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
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, 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: 3/31
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Date of reporting period: 9/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
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SEPTEMBER 30, 2006
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SEMI ANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
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 offices in
over 25 countries, Templeton offers investors
a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series
is dedicated to a unique style of value
investing, searching aggressively for
opportunity among what it believes are
undervalued stocks, as well as arbitrage
situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work
independently and adhere to different
investment approaches, Franklin, Templeton and
Mutual Series funds typically have distinct
portfolios. That's why our funds can be used
to build truly diversified allocation plans
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, accurate
and personal service that has 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 Interest Rates .............................................. 4
SEMIANNUAL REPORT
Franklin California Tax-Free Income Fund .................................. 7
Performance Summary ....................................................... 12
Your Fund's Expenses ...................................................... 15
Financial Highlights and
Statement of Investments .................................................. 17
Financial Statements ...................................................... 49
Notes to Financial Statements ............................................. 53
Shareholder Information ................................................... 60
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Shareholder Letter
Dear Shareholder:
During the six-month period ended September 30, 2006, the U.S. economy continued
to grow at a relatively healthy, though slowing, pace. Growth was supported by
moderate core inflation, some improving economic data and generally positive
corporate earnings reports. Counterbalancing these positive factors were rising
interest rates, volatile oil prices, mixed inflation signals and concerns about
the U.S. twin (federal and trade) deficits and their potential long-term effects
on interest rates and economic growth. At period-end, the housing market showed
signs of slowing, and the trade deficit continued to grow. However, the federal
budget deficit is expected to shrink this fiscal year because corporate and
income tax payments have been larger than expected.
The Federal Reserve Board (Fed) raised the federal funds target rate twice
during the reporting period, bringing it from 4.75% to 5.25%. However, the Fed
held rates steady at its August and September meetings and remains noncommittal
about the outlook for future rate actions. Chairman Bernanke has
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Not part of the semiannual report | 1
voiced his intention to analyze all economic data before deciding on the Fed's
next course of action. The 10-year Treasury yield decreased over the period,
falling from 4.86% to 4.64%.
Oil prices were volatile and ended the period at almost $63 a barrel, a
significant decline from the high of $77 per barrel this period. Many of the
factors that had caused the higher volatility and prices, such as anticipated
high hurricane activity, the U.N.-Iran standoff on nuclear power issues, British
Petroleum's Alaska's pipeline partial closure and the conflict between Israel
and Hezbollah in Lebanon, either did not materialize or decreased in intensity
during the reporting period. As a result, oil prices fell approximately 18% from
their high. As oil prices stabilize or decline, inflationary pressures can also
be expected to subside somewhat and overall interest rates could decline.
At period-end, the direction for interest rates and the fixed income market is
still somewhat unclear. Some evidence suggests that the economy might begin to
slow, which could cause inflation expectations and longer-term interest rates to
decline. Other evidence implies that inflation, indicated by rising unit labor
costs, might actually be increasing beyond the Fed's comfort level, which could
lead to higher interest rates. Partly in response to this uncertainty, Chairman
Bernanke decided to suspend the Fed's string of 17 consecutive rate increases
and await new data as it is released. We think Chairman Bernanke is right to
consider and analyze new data to gauge the economy's direction before he decides
what the Fed should do with short-term rates.
In the enclosed semiannual report for Franklin California Tax-Free Income Fund,
the portfolio managers discuss municipal bond market conditions, investment
decisions and Fund performance during the period. You can also find other
performance data and financial information. 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 articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
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.
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 and Co-Directors
Franklin Municipal Bond Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF SEPTEMBER 30, 2006. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
Not part of the semiannual report | 3
Special Feature
UNDERSTANDING INTEREST RATES
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. 1 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 to keep inflation in check or to help
stimulate the economy. The Fed funds rate is the rate 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.
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.
On the other hand, 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 from June 2004 to June 2006.
It should be noted that short- and long-term interest rates don't
necessarily move in tandem. While short-term rates rose in 2004 and 2005,
long-term rates, despite some fluctuations, remained relatively low.
1. For investors subject to alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid the imposition of 28% backup to withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W8-BEN.
[GRAPHIC Q & A]
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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4 | Not part of the semiannual report
[GRAPHIC Q & A]
Q. HOW DO CHANGES IN INTEREST RATES AFFECT BOND PRICES?
A. Typically, bond prices, and thus a tax-free income fund's share price,
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 come to market with higher yields
than existing bonds. The newly issued bonds 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.
[GRAPHIC OMITTED]
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.
Q. HOW DO INTEREST RATE CHANGES AFFECT MY TAX-FREE INCOME FUND'S TOTAL
RETURN?
A. Total return includes price movement (capital appreciation or
depreciation) and income. While interest rate changes will cause tax-free
income fund prices to fluctuate, it's important to remember that as a
tax-free income fund shareholder, you also receive monthly tax-free
income. Historically, income has been the largest component of total
return for municipal bonds. 2 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.
2. Source: Lehman Brothers Municipal Bond Index, 9/30/06. Total return
includes compounded income and capital appreciation over the 20-year
period ending 9/30/06. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Not part of the semiannual report | 5
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 over time.
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. 1
We carefully select bonds for our fund portfolios that we believe will
provide a high level of stable income over the long term. 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 portfolios.
Our straightforward, "plain-vanilla" approach to investing means we don't
try to time the market and predict interest rate movements. Similarly, we
don't 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.
Our investment strategy cannot eliminate interest rate risk, but it may
help to reduce this risk.
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.
[GRAPHIC Q & A]
[LOGO](R)
FRANKLIN TEMPLETON
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 as high a level of income exempt from federal and California
personal income taxes as is 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*
Based on Total Long-Term Investments as of 9/30/06**
AAA ............................... 54.3%
AA ................................ 4.3%
[PIE CHART] A ................................. 13.6%
BBB ............................... 17.2%
Below Investment Grade ............ 6.6%
Not Rated by S&P .................. 4.0%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
and Fitch are the secondary and tertiary rating agencies. 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 MOODY'S FITCH INTERNAL
AAA or Aaa 1.1% 0.1% 0.3%
A 0.1% -- 0.3%
BBB or Baa 0.4% 0.4% 0.9%
Below Investment Grade -- -- 0.4%
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Total 1.6% 0.5% 1.9%
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1. For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid the imposition of 28% backup withholding on all fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W8-BEN.
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 21.
Semiannual Report | 7
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PERFORMANCE DATA 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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We are pleased to bring you Franklin California Tax-Free Income Fund's
semiannual report for the period ended September 30, 2006.
PERFORMANCE SUMMARY
The Fund's Class A share price, as measured by net asset value, increased from
$7.26 on March 31, 2006, to $7.36 on September 30, 2006. The Fund's Class A
shares paid dividends totaling 16.48 cents per share for the reporting period. 2
The Performance Summary beginning on page 12 shows that at the end of this
reporting period the Fund's Class A shares' distribution rate was 4.31% based on
an annualization of the 2.76 cent per share September dividend and the maximum
offering price of $7.69 on September 30, 2006. An investor in the 2006 maximum
combined effective federal and California personal income tax bracket of 41.05%
would need to earn a distribution rate of 7.31% 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
During the six months under review, California's large and diverse economy
continued to expand, powered by a wide variety of industries including trade,
transportation, professional services, education, health services and
manufacturing. Private sector employment and personal incomes increased during
the reporting period. As of September 2006, the 4.8% unemployment rate was
slightly above the 4.6% national rate. 3
The state ended fiscal year 2006 with a positive general fund balance position.
Despite a soft housing market, which could indicate weakness in what appears to
be a healthy economy, the fiscal year 2007 budget proposal was further revised,
largely in response to the strong growth in personal income tax receipts -- a
trend that is expected to continue. The legislative approval process for the new
budget was relatively smooth as there were no significant budget cuts, tax
increases or deficit borrowing. In addition, the proposed budget included a
hefty spending increase for its Proposition 98 education programs that would
guarantee scaled minimum funding for grades K-14 schools. However, the state's
persistent structural budget gap remained a challenge.
2. 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.
8 | Semiannual Report
DIVIDEND DISTRIBUTIONS 2
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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 2.72 cents 2.39 cents 2.38 cents 2.78 cents
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May 2.72 cents 2.39 cents 2.38 cents 2.77 cents
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June 2.76 cents 2.43 cents 2.43 cents 2.81 cents
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July 2.76 cents 2.43 cents 2.43 cents 2.82 cents
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August 2.76 cents 2.43 cents 2.43 cents 2.81 cents
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September 2.76 cents 2.42 cents 2.42 cents 2.81 cents
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Overall debt levels rose rapidly, nearly doubling in the past four years to
$1,476 per capita, but are expected to stay manageable. 4 Independent credit
rating agency Standard & Poor's assigned California's general obligation bonds
an A+ rating with a stable outlook. 5
MUNICIPAL BOND MARKET OVERVIEW
For the six-month period ended September 30, 2006, the municipal bond market
continued to face moderate inflation expectations, mixed economic releases,
volatile oil prices, concerns about the dollar, and geopolitical instability.
Municipal bonds underperformed U.S. Treasury bonds over the six-month period.
The Lehman Brothers Municipal Bond Index returned +3.44% for the period, while
the Lehman Brothers U.S. Treasury Index returned +3.61%. 6
During the period, the Federal Reserve Board (Fed) raised the federal funds
target rate incrementally from 4.75% to 5.25%. In August and September, the Fed
left the 5.25% rate unchanged, citing moderate economic growth, a gradually
cooling housing market, and the lagging effect of prior tightening. The Fed
stated that some inflation risk may remain and the extent and timing of any
additional interest rate hikes will depend upon incoming data on inflation and
economic growth.
4. Source: Standard & Poor's, "Research: California; General Obligation,"
RATINGSDIRECT, 8/28/06.
5. This does not indicate Standard & Poor's rating of the Fund.
6. Source: Standard & Poor's Micropal. 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 $7
million and be issued as part of a transaction of at least $75 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. The Lehman Brothers U.S. Treasury Index includes public
obligations of the U.S. Treasury with a remaining maturity of one year or
more. All issues must have at least one year to final maturity regardless
of call features, have at least $250 million par amount outstanding and be
rated investment grade (Baa3 or better). They must also be dollar
denominated, nonconvertible and publicly issued.
Semiannual Report | 9
PORTFOLIO BREAKDOWN
9/30/06
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% OF TOTAL
LONG-TERM INVESTMENTS*
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Prerefunded 24.2%
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Transportation 20.1%
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Hospital & Health Care 13.9%
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General Obligation 13.9%
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Utilities 10.5%
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Subject to Government Appropriations 7.0%
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Tax-Supported 4.6%
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Higher Education 2.4%
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Other Revenue 1.8%
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Housing 1.6%
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* Does not include short-term investments and other net assets.
Over the reporting period, interest rates across the Treasury yield curve (the
spread between short-term and long-term yields) moved lower, with long-term
rates decreasing more than shorter-term rates. The municipal yield curve
flattened over the reporting period but remained steeper than the Treasury
curve. According to Municipal Market Data, the 2-year municipal note yield rose
6 basis points (100 basis points equal one percentage point), while the 10-year
yield decreased 7 basis points and the 30-year yield fell 13 basis points during
the period. 7 Consequently, long-maturity municipal bonds continued to perform
comparatively well.
Motivated by a relatively low interest rate environment, along with expectations
that rates might continue to rise, municipal bond issuers previously had been
refunding higher yielding outstanding debt and accessed the debt market to
finance capital needs. As a result of generally higher interest rates, refunding
activity declined substantially in 2006. So far in 2006, overall supply has been
almost 17% lighter than the same period in 2005. 8 Demand for municipal bonds
remained strong over the first half of the Fund's fiscal year as investors found
municipal bonds' taxable equivalent yields attractive. Healthy demand came from
a wide range of traditional buyers such as mutual funds, individuals, property
and casualty companies, and also from nontraditional crossover participants.
Crossover buyers typically invest in taxable securities; however, they will
enter the municipal bond market when municipal valuations are attractive. This
broad base of buyers and tight bond supply supported the municipal bond market.
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.
7. Source: Thomson Financial.
8. Source: THE BOND BUYER.
10 | Semiannual Report
MANAGER'S DISCUSSION
The mixture of our value-oriented philosophy of investing primarily for income
and a relatively steep municipal yield curve compared to Treasuries favored the
use of longer-term bonds. Consequently, we sought to remain fully invested in
bonds that ranged from 15 to 30 years in maturity with good call features. We
intend to maintain our conservative, buy-and-hold investment strategy as we
attempt to provide shareholders with high, current, tax-free income.
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, 2006, 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 INVESTMENT MANAGER 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.
Semiannual Report | 11
Performance Summary
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 that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FKTFX) CHANGE 9/30/06 3/31/06
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Net Asset Value (NAV) +$0.10 $7.36 $7.26
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DISTRIBUTIONS (4/1/06-9/30/06)
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Dividend Income $0.1648
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Long-Term Capital Gain $0.0016
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TOTAL $0.1664
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CLASS B (SYMBOL: FCABX) CHANGE 9/30/06 3/31/06
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Net Asset Value (NAV) +$0.09 $7.35 $7.26
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DISTRIBUTIONS (4/1/06-9/30/06)
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Dividend Income $0.1449
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Long-Term Capital Gain $0.0016
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TOTAL $0.1465
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CLASS C (SYMBOL: FRCTX) CHANGE 9/30/06 3/31/06
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Net Asset Value (NAV) +$0.10 $7.35 $7.25
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DISTRIBUTIONS (4/1/06-9/30/06)
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Dividend Income $0.1447
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Long-Term Capital Gain $0.0016
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TOTAL $0.1463
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ADVISOR CLASS (SYMBOL: FCAVX) CHANGE 9/30/06 3/31/06
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Net Asset Value (NAV) +$0.10 $7.35 $7.25
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DISTRIBUTIONS (4/1/06-9/30/06)
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Dividend Income $0.1680
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Long-Term Capital Gain $0.0016
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TOTAL $0.1696
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12 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN
INCLUDES MAXIMUM SALES CHARGES. 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;
ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS
MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +3.73% +5.06% +28.47% +73.62%
- -------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 -0.65% +0.54% +4.24% +5.21%
- -------------------------------------------------------------------------------------------------------------------------
Distribution Rate 3 4.31%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 4 7.31%
- -------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 3.64%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 4 6.17%
- -------------------------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +3.31% +4.47% +24.94% +40.27%
- -------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 -0.69% +0.47% +4.22% +4.46%
- -------------------------------------------------------------------------------------------------------------------------
Distribution Rate 3 3.95%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 4 6.70%
- -------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 3.23%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 4 5.48%
- -------------------------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +3.45% +4.48% +24.95% +64.21%
- -------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.45% +3.48% +4.56% +5.08%
- -------------------------------------------------------------------------------------------------------------------------
Distribution Rate 3 3.95%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 4 6.70%
- -------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 3.24%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 4 5.50%
- -------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 6 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +3.78% +5.15% +28.86% +74.15%
- -------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.78% +5.15% +5.20% +5.70%
- -------------------------------------------------------------------------------------------------------------------------
Distribution Rate 3 4.59%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 4 7.79%
- -------------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 3.88%
- -------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 4 6.58%
- -------------------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA 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.
Semiannual Report | 13
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 GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES,
THE FUND'S SHARE PRICE MAY DECLINE. 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.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated. 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 9/30/06.
4. Taxable equivalent distribution rate and yield assume the published rates
as of 6/22/06 for the maximum combined effective federal and California
personal income tax rate 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 9/30/06.
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 +28.85% and +5.20%.
14 | Semiannual Report
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 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. 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.
Semiannual Report | 15
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 4/1/06 VALUE 9/30/06 PERIOD* 4/1/06-9/30/06
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,037.30 $2.96
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.16 $2.94
- ----------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,033.10 $5.81
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.35 $5.77
- ----------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,034.50 $5.81
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.35 $5.77
- ----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,037.80 $2.50
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.61 $2.48
- ----------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
0.58%; B: 1.14%; C: 1.14%; and Advisor: 0.49%), multiplied by the average
account value over the period, multiplied by 183/365 to reflect the
one-half year period.
16 | Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2006 YEAR ENDED MARCH 31,
CLASS A (UNAUDITED) 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $ 7.26 $ 7.27 $ 7.32 $ 7.24 $ 7.07 $ 7.24
---------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........... 0.17 0.33 0.34 0.35 0.35 0.37
Net realized and unrealized
gains (losses) ................... 0.09 -- d (0.04) 0.07 0.21 (0.16)
---------------------------------------------------------------------------------------------
Total from investment operations ... 0.26 0.33 0.30 0.42 0.56 0.21
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............. (0.16) (0.33) (0.34) (0.34) (0.36) (0.37)
Net realized gains ................ -- d (0.01) (0.01) -- (0.03) (0.01)
---------------------------------------------------------------------------------------------
Total distributions ................ (0.16) (0.34) (0.35) (0.34) (0.39) (0.38)
---------------------------------------------------------------------------------------------
Redemption fees .................... -- d -- d -- d -- -- --
---------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 7.36 $ 7.26 $ 7.27 $ 7.32 $ 7.24 $ 7.07
=============================================================================================
Total return c ..................... 3.73% 4.64% 4.16% 6.04% 8.05% 2.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $12,684,032 $12,418,764 $12,270,603 $12,784,815 $13,376,339 $13,016,197
Ratio to average net assets:
Expenses .......................... 0.58% e 0.58% 0.57% 0.58% 0.57% 0.57%
Net investment income ............. 4.58% e 4.55% 4.76% 4.80% 4.90% 5.08%
Portfolio turnover rate ............ 3.22% 8.82% 8.46% 11.57% 11.92% 13.23%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
d Amount rounds to less than $0.01 per share.
e Annualized.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 17
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2006 YEAR ENDED MARCH 31,
CLASS B (UNAUDITED) 2006 2005 2004 2003 2002
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 7.26 $ 7.26 $ 7.31 $ 7.23 $ 7.07 $ 7.24
-----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............... 0.15 0.29 0.30 0.30 0.31 0.33
Net realized and unrealized
gains (losses) ....................... 0.08 0.01 (0.04) 0.08 0.20 (0.16)
-----------------------------------------------------------------------------
Total from investment operations ....... 0.23 0.30 0.26 0.38 0.51 0.17
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ................. (0.14) (0.29) (0.30) (0.30) (0.32) (0.33)
Net realized gains .................... -- d (0.01) (0.01) -- (0.03) (0.01)
-----------------------------------------------------------------------------
Total distributions .................... (0.14) (0.30) (0.31) (0.30) (0.35) (0.34)
-----------------------------------------------------------------------------
Redemption fees ........................ -- d -- d -- d -- -- --
-----------------------------------------------------------------------------
Net asset value, end of period ......... $ 7.35 $ 7.26 $ 7.26 $ 7.31 $ 7.23 $ 7.07
=============================================================================
Total return c ......................... 3.31% 4.20% 3.57% 5.44% 7.46% 2.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $317,256 $331,385 $358,856 $394,728 $402,085 $309,196
Ratio to average net assets:
Expenses .............................. 1.14% e 1.14% 1.14% 1.15% 1.14% 1.14%
Net investment income ................. 4.02% e 3.99% 4.19% 4.23% 4.33% 4.51%
Portfolio turnover rate ................ 3.22% 8.82% 8.46% 11.57% 11.92% 13.23%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
d Amount rounds to less than $0.01 per share.
e Annualized.
