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
----------------------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-----------------------------------------------
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
--------------
Date of fiscal year end: 3/31
----
Date of reporting period: 9/30/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
(GRAPHIC)
SEPTEMBER 30, 2008
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
TAX-FREE INCOME
FRANKLIN CALIFORNIA
TAX-FREE INCOME FUND
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inside for details.
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - 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.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
CEO'S MESSAGE ....................................... 1
SPECIAL FEATURE:
Understanding Interest Rates ........................ 4
SEMIANNUAL REPORT
Franklin California Tax-Free Income Fund ............ 8
Performance Summary ................................. 14
Your Fund's Expenses ................................ 17
Financial Highlights and Statement of Investments ... 19
Financial Statements ................................ 51
Notes to Financial Statements ....................... 55
Shareholder Information ............................. 62
A Message from Gregory E. Johnson,
President and Chief Executive Officer of Franklin Resources, Inc.
October 31, 2008
Dear Shareholder:
The enclosed semiannual report for Franklin California Tax-Free Income Fund
covers the six months ended September 30, 2008, but I would like to add some
comments on market events that occurred in October. Recent market volatility has
been jarring to everyone, including those of us who have worked in financial
markets for many years. Bank lending around the world has seized up, and the
fallout has impacted venerable firms alongside broader stock and bond indexes.
This environment is bound to provoke great concern, but it's equally important
to put the latest market developments in perspective. That's why I'd like to
offer a few thoughts on these events, our company's approach to investing and
the strong health of our organization.
A key point to recognize is that global financial turmoil is being addressed by
global action. Central banks around the world have coordinated their efforts to
cut interest rates and supply liquidity to frozen funding markets. A number of
governments have also intervened to rescue major financial institutions or find
an orderly way for them to be acquired. Here in the U.S., the Federal
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
Reserve and Treasury Department have moved rapidly to establish new programs for
easing money market pressures and handling troubled financial assets. The
outcome of all these efforts may take a while to be realized, but I believe the
latest actions here and abroad mark a significant turning point for global
capital markets.
It's also important to remember that as daunting as current market conditions
may be, we have navigated through other periods of market volatility. U.S. stock
markets recorded three bear markets during the 1960s as the nation grappled with
the Vietnam War and a turbulent economy.(1) The quintupling of oil prices in
1973 led to a deep U.S. recession and a stock market plunge of 45.1% from
January 1973 through December 1974.(1) And the "Black Monday" stock market crash
of 1987 remains the largest single-day percentage decline in the history of the
Dow Jones Industrial Average.(2)
Advice applicable throughout these upheavals remains true today. The late Sir
John Templeton, writing 15 years ago, ended a list of his core investment
principles with these thoughts: "Do not be fearful or negative too often.... For
100 years optimists have carried the day in U.S. stocks. Even in the dark '70s,
many professional money managers -- and many individual investors too -- made
money in stocks.... In this century or the next it's still 'Buy low, sell
high.'"(3)
Sir John knew these simple concepts were difficult to execute in the face of
pessimism. Nonetheless, that is precisely how our Franklin, Templeton and Mutual
Series portfolio managers are contending with today's challenging environment.
They are using their expertise to sort through investment opportunities,
avoiding those firms that have become merely cheap and identifying those firms
best positioned to be eventual winners. This kind of rigorous, bottom-up,
security-by-security analysis is the fundamental investment discipline practiced
across our global platform.
These asset management strengths are also the core of our business. Unlike
financial firms that have dominated recent headlines, Franklin Templeton derives
its revenue primarily from investment management, not investment banking or
securities brokerage. Additionally, our assets under management are diversified
by investment objective, clientele and geographic region. Diversified
positioning helps our firm maintain healthy operating margins even when volatile
markets reduce assets under management. It is also important to note
(1.) Source: Ned Davis Research, Inc.
(2.) Source: NYSE Euronext. The Dow Jones Industrial Average is price weighted
based on the average market price of 30 blue chip stocks of companies that
are generally industry leaders.
(3.) Source: "16 Rules for Investment Success" by Sir John Templeton.
2 | Not part of the semiannual report
that maintaining a strong balance sheet has been a pillar of our management
strategy. We have a substantial pool of cash and investments and low levels of
debt, and we are in the enviable position of not having to depend on credit to
meet our operating needs. In fact, our strong franchise, sound capitalization
and minimal leverage led Standard & Poor's to recently raise its credit ratings
on Franklin Resources, Inc. (BEN) to the highest level currently applied to a
publicly traded asset manager.(4)
Franklin Templeton's six-decade growth into a premier global asset manager has
given us the conviction that although conditions remain challenging, there are
ample reasons to be optimistic about eventual market stabilization and recovery.
Being able to take advantage of markets shaken by maximum pessimism has helped
our firm develop into an organization that stretches across 29 countries and
manages assets for more than 20 million shareholder accounts.
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 six months ended September 30, 2008.
The report contains additional performance data and financial information. Our
website, FRANKLINTEMPLETON.COM, offers more timely discussions, daily prices,
portfolio holdings and other information. We encourage you to discuss your
concerns with your financial advisor, who can review your overall portfolio,
reassess your goals and help you stay focused on the long term. As times like
these illustrate, all securities markets fluctuate, as do fund share prices.
We are grateful for the trust you have placed in Franklin Templeton and remain
focused on serving your investment needs.
Sincerely,
/s/ Gregory E. Johnson
Gregory E. Johnson
President and Chief Executive Officer
Franklin Resources, Inc.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31,2008. 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.
(4.) Source: Standard & Poor's press release, 10/6/08.
Not part of the semiannual report | 3
Special Feature
UNDERSTANDING INTEREST RATES
HAVE YOU EVER WONDERED 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 is the rate banks charge other banks for overnight loans. This
rate, 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.
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. AS A TAX-FREE FUND INVESTOR, SHOULD I PAY MORE ATTENTION TO SHORT- OR
LONG-TERM INTEREST RATES?
A. Most Franklin tax-free income fund shareholders may want to keep a closer
eye on long-term interest rates. That's because tax-free income fund
portfolios comprising municipal bonds with longer maturities are generally
more sensitive to changes in long-term interest rates than portfolios with
shorter-term municipal bonds.
In contrast, shareholders of Franklin limited-term tax-free income funds
may want to pay more attention to short-term interest rates. These funds,
which hold bonds with shorter-term maturities, are typically more
influenced by short-term interest rates than funds holding municipal bonds
with longer maturities.
(1.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable. 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 W-8BEN.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
4 | Not part of the semiannual report
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 September 2007 to April
2008. 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 mid-2004 through
mid-2006.
As illustrated below, it should be noted that short- and long-term interest
rates don't necessarily move in tandem. While short-term rates rose
substantially from 2004 through 2006, long-term rates, despite some
fluctuations, experienced only a slight increase.
(PERFORMANCE GRAPH)
INTEREST RATES(2)
10-Year Period Ended September 30, 2008
FEDERAL FUNDS 10-YEAR U.S. 30-YEAR U.S.
