,000,000 9,644,220
COP, Kaiser Permanente, ETM, 5.30%, 12/01/15 ................................................ 32,200,000 34,513,570
COP, MBIA Insured, 5.00%, 4/01/18 ........................................................... 7,000,000 7,389,830
COP, MBIA Insured, 5.125%, 4/01/23 .......................................................... 6,000,000 6,256,080
COP, St. Joseph Health System, Refunding, 5.125%, 7/01/17 ................................... 5,000,000 5,144,600
COP, St. Joseph Health System, Refunding, 5.25%, 7/01/21 .................................... 16,250,000 16,666,162
COP, The Internext Group, 5.375%, 4/01/17 ................................................... 10,770,000 10,979,476
COP, The Internext Group, 5.375%, 4/01/30 ................................................... 67,480,000 65,431,307
(a) Lease Revenue, Special Facilities, United Airlines, Series A, 5.70%, 10/01/33 ............... 61,325,000 23,440,868
MFHR, Borregas Court Project, Series J, GNMA Secured, 6.30%, 3/20/39 ........................ 7,422,000 8,057,546
MFHR, Series E, FNMA Insured, 6.40%, 6/01/28 ................................................ 8,000,000 8,284,800
Revenue, East Campus Apartments LLC, Series A, 5.625%, 8/01/34 .............................. 25,000,000 25,852,250
California Valley HFAR, Home Mortgage, MBIA Insured, 5.65%, 2/01/27 ........................... 12,325,000 12,607,735
Camarillo Community Development Commission Tax Allocation, Camarillo Corridor Project,
Refunding, AMBAC Insured, 5.00%, 9/01/36 ..................................................... 7,800,000 7,909,824
Semiannual Report | 27
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Camarillo COP, Capital Improvement Corp., ETM, 7.625%, 4/01/08 ................................ $ 2,055,000 $ 2,262,843
Campbell Housing Facility Revenue, San Tomas Gardens Project, Series A, 6.625%,
10/20/34 ..................................................................................... 5,615,000 5,701,639
Campbell RDA, Tax Allocation, Central Campbell Redevelopment Project, Series A, 6.00%,
10/01/33 ..................................................................................... 5,000,000 5,218,600
Camrosa Water District COP, Water System Improvement Projects, MBIA Insured, 6.00%,
1/15/20 ...................................................................................... 5,120,000 5,288,858
Capistrano Bay Park and Recreation District COP, Special Lease Finance, Series Q, 6.35%,
8/01/12 ...................................................................................... 2,800,000 2,842,924
Capistrano University School CFD Special Tax, Number 90-2 Talega,
5.875%, 9/01/33 ............................................................................. 5,820,000 5,840,428
6.00%, 9/01/33 .............................................................................. 7,100,000 7,340,832
Cathedral City PFAR, Tax Allocation, Redevelopment Projects, Refunding, Series A, MBIA
Insured, 5.70%, 8/01/24 ...................................................................... 11,210,000 11,787,763
Centinela Valley UHSD, GO, Refunding, Series A, MBIA Insured, 5.50%, 8/01/33 .................. 15,630,000 17,565,150
Central California Joint Powers Health Financing Authority COP, Community Hospitals of
Central California,
6.00%, 2/01/20 .............................................................................. 5,000,000 5,259,600
5.625%, 2/01/21 ............................................................................. 6,750,000 6,893,437
6.00%, 2/01/30 .............................................................................. 34,960,000 35,640,322
5.75%, 2/01/31 .............................................................................. 18,070,000 18,154,025
Cerritos PFAR, Tax Allocation Redevelopment Project, Series A, AMBAC Insured, 5.00%,
11/01/22 ..................................................................................... 6,675,000 7,181,432
Chaffey Community College District COP, Pre-Refunded, 7.40%, 11/01/14 ......................... 5,000,000 5,122,150
Chaffey UHSD, GO,
Series B, FGIC Insured, 5.00%, 8/01/25 ...................................................... 6,510,000 6,698,985
Series C, FSA Insured, 5.00%, 5/01/27 ....................................................... 6,980,000 7,160,782
Chico RDAR, COP, Insured Health Facilities, Sierra Sunrise Lodge,
6.80%, 2/01/11 .............................................................................. 3,395,000 3,408,105
6.75%, 2/01/21 .............................................................................. 2,800,000 2,810,752
Children's Trust Fund Tobacco Settlement Revenue, Asset-Backed Bonds, Refunding,
5.50%, 5/15/39 .............................................................................. 7,210,000 6,265,490
5.625%, 5/15/43 ............................................................................. 25,500,000 22,195,965
Chula Vista COP, Cops Phase I, MBIA Insured, 5.00%, 3/01/34 ................................... 10,360,000 10,440,186
Chula Vista IDR,
Adjustment, San Diego Gas and Electric Co., Series B, 5.50%, 12/01/21 ....................... 14,000,000 14,586,600
San Diego Gas and Electric Co., Series A, 5.30%, 7/01/21 .................................... 8,500,000 8,904,260
Claremont RDA, Tax Allocation, Consolidated Redevelopment Project, Refunding, 5.50%,
8/01/23 ...................................................................................... 4,950,000 5,214,676
Clayton 1915 Act, Limited Obligation, Contra Costa County, Oakhurst Country Club,
8.30%, 9/02/05 .............................................................................. 45,000 46,441
8.35%, 9/02/06 .............................................................................. 35,000 36,500
8.35%, 9/02/07 .............................................................................. 50,000 52,019
8.375%, 9/02/08 ............................................................................. 50,000 52,012
8.375%, 9/02/09 ............................................................................. 60,000 62,374
8.40%, 9/02/10 .............................................................................. 10,000 10,395
Colton Joint USD, GO, Election of 2001, Series B, FGIC Insured, 5.00%, 8/01/27 ................ 7,000,000 7,202,090
Colusa County COP, ABAG Finance Corp., Series B, 7.00%, 2/01/18 ............................... 1,555,000 1,581,917
28 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Commerce Joint Powers Financing Authority Lease Revenue, Community Center, Series A,
6.25%, 10/01/22 .............................................................................. $ 4,000,000 $ 4,243,560
Commerce Joint Powers Financing Authority Revenue, Redevelopment Projects, Series B,
5.125%, 8/01/35 .............................................................................. 8,310,000 8,406,396
Commerce Refuse to Energy Authority Revenue, Refunding, Series 1994, 8.75%,
7/01/10 ...................................................................................... 21,390,000 22,289,663
Compton COP, Civic Center and Capital Improvement, Refunding, Series A, 5.50%,
9/01/15 ...................................................................................... 5,000,000 5,263,200
Compton CRDA, Tax Allocation, Series 1, FSA Insured, 6.75%, 8/01/13 ........................... 5,070,000 5,351,993
Contra Costa Community College District GO, Election 2002, FGIC Insured, 5.00%,
8/01/26 ...................................................................................... 11,700,000 12,019,293
Contra Costa County COP, Merrithew Memorial Hospital Project, Refunding, MBIA Insured,
5.50%, 11/01/22 .............................................................................. 11,000,000 11,796,180
Contra Costa Transportation Authority Revenue, Sales Tax, Series A,
ETM, 6.875%, 3/01/07 ........................................................................ 13,900,000 14,733,861
FGIC Insured, ETM, 6.50%, 3/01/09 ........................................................... 1,000,000 1,132,840
Corcoran Hospital District Revenue, Series A, 6.55%, 7/01/12 .................................. 885,000 888,611
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 .................. 15,000,000 20,007,600
Corona-Norco USD, Lease Revenue, Land Acquisition, Series A, FSA Insured, 6.00%,
4/15/29 ...................................................................................... 18,435,000 19,642,677
Coronado CDA, Tax Allocation, Coronado Community Development Project, Refunding,
MBIA Insured, 5.00%, 9/01/34 ................................................................. 6,115,000 6,242,498
CSAC Finance Corp. COP, Sutter County, Health Facilities Program, 7.80%, 1/01/21 .............. 2,100,000 2,129,778
Cudahy RDA Tax Allocation, Refunding, Series C, 6.00%, 10/01/27 ............................... 6,365,000 6,556,014
Culver City USD, GO, MBIA Insured, 5.75%, 8/01/36 ............................................. 5,000,000 5,426,500
Delano University High School District GO, Refunding, Series A, MBIA Insured, 5.15%,
2/01/32 ...................................................................................... 8,520,000 9,160,789
Desert Hot Springs RDA, Tax Allocation, Redevelopment Project No. 2, Series A, 6.625%,
9/01/20 ...................................................................................... 1,120,000 1,132,130
Desert Sands USD,
COP, Capital Projects, FSA Insured, 6.45%, 3/01/20 .......................................... 6,200,000 6,452,774
GO, Election of 2001, FSA Insured, 5.00%, 6/01/29 ........................................... 16,425,000 16,841,374
Duarte COP,
Refunding, Series A, 5.25%, 4/01/24 ......................................................... 5,000,000 4,928,000
Series A, 5.25%, 4/01/19 .................................................................... 5,000,000 5,051,950
Series A, 5.25%, 4/01/31 .................................................................... 12,500,000 12,033,000
Eastern Municipal Water District Water and Sewer Revenue COP, Series B, FGIC Insured,
5.00%, 7/01/30 ............................................................................... 31,370,000 31,923,994
El Cajon RDA, Tax Allocation, Redevelopment Project, Refunding, AMBAC Insured, 5.35%,
10/01/22 ..................................................................................... 10,285,000 10,689,612
El Camino Hospital District Revenue, Refunding, Series A, ETM, 7.25%, 8/15/09 ................. 6,820,000 7,773,163
El Centro Financing Authority Hospital Revenue, El Centro Regional Medical Center Project,
5.25%, 3/01/26 ............................................................................... 8,500,000 8,694,310
El Dorado County Special Tax,
CFD No. 1992, Series 1, 5.875%, 9/01/24 ..................................................... 4,475,000 4,634,444
CFD No. 1992-1, 6.25%, 9/01/29 .............................................................. 19,780,000 20,526,102
CFD No. 1992-1, 6.00%, 9/01/31 .............................................................. 8,850,000 9,149,838
El Rancho USD, GO, Election of 2003, Series A, FGIC Insured, 5.00%, 8/01/28 ................... 5,635,000 5,776,044
Semiannual Report | 29
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Emeryville PFA Revenue, Shellmound Park Redevelopment and Housing Project, Series B,
MBIA Insured, 5.00%, 9/01/28 ................................................................. $ 10,000,000 $ 10,173,400
Emeryville PFAR, Housing Increment Loan, 6.20%, 9/01/25 ....................................... 3,115,000 3,241,002
Escondido COP, Wastewater Project, Refunding, AMBAC Insured,
5.70%, 9/01/26 .............................................................................. 13,465,000 14,392,738
5.80%, 9/01/26 .............................................................................. 400,000 433,764
Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A,
MBIA Insured, 5.00%, 3/01/33 ................................................................. 8,715,000 8,878,319
Fontana RDA, Tax Allocation, Jurupa Hills Redevelopment Project, Refunding, Series A,
5.50%, 10/01/27 .............................................................................. 12,500,000 12,811,625
Fontana USD, GO, Convertible Capital Appreciation, Series D, FGIC Insured, 5.80%,
5/01/17 ...................................................................................... 5,000,000 5,722,850
Foothill/Eastern Corridor Agency Toll Road Revenue,
Refunding, 5.75%, 1/15/40 ................................................................... 395,510,000 398,674,080
senior lien, Series A, 5.00%, 1/01/35 ....................................................... 15,955,000 14,652,753
senior lien, Series A, Pre-Refunded, 6.50%, 1/01/32 ......................................... 95,675,000 105,362,094
senior lien, Series A, Pre-Refunded, 6.00%, 1/01/34 ......................................... 123,695,000 134,869,606
Fortuna and Susanville Cities COP, Series B, 7.375%, 9/01/17 .................................. 1,470,000 1,505,118
Golden State Tobacco Securitization Corp., Tobacco Settlement Revenue,
5.50%, 6/01/33 .............................................................................. 15,000,000 15,552,600
5.625%, 6/01/38 ............................................................................. 138,000,000 143,989,200
5.50%, 6/01/43 .............................................................................. 57,000,000 58,736,220
Series 2003 A-1, 6.75%, 6/01/39 ............................................................. 5,290,000 5,111,145
Hartnell Community College District GO, Election of 2002, Series A, MBIA Insured, 5.00%,
8/01/27 ...................................................................................... 5,020,000 5,152,930
Hawaiian Gardens RDA, Tax Allocation, Project No. 1, Refunding, ETM, 8.00%,
12/01/10 ..................................................................................... 4,775,000 5,556,476
Helix Water District COP, Installment Purchase, Series A, FSA Insured, 5.25%, 4/01/24 ......... 8,925,000 9,344,475
Hesperia PFAR, Highway and Street Improvement, Series A, 6.10%, 10/01/10 ...................... 1,600,000 1,648,000
Huntington Beach UHSD, GO, Election of 2004, FSA Insured, 5.00%,
8/01/27 ..................................................................................... 3,530,000 3,631,911
8/01/29 ..................................................................................... 11,000,000 11,282,590
Industry COP, Refunding, 6.625%, 6/01/06 ...................................................... 5,940,000 6,204,449
Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing
Project, Series B, FSA Insured,
ETM, 6.25%, 8/01/11 ......................................................................... 5,000,000 5,643,600
Pre-Refunded, 6.00%, 8/01/16 ................................................................ 5,000,000 5,447,650
Intercommunity Hospital Financing Authority COP, Northbay Healthcare System, Refunding,
5.25%, 11/01/19 .............................................................................. 10,550,000 10,830,630