18 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2006 YEAR ENDED MARCH 31,
CLASS C (UNAUDITED) 2006 2005 2004 2003 2002
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 7.25 $ 7.26 $ 7.31 $ 7.23 $ 7.06 $ 7.23
-----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............... 0.15 0.29 0.30 0.30 0.31 0.33
Net realized and unrealized
gains (losses) ....................... 0.09 -- d (0.04) 0.08 0.21 (0.16)
-----------------------------------------------------------------------------
Total from investment operations ....... 0.24 0.29 0.26 0.38 0.52 0.17
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ................. (0.14) (0.29) (0.30) (0.30) (0.32) (0.33)
Net realized gains .................... -- d (0.01) (0.01) -- (0.03) (0.01)
-----------------------------------------------------------------------------
Total distributions .................... (0.14) (0.30) (0.31) (0.30) (0.35) (0.34)
-----------------------------------------------------------------------------
Redemption fees ........................ -- d -- d -- d -- -- --
-----------------------------------------------------------------------------
Net asset value, end of period ......... $ 7.35 $ 7.25 $ 7.26 $ 7.31 $ 7.23 $ 7.06
=============================================================================
Total return c ......................... 3.45% 4.06% 3.57% 5.46% 7.46% 2.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $582,541 $546,815 $494,254 $523,545 $538,460 $464,108
Ratio to average net assets:
Expenses .............................. 1.14% e 1.14% 1.14% 1.15% 1.13% 1.14%
Net investment income ................. 4.02% e 3.99% 4.19% 4.23% 4.34% 4.52%
Portfolio turnover rate ................ 3.22% 8.82% 8.46% 11.57% 11.92% 13.23%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicalble, and is not annualized for periods less than
one year.
d Amount rounds to less than $0.01 per share.
e Annualized.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 19
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30,
2006 YEAR ENDED MARCH 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 2004 2003 2002 f
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 7.25 $ 7.26 $ 7.31 $ 7.23 $ 7.07 $ 7.29
-----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............... 0.17 0.34 0.35 0.35 0.36 0.19
Net realized and unrealized
gains (losses) ...................... 0.10 -- d (0.05) 0.08 0.19 (0.24)
-----------------------------------------------------------------------------
Total from investment operations ....... 0.27 0.34 0.30 0.43 0.55 (0.05)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ................. (0.17) (0.34) (0.34) (0.35) (0.36) (0.16)
Net realized gains .................... -- d (0.01) (0.01) -- (0.03) (0.01)
-----------------------------------------------------------------------------
Total distributions .................... (0.17) (0.35) (0.35) (0.35) (0.39) (0.17)
-----------------------------------------------------------------------------
Redemption fees ........................ -- d -- d -- d -- -- --
-----------------------------------------------------------------------------
Net asset value, end of period ......... $ 7.35 $ 7.25 $ 7.26 $ 7.31 $ 7.23 $ 7.07
=============================================================================
Total return c ......................... 3.78% 4.73% 4.26% 6.13% 8.00% (0.80)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $ 76,147 $ 65,655 $ 42,389 $ 14,096 $ 10,217 $ 2,134
Ratio to average net assets:
Expenses .............................. 0.49% e 0.49% 0.49% 0.50% 0.49% 0.49% e
Net investment income ................. 4.67% e 4.64% 4.84% 4.88% 4.98% 5.25% e
Portfolio turnover rate ................ 3.22% 8.82% 8.46% 11.57% 11.92% 13.23%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return is not annualized for periods less than one year.
d Amount rounds to less than $0.01 per share.
e Annualized.
f For the period October 1, 2001 (effective date) to March 31, 2002.
20 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.4%
MUNICIPAL BONDS 97.4%
CALIFORNIA 89.5%
ABAG Finance Authority for Nonprofit Corps. COP,
Butte Valley-Tulelake Rural Health, California Mortgage Insured, 6.65%, 10/01/22 $ 760,000 $ 785,911
California Mortgage Insured, 6.125%, 3/01/21 ................................... 4,245,000 4,328,754
Episcopal Home Foundation, Refunding, 5.125%, 7/01/13 .......................... 6,000,000 6,155,820
Episcopal Home Foundation, Refunding, 5.125%, 7/01/18 .......................... 20,625,000 21,069,881
Home for Jewish Parents, California Mortgage Insured, 5.625%, 5/15/22 .......... 5,000,000 5,158,250
Lytton Gardens Inc., Refunding, California Mortgage Insured, 6.00%, 2/15/30 .... 5,000,000 5,195,500
Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 .................. 5,525,000 5,689,148
Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/23 ......... 5,000,000 5,118,750
ABAG Finance Authority for Nonprofit Corps. MFHR, Palo Alto Gardens Apartments,
Series A, 5.45%, 4/01/39 ......................................................... 5,500,000 5,566,880
ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Assn.,
Series A, 6.125%, 8/15/20 ...................................................... 23,525,000 25,578,968
Series C, 5.375%, 3/01/21 ...................................................... 5,000,000 5,250,350
ABAG Revenue Tax Allocation, RDA Pool,
Series A4, FSA Insured, 5.875%, 12/15/25 ....................................... 1,470,000 1,476,747
Series A6, FSA Insured, 5.375%, 12/15/25 ....................................... 3,670,000 3,819,332
ABAG Water and Wastewater Revenue, Pooled Financing Program, Refunding, Series A,
FSA Insured, 5.30%, 10/01/21 ..................................................... 5,450,000 5,733,455
Alameda Corridor Transportation Authority Revenue,
AMBAC Insured, zero cpn. to 10/01/12, 5.30% thereafter, 10/01/22 ............... 81,685,000 65,653,502
AMBAC Insured, zero cpn. to 10/01/12, 5.30% thereafter, 10/01/23 ............... 70,015,000 56,100,919
AMBAC Insured, zero cpn. to 10/01/12, 5.40% thereafter, 10/01/24 ............... 43,770,000 35,113,607
AMBAC Insured, zero cpn. to 10/01/12, 5.45% thereafter, 10/01/25 ............... 32,960,000 26,443,808
Refunding, AMBAC Insured, zero cpn., 10/01/29 .................................. 20,000,000 7,045,200
Refunding, AMBAC Insured, zero cpn., 10/01/30 .................................. 22,000,000 7,371,100
senior lien, Series A, MBIA Insured, 5.00%, 10/01/29 ........................... 24,490,000 25,265,598
Alameda County COP, Alameda County Medical Center Project, MBIA Insured, ETM,
5.00%, 6/01/23 ................................................................. 19,195,000 19,660,095
5.30%, 6/01/26 ................................................................. 7,000,000 7,022,190
5.00%, 6/01/28 ................................................................. 8,925,000 9,073,423
Alvord USD, GO, Series A, FGIC Insured, ETM, 5.375%, 8/01/27 ...................... 6,100,000 6,288,124
Anaheim PFA Lease Revenue,
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/24 ............................................................. 26,855,000 12,146,248
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/26 ............................................................ 29,430,000 12,087,490
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/27 ............................................................ 22,860,000 8,942,146
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/28 ............................................................ 8,425,000 3,137,386
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/29 ............................................................ 4,320,000 1,527,509
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/32 ............................................................ 13,665,000 4,153,203
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/33 ............................................................ 37,070,000 10,732,506
Semiannual Report | 21
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Anaheim PFA Lease Revenue, (continued)
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 9/01/34 .......................................................... $ 24,970,000 $ 6,884,978
Capital Appreciation, Public Improvements Project, Series C, FSA Insured,
zero cpn., 3/01/37 .......................................................... 16,080,000 3,927,058
Public Improvements Project, Series A, FSA Insured, 5.00%, 9/01/27 ........... 8,900,000 9,081,738
Public Improvements Project, Series A, FSA Insured, 5.00%, 3/01/37 ........... 100,000,000 101,916,000
Anaheim PFAR, Distribution System, second lien, MBIA Insured, 5.00%,
10/01/29 ..................................................................... 4,325,000 4,548,819
10/01/34 ..................................................................... 5,500,000 5,761,855
Anaheim UHSD, GO,
Capital Appreciation, Series A, FSA Insured, zero cpn., 8/01/26 .............. 8,570,000 3,532,983
Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/25 .......................... 3,900,000 4,207,788
Antioch Area Public Facilities Financing Agency Special Tax, CFD No. 1989-1,
MBIA Insured, 5.50%, 8/01/22 ................................................... 4,870,000 5,042,106
Antioch PFA, Reassessment Revenue, sub. lien, Refunding, Sub Series B,
5.50%, 9/02/08 ............................................................... 1,140,000 1,171,225
5.60%, 9/02/09 ............................................................... 1,205,000 1,242,656
Arcadia Hospital Revenue, Methodist Hospital of Southern California,
6.50%, 11/15/12 .............................................................. 1,890,000 1,892,514
6.625%, 11/15/22 ............................................................. 3,750,000 3,755,138
Baldwin Park PFAR Tax Allocation, Refunding, Series A, 7.75%, 8/01/19 ........... 4,955,000 4,963,572
Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Refunding,
Series F, 5.00%, 4/01/31 ....................................................... 51,255,000 54,149,882
Belmont Redwood Shores School District, Series A, Pre-Refunded, 5.50%, 9/01/22 .. 6,500,000 6,748,755
Beverly Hills USD, GO, Election of 2002, Series B, 5.00%, 8/01/30 ............... 8,590,000 9,091,914
Bonita USD, GO, Election of 2004, Series A, MBIA Insured, 5.00%, 8/01/27 ........ 5,100,000 5,393,811
Brentwood 1915 Act Revenue, Infrastructure Financing, Reassessment, Refunding,
Series A, FSA Insured, 5.80%, 9/02/17 .......................................... 5,100,000 5,249,430
Burbank Parking Authority Special Tax, CFD No. 1, 8.375%, 10/01/06 .............. 225,000 225,000
Byron USD, GO, Series A, FGIC Insured, 5.00%, 8/01/31 ........................... 5,145,000 5,440,117
Calexico USD, GO, Refunding, MBIA Insured, 5.25%, 8/01/33 ....................... 4,285,000 4,614,731
California Counties Lease Financing Authority COP, CSAC Financing Corp.,
Amador County Project, ETM, 7.70%, 10/01/09 .................................... 1,050,000 1,428,179
California County Tobacco Securitization Agency Revenue, Asset-Backed,
Alameda County, 5.875%, 6/01/35 .............................................. 7,500,000 7,891,050
Gold Country Funding Corp., Pre-Refunded, 6.00%, 6/01/38 ..................... 10,000,000 11,223,600
Golden Gate Corp., Series A, 6.00%, 6/01/43 .................................. 10,000,000 10,537,100
Kern County Corp., Series A, 6.125%, 6/01/43 ................................. 28,135,000 29,818,036
Kern County Corp., Series B, 6.25%, 6/01/37 .................................. 19,460,000 20,832,319
Stanislaus Fund, Series A, 5.875%, 6/01/43 ................................... 8,690,000 9,103,644
California County Tobacco Securitization Agency Tobacco Revenue, Asset-Backed,
Merced Funding Corp., Series A, Pre-Refunded, 5.875%, 6/01/43 ................ 10,235,000 11,422,362
Sonoma County Corp., Series A, Pre-Refunded, 5.875%, 6/01/43 ................. 30,000,000 33,480,300
California Educational Facilities Authority Revenue,
Chapman University, Refunding, Connie Lee Insured, 5.125%, 10/01/26 .......... 2,545,000 2,599,132
Chapman University, Refunding, Connie Lee Insured, Pre-Refunded,
5.125%, 10/01/26 .......................................................... 7,455,000 7,604,100
22 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Educational Facilities Authority Revenue, (continued)
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/32 .................................................................... $ 8,435,000 $ 1,757,601
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/33 .................................................................... 8,435,000 1,647,946
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/34 .................................................................... 8,435,000 1,545,123
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/35 .................................................................... 8,435,000 1,448,627
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/36 .................................................................... 8,435,000 1,358,204
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/37 .................................................................... 8,435,000 1,273,432
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/38 .................................................................... 8,435,000 1,193,890
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn.,
10/01/39 .................................................................... 8,435,000 1,119,409
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/26 .... 7,620,000 3,148,660
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/27 .... 7,365,000 2,899,821
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/28 .... 4,120,000 1,545,041
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/30 .... 5,685,000 1,927,272
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/31 .... 7,615,000 2,455,685
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/32 .... 7,615,000 2,335,064
Occidental College, Refunding, Series A, MBIA Insured, 5.00%, 10/01/36 ....... 7,275,000 7,651,408
Pepperdine University, Refunding, Series B, AMBAC Insured, 5.00%, 12/01/32 ... 5,000,000 5,266,250
Pooled College and University, Series B, 6.75%, 6/01/30 ...................... 11,495,000 12,789,107
Santa Clara University, Refunding, AMBAC Insured, zero cpn., 9/01/26 ......... 5,800,000 2,405,492
Stanford University, Refunding, Series O, 5.125%, 1/01/31 .................... 21,250,000 21,810,787
Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 ................. 500,000 513,645
California Health Facilities Financing Authority Revenue,
Casa Colina, 6.125%, 4/01/32 ................................................. 10,300,000 11,075,281
Catholic Healthcare West, 2005, Refunding, Series A, 5.00%, 7/01/18 .......... 26,345,000 27,095,569
Catholic Healthcare West, 2005, Refunding, Series A, 5.00%, 7/01/28 .......... 122,985,000 125,236,855
Catholic Healthcare West, 2005, Series A, Pre-Refunded, 5.00%, 7/01/18 ....... 1,750,000 1,812,160
Catholic Healthcare West, 2005, Series A, Pre-Refunded, 5.00%, 7/01/28 ....... 17,270,000 17,883,430
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.75%, 7/01/15 .. 12,500,000 12,949,875
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 .. 5,680,000 5,802,063
Catholic Healthcare West, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/17 1,480,000 1,526,324
Catholic Healthcare West, Series A, MBIA Insured, Pre-Refunded, 5.125%, 7/01/24 3,125,000 3,225,656
Catholic Healthcare West, Series A, Pre-Refunded, 5.00%, 7/01/18 ............. 11,905,000 12,327,866
Catholic Healthcare West, Series G, 5.25%, 7/01/23 ........................... 3,000,000 3,167,580
Catholic, 2005, Refunding, Series A, MBIA Insured, 5.00%, 7/01/17 ............ 3,390,000 3,491,802
Catholic, 2005, Refunding, Series A, MBIA Insured, 5.125%, 7/01/24 ........... 7,825,000 8,059,437
Catholic, 2005, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/17 ......... 130,000 134,069
Catholic, 2005, Series A, MBIA Insured, Pre-Refunded, 5.125%, 7/01/24 ........ 550,000 567,716
Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/17 ......... 8,355,000 8,626,454
Cedars-Sinai Medical Center, Series B, MBIA Insured, 5.25%, 8/01/27 .......... 52,500,000 54,214,650
County Program, Series B, 7.20%, 1/01/12 ..................................... 1,930,000 1,932,837
Semiannual Report | 23
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Health Facilities Financing Authority Revenue, (continued)
El Proyecto, Series A, California Mortgage Insured, 5.50%, 12/01/22 ........................ $ 3,350,000 $ 3,427,318
Enloe Health System, Refunding, Series A, FSA Insured, 5.00%, 11/15/18 ..................... 5,000,000 5,180,200
Enloe Health System, Refunding, Series A, FSA Insured, 5.00%, 11/15/28 ..................... 25,390,000 26,080,100
Families First, Refunding, Series A, California Mortgage Insured, 6.00%, 12/01/25 .......... 11,365,000 12,009,395
Feedback Foundation Inc., Series A, California Mortgage Insured, 6.50%, 12/01/22 ........... 2,300,000 2,302,415
Hospital of the Good Samaritan, Refunding, 7.00%, 9/01/21 .................................. 71,050,000 71,062,789
Insured Health Facility, Help Group, Series A, California Mortgage Insured,
6.10%, 8/01/25 ............................................................................ 12,905,000 13,588,449
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 ........................................... 46,000,000 47,079,620
Kaiser Permanente, Series A, FSA Insured, ETM, 5.00%, 6/01/20 .............................. 32,295,000 33,443,087
Kaiser Permanente, Series A, FSA Insured, ETM, 5.00%, 6/01/24 .............................. 136,775,000 141,191,465
Kaiser Permanente, Series A, zero cpn., 10/01/11 ........................................... 13,970,000 11,520,360
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 .......................................... 7,515,000 7,827,173
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/18 .......................................... 38,260,000 39,644,247
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/20 .......................................... 38,020,000 39,373,512
Kaiser Permanente, Series B, ETM, 5.40%, 5/01/28 ........................................... 80,000,000 81,877,600
Lucile Salter Packard Hospital, Series C, AMBAC Insured, 5.00%, 8/15/26 .................... 6,000,000 6,279,720
Marshall Hospital, Refunding, Series A, California Mortgage Insured, 5.30%, 11/01/28 ....... 5,500,000 5,642,615
Northern California Presbyterian, Refunding, 5.40%, 7/01/28 ................................ 6,340,000 6,419,250
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.125%, 1/01/22 ........... 6,610,000 6,938,517
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.25%, 1/01/26 ............ 5,000,000 5,268,450
Pomona Valley Hospital, Refunding, Series A, MBIA Insured, 5.625%, 7/01/19 ................. 8,500,000 8,798,180
Small Facilities Loan, Health Facilities, Refunding, Series B, California Mortgage Insured,
7.50%, 4/01/22 ............................................................................ 1,205,000 1,329,508
Small Facilities Loan, Health Facilities, Series A, California Mortgage Insured,
6.75%, 3/01/20 ............................................................................ 655,000 663,109
Small Facilities Program, Refunding, Series A, FGIC Insured, 5.00%, 4/01/25 ................ 10,915,000 11,501,354
Southern California, Series A, California Mortgage Insured, 5.50%, 12/01/22 ................ 3,070,000 3,140,856
Sutter Health, Refunding, Series A, FSA Insured, 5.25%, 8/15/27 ............................ 5,300,000 5,476,278
Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 .......................... 5,750,000 5,873,568
Sutter Health, Refunding, Series A, MBIA Insured, 5.35%, 8/15/28 ........................... 6,170,000 6,458,633
Sutter Health, Series A, FSA Insured, 5.00%, 8/15/37 ....................................... 61,000,000 62,427,400