DATE TARGET RATE TREASURY TREASURY
- ---------- ------------- ------------ ------------
9/30/1998 5.25% 4.42% 4.98%
10/31/1998 5.00% 4.61% 5.16%
11/30/1998 4.75% 4.71% 5.06%
12/31/1998 4.75% 4.65% 5.10%
1/31/1999 4.75% 4.65% 5.09%
2/28/1999 4.75% 5.29% 5.58%
3/31/1999 4.75% 5.24% 5.63%
4/30/1999 4.75% 5.35% 5.66%
5/31/1999 4.75% 5.62% 5.83%
6/30/1999 5.00% 5.78% 5.96%
7/31/1999 5.00% 5.90% 6.10%
8/31/1999 5.25% 5.97% 6.06%
9/30/1999 5.25% 5.88% 6.05%
10/31/1999 5.25% 6.02% 6.16%
11/30/1999 5.50% 6.19% 6.29%
12/31/1999 5.50% 6.44% 6.48%
1/31/2000 5.50% 6.67% 6.49%
2/29/2000 5.75% 6.41% 6.14%
3/31/2000 6.00% 6.00% 5.83%
4/30/2000 6.00% 6.21% 5.96%
5/31/2000 6.50% 6.27% 6.01%
6/30/2000 6.50% 6.03% 5.90%
7/31/2000 6.50% 6.03% 5.78%
8/31/2000 6.50% 5.73% 5.67%
9/30/2000 6.50% 5.80% 5.89%
10/31/2000 6.50% 5.75% 5.79%
11/30/2000 6.50% 5.47% 5.61%
12/31/2000 6.50% 5.11% 5.46%
1/31/2001 5.50% 5.11% 5.50%
2/28/2001 5.50% 4.90% 5.31%
3/31/2001 5.00% 4.92% 5.44%
4/30/2001 4.50% 5.34% 5.79%
5/31/2001 4.00% 5.38% 5.75%
6/30/2001 3.75% 5.41% 5.76%
7/31/2001 3.75% 5.05% 5.52%
8/31/2001 3.50% 4.83% 5.37%
9/30/2001 3.00% 4.59% 5.42%
10/31/2001 2.50% 4.23% 4.87%
11/30/2001 2.00% 4.75% 5.29%
12/31/2001 1.75% 5.05% 5.47%
1/31/2002 1.75% 5.03% 5.43%
2/28/2002 1.75% 4.88% 5.42%
3/31/2002 1.75% 5.40% 5.80%
4/30/2002 1.75% 5.09% 5.59%
5/31/2002 1.75% 5.05% 5.62%
6/30/2002 1.75% 4.80% 5.51%
7/31/2002 1.75% 4.46% 5.30%
8/31/2002 1.75% 4.14% 4.93%
9/30/2002 1.75% 3.60% 4.67%
10/31/2002 1.75% 3.89% 4.99%
11/30/2002 1.25% 4.21% 5.04%
12/31/2002 1.25% 3.82% 4.78%
1/31/2003 1.25% 3.96% 4.84%
2/28/2003 1.25% 3.69% 4.67%
3/31/2003 1.25% 3.80% 4.82%
4/30/2003 1.25% 3.84% 4.77%
5/31/2003 1.25% 3.37% 4.38%
6/30/2003 1.00% 3.52% 4.56%
7/31/2003 1.00% 4.41% 5.36%
8/31/2003 1.00% 4.47% 5.22%
9/30/2003 1.00% 3.94% 4.88%
10/31/2003 1.00% 4.30% 5.13%
11/30/2003 1.00% 4.33% 5.13%
12/31/2003 1.00% 4.25% 5.07%
1/31/2004 1.00% 4.13% 4.96%
2/29/2004 1.00% 3.97% 4.84%
3/31/2004 1.00% 3.84% 4.77%
4/30/2004 1.00% 4.51% 5.29%
5/31/2004 1.00% 4.65% 5.35%
6/30/2004 1.25% 4.58% 5.29%
7/31/2004 1.25% 4.48% 5.20%
8/31/2004 1.50% 4.12% 4.93%
9/30/2004 1.75% 4.12% 4.89%
10/31/2004 1.75% 4.03% 4.79%
11/30/2004 2.00% 4.35% 5.00%
12/31/2004 2.25% 4.22% 4.83%
1/31/2005 2.25% 4.13% 4.59%
2/28/2005 2.50% 4.38% 4.72%
3/31/2005 2.75% 4.48% 4.76%
4/30/2005 2.75% 4.20% 4.51%
5/31/2005 3.00% 3.98% 4.32%
6/30/2005 3.25% 3.92% 4.19%
7/31/2005 3.25% 4.28% 4.47%
8/31/2005 3.50% 4.02% 4.26%
9/30/2005 3.75% 4.33% 4.57%
10/31/2005 3.75% 4.55% 4.76%
11/30/2005 4.00% 4.49% 4.69%
12/31/2005 4.25% 4.39% 4.54%
1/31/2006 4.50% 4.52% 4.68%
2/28/2006 4.50% 4.55% 4.51%
3/31/2006 4.75% 4.85% 4.89%
4/30/2006 4.75% 5.05% 5.16%
5/31/2006 5.00% 5.12% 5.23%
6/30/2006 5.25% 5.14% 5.19%
7/31/2006 5.25% 4.98% 5.07%
8/31/2006 5.25% 4.73% 4.88%
9/30/2006 5.25% 4.63% 4.76%
10/31/2006 5.25% 4.60% 4.72%
11/30/2006 5.25% 4.46% 4.56%
12/31/2006 5.25% 4.70% 4.81%
1/31/2007 5.25% 4.81% 4.91%
2/28/2007 5.25% 4.57% 4.68%
3/31/2007 5.25% 4.65% 4.84%
4/30/2007 5.25% 4.62% 4.81%
5/31/2007 5.25% 4.89% 5.01%
6/30/2007 5.25% 5.03% 5.13%
7/31/2007 5.25% 4.74% 4.90%
8/31/2007 5.25% 4.53% 4.82%
9/30/2007 4.75% 4.59% 4.84%
10/31/2007 4.50% 4.47% 4.75%
11/30/2007 4.50% 3.94% 4.38%
12/31/2007 4.25% 4.03% 4.45%
1/31/2008 3.00% 3.60% 4.32%
2/29/2008 3.00% 3.51% 4.40%
3/31/2008 2.25% 3.41% 4.29%
4/30/2008 2.00% 3.73% 4.47%
5/31/2008 2.00% 4.06% 4.72%
6/30/2008 2.00% 3.97% 4.53%
7/31/2008 2.00% 3.95% 4.57%
8/31/2008 2.00% 3.81% 4.42%
9/30/2008 2.00% 3.83% 4.31%
(2.) Sources: Federal Reserve and Bloomberg, as of 9/30/08.
Not part of the semiannual report | 5
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. 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. So when interest rates
rise, bond prices fall and, conversely, when rates decline, bond prices
tend to rise in value.
(GRAPHIC)
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.(1)
Historically, income has contributed the largest component of total return
for municipal bonds.(3) And since bonds generally pay interest whether
their prices move up or down, the interest from municipal bonds can help
cushion a fund's overall total return, especially when rates are rising.
Q. HOW DO INTEREST RATES AFFECT MY TAX-FREE DIVIDENDS?
A. When interest rates decline, municipal bond issuers often "call" or redeem
existing higher-yielding bonds and replace them with new, lower-yielding
bonds to reduce the amount of interest they pay on the debt. As funds then
have to reinvest proceeds from the called bonds into new, lower-yielding
bonds, their investment earnings decline, and the dividends paid out to
shareholders also decline over time.
(3.) Source: Barclays Capital (formerly, Lehman Brothers) Municipal Bond Index,
9/30/08. Total return includes compounded income and capital appreciation
over the 20-year period ended 9/30/08. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.
6 | Not part of the semiannual report
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 may be 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 should
provide a high level of stable income over the long term. Over time, as we
invest in different interest rate climates, the portfolios become well
diversified with a broad range of securities. As a result, 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 or 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. The key reasons to own tax-free income funds don't change with market
conditions. 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.
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Not part of the semiannual report | 7
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)
CREDIT QUALITY BREAKDOWN*
Based on Total Long-Term Investments as of 9/30/08**
(PIE CHART)
AAA..................... 24.6%
AA...................... 31.0%
A....................... 17.3%
BBB..................... 15.6%
Below Investment Grade.. 6.0%
Not Rated by S&P........ 5.5%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below.
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.3% 0.7%
AA or Aa 0.4% --
A 1.5% 0.4%
BBB or Baa 1.0% 1.1%
Below Investment Grade -- 0.1%
--- ---
Total 3.2% 2.3%
This semiannual report for Franklin California Tax-Free Income Fund covers the
period ended September 30, 2008.
(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 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 W-8BEN.
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 23.
8 | Semiannual Report
DIVIDEND DISTRIBUTIONS(2)
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
April 2.69 cents 2.34 cents 2.36 cents 2.74 cents
May 2.69 cents 2.34 cents 2.36 cents 2.74 cents
June 2.72 cents 2.40 cents 2.40 cents 2.76 cents
July 2.72 cents 2.40 cents 2.40 cents 2.76 cents
August 2.72 cents 2.40 cents 2.40 cents 2.76 cents
September 2.72 cents 2.39 cents 2.40 cents 2.77 cents
PERFORMANCE OVERVIEW
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, decreased from
$6.99 on March 31, 2008, to $6.61 on September 30, 2008. The Fund's Class A
shares paid dividends totaling 16.26 cents per share for the reporting
period.(2) The Performance Summary beginning on page 14 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.73%
based on an annualization of the 2.72 cent per share September dividend and the
maximum offering price of $6.90 on September 30, 2008. An investor in the 2008
maximum combined effective federal and California personal income tax bracket of
41.05% would need to earn a distribution rate of 8.02% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class B,
C and Advisor shares' performance, please see the Performance Summary.
STATE UPDATE
California continued to face the same economic challenges that have plagued it
for some time. During the period under review, the combined effects of the
subprime mortgage and credit crises continued to erode the state's real estate
values and increase foreclosure rates. Median sales prices in the first quarter
of 2008 were down 20% in the state, compared to only 6% in the nation.(3) Also,
in August California's foreclosure rate was the second highest in the nation.