Irvine 1915 Act GO,
AD No. 00-18-Group Four, 5.375%, 9/02/26 .................................................... 2,500,000 2,498,275
AD No. 03-19-Group Two, 5.45%, 9/02/23 ...................................................... 2,000,000 2,010,540
AD No. 03-19-Group Two, 5.50%, 9/02/29 ...................................................... 4,295,000 4,301,271
Irwindale CRDA, Tax Allocation,
Individual Development Project, Pre-Refunded, 6.60%, 8/01/18 ................................ 1,630,000 1,723,513
Individual Development Project, Pre-Refunded, 6.625%, 8/01/26 ............................... 9,100,000 9,713,795
senior lien, Refunding, FSA Insured, 5.75%, 8/01/26 ......................................... 10,220,000 11,075,005
John C. Fremont Hospital District Health Facilities Revenue, 6.75%, 6/01/23 ................... 1,760,000 1,806,288
30 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Kaweah Delta Health Care District GO, Election of 2003, MBIA Insured, 5.00%,
8/01/34 ...................................................................................... $ 16,500,000 $ 16,742,055
Kern County Board of Education COP, Refunding, Series A, MBIA Insured, 5.20%,
5/01/28 ...................................................................................... 8,685,000 9,046,557
Kern County Housing Authority SFMR, Series A, GNMA Secured,
7.55%, 12/01/07 ............................................................................. 10,000 10,039
7.65%, 12/01/12 ............................................................................. 15,000 15,104
7.70%, 12/01/23 ............................................................................. 70,000 70,612
Kern High School District GO, Election of 1990, Series E, FGIC Insured, 5.125%,
8/01/33 ...................................................................................... 5,275,000 5,457,779
La Mirada RDA, Tax Allocation, Housing, Refunding, Series A, FSA Insured, 5.875%,
8/15/25 ...................................................................................... 7,100,000 7,509,883
La Mirada SFMR, MBS, Series A, 7.65%, 4/01/24 ................................................. 480,000 495,494
La Palma Community Development Commission Tax Allocation, La Palma Community
Development Project No. 1, 6.10%, 6/01/22 .................................................... 2,355,000 2,388,347
La Quinta RDA Tax Allocation Revenue, Redevelopment Project Area No. 1, AMBAC Insured,
5.125%, 9/01/32 .............................................................................. 10,825,000 11,159,601
Laguna Beach USD, CFD Special Tax No. 98-1, 5.375%, 9/01/34 ................................... 5,375,000 5,362,799
Lake Elsinore PFA, Tax Allocation Revenue,
Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.80%, 9/01/25 ................. 6,750,000 6,839,235
Series A, 5.50%, 9/01/30 .................................................................... 15,550,000 15,712,964
Lancaster RDA,
RMR, Los Angeles County, Series A, ETM, 10.125%, 9/01/16 .................................... 5,000 7,941
Tax Allocation, Combined Redevelopment Project Areas, Sheriff's Program, MBIA Insured,
5.70%, 8/01/23 ............................................................................. 13,140,000 13,457,988
Lemon Grove CDA, Tax Allocation, 1998 Refunding, 5.75%, 8/01/28 ............................... 8,115,000 8,480,986
Lemoore Financing Authority Lease Revenue, Water and Wastewater System Improvement
Project, AMBAC Insured, 6.20%, 12/01/20 ...................................................... 4,400,000 4,522,188
Local Medical Facilities Financing Authority COP, Insured California Health Clinic Project,
7.55%, 3/01/20 ............................................................................... 3,975,000 3,991,258
Local Medical Facilities Financing Authority II COP, Insured California Health Clinic Project,
7.55%, 11/01/20 .............................................................................. 2,010,000 2,019,105
Local Medical Facilities Financing Authority III COP, Insured California Health Clinic Project,
6.90%, 7/01/22 ............................................................................... 2,590,000 2,601,007
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Refunding, Series A,
AMBAC Insured, 6.55%, 12/01/18 ............................................................... 11,095,000 11,176,437
Long Beach Bond Finance Authority Lease Revenue, Aquarium of The South Pacific,
Refunding, AMBAC Insured, 5.00%, 11/01/26 .................................................... 20,000,000 20,560,800
Long Beach California Board Finance Authority Lease Revenue, Temple and Willow Facility,
Refunding, Series B, MBIA Insured, 5.00%, 10/01/27 ........................................... 14,935,000 15,299,563
Long Beach Harbor Revenue, MBIA Insured,
5.375%, 5/15/20 ............................................................................. 12,000,000 12,415,560
5.25%, 5/15/25 .............................................................................. 10,500,000 10,730,370
Long Beach HMR, Series A, 9.60%, 11/01/14 ..................................................... 230,000 232,774
Los Angeles Community College District GO, Series A, MBIA Insured, 5.00%, 6/01/26 ............. 69,275,000 70,959,075
Los Angeles COP, Department of Public Social Services, Series A, AMBAC Insured, 5.50%,
8/01/24 ..................................................................................... 4,000,000 4,361,600
8/01/31 ..................................................................................... 5,000,000 5,389,800
Semiannual Report | 31
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Los Angeles County COP,
Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%, 11/01/33 ........................ $ 8,000,000 $ 8,311,120
Insured Health Clinic Program, Refunding, Series F, California Mortgage Insured, 5.875%,
1/01/21 .................................................................................... 7,520,000 7,969,546
Marina del Rey, Series A, 6.50%, 7/01/08 .................................................... 17,820,000 18,071,262
Series 1992, 6.625%, 7/01/22 ................................................................ 1,000,000 1,004,120
Los Angeles County Infrastructure and Economic Development Bank Revenue, County
Department Public Social Services, AMBAC Insured, 5.00%, 9/01/35 ............................. 7,765,000 7,941,265
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 13,304,850
First Tier, Refunding, Senior Series A, MBIA Insured, 5.25%, 7/01/27 ........................ 7,840,000 8,086,019
Refunding, Senior Series A, FSA Insured, 5.00%, 7/01/24 ..................................... 5,000,000 5,168,100
Second Tier, MBIA Insured, Pre-Refunded, 6.00%, 7/01/26 ..................................... 9,200,000 9,973,996
Los Angeles County Public Works Financing Authority Revenue, Multiple Capital Facilities
Project, Series B, AMBAC Insured, 5.125%, 12/01/29 ........................................... 26,905,000 27,674,752
Los Angeles County Transportation Commission Lease Revenue, FSA Insured, 7.375%,
12/15/06 ..................................................................................... 5,529,000 5,564,330
Los Angeles CRDA,
Financing Authority Revenue, Pooled Financing, Beacon Normandie, Series B, 6.625%,
9/01/14 ..................................................................................... 925,000 928,358
MFHR, Angelus Plaza Project, Refunding, Series A, 6.40%, 7/01/23 ............................ 5,610,000 5,663,295
Tax Allocation, Series G, ETM, 6.75%, 7/01/10 ............................................... 8,060,000 8,156,075
Los Angeles Department of Airports Revenue, Ontario International Airport, Series A, FGIC
Insured, 6.00%, 5/15/26 ...................................................................... 10,000,000 10,558,500
Los Angeles Harbor Department Revenue,
Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 .......................................... 15,000,000 15,435,450
Series B, 6.125%, 8/01/18 ................................................................... 24,810,000 26,578,457
Series B, 6.20%, 8/01/22 .................................................................... 59,835,000 64,156,882
Series B, 5.375%, 11/01/23 .................................................................. 7,460,000 7,670,447
Series B, MBIA Insured, 6.20%, 8/01/25 ...................................................... 35,690,000 38,261,464
Los Angeles MFHR, Refunding, Senior Series G, FSA Insured, 5.75%, 1/01/24 ..................... 3,800,000 3,842,826
Los Angeles USD,
COP, Administration Building Project, Series B, AMBAC Insured, 5.00%, 10/01/31 .............. 28,210,000 28,709,035
GO, Series A, MBIA Insured, 5.00%, 1/01/28 .................................................. 170,250,000 174,477,307
Series B, FGIC Insured, 5.00%, 7/01/23 ...................................................... 5,000,000 5,206,000
Los Angeles Wastewater System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 6/01/32 ........................................... 6,000,000 6,110,400
Refunding, Series A, FSA Insured, 5.00%, 6/01/32 ............................................ 17,500,000 17,856,300
Series A, FGIC Insured, 5.00%, 6/01/28 ...................................................... 8,245,000 8,427,709
Series A, FSA Insured, 4.875%, 6/01/29 ...................................................... 34,335,000 34,465,130
Los Angeles Water and Power Revenue, Power System,
Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 ........................................... 2,000,000 2,065,380
Series A, 5.25%, 7/01/24 .................................................................... 5,000,000 5,135,000
Series B, FSA Insured, 5.00%, 7/01/28 ....................................................... 10,575,000 10,835,991
Los Angeles Water and Power Revenue,
Refunding, Series A, Sub Series A-2, 5.00%, 7/01/30 ......................................... 7,000,000 7,078,540
Series A Sub Series A-2, MBIA Insured, 5.00%, 7/01/23 ....................................... 6,550,000 6,856,343
32 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Lynwood PFA, Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.90%,
9/01/28 ...................................................................................... $ 6,470,000 $ 7,234,236
M-S-R Public Power Agency San Juan Project Revenue, Series E, MBIA Insured, 6.00%,
7/01/22 ...................................................................................... 6,330,000 6,402,099
Madera County COP, Valley Children's Hospital, MBIA Insured,
5.00%, 3/15/23 .............................................................................. 8,500,000 8,775,570
5.75%, 3/15/28 .............................................................................. 27,500,000 28,473,500
Madera USD, COP, 6.50%, 12/01/07 .............................................................. 1,030,000 1,037,148
Madera-Chowchilla Power Authority Hydroelectric Revenue, Refunding, 8.00%, 1/01/14 ............ 2,060,000 1,988,951
Manhattan Beach COP, Metlox Public Improvements, 5.00%, 1/01/33 ............................... 5,575,000 5,645,970
Manteca Financing Authority Sewer Revenue, Series A, MBIA Insured, 5.00%, 12/01/33 ............ 4,940,000 5,045,222
Marysville Hospital Revenue, Fremont Rideout Health, Refunding, Series A, AMBAC Insured,
5.00%, 1/01/22 ............................................................................... 5,000,000 5,259,300
Metropolitan Water District Southern California Waterworks Revenue,
Series A, 5.00%, 7/01/26 .................................................................... 10,720,000 10,976,958
Series A, Pre-Refunded, 5.00%, 7/01/26 ...................................................... 38,605,000 42,375,550
Series B1, FGIC Insured, 5.00%, 10/01/33 .................................................... 5,000,000 5,105,250
Series C, 5.00%, 7/01/37 .................................................................... 26,780,000 26,986,474
Milpitas RDA, Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured,
5.40%, 1/15/17 .............................................................................. 12,155,000 13,912,613
5.50%, 1/15/24 .............................................................................. 11,790,000 13,388,724
Milpitas USD, FGIC Insured, 5.875%, 9/01/24 ................................................... 11,970,000 13,420,165
Modesto Irrigation District COP, Refunding and Capital Improvements, Series B, 5.30%,
7/01/22 ...................................................................................... 4,475,000 4,490,662
Modesto PFA Lease Revenue, Capital Improvements and Refinancing Project, AMBAC Insured,
5.125%, 9/01/33 .............................................................................. 5,535,000 5,678,190
Modesto Schools Infrastructure Financing Agency Special Tax, AMBAC Insured, 5.20%,
9/01/37 ...................................................................................... 4,315,000 4,463,350
Mojave Water Agency COP, Supplemental Water Entitlement, MBIA Insured, 5.55%,
9/01/22 ...................................................................................... 10,005,000 10,948,972
Monterey County COP, Natividad Medical Center Improvement Project, Series C,
MBIA Insured, Pre-Refunded,
6.50%, 8/01/15 .............................................................................. 3,500,000 3,713,920
6.60%, 8/01/23 .............................................................................. 13,250,000 14,070,705
Moreno Valley Special Tax, Towngate Community Facilities 87-1, Refunding, Series A,
FSA Insured, 5.875%, 12/01/15 ................................................................ 5,830,000 5,871,451
Moreno Valley USD, COP, Refunding, FSA Insured,
5.60%, 3/01/17 .............................................................................. 5,000,000 5,183,150
5.70%, 3/01/27 .............................................................................. 15,000,000 15,527,700
Murrieta COP, Road Improvement Project, 6.00%, 4/01/27 ........................................ 8,600,000 8,998,094
Murrieta Valley USD, PFA, Special Tax Revenue, Series A, FGIC Insured, 5.00%, 9/01/37 ......... 6,975,000 7,078,160
Napa Housing Facility Revenue, Napa Park Apartments, Series A, GNMA Secured, 6.35%,
6/20/35 ...................................................................................... 6,125,000 6,303,911
Napa Mortgage Revenue, Creekside II Apartments Project, Refunding, Series A, MBIA Insured,
6.625%, 7/01/25 .............................................................................. 2,000,000 2,024,980
Needles PFAR, Tax Allocation, Redevelopment Project, Series A, 7.50%, 8/15/22 ................. 1,580,000 1,586,620
Nevada Power Authority Revenue, Bowman Hydroelectric Project, Refunding, 7.50%,
5/01/13 ...................................................................................... 1,670,000 1,705,604
Semiannual Report | 33
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Norco RDA, Tax Allocation, Area No. 1, Refunding, MBIA Insured, 5.125%, 3/01/30 ............... $ 8,515,000 $ 8,727,875