Sutter Health, Series A, MBIA Insured, 5.375%, 8/15/30 ..................................... 10,600,000 10,976,512
Sutter Health, Series A, MBIA Insured, Pre-Refunded, 5.35%, 8/15/28 ........................ 480,000 508,714
The Episcopal Home, California Mortgage Insured, 5.30%, 2/01/32 ............................ 28,150,000 29,420,691
The Help Group, Refunding, California Mortgage Insured, 5.40%, 8/01/22 ..................... 7,420,000 7,661,447
UCSF-Stanford Health Care, Refunding, Series B, FSA Insured, 5.00%, 11/15/31 ............... 26,920,000 27,640,648
University of California San Francisco-Stanford Health Care, Refunding, Series A,
FSA Insured, 5.00%, 11/15/31 .............................................................. 5,750,000 5,903,928
University of California San Francisco-Stanford Health Care, Refunding, Series B,
AMBAC Insured, 5.00%, 11/15/28 ............................................................ 25,000,000 25,679,500
Valleycare Hospital Corp., Refunding, California Mortgage Insured, 5.50%, 5/01/20 .......... 11,640,000 11,986,406
California Health Facilities, Financing Authority Revenue, Insured Health Facility, Valleycare,
Series A, California Mortgage Insured, 5.25%, 5/01/22 ........................................ 5,000,000 5,281,250
California HFA, SFM Purchase Revenue, Series A-2, FHA Insured, 6.45%, 8/01/25 ................. 245,000 246,872
24 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California HFAR,
Class 1, Series B-1, AMBAC Insured, 5.65%, 8/01/28 ...................................... $ 2,185,000 $ 2,225,838
Home Mortgage, Capital Appreciation, Series A, zero cpn., 8/01/16 ....................... 575,000 220,444
Home Mortgage, Series K, 4.75%, 8/01/36 ................................................. 10,000,000 9,963,500
Home Mortgage, Series N, AMBAC Insured, zero cpn. to 2/01/10, 6.30% thereafter,
8/01/31, 8/01/31 ....................................................................... 2,605,000 2,146,051
MFHR II, Series A, AMBAC Insured, 6.25%, 2/01/37 ........................................ 1,235,000 1,254,192
MFHR III, Series B, MBIA Insured, 5.50%, 8/01/39 ........................................ 11,950,000 12,271,813
California Infrastructure and Economic Development Bank Revenue,
Bay Area Toll Bridges, first lien, Series A, AMBAC Insured, Pre-Refunded,
5.00%, 7/01/33 ......................................................................... 5,000,000 5,649,050
Bay Area Toll Bridges, first lien, Series A, FGIC Insured, Pre-Refunded, 5.00%, 7/01/29 . 50,985,000 56,803,408
Kaiser Hospital Assistance I LLC, Series B, 5.50%, 8/01/31 .............................. 10,000,000 10,662,000
Kaiser Hospital Assistance II LLC, Series A, 5.55%, 8/01/31 ............................. 34,000,000 36,324,240
California PCFA, PCR,
Pacific Gas and Electric Co., Mandatory Put 6/01/07, Refunding, Series B, FGIC Insured,
3.50%, 12/01/23 ......................................................................... 5,000,000 4,993,400
Pacific Gas and Electric Co., Refunding, Series A, MBIA Insured, 5.35%, 12/01/16 ........ 31,500,000 33,962,670
San Diego Gas and Electric Co., Series A, 5.85%, 6/01/21 ................................ 32,535,000 32,560,377
California Resources Efficiency Financing Authority COP, Capital Improvement Program,
Refunding, AMBAC Insured,
5.625%, 4/01/22 ........................................................................ 10,365,000 10,676,676
5.75%, 4/01/27 ......................................................................... 7,885,000 8,126,912
California State Department of Veteran Affairs Home Purchase Revenue,
Refunding, Series A, 5.40%, 12/01/28 .................................................... 9,580,000 9,822,087
Refunding, Series B, 5.50%, 12/01/18 .................................................... 2,500,000 2,572,675
Series A, 5.20%, 12/01/27 ............................................................... 31,000,000 31,028,210
Series B, 5.20%, 12/01/28 ............................................................... 5,975,000 5,980,736
California State Department of Water Resources Central Valley Project Revenue, Water System,
Refunding, Series Q, MBIA Insured, 5.375%, 12/01/27 ..................................... 20,055,000 20,413,984
Refunding, Series S, 5.00%, 12/01/29 .................................................... 24,595,000 25,124,038
Refunding, Series U, 5.00%, 12/01/29 .................................................... 12,000,000 12,323,400
Refunding, Series Y, FGIC Insured, 5.00%, 12/01/25 ...................................... 20,000,000 21,050,400
Series Q, MBIA Insured, Pre-Refunded, 5.375%, 12/01/27 .................................. 37,945,000 38,631,425
California State Department of Water Resources Power Supply Revenue,
Series A, Pre-Refunded, 5.25%, 5/01/20 .................................................. 50,000,000 54,834,000
Series A, Pre-Refunded, 5.375%, 5/01/21 ................................................. 22,000,000 24,265,340
Series A, Pre-Refunded, 5.375%, 5/01/22 ................................................. 34,020,000 37,523,039
California State GO,
5.00%, 2/01/22 .......................................................................... 7,000,000 7,367,570
6.00%, 5/01/24 .......................................................................... 2,565,000 2,569,104
5.125%, 4/01/25 ......................................................................... 5,000,000 5,281,450
5.20%, 4/01/26 .......................................................................... 17,000,000 18,127,950
5.25%, 4/01/27 .......................................................................... 5,000,000 5,361,000
5.25%, 4/01/29 .......................................................................... 5,580,000 5,960,612
5.25%, 4/01/34 .......................................................................... 20,000,000 21,284,800
2006, Pre-Refunded, 5.25%, 10/01/23 ..................................................... 990,000 1,054,400
2006, Refunding, 5.25%, 10/01/23 ........................................................ 540,000 575,127
Semiannual Report | 25
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State GO, (continued)
AMBAC Insured, 5.90%, 3/01/25 ............................................................ $ 210,000 $ 212,081
FGIC Insured, 6.00%, 8/01/19 ............................................................. 905,000 912,548
FGIC Insured, 5.625%, 10/01/26 ........................................................... 8,645,000 8,822,136
FGIC Insured, Pre-Refunded, 5.625%, 10/01/26 ............................................. 32,855,000 33,183,550
FSA Insured, 5.50%, 4/01/19 .............................................................. 570,000 575,865
FSA Insured, 5.50%, 3/01/20 .............................................................. 850,000 857,064
FSA Insured, Pre-Refunded, 5.50%, 9/01/29 ................................................ 30,000,000 31,984,200
MBIA Insured, 5.00%, 10/01/23 ............................................................ 4,055,000 4,147,738
MBIA Insured, 6.00%, 8/01/24 ............................................................. 990,000 998,098
MBIA Insured, Pre-Refunded, 5.00%, 10/01/23 .............................................. 945,000 969,041
Pre-Refunded, 5.25%, 9/01/23 ............................................................. 19,750,000 21,009,063
Pre-Refunded, 5.25%, 10/01/23 ............................................................ 7,720,000 8,222,186
Principal Eagles II, Series 3, zero cpn., 3/01/09 ........................................ 7,500,000 6,861,300
Principal Eagles II, Series 6, zero cpn., 3/01/09 ........................................ 5,000,000 4,574,200
Principal M-Raes, Series 8, zero cpn., 4/01/09 ........................................... 9,000,000 8,208,270
Refunding, 5.25%, 9/01/23 ................................................................ 1,250,000 1,329,688
Refunding, 5.625%, 9/01/24 ............................................................... 255,000 259,498
Refunding, 5.00%, 2/01/27 ................................................................ 46,000,000 47,670,260
Refunding, 5.00%, 8/01/28 ................................................................ 10,000,000 10,509,000
Refunding, 5.00%, 2/01/29 ................................................................ 13,000,000 13,440,700
Refunding, 5.25%, 2/01/29 ................................................................ 44,000,000 46,465,320
Refunding, 5.25%, 2/01/29 ................................................................ 10,000,000 10,505,500
Refunding, 5.25%, 2/01/30 ................................................................ 30,000,000 31,487,400
Refunding, 5.00%, 2/01/32 ................................................................ 19,010,000 19,686,376
Refunding, 5.25%, 4/01/32 ................................................................ 10,000,000 10,490,200
Refunding, AMBAC Insured, 5.00%, 4/01/23 ................................................. 6,250,000 6,558,563
Refunding, MBIA Insured, 5.00%, 10/01/32 ................................................. 5,000,000 5,212,600
Refunding, Series BR, 5.30%, 12/01/29 .................................................... 13,000,000 13,008,190
Various Purpose, 5.125%, 4/01/24 ......................................................... 10,000,000 10,609,000
Various Purpose, 5.00%, 8/01/35 .......................................................... 31,545,000 32,914,999
Various Purpose, AMBAC Insured, 5.00%, 4/01/31 ........................................... 30,000,000 31,383,600
Various Purpose, Refunding, 5.25%, 12/01/26 .............................................. 12,915,000 13,873,293
Various Purpose, Refunding, 5.00%, 6/01/31 ............................................... 30,465,000 31,834,402
Veterans Bonds, Refunding, Series BH, 5.60%, 12/01/32 .................................... 50,060,000 50,123,076
Veterans Bonds, Refunding, Series BH, FSA Insured, 5.50%, 12/01/24 ....................... 16,440,000 16,463,180
California State Local Government Finance Authority Revenue, Marin Valley Mobile, Series A,
FSA Insured, 5.85%, 10/01/27 .............................................................. 6,735,000 7,023,460
California State Public Works Board Lease Revenue,
California Science Center, Series A, 5.25%, 10/01/22 ..................................... 8,645,000 8,931,582
Department of Corrections, Series C, 5.00%, 6/01/24 ...................................... 12,225,000 12,769,746
Department of Corrections, Series C, 5.00%, 6/01/25 ...................................... 4,810,000 5,003,266
Department of Corrections, Series C, 5.25%, 6/01/28 ...................................... 25,475,000 26,951,021
Department of Mental Health, Coalinga, Series A, 5.00%, 6/01/25 .......................... 12,000,000 12,510,720
Department of Mental Health, Coalinga, Series A, 5.125%, 6/01/29 ......................... 56,500,000 59,023,290
Trustees of California State University, Refunding, Series A, 5.00%, 10/01/19 ............ 7,500,000 7,728,975
University of California Research Project, Series E, 5.00%, 10/01/29 ..................... 5,280,000 5,608,469
University of California Research Project, Series E, 5.00%, 10/01/30 ..................... 5,550,000 5,885,997
26| Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State Public Works Board Lease Revenue, (continued)
University of California, Various Projects, Refunding, Series A, 5.50%, 6/01/21 ..... $ 14,000,000 $ 14,008,820
Various California Community Colleges Projects, Refunding, Series A, 5.90%, 4/01/17 . 8,320,000 8,577,504
Various University of California Projects, Refunding, Series A, 5.00%, 6/01/23 ...... 23,175,000 23,184,733
Various University of California Projects, Series B, 5.50%, 6/01/19 ................. 13,000,000 13,008,190
California State University at Channel Islands Financing Authority Revenue,
East Campus Community, Series A, MBIA Insured, 5.00%, 9/01/31 ......................... 11,000,000 11,440,660
California State University Revenue,
Systemwide, Refunding, Series A, FSA Insured, 5.00%, 11/01/34 ....................... 5,000,000 5,243,850
Systemwide, Refunding, Series C, MBIA Insured, 5.00%, 11/01/26 ...................... 20,970,000 22,371,215
Systemwide, Refunding, Series C, MBIA Insured, 5.00%, 11/01/29 ...................... 22,705,000 24,098,406
Systemwide, Series A, FSA Insured, 5.00%, 11/01/29 .................................. 10,000,000 10,527,400
Systemwise, Series A, AMBAC Insured, 5.00%, 11/01/35 ................................ 16,925,000 17,828,626
a California Statewide CDA Lease Revenue, Special Facilities, United Airlines, Series A,
5.70%, 10/01/33 ....................................................................... 61,325,000 36,096,508
California Statewide CDA Revenue, 5.50%, 10/01/33 ...................................... 45,465,000 48,394,310
California Statewide CDA Revenue COP, Capital Appreciation, Hospital, Triad Health Care,
California Mortgage Insured, ETM,
zero con., 8/01/11 .................................................................. 3,115,000 2,573,146
zero cpn., 8/01/09 .................................................................. 6,450,000 5,812,160
zero cpn., 8/01/10 .................................................................. 6,745,000 5,825,184
California Statewide CDA Revenue,
COP, CHFCLP Insured Health Facilities, Unihealth, Series A, AMBAC Insured,
Pre-Refunded, ETM, 5.75%, 10/01/25 ................................................. 24,545,000 28,223,805
COP, ETM, 5.90%, 8/01/21 ............................................................ 4,000,000 4,156,920
COP, Southern California Development Corp., California Mortgage Insured,
6.10%, 12/01/15 .................................................................... 2,255,000 2,285,848
Daughters of Charity Health, Refunding, Series A, 5.25%, 7/01/24 .................... 6,000,000 6,361,920
Daughters of Charity Health, Refunding, Series A, 5.25%, 7/01/30 .................... 5,000,000 5,260,800
Daughters of Charity Health, Refunding, Series A, 5.25%, 7/01/35 .................... 5,000,000 5,216,750
Daughters of Charity Health, Refunding, Series A, 5.00%, 7/01/39 .................... 11,000,000 11,249,370
Daughters of Charity Health, Refunding, Series H, 5.25%, 7/01/25 .................... 4,170,000 4,375,247
East Campus Apartments LLC, Series A, ACA Insured, 5.50%, 8/01/22 ................... 11,000,000 11,632,390
East Campus Apartments LLC, Series A, ACA Insured, 5.625%, 8/01/34 .................. 25,000,000 26,425,500
Health Facility, Adventist Health, Series A, 5.00%, 3/01/30 ......................... 6,300,000 6,540,597
Health Facility, Adventist Health, Series A, 5.00%, 3/01/35 ......................... 14,000,000 14,514,780
Huntington Memorial Hospital, Refunding, 5.00%, 7/01/27 ............................. 22,000,000 22,996,600
Huntington Memorial Hospital, Refunding, 5.00%, 7/01/35 ............................. 50,000,000 51,750,500
Insured Health Facility, Jewish Home, California Mortgage Insured, 5.50%, 11/15/33 .. 20,400,000 21,963,252
Kaiser Permanente, Series A, 5.50%, 11/01/32 ........................................ 27,000,000 28,655,910
Kaiser Permanente, Series B, 5.00%, 3/01/41 ......................................... 75,000,000 77,440,500
Los Angeles Orthopedic Hospital Foundation, AMBAC Insured, 5.75%, 6/01/30 ........... 10,000,000 10,241,100
Mission Community, California Mortgage Insured, 5.375%, 11/01/21 .................... 7,670,000 8,126,212
Mission Community, California Mortgage Insured, 5.375%, 11/01/26 .................... 9,755,000 10,279,917
Refunding, California Mortgage Insured, 5.50%, 1/01/28 .............................. 3,615,000 3,870,436
Series B, 5.625%, 8/15/42 ........................................................... 51,000,000 54,466,980
Stovehaven Apartments Project, Series A, ACA Insured, 5.875%, 7/01/32 ............... 4,945,000 5,328,781
Sutter Health, Refunding, Series A, 5.00%, 11/15/43 ................................. 96,800,000 100,234,464
Semiannual Report | 27
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Statewide CDA Water and Wastewater Revenue, Pooled Financing Program,
Series A, FSA Insured, 5.25%, 10/01/24 ............................................ $ 5,000,000 $ 5,441,350
Series A, FSA Insured, 5.00%, 10/01/29 ............................................ 3,000,000 3,155,250
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 .............................. 3,485,000 3,767,180
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 .............................. 1,515,000 1,621,868
California Statewide CDA,
COP, California Lutheran Homes, California Mortgage Insured, ETM, 5.75%, 11/15/15 . 5,000,000 5,112,400
COP, Catholic Healthcare West, 6.50%, 7/01/20 ..................................... 2,415,000 2,632,084
COP, Catholic Healthcare West, Pre-Refunded, 6.50%, 7/01/20 ....................... 5,575,000 6,186,689
COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ............................. 37,685,000 38,868,686
COP, Kaiser Permanente, ETM, 5.30%, 12/01/15 ...................................... 32,200,000 34,438,222
COP, MBIA Insured, 5.00%, 4/01/18 ................................................. 7,000,000 7,200,200
COP, MBIA Insured, 5.125%, 4/01/23 ................................................ 6,000,000 6,180,660
COP, Refunding, FSA Insured, 5.50%, 8/15/31 ....................................... 9,000,000 9,562,500
COP, St. Joseph Health System, Refunding, 5.125%, 7/01/17 ......................... 5,000,000 5,136,000
COP, St. Joseph Health System, Refunding, 5.25%, 7/01/21 .......................... 16,250,000 16,691,025
COP, The Internext Group, 5.375%, 4/01/17 ......................................... 10,085,000 10,333,091
COP, The Internext Group, 5.375%, 4/01/30 ......................................... 67,480,000 68,567,778
MFHR, Borregas Court Project, Series J, GNMA Secured, 6.30%, 3/20/39 .............. 7,288,000 7,784,604
MFHR, Series E, FNMA Insured, 6.40%, 6/01/28 ...................................... 8,000,000 8,101,600
California Valley HFAR, Home Mortgage, MBIA Insured, 5.65%, 2/01/27 .................. 6,380,000 6,509,004
Camarillo Community Development Commission Tax Allocation, Camarillo Corridor Project,
Refunding, AMBAC Insured, 5.00%, 9/01/36 ............................................ 7,800,000 8,135,868
Camarillo COP, Capital Improvement Corp., ETM, 7.625%, 4/01/08 ....................... 1,010,000 1,045,350
Campbell Housing Facility Revenue, San Tomas Gardens Project, Series A,
6.625%, 10/20/34 .................................................................... 5,615,000 5,643,861
Campbell RDA Tax Allocation, Central Campbell Redevelopment Project, Series A, 6.00%,
10/01/33 ............................................................................ 5,000,000 5,473,250
Campbell USD, Series B, FGIC Insured,
zero con., 8/01/20 ................................................................ 5,000,000 2,761,700
zero cpn., 8/01/21 ................................................................ 6,280,000 3,303,720
Capistrano University School CFD Special Tax, Number 90-2 Talega,
5.875%, 9/01/33 ................................................................... 5,815,000 6,023,003
6.00%, 9/01/33 .................................................................... 7,100,000 7,404,803
Centinela Valley UHSD, GO, Refunding, Series A, MBIA Insured, 5.50%, 8/01/33 ......... 15,630,000 18,880,415
Central California Joint Powers Health Financing Authority COP,
Community Hospitals of Central California,
6.00%, 2/01/20 ................................................................... 5,000,000 5,253,000
5.625%, 2/01/21 .................................................................. 6,750,000 7,027,762
6.00%, 2/01/30 ................................................................... 34,960,000 36,541,940
5.75%, 2/01/31 ................................................................... 18,070,000 18,712,388
Cerritos PFAR Tax Allocation, Redevelopment Project, Refunding, Series A,
AMBAC Insured, 5.00%, 11/01/22 ...................................................... 6,675,000 7,306,522