These conditions contributed to a drop in construction sector employment levels.
Other sectors that lost jobs included manufacturing; trade, transportation and
utilities; financial activities; professional and business services; leisure and
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
(3.) Source: Moody's, "High Profile New Issue, State of California," June 2008.
Semiannual Report | 9
hospitality services; and government. In September 2008, the state's
unemployment rate held steady for the second month in a row at 7.7%.(4) This was
the highest level in over 12 years and far surpassed the national level of
6.1%.(4)
In late September, Governor Arnold Schwarzenegger signed the most overdue budget
in the state's history. Passage of the state budget was 85 days late due to a
partisan legislative standoff over how to close California's $17.2 billion
deficit.(5) Legislative Republicans opposed increasing taxes, while Democrats
sought budget cuts and higher taxes on corporations and the wealthiest
Californians. The final version of the state budget included $7.1 billion in
spending cuts,$9.3 billion in additional revenue and $1.2 billion for
reserves.(6, 7) The budget also required individuals and businesses that make
quarterly tax payments to pay more in the first six months, a change that will
provide nearly half the additional revenue. The budget however, did not address
the structural imbalance between revenue and spending. Passage of the state
budget freed up billions of dollars to pay medical clinics, nursing homes,
daycare centers and contract vendors.
MUNICIPAL BOND MARKET OVERVIEW
The six-month period ended September 30, 2008, was mixed for municipal bonds as
all financial markets felt the negative impact of subprime loan defaults. Many
major financial institutions tightened credit and reassessed the risk of their
direct and indirect exposure to financial assets. A lack of liquidity across
most markets during the reporting period contributed to an increase in overall
instability and declining values in most asset classes.
The municipal bond insurance industry faced particular difficulties. Rising
levels of mortgage defaults during the reporting period, combined with the bond
insurers' exposure to mortgage-related securities, prompted the three major
independent credit rating agencies, Standard & Poor's (S&P), Moody's Investors
Service and Fitch Ratings, to undertake in-depth evaluations of the bond
insurance companies. During this reporting period, the rating agencies
reassessed the viability of the insurance companies based on their concerns of
impaired financial flexibility, increased stress loss projections given the
insurers' mortgage-related risk exposure, and constrained new business
prospects. As a result of their analyses, the rating agencies downgraded several
municipal bond
(4.) Source: Bureau of Labor Statistics.
(5.) Source: Standard & Poor's, "California's Revenue Anticipation Notes Rated
'SP-1'; General Obligation Rating on Watch Neg," RATINGSDIRECT, 10/10/08.
(6.) Source: Associated Press, "Schwarzenegger Signs California Budget 85 Days
Late," 9/23/08.
(7.) Source: SAN FRANCISCO CHRONICLE, "Budget Approved Despite Governor's
Threatened Veto," 9/16/08.
10 | Semiannual Report
insurers and lowered the outlook for some to negative. At period-end, only three
bond insurance companies, FSA, Assured Guaranty and new municipal bond insurer
BHAC (Berkshire Hathaway Assurance Corp.), maintained AAA ratings by Moody's and
S&P.
Illiquidity plagued the financial markets as they felt the impact of weakness in
the bond insurance industry. As the stronger bond insurance companies emerged,
the market absorbed the issuance of debt enhanced by AAA insurance. Insured
bonds had a -3.21% return for the six-month period, as measured by the Barclays
Capital (BC; formerly, Lehman Brothers)Insured Municipal Bond Index.(8)
Investors should be aware that insurance companies generally provide coverage
for municipal bonds that tend to be of very high quality. Many municipal bond
issuers use insurance to appeal to a wider audience of potential buyers. The
majority of issuers whose bonds are insured carry underlying (i.e., prior to
insurance) ratings of A or better, and the historical average default rate for
such bonds is less than 1%.(9) Ultimately, the underlying credit quality of
state and local governments and their agencies supports the municipal market,
and the underlying credit quality of an insured bond is not affected by an
insurance company's credit quality.
Bond insurers' problems pressured the short-term municipal market at the
beginning of 2008. Money market funds began to eliminate holdings of variable
rate debt with credit providers they deemed to be at risk of downgrade. This
caused dealers to boost yields substantially on some variable rate demand notes,
hoping to entice buyers to hold them rather than put them back to the
remarketing agents who were already struggling with too much inventory on their
balance sheets. Within a few weeks, this lack of liquidity disrupted the auction
rate securities (ARS) market as well. Inventory in the ARS market, primarily for
those with insurance backing, increased dramatically. Auctions have failed due
to dealers' liquidity constraints. It is important to note that this was a
supply and demand imbalance, not a question of credit quality.
At times during the six-month reporting period, municipal bond market
performance improved as a mix of individuals and institutional investors
absorbed
(8.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC Insured Municipal Bond Index is composed of all
the insured bonds in the BC Municipal Bond Index with a maturity of at
least one year and ratings of Aaa/AAA.
(9.) Sources: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2007," RATINGSDIRECT, 5/3/07; Moody's Investors Service,
March 2007.
Semiannual Report | 11
the new issuance. Many investors uncovered opportunities as municipalities were
required to provide additional compensation for taking on risk, leading to wider
spreads for credit-driven securities. For most of the period, municipal bond
market returns lagged those of the U.S. Treasury market as uncertainty regarding
the impact of problems associated with mortgage securities drove global
investors to the relative safety of U.S. Treasuries. For the six-month period
ended September 30, 2008, the BC Municipal Bond Index had a -2.60% total return
compared with the +0.15% return of the BC U.S. Treasury Index.(10)
On September 30, 2008, two-year, 10-year and 30-year Treasury yields were 2.00%,
3.85% and 4.31%, respectively. The yields on two-year, 10-year and 30-year
Treasuries rose 38, 40 and 2 basis points (100 basis points equal one percentage
point), respectively, over the period. The uncertainty of the municipal bond
insurers' financial strength resulted in yield spikes during the reporting
period; however, across the municipal AAA curve, yields generally rose,
according to Municipal Market Data. At period-end, the 30-year high grade
municipal bond yield continued to exceed the comparable Treasury yield, which is
highly unusual.
PORTFOLIO BREAKDOWN
9/30/08
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Prerefunded 26.1%
Transportation 16.7%
Hospital & Health Care 15.3%
General Obligation 14.0%
Utilities 12.1%
Subject to Government Appropriations 5.8%
Tax-Supported 3.5%
Higher Education 2.9%
Other Revenue 1.9%
Housing 1.7%
* Does not include short-term investments and other net assets.
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 securities. This broad diversification may
help mitigate interest rate risk. We do not use leverage or exotic derivatives,
nor do we use techniques that could add volatility and contribute to
under-performance in adverse markets. We generally stay fully invested to
maximize income distribution.
(10.) Source: (C) 2008 Morningstar. The BC 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 Baa3/BBB-. 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 BC U.S.
Treasury Index is the U.S. Treasury component of the U.S. Government index
and covers public obligations of the U.S. Treasury with a remaining
maturity of one year or more.