North City West School Facilities Financing Authority Special Tax, CFD No. 1, Series C,
AMBAC Insured, 5.30%,
9/01/22 ..................................................................................... 10,000,000 10,685,200
9/01/27 ..................................................................................... 9,900,000 10,403,415
Northern California Power Agency Multiple Capital Facilities Revenue, Refunding, Series A,
AMBAC Insured, 5.00%, 8/01/25 ................................................................ 19,250,000 19,820,185
Northern California Public Power Agency Revenue, Hydroelectric Project No. 1, Refunding,
Series A, MBIA Insured,
5.125%, 7/01/23 ............................................................................. 7,420,000 7,752,342
5.00%, 7/01/28 .............................................................................. 15,975,000 16,292,902
5.20%, 7/01/32 .............................................................................. 43,675,000 45,296,653
Oakland Joint Powers Financing Authority Lease Revenue, Oakland Administration Buildings,
AMBAC Insured, Pre-Refunded, 5.75%, 8/01/26 .................................................. 24,895,000 27,178,618
Oakland Revenue, 1800 Harrison Foundation,
Series A, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ....................................... 13,825,000 15,973,405
Series B, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ....................................... 13,470,000 15,563,238
Oceanside Building Authority Revenue, Refunding, 7.75%, 11/01/04 .............................. 830,000 832,946
Oceanside COP, Oceanside Civic Center Project, Refunding, MBIA Insured, 5.75%,
8/01/15 ...................................................................................... 5,000,000 5,277,200
Oceanside USD, GO, Election of 2000, Series D, FGIC Insured, 5.00%,
8/01/29 ..................................................................................... 5,755,000 5,902,846
8/01/33 ..................................................................................... 5,590,000 5,715,943
Olivenhain Municipal Water District 1915 Act, AD No. 96-1, MBIA Insured, 5.45%,
9/02/27 ...................................................................................... 10,975,000 11,334,212
Orange County Airport Revenue, Refunding, MBIA Insured, 5.625%, 7/01/12 ....................... 5,000,000 5,490,300
Orange County CFD Special Tax, Number 03 1, Ladera Ranch, Series A,
5.50%, 8/15/24 .............................................................................. 1,100,000 1,114,542
5.60%, 8/15/28 .............................................................................. 3,250,000 3,301,935
5.625%, 8/15/34 ............................................................................. 5,000,000 5,081,550
Orange County Recovery COP, Series A, MBIA Insured, 5.80%, 7/01/16 ............................ 10,380,000 11,326,345
Orange County Recovery, Refunding, Series A, MBIA Insured, 5.75%, 6/01/15 ..................... 79,010,000 82,798,529
Orange County Water District COP, Series B, MBIA Insured, 5.00%, 8/15/28 ...................... 12,950,000 13,275,433
Orange County Water District Revenue, COP, Series B, MBIA Insured, 5.00%, 8/15/34 ............. 13,575,000 13,856,681
Oxnard Harbor District Revenue, 5.60%, 8/01/19 ................................................ 10,820,000 11,145,682
Palm Desert Financing Authority Lease Revenue, Blythe County Administrative Project,
6.625%, 8/01/26 .............................................................................. 5,020,000 5,549,309
Palm Desert Financing Authority Tax Allocation Revenue, Project Area No. 1,
Refunding, MBIA Insured, 5.625%, 4/01/23 .................................................... 13,000,000 14,086,670
Series A, MBIA Insured, Pre-Refunded, 5.95%, 4/01/24 ........................................ 15,075,000 15,717,346
Palm Springs COP, Multiple Capital Facilities Project, Refunding, AMBAC Insured, 5.75%,
4/01/27 ...................................................................................... 11,570,000 12,606,788
Palmdale CRDA, Tax Allocation,
Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/34 ....................... 6,980,000 7,100,963
Series A, MBIA Insured, 5.75%, 9/01/27 ...................................................... 10,435,000 11,424,968
Palomar Community College District COP, Building Acquisition Project, Connie Lee Insured,
Pre-Refunded, 6.75%, 10/01/19 ................................................................ 4,210,000 4,294,200
Pasadena COP, Art Center College of Design, Connie Lee Insured, 6.50%, 12/01/19 ............... 8,250,000 8,482,897
34 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Peralta Community College District GO, Election of 2000, Series C, MBIA Insured, 5.00%,
8/01/34 ...................................................................................... $ 6,920,000 $ 7,048,643
Peralta Community College GO, Election of 2000, Series C, MBIA Insured, 5.00%,
8/01/31 ...................................................................................... 4,105,000 4,200,729
Perris PFAR,
Special Tax, Series A, ETM, 7.60%, 9/01/05 .................................................. 80,000 81,821
Tax Allocation, Series A, 5.75%, 10/01/31 ................................................... 5,000,000 5,231,950
Perris Special Tax, CFD No. 91-1, 8.75%, 9/01/21 .............................................. 5,395,000 5,457,258
Petaluma Community Development Commission MFR, Park Lane Apartments, Series A,
6.875%, 11/20/34 ............................................................................. 4,780,000 4,882,005
Pittsburg PFA, Water Revenue, MBIA Insured, 5.50%, 6/01/27 .................................... 2,980,000 3,177,812
Placer Hills Union Elementary School District COP, Convertible Capital Appreciation, Series B,
7.125%, 3/01/19 .............................................................................. 510,000 522,174
Pomona PFAR, Refunding, Series P, 5.75%, 10/01/15 ............................................. 6,490,000 6,817,421
Pomona RDA, Tax Allocation, Southwest Pomona Redevelopment Project, ETM, 11.45%,
1/01/07 ...................................................................................... 5,755,000 6,400,826
Port Hueneme RDA, Tax Allocation, R-76 Project, Refunding, 6.50%, 5/01/23 ..................... 2,725,000 2,759,308
Port of Oakland Revenue,
Series J, MBIA Insured, 5.50%, 11/01/26 ..................................................... 7,000,000 7,481,250
Series L, FGIC Insured, 5.375%, 11/01/27 .................................................... 5,000,000 5,231,200
Porterville COP, Infrastructure Financing Project, AMBAC Insured, 5.00%, 7/01/28 .............. 10,430,000 10,637,557
Poway COP, Royal Mobile Home Park Project, Refunding, FSA Insured,
5.875%, 8/01/15 ............................................................................. 6,250,000 6,597,563
6.00%, 8/01/20 .............................................................................. 5,400,000 5,668,488
6.00%, 8/01/28 .............................................................................. 15,000,000 15,745,800
Poway USD, GO, MBIA Insured, 5.00%, 8/01/27 ................................................... 5,020,000 5,152,930
Puerto Rico Commonwealth GO, Public Improvement, Series A,
5.125%, 7/01/31 ............................................................................. 95,185,000 96,722,238
Pre-Refunded, 5.00%, 7/01/27 ................................................................ 26,750,000 30,123,978
Pre-Refunded, 5.125%, 7/01/31 ............................................................... 47,740,000 53,886,048
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series A, MBIA Insured, 5.00%, 7/01/38 ...................................................... 116,975,000 119,599,919
Series B, MBIA Insured, 6.00%, 7/01/31 ...................................................... 13,000,000 15,218,450
Series B, Pre-Refunded, 6.00%, 7/01/39 ...................................................... 13,200,000 15,490,860
Series D, 5.375%, 7/01/36 ................................................................... 45,000,000 46,652,850
Series D, 5.75%, 7/01/41 .................................................................... 20,000,000 21,918,000
Series Y, 5.00%, 7/01/36 .................................................................... 63,000,000 63,552,510
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/28 ................................................................ 10,000,000 10,235,100
Puerto Rico Electric Power Authority Power Revenue, Series II, 5.25%, 7/01/31 ................. 48,000,000 49,731,360
Puerto Rico Electric Power Authority Revenue, Series DD, MBIA Insured, 5.00%,
7/01/28 ...................................................................................... 23,250,000 23,842,410
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Revenue, Cogen Facility, AES Puerto Rico Project, 6.625%, 6/01/26 ............................ 6,800,000 7,305,988
Puerto Rico PBA Revenue Guaranteed, Government Facilities, Series D,
5.375%, 7/01/33 ............................................................................. 26,510,000 27,483,712
Pre-Refunded, 5.375%, 7/01/33 ............................................................... 73,490,000 83,557,395
Semiannual Report | 35
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
5.50%, 8/01/29 .............................................................................. $ 35,760,000 $ 37,490,069
Pre-Refunded, 5.50%, 8/01/29 ................................................................ 104,235,000 119,038,455
Pre-Refunded, 5.75%, 8/01/30 ................................................................ 50,000,000 54,220,500
Rancho Cucamonga RDA, Tax Allocation, Rancho Redevelopment Project, Set-Aside Housing,
MBIA Insured, 5.25%, 9/01/21 ................................................................. 8,330,000 8,756,913
Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center,
5.625%, 7/01/34 .............................................................................. 10,000,000 10,289,900
Redlands USD, COP, Series A, FSA Insured,
6.15%, 9/01/11 .............................................................................. 420,000 421,428
6.25%, 9/01/27 .............................................................................. 4,160,000 4,174,352
Redondo Beach PFAR, Wastewater System Financing Project, Series A, MBIA Insured, 5.00%,
5/01/34 ...................................................................................... 5,060,000 5,152,294
Rialto COP, FSA Insured, 5.75%, 2/01/22 ....................................................... 2,715,000 2,976,373
Richmond Joint Powers Financing Authority Revenue, Lease, Series A, MBIA Insured, 5.00%,
2/01/26 ..................................................................................... 6,500,000 6,647,485
2/01/31 ..................................................................................... 7,000,000 7,063,560
Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital Project,
Series A, 6.50%, 6/01/12 ..................................................................... 20,125,000 23,674,648
Riverside County COP,
Family Law Court Project, MBIA Insured, 5.75%, 11/01/27 ..................................... 5,295,000 5,810,892
Historic Courthouse, MBIA Insured, 5.875%, 11/01/27 ......................................... 6,000,000 6,615,780
Riverside County Flood Control and Water Conservation District Elsinore Valley AD, Zone 3,
7.875%,
9/01/05 ..................................................................................... 190,000 200,298
9/01/06 ..................................................................................... 205,000 227,035
9/01/07 ..................................................................................... 225,000 259,162
9/01/08 ..................................................................................... 240,000 286,918
9/01/09 ..................................................................................... 260,000 317,408
9/01/10 ..................................................................................... 280,000 345,674
9/01/11 ..................................................................................... 305,000 385,572
9/01/12 ..................................................................................... 325,000 415,457
9/01/13 ..................................................................................... 350,000 453,803
9/01/14 ..................................................................................... 380,000 500,536
9/01/15 ..................................................................................... 410,000 544,127
9/01/16 ..................................................................................... 440,000 591,734
9/01/17 ..................................................................................... 475,000 636,747
Riverside County PFA,
COP, 5.75%, 5/15/19 ......................................................................... 3,500,000 3,574,935
COP, 5.80%, 5/15/29 ......................................................................... 14,230,000 14,486,709
Tax Allocation Revenue, Redevelopment Projects, Series A, 5.625%, 10/01/33 .................. 11,225,000 11,492,043
Riverside County RDA, Tax Allocation, Jurupa Valley Project Area, AMBAC Insured,
5.00%, 10/01/28 ............................................................................. 14,035,000 14,340,682
5.125%, 10/01/35 ............................................................................ 17,035,000 17,460,194
Riverside County SFMR,
Series A, GNMA Secured, 7.20%, 10/01/24 ..................................................... 170,000 174,925
Series B, GNMA Secured, 7.60%, 11/01/19 ..................................................... 35,000 36,109
Rohnert Park HFAR, Rancho Feliz Mobile Home Park, FSA Insured, Pre-Refunded, 5.375%,
12/01/26 ..................................................................................... 8,380,000 8,908,108
36 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Roseville 1915 Act,
North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/05 ........................ $ 150,000 $ 154,200
North Roseville Rocklin District No. 88-3, Refunding, 8.20%, 9/02/06 ........................ 160,000 166,762
North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/07 ........................ 180,000 187,123
North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/08 ........................ 190,000 197,551
North Roseville Rocklin District No. 88-3, Refunding, 8.25%, 9/02/09 ........................ 160,000 166,251
Rocky Ridge Harding District No. 88-4, Refunding, 8.20%, 9/02/05 ............................ 320,000 328,960
Roseville Electric System Revenue COP, FSA Insured, 5.00%,
2/01/29 ..................................................................................... 10,000,000 10,208,500
2/01/34 ..................................................................................... 17,000,000 17,303,110