Chaffey UHSD, GO,
Series B, 5.00%, 8/01/25 .......................................................... 6,510,000 6,795,659
Series C, FSA Insured, 5.00%, 5/01/27 ............................................. 6,980,000 7,346,869
Chula Vista COP, Cops Phase I, MBIA Insured, 5.00%, 3/01/34 .......................... 10,360,000 10,897,891
28 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Chula Vista IDR,
Adjustment, San Diego Gas and Electric Co., Series B, 5.50%, 12/01/21 ................ $14,000,000 $15,259,160
Daily, San Diego Gas and Electric Co., Series A, 5.30%, 7/01/21 ...................... 8,500,000 9,119,990
Claremont RDA Tax Allocation, Consolidated Redevelopment Project, Refunding,
5.50%, 8/01/23 ......................................................................... 4,950,000 5,266,553
Clovis USD, GO, Election of 2004, Series B, MBIA Insured, 5.00%, 8/01/25 ................ 4,135,000 4,436,690
Colton Joint USD, GO, Election of 2001, Series B, FGIC Insured, 5.00%, 8/01/27 .......... 7,000,000 7,403,270
Colusa County COP, ABAG Finance Corp., Series B, 7.00%, 2/01/18 ......................... 1,480,000 1,483,611
Commerce Joint Powers Financing Authority Lease Revenue, Community Center, Series A,
Pre-Refunded, 6.25%, 10/01/22 .......................................................... 4,000,000 4,080,000
Commerce Joint Powers Financing Authority Revenue, Redevelopment Projects, Series B,
Radian Insured, 5.125%, 8/01/35 ........................................................ 8,310,000 8,587,138
Compton COP, Civic Center and Capital Improvement, Refunding, Series A, 5.50%, 9/01/15 .. 5,000,000 5,178,950
Compton USD, GO, AMBAC Insured, 5.00%, 6/01/29 .......................................... 5,660,000 5,979,281
Contra Costa Community College District GO, Election of 2002, FGIC Insured,
5.00%, 8/01/26 ......................................................................... 11,700,000 12,264,759
Contra Costa County COP, Merrithew Memorial Hospital Project,
ETM, zero cpn., 11/01/15 ............................................................. 6,810,000 4,817,803
Refunding, MBIA Insured, 5.50%, 11/01/22 ............................................. 11,000,000 11,433,400
Contra Costa Home Mortgage Finance Authority HMR,
Mandatory Sinking Fund 3/01/08, Pre-Refunded, zero coupon., 9/01/17 .................. 9,635,000 3,167,795
Mandatory Sinking Fund 9/01/08, Pre-Refunded, zero coupon., 9/01/17 .................. 8,095,000 2,764,928
Mandatory Sinking Fund 3/01/09, Pre-Refunded, zero coupon., 9/01/17 .................. 8,615,000 3,051,002
Mandatory Sinking Fund 9/01/09, Pre-Refunded, zero coupon., 9/01/17 .................. 7,135,000 2,624,039
Mandatory Sinking Fund 3/01/10, Pre-Refunded, zero coupon., 9/01/17 .................. 7,700,000 2,933,854
Mandatory Sinking Fund 9/01/10, Pre-Refunded, zero coupon., 9/01/17 .................. 6,275,000 2,481,951
Pre-Refunded, zero coupon., 9/01/17 .................................................. 10,770,000 3,281,296
Contra Costa School Financing Authority Revenue, Antioch USD Community, Series B,
zero cpn., 9/01/07 ..................................................................... 135,000 128,168
Contra Costa Transportation Authority Revenue, Sales Tax, Series A,
ETM, 6.875%, 3/01/07 ................................................................. 4,900,000 4,968,747
FGIC Insured, ETM, 6.50%, 3/01/09 .................................................... 1,000,000 1,043,700
Corcoran Hospital District Revenue, Series A, California Mortgage Insured, 6.55%, 7/01/12 705,000 705,818
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ............ 15,000,000 17,927,700
Corona-Norco USD, PFA Special Tax Revenue, Series A, 5.40%, 9/01/35 ..................... 7,140,000 7,291,439
Coronado CDA Tax Allocation, Coronado Community Development Project, Refunding,
MBIA Insured, 5.00%, 9/01/34 ........................................................... 6,115,000 6,353,424
CSAC Finance Corp. COP, Sutter County, Health Facilities Program, 7.80%, 1/01/21 ........ 2,100,000 2,113,440
Cudahy RDA Tax Allocation, Refunding, Series C, 6.00%, 10/01/27 ......................... 6,365,000 6,830,982
Culver City USD, GO, MBIA Insured, Pre-Refunded, 5.75%, 8/01/36 ......................... 5,000,000 5,144,400
Delano UHSD, GO,
Election of 2005, Series A, XLCA Insured, 5.00%, 8/01/31 ............................. 5,160,000 5,438,176
Refunding, Series A, MBIA Insured, 5.15%, 2/01/32 .................................... 8,520,000 9,862,070
Desert Sands USD, GO, Election of 2001, FSA Insured,Pre-Refunded, 5.00%, 6/01/29 ........ 16,425,000 17,997,529
Downey USD, GO, Election of 2002, Series C, FSA Insured, 5.00%, 2/01/30 ................. 4,860,000 5,130,508
Semiannual Report | 29
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Duarte COP, Refunding, Series A, 5.25%,
4/01/19 ............................................................................... $ 5,000,000 $ 5,170,450
4/01/24 ............................................................................... 5,000,000 5,169,250
4/01/31 ............................................................................... 12,500,000 12,887,125
East Bay MUD Water System Revenue, Sub Series A, MBIA Insured, 5.00%,
6/01/28 ............................................................................... 7,000,000 7,428,680
6/01/29 ............................................................................... 27,495,000 29,117,205
6/01/30 ............................................................................... 15,000,000 15,862,650
6/01/35 ............................................................................... 21,985,000 23,154,822
East Side UHSD Santa Clara County GO, Series F, FSA Insured, 5.00%, 8/01/35 ............ 22,685,000 23,945,152
Eastern Municipal Water District Water and Sewer Revenue COP, Series B, FGIC
Insured, 5.00%, 7/01/30 ................................................................ 31,370,000 32,436,894
El Camino Hospital District Revenue, Series A, ETM, 7.25%, 8/15/09 ..................... 4,375,000 4,651,763
El Centro Financing Authority Hospital Revenue, El Centro Regional Medical Center
Project,
California Mortgage Insured, 5.25%, 3/01/26 ............................................ 8,500,000 8,851,985
El Dorado County Special Tax, CFD No. 1992-1,
5.875%, 9/01/24 ....................................................................... 4,475,000 4,692,217
6.00%, 9/01/31 ........................................................................ 8,850,000 9,309,669
Refunding, 6.25%, 9/01/29 ............................................................. 19,780,000 20,524,717
El Paso de Robles GO, Capital Appreciation, Series A, FGIC Insured, zero cpn.,
8/01/16 ............................................................................... 2,050,000 1,265,055
8/01/22 ............................................................................... 11,485,000 4,970,823
8/01/27 ............................................................................... 11,495,000 3,734,840
El Rancho USD, GO, Election of 2003, Series A, FGIC Insured, 5.00%, 8/01/28 ............ 5,635,000 5,916,806
Elk Grove USD, Special Tax, Capital Appreciation, CFD 1, MBIA Insured, zero cpn.,
12/01/19 .............................................................................. 2,775,000 1,454,378
12/01/20 .............................................................................. 2,765,000 1,374,482
12/01/21 .............................................................................. 4,195,000 1,965,861
12/01/22 .............................................................................. 4,195,000 1,864,090
12/01/23 .............................................................................. 4,195,000 1,755,104
12/01/24 .............................................................................. 4,200,000 1,665,804
Emeryville PFAR,
Housing Increment Loan, 6.20%, 9/01/25 ................................................ 3,115,000 3,146,711
Shellmound Park Redevelopment and Housing Project, Refunding, Series B, MBIA Insured,
5.00%, 9/01/28 ...................................................................... 10,000,000 10,271,600
Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A,
MBIA Insured, 5.00%, 3/01/33 ........................................................... 8,715,000 9,066,650
Fontana RDA Tax Allocation, Jurupa Hills Redevelopment Project, Refunding, Series A,
5.50%, 10/01/27 ........................................................................ 12,500,000 12,873,875
Fontana USD, GO, Convertible Capital Appreciation, Series D, FGIC Insured,
5.80%, 5/01/17 ......................................................................... 5,000,000 5,364,400
Foothill-De Anza Community College District GO,
Capital Appreciation, zero cpn., 8/01/27 .............................................. 5,205,000 2,043,639
MBIA Insured, zero cpn., 8/01/26 ...................................................... 5,290,000 2,180,803
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, zero cpn., 1/15/21 ................................... 51,180,000 22,555,026
Capital Appreciation, Refunding, zero cpn., 1/15/25 ................................... 57,000,000 19,694,640
Capital Appreciation, Refunding, zero cpn., 1/15/30 ................................... 98,460,000 25,544,462
30| Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Foothill/Eastern Corridor Agency Toll Road Revenue, (continued)
Capital Appreciation, Refunding, zero cpn., 1/15/31 .............................. $ 14,635,000 $ 3,565,671
Capital Appreciation, Refunding, zero cpn., 1/15/34 .............................. 100,000,000 20,240,000
Capital Appreciation, Refunding, zero cpn., 1/15/36 .............................. 182,160,000 32,632,142
Capital Appreciation, Refunding, zero cpn., 1/15/37 .............................. 170,615,000 28,784,457
Capital Appreciation, Refunding, zero cpn., 1/15/38 .............................. 160,560,000 25,496,928
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.80% thereafter, 1/15/20 . 49,500,000 45,441,000
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.85% thereafter, 1/15/23 . 10,000,000 9,094,100
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/26 30,000,000 27,199,800
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/27 80,835,000 73,289,861
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/28 80,500,000 72,986,130
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/29 112,230,000 101,754,452
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/22 ............. 30,835,000 15,954,954
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/23 ............. 5,765,000 2,852,234
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/24 ............. 72,045,000 33,846,021
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/28 ............. 2,000,000 769,120
cvt. Capital Appreciation, Refunding, zero cpn., 1/15/32 ......................... 100,000,000 22,872,000
cvt. Capital Appreciation, Refunding, zero cpn., 1/15/33 ......................... 132,460,000 28,523,936
cvt. Capital Appreciation, Refunding, zero cpn., 1/15/35 ......................... 20,000,000 3,812,600
cvt. Capital Appreciation, senior lien, Series A, ETM, 7.05%, 1/01/09 ............ 10,000,000 10,776,200
cvt. Capital Appreciation, senior lien, Series A, Pre-Refunded, 7.15%, 1/01/14 ... 5,500,000 6,218,960
Refunding, 5.75%, 1/15/40 ........................................................ 395,510,000 411,729,865
senior lien, Series A, 5.00%, 1/01/35 ............................................ 15,955,000 15,881,926
senior lien, Series A, ETM, zero cpn., 1/01/25 ................................... 20,660,000 9,273,241
senior lien, Series A, ETM, zero cpn., 1/01/26 ................................... 23,475,000 9,970,771
senior lien, Series A, ETM, zero cpn., 1/01/27 ................................... 15,000,000 6,069,750
senior lien, Series A, ETM, zero cpn., 1/01/29 ................................... 35,310,000 12,924,872
senior lien, Series A, Pre-Refunded, 7.10%, 1/01/12 .............................. 8,000,000 9,033,600
senior lien, Series A, Pre-Refunded, 6.50%, 1/01/32 .............................. 95,675,000 96,380,125
senior lien, Series A, Pre-Refunded, 6.00%, 1/01/34 .............................. 123,695,000 124,459,435
Fortuna and Susanville Cities COP, Series B, 7.375%, 9/01/17 ........................ 1,325,000 1,344,676
Fremont GO, Election of 2002, Fire Safety Project, Series B, FGIC Insured, 5.00%,
8/01/34 ............................................................................ 7,235,000 7,597,473
Glendale Community College District GO, FGIC Insured, zero cpn., 8/01/28 ............ 15,000,000 5,187,000
Glendale USD, GO, Series G, FSA Insured, 5.00%, 9/01/29 ............................. 8,440,000 8,901,668
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Asset-Backed, Series A-3, Pre-Refunded, 5.50%, 6/01/33 ........................... 15,000,000 16,654,500
Asset-Backed, Series A-3, Pre-Refunded, 5.50%, 6/01/43 ........................... 57,000,000 63,287,100
Asset-Backed, Series B, Pre-Refunded, 5.625%, 6/01/38 ............................ 138,000,000 154,234,320
Enhanced, Asset-Backed, Refunding, Series A, 5.00%, 6/01/45 ...................... 20,000,000 20,550,400
Series 2003 A-1, 6.75%, 6/01/39 .................................................. 5,290,000 5,977,594
Hartnell Community College District GO, Election of 2002, Series A, MBIA Insured,
Pre-Refunded, 5.00%, 8/01/27 ....................................................... 5,020,000 5,467,031
Hawaiian Gardens RDA Tax Allocation, Project No. 1, ETM, 8.00%, 12/01/10 ............ 3,660,000 3,982,409
Helix Water District COP, Installment Purchase, Series A, FSA Insured, 5.25%, 4/01/24 8,925,000 9,306,811
Huntington Beach City and School District, Capital Appreciation, Election of 2002,
Series A, FGIC Insured, zero cpn., 8/01/28 ......................................... 10,005,000 3,739,869
Semiannual Report | 31
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Huntington Beach UHSD, GO, Election of 2004, FSA Insured, 5.00%,
8/01/27 ................................................................................ $ 3,530,000 $ 3,721,291
8/01/29 ................................................................................ 11,000,000 11,558,580
Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement
Financing Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ............................ 5,000,000 5,292,100
Intercommunity Hospital Financing Authority COP, Northbay Healthcare System,
Refunding, ACA Insured, 5.25%, 11/01/19 .................................................. 10,550,000 10,982,550
Irvine 1915 Act GO,
AD No. 00-18, Group 4, 5.375%, 9/02/26 ................................................. 2,500,000 2,578,600
AD No. 03-19, Group 2, Refunding, 5.45%, 9/02/23 ....................................... 2,000,000 2,063,300
AD No. 03-19, Group 2, Refunding, 5.50%, 9/02/29 ....................................... 4,295,000 4,430,937
Irvine USD Financing Authority Special Tax, Series A,
5.00%, 9/01/26 ......................................................................... 3,000,000 3,046,740
5.125%, 9/01/36 ........................................................................ 11,180,000 11,386,495
Kaweah Delta Health Care District GO, Election of 2003, MBIA Insured, 5.00%, 8/01/34 ...... 16,500,000 17,214,945
Kern County Board of Education COP,
Refunding, Series A, MBIA Insured, 5.20%, 5/01/28 ...................................... 3,150,000 3,273,606
Series A, MBIA Insured, Pre-Refunded, 5.20%, 5/01/28 ................................... 5,535,000 5,792,211
Kern County High School District GO, Election of 2004, Series B, FSA Insured,
5.00%, 8/01/30 ........................................................................... 13,270,000 14,111,185
Kern High School District GO, Election of 1990, Series E, FGIC Insured, 5.125%, 8/01/33 ... 5,275,000 5,600,837
La Mirada SFMR, MBS, Series A, 7.65%, 4/01/24 ............................................. 140,000 161,309
La Palma Community Development Commission Tax Allocation,
La Palma Community Development Project No. 1, Refunding, 6.10%, 6/01/22 .................. 2,355,000 2,364,326
La Quinta RDA Tax Allocation, Redevelopment Project Area No. 1, AMBAC Insured,
5.125%, 9/01/32 .......................................................................... 10,825,000 11,388,225
Laguna Beach USD, CFD Special Tax No. 98-1, 5.375%, 9/01/34 ............................... 5,375,000 5,515,664
Lake Elsinore PFA Tax Allocation Revenue,
Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.80%, 9/01/25 ............ 6,750,000 6,807,848
Series A, 5.50%, 9/01/30 ............................................................... 15,550,000 15,988,665
Lancaster RDA, RMR, Los Angeles County, Series A, ETM, 10.125%, 9/01/16 ................... 5,000 7,564
Lemon Grove CDA Tax Allocation, 1998 Refunding, 5.75%, 8/01/28 ............................ 8,115,000 8,469,057
Local Medical Facilities Financing Authority COP, Insured California Health Clinic Project,
California Mortgage Insured, 7.55%, 3/01/20 .............................................. 1,650,000 1,675,724
Local Medical Facilities Financing Authority III COP, Insured California Health Clinic
Project,
6.90%, 7/01/22 ........................................................................... 1,320,000 1,321,716
Lodi Electric Systems Revenue COP, Capital Appreciation Bond, Series B, MBIA Insured,
Pre-Refunded, zero cpn., 1/15/19 ......................................................... 6,360,000 3,249,133
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series A,
5.00%, 12/01/23 .......................................................................... 9,200,000 9,534,604
Long Beach Bond Finance Authority Lease Revenue, Aquarium of The South Pacific,
Refunding, AMBAC Insured, 5.00%, 11/01/26 ................................................ 20,000,000 20,893,000
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 15,555,699
Los Angeles Community College District GO,
Election of 2003, Series E, FSA Insured, 5.00%, 8/01/31 ................................ 17,500,000 18,587,625
Series A, MBIA Insured, Pre-Refunded, 5.00%, 6/01/26 ................................... 69,275,000 73,975,309
32 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Los Angeles COP, Department of Public Social Services, Series A, AMBAC Insured, 5.50%,
8/01/24 ........................................................................... $ 4,000,000 $ 4,237,240
8/01/31 ........................................................................... 5,000,000 5,296,550
Los Angeles County COP,
Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%, 11/01/33 .............. 8,000,000 8,443,120
Insured Health Clinic Program, Refunding, Series F, California Mortgage Insured,
5.875%, 1/01/21 .................................................................. 7,520,000 7,709,654
Series 1992, California Mortgage Insured, 6.625%, 7/01/22 ......................... 940,000 941,119
Los Angeles County Infrastructure and Economic Development Bank Revenue,
County Department Public Social Services, AMBAC Insured, 5.00%, 9/01/35 ............. 7,765,000 8,125,840
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 13,481,130
first tier, Senior Series A, MBIA Insured, Pre-Refunded, 5.25%, 7/01/27 ........... 7,840,000 8,023,142
Senior Series A, FSA Insured, Pre-Refunded, 5.00%, 7/01/24 ........................ 5,000,000 5,376,300
Los Angeles County Public Works Financing Authority Revenue,
Multiple Capital Facilities Project, Series B, AMBAC Insured, 5.125%, 12/01/29 ...... 26,905,000 27,694,662
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects,
District No. 14, Sub Series B, FGIC Insured, 5.00%, 10/01/30 ...................... 7,000,000 7,388,920
District No. 14, Sub Series B, FGIC Insured, 5.00%, 10/01/34 ...................... 30,820,000 32,438,358
Series A, MBIA Insured, 5.00%, 10/01/34 ........................................... 7,110,000 7,510,506