12 | Semiannual Report
MANAGER'S DISCUSSION
The mixture of our value-oriented philosophy of investing primarily for income
and a positively sloping municipal yield curve 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, 2008, 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 | 13
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
CLASS A (SYMBOL: FKTFX) CHANGE 9/30/08 3/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.38 $6.61 $6.99
DISTRIBUTIONS (4/1/08-9/30/08)
Dividend Income $0.1626
CLASS B (SYMBOL: FCABX) CHANGE 9/30/08 3/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.38 $6.60 $6.98
DISTRIBUTIONS (4/1/08-9/30/08)
Dividend Income $0.1427
CLASS C (SYMBOL: FRCTX) CHANGE 9/30/08 3/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.38 $6.60 $6.98
DISTRIBUTIONS (4/1/08-9/30/08)
Dividend Income $0.1432
ADVISOR CLASS (SYMBOL: FCAVX) CHANGE 9/30/08 3/31/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.38 $6.60 $6.98
DISTRIBUTIONS (4/1/08-9/30/08)
Dividend Income $0.1653
14 | 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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------ ---------
Cumulative Total Return(1) -3.22% -4.43% +16.28% +45.05%
Average Annual Total Return(2) -7.33% -8.47% +2.17% +3.34%
Distribution Rate(3) 4.73%
Taxable Equivalent Distribution Rate(4) 8.02%
30-Day Standardized Yield(5) 4.21%
Taxable Equivalent Yield(4) 7.14%
Total Annual Operating Expenses(6) 0.57%
INCEPTION
CLASS B 6-MONTH 1-YEAR 5-YEAR (1/1/99)
- ------- ------- ------ ------ ---------
Cumulative Total Return(1) -3.50% -4.99% +13.05% +37.99%
Average Annual Total Return(2) -7.28% -8.64% +2.15% +3.36%
Distribution Rate(3) 4.35%
Taxable Equivalent Distribution Rate(4) 7.38%
30-Day Standardized Yield(5) 3.79%
Taxable Equivalent Yield(4) 6.43%
Total Annual Operating Expenses(6) 1.13%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------ ---------
Cumulative Total Return(1) -3.49% -4.97% +13.09% +36.98%
Average Annual Total Return(2) -4.44% -5.88% +2.49% +3.20%
Distribution Rate(3) 4.36%
Taxable Equivalent Distribution Rate(4) 7.40%
30-Day Standardized Yield(5) 3.79%
Taxable Equivalent Yield(4) 6.43%
Total Annual Operating Expenses(6) 1.13%
ADVISOR CLASS(7) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ ------ ---------
Cumulative Total Return(1) -3.19% -4.36% +16.80% +45.74%
Average Annual Total Return(2) -3.19% -4.36% +3.15% +3.84%
Distribution Rate(3) 5.04%
Taxable Equivalent Distribution Rate(4) 8.55%
30-Day Standardized Yield(5) 4.48%
Taxable Equivalent Yield(4) 7.60%
Total Annual Operating Expenses(6) 0.48%
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 (800) 342-5236.
Semiannual Report | 15
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. 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 9/30/08.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/27/08 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 9/30/08.
(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(7.) 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 +26.98% and +3.47%.
16 | Semiannual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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. 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 | 17
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
VALUE 4/1/08 VALUE 9/30/08 PERIOD* 4/1/08-9/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 967.80 $2.76
Hypothetical (5% return before expenses) $1,000 $1,022.26 $2.84
CLASS B
Actual $1,000 $ 965.00 $5.52
Hypothetical (5% return before expenses) $1,000 $1,019.45 $5.67
CLASS C
Actual $1,000 $ 965.10 $5.52
Hypothetical (5% return before expenses) $1,000 $1,019.45 $5.67
ADVISOR CLASS
Actual $1,000 $ 968.10 $2.32
Hypothetical (5% return before expenses) $1,000 $1,022.71 $2.38
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.56%; B: 1.12%; C: 1.12%; and Advisor:
0.47%), multiplied by the average account value over the period, multiplied
by 183/365 to reflect the one-half year period.
18 | Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 2008 -----------------------------------------------------------------------
CLASS A (UNAUDITED) 2008 2007 2006 2005 2004
- ------- ------------------ ----------- ----------- ----------- ----------- -----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ........................... $ 6.99 $ 7.35 $ 7.26 $ 7.27 $ 7.32 $ 7.24
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations(a):
Net investment income(b) ......... 0.16 0.33 0.33 0.33 0.34 0.35
Net realized and unrealized gains
(losses) ...................... (0.38) (0.37) 0.10 -- (0.04) 0.07
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations ....................... (0.22) (0.04) 0.43 0.33 0.30 0.42
----------- ----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income ............ (0.16) (0.32) (0.33) (0.33) (0.34) (0.34)
Net realized gains ............... -- -- (0.01) (0.01) (0.01) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................. (0.16) (0.32) (0.34) (0.34) (0.35) (0.34)
----------- ----------- ----------- ----------- ----------- -----------
Redemption fees(c) .................. --(d) --(d) --(d) --(d) --(d) --
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ...... $ 6.61 $ 6.99 $ 7.35 $ 7.26 $ 7.27 $ 7.32
=========== =========== =========== =========== =========== ===========
Total return(e) ..................... (3.22)% (0.53)% 6.01% 4.64% 4.16% 6.04%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ............................ 0.56% 0.57% 0.58% 0.58% 0.57% 0.58%
Net investment income ............... 4.64% 4.53% 4.52% 4.55% 4.76% 4.80%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .......................... $12,520,800 $12,803,225 $12,949,083 $12,418,764 $12,270,603 $12,784,815
Portfolio turnover rate ............. 4.51% 14.13% 8.02% 8.82% 8.46% 11.57%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 19
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 2008 --------------------------------------------------------
CLASS B (UNAUDITED) 2008 2007 2006 2005 2004
- ------- ------------------ -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $ 6.98 $ 7.34 $ 7.26 $ 7.26 $ 7.31 $ 7.23
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.14 0.29 0.29 0.29 0.30 0.30
Net realized and unrealized gains
(losses) ...................... (0.38) (0.37) 0.09 0.01 (0.04) 0.08
-------- -------- -------- -------- -------- --------
Total from investment operations .... (0.24) (0.08) 0.38 0.30 0.26 0.38
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............ (0.14) (0.28) (0.29) (0.29) (0.30) (0.30)
Net realized gains ............... -- -- (0.01) (0.01) (0.01) --
-------- -------- -------- -------- -------- --------
Total distributions ................. (0.14) (0.28) (0.30) (0.30) (0.31) (0.30)
-------- -------- -------- -------- -------- --------
Redemption fees(c) .................. --(d) --(d) --(d) --(d) --(d) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ...... $ 6.60 $ 6.98 $ 7.34 $ 7.26 $ 7.26 $ 7.31
======== ======== ======== ======== ======== ========
Total return(e) ..................... (3.50)% (1.10)% 5.28% 4.20% 3.57% 5.44%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ............................ 1.12% 1.13% 1.14% 1.14% 1.14% 1.15%
Net investment income ............... 4.08% 3.97% 3.96% 3.99% 4.19% 4.23%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ... $172,349 $205,192 $289,147 $331,385 $358,856 $394,728
Portfolio turnover rate ............. 4.51% 14.13% 8.02% 8.82% 8.46% 11.57%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
20 | Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 2008 --------------------------------------------------------
CLASS C (UNAUDITED) 2008 2007 2006 2005 2004
- ------- ------------------ -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $ 6.98 $ 7.34 $ 7.25 $ 7.26 $ 7.31 $ 7.23
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.14 0.29 0.29 0.29 0.30 0.30
Net realized and unrealized gains
(losses) ...................... (0.38) (0.37) 0.10 -- (0.04) 0.08
-------- -------- -------- -------- -------- --------
Total from investment operations .... (0.24) (0.08) 0.39 0.29 0.26 0.38
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............ (0.14) (0.28) (0.29) (0.29) (0.30) (0.30)
Net realized gains ............... -- -- (0.01) (0.01) (0.01) --
-------- -------- -------- -------- -------- --------
Total distributions ................. (0.14) (0.28) (0.30) (0.30) (0.31) (0.30)
-------- -------- -------- -------- -------- --------
Redemption fees(c) .................. --(d) --(d) --(d) --(d) --(d) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ...... $ 6.60 $ 6.98 $ 7.34 $ 7.25 $ 7.26 $ 7.31
======== ======== ======== ======== ======== ========
Total return(e) ..................... (3.49)% (1.09)% 5.43% 4.06% 3.57% 5.46%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ............................ 1.12% 1.13% 1.14% 1.14% 1.14% 1.15%
Net investment income ............... 4.08% 3.97% 3.96% 3.99% 4.19% 4.23%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ... $848,421 $750,678 $631,184 $546,815 $494,254 $523,545