Sacramento 1915 Act, Special Assessment, North Natomas AD No. 88-3,
8.20%, 9/02/10 .............................................................................. 760,000 787,641
8.20%, 9/02/11 .............................................................................. 1,685,000 1,745,525
8.25%, 9/02/12 .............................................................................. 2,180,000 2,258,088
8.25%, 9/02/13 .............................................................................. 2,360,000 2,444,346
8.25%, 9/02/14 .............................................................................. 2,545,000 2,634,380
Sacramento City Financing Authority Revenue,
Capital Improvements, 5.625%, 6/01/30 ....................................................... 6,000,000 6,435,900
Capital Improvement, AMBAC Insured, 5.00%, 12/01/33 ......................................... 7,520,000 7,680,176
Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/32 ............................... 26,250,000 26,678,925
Series 1991, 6.60%, 11/01/05 ................................................................ 1,300,000 1,305,031
Series 1991, 6.70%, 11/01/11 ................................................................ 920,000 923,625
Sacramento City USD, GO, Election of 1999, Series B, FGIC Insured, 5.00%, 7/01/30 ............. 5,250,000 5,354,213
Sacramento County Airport System Revenue, Series A, MBIA Insured, 5.90%, 7/01/24 .............. 6,875,000 7,391,863
Sacramento County COP, Public Facilities Project,
Coroner/Crime Laboratory, AMBAC Insured, 6.40%, 10/01/19 .................................... 11,000,000 11,220,000
Coroner/Crime Laboratory, AMBAC Insured, 6.40%, 10/01/24 .................................... 29,500,000 30,090,000
Sacramento County Sanitation District Financing Authority Revenue, AMBAC Insured,
5.625%, 12/01/30 ............................................................................. 5,000,000 5,452,600
Sacramento MUD, Electric Revenue,
Refunding, Series T, FGIC Insured, 5.00%, 5/15/30 ........................................... 9,095,000 9,310,642
Sacramento MUD, Series R, MBIA Insured, 5.00%, 8/15/33 ...................................... 4,500,000 4,593,375
Series J, AMBAC Insured, 5.60%, 8/15/24 ..................................................... 10,215,000 11,139,560
Series N, MBIA Insured, 5.00%, 8/15/28 ...................................................... 63,500,000 64,785,240
Sub. lien, Refunding, 8.00%, 11/15/10 ....................................................... 16,110,000 16,183,784
Sacramento USD, COP, Refunding, MBIA Insured, 5.00%, 3/01/31 .................................. 6,000,000 6,114,900
Saddleback Valley USD, GO, FSA Insured, 5.00%,
8/01/27 ..................................................................................... 4,680,000 4,815,112
8/01/29 ..................................................................................... 4,335,000 4,446,366
Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, Refunding,
FSA Insured, 5.25%, 9/01/28 .................................................................. 6,800,000 7,082,676
San Bernardino 1915 Act, Special Assessment, AD No. 961, Refunding, 7.75%,
9/02/05 ...................................................................................... 915,000 928,341
San Bernardino County COP,
Medical Center Financing Project, Refunding, 5.00%, 8/01/26 ................................. 13,045,000 13,059,871
Medical Center Financing Project, Series A, MBIA Insured, 5.50%, 8/01/22 .................... 40,830,000 42,626,112
West Valley Detention Center Project, MBIA Insured, 6.20%, 11/01/25 ......................... 9,275,000 9,490,829
Semiannual Report | 37
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
San Bernardino County Housing Authority MFMR,
Sequoia Plaza Mobil Home, GNMA Secured, 6.75%, 4/20/41 ...................................... $ 6,920,000 $ 7,762,925
Series A, GNMA Secured, 6.70%, 3/20/43 ...................................................... 3,345,000 3,795,605
San Bernardino County SFMR,
GNMA Secured, 7.50%, 12/01/07 ............................................................... 5,000 5,116
GNMA Secured, 7.65%, 6/01/23 ................................................................ 25,000 25,219
Series B, 5.40%, 5/01/25 .................................................................... 55,000 55,255
San Bernardino Joint Powers Financing Authority Lease Revenue, City Hall Project, Refunding,
MBIA Insured, 5.70%, 1/01/23 ................................................................. 6,315,000 6,792,225
San Bernardino Joint Powers Financing Authority Revenue,
COP, Police Station Financing Project, Pre-Refunded, 6.60%, 4/01/20 ......................... 4,715,000 4,976,447
Tax Allocation, Refunding, Series A, FSA Insured, 5.75%, 10/01/25 ........................... 19,915,000 20,992,601
San Diego County COP, MBIA Insured, 5.00%, 8/15/28 ............................................ 24,000,000 24,425,280
San Diego County Water Authority Revenue COP, Series A, MBIA Insured, 5.00%,
5/01/25 ...................................................................................... 12,440,000 12,833,228
San Diego County Water Authority Water Revenue COP, Series A, FSA Insured, 5.00%,
5/01/34 ...................................................................................... 106,705,000 109,255,250
San Diego Public Facilities Financing Authority Sewer Revenue,
Series A, FGIC Insured, 5.25%, 5/15/27 ...................................................... 21,750,000 22,569,105
Series B, FGIC Insured, 5.25%, 5/15/22 ...................................................... 5,200,000 5,457,868
San Diego Public Facilities Financing Authority Water Revenue,
MBIA Insured, 5.00%, 8/01/26 ................................................................ 12,210,000 12,502,796
Subordinated, MBIA Insured, 5.00%, 8/01/32 .................................................. 20,000,000 20,309,200
San Diego RDA, Tax Allocation, Horton Project, Refunding, Series A, FSA Insured, 6.00%,
11/01/15 ..................................................................................... 5,000,000 5,493,400
San Diego USD, GO,
Election of 1998, Series B, MBIA Insured, 5.00%, 7/01/25 .................................... 6,975,000 7,149,166
Election of 1998, Series D, FGIC Insured, 5.00%, 7/01/27 .................................... 16,000,000 16,380,320
Election of 1998, Series E, FSA Insured, 5.00%, 7/01/28 ..................................... 10,000,000 10,248,300
Series C, FSA Insured, 5.00%, 7/01/26 ....................................................... 6,490,000 6,684,051
San Francisco BART District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/34 ................... 11,790,000 12,691,110
San Francisco City and County Airport Commission International Airport Revenue,
Issue 9A, FGIC Insured, 5.90%, 5/01/25 ...................................................... 46,415,000 47,952,265
Issue 12A, Second Series, 5.90%, 5/01/26 .................................................... 45,000,000 46,690,650
Issue 16A, Second Series, FSA Insured, 5.125%, 5/01/23 ...................................... 24,635,000 25,495,501
San Francisco City and County Airports Commission International Airport Revenue,
Refunding, Second Series 28A, MBIA Insured, 5.125%, 5/01/32 ................................. 26,290,000 26,692,763
Refunding, Series 28B, MBIA Insured, 5.00%, 5/01/27 ......................................... 5,050,000 5,151,859
Second Series-Issue 23B, FGIC Insured, 5.125%, 5/01/30 ...................................... 10,000,000 10,288,800
San Francisco City and County COP,
30 Van Ness Avenue Property, Series A, MBIA Insured, 5.00%, 9/01/31 ......................... 5,805,000 5,906,413
San Francisco Courthouse Project, FSA Insured, Pre-Refunded, 5.875%, 4/01/21 ................ 2,810,000 2,928,723
San Francisco City and County RDA,
Hotel Tax Revenue, FSA Insured, 6.75%, 7/01/25 .............................................. 315,000 323,319
Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.65%, 7/01/24 ......................... 5,510,000 5,518,926
San Gabriel Valley Schools Financing Authority Revenue, Pomona USD Financing, 5.80%,
2/01/26 ...................................................................................... 5,150,000 5,235,902
38 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Refunding, Series A, 5.50%, 1/15/28 ......................................................... $247,300,000 $ 229,533,968
Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 .......................................... 85,500,000 88,476,255
Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ........................................... 21,200,000 21,777,700
senior lien, 5.00%, 1/01/33 ................................................................. 82,040,000 72,657,906
senior lien, Pre-Refunded, 7.50%, 1/01/09 ................................................... 21,585,000 25,573,692
senior lien, Pre-Refunded, 7.55%, 1/01/10 ................................................... 10,745,000 12,747,223
senior lien, Pre-Refunded, 7.60%, 1/01/11 ................................................... 20,935,000 24,868,687
senior lien, Pre-Refunded, 7.65%, 1/01/12 ................................................... 25,215,000 29,991,982
senior lien, Pre-Refunded, 7.65%, 1/01/13 ................................................... 27,350,000 32,531,458
senior lien, Pre-Refunded, 7.70%, 1/01/14 ................................................... 7,470,000 8,896,845
senior lien, Pre-Refunded, 7.70%, 1/01/15 ................................................... 60,155,000 71,645,207
San Jose Airport Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 3/01/31 ........................................... 11,000,000 11,149,820
Series D, MBIA Insured, 5.00%, 3/01/28 ...................................................... 10,000,000 10,225,500
San Jose Financing Authority Lease Revenue,
Civic Center Project, Series B, AMBAC Insured, 5.00%, 6/01/27 ............................... 46,400,000 47,343,312
MBIA Insured, 5.00%, 9/01/21 ................................................................ 14,045,000 14,652,025
MBIA Insured, 5.00%, 9/01/22 ................................................................ 14,730,000 15,286,352
San Jose Financing Authority Revenue, Fourth and San Fernando Parking Facility, Series A,
AMBAC Insured, 5.00%, 9/01/24 ................................................................ 5,000,000 5,152,750
San Jose GO,
Library Parks and Public Safety Project, MBIA Insured, 5.00%, 9/01/34 ....................... 15,820,000 16,149,847
Library Parks and Public Safety Projects, 5.00%, 9/01/28 .................................... 11,600,000 11,865,524
San Jose RDA,
MFHR, Miraido Village, Series A, GNMA Secured, 5.75%, 7/20/38 ............................... 7,110,000 7,315,835
Tax Allocation, Housing Set-Aside Merged Area, Series E, MBIA Insured, 5.85%,
8/01/27 .................................................................................... 7,325,000 7,838,190
Tax Allocation, Merged Area Redevelopment Project, 5.25%, 8/01/29 ........................... 9,860,000 10,097,429
Tax Allocation, Merged Area Redevelopment Project, AMBAC Insured, 5.00%,
8/01/31 .................................................................................... 2,000,000 2,029,800
Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.00%, 8/01/21 ............. 35,235,000 35,717,367
Tax Allocation, Merged Area Redevelopment Project, MBIA Insured, 5.625%, 8/01/28 ............ 24,135,000 26,040,217
Tax Allocation, Merged Area Redevelopment Project, Refunding, MBIA Insured,
5.00%, 8/01/20 ............................................................................. 12,245,000 12,474,961
San Jose USD Santa Clara County GO, Series A, FSA Insured, 5.00%,
8/01/24 ..................................................................................... 9,200,000 9,542,884
8/01/27 ..................................................................................... 9,150,000 9,369,417
San Juan Basin Authority Lease Revenue, AMBAC Insured, 5.00%, 12/01/34 ........................ 4,000,000 4,064,000
San Leandro RDA, RMR, Pre-Refunded, 11.25%, 4/01/13 ........................................... 55,000 55,000
San Marcos PFAR, Series A, 6.25%, 9/02/22 ..................................................... 15,000,000 17,742,750
San Marcos Public Facilities Authority Revenue,
Refunding, 5.80%, 9/01/18 ................................................................... 4,750,000 5,050,723
Senior Tax Increment Project Area-3-A, MBIA Insured, 5.75%, 10/01/29 ........................ 5,340,000 5,926,599
Senior Tax Increment Project Area-3-A, MBIA Insured, 5.80%, 10/01/30 ........................ 8,035,000 8,907,039
San Marcos USD, School Facilities ID No. 1, AMBAC Insured, Pre-Refunded, 5.80%,
11/01/14 ..................................................................................... 5,000,000 5,512,150
Semiannual Report | 39
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
San Mateo County Joint Powers Authority Lease Revenue, Capital Projects, Refunding,
Series A, FSA Insured, 5.00%, 7/15/29 ........................................................ $ 13,000,000 $ 13,245,830
San Mateo RDA, Tax Allocation,
5.60%, 8/01/25 .............................................................................. 10,185,000 10,682,537
Merged Area, Series A, 5.70%, 8/01/27 ....................................................... 6,330,000 6,652,514
San Mateo UHSD, GO, Election of 2000, Series A, FGIC Insured, 5.00%, 9/01/25 .................. 13,865,000 15,628,628
San Pablo RDA, Tax Allocation, Merged Project Area, FGIC Insured, 6.25%, 12/01/19 ............. 3,500,000 3,594,955
San Ramon PFA, Tax Allocation Revenue, MBIA Insured, 5.30%, 2/01/28 ........................... 18,360,000 19,328,123
San Ramon Valley USD, GO, Election of 2002, FSA Insured, 5.40%, 3/01/28 ....................... 27,410,000 29,188,087
Santa Barbara Housing Authority Revenue, Refunding and Acquisition, 6.25%, 11/15/20 ........... 5,320,000 5,146,728
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 13,340,080
Santa Clara Housing Authority MFHR,
Arastradero Park Apartments Project, Series A, GNMA Secured, 6.65%, 5/20/35 ................. 6,465,000 6,662,829
Elana Gardens Apartments Project, Series A, GNMA Secured, 6.40%, 6/20/35 .................... 5,625,000 5,753,419
Sierra Vista I Apartments Project, Series A, GNMA Secured, 6.65%, 6/20/35 ................... 3,860,000 3,983,443
Santa Clara USD, COP, 5.375%, 7/01/31 ......................................................... 7,575,000 7,878,000
Santa Clarita COP, Refunding, MBIA Insured, 5.00%, 10/01/21 ................................... 5,105,000 5,256,210
Santa Cruz County Housing Authority MFHR, Series B, FNMA Insured, 7.75%, 7/01/23 .............. 1,445,000 1,447,933
Santa Margarita Water District Special Tax, Community Facilities District No. 99-1, 6.00%,
9/01/30 ...................................................................................... 9,000,000 9,153,270
Santa Maria Bonita School District COP, MBIA Insured, 7.00%, 3/01/16 .......................... 480,000 481,834