Los Angeles County Transportation Commission Lease Revenue, FSA Insured,
7.375%, 12/15/06 .................................................................... 1,866,000 1,869,210
Los Angeles CRDA Tax Allocation, Series G, ETM, 6.75%, 7/01/10 ....................... 8,060,000 8,455,101
Los Angeles CRDA,
Financing Authority Revenue, Pooled Financing, Beacon Normandie, Series B,
6.625%, 9/01/14 ................................................................... 770,000 779,148
MFHR, Angelus Plaza Project, Refunding, Series A, 6.40%, 7/01/23 .................. 5,280,000 5,291,194
Los Angeles Department of Airports Revenue, Ontario International Airport, Series A,
FGIC Insured, 6.00%, 5/15/26 ........................................................ 10,000,000 10,121,600
Los Angeles Department of Water and Power Waterworks Revenue, System, Sub Series A-1,
AMBAC Insured, 5.00%, 7/01/40 ....................................................... 17,000,000 17,951,660
Los Angeles Harbor Department Revenue,
Refunding, Series A, AMBAC Insured, 5.00%, 8/01/25 ................................ 15,000,000 15,591,450
Series B, 5.375%, 11/01/23 ........................................................ 7,460,000 7,544,746
Los Angeles MFR, Housing, Refunding, Senior Series G, FSA Insured, 5.75%, 1/01/24 .... 395,000 395,944
Los Angeles USD,
COP, Administration Building Project, Series B, AMBAC Insured, 5.00%, 10/01/31 .... 28,210,000 29,126,825
GO, Election of 2004, Series F, FGIC Insured, 5.00%, 7/01/30 ...................... 25,000,000 26,584,000
GO, Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/30 ..................... 13,815,000 14,690,318
GO, Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/31 ..................... 6,000,000 6,370,260
GO, Series A, MBIA Insured, 5.00%, 1/01/28 ........................................ 170,250,000 178,592,250
GO, Series E, AMBAC Insured, 5.00%, 7/01/30 ....................................... 50,240,000 53,151,910
Series B, FGIC Insured, Pre-Refunded, 5.00%, 7/01/23 .............................. 5,000,000 5,181,950
Los Angeles Wastewater System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 6/01/32 ................................. 6,000,000 6,226,920
Refunding, Series A, FSA Insured, 4.875%, 6/01/29 ................................. 34,335,000 35,465,652
Refunding, Series A, FSA Insured, 5.00%, 6/01/32 .................................. 17,500,000 18,268,775
Series A, FGIC Insured, Pre-Refunded, 5.00%, 6/01/28 .............................. 8,245,000 8,534,894
Semiannual Report | 33
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Los Angeles Water and Power Revenue,
Power System, Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 .................... $ 2,000,000 $ 2,066,020
Power Systems, Series B, FSA Insured, 5.00%, 7/01/28 ............................... 10,575,000 11,066,526
Power Systems, Sub Series A-1, FSA Insured, 5.00%, 7/01/35 ......................... 35,000,000 36,897,700
Refunding, Series A, Sub Series A-2, 5.00%, 7/01/30 ................................ 7,000,000 7,262,920
Series A, Sub Series A-2, MBIA Insured, 5.00%, 7/01/23 ............................. 6,550,000 6,917,455
Lynwood PFA Tax Allocation, Project Area A, Refunding, Series A, FSA Insured,
5.90%, 9/01/28 ....................................................................... 6,470,000 6,942,957
M-S-R Public Power Agency San Juan Project Revenue, Series E, MBIA Insured,
6.00%, 7/01/22 ....................................................................... 6,330,000 6,335,824
Madera County COP, Valley Children's Hospital, MBIA Insured,
5.00%, 3/15/23 ..................................................................... 8,500,000 8,721,425
5.75%, 3/15/28 ..................................................................... 27,500,000 27,752,725
Madera USD, COP, 6.50%, 12/01/07 ...................................................... 545,000 547,589
b Madera-Chowchilla Power Authority Hydroelectric Revenue, Refunding, 8.00%, 1/01/14 .... 1,770,000 1,778,868
Manhattan Beach COP, Metlox Public Improvements, 5.00%, 1/01/33 ....................... 5,575,000 5,773,916
Manteca Financing Authority Sewer Revenue, Series A, MBIA Insured, 5.00%, 12/01/33 .... 4,185,000 4,192,282
Marysville Hospital Revenue, Fremont Rideout Health, Refunding, Series A,
AMBAC Insured, 5.00%, 1/01/22 ........................................................ 5,000,000 5,242,150
Metropolitan Water District Southern California Waterworks Revenue,
Series A, FSA Insured, 5.00%, 7/01/35 .............................................. 9,000,000 9,508,230
Series A, Pre-Refunded, 5.00%, 7/01/26 ............................................. 20,790,000 21,391,870
Series A, Pre-Refunded, 5.00%, 7/01/26 ............................................. 17,815,000 18,330,744
Series A, Pre-Refunded, 5.00%, 7/01/26 ............................................. 10,720,000 11,030,344
Series B1, FGIC Insured, 5.00%, 10/01/33 ........................................... 5,000,000 5,252,500
Series C, 5.00%, 7/01/37 ........................................................... 22,450,000 22,509,043
Metropolitan Water District Water Works Revenue, Series C, Pre-Refunded, 5.00%, 7/01/37 4,330,000 4,346,454
Milpitas RDA Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, ETM,
5.40%, 1/15/17 ..................................................................... 12,155,000 13,340,112
5.50%, 1/15/24 ..................................................................... 11,790,000 13,441,189
Milpitas USD, FGIC Insured, Pre-Refunded, 5.875%, 9/01/24 ............................. 11,970,000 13,026,951
Modesto High School District Stanislaus County GO, Capital Appreciation, Series A,
FGIC Insured, zero cpn.,
8/01/21 ............................................................................ 9,660,000 5,081,836
8/01/23 ............................................................................ 10,815,000 5,157,349
5/01/27 ............................................................................ 12,770,000 5,070,456
Modesto Irrigation District COP, Refunding and Capital Improvements, Series B,
5.30%, 7/01/22 ....................................................................... 4,180,000 4,182,550
Modesto PFA Lease Revenue, Capital Improvements and Refinancing Project,
AMBAC Insured, 5.125%, 9/01/33 ....................................................... 5,535,000 5,725,293
Modesto Schools Infrastructure Financing Agency Special Tax, AMBAC Insured,
5.20%, 9/01/37 ....................................................................... 4,315,000 4,558,021
Mojave Water Agency COP, Supplemental Water Entitlement, MBIA Insured,
Pre-Refunded, 5.55%, 9/01/22 ......................................................... 10,005,000 10,392,294
Montebello USD, GO, Election of 2004, MBIA Insured, 5.00%, 8/01/30 .................... 7,150,000 7,540,747
Moreno Valley Special Tax, Towngate Community Facilities 87-1, Refunding, Series A,
FSA Insured, 5.875%, 12/01/15 ........................................................ 5,440,000 5,460,454
34 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, zero cpn.,
8/01/27 ............................................................................... $ 6,315,000 $ 2,479,458
8/01/28 ............................................................................... 6,625,000 2,476,425
Murrieta COP, Road Improvement Project, 6.00%, 4/01/27 ................................... 8,600,000 8,827,212
Murrieta Valley USD, PFA, Special Tax Revenue, Series A, FGIC Insured, 5.00%, 9/01/37 .... 6,975,000 7,275,343
Napa Housing Facility Revenue, Napa Park Apartments, Series A, GNMA Secured,
6.35%, 6/20/35 .......................................................................... 5,170,000 5,233,229
Natomas USD, GO, FGIC Insured, 5.00%, 8/01/31 ............................................ 16,635,000 17,571,717
Needles PFAR Tax Allocation, Redevelopment Project, Series A, 7.50%, 8/15/22 ............. 1,490,000 1,492,593
New Haven USD, GO, Capital Appreciation, Series C, FGIC Insured, zero cpn.,
8/01/23 ................................................................................. 14,700,000 6,197,520
Norco RDA Tax Allocation, Area No. 1, Refunding, MBIA Insured, 5.125%, 3/01/30 ........... 8,515,000 8,904,476
North City West School Facilities Financing Authority Special Tax, CFD No. 1, Series C,
AMBAC Insured, Pre-Refunded, 5.30%,
9/01/22 .............................................................................. 10,000,000 10,364,900
9/01/27 .............................................................................. 9,900,000 10,261,251
Northern California Power Agency Multiple Capital Facilities Revenue, Refunding, Series A,
AMBAC Insured, 5.00%, 8/01/25 ........................................................... 19,250,000 19,965,330
Northern California Public Power Agency Revenue, Hydroelectric Project No. 1, Refunding,
Series A, MBIA Insured,
5.125%, 7/01/23 ...................................................................... 7,420,000 7,667,234
5.00%, 7/01/28 ....................................................................... 15,975,000 16,416,549
5.20%, 7/01/32 ....................................................................... 43,675,000 45,065,175
Oakland RDA Tax Allocation, Coliseum Project, Series B-TE, AMBAC Insured, 5.00%,
9/01/31 ............................................................................... 5,860,000 6,124,755
9/01/36 ............................................................................... 9,355,000 9,762,410
Oakland Revenue, 1800 Harrison Foundation,
Series A, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ................................. 13,825,000 14,879,018
Series B, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ................................. 13,470,000 14,496,953
Oceanside USD, GO, Election of 2000, Series D, FGIC Insured, 5.00%,
8/01/29 ............................................................................... 5,755,000 6,074,748
8/01/33 ............................................................................... 5,590,000 5,870,059
Olivenhain Municipal Water District 1915 Act Special Assessment, AD No. 96-1,
MBIA Insured, 5.45%, 9/02/27 ............................................................ 10,855,000 11,188,031
Orange County Airport Revenue, Refunding, MBIA Insured, 5.625%, 7/01/12 .................. 5,000,000 5,170,900
Orange County CFD Special Tax,
No. 03-1, Ladera Ranch, Series A, 5.50%, 8/15/24 ...................................... 1,100,000 1,147,124
No. 03-1, Ladera Ranch, Series A, 5.60%, 8/15/28 ...................................... 3,250,000 3,396,445
No. 03-1, Ladera Ranch, Series A, 5.625%, 8/15/34 ..................................... 5,000,000 5,301,450
No. 04-1, Ladera Ranch, Series A, 5.15%, 8/15/29 ...................................... 6,405,000 6,541,939
No. 04-1, Ladera Ranch, Series A, 5.20%, 8/15/34 ...................................... 11,000,000 11,260,480
Orange County Water District Revenue, COP, Series B, MBIA Insured, 5.00%,
8/15/28 ............................................................................... 12,950,000 13,483,151
8/15/34 ............................................................................... 23,575,000 24,488,767
Oxnard Harbor District Revenue, ACA Insured, 5.60%, 8/01/19 .............................. 10,820,000 11,164,292
Palm Desert Financing Authority Tax Allocation Revenue, Project Area No. 1, MBIA Insured,
Pre-Refunded, 5.625%, 4/01/23 ........................................................... 13,000,000 13,000,000
Semiannual Report | 35
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Palm Springs COP, Multiple Capital Facilities Project, Refunding, AMBAC Insured,
5.75%, 4/01/27 ......................................................................... $11,570,000 $11,927,860
Palmdale CRDA Tax Allocation,
Merged Project, sub. lien, AMBAC Insured, 5.50%, 12/01/29 ............................ 3,190,000 3,523,897
Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/34 ................ 6,980,000 7,194,286
Series A, MBIA Insured, 5.75%, 9/01/27 ............................................... 10,435,000 10,857,409
Pasadena Special Tax, Capital Appreciation, CFD No. 1, Pre-Refunded, zero cpn.,
12/01/17 ............................................................................... 4,090,000 1,881,032
Peralta Community College District GO, Election of 2000, Series C, MBIA Insured, 5.00%,
8/01/31 .............................................................................. 4,105,000 4,316,243
8/01/34 .............................................................................. 6,920,000 7,266,692
Perris PFAR Tax Allocation, Series A, 5.75%, 10/01/31 ................................... 5,000,000 5,352,050
Perris SFMR, Series A, GNMA Secured, ETM, zero cpn., 6/01/23 ............................ 19,095,000 8,878,984
Perris Special Tax, CFD No. 91-1, 8.75%, 9/01/21 ........................................ 5,395,000 5,465,567
Pittsburg PFA Water Revenue, MBIA Insured, Pre-Refunded, 5.50%, 6/01/27 ................. 2,980,000 3,079,145
Pomona RDA Tax Allocation, Southwest Pomona Redevelopment Project, ETM,
11.45%, 1/01/07 ........................................................................ 1,865,000 1,899,969
Port Hueneme RDA Tax Allocation, R-76 Project, Refunding, 6.50%, 5/01/23 ................ 2,570,000 2,573,495
Port of Oakland Revenue,
Series J, MBIA Insured, 5.50%, 11/01/26 .............................................. 7,000,000 7,283,360
Series L, FGIC Insured, 5.375%, 11/01/27 ............................................. 5,000,000 5,331,300
Porterville COP, Infrastructure Financing Project, AMBAC Insured,
5.00%, 7/01/30 ....................................................................... 7,420,000 7,822,312
5.00%, 7/01/36 ....................................................................... 6,535,000 6,861,097
Pre-Refunded, 5.00%, 7/01/28 ......................................................... 10,430,000 10,907,903
Poway COP, Royal Mobile Home Park Project, Refunding, FSA Insured,
5.875%, 8/01/15 ...................................................................... 6,250,000 6,361,438
6.00%, 8/01/20 ....................................................................... 5,400,000 5,498,442
6.00%, 8/01/28 ....................................................................... 15,000,000 15,271,050
Poway USD, GO, MBIA Insured, 5.00%, 8/01/27 ............................................. 5,020,000 5,277,175
Rancho Cucamonga RDA Tax Allocation, Rancho Redevelopment Project, Housing Set Aside,
MBIA Insured, 5.25%, 9/01/21 ........................................................... 8,330,000 8,504,763
Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center,
5.625%, 7/01/34 ........................................................................ 10,000,000 10,953,600
Rancho Water District Financing Authority Revenue, AMBAC Insured, ETM, zero cpn.,
8/15/16 .............................................................................. 8,605,000 5,878,850
8/15/17 .............................................................................. 13,605,000 8,847,876
8/15/18 .............................................................................. 13,605,000 8,454,963
Redding California Electricity System Revenue COP, Series A, FGIC insured, 5.00%, 6/01/35 12,725,000 13,315,694
Redlands USD,
COP, Series A, FSA Insured, 6.15%, 9/01/11 ........................................... 280,000 282,794
COP, Series A, FSA Insured, 6.25%, 9/01/27 ........................................... 3,570,000 3,607,057
GO, Election of 2002, FSA Insured, 5.00%, 7/01/28 .................................... 9,060,000 9,619,183
Redondo Beach PFAR, Wastewater System Financing Project, Series A, MBIA Insured,
5.00%, 5/01/34 ......................................................................... 5,060,000 5,290,078
Rialto COP, FSA Insured, 5.75%, 2/01/22 ................................................. 2,715,000 2,788,739
Rialto USD, GO, Series A, FGIC Insured, zero cpn., 6/01/19 .............................. 13,985,000 8,171,715
36 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Richmond Joint Powers Financing Authority Revenue, Lease, Series A, MBIA Insured, 5.00%,
2/01/26 ............................................................................... $ 6,500,000 $ 6,742,320
2/01/31 ............................................................................... 7,000,000 7,190,330
Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital Project,
MBIA Insured, zero cpn., 6/01/23 ...................................................... 14,160,000 6,638,066
MBIA Insured, zero cpn., 6/01/24 ...................................................... 13,005,000 5,795,418
Series A, 6.50%, 6/01/12 .............................................................. 20,125,000 22,195,259
Riverside County COP,
Capital Improvement, Family Law, Refunding, Series A, FGIC Insured, 5.00%, 11/01/30 ... 9,905,000 10,383,213
Capital Improvement, Family Law, Refunding, Series A, FGIC Insured, 5.00%, 11/01/36 ... 6,345,000 6,602,988
Family Law Court Project, MBIA Insured, Pre-Refunded, 5.75%, 11/01/27 ................. 5,295,000 5,528,986
Historic Courthouse, MBIA Insured, Pre-Refunded, 5.875%, 11/01/27 ..................... 6,000,000 6,266,460
Riverside County Flood Control and Water Conservation District Elsinore Valley AD,
Zone 3, 7.875%,
9/01/07 .............................................................................. 225,000 233,098
9/01/08 .............................................................................. 240,000 258,010
9/01/09 .............................................................................. 260,000 288,824
9/01/10 .............................................................................. 280,000 320,079
9/01/11 .............................................................................. 305,000 358,073
9/01/12 .............................................................................. 325,000 389,912
9/01/13 .............................................................................. 350,000 431,379
9/01/14 .............................................................................. 380,000 479,264
9/01/15 .............................................................................. 410,000 525,218
9/01/16 .............................................................................. 440,000 573,276
9/01/17 .............................................................................. 475,000 621,110
Riverside County PFA Tax Allocation Revenue, Redevelopment Projects,
2005, Refunding, Series A, 5.625%, 10/01/33 ........................................... 2,075,000 2,119,550
2005, Series A, Pre-Refunded, 5.625%, 10/01/33 ........................................ 5,915,000 6,033,300
Series A, Pre-Refunded, 5.625%, 10/01/33 .............................................. 3,235,000 3,299,700
Riverside County PFA, COP,
5.75%, 5/15/19 ........................................................................ 3,500,000 3,657,185
5.80%, 5/15/29 ........................................................................ 14,230,000 14,799,769
Riverside County RDA Tax Allocation, Jurupa Valley Project Area, AMBAC Insured,
5.00%, 10/01/28 ....................................................................... 14,035,000 14,622,786
5.125%, 10/01/35 ...................................................................... 17,035,000 17,823,550
Riverside County SFMR, Capital Appreciation Mortgage,
Series A, ETM, zero cpn., 9/01/14 ..................................................... 20,220,000 15,002,229
Series A, ETM, zero cpn., 11/01/20 .................................................... 25,055,000 13,119,299
Series B, ETM, zero cpn., 6/01/23 ..................................................... 26,160,000 12,164,138
Rocklin USD, GO,
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/08 ...................... 3,660,000 3,421,661
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/09 ...................... 4,100,000 3,697,995
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/10 ...................... 4,595,000 3,996,915