Portfolio turnover rate ............. 4.51% 14.13% 8.02% 8.82% 8.46% 11.57%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 21
Franklin California Tax-Free Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 2008 -----------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2008 2007 2006 2005 2004
- ------------- ------------------ -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $ 6.98 $ 7.34 $ 7.25 $ 7.26 $ 7.31 $ 7.23
-------- -------- -------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ......... 0.17 0.33 0.34 0.34 0.35 0.35
Net realized and unrealized gains
(losses) ...................... (0.38) (0.36) 0.10 -- (0.05) 0.08
-------- -------- -------- ------- ------- -------
Total from investment operations .... (0.21) (0.03) 0.44 0.34 0.30 0.43
-------- -------- -------- ------- ------- -------
Less distributions from:
Net investment income ............ (0.17) (0.33) (0.34) (0.34) (0.34) (0.35)
Net realized gains ............... -- -- (0.01) (0.01) (0.01) --
-------- -------- -------- ------- ------- -------
Total distributions ................. (0.17) (0.33) (0.35) (0.35) (0.35) (0.35)
-------- -------- -------- ------- ------- -------
Redemption fees(c) .................. --(d) --(d) --(d) --(d) --(d) --
-------- -------- -------- ------- ------- -------
Net asset value, end of period ...... $ 6.60 $ 6.98 $ 7.34 $ 7.25 $ 7.26 $ 7.31
======== ======== ======== ======= ======= =======
Total return ........................ (3.19)% (0.44)% 6.11% 4.73% 4.26% 6.13%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ............................ 0.47% 0.48% 0.49% 0.49% 0.49% 0.50%
Net investment income ............... 4.73% 4.62% 4.61% 4.64% 4.84% 4.88%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ... $217,654 $178,796 $122,456 $65,655 $42,389 $14,096
Portfolio turnover rate ............. 4.51% 14.13% 8.02% 8.82% 8.46% 11.57%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
22 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS 97.3%
CALIFORNIA 89.4%
ABAG Finance Authority for Nonprofit Corps. COP,
Butte Valley-Tulelake Rural Health, California Mortgage Insured, 6.65%, 10/01/22 .... $ 730,000 $ 731,548
California Mortgage Insured, 6.125%, 3/01/21 ........................................ 3,875,000 3,882,091
Episcopal Home Foundation, Refunding, 5.125%, 7/01/13 ............................... 6,000,000 5,941,080
Episcopal Home Foundation, Refunding, 5.125%, 7/01/18 ............................... 20,625,000 19,494,956
Home for Jewish Parents, California Mortgage Insured, 5.625%, 5/15/22 ............... 5,000,000 5,057,300
Lytton Gardens Inc., Refunding, California Mortgage Insured, 6.00%, 2/15/30 ......... 5,000,000 5,058,300
Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ....................... 5,525,000 5,561,962
Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/23 .............. 5,000,000 4,827,650
ABAG Finance Authority for Nonprofit Corps. MFHR, Palo Alto Gardens Apartments,
Series A, 5.45%, 4/01/39 ............................................................ 5,500,000 4,677,915
ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Assn.,
Series A, 6.125%, 8/15/20 ........................................................... 23,525,000 23,868,465
Series C, 5.375%, 3/01/21 ........................................................... 5,000,000 4,852,250
ABAG Revenue Tax Allocation, RDA Pool, Series A6, FSA Insured, 5.375%, 12/15/25 ........ 2,830,000 2,875,563
ABAG Water and Wastewater Revenue, Pooled Financing Program, Refunding, Series A,
FSA Insured, 5.30%, 10/01/21 ........................................................ 5,450,000 5,563,687
Alameda Corridor Transportation Authority Revenue,
AMBAC Insured, zero cpn. to 10/01/12, 5.30% thereafter, 10/01/22 .................... 81,685,000 60,726,263
AMBAC Insured, zero cpn. to 10/01/12, 5.30% thereafter, 10/01/23 .................... 70,015,000 51,395,911
AMBAC Insured, zero cpn. to 10/01/12, 5.40% thereafter, 10/01/24 .................... 43,770,000 32,078,158
AMBAC Insured, zero cpn. to 10/01/12, 5.45% thereafter, 10/01/25 .................... 32,960,000 24,052,560
Refunding, AMBAC Insured, zero cpn., 10/01/29 ....................................... 20,000,000 4,919,200
Refunding, AMBAC Insured, zero cpn., 10/01/30 ....................................... 41,665,000 9,635,865
senior lien, Series A, MBIA Insured, 5.00%, 10/01/29 ................................ 24,490,000 22,293,737
Alameda County COP, Alameda County Medical Center Project, MBIA Insured, ETM,
5.00%, 6/01/23 ...................................................................... 19,195,000 18,592,661
5.30%, 6/01/26 ...................................................................... 7,000,000 7,009,520
5.00%, 6/01/28 ...................................................................... 8,925,000 9,048,165
Alhambra USD, GO, Election of 2004, Series A, FGIC Insured, 5.00%, 8/01/29 ............. 13,025,000 11,672,614
Alvord USD, GO,
Election of 2007, Series A, FSA Insured, 5.00%, 8/01/32 ............................. 11,625,000 10,525,275
Series A, FGIC Insured, ETM, 5.375%, 8/01/27 ........................................ 6,100,000 6,216,815
Anaheim PFA Lease Revenue, Capital Appreciation, Public Improvements Project, Series C,
FSA Insured, zero cpn.,
9/01/24 ............................................................................. 26,855,000 10,597,789
9/01/26 ............................................................................. 29,430,000 10,207,795
9/01/27 ............................................................................. 22,860,000 7,432,700
9/01/28 ............................................................................. 14,425,000 4,394,144
9/01/29 ............................................................................. 24,810,000 7,076,308
9/01/32 ............................................................................. 13,665,000 3,225,487
9/01/33 ............................................................................. 37,070,000 8,197,660
9/01/34 ............................................................................. 24,970,000 5,197,256
3/01/37 ............................................................................. 16,080,000 2,860,793
Anaheim PFAR,
Distribution System, second lien, MBIA Insured, 5.00%, 10/01/29 ..................... 4,325,000 4,047,465
Distribution System, second lien, MBIA Insured, 5.00%, 10/01/34 ..................... 5,500,000 5,065,005
Electric System Distribution Facilities, MBIA Insured, 4.50%, 10/01/37 .............. 20,030,000 16,264,560
Semiannual Report | 23
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Anaheim UHSD, GO,
Capital Appreciation, Series A, FSA Insured, zero cpn., 8/01/26 ..................... $ 8,570,000 $ 2,961,449
Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/25 ................................. 3,900,000 4,172,649
Antelope Valley Community College District GO, Election of 2004, Series B, MBIA Insured,
5.25%, 8/01/39 ...................................................................... 14,900,000 14,413,068
Antioch PFA, Reassessment Revenue, sub. lien, Refunding, Sub Series B, 5.60%,
9/02/09 ............................................................................. 1,205,000 1,225,208
Arcadia Hospital Revenue, Methodist Hospital of Southern California,
6.50%, 11/15/12 ..................................................................... 1,430,000 1,432,717
6.625%, 11/15/22 .................................................................... 3,750,000 3,757,313
Bakersfield City School District GO, Series A, FSA Insured, 5.00%, 11/01/31 ............ 8,390,000 7,716,451
Baldwin Park PFAR Tax Allocation, Refunding, Series A, 7.75%, 8/01/19 .................. 4,560,000 4,571,354
Baldwin Park USD, GO, Capital Appreciation, Election of 2006, FSA Insured, zero cpn.,
8/01/36 ............................................................................. 11,410,000 1,842,943
Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Refunding,
Series F, 5.00%, 4/01/31 ............................................................ 36,255,000 33,984,712
Series F1, 5.00%, 4/01/39 ........................................................... 25,000,000 22,989,000
Series F1, 5.50%, 4/01/43 ........................................................... 18,000,000 17,354,160
Series F1, 5.125%, 4/01/47 .......................................................... 33,585,000 30,203,326
Belmont-Redwood Shores School District GO, Election of 2005, Series A, FSA Insured,
5.00%, 8/01/32 ...................................................................... 10,000,000 9,357,300
Beverly Hills USD, GO, Election of 2002, Series B, 5.00%, 8/01/30 ...................... 8,590,000 8,204,910
Bonita USD, GO, Election of 2004, Series A, MBIA Insured, 5.00%, 8/01/27 ............... 5,100,000 4,942,359
Brentwood 1915 Act Revenue, Infrastructure Financing, Reassessment, Refunding, Series A,
FSA Insured, 5.80%, 9/02/17 ......................................................... 5,085,000 5,143,833
Byron USD, GO, Series A, FGIC Insured, 5.00%, 8/01/31 .................................. 5,145,000 4,632,146