Santa Maria Water and Wastewater Revenue, COP, Series A, AMBAC Insured, 5.55%,
8/01/27 ...................................................................................... 21,000,000 22,542,030
Santa Monica RDA, Tax Allocation, Earthquake Recovery Redevelopment Project, AMBAC
Insured, 6.00%, 7/01/29 ...................................................................... 13,110,000 14,731,838
Shafter Joint Powers Financing Authority Lease Revenue, Community Correctional Facility
Project, Series A,
5.95%, 1/01/11 .............................................................................. 1,880,000 2,025,230
6.05%, 1/01/17 .............................................................................. 5,135,000 5,552,065
Simi Valley USD, GO, Election 2004, Series A, MBIA Insured, 5.00%, 8/01/26 .................... 6,000,000 6,197,160
Solano County COP, GO, MBIA Insured, 5.00%, 11/01/32 .......................................... 24,665,000 25,056,927
South Gate Utility Authority Revenue, Water and Sewer Systems Project, FGIC Insured,
5.00%, 10/01/32 .............................................................................. 6,475,000 6,587,536
Southern California HFA, SFMR,
GNMA Secured, 7.625%, 10/01/22 .............................................................. 150,000 150,000
Series A, GNMA Secured, 6.75%, 9/01/22 ...................................................... 30,000 30,055
Southern California Public Power Authority Power Project Revenue,
6.75%, 7/01/13 .............................................................................. 10,000,000 12,217,100
Multi-Purpose Projects, 6.00%, 7/01/18 ...................................................... 29,645,000 29,758,244
Southern California Public Power Authority Project Revenue, Magnolia Power Project,
Series A, AMBAC Insured, 5.00%, 7/01/36 ...................................................... 15,800,000 16,124,058
Southern California Public Power Authority Transmission Project Revenue, Southern
Transmission Project, 6.125%, 7/01/18 ........................................................ 1,135,000 1,139,404
Stockton COP, Essential Services Building Parking Facility,
5.875%, 8/01/23 ............................................................................. 2,295,000 2,464,256
6.00%, 8/01/31 .............................................................................. 6,585,000 7,032,056
Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A,
FSA Insured, 5.95%, 7/01/17 .................................................................. 5,095,000 5,729,480
40 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Stockton Revenue COP, Wastewater System Project, Series A, MBIA Insured, 5.20%,
9/01/29 ...................................................................................... $ 19,160,000 $ 20,029,864
Stockton Revenue, O'Connor Woods Housing Corp., Series A, 6.35%, 11/01/31 ..................... 9,110,000 9,465,654
Stockton USD, GO,
Election 2000, Series 2004, MBIA Insured, 5.00%, 1/01/27 .................................... 5,030,000 5,155,901
MBIA Insured, 5.00%, 1/01/28 ................................................................ 5,335,000 5,461,226
Sweetwater UHSD, COP, FSA Insured, 5.00%, 9/01/27 ............................................. 7,840,000 8,036,706
Tahoe Forest Hospital District Revenue, Series A, 5.90%, 7/01/29 .............................. 7,990,000 8,230,579
Temecula Valley USD, GO, Series E, FSA Insured, Pre-Refunded, 6.35%, 9/01/19 .................. 5,460,000 5,809,058
Thousand Oaks RDA, MFR, The Shadows Apartments, Refunding, Series A, FNMA Insured,
5.75%, 11/01/27 .............................................................................. 7,445,000 7,729,250
Thousand Oaks RDA Tax Allocation, Thousand Oaks Boulevard Redevelopment, Refunding,
MBIA Insured, 5.375%, 12/01/25 ............................................................... 24,485,000 25,398,780
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Series B, 5.00%, 6/01/28 ................................................. 17,390,000 14,349,880
Tobacco Securitization Authority Southern California Tobacco Settlement Revenue,
Asset-Backed Bonds,
Senior, Series A, 5.50%, 6/01/36 ............................................................ 80,500,000 65,195,340
Senior, Series A, 5.625%, 6/01/43 ........................................................... 123,165,000 99,966,872
Subordinate, Series B, 6.00%, 6/01/43 ....................................................... 48,435,000 39,560,255
Tobacco Securitization Authority Tobacco Settlement Revenue, Series A,
5.25%, 6/01/31 .............................................................................. 6,800,000 5,439,864
5.375%, 6/01/41 ............................................................................. 30,250,000 23,626,763
Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.50%,
6/01/31 ...................................................................................... 4,385,000 4,498,615
Trabuco Canyon PFA, Special Tax Revenue, Refunding,
Series A, FSA Insured, 6.00%, 10/01/10 ...................................................... 13,775,000 15,636,140
Series A, FSA Insured, 6.10%, 10/01/15 ...................................................... 13,220,000 15,716,465
Series C, FSA Insured, 6.00%, 7/01/12 ....................................................... 3,040,000 3,464,202
Series C, FSA Insured, 6.10%, 7/01/19 ....................................................... 5,215,000 6,349,263
Tracy CFD Special Tax, No. 98-1 Plan C Properties,
5.875%, 8/01/23 ............................................................................. 6,355,000 6,522,518
6.00%, 8/01/26 .............................................................................. 8,240,000 8,450,614
Tracy COP, I-205 Corridor Improvement and Refinancing Project, AMBAC Insured, 5.125%,
10/01/27 ..................................................................................... 5,000,000 5,189,000
Tri-City Hospital District Revenue, Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 ........ 5,000,000 5,345,000
Tri-Dam Power Authority Revenue, Hydroelectric Sand Bar Project, Refunding, 7.50%,
1/01/17 ...................................................................................... 37,480,000 38,063,938
Tulare Local Health Care District Health Facilities Revenue, 5.20%, 12/01/21 .................. 4,455,000 4,644,649
Tustin USD, Special Tax, CFD No. 97-1, 6.375%, 9/01/35 ........................................ 8,645,000 10,058,458
Union City CRDA, Tax Allocation Revenue, Community Redevelopment Project,
AMBAC Insured, 5.75%, 10/01/33 ............................................................... 5,125,000 5,676,860
University of California Hospital Revenue, UCLA Medical Center, Series A, AMBAC Insured,
5.00%, 5/15/34 ............................................................................... 10,000,000 10,195,800
Semiannual Report | 41
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
University of California Revenues,
Multi-Purpose Projects, Series F, FGIC Insured, 5.00%, 9/01/22 .............................. $ 20,575,000 $ 21,192,456
Multiple Purpose Projects, Series 0, FGIC Insured, 5.00%, 9/01/23 ........................... 9,200,000 9,579,500
Multiple Purpose Projects, Series O, FGIC Insured, 5.00%, 9/01/26 ........................... 13,430,000 13,799,997
Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/31 ................................ 5,000,000 5,102,150
Series O, FGIC Insured, 5.25%, 9/01/34 ...................................................... 61,235,000 64,029,153
Upland COP,
Refunding, Mortgage Insured, 5.50%, 1/01/07 ................................................. 4,935,000 5,092,427
San Antonio Community Hospital, Refunding, 5.70%, 1/01/11 ................................... 11,210,000 12,435,029
Vacaville PFAR, Local Agency, 8.65%, 9/02/18 .................................................. 5,035,000 4,770,511
Vallejo PFA Local Agency Revenue, Hiddenbrooke Improvement District, Series A, 5.80%,
9/01/31 ...................................................................................... 5,075,000 5,102,253
Vallejo RDA, Tax Allocation, Waterfront Redevelopment Project, 7.90%, 5/01/19 ................. 2,310,000 2,321,111
Virgin Islands PFAR, senior lien,
Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ....................................... 7,000,000 7,218,400
Refunding, Series A, 5.50%, 10/01/14 ........................................................ 3,865,000 4,117,153
Vista Community Development Commission Tax Allocation Revenue, Vista Redevelopment
Project Area,
5.875%, 9/01/37 ............................................................................. 5,000,000 5,296,100
MBIA Insured, 5.50%, 9/01/23 ................................................................ 11,810,000 12,405,342
Vista USD, GO, Series B, FGIC Insured, 5.00%, 8/01/28 ......................................... 6,000,000 6,150,180
Washington Township Hospital District Revenue,
AMBAC Insured, 5.25%, 7/01/23 ............................................................... 5,000,000 5,047,550
Health Care District Revenue, 5.25%, 7/01/29 ................................................ 6,500,000 6,561,880
Watsonville Insured Hospital Revenue, Watsonville Community Hospital, Series A, Pre-Refunded,
6.30%, 7/01/15 .............................................................................. 3,990,000 4,209,929
6.35%, 7/01/24 .............................................................................. 5,435,000 5,736,588
West Basin Municipal Water District Revenue COP, 1992 Project, Refunding, Series A,
AMBAC Insured, 5.50%, 8/01/22 ................................................................ 4,000,000 4,309,800
West Contra Costa USD, GO, Election of 2002, Series C, FGIC Insured, 5.00%, 8/01/34 ........... 11,605,000 11,866,461
West Hollywood COP, Refunding, MBIA Insured, 5.00%, 2/01/25 ................................... 6,250,000 6,440,813
Westlands Water District COP Revenue, MBIA Insured, 5.00%, 9/01/34 ............................ 13,500,000 13,732,335
Westlands Water District Revenue COP, 5.00%, 9/01/26 .......................................... 13,150,000 13,501,237
Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital,
5.60%, 6/01/22 .............................................................................. 14,285,000 14,735,263
5.75%, 6/01/31 .............................................................................. 28,000,000 28,918,960
William S. Hart Joint School Financing Authority Special Tax Revenue, Community Facilities,
Refunding, FSA Insured, 6.50%, 9/01/14 ....................................................... 4,000,000 4,238,440
William S. Hart UHSD, GO, Series A, MBIA Insured, 5.00%, 9/01/27 .............................. 8,685,000 8,916,976
Yucaipa Valley Water District Water System Revenue COP, Series A, MBIA Insured, 5.00%,
9/01/29 ..................................................................................... 10,100,000 10,321,291
9/01/34 ..................................................................................... 12,765,000 13,004,218
---------------
TOTAL BONDS (COST $10,310,135,819) ............................................................ 10,810,889,521
---------------
42 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS 14.2%
Alameda Corridor Transportation Authority Revenue, AMBAC Insured,
10/01/29 .................................................................................... $ 20,000,000 $ 5,230,400
10/01/30 .................................................................................... 22,000,000 5,425,200
zero cpn. to 10/01/12, 5.30% thereafter, 10/01/22 ........................................... 81,685,000 56,391,240
zero cpn. to 10/01/12, 5.30% thereafter, 10/01/23 ........................................... 70,015,000 48,100,305
zero cpn. to 10/01/12, 5.40% thereafter, 10/01/24 ........................................... 43,770,000 29,908,041
zero cpn. to 10/01/12, 5.45% thereafter, 10/01/25 ........................................... 32,960,000 22,379,181
Anaheim PFA Lease Revenue, Capital Appreciation, Public Improvements Projects, Series C,
FSA Insured,
9/01/24 ..................................................................................... 26,855,000 9,609,793
9/01/26 ..................................................................................... 29,430,000 9,198,641
9/01/27 ..................................................................................... 22,860,000 6,700,723
9/01/28 ..................................................................................... 8,425,000 2,329,849
9/01/29 ..................................................................................... 4,320,000 1,121,170
9/01/32 ..................................................................................... 13,665,000 2,982,113
9/01/33 ..................................................................................... 37,070,000 7,660,145
9/01/34 ..................................................................................... 24,970,000 4,885,880
3/01/37 ..................................................................................... 16,080,000 2,702,244
Anaheim UHSD, GO, Capital Appreciation, Series A, FSA Insured, 8/01/26 ........................ 8,570,000 2,719,261
Baldwin Park RDA, Tax Allocation, San Gabriel, Refunding, Series A, ETM, 2/01/05 .............. 585,000 582,151
California Educational Facilities Authority Revenue,
Loyola Marymount University, MBIA Insured, 10/01/32 ......................................... 8,435,000 1,695,772
Loyola Marymount University, MBIA Insured, 10/01/33 ......................................... 8,435,000 1,589,997
Loyola Marymount University, MBIA Insured, 10/01/34 ......................................... 8,435,000 1,490,718
Loyola Marymount University, MBIA Insured, 10/01/35 ......................................... 8,435,000 1,397,679
Loyola Marymount University, MBIA Insured, 10/01/36 ......................................... 8,435,000 1,310,462
Loyola Marymount University, MBIA Insured, 10/01/37 ......................................... 8,435,000 1,228,642
Loyola Marymount University, MBIA Insured, 10/01/38 ......................................... 8,435,000 1,151,968
Loyola Marymount University, MBIA Insured, 10/01/39 ......................................... 8,435,000 1,080,017
Loyola Marymount University, Refunding, MBIA Insured, 10/01/26 .............................. 7,620,000 2,396,719
Loyola Marymount University, Refunding, MBIA Insured, 10/01/27 .............................. 7,365,000 2,173,338
Loyola Marymount University, Refunding, MBIA Insured, 10/01/28 .............................. 4,120,000 1,147,544
Loyola Marymount University, Refunding, MBIA Insured, 10/01/30 .............................. 5,685,000 1,401,921
Loyola Marymount University, Refunding, MBIA Insured, 10/01/31 .............................. 7,615,000 1,774,752
Loyola Marymount University, Refunding, MBIA Insured, 10/01/32 .............................. 7,615,000 1,676,899