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/11 ...................... 5,145,000 4,303,895
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/12 ...................... 5,760,000 4,624,762
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/16 ......................... 33,960,000 22,781,726
Election of 2002, FGIC Insured, zero cpn., 8/01/25 ....................................... 8,160,000 3,530,750
Semiannual Report | 37
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Rocklin USD, GO, (continued)
Election of 2002, FGIC Insured, zero cpn., 8/01/26 .................................... $ 8,695,000 $ 3,584,514
Election of 2002, FGIC Insured, zero cpn., 8/01/27 .................................... 9,080,000 3,565,080
Election of 2002, FGIC Insured, zero cpn., 8/01/28 .................................... 16,615,000 6,210,687
Roseville 1915 Act, North Roseville Rocklin District No. 88-3, Refunding, 8.25%,
9/02/07 ............................................................................... 125,000 129,905
9/02/08 ............................................................................... 130,000 133,319
9/02/09 ............................................................................... 110,000 113,003
Roseville City School District GO, Capital Appreciation, Series A, zero cpn.,
8/01/11 ............................................................................... 3,115,000 2,595,169
8/01/17 ............................................................................... 30,770,000 17,958,910
Roseville Electric System Revenue COP, FSA Insured, 5.00%,
2/01/29 ............................................................................... 10,000,000 10,512,300
2/01/34 ............................................................................... 17,000,000 17,805,290
Roseville Joint UHSD,
Capital Appreciation, Series A, zero cpn., 8/01/10 .................................... 1,820,000 1,578,905
Capital Appreciation, Series A, zero cpn., 8/01/11 .................................... 1,965,000 1,640,972
Capital Appreciation, Series A, zero cpn., 8/01/17 .................................... 18,155,000 10,585,091
GO, Election of 2004, Series B, FGIC Insured, 5.00%, 8/01/30 .......................... 8,375,000 8,801,287
Sacramento City Financing Authority Revenue,
Capital Improvement, AMBAC Insured, 5.00%, 12/01/33 ................................... 7,520,000 7,845,691
Capital Improvement, Community Reinsurance Capital Program, Series A, AMBAC Insured,
5.00%, 12/01/31 ...................................................................... 16,915,000 17,851,753
Capital Improvement, Community Reinsurance Capital Program, Series A, AMBAC Insured,
5.00%, 12/01/36 ...................................................................... 10,000,000 10,537,000
Capital Improvement, Pre-Refunded, 5.625%, 6/01/30 .................................... 6,000,000 6,499,680
Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/32 ......................... 26,250,000 27,308,925
Series 1991, 6.70%, 11/01/11 .......................................................... 920,000 921,343
Sacramento City USD, GO, Election of 1999, Series B, FGIC Insured, 5.00%, 7/01/30 ........ 5,250,000 5,475,593
Sacramento County Sanitation District Financing Authority Revenue,
AMBAC Insured, Pre-Refunded, 5.625%, 12/01/30 ......................................... 5,000,000 5,463,100
Sacramento Regional County Sanitation, FGIC Insured, 5.00%, 12/01/36 .................. 18,500,000 19,603,710
Sacramento Regional County Sanitation, Series A, AMBAC Insured, 5.00%, 12/01/35 ....... 40,000,000 42,076,000
Sanitation District 1, MBIA Insured, 5.00%, 8/01/30 ................................... 8,000,000 8,467,440
Sanitation District 1, MBIA Insured, 5.00%, 8/01/35 ................................... 10,000,000 10,546,500
Sacramento MUD Electric Revenue,
Refunding, Series T, FGIC Insured, 5.00%, 5/15/30 ..................................... 9,095,000 9,564,575
Sacramento MUD, Series R, MBIA Insured, 5.00%, 8/15/33 ................................ 4,500,000 4,688,010
Series N, MBIA Insured, 5.00%, 8/15/28 ................................................ 63,500,000 66,135,885
Sacramento MUD, Electric Revenue, sub. lien, Refunding, 8.00%, 11/15/10 ............... 16,110,000 16,142,703
Sacramento USD, COP, Refunding, MBIA Insured, 5.00%, 3/01/31 ............................. 6,000,000 6,210,660
Saddleback Valley USD, GO, FSA Insured, 5.00%,
8/01/27 ............................................................................... 4,680,000 4,949,615
8/01/29 ............................................................................... 4,335,000 4,569,914
Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, Refunding,
FSA Insured, 5.25%, 9/01/28 ........................................................... 6,800,000 7,033,308
38 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Bernardino County COP, Medical Center Financing Project,
Refunding, 5.00%, 8/01/26 ............................................................... $ 13,045,000 $ 13,068,090
Series A, MBIA Insured, 5.50%, 8/01/22 .................................................. 40,830,000 41,259,940
San Bernardino County Housing Authority MFMR,
Sequoia Plaza Mobil Home, GNMA Secured, 6.75%, 4/20/41 .................................. 6,920,000 7,677,602
Series A, GNMA Secured, 6.70%, 3/20/43 .................................................. 3,345,000 3,775,134
San Bernardino Joint Powers Financing Authority Lease Revenue, City Hall Project, Refunding,
MBIA Insured, 5.70%, 1/01/23 .............................................................. 6,315,000 6,474,012
San Carlos School District GO, Election of 2005, Series A, MBIA Insured, 5.00%,
10/01/26 ................................................................................ 5,070,000 5,415,267
10/01/30 ................................................................................ 8,820,000 9,353,963
San Diego County COP, MBIA Insured, 5.00%, 8/15/28 ......................................... 24,000,000 24,763,440
San Diego County Water Authority Water Revenue COP, Series A,
FSA Insured, 5.00%, 5/01/34 ............................................................. 106,705,000 111,933,545
MBIA Insured, 5.00%, 5/01/25 ............................................................ 12,440,000 13,086,507
San Diego Public Facilities Financing Authority Sewer Revenue,
Series A, FGIC Insured, 5.25%, 5/15/27 .................................................. 21,750,000 22,191,307
Series B, FGIC Insured, 5.25%, 5/15/22 .................................................. 5,200,000 5,306,444
San Diego Public Facilities Financing Authority Water Revenue,
MBIA Insured, 5.00%, 8/01/26 ............................................................ 12,210,000 12,760,671
Subordinated, Refunding, MBIA Insured, 5.00%, 8/01/32 ................................... 20,000,000 20,765,600
San Diego RDA Tax Allocation, Horton Project, Refunding, Series A, FSA Insured,
6.00%, 11/01/15 ........................................................................... 5,000,000 5,108,850
San Diego USD, GO,
Capital Appreciation Bond, Series A, FGIC Insured, zero cpn., 7/01/21 ................... 12,160,000 6,374,029
Capital Appreciation Bond, Series A, FGIC Insured, zero cpn., 7/01/22 ................... 8,440,000 4,208,353
Capital Appreciation Bond, Series A, FGIC Insured, zero cpn., 7/01/23 ................... 11,120,000 5,278,886
Election of 1998, Series B, MBIA Insured, 5.00%, 7/01/25 ................................ 6,975,000 7,333,585
Election of 1998, Series D, FGIC Insured, 5.00%, 7/01/27 ................................ 16,000,000 17,143,200
Election of 1998, Series E, FSA Insured, 5.00%, 7/01/28 ................................. 10,000,000 10,806,000
Series C, FSA Insured, 5.00%, 7/01/26 ................................................... 6,490,000 7,003,878
San Francisco BART District Sales Tax Revenue,
FGIC Insured, Pre-Refunded, 5.50%, 7/01/34 .............................................. 11,790,000 12,533,359
FSA Insured, 5.00%, 7/01/36 ............................................................. 6,760,000 7,088,806
Refunding, Series A, MBIA Insured, 5.00%, 7/01/30 ....................................... 20,000,000 21,159,200
San Francisco City and County Airports Commission Airport Revenue, Refunding, Series 28B,
MBIA Insured, 5.00%, 5/01/27 .............................................................. 5,050,000 5,279,422
San Francisco City and County Airports Commission International Airport Revenue,
Issue 16A, Second Series, FSA Insured, 5.125%, 5/01/23 .................................. 24,635,000 25,307,535
Refunding, Second Series 28A, MBIA Insured, 5.125%, 5/01/32 ............................. 26,290,000 27,301,376
Second Series, Issue 23B, FGIC Insured, 5.125%, 5/01/30 ................................. 10,000,000 10,387,600
San Francisco City and County COP, 30 Van Ness Avenue Property, Series A, MBIA Insured,
5.00%, 9/01/31 ............................................................................ 5,805,000 6,011,194
San Francisco City and County RDA,
Hotel Tax Revenue, FSA Insured, 6.75%, 7/01/25 .......................................... 315,000 315,391
Lease Revenue, George R. Moscone Center, Capital Appreciation, zero cpn.,
7/01/07 ................................................................................ 4,570,000 4,451,317
Semiannual Report | 39
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Francisco City and County RDA, (continued)
Lease Revenue, George R. Moscone Center, Capital Appreciation, zero cpn.,
7/01/08 .............................................................................. $ 7,785,000 $ 7,292,209
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.60% thereafter,
1/15/16 .............................................................................. 19,500,000 19,536,855
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.65% thereafter,
1/15/17 .............................................................................. 17,000,000 17,053,040
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.70% thereafter,
1/15/19 .............................................................................. 57,000,000 56,957,820
Convertible Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07,
5.75% thereafter, 1/15/23 ............................................................ 80,000,000 79,573,600
Convertible Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07,
5.75% thereafter, 1/15/24 ............................................................ 80,000,000 79,186,400
Refunding, Series A, 5.50%, 1/15/28 .................................................... 247,300,000 248,642,839
Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ..................................... 85,500,000 87,636,645
Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ...................................... 21,200,000 21,716,220
senior lien, 5.00%, 1/01/33 ............................................................ 82,040,000 81,205,653
senior lien, ETM, zero cpn., 1/01/25 ................................................... 5,700,000 2,549,325
senior lien, ETM, zero cpn., 1/01/28 ................................................... 33,545,000 12,819,893
senior lien, ETM, zero cpn., 1/01/29 ................................................... 37,050,000 13,415,434
senior lien, Pre-Refunded, 7.50%, 1/01/09 .............................................. 21,585,000 23,067,242
senior lien, Pre-Refunded, 7.55%, 1/01/10 .............................................. 10,745,000 11,489,306
senior lien, Pre-Refunded, 7.60%, 1/01/11 .............................................. 20,935,000 22,397,728
senior lien, Pre-Refunded, 7.65%, 1/01/12 .............................................. 25,215,000 26,991,901
senior lien, Pre-Refunded, 7.65%, 1/01/13 .............................................. 27,350,000 29,277,354
senior lien, Pre-Refunded, 7.70%, 1/01/14 .............................................. 7,470,000 8,000,968
senior lien, Pre-Refunded, 7.70%, 1/01/15 .............................................. 60,155,000 64,430,817
senior lien, Refunding, Series A, zero cpn., 1/15/18 ................................... 60,000,000 59,913,000
senior lien, Refunding, Series A, zero cpn., 1/15/20 ................................... 80,000,000 79,782,400
senior lien, Refunding, Series A, zero cpn., 1/15/22 ................................... 90,000,000 89,667,900
San Jose Airport Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 3/01/31 ...................................... 11,000,000 11,274,670
Series D, MBIA Insured, 5.00%, 3/01/28 ................................................. 10,000,000 10,504,400
San Jose Financing Authority Lease Revenue,
Civic Center Project, Series B, AMBAC Insured, 5.00%, 6/01/27 .......................... 46,400,000 48,178,512
Refunding, Series F, MBIA Insured, 5.00%, 9/01/21 ...................................... 14,045,000 14,620,283
Refunding, Series F, MBIA Insured, 5.00%, 9/01/22 ...................................... 14,730,000 15,306,827
San Jose Financing Authority Revenue, Fourth and San Fernando Parking Facility, Series A,
AMBAC Insured, 5.00%, 9/01/24 ........................................................... 5,000,000 5,193,550
San Jose GO,
Libraries and Parks, MBIA Insured, 5.00%, 9/01/36 ...................................... 35,150,000 37,262,515
Libraries Parks and Public Safety Projects, 5.00%, 9/01/28 ............................. 11,600,000 12,111,560
Libraries Parks and Public Safety Projects, MBIA Insured, 5.00%, 9/01/34 ............... 15,820,000 16,532,849
San Jose RDA Tax Allocation,
Housing Set-Aside Merged Area, Series E, MBIA Insured, 5.85%, 8/01/27 .................. 7,325,000 7,597,783
Merged Area Redevelopment Project, 5.25%, 8/01/29 ...................................... 9,860,000 10,141,010
Merged Area Redevelopment Project, AMBAC Insured, 5.00%, 8/01/31 ....................... 2,000,000 2,046,360
40| Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Jose RDA Tax Allocation, (continued)
Merged Area Redevelopment Project, MBIA Insured, 5.00%, 8/01/21 .................... $35,235,000 $35,250,503
Merged Area Redevelopment Project, MBIA Insured, Pre-Refunded, 5.625%, 8/01/28 ..... 22,105,000 22,936,148
Merged Area Redevelopment Project, Refunding, MBIA Insured, 5.625%, 8/01/28 ........ 2,030,000 2,104,623
San Jose RDA, MFHR, Miraido Village, Series A, GNMA Secured, 5.75%, 7/20/38 ........... 7,110,000 7,269,193
San Jose USD Santa Clara County GO, Series A, FSA Insured, 5.00%,
8/01/24 ............................................................................ 9,200,000 9,639,208
8/01/27 ............................................................................ 9,150,000 9,557,907
San Jose USD, COP, Refunding, FSA Insured, zero cpn.,
1/01/27 ............................................................................ 7,105,000 2,863,670
1/01/29 ............................................................................ 7,105,000 2,589,417
San Juan Basin Authority Lease Revenue, AMBAC Insured, 5.00%, 12/01/34 ................ 4,000,000 4,141,120
San Juan USD, GO, Election of 1998, Series B, MBIA Insured, zero cpn.,
8/01/26 ............................................................................ 15,825,000 6,066,989
8/01/27 ............................................................................ 18,605,000 7,379,673
8/01/28 ............................................................................ 19,470,000 7,355,961
San Marcos PFAR, Series A, ETM, 6.25%, 9/02/22 ........................................ 15,000,000 18,317,700
San Marcos Public Facilities Authority Revenue,
Refunding, 5.80%, 9/01/18 .......................................................... 4,745,000 4,959,379
Senior Tax Increment Project Area 3, Series A, MBIA Insured, Pre-Refunded,
5.75%, 10/01/29 ................................................................... 5,340,000 5,889,593
Senior Tax Increment Project Area 3, Series A, MBIA Insured, Pre-Refunded,
5.80%, 10/01/30 ................................................................... 8,035,000 8,822,992
San Marcos USD, School Facilities ID No. 1, AMBAC Insured, Pre-Refunded,
5.80%, 11/01/14 ...................................................................... 5,000,000 5,108,800
San Mateo County Joint Powers Authority Lease Revenue, Capital Projects, Refunding,
Series A, FSA Insured, 5.00%, 7/15/29 ................................................ 13,000,000 13,392,210
San Mateo County Transit District Sales Tax Revenue, Refunding, Series A, MBIA Insured,
5.00%, 6/01/32 ....................................................................... 15,000,000 15,818,100
San Mateo Flood Control District COP, Colma Creek Flood Control Zone, AMBAC Insured,
5.00%, 8/01/39 ....................................................................... 6,555,000 6,834,636
San Mateo RDA Tax Allocation,
5.60%, 8/01/25 ..................................................................... 10,185,000 10,760,249
Merged Area, Series A, Pre-Refunded, 5.70%, 8/01/27 ................................ 6,330,000 6,569,211
San Mateo UHSD, GO,
Capital Appreciation, Election of 2000, Series B, FGIC Insured, zero cpn.,
9/01/22 ............................................................................ 5,000,000 2,494,150
Election of 2000, Series A, FGIC Insured, Pre-Refunded, 5.00%, 9/01/25 ............. 13,865,000 14,820,853
San Pablo RDA Tax Allocation, Merged Project Area, FGIC Insured, 6.25%, 12/01/19 ...... 1,655,000 1,661,570
San Ramon PFA Tax Allocation Revenue, MBIA Insured, 5.30%, 2/01/28 .................... 18,360,000 19,087,607
San Ramon Valley Fire Protection District COP, XLCA Insured, 5.00%, 8/01/36 ........... 5,655,000 5,922,934
San Ramon Valley USD, GO, Election of 2002,
FSA Insured, 5.00%, 8/01/26 ........................................................ 12,800,000 13,554,944
FSA Insured, 5.40%, 3/01/28 ........................................................ 27,410,000 29,937,202
FSA Insured, 5.00%, 8/01/29 ........................................................ 16,505,000 17,399,406
MBIA Insured, 5.00%, 8/01/25 ....................................................... 14,215,000 15,252,126
MBIA Insured, 5.00%, 8/01/28 ....................................................... 14,770,000 15,777,314
MBIA Insured, 5.00%, 8/01/31 ....................................................... 14,795,000 15,714,509
Semiannual Report | 41
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Sanger USD, GO, Election of 2006, Series A, FSA Insured, 5.00%, 8/01/27 ............ $ 6,000,000 $ 6,455,040
b Santa Barbara Housing Authority Revenue, Refunding and Acquisition, 6.25%, 11/15/20 4,990,000 4,929,821
Santa Clara Electric Revenue, Sub Series A, MBIA Insured, 5.00%, 7/01/25 ........... 5,470,000 5,743,938
Santa Clara Housing Authority MFHR,
Arastradero Park Apartments Project, Series A, GNMA Secured, 6.65%, 5/20/35 .. 6,395,000 6,443,410
Elena Gardens Apartments Project, Series A, GNMA Secured, 6.40%, 6/20/35 ... 5,560,000 5,574,067
Sierra Vista I Apartments Project, Series A, GNMA Secured, 6.65%, 6/20/35 ....... 3,820,000 3,849,605
Santa Clara USD, COP, 5.375%, 7/01/31 .............................................. 7,575,000 8,025,788
Santa Cruz City Elementary School District GO, MBIA Insured, 5.00%, 8/01/29 ........ 5,625,000 5,962,163
Santa Cruz City High School District GO, MBIA Insured, 5.00%, 8/01/29 .............. 11,535,000 12,226,408
Santa Margarita Water District Special Tax, Community Facilities District No. 99-1,
6.00%, 9/01/30 .................................................................... 9,000,000 9,541,350
Santa Maria Bonita School District COP, MBIA Insured, 7.00%, 3/01/16 ............... 480,000 486,422
Santa Maria Water and Wastewater Revenue, COP, Series A, AMBAC Insured,
5.55%, 8/01/27 .................................................................... 21,000,000 22,979,460
Santa Monica RDA Tax Allocation, Earthquake Recovery Redevelopment Project,
AMBAC Insured, Pre-Refunded, 6.00%, 7/01/29 ....................................... 13,110,000 14,106,622