Calexico USD, GO, MBIA Insured, Pre-Refunded, 5.25%, 8/01/33 ........................... 4,285,000 4,679,391
California Counties Lease Financing Authority COP, CSAC Financing Corp., Amador
County Project, ETM, 7.70%, 10/01/09 ................................................ 725,000 742,429
California County Tobacco Securitization Agency Tobacco Revenue,
Asset-Backed, Alameda County, 5.875%, 6/01/35 ....................................... 7,500,000 6,233,400
Asset-Backed, Golden Gate Corp., Series A, Pre-Refunded, 6.00%, 6/01/43 ............. 10,000,000 10,970,500
Asset-Backed, Kern County Corp., Series A, 6.125%, 6/01/43 .......................... 28,135,000 23,559,405
Asset-Backed, Kern County Corp., Series B, 6.25%, 6/01/37 ........................... 19,460,000 16,807,213
Asset-Backed, Merced Funding Corp., Series A, Pre-Refunded, 5.875%, 6/01/43 ......... 10,235,000 11,221,552
Asset-Backed, Sonoma County Corp., Series A, Pre-Refunded, 5.875%, 6/01/43 .......... 30,000,000 32,891,700
Asset-Backed, Stanislaus Funding, Series A, 5.875%, 6/01/43 ......................... 8,690,000 6,999,187
Tobacco Settlement Asset-Backed, Gold Country Settlement Funding Corp., Pre-Refunded,
6.00%, 6/01/38 ................................................................... 10,000,000 11,025,100
California Educational Facilities Authority Revenue,
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/32 ........ 8,435,000 1,906,226
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/33 ........ 8,435,000 1,787,292
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/34 ........ 8,435,000 1,675,697
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/35 ........ 8,435,000 1,571,103
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/36 ........ 8,435,000 1,473,004
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/37 ........ 8,435,000 1,381,063
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/38 ........ 8,435,000 1,294,857
24 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Educational Facilities Authority Revenue, (continued)
Loyola Marymount University, MBIA Insured, Pre-Refunded, zero cpn., 10/01/39 ........ $ 8,435,000 $ 1,214,050
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/26 ........... 7,620,000 2,517,648
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/27 ........... 7,365,000 2,275,564
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/28 ........... 4,120,000 1,189,691
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/30 ........... 5,685,000 1,431,369
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/31 ........... 7,615,000 1,816,863
Loyola Marymount University, Refunding, MBIA Insured, zero cpn., 10/01/32 ........... 7,615,000 1,707,131
Occidental College, Refunding, Series A, MBIA Insured, 5.00%, 10/01/36 .............. 7,275,000 6,768,223
Pepperdine University, Refunding, Series A, AMBAC Insured, 5.00%, 12/01/35 .......... 7,720,000 7,112,359
Pepperdine University, Refunding, Series B, AMBAC Insured, 5.00%, 12/01/32 .......... 5,000,000 4,558,150
Pooled College and University, Series B, Pre-Refunded, 6.75%, 6/01/30 ............... 11,495,000 12,400,691
Santa Clara University, Refunding, AMBAC Insured, zero cpn., 9/01/26 ................ 5,800,000 1,897,238
Stanford University, Refunding, Series O, 5.125%, 1/01/31 ........................... 21,250,000 21,389,825
Stanford University, Series T-1, 5.00%, 3/15/39 ..................................... 43,000,000 42,012,720
Stanford University, Series T-3, 5.00%, 3/15/26 ..................................... 25,360,000 25,418,074
University of Southern California, Series A, 4.50%, 10/01/33 ........................ 5,000,000 4,240,200
California Health Facilities Financing Authority Revenue,
Casa Colina, 6.125%, 4/01/32 ........................................................ 10,300,000 9,755,027
Catholic Healthcare West, Refunding, Series A, 5.00%, 7/01/18 ....................... 26,345,000 25,513,552
Catholic Healthcare West, Refunding, Series A, 5.00%, 7/01/28 ....................... 117,175,000 98,412,939
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.75%, 7/01/15 ......... 12,500,000 12,651,625
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.00%, 7/01/17 ......... 3,390,000 3,429,663
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 5.125%, 7/01/24 ........ 7,825,000 7,917,178
Catholic Healthcare West, Series G, 5.25%, 7/01/23 .................................. 3,000,000 2,760,150
Cedars-Sinai Medical Center, Series A, MBIA Insured, 5.125%, 8/01/17 ................ 8,355,000 8,449,411
Cedars-Sinai Medical Center, Series B, MBIA Insured, 5.25%, 8/01/27 ................. 52,500,000 53,096,400
County Program, Series B, 7.20%, 1/01/12 ............................................ 1,775,000 1,778,976
Enloe Health System, Refunding, Series A, FSA Insured, Pre-Refunded, 5.00%,
11/15/18 ......................................................................... 5,000,000 5,053,400
Enloe Health System, Refunding, Series A, FSA Insured, Pre-Refunded, 5.00%,
11/15/28 ......................................................................... 25,390,000 25,261,019
Families First, Refunding, Series A, California Mortgage Insured, 6.00%, 12/01/25 ... 11,365,000 11,608,893
Feedback Foundation Inc., Series A, California Mortgage Insured, 6.50%, 12/01/22 .... 1,395,000 1,397,664
Health Facility, Valleycare, Series A, California Mortgage Insured, Pre-Refunded,
5.25%, 5/01/22 ................................................................... 5,000,000 5,366,550
Hospital of the Good Samaritan, Refunding, 7.00%, 9/01/21 ........................... 67,900,000 68,085,367
Insured Health Facility, Help Group, Series A, California Mortgage Insured, 6.10%,
8/01/25 .......................................................................... 12,905,000 13,219,753
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 .................................... 46,000,000 46,107,180
Kaiser Permanente, Series A, FSA Insured, ETM, 5.00%, 6/01/20 ....................... 32,295,000 33,004,198
Kaiser Permanente, Series A, FSA Insured, ETM, 5.00%, 6/01/24 ....................... 136,775,000 139,778,579
Kaiser Permanente, Series A, zero cpn., 10/01/11 .................................... 13,970,000 12,335,091
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ................................... 7,515,000 7,695,811
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/18 ................................... 38,260,000 38,698,842
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/20 ................................... 38,020,000 38,456,089
Kaiser Permanente, Series B, ETM, 5.40%, 5/01/28 .................................... 80,000,000 80,186,400
Semiannual Report | 25
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Health Facilities Financing Authority Revenue, (continued)
Lucile Salter Packard Hospital, Series C, AMBAC Insured, 5.00%, 8/15/26 ............. $ 6,000,000 $ 5,661,360
Marshall Hospital, Refunding, Series A, California Mortgage Insured, 5.30%,
11/01/28 ......................................................................... 5,500,000 5,308,710
Northern California Presbyterian, Refunding, 5.40%, 7/01/28 ......................... 6,340,000 5,569,817
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.125%, 1/01/22 .... 6,610,000 6,408,659
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.25%, 1/01/26 ..... 5,000,000 4,791,600
Pomona Valley Hospital, Refunding, Series A, MBIA Insured, 5.625%, 7/01/19 .......... 8,500,000 8,602,510
Small Facilities Program, Refunding, Series A, FGIC Insured, 5.00%, 4/01/25 ......... 10,915,000 9,550,734
Southern California, Series A, California Mortgage Insured, 5.50%, 12/01/22 ......... 3,070,000 3,085,811
Sutter Health, Refunding, Series A, FSA Insured, 5.25%, 8/15/27 ..................... 1,815,000 1,835,582
Sutter Health, Refunding, Series A, MBIA Insured, 5.35%, 8/15/28 .................... 6,170,000 6,102,624
Sutter Health, Series A, 5.00%, 8/15/38 ............................................. 35,300,000 30,539,089
Sutter Health, Series A, 5.00%, 11/15/42 ............................................ 40,000,000 33,886,800
Sutter Health, Series A, 5.25%, 11/15/46 ............................................ 75,390,000 65,653,381
Sutter Health, Series A, FSA Insured, 5.00%, 8/15/37 ................................ 61,000,000 56,195,640
Sutter Health, Series A, MBIA Insured, 5.375%, 8/15/30 .............................. 10,600,000 10,712,148
Sutter Health, Series A, MBIA Insured, Pre-Refunded, 5.35%, 8/15/28 ................. 480,000 496,570
The Episcopal Home, California Mortgage Insured, 5.30%, 2/01/32 ..................... 28,150,000 26,462,970
The Help Group, Refunding, California Mortgage Insured, 5.40%, 8/01/22 .............. 7,420,000 7,504,736
University of California San Francisco-Stanford Health Care, Refunding, Series B,
AMBAC Insured, 5.00%, 11/15/28 ................................................... 25,000,000 22,620,750
University of California San Francisco-Stanford Health Care, Refunding, Series B,
FSA Insured, 5.00%, 11/15/31 ..................................................... 26,920,000 25,136,012