Santa Clara University, AMBAC Insured, 9/01/26 .............................................. 5,800,000 1,832,336
California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A,
ETM, 10/01/11 ................................................................................ 13,970,000 10,534,218
California HFAR,
AMT Home Mortgage, Series K, MBIA Insured, 2/01/33 .......................................... 17,690,000 3,249,299
Home Mortgage, Capital Appreciation, Series A, 8/01/16 ...................................... 575,000 181,407
Home Mortgage, Series N, AMBAC Insured, 8/01/31 ............................................. 20,710,000 15,004,395
Series G, 8/01/22 ........................................................................... 21,930,000 7,648,526
Semiannual Report | 43
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
California State GO,
Principal Eagles II, Series 3, 3/01/09 ...................................................... $ 7,500,000 $ 6,492,900
Principal Eagles II, Series 4, 6/01/06 ...................................................... 10,000,000 9,619,000
Principal Eagles II, Series 6, 3/01/09 ...................................................... 5,000,000 4,328,600
Principal M-Raes, Series 8, 4/01/09 ......................................................... 9,000,000 7,770,240
California Statewide CDA Revenue, COP, Insured Hospital, Triad Health Care, Refunding, ETM,
8/01/09 ..................................................................................... 6,450,000 5,531,842
8/01/10 ..................................................................................... 6,745,000 5,530,158
8/01/11 ..................................................................................... 3,115,000 2,446,895
Campbell USD, Series B, FGIC Insured,
8/01/20 ..................................................................................... 5,000,000 2,353,400
8/01/21 ..................................................................................... 6,280,000 2,781,600
Contra Costa County COP, Merrithew Memorial Hospital Project, ETM, 11/01/15 ................... 6,810,000 4,288,802
Contra Costa Home Mortgage Finance Authority HMR,
Mandatory Sinking Fund 3/01/08, MBIA Insured, Pre-Refunded, 9/01/17 ......................... 9,635,000 3,031,749
Mandatory Sinking Fund 3/01/09, MBIA Insured, Pre-Refunded, 9/01/17 ......................... 8,615,000 2,898,172
Mandatory Sinking Fund 3/01/10, MBIA Insured, Pre-Refunded, 9/01/17 ......................... 7,700,000 2,769,767
Mandatory Sinking Fund 9/01/08, MBIA Insured, Pre-Refunded, 9/01/17 ......................... 8,095,000 2,656,698
Mandatory Sinking Fund 9/01/09, MBIA Insured, Pre-Refunded, 9/01/17 ......................... 7,135,000 2,498,534
Mandatory Sinking Fund 9/01/10, MBIA Insured, Pre-Refunded, 9/01/17 ......................... 6,275,000 2,346,725
MBIA Insured, Pre-Refunded, 9/01/17 ......................................................... 10,770,000 3,140,424
Contra Costa School Financing Authority Revenue, Capital Appreciation, Antioch USD
Community, Series B, 9/01/07 ................................................................. 455,000 398,680
El Paso de Robles GO, Capital Appreciation, Series A, FGIC Insured,
8/01/16 ..................................................................................... 2,050,000 1,139,944
8/01/22 ..................................................................................... 11,485,000 4,419,313
8/01/27 ..................................................................................... 11,495,000 3,269,523
Elk Grove USD, Special Tax, Capital Appreciation, CFD 1, MBIA Insured,
12/01/19 .................................................................................... 2,775,000 1,310,022
12/01/20 .................................................................................... 2,765,000 1,234,877
12/01/21 .................................................................................... 4,195,000 1,761,942
12/01/22 .................................................................................... 4,195,000 1,663,527
12/01/23 .................................................................................... 4,195,000 1,565,826
12/01/24 .................................................................................... 4,200,000 1,469,118
Foothill De Anza Community College District GO,
Capital Appreciation, MBIA Insured, 8/01/27 ................................................. 5,205,000 1,549,633
MBIA Insured, 8/01/26 ....................................................................... 5,290,000 1,678,517
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, 1/15/25 .................................................... 57,000,000 17,206,590
Capital Appreciation, Refunding, 1/15/30 .................................................... 98,460,000 21,717,322
Capital Appreciation, Refunding, 1/15/31 .................................................... 14,635,000 3,025,201
Capital Appreciation, Refunding, 1/15/34 .................................................... 100,000,000 17,266,000
Capital Appreciation, Refunding, 1/15/36 .................................................... 182,160,000 27,812,189
Capital Appreciation, Refunding, 1/15/38 .................................................... 160,560,000 21,598,531
Capital Appreciation, Refunding, MBIA Insured, 1/15/21 ...................................... 51,180,000 19,724,260
Capital Appreciation, Refunding, MBIA Insured, 1/15/37 ...................................... 170,615,000 24,529,319
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.80% thereafter, 1/15/20 ............ 49,500,000 38,776,815
44 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
Foothill/Eastern Corridor Agency Toll Road Revenue (cont.)
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/27 ........... $ 80,835,000 $ 62,880,738
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/28 ........... 80,500,000 62,432,580
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/29 ........... 112,230,000 86,867,142
Capital Appreciation, senior lien, Series A, ETM, 1/01/22 ................................... 30,835,000 13,634,929
Capital Appreciation, senior lien, Series A, ETM, 1/01/23 ................................... 5,765,000 2,392,706
Capital Appreciation, senior lien, Series A, ETM, 1/01/24 ................................... 72,045,000 28,069,452
Capital Appreciation, senior lien, Series A, ETM, 1/01/28 ................................... 2,000,000 610,760
Convertible Capital Appreciation, Refunding, 1/15/23 ........................................ 10,000,000 7,815,300
Convertible Capital Appreciation, Refunding, 1/15/26 ........................................ 30,000,000 23,359,800
Convertible Capital Appreciation, Refunding, 1/15/32 ........................................ 100,000,000 19,467,000
Convertible Capital Appreciation, Refunding, 1/15/33 ........................................ 132,460,000 24,285,216
Convertible Capital Appreciation, Refunding, 1/15/35 ........................................ 20,000,000 3,242,600
Convertible Capital Appreciation, senior lien, Series A, ETM, zero cpn. to 1/01/05, 7.05%
thereafter, 1/01/09 ........................................................................ 10,000,000 11,451,200
Convertible Capital Appreciation, senior lien, Series A, Pre-Refunded, zero cpn. to
1/01/05, 7.15% thereafter, 1/01/14 ......................................................... 5,500,000 6,573,050
senior lien, Series A, ETM, 1/01/25 ......................................................... 20,660,000 7,559,287
senior lien, Series A, ETM, 1/01/26 ......................................................... 23,475,000 8,088,781
senior lien, Series A, ETM, 1/01/27 ......................................................... 15,000,000 4,862,700
senior lien, Series A, ETM, 1/01/29 ......................................................... 35,310,000 10,198,234
senior lien, Series A, Pre-Refunded, 1/01/12 ................................................ 8,000,000 9,542,560
Glendale Community College District GO, FGIC Insured, 8/01/28 ................................. 15,000,000 4,215,300
Huntington Beach City and School District, Capital Appreciation, Election 2002, Series A,
FGIC Insured, 8/01/28 ........................................................................ 10,005,000 2,811,605
Lodi Electric Systems Revenue COP, Capital Appreciation Bond, Series B, MBIA Insured,
1/15/19 ...................................................................................... 6,360,000 3,098,910
Los Angeles Convention and Exhibition Center Authority COP, Series 1985, ETM,
12/01/05 ..................................................................................... 26,750,000 26,195,740
Modesto High School District Stanislaus County GO, Capital Appreciation, Series A,
FGIC Insured,
8/01/21 ..................................................................................... 9,660,000 4,278,704
8/01/23 ..................................................................................... 10,815,000 4,191,353
5/01/27 ..................................................................................... 12,770,000 3,852,581
Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured,
8/01/27 ..................................................................................... 6,315,000 1,859,325
8/01/28 ..................................................................................... 6,625,000 1,840,293
New Haven USD, GO, Capital Appreciation, Series C, FGIC Insured, 8/01/23 ...................... 14,700,000 5,491,773
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 3,347,247
Pasadena Special Tax CFD, No. 1 Civic Center West, Pre-Refunded, 12/01/17 ..................... 4,090,000 1,816,492
Perris SFMR, Series A, GNMA Secured, ETM, 6/01/23 ............................................. 19,095,000 7,422,036
Rancho Water District Financing Authority Revenue, AMBAC Insured,
8/15/16 ..................................................................................... 8,605,000 5,117,307
8/15/17 ..................................................................................... 13,605,000 7,627,915
8/15/18 ..................................................................................... 13,605,000 7,194,188
Rialto USD, GO, Series A, FGIC Insured, 6/01/19 ............................................... 13,985,000 7,048,720
Semiannual Report | 45
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital Project,
MBIA Insured,
6/01/23 ..................................................................................... $ 14,160,000 $ 5,434,325
6/01/24 ..................................................................................... 13,005,000 4,669,185
Riverside County Board of Education COP, Capital Appreciation Financing Projects, Series A,
ETM, 11/01/05 ................................................................................ 585,000 558,862
Riverside County SFMR, Capital Appreciation Mortgage,
Series A, GNMA Secured, ETM, 9/01/14 ........................................................ 20,220,000 13,764,967
Series A, GNMA Secured, ETM, 11/01/20 ....................................................... 25,055,000 11,382,236
Series B, GNMA Secured, ETM, 6/01/23 ........................................................ 26,160,000 10,076,309
Rocklin USD, GO,
Capital Appreciation, Series A, FGIC Insured, 9/01/08 ....................................... 3,660,000 3,298,575
Capital Appreciation, Series A, FGIC Insured, 9/01/09 ....................................... 4,100,000 3,542,769
Capital Appreciation, Series A, FGIC Insured, 9/01/10 ....................................... 4,595,000 3,765,465
Capital Appreciation, Series A, FGIC Insured, 9/01/11 ....................................... 5,145,000 4,007,801
Capital Appreciation, Series A, FGIC Insured, 9/01/12 ....................................... 5,760,000 4,280,717
Capital Appreciation, Series A, FGIC Insured, 9/01/16 ....................................... 33,960,000 20,156,279
Election of 2002, FGIC Insured, 8/01/25 ..................................................... 8,160,000 2,773,666
Election of 2002, FGIC Insured, 8/01/26 ..................................................... 8,695,000 2,758,924
Election of 2002, FGIC Insured, 8/01/27 ..................................................... 9,080,000 2,703,298
Election of 2002, FGIC Insured, 8/01/28 ..................................................... 16,615,000 4,669,147
Roseville City School District GO, Capital Appreciation, Series A,
8/01/11 ..................................................................................... 3,115,000 2,401,447
8/01/17 ..................................................................................... 30,770,000 16,503,182
Roseville Joint UHSD, Capital Appreciation, Series A,
8/01/10 ..................................................................................... 1,820,000 1,478,604
8/01/11 ..................................................................................... 1,965,000 1,514,877
8/01/17 ..................................................................................... 18,155,000 9,726,904
San Diego USD, GO, Capital Appreciation Bond, Series A, FGIC Insured,
7/01/21 ..................................................................................... 12,160,000 5,407,795
7/01/22 ..................................................................................... 8,440,000 3,508,592
7/01/23 ..................................................................................... 11,120,000 4,327,682
San Francisco City and County RDA, Lease Revenue, George R. Moscone Center,
Capital Appreciation,
7/01/05 ..................................................................................... 12,820,000 12,634,751
7/01/06 ..................................................................................... 11,320,000 10,846,937
7/01/07 ..................................................................................... 4,570,000 4,257,823
7/01/08 ..................................................................................... 7,785,000 7,008,524
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien,
ETM, 1/01/25 ................................................................................ 5,700,000 2,085,573
ETM, 1/01/28 ................................................................................ 33,545,000 10,243,972
ETM, 1/01/29 ................................................................................ 37,050,000 10,700,781
Refunding, Series A, 1/15/16 ................................................................ 19,500,000 16,834,935
Refunding, Series A, 1/15/17 ................................................................ 17,000,000 14,570,360
Refunding, Series A, 1/15/18 ................................................................ 60,000,000 51,240,600
Refunding, Series A, 1/15/19 ................................................................ 57,000,000 48,815,370
Refunding, Series A, 1/15/20 ................................................................ 80,000,000 67,969,600
46 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, (cont.)