Saugus USD, GO, Series B, FSA Insured, Pre-Refunded, 5.00%, 8/01/29 ................ 5,000,000 5,525,000
Shafter Joint Powers Financing Authority Lease Revenue,
Community Correctional Facility Project, Series A,
5.95%, 1/01/11 ................................................................. 1,880,000 1,909,478
6.05%, 1/01/17 ................................................................. 5,135,000 5,216,492
Simi Valley USD, GO, Election 2004, Series A, MBIA Insured, 5.00%, 8/01/26 ......... 6,000,000 6,353,880
Snowline Joint USD, CFD Special Tax, No. 2002-1, Series A,
5.30%, 9/01/29 .................................................................. 1,615,000 1,665,663
5.40%, 9/01/34 .................................................................. 2,000,000 2,063,280
Solano County COP, GO, MBIA Insured, 5.00%, 11/01/32 ............................... 24,665,000 25,525,315
Sonoma County Water Agency Water Revenue, Series A, FSA Insured, 5.00%, 7/01/36 .... 5,600,000 5,928,160
South Gate Utility Authority Revenue, Water and Sewer Systems Project, FGIC Insured,
5.00%, 10/01/32 ................................................................... 6,475,000 6,710,561
Southern California Public Power Authority Power Project Revenue,
6.75%, 7/01/13 .................................................................. 10,000,000 11,680,900
Series A, AMBAC Insured, ETM, zero cpn., 7/01/11 ................................ 12,000,000 10,104,000
Series A, AMBAC Insured, ETM, zero cpn., 7/01/12 ................................ 16,890,000 13,653,031
Series A, AMBAC Insured, ETM, zero cpn., 7/01/13 ................................ 16,000,000 12,438,400
Southern California Public Power Authority Project Revenue, Magnolia Power Project,
Series A, AMBAC Insured, 5.00%, 7/01/36 ........................................... 15,800,000 16,469,446
Southern California Public Power Authority Transmission Project Revenue,
Southern Transmission Project, 6.125%, 7/01/18 .................................... 1,135,000 1,136,112
Standard Elementary School District GO, Election of 2006, Series A, AMBAC Insured,
5.00%, 11/01/30 ................................................................... 5,000,000 5,304,600
Stockton COP, Essential Services Building Parking Facility, Pre-Refunded,
5.875%, 8/01/23 ................................................................. 2,295,000 2,463,017
6.00%, 8/01/31 .................................................................. 6,585,000 7,089,016
Stockton East Water District COP, 1990 Project, Series B, zero cpn., 4/01/16 ....... 103,885,000 66,409,525
Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A,
FSA Insured, 5.95%, 7/01/17 ....................................................... 5,095,000 5,289,578
42 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Stockton Revenue COP, Wastewater System Project, Refunding, Series A, MBIA Insured,
5.20%, 9/01/29 ......................................................................... $ 19,160,000 $ 20,030,630
Stockton Revenue, O'Connor Woods Housing Corp., Series A, 6.35%, 11/01/31 ............... 9,110,000 9,645,759
Stockton USD, GO,
Election of 2000, Series 2004, MBIA Insured, 5.00%, 1/01/27 .......................... 5,030,000 5,268,321
MBIA Insured, 5.00%, 1/01/28 ......................................................... 5,335,000 5,581,797
Suisun City PFA Tax Allocation Revenue, Capital Appreciation Redevelopment Project,
Series A, zero cpn., 10/01/28 .......................................................... 17,855,000 5,975,354
Sweetwater UHSD, COP, FSA Insured, 5.00%, 9/01/27 ....................................... 7,840,000 8,215,066
Tahoe Forest Hospital District Revenue, Series A,
5.90%, 7/01/29 ....................................................................... 1,635,000 1,716,423
Pre-Refunded, 5.90%, 7/01/29 ......................................................... 6,355,000 6,870,835
Thousand Oaks RDA, MFR, The Shadows Apartments, Refunding, Series A, FNMA Insured,
5.75%, 11/01/27 ........................................................................ 7,170,000 7,387,179
Thousand Oaks SFHMR, Capital Appreciation, Series A, GNMA Secured, zero cpn.,
9/01/23 ................................................................................ 16,000 55,977
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Series B, Pre-Refunded, 5.00%, 6/01/28 ............................. 17,390,000 18,493,743
Tobacco Securitization Authority Southern California Tobacco Settlement Revenue,
Asset-Backed Bonds,
Senior Series A, Pre-Refunded, 5.50%, 6/01/36 ....................................... 80,500,000 88,522,630
Senior Series A, Pre-Refunded, 5.625%, 6/01/43 ...................................... 123,165,000 136,221,722
Sub Series B, Pre-Refunded, 6.00%, 6/01/43 .......................................... 48,435,000 54,493,734
Tobacco Securitization Authority Tobacco Settlement Revenue, Series A, Pre-Refunded,
5.25%, 6/01/31 ....................................................................... 6,800,000 7,304,084
5.375%, 6/01/41 ...................................................................... 30,250,000 32,653,665
Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.50%, 6/01/31 ... 4,385,000 4,616,002
Trabuco Canyon PFA, Special Tax Revenue, Refunding,
Series A, FSA Insured, 6.00%, 10/01/10 ............................................... 13,775,000 14,568,853
Series A, FSA Insured, 6.10%, 10/01/15 ............................................... 13,220,000 14,962,264
Series C, FSA Insured, 6.00%, 7/01/12 ................................................ 3,040,000 3,248,787
Series C, FSA Insured, 6.10%, 7/01/19 ................................................ 5,215,000 6,213,099
Tracy COP, I-205 Corridor Improvement and Refinancing Project, AMBAC Insured,
5.125%, 10/01/27 ....................................................................... 5,000,000 5,229,500
Tri-City Hospital District Revenue, Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 .. 5,000,000 5,084,300
Tulare Local Health Care District Health Facilities Revenue, California Mortgage Insured,
5.20%, 12/01/21 ........................................................................ 4,455,000 4,597,204
Tustin CFD Special Tax, No. 04-01, John Lang Homes,
5.375%, 9/01/29 ...................................................................... 1,000,000 1,017,660
5.50%, 9/01/34 ....................................................................... 1,500,000 1,531,320
Tustin USD, Special Tax, CFD No. 97-1, Pre-Refunded, 6.375%, 9/01/35 .................... 8,645,000 9,279,802
Union City CRDA Tax Allocation Revenue, Community Redevelopment Project,
AMBAC Insured, 5.75%, 10/01/33 ......................................................... 4,910,000 5,347,360
University of California Hospital Revenue, UCLA Medical Center, Series A,
AMBAC Insured, 5.00%, 5/15/34 .......................................................... 10,000,000 10,433,900
University of California Revenues,
Limited Project, Series B, FSA Insured, 5.00%, 5/15/33 ............................... 15,000,000 15,734,550
Multi Purpose Projects, Series O, FGIC Insured, 5.00%, 9/01/23 ....................... 9,200,000 9,628,720
Semiannual Report | 43
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
University of California Revenues, (continued)
Multi Purpose Projects, Series O, FGIC Insured, 5.00%, 9/01/26 .................... $13,430,000 $ 14,021,054
Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/31 ...................... 5,000,000 5,177,600
Series O, FGIC Insured, 5.25%, 9/01/34 ............................................ 61,235,000 64,912,162
Upland COP,
Refunding, 5.50%, 1/01/07 ......................................................... 435,000 437,075
San Antonio Community Hospital, Refunding, 5.70%, 1/01/11 ......................... 11,210,000 11,759,850
Vacaville PFAR, Local Agency, 8.65%, 9/02/18 ......................................... 4,620,000 4,453,865
Vallejo PFA Local Agency Revenue, Hiddenbrooke Improvement District,
Series A, 5.80%, 9/01/31 ............................................................ 4,785,000 4,925,105
Vallejo RDA Tax Allocation, Waterfront Redevelopment Project, 7.90%, 5/01/19 ......... 2,190,000 2,195,234
Vista Community Development Commission Tax Allocation Revenue,
Vista Redevelopment Project Area, 5.875%, 9/01/37 ................................... 5,000,000 5,253,650
Vista USD, GO, Series B, FGIC Insured, 5.00%, 8/01/28 ................................ 6,000,000 6,300,060
Washington Township Hospital District Revenue,
AMBAC Insured, 5.25%, 7/01/23 ..................................................... 5,000,000 5,002,900
Health Care District Revenue, 5.25%, 7/01/29 ...................................... 6,500,000 6,681,480
West Basin Municipal Water District Revenue COP, 1992 Project, Refunding, Series A,
AMBAC Insured, 5.50%, 8/01/22 ....................................................... 4,000,000 4,102,480
West Contra Costa USD, GO,
Election of 2002, Series C, FGIC Insured, 5.00%, 8/01/34 .......................... 11,605,000 12,147,070
Series A, FSA Insured, 5.00%, 8/01/35 ............................................. 32,000,000 33,628,800
West Covina PFA Lease Revenue,
Big League Dreams Project, Series A, 5.00%, 6/01/36 ............................... 5,045,000 5,200,638
Big League Dreams Projects, Series A, 5.00%, 6/01/30 .............................. 4,200,000 4,346,118
West Hollywood COP, Refunding, MBIA Insured, 5.00%, 2/01/25 .......................... 6,250,000 6,453,063
West Sacramento Financing Authority Special Tax Revenue, Series A, XLCA Insured,
5.00%, 9/01/34 ...................................................................... 5,000,000 5,438,500
Westlands Water District Revenue COP, MBIA Insured, 5.00%,
9/01/26 ........................................................................... 13,150,000 13,766,603
9/01/34 ........................................................................... 13,500,000 14,026,365
Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital,
5.60%, 6/01/22 .................................................................... 14,285,000 15,011,535
5.75%, 6/01/31 .................................................................... 28,000,000 29,702,120
William S. Hart UHSD, GO, Series A, MBIA Insured, 5.00%, 9/01/27 ..................... 8,685,000 9,134,796
Yucaipa Valley Water District Water System Revenue COP, Series A, MBIA Insured, 5.00%,
9/01/29 ........................................................................... 10,100,000 10,617,726
9/01/34 ........................................................................... 12,765,000 13,366,870
---------------
TOTAL CALIFORNIA (COST $11,475,168,918) .............................................. 12,233,655,273
---------------
44 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
U. S. TERRITORIES 7.9%
PUERTO RICO 7.8%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding,
5.50%, 5/15/39 .................................................................... $ 7,210,000 $ 7,473,309
5.625%, 5/15/43 ................................................................... 25,500,000 26,523,060
Puerto Rico Commonwealth GO, Public Improvement,
Refunding, Series B, 5.25%, 7/01/32 ................................................ 20,000,000 21,317,400
Refunding, Series B, 5.00%, 7/01/35 ................................................ 35,000,000 36,281,700
Series A, 5.125%, 7/01/31 .......................................................... 95,185,000 97,897,773
Series A, Pre-Refunded, 5.00%, 7/01/27 ............................................. 26,750,000 28,761,600
Series A, Pre-Refunded, 5.125%, 7/01/31 ............................................ 47,740,000 51,078,458
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, 5.00%, 7/01/36 ............................................................. 63,000,000 65,307,060
Puerto Rico Commonwealth Highway and Transportation Authority
Transportation Revenue,
Series A, MBIA Insured, 5.00%, 7/01/38 ............................................ 116,975,000 119,849,076
Series B, Pre-Refunded, 6.00%, 7/01/31 ............................................ 13,000,000 14,200,810
Series B, Pre-Refunded, 6.00%, 7/01/39 ............................................ 13,200,000 14,467,860
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 45,000,000 49,253,850
Series D, Pre-Refunded, 5.75%, 7/01/41 ............................................ 20,000,000 22,277,200
Series K, 5.00%, 7/01/40 .......................................................... 30,000,000 31,006,500
Series K, 5.00%, 7/01/45 .......................................................... 30,000,000 31,006,500
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
5.00%, 7/01/46 .................................................................... 20,000,000 20,652,800
Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/28 ............................. 10,000,000 10,283,400
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/31 ..................................................... 15,000,000 16,024,650
FGIC Insured, 5.00%, 7/01/24 ...................................................... 6,505,000 7,008,812
Puerto Rico Electric Power Authority Power Revenue,
Series DD, MBIA Insured, 5.00%, 7/01/28 ............................................ 23,250,000 23,937,735
Series II, 5.25%, 7/01/31 .......................................................... 48,000,000 50,640,960
Puerto Rico Industrial Tourist Educational Medical and Environmental
Control Facilities Revenue, Cogeneration Facility, AES Puerto Rico Project,
6.625%, 6/01/26 ...................................................................... 6,800,000 7,457,832
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 ............................................... 26,510,000 27,916,886
Series D, Pre-Refunded, 5.375%, 7/01/33 ............................................ 73,490,000 80,038,694
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
5.50%, 8/01/29 .................................................................... 35,760,000 37,607,004
Pre-Refunded, 5.50%, 8/01/29 ...................................................... 104,235,000 113,801,688
Pre-Refunded, 5.75%, 8/01/30 ...................................................... 50,000,000 50,369,000
--------------
TOTAL PUERTO RICO ..................................................................... 1,062,441,617
--------------
Semiannual Report | 45
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
VIRGIN ISLANDS 0.1%
Virgin Islands PFAR, senior lien,
Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ............................. 7,000,000 $ 7,247,450
Refunding, Series A, 5.50%, 10/01/14 .............................................. 3,865,000 4,013,648
---------------
TOTAL VIRGIN ISLANDS ................................................................. 11,261,098
---------------
TOTAL U. S. TERRITORIES (COST $990,365,538) .......................................... 1,073,702,715
---------------
TOTAL LONG TERM INVESTMENTS (COST $12,465,534,456) ................................... 13,307,357,988
---------------
SHORT TERM INVESTMENTS 1.9%
MUNICIPAL BONDS 1.9%
CALIFORNIA 1.9%
c California Infrastructure and Economic Development Bank Insured Revenue, Rand Corp.,
Series B, AMBAC Insured, Daily VRDN and Put, 3.60%, 4/01/42 ......................... 3,500,000 3,500,000
c California Infrastructure and Economic Development Bank Revenue,
San Francisco Ballet Assn., FGIC Insured, Daily VRDN and Put, 3.79%, 7/01/36 ........ 10,100,000 10,100,000
c California PCFA, PCR, Pacific Gas and Electric Co., Refunding, Series F,
Daily VRDN and Put, 3.82%, 11/01/26 ................................................. 7,200,000 7,200,000
c California State Department of Water Resources Power Supply Revenue,
Refunding, Sub Series F-1, Daily VRDN and Put, 3.65%, 5/01/19 ..................... 100,000 100,000
Refunding, Sub Series F-5, Weekly VRDN and Put, 3.66%, 5/01/22 .................... 33,100,000 33,100,000
Refunding, Sub Series G-3, FSA Insured, Weekly VRDN and Put, 3.59%, 5/01/16 ....... 12,350,000 12,350,000
Series B-2, Daily VRDN and Put, 3.66%, 5/01/22 .................................... 6,000,000 6,000,000
Series B-3, Daily VRDN and Put, 3.65%, 5/01/22 .................................... 4,505,000 4,505,000
Series B-4, Daily VRDN and Put, 3.60%, 5/01/22 .................................... 6,400,000 6,400,000
Series B-5, Daily VRDN and Put, 3.65%, 5/01/22 .................................... 15,350,000 15,350,000
Series B-6, Daily VRDN and Put, 3.65%, 5/01/22 .................................... 3,700,000 3,700,000
Series C-7, FSA Insured, Weekly VRDN and Put, 3.59%, 5/01/22 ...................... 10,000,000 10,000,000
Series C-9, Weekly VRDN and Put, 3.55%, 5/01/22 ................................... 7,380,000 7,380,000
c California State Economic Recovery GO, Series C-1, Daily VRDN and Put, 3.65%, 7/01/23 4,005,000 4,005,000
c California State Economic Recovery Revenue,
Series C-5, Daily VRDN and Put, 3.61%, 7/01/23 .................................... 4,135,000 4,135,000
Series C-6, Daily VRDN and Put, 3.60%, 7/01/23 .................................... 47,620,000 47,620,000
Series C-7, Daily VRDN and Put, 3.60%, 7/01/23 .................................... 8,595,000 8,595,000
Series C-8, Daily VRDN and Put, 3.65%, 7/01/23 .................................... 15,030,000 15,030,000
Series C-9, Daily VRDN and Put, 3.65%, 7/01/23 .................................... 8,990,000 8,990,000
c California State GO,
Kindergarten-University, Series A-4, Daily VRDN and Put, 3.61%, 5/01/34 ........... 2,690,000 2,690,000
Kindergarten-University, Series A-5, Daily VRDN and Put, 3.60%, 5/01/34 ........... 2,800,000 2,800,000
Kindergarten-University, Series B-3, Daily VRDN and Put, 3.65%, 5/01/34 ........... 5,750,000 5,750,000
Series A-3, Daily VRDN and Put, 3.65%, 5/01/33 .................................... 4,300,000 4,300,000
c California Statewide CDA Revenue, COP, John Muir/Mt. Diablo Health System,
AMBAC Insured, Daily VRDN and Put, 3.56%, 8/15/27 ................................... 3,600,000 3,600,000
c Irvine 1915 Act Special Assessment,
AD No. 93-14, Daily VRDN and Put, 3.65%, 9/02/25 .................................. 5,000,000 5,000,000
AD No. 94-13, Daily VRDN and Put, 3.65%, 9/02/22 .................................. 2,600,000 2,600,000
46 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
c Irvine Ranch Water District GO, Nos. 105 140 240 and 250, Daily VRDN and Put,
3.65%, 1/01/21 ................................................................ $4,500,000 $ 4,500,000
3.65%, 4/01/33 ................................................................ 4,800,000 4,800,000
c Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2,
Daily VRDN and Put, 3.65%, 7/01/35 .............................................. 3,700,000 3,700,000
c Metropolitan Water District Southern California Waterworks Revenue,
Refunding, Series B-1, Daily VRDN and Put, 3.65%, 7/01/35 ..................... 600,000 600,000
Refunding, Series B-3, Daily VRDN and Put, 3.65%, 7/01/35 ..................... 2,000,000 2,000,000
Series C-2, Daily VRDN and Put, 3.60%, 7/01/36 ................................ 2,900,000 2,900,000
c Newport Beach Revenue, Hoag Memorial Presbyterian Hospital,
Series B, Weekly VRDN and Put, 3.67%, 10/01/26 ................................ 2,000,000 2,000,000
Series C, Daily VRDN and Put, 3.67%, 10/01/26 ................................. 2,600,000 2,600,000
c Orange County Sanitation District COP, Refunding, Series A, Daily VRDN and Put,
3.65%, 8/01/29 .................................................................. 300,000 300,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $258,200,000) ................................. 258,200,000
---------------
TOTAL INVESTMENTS (COST $12,723,734,456) 99.3% ................................... 13,565,557,988
OTHER ASSETS, LESS LIABILITIES 0.7% .............................................. 94,418,195
---------------
NET ASSETS 100.0% ................................................................ $13,659,976,183
===============
a See Note 7 regarding defaulted securities.