University of California San Francisco-Stanford Health Care, Series A, FSA Insured,
Pre-Refunded, 5.00%, 11/15/31 .................................................... 5,750,000 5,821,300
California HFAR,
Class 1, Series B-1, AMBAC Insured, 5.65%, 8/01/28 .................................. 1,580,000 1,453,158
Home Mortgage, Capital Appreciation, Series A, zero cpn., 8/01/16 ................... 575,000 267,617
Home Mortgage, Series K, 4.75%, 8/01/36 ............................................. 5,000,000 3,781,950
Home Mortgage, Series N, AMBAC Insured, zero cpn. to 2/01/10, 6.30% thereafter,
8/01/31 .......................................................................... 2,605,000 2,413,428
MFHR II, Series A, AMBAC Insured, 6.25%, 2/01/37 .................................... 1,235,000 1,236,741
MFHR III, Series B, MBIA Insured, 5.50%, 8/01/39 .................................... 11,950,000 10,631,317
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 4,855,200
Bay Area Toll Bridges, first lien, Series A, FGIC Insured, Pre-Refunded, 5.00%,
7/01/29 .......................................................................... 50,985,000 50,017,815
J. Paul Getty Trust, Mandatory Put 4/01/09, Refunding, Series A1, 1.70%, 10/01/47 ... 17,600,000 17,526,960
Kaiser Hospital Assistance I LLC, Series B, 5.50%, 8/01/31 .......................... 10,000,000 9,174,600
Kaiser Hospital Assistance II LLC, Series A, 5.55%, 8/01/31 ......................... 34,000,000 31,400,020
California Municipal Finance Authority COP, Community Hospitals of Central California,
5.25%,
2/01/37 ............................................................................. 37,100,000 29,794,268
2/01/46 ............................................................................. 90,650,000 70,490,346
26 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California PCFA, PCR,
Pacific Gas and Electric Co., Refunding, Series A, MBIA Insured, 5.35%, 12/01/16 .... $ 31,500,000 $ 31,007,340
San Diego Gas and Electric Co., Series A, 5.85%, 6/01/21 ............................ 32,535,000 32,548,665
California Resource Efficiency Financing Authority COP, Capital Improvements Program,
AMBAC Insured,
5.625%, 4/01/22 ..................................................................... 325,000 328,718
5.75%, 4/01/27 ...................................................................... 475,000 480,467
California State Department of Veteran Affairs Home Purchase Revenue,
Refunding, Series A, 5.40%, 12/01/28 ................................................ 9,580,000 8,882,959
Refunding, Series B, 5.50%, 12/01/18 ................................................ 2,500,000 2,489,025
Series A, 5.20%, 12/01/27 ........................................................... 17,110,000 15,533,485
Series B, 5.20%, 12/01/28 ........................................................... 3,620,000 3,620,036
California State Department of Water Resources Central Valley Project Revenue,
Water System,
Refunding, Series Q, MBIA Insured, 5.375%, 12/01/27 ................................. 19,885,000 19,932,127
Refunding, Series S, 5.00%, 12/01/29 ................................................ 24,085,000 22,935,182
Refunding, Series U, 5.00%, 12/01/29 ................................................ 11,945,000 11,245,381
Refunding, Series Y, FGIC Insured, 5.00%, 12/01/25 .................................. 19,725,000 19,170,333
Series U, Pre-Refunded, 5.00%, 12/01/29 ............................................. 55,000 55,751
Series Y, FGIC Insured, Pre-Refunded, 5.00%, 12/01/25 ............................... 275,000 296,266
California State Department of Water Resources Power Supply Revenue, Series A,
Pre-Refunded,
5.25%, 5/01/20 ...................................................................... 50,000,000 54,202,500
5.375%, 5/01/21 ..................................................................... 22,000,000 23,941,720
5.375%, 5/01/22 ..................................................................... 34,020,000 37,022,605
California State GO,
5.00%, 2/01/22 ...................................................................... 7,000,000 6,800,570
6.00%, 5/01/24 ...................................................................... 2,565,000 2,568,514
5.125%, 4/01/25 ..................................................................... 5,000,000 4,851,100
5.20%, 4/01/26 ...................................................................... 17,000,000 16,561,910
5.25%, 4/01/27 ...................................................................... 5,000 4,856
5.25%, 4/01/34 ...................................................................... 20,000 19,056
5.00%, 8/01/34 ...................................................................... 100,000,000 91,851,000
AMBAC Insured, 5.90%, 3/01/25 ....................................................... 210,000 211,579
AMBAC Insured, 5.00%, 4/01/31 ....................................................... 20,000 18,725
AMBAC Insured, Pre-Refunded, 5.00%, 4/01/31 ......................................... 29,980,000 32,412,277
FGIC Insured, 6.00%, 8/01/19 ........................................................ 905,000 910,910
FGIC Insured, 5.625%, 10/01/26 ...................................................... 6,345,000 6,352,424
FSA Insured, 5.50%, 4/01/19 ......................................................... 540,000 543,688
FSA Insured, 5.50%, 3/01/20 ......................................................... 415,000 417,162
FSA Insured, Pre-Refunded, 5.50%, 9/01/29 ........................................... 30,000,000 31,195,500
MBIA Insured, 5.00%, 10/01/23 ....................................................... 2,180,000 2,084,669
MBIA Insured, 6.00%, 8/01/24 ........................................................ 990,000 996,237
Pre-Refunded, 5.25%, 9/01/23 ........................................................ 19,750,000 20,591,350
Pre-Refunded, 5.25%, 10/01/23 ....................................................... 9,250,000 9,753,015
Pre-Refunded, 5.00%, 2/01/27 ........................................................ 46,000,000 48,936,180
Semiannual Report | 27
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State GO, (continued)
Pre-Refunded, 5.25%, 4/01/27 ........................................................ $ 4,995,000 $ 5,449,345
Pre-Refunded, 5.00%, 2/01/29 ........................................................ 13,000,000 13,829,790
Pre-Refunded, 5.25%, 2/01/29 ........................................................ 310,000 332,227
Pre-Refunded, 5.25%, 4/01/29 ........................................................ 5,580,000 6,087,557
Pre-Refunded, 5.25%, 2/01/30 ........................................................ 140,000 150,038
Pre-Refunded, 5.25%, 4/01/32 ........................................................ 9,835,000 10,574,100
Pre-Refunded, 5.25%, 4/01/34 ........................................................ 19,980,000 21,797,381
Principal EAGLES I Program, Series 6, zero cpn., 3/01/09 ............................ 5,000,000 4,947,500
Principal EAGLES II Program, Series 3, zero cpn., 3/01/09 ........................... 7,500,000 7,421,250
Principal MUNI RAES, Series 8, zero cpn., 4/01/09 ................................... 9,000,000 8,876,250
Refunding, 5.25%, 9/01/23 ........................................................... 1,250,000 1,315,175
Refunding, 5.625%, 9/01/24 .......................................................... 255,000 256,063
Refunding, 5.25%, 2/01/29 ........................................................... 53,690,000 51,737,295
Refunding, 5.25%, 2/01/30 ........................................................... 29,860,000 28,673,662
Refunding, 5.25%, 4/01/32 ........................................................... 165,000 157,920
Refunding, AMBAC Insured, 5.00%, 4/01/23 ............................................ 6,250,000 6,074,250
Refunding, MBIA Insured, 5.00%, 10/01/32 ............................................ 5,000,000 4,579,750
Refunding, Series BR, 5.30%, 12/01/29 ............................................... 13,000,000 13,008,840
Various Purpose, 5.125%, 4/01/24 .................................................... 10,000,000 9,744,400
Various Purpose, 5.25%, 12/01/26 .................................................... 145,000 141,182
Various Purpose, 5.00%, 11/01/37 .................................................... 10,000,000 9,050,100
Various Purpose, Pre-Refunded, 5.25%, 12/01/26 ...................................... 12,770,000 13,997,325
Various Purpose, Refunding, 5.00%, 6/01/32 .......................................... 48,750,000 44,668,650
Various Purpose, Refunding, 5.25%, 3/01/38 .......................................... 61,545,000 58,283,730
Various Purpose, Refunding, FSA Insured, 5.00%, 6/01/32 ............................. 20,000,000 18,718,600
Various Purpose, Refunding, MBIA Insured, 5.00%, 6/01/37 ............................ 35,000,000 31,687,950
California State Local Government Finance Authority Revenue, Marin Valley Mobile,