Refunding, Series A, 1/15/22 ................................................................ $ 90,000,000 $ 75,721,500
Refunding, Series A, 1/15/23 ................................................................ 80,000,000 66,793,600
Refunding, Series A, 1/15/24 ................................................................ 80,000,000 66,264,800
San Jose USD, COP, Refunding, FSA Insured,
1/01/27 ..................................................................................... 7,105,000 2,181,803
1/01/29 ..................................................................................... 7,105,000 1,934,407
San Juan USD, GO, Election of 1998, Series B, MBIA Insured,
8/01/26 ..................................................................................... 15,825,000 5,021,273
8/01/27 ..................................................................................... 18,605,000 5,539,081
8/01/28 ..................................................................................... 19,470,000 5,471,459
San Mateo UHSD, GO, Capital Appreciation Election of 2000, Series B, FGIC Insured,
9/01/22 ...................................................................................... 5,000,000 2,061,450
Southern California Public Power Authority Power Project Revenue, Refunding, Series A,
AMBAC Insured, ETM,
7/01/11 ..................................................................................... 12,000,000 9,561,120
7/01/12 ..................................................................................... 16,890,000 12,863,593
7/01/13 ..................................................................................... 16,000,000 11,643,840
Stockton East Water District COP,
1990 Project, Series B, ETM, 4/01/05 ........................................................ 28,575,000 84,513,706
Refunding, Series B, 4/01/16 ................................................................ 103,885,000 58,051,977
Suisun City PFA Tax Allocation Revenue, Capital Appreciation Redevelopment Project,
Series A, 10/01/28 ........................................................................... 17,855,000 4,529,992
Thousand Oaks SFHMR, Capital Appreciation, Series A, GNMA Secured, 9/01/23 .................... 16,000 47,832
---------------
TOTAL ZERO COUPON BONDS (COST $1,745,201,340) ................................................. 1,864,361,392
---------------
TOTAL LONG TERM INVESTMENTS (COST $12,055,337,159) ............................................ 12,675,250,913
---------------
SHORT TERM INVESTMENTS 2.7%
(b) Burbank RDA, MF Revenue, Issue A, Weekly VRDN and Put, 1.65%, 11/01/10 ........................ 8,860,000 8,860,000
(b) California Infrastructure and Economic Development Bank Revenue,
Independent System Operating Corp. Project, Refunding, Series B, MBIA Insured,
Weekly VRDN and Put, 1.68%, 4/01/08 ......................................................... 10,000,000 10,000,000
Rand Corp., Series B, AMBAC Insured, Daily VRDN and Put, 1.70%, 4/01/42 ...................... 4,350,000 4,350,000
(b) California PCFA, PCR, ExxonMobil Project, Refunding, Daily VRDN and Put, 1.62%,
4/01/17 ...................................................................................... 5,900,000 5,900,000
(b) California State Department of Water Resources Power Supply Revenue,
Series B-3, Daily VRDN and Put, 1.77%, 5/01/22 .............................................. 23,380,000 23,380,000
Series B-5, Daily VRDN and Put, 1.73%, 5/01/22 .............................................. 20,900,000 20,900,000
Series B-6, Daily VRDN and Put, 1.73%, 5/01/22 .............................................. 16,100,000 16,100,000
(b) California State Economic Recovery GO, Series C-2, Daily VRDN and Put, 1.73%,
7/01/23 ...................................................................................... 21,900,000 21,900,000
(b) California State Economic Recovery Revenue,
Series C-5, Daily VRDN and Put, 1.66%, 7/01/23 .............................................. 16,900,000 16,900,000
Series C-8, Daily VRDN and Put, 1.77%, 7/01/23 .............................................. 11,100,000 11,100,000
(b) California State GO, Series C-1, Weekly VRDN and Put, 1.70%, 5/01/33 .......................... 3,700,000 3,700,000
(b) California Statewide CDA Revenue, COP, John Muir/Mt. Diablo Health System,
AMBAC Insured, Daily VRDN and Put, 1.62%, 8/15/27 ............................................ 3,600,000 3,600,000
(b) Daly City HFA, MFR, Refunding, Weekly VRDN and Put, 1.68%, 10/15/29 ........................... 5,000,000 5,000,000
Semiannual Report | 47
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
(b) Irvine 1915 Act Special Assessment,
AD No. 00-18, Series A, Daily VRDN and Put, 1.73%, 9/02/26 .................................. $ 400,000 $ 400,000
AD No. 03-19, Series A, Daily VRDN and Put, 1.73%, 9/02/29 .................................. 40,874,000 40,874,000
AD No. 94-13, Daily VRDN and Put, 1.73%, 9/02/22 ............................................ 2,000,000 2,000,000
AD No. 94-15, Daily VRDN and Put, 1.73%, 9/02/20 ............................................ 5,028,000 5,028,000
(b) Irvine Ranch Water District COP, Capital Improvement Project, Daily VRDN and Put, 1.73%,
8/01/16 ...................................................................................... 4,000,000 4,000,000
(b) Irvine Ranch Water District Revenue, Nos. 140, 105, and 250, Daily VRDN and Put, 1.73%,
4/01/33 ...................................................................................... 6,200,000 6,200,000
(b) Irvine USD Special Tax,
CFD No. 01-1, Daily VRDN and Put, 1.73%, 9/01/38 ............................................ 4,600,000 4,600,000
CFD No. 03-1, Daily VRDN and Put, 1.73%, 9/01/39 ............................................ 11,000,000 11,000,000
(b) Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Daily
VRDN and Put, 1.73%, 7/01/35 ................................................................. 11,600,000 11,600,000
(b) Metropolitan Water District Southern California Waterworks Revenue,
Refunding, Series B-1, Daily VRDN and Put, 1.73%, 7/01/35 ................................... 46,450,000 46,450,000
Refunding, Series B-3, Daily VRDN and Put, 1.73%, 7/01/35 ................................... 100,000 100,000
Series C-2, Daily VRDN and Put, 1.65%, 7/01/36 .............................................. 41,500,000 41,500,000
(b) Newport Beach Revenue, Hoag Memorial Presbyterian Hospital,
Series A, Weekly VRDN and Put, 1.76%, 10/01/26 .............................................. 400,000 400,000
Series B, Weekly VRDN and Put, 1.76%, 10/01/26 .............................................. 1,100,000 1,100,000
Series C, Daily VRDN and Put, 1.76%, 10/01/26 ............................................... 11,750,000 11,750,000
(b) Orange County Sanitation Districts COP, Refunding,
Series A, Daily VRDN and Put, 1.73%, 8/01/29 ................................................ 14,600,000 14,600,000
Series B, Daily VRDN and Put, 1.73%, 8/01/30 ................................................ 4,400,000 4,400,000
(b) Puerto Rico Commonwealth Government Development Bank Revenue, Refunding,
MBIA Insured, Weekly VRDN and Put, 1.59%, 12/01/15 ........................................... 300,000 300,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $357,992,000) .............................................. 357,992,000
---------------
TOTAL INVESTMENTS (COST $12,413,329,159) 99.3% ................................................ 13,033,242,913
OTHER ASSETS, LESS LIABILITIES .7% ............................................................ 95,528,253
---------------
NET ASSETS 100.0% ............................................................................. $13,128,771,166
===============
(a) See Note 6 regarding defaulted securities.
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.
48 | See notes to financial statements. | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2004 (UNAUDITED)
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
HMR - Home Mortgage Revenue
ID - Improvement District
IDR - Industrial Development Revenue
LLC - Limited Liability Corp.
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PFAR - Public Financing Authority Revenue
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/Union High School District
USD - Unified/Union School District
VRDN - Variable Rate Demand Notes
Semiannual Report | 49
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2004 (unaudited)
Assets:
Investments in securities:
Cost ...................................................... $12,413,329,159
===============
Value ..................................................... 13,033,242,913
Cash ....................................................... 55,074
Receivables:
Capital shares sold ....................................... 10,443,793
Interest .................................................. 152,684,025
---------------
Total assets .......................................... 13,196,425,805
---------------
Liabilities:
Payables:
Investment securities purchased ........................... 42,800,000
Capital shares redeemed ................................... 16,005,299
Affiliates ................................................ 8,012,800
Other liabilities .......................................... 836,540
---------------
Total liabilities ..................................... 67,654,639
---------------
Net assets, at value ................................ $13,128,771,166
===============
Net assets consist of:
Undistributed net investment income ........................ $ 29,584,208
Net unrealized appreciation (depreciation) ................. 619,913,754
Accumulated net realized gain (loss) ....................... 6,895,075
Capital shares ........................................... 12,472,378,129
---------------
Net assets, at value ........................ $13,128,771,166
===============
50 | See notes to financial statements. | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2004 (unaudited)
CLASS A:
Net assets, at value ........................................................... $12,232,550,057
===============
Shares outstanding ............................................................. 1,692,231,846
===============
Net asset value per share(a) ................................................... $ 7.23
===============
Maximum offering price per share (net asset value per share / 95.75%) .......... $ 7.55
===============
CLASS B:
Net assets, at value ........................................................... $ 365,774,121
===============
Shares outstanding ............................................................. 50,648,872
===============
Net asset value and maximum offering price per share(a) ........................ $ 7.22
===============
CLASS C:
Net assets, at value ........................................................... $ 489,983,937
===============
Shares outstanding ............................................................. 67,872,070
===============
Net asset value and maximum offering price per share(a) ........................ $ 7.22
===============
ADVISOR CLASS:
Net assets, at value ........................................................... $ 40,463,051
===============
Shares outstanding ............................................................. 5,602,737
===============
Net asset value and maximum offering price per share(b) ........................ $ 7.22
===============
(a) Redemption price is equal to net asset value less any applicable
contingent deferred sales charge and redemption fees retained by the Fund.
(b) Redemption price is equal to net asset value less any applicable
redemption fees retained by the Fund.
Semiannual Report | See notes to financial statements. | 51
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended September 30, 2004 (unaudited)
Investment income:
Interest ....................................................................... $ 351,325,059
--------------
Expenses:
Management fees (Note 3) ....................................................... 29,258,053
Distribution fees (Note 3)
Class A ....................................................................... 5,144,861
Class B ....................................................................... 1,198,741
Class C ....................................................................... 1,601,975
Transfer agent fees (Note 3) ................................................... 2,070,172
Custodian fees ................................................................. 84,507
Reports to shareholders ........................................................ 152,989
Registration and filing fees ................................................... 42,948
Professional fees .............................................................. 155,845
Directors' fees and expenses ................................................... 50,778
Other .......................................................................... 634,633
--------------
Total expenses ............................................................ 40,395,502
--------------
Net investment income ................................................... 310,929,557
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ...................................... 7,371,021
Net change in unrealized appreciation (depreciation) on investments ............ (191,200,597)
--------------
Net realized and unrealized gain (loss) ......................................... (183,829,576)
--------------
Net increase (decrease) in net assets resulting from operations ................. $ 127,099,981
==============
52 | See notes to financial statements. | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the six months ended September 30, 2004 (unaudited)
and the year ended March 31, 2004
------------------------------------------
Six Months Ended Year Ended
September 30, 2004 March 31, 2004
------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................ $ 310,929,557 $ 662,044,018
Net realized gain (loss) from investments ........................................ 7,371,021 23,381,998
Net change in unrealized appreciation (depreciation) on investments .............. (191,200,597) 111,285,142
-----------------------------------------
Net increase (decrease) in net assets resulting from operations .............. 127,099,981 796,711,158
Distributions to shareholders from:
Net investment income:
Class A ......................................................................... (290,027,316) (616,776,726)
Class B ......................................................................... (7,778,983) (16,687,880)
Class C ......................................................................... (10,377,528) (22,281,616)
Advisor Class ................................................................... (486,218) (629,884)
-----------------------------------------
Total distributions to shareholders ............................................... (308,670,045) (656,376,106)
Capital share transactions: (Note 2)
Class A ......................................................................... (383,240,242) (722,905,153)
Class B ......................................................................... (23,489,263) (11,139,146)
Class C ......................................................................... (26,205,740) (19,961,144)
Advisor Class ................................................................... 26,083,130 3,753,127
-----------------------------------------
Total capital share transactions .................................................. (406,852,115) (750,252,316)
Redemption fees ................................................................... 9,210 --
-----------------------------------------
Net increase (decrease) in net assets ........................................ (588,412,969) (609,917,264)
Net assets:
Beginning of period ............................................................... 13,717,184,135 14,327,101,399
-----------------------------------------
End of period ..................................................................... $ 13,128,771,166 $ 13,717,184,135
=========================================
Undistributed net investment income included in net assets:
End of period ..................................................................... $ 29,584,208 $ 27,324,696
=========================================
Semiannual Report | See notes to financial statements. | 53
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin California Tax-Free Income Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end investment company.