b Security has been deemed illiquid because it may not be able to be sold
within seven days. At September 30, 2006, the aggregate value of these
securities was $6,708,689, representing 0.05% of net assets.
c 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. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2006 (UNAUDITED)
SELECTED PORTFOLIO ABBREVIATIONS
1915 ACT - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
ACA - American Capital Access Holdings Inc.
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 Assurance Inc.
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
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PFAR - Public Financing Authority Revenue
RDA - Redevelopment Agency/Authority
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
XLCA - XL Capital Assurance
48 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30,2006 (unaudited)
Assets:
Investments in securities:
Cost ................................................. $12,723,734,456
===============
Value ................................................ $13,565,557,988
Cash .................................................. 117,672
Receivables:
Capital shares sold .................................. 22,655,263
Interest ............................................. 151,997,010
---------------
Total assets ................................... 13,740,327,933
---------------
Liabilities:
Payables:
Investment securities purchased ...................... 55,918,820
Capital shares redeemed .............................. 15,966,709
Affiliates ........................................... 8,406,223
Accrued expenses and other liabilities ................ 59,998
---------------
Total liabilities .............................. 80,351,750
---------------
Net assets, at value ........................ $13,659,976,183
---------------
Net assets consist of:
Paid-in capital ....................................... $12,770,285,168
Undistributed net investment income ................... 40,351,536
Net unrealized appreciation (depreciation) ............ 841,823,532
Accumulated net realized gain (loss) .................. 7,515,947
---------------
Net assets, at value ........................ $13,659,976,183
===============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
September 30,2006 (unaudited)
CLASS A:
Net assets, at value ................................................ $12,684,032,475
===============
Shares outstanding .................................................. 1,724,348,794
===============
Net asset value per share a ......................................... $ 7.36
===============
Maximum offering price per share (net asset value per share / 95.75%) $ 7.69
===============
CLASS B:
Net assets, at value ................................................ $ 317,255,892
===============
Shares outstanding .................................................. 43,173,374
===============
Net asset value and maximum offering price per share a .............. $ 7.35
===============
CLASS C:
Net assets, at value ................................................ $ 582,540,603
===============
Shares outstanding .................................................. 79,305,687
===============
Net asset value and maximum offering price per share a .............. $ 7.35
===============
ADVISOR CLASS:
Net assets, at value ................................................ $ 76,147,213
===============
Shares outstanding .................................................. 10,362,969
===============
Net asset value and maximum offering price per share a .............. $ 7.35
===============
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
50 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended September 30, 2006 (unaudited)
Investment income:
Interest .......................................................... $345,816,019
------------
Expenses:
Management fees (Note 3a) ......................................... 30,074,185
Distribution fees (Note 3c)
Class A .......................................................... 5,495,050
Class B .......................................................... 1,043,557
Class C .......................................................... 1,815,135
Transfer agent fees (Note 3e) ..................................... 2,001,992
Custodian fees .................................................... 100,233
Reports to shareholders ........................................... 136,460
Registration and filing fees ...................................... 47,152
Professional fees ................................................. 50,095
Directors' fees and expenses ...................................... 74,170
Other ............................................................. 171,214
------------
Total expenses ............................................. 41,009,243
------------
Net investment income ................................... 304,806,776
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ......................... 7,876,680
Net change in unrealized appreciation (depreciation) on investments 165,101,232
------------
Net realized and unrealized gain (loss) ............................ 172,977,912
------------
Net increase (decrease) in net assets resulting from operations .... $477,784,688
============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------
SIX MONTHS ENDED
SEPTEMBER 30, 2006 YEAR ENDED
(UNAUDITED) MARCH 31, 2006
--------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 304,806,776 604,668,823
Net realized gain (loss) from investments ......................... 7,876,680 15,148,712
Net change in unrealized appreciation (depreciation) on investments 165,101,232 (15,783,506)
------------------------------------
Net increase (decrease) in net assets resulting from operations ..... 477,784,688 604,034,029
------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ......................................................... (282,262,834) (563,049,243)
Class B ......................................................... (6,447,159) (13,828,062)
Class C ......................................................... (11,082,638) (20,634,095)
Advisor Class ................................................... (1,644,877) (2,322,878)
Net realized gains:
Class A ......................................................... (2,736,992) (18,204,587)
Class B ......................................................... (71,417) (505,428)
Class C ......................................................... (122,000) (768,376)
Advisor Class ................................................... (15,913) (76,601)
------------------------------------
Total distributions to shareholders ................................ (304,383,830) (619,389,270)
------------------------------------
Capital share transactions: (Note 2)
Class A ......................................................... 104,106,678 162,213,798
Class B ......................................................... (18,107,426) (27,329,123)
Class C ......................................................... 28,417,553 53,522,920
Advisor Class ................................................... 9,532,585 23,438,981
------------------------------------
Total capital share transactions ................................... 123,949,390 211,846,576
------------------------------------
Redemption fees .................................................... 6,365 26,869
------------------------------------
Net increase (decrease) in net assets ....................... 297,356,613 196,518,204
Net assets:
Beginning of period ................................................ 13,362,619,570 13,166,101,366
------------------------------------
End of period ...................................................... $ 13,659,976,183 $ 13,362,619,570
====================================
Undistributed net investment income included in net assets:
End of period ...................................................... $ 40,351,536 $ 36,982,268
====================================
52 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
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 (1940 Act) as a diversified, open-end investment
company. 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.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Directors.
B. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its income and net realized
gains.
Semiannual Report | 53
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Distributions to shareholders are recorded on the ex-dividend date and
are determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
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. Differences in class-level
expenses may result in payment of different per share distributions by 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.
E. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as an addition to paid-in
capital.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities 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.
54 | Semiannual Report
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. CAPITAL STOCK
At September 30, 2006, there were five billion shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:
---------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2006 MARCH 31, 2006
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
CLASS A SHARES
Shares sold ................. 75,482,202 $ 547,737,622 136,792,757 $ 1,001,465,282
Shares issued in reinvestment
of distributions ........... 21,999,388 159,014,916 43,917,953 320,839,506
Shares redeemed ............. (83,153,102) (602,645,860) (158,604,658) (1,160,090,990)
---------------------------------------------------------------
Net increase (decrease) ..... 14,328,488 $ 104,106,678 22,106,052 $ 162,213,798
===============================================================
CLASS B SHARES:
Shares sold ................. 109,518 $ 792,210 437,754 $ 3,196,495
Shares issued in reinvestment
of distributions ........... 613,507 4,433,272 1,327,785 9,696,699
Shares redeemed ............. (3,223,664) (23,332,908) (5,502,258) (40,222,317)
---------------------------------------------------------------
Net increase (decrease) ..... (2,500,639) $ (18,107,426) (3,736,719) $ (27,329,123)
===============================================================
CLASS C SHARES:
Shares sold ................. 8,878,896 $ 64,389,294 15,827,740 $ 115,728,677
Shares issued in reinvestment
of distributions ........... 996,283 7,196,485 1,884,961 13,755,370
Shares redeemed ............. (5,965,239) (43,168,226) (10,393,075) (75,961,127)
---------------------------------------------------------------
Net increase (decrease) ..... 3,909,940 $ 28,417,553 7,319,626 $ 53,522,920
===============================================================
ADVISOR CLASS SHARES:
Shares sold ................. 2,131,149 $ 15,457,003 3,621,631 $ 26,436,445
Shares issued in reinvestment
of distributions ........... 93,114 672,113 100,401 731,438
Shares redeemed ............. (911,097) (6,596,531) (508,782) (3,728,902)
---------------------------------------------------------------
Net increase (decrease) ..... 1,313,166 $ 9,532,585 3,213,250 $ 23,438,981
===============================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:
- -------------------------------------------------------------------------------------------
SUBSIDIARY 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
Semiannual Report | 55
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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
- --------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 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's Board of Directors has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors up to 0.10% per year of Class A's average daily net
assets for costs incurred in connection with the sale and distribution of the
Fund's shares. Under the Class A reimbursement distribution plan, costs
exceeding the maximum for the current plan year cannot be reimbursed in
subsequent periods.
Under the Fund's compensation distribution plans, the Fund pays Distributors for
costs incurred in connection with the sale and distribution of the Fund's shares
up to a certain percentage per year of its average daily net assets of each
class as follows:
Class B ...................................... 0.65%
Class C ...................................... 0.65%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the period:
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ......................... $1,245,608
Contingent deferred sales charges retained ............ $ 237,599
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $2,001,992, of which $1,302,402 was
retained by Investor Services.
56 | Semiannual Report
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INCOME TAXES
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and bond discounts.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.
At September 30, 2006, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ...................... $ 12,711,822,062
================
Unrealized appreciation .................. $ 878,810,822
Unrealized depreciation .................. (25,074,896)
----------------
Net unrealized appreciation (depreciation) $ 853,735,926
================
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended September 30, 2006, aggregated $658,369,840 and $421,018,006,
respectively.
6. CONCENTRATION OF RISK
The Fund invests a large percentage of its total assets in obligations of
issuers within California. Such concentration may subject the Fund to risks
associated with industrial or regional matters, and economic, political or legal
developments occurring within California.
7. DEFAULTED SECURITIES
The Funds held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At September 30, 2006, the value of these
securities was $36,096,508, representing 0.26% 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. The
securities have been identified on the accompanying Statement of Investments.
8. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
Semiannual Report | 57
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. REGULATORY MATTERS (CONTINUED)
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Fund did not participate in the CAGO Settlement.
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan was completed in September 2006. The Fund did not
participate in the December 13, 2004 SEC Order.
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution. The SEC anticipates that Notice of the Plan will be published on
or after November 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.
58 | Semiannual Report
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. The Fund is currently evaluating the impact, if any, of
applying the various provisions of FIN 48.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value statements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
Semiannual Report | 59
Franklin California Tax-Free Income Fund
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held July 13, 2006, the Board of Directors ("Board"), including a
majority of non-interested or independent Directors, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, and other services provided by the
Investment Manager ("Manager") and its affiliates. Information furnished
specifically in connection with the renewal process included a report for the
Fund prepared by Lipper, Inc. ("Lipper"), an independent organization, as well
as a Fund profitability analysis report prepared by management. The Lipper
report compared the Fund's investment performance and expenses with those of
other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates including management's explanation of differences
where relevant and a three-year expense analysis with an explanation for any
increase in expense ratios. Additional information accompanying such report was
a memorandum prepared by management describing enhancements to the services
provided to the Fund by the Franklin Templeton Investments organization, as well
as a memorandum relating to economies of scale.
In considering such materials, the independent Directors received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Directors, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
shareholders from being part of the Franklin Templeton family of funds,
including the right to
60 | Semiannual Report
Franklin California Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
exchange investments between the same class of funds without a sales charge, the
ability to reinvest Fund dividends into other funds and the right to combine
holdings in other funds to obtain a reduced sales charge. Favorable
consideration was given to management's efforts and expenditures in establishing
back-up systems and recovery procedures to function in the event of a natural
disaster, it being noted by the Board that such systems and procedures had
functioned smoothly during the hurricanes and blackout experienced last year in
Florida. Consideration was also given to the experience of each Fund's portfolio
management team, the number of accounts managed and general method of
compensation. In this latter respect, the Board noted that a primary factor in
management's determination of a portfolio manager's bonus compensation was the
relative investment performance of the funds he or she managed so as to be
aligned with the interests of Fund shareholders. The Board also took into
account the transfer agent and shareholder services provided Fund shareholders
by an affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties and the firsthand experience of the
individual Directors who deal with the shareholder services department in their
capacities as shareholders in one or more of the various Franklin Templeton
Funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the agreement
renewal. The Lipper report prepared for the Fund showed the investment
performance of its Class A shares for the one year ended May 31, 2006, as well
as the previous ten years ended that date in comparison to a performance
universe consisting of the Fund and all retail and institutional California
municipal debt funds as selected by Lipper. The Lipper report showed the Fund's
income return for the one-year period to be in the highest quintile of its
performance universe and on an annualized basis to also be in the highest
quintile of such universe for each of the previous three-, five- and ten-year
periods. The Lipper report also showed the Fund's total return for the one-year
period was in the highest quintile of the performance universe, and on an
annualized basis was also in the highest quintile for the previous three- and
five-year periods, and was in the second-highest quintile of such universe for
the previous ten-year period. The Board expressed its satisfaction with such
performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Prior to making such comparison, the Board relied upon
a survey showing that the scope of services covered under the Fund's investment
management agreement was similar to those provided by fund managers to other
mutual fund groups that would be used as a basis of comparison in the Lipper
reports. In reviewing comparative costs, emphasis was given to the Fund's
management fee in comparison with the effective management fee that would have
been charged by other funds within its
Semiannual Report | 61
Franklin California Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Lipper expense group assuming they were the same size as the Fund, as well as
the actual total expenses of the Fund in comparison with those of its Lipper
expense group. The Lipper effective management fee analysis includes
administrative charges as being part of a management fee and total expenses, for
comparative consistency, are shown by Lipper for Fund Class A shares. The
results of such expense comparisons showed the Fund's effective management fee
rate to be at the median of its Lipper expense group and its actual total
expenses to be in the least expensive quintile of such expense group. The Board
was satisfied with the management fee and total expenses of the Fund in
comparison to those of its Lipper expense group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. The Board also considered the extent to which the
Manager and its affiliates might derive ancillary benefits from fund operations,
including its interest in a joint venture entity that financed up-front
commissions paid to brokers/dealers who sold fund Class B shares. Specific
attention was given to the methodology followed in allocating costs to the Fund,
it being recognized that allocation methodologies are inherently subjective and
various allocation methodologies may each be reasonable while producing
different results. In this respect, the Board noted that the cost allocation
methodology was consistent with that followed in profitability report
presentations for the Fund made in prior years and that the Fund's independent
registered public accounting firm had been engaged by the Manager to perform
certain procedures on a biennial basis, specified and approved by the Manager
and the Fund's Board solely for their purposes and use in reference to the
profitability analysis. Included in the analysis were the revenue and related
costs involved in providing services to the Fund, as well as the Fund's relative
contribution to the profitability of the Manager's parent. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary to the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. Based upon
its consideration of all these factors, the Board determined that the level of
profits realized by the Manager and its affiliates from providing services to
the Fund was not excessive in view of the nature, quality and extent of services
provided.
62 | Semiannual Report
Franklin California Tax-Free Income Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager's realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The fee structure under the Fund's investment
management agreement provides an initial fee of 0.625% on the first $100 million
of net assets; 0.50% on the next $150 million of net assets; 0.45% on the next
$9.75 billion of net assets; 0.44% on the next $2.5 billion of net assets; and
thereafter declines by 0.02% for each subsequent $2.5 billion of net assets
until it reaches a final breakpoint of 0.36% for assets in excess of $20
billion. The Fund's net assets were approximately $13.4 billion at December 31,
2005, and the Board believed that to the extent any economies of scale may be
realized by the Manager and its affiliates, the schedule of fees under the
investment management agreement provides a sharing of benefits with the Fund and
its shareholders.
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 1-954/527-7678 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 U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. 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 | 63
This page intentionally left blank.
Literature Request
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 BRIC 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 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-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate 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
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME 5
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 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 Michigan 6
Arizona Minnesota 6
California 7 Missouri
Colorado New Jersey
Connecticut New York 7
Florida 7 North Carolina
Georgia Ohio 6
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 6 Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 8
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. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
6. Portfolio of insured municipal securities.
7. 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).
8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
07/06 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
|_| WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
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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 S2006 11/06
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 12(a)(1), 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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. 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 Directors that would require disclosure herein.
ITEM 11. 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 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) 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) 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
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 27, 2006
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
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 26, 2006
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date November 27, 2006