Series A, FSA Insured, 5.85%, 10/01/27 .............................................. 5,955,000 6,025,924
California State Public Works Board Lease Revenue,
California Science Center, Series A, 5.25%, 10/01/22 ................................... 8,645,000 8,745,196
Department of Corrections, Series C, 5.00%, 6/01/24 ................................. 12,225,000 11,502,258
Department of Corrections, Series C, 5.00%, 6/01/25 ................................. 4,810,000 4,459,062
Department of Corrections, Series C, 5.25%, 6/01/28 ................................. 25,475,000 23,927,394
Department of Mental Health, Coalinga, Series A, 5.00%, 6/01/25 ..................... 12,000,000 11,013,000
Department of Mental Health, Coalinga, Series A, 5.125%, 6/01/29 .................... 56,500,000 52,580,595
Trustees of California State University, Refunding, Series A, 5.00%, 10/01/19 ....... 7,500,000 7,580,100
Various California Community Colleges Projects, Refunding, Series A, 5.90%,
4/01/17 .......................................................................... 8,320,000 8,416,346
California State University at Channel Islands Financing Authority Revenue, East Campus
Community, Series A, MBIA Insured, Pre-Refunded, 5.00%, 9/01/31 ..................... 11,000,000 11,678,040
California State University Revenue, Systemwide,
Refunding, Series A, FSA Insured, 5.00%, 11/01/34 ................................... 5,000,000 4,619,300
Refunding, Series C, MBIA Insured, 5.00%, 11/01/30 .................................. 15,490,000 14,184,967
Series A, AMBAC Insured, 5.00%, 11/01/35 ............................................ 15,925,000 14,399,544
Series A, FSA Insured, 5.00%, 11/01/29 .............................................. 10,000,000 9,378,800
California Statewide CDA,
Assisted Living Facilities Revenue, Hollenbeck Palms/Magnolia, Series A, Radian
Insured, 4.60%, 2/01/37 .......................................................... 5,010,000 3,796,778
COP, Catholic Healthcare West, 6.50%, 7/01/20 ....................................... 2,415,000 2,596,874
28 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Statewide CDA, (continued)
COP, Catholic Healthcare West, Pre-Refunded, 6.50%, 7/01/20 ......................... $ 5,575,000 $ 6,002,435
COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ............................... 37,685,000 32,534,968
COP, Kaiser Permanente, ETM, 5.30%, 12/01/15 ........................................ 32,200,000 33,337,304
COP, MBIA Insured, 5.00%, 4/01/18 ................................................... 7,000,000 6,713,840
COP, MBIA Insured, 5.125%, 4/01/23 .................................................. 6,000,000 5,198,220
COP, Refunding, FSA Insured, 5.50%, 8/15/31 ......................................... 9,000,000 8,987,760
COP, The Internext Group, 5.375%, 4/01/17 ........................................... 8,700,000 8,454,747
COP, The Internext Group, 5.375%, 4/01/30 ........................................... 67,480,000 55,962,514
MFHR, Borregas Court Project, Series J, GNMA Secured, 6.30%, 3/20/39 ................ 7,138,000 7,290,468
California Statewide CDA Revenue,
5.50%, 10/01/33 ..................................................................... 45,465,000 40,432,934
Catholic Healthcare West, Refunding, Series L, Assured Guaranty, 5.25%, 7/01/41 ..... 13,000,000 12,080,900
Catholic Healthcare West, Series A, 5.50%, 7/01/30 .................................. 10,000,000 9,054,900
Catholic Healthcare West, Series E, 5.50%, 7/01/31 .................................. 15,000,000 13,649,550
CHF, Irvine LLC, UCI East Campus, 5.50%, 5/15/26 .................................... 9,500,000 8,792,535
CHF, Irvine LLC, UCI East Campus, 6.00%, 5/15/40 .................................... 59,000,000 54,760,260
Daughters of Charity Health, Refunding, Series A, 5.25%, 7/01/24 .................... 6,000,000 5,376,000
Daughters of Charity Health, Refunding, Series A, 5.25%, 7/01/30 .................... 5,000,000 4,225,950
Daughters of Charity Health, Refunding, Series A, 5.25%, 7/01/35 .................... 13,900,000 11,556,043
Daughters of Charity Health, Refunding, Series A, 5.00%, 7/01/39 .................... 22,685,000 17,831,771
Daughters of Charity Health, Refunding, Series H, 5.25%, 7/01/25 .................... 3,875,000 3,428,058
East Campus Apartments LLC, Series A, ACA Insured, 5.50%, 8/01/22 ................... 11,000,000 10,427,670
East Campus Apartments LLC, Series A, ACA Insured, 5.625%, 8/01/34 .................. 25,000,000 22,050,500
Enloe Medical Center, California Mortgage Insured, 6.25%, 8/15/33 ................... 20,000,000 20,100,400
Enloe Medical Center, California Mortgage Insured, 5.75%, 8/15/38 ................... 36,500,000 34,275,325
Health Facility, Adventist Health, Series A, 5.00%, 3/01/30 ......................... 6,300,000 5,267,430
Henry Mayo Newhall Memorial Hospital, California Mortgage Insured, 5.00%,
10/01/37 ......................................................................... 5,000,000 4,239,000
Huntington Memorial Hospital, Refunding, 5.00%, 7/01/27 ............................. 22,000,000 18,973,460
Huntington Memorial Hospital, Refunding, 5.00%, 7/01/35 ............................. 50,000,000 41,221,000
Insured Health Facility, Jewish Home, California Mortgage Insured, 5.50%, 11/15/33 .. 20,400,000 19,910,400
Kaiser Permanente, Refunding, Series A, 4.75%, 4/01/33 .............................. 24,590,000 20,238,308
Kaiser Permanente, Refunding, Series A, BHAC Insured, 5.00%, 4/01/31 ................ 10,000,000 9,399,000
Kaiser Permanente, Series A, 5.50%, 11/01/32 ........................................ 27,000,000 24,903,990
Kaiser Permanente, Series B, 5.00%, 3/01/41 ......................................... 17,980,000 15,072,634
Kaiser Permanente, Series B, 5.25%, 3/01/45 ......................................... 156,640,000 135,622,045
Lodi Memorial Hospital, Series A, California Mortgage Insured, 5.00%, 12/01/37 ...... 20,000,000 16,965,800
Los Angeles Orthopedic Hospital Foundation, AMBAC Insured, 5.75%, 6/01/30 ........... 10,000,000 10,065,700
Mission Community, California Mortgage Insured, 5.375%, 11/01/21 .................... 7,670,000 7,816,420
Mission Community, California Mortgage Insured, 5.375%, 11/01/26 .................... 9,755,000 9,821,822
Refunding, California Mortgage Insured, 5.50%, 1/01/28 .............................. 3,615,000 3,576,609
Series B, 5.625%, 8/15/42 ........................................................... 51,000,000 48,098,610
St. Joseph Health System, Series B, FGIC Insured, 5.75%, 7/01/47 .................... 30,275,000 28,490,894
St. Joseph Health System, Series E, FSA Insured, 5.25%, 7/01/47 ..................... 15,300,000 13,897,449
Stovehaven Apartments Project, Series A, ACA Insured, 5.875%, 7/01/32 ............... 4,945,000 4,082,988
Sutter Health, Refunding, Series A, 5.00%, 11/15/43 ................................. 103,300,000 87,175,903
Semiannual Report | 29
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Statewide CDA Revenue, (continued)
Sutter Health, Series B, 5.25%, 11/15/48 ............................................ $ 15,000,000 $ 12,989,700
Sutter Health, Series C, 5.00%, 11/15/38 ............................................ 23,925,000 20,657,802
California Statewide CDA Revenue COP,
Capital Appreciation, Hospital, Triad Health Care, California Mortgage Insured, ETM,
zero cpn., 8/01/09 ............................................................... 6,450,000 6,308,358
Capital Appreciation, Hospital, Triad Health Care, California Mortgage Insured, ETM,
zero cpn., 8/01/10 ............................................................... 6,745,000 6,383,131
Capital Appreciation, Hospital, Triad Health Care, California Mortgage Insured, ETM,
zero cpn., 8/01/11 ............................................................... 3,115,000 2,833,311
CHFCLP Insured Health Facilities, Unihealth, Series A, AMBAC Insured, Pre-Refunded,
ETM, 5.75%, 10/01/25 ............................................................. 24,545,000 27,083,198
Southern California Development Corp., California Mortgage Insured, 6.10%,
12/01/15 ......................................................................... 1,895,000 1,898,297
California Statewide CDA Water and Wastewater Revenue, Pooled Financing Program,
Series A, FSA Insured, 5.25%, 10/01/24 .............................................. 3,925,000 3,941,014
Series A, FSA Insured, 5.00%, 10/01/29 .............................................. 1,095,000 1,057,715
Series A, FSA Insured, Pre-Refunded, 5.25%, 10/01/24 ................................ 1,075,000 1,182,532
Series A, FSA Insured, Pre-Refunded, 5.00%, 10/01/29 ................................ 1,905,000 2,073,764
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 ................................ 3,485,000 3,672,598
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 ................................ 1,515,000 1,530,332
California Valley HFAR, Home Mortgage, MBIA Insured, 5.65%, 2/01/27 .................... 4,980,000 4,615,962
Camarillo Community Development Commission Tax Allocation, Camarillo Corridor Project,