The Fund seeks to provide tax-free income. Under normal market conditions, the
Fund invests at least 80% of its total assets in securities that pay interest
free from federal and California State personal income taxes. The following
summarizes the Fund's significant accounting policies.
a. Security Valuation
Tax-free bonds generally trade in the over-the-counter market. The Fund utilizes
independent pricing services to perform any of the pricing functions under
procedures approved by the Board of Directors. Tax-free bonds may be valued by
the pricing services using matrix pricing which considers such factors as prices
of comparable quality issues, yield, maturity, coupon, and credit ratings. If
events occur that materially affect the values of securities after the prices
are determined, but prior to 4 p.m. Eastern time or the close of trading on the
NYSE, whichever is earlier, or if market quotations are deemed not readily
available or reliable, the securities will be valued at fair value as determined
following procedures approved 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 Sub Chapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
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. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. 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 expenses during the reporting period. Actual results could differ from those
estimates.
54 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Redemption Fees
Effective June 1, 2004, redemptions and exchanges of Fund shares held five
trading days or less may be subject to the Fund's redemption fee, which is 2% of
the amount redeemed. Such fees are retained by the Fund and accounted for as
additional paid-in capital as noted in the Statement of Changes in Net Assets.
f. Guarantees and Indemnifications
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Fund. Additionally, in the normal course of business, the Fund
enters into contracts with service providers that contain general
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
2. CAPITAL STOCK
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, contingent
deferred sales charges, distribution fees, voting rights on matters affecting a
single class and its exchange privilege.
At September 30, 2004, there were five billion shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
-----------------------------------------------------------------------------
SIX MONTH ENDED YEAR ENDED
SEPTEMBER 30, 2004 MARCH 31, 2004
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
CLASS A SHARES:
Shares sold ................................... 56,101,527 $ 398,426,721 118,710,830 $ 857,323,376
Shares issued in reinvestment
of distributions ............................. 21,798,664 154,959,635 43,200,441 310,542,600
Shares redeemed ............................... (132,183,041) (936,626,598) (262,594,458) (1,890,771,129)
-----------------------------------------------------------------------------
Net increase (decrease) ....................... (54,282,850) $(383,240,242) (100,683,187) $ (722,905,153)
=============================================================================
CLASS B SHARES:
Shares sold ................................... 1,208,190 $ 8,571,720 6,060,165 $ 43,780,416
Shares issued in reinvestment
of distributions ............................. 724,284 5,145,120 1,557,633 11,186,777
Shares redeemed ............................... (5,259,447) (37,206,103) (9,223,001) (66,106,339)
-----------------------------------------------------------------------------
Net increase (decrease) ....................... (3,326,973) $ (23,489,263) (1,605,203) $ (11,139,146)
=============================================================================
CLASS C SHARES:
Shares sold ................................... 4,896,992 $ 34,821,237 11,843,722 $ 85,522,926
Shares issued in reinvestment
of distributions ............................. 929,220 6,597,509 1,975,710 14,189,306
Shares redeemed ............................... (9,566,388) (67,624,486) (16,660,496) (119,673,376)
-----------------------------------------------------------------------------
Net increase (decrease) ....................... (3,740,176) $ (26,205,740) (2,841,064) $ (19,961,144)
=============================================================================
Semiannual Report | 55
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. CAPITAL STOCK (continued)
-------------------------------------------------------------------------
SIX MONTH ENDED YEAR ENDED
SEPTEMBER 30, 2004 MARCH 31, 2004
-------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
ADVISOR CLASS SHARES:
Shares sold .................................... 4,095,797 $ 29,103,374 1,224,250 $ 8,819,297
Shares issued in reinvestment
of distributions .............................. 30,732 218,345 56,897 408,434
Shares redeemed ................................ (451,341) (3,238,589) (766,112) (5,474,604)
-------------------------------------------------------------------------
Net increase (decrease) ........................ 3,675,188 $ 26,083,130 515,035 $ 3,753,127
=========================================================================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Fund are also officers and/or directors of
the following entities:
- --------------------------------------------------------------------------------------
ENTITY AFFILIATION
- --------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton/Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
a. Management Fees
The Fund pays an investment management fee to Advisers based on the month-end
net assets of the Fund as follows:
- ----------------------------------------------------------------------------------
ANNUALIZED FEE RATE 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% In excess of $15 billion, up to and including $17.5 billion
Fees are further reduced on net assets over $17.5 billion.
b. Administrative Fees
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.
c. Distribution Fees
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 under a Rule 12b-1 plan.
56 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (continued)
d. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sale of the Fund's shares for the period:
Sales charges received ........................................ $856,130
Contingent deferred sales charges retained .................... $483,121
e. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $2,070,172, of which $1,480,532 was paid to
Investor Services.
4. INCOME TAXES
At March 31, 2004, the Fund had tax basis capital losses of $188,012 which may
be carried over to offset future capital gains. Such losses will expire in 2012.
At September 30, 2004, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments .................................... $ 12,401,420,943
-----------------
Unrealized appreciation ................................ $ 770,167,000
Unrealized depreciation ................................ (138,345,030)
-----------------
Net unrealized appreciation (depreciation) ............. $ 631,821,970
=================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and bond discounts.
Net realized gains differ for financial statement and tax purposes primarily due
to differing treatments of wash sales and bond discounts.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended September 30, 2004 aggregated $878,655,571 and $1,570,217,829,
respectively.
6. DEFAULTED SECURITIES
The Fund held a defaulted security for which the income has been deemed
uncollectible. At September 30, 2004, the value of these securities was
$23,440,868, representing 0.2% of the Fund's net assets. The Fund discontinues
accruing income on securities for which income has been deemed uncollectible and
provides an estimate for losses on interest receivable. For information as to
specific securities, see the accompanying Statement of Investments.
Semiannual Report | 57
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On September 20, 2004, Franklin Resources, Inc. (Franklin Resources, Inc. and
its subsidiaries are referred to collectively as the "Company") announced that
an agreement has been reached by two of its subsidiaries, Franklin Advisers,
Inc. ("Franklin Advisers") and Franklin Templeton Alternative Strategies, Inc.
("FTAS"), with the Securities Division of the Office of the Secretary of the
Commonwealth of Massachusetts (the "State of Massachusetts") related to an
administrative complaint filed on February 4, 2004. The administrative complaint
addressed one instance of market timing that was also a subject of the August 2,
2004 settlement that Franklin Advisers reached with the SEC, as described below.
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers and FTAS have consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts. The consent order has multiple sections, including
"Statements of Fact" and "Violations of Massachusetts Securities Laws." The
Company admitted the "Statements of Fact." The Company did not admit or deny the
"Violations of the Massachusetts Securities Laws." While Franklin Advisers and
FTAS did not admit or deny engaging in any wrongdoing, the Company believes that
it is in its best interest and the interests of its funds' shareholders to
settle this issue now and move forward.
On October 25, 2004, the State of Massachusetts filed an administrative
complaint against Franklin Resources, Inc. ("FRI") alleging a violation of the
Massachusetts Uniform Securities law (the "Act") in connection with having filed
on September 20, 2004, an allegedly false and misleading report on Form 8-K with
the SEC. The Massachusetts administrative complaint seeks an order calling for
FRI to cease and desist from further violations of the Act and to pay an
administrative fine in an amount to be determined.
FRI's SEC filing of September 20, 2004 described the settlement consent order
with the State of Massachusetts and reported while "Franklin Advisers and FTAS
did not admit or deny engaging in any wrongdoing, the Company believes that it
is in the best interest of the Company and its funds' shareholders to settle
this issue now and move forward." The October 25, 2004 State of Massachusetts
administrative complaint alleges that this description of the settlement consent
order was materially false and misleading under Massachusetts law. FRI's
management disagrees with the allegation made in this administrative complaint
and continues to believe that the description of the terms of the settlement
consent order issued by the State of Massachusetts is neither false nor
misleading.
58 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY MATTERS (continued)
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT
On August 2, 2004, the Company announced that an agreement has been reached by
Franklin Advisers with the SEC that resolves the issues resulting from the SEC's
investigation of market timing activity and the SEC issued an "Order instituting
administrative and cease-and-desist proceedings pursuant to sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and sections 9(b) and 9(f) of the
Investment Company Act of 1940, making findings and imposing remedial sanctions
and a cease-and-desist order" (the "Order"). The SEC's Order concerns the
activities of a limited number of third parties that ended in 2000 and those
that are the subject of the Massachusetts administrative complaint described
above.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers neither
admits nor denies any wrongdoing, Franklin Advisers has agreed to pay $50
million, of which $20 million is a civil penalty, to be distributed to
shareholders of certain funds in accordance with a plan to be developed by an
Independent Distribution Consultant. At this time, it is unclear which funds
will receive distributions or which shareholders of any particular fund will
receive distributions. The SEC Order also requires Franklin Advisers to, among
other things, enhance and periodically review compliance policies and
procedures.
OTHER GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the SEC, the U.S. Attorney for the Northern
District of California, the New York Attorney General, the California Attorney
General, the U.S. Attorney for the District of Massachusetts, the Florida
Department of Financial Services and the Commissioner of Securities, the West
Virginia Attorney General, the Vermont Department of Banking, Insurance,
Securities, and Health Care Administration and the National Association of
Securities Dealers, relating to certain practices in the mutual fund industry,
including late trading, market timing and payments to securities dealers who
sell fund shares, the Company and its subsidiaries, as well as certain current
or former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company and
its current employees have been providing documents and information in response
to these requests and subpoenas. In addition, the Company has responded to
requests for similar kinds of information from regulatory authorities in some of
the foreign countries where the Company conducts its global asset management
business.
Semiannual Report | 59
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY MATTERS (continued)
OTHER GOVERNMENTAL INVESTIGATIONS (CONTINUED)
The staff of the SEC has also informed the Company that it is considering
recommending a civil action or proceeding against Franklin Advisers and Franklin
Templeton Distributors, Inc. ("FTDI") concerning payments to securities dealers
who sell fund shares (commonly referred to as "revenue sharing"). The staff of
the California Attorney General's Office ("CAGO") also has advised the Company
that the California Attorney General is authorized to bring a civil action
against the Company and FTDI arising from the same events. Even though the
Company currently believes that the charges the SEC staff and CAGO staff are
contemplating are unwarranted, it also believes that it is in the best interest
of the Company's and funds' shareholders to resolve these issues voluntarily, to
the extent the Company can reasonably do so. The Company continues to have
discussions towards resolving these governmental investigations.
OTHER LEGAL PROCEEDINGS
The Trust, in addition to other entities within Franklin Templeton Investments,
including the Company and certain of its subsidiaries, other funds, and current
and former officers, employees, and directors have been named in multiple
lawsuits in different federal courts in Nevada, California, Illinois, New York
and Florida, alleging violations of various federal securities laws and seeking,
among other things, monetary damages and costs. Specifically, the lawsuits claim
breach of duty with respect to alleged arrangements to permit market timing
and/or late trading activity, or breach of duty with respect to the valuation of
the portfolio securities of certain funds managed by Company subsidiaries,
resulting in alleged market timing activity. The majority of these lawsuits
duplicate, in whole or in part, the allegations asserted in the Massachusetts
administrative complaint described above. The lawsuits are styled as class
actions or derivative actions on behalf of either the named funds or the
Company.
Various subsidiaries of the Company have also been named in multiple lawsuits
filed in state courts in Illinois alleging breach of duty with respect to
valuation of the portfolio securities of certain funds managed by such
subsidiaries.
In addition, the Company and certain of its subsidiaries, as well as certain
current and former officers, employees, and directors have been named in
multiple lawsuits alleging violations of various securities laws and pendent
state law claims relating to the disclosure of directed brokerage payments
and/or payment of allegedly excessive advisory, commission, and distribution
fees. These lawsuits are styled as class actions and derivative actions brought
on behalf of certain funds.
The Company's management strongly believes that the claims made in each of these
lawsuits are without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
governmental investigations or class actions or other lawsuits. If the Company
finds that it bears responsibility for any unlawful or inappropriate conduct
that caused losses to the Trust, it is committed to making the Trust or its
shareholders whole, as appropriate.
60 | Semiannual Report
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Semiannual Report | 61
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LITERATURE REQUEST
TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R)
(1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II(1)
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet
Investment Fund(2)
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(2)
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund(4)
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds
Allocation Fund
Franklin Templeton Perspectives
Allocation Fund
TARGET FUNDS
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 Federal Money Fund(5), (6)
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust(3)
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(5), (7)
Franklin Money Fund(5), (6)
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
TAX-FREE INCOME(8)
NATIONAL FUNDS
Double 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), (6)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
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) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
(2) The fund is only open to existing shareholders and select retirement
plans.
(3) 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.
(4) Upon reaching approximately $350 million in assets, the fund intends to
close to all investors.
(5) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(6) Although the fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
(7) Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and
strategy remained the same.
(8) For investors subject to the alternative minimum tax, a small portion of
fund 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 limited-term, intermediate-term and money market portfolios (CA and
NY).
(11) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/04 Not part of the semiannual report
[LOGO](R)
FRANKLIN(R) TEMPLETON(R) One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
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
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
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 S2004 11/04
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial experts are Edith E. Holiday and Harris J.
Ashton and they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 10. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 11. EXHIBITS.
(A) Code of Ethics
(B) (1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(B) (2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 29, 2004
By /s/Galen G. Vetter
Chief Financial Officer
Date November 29, 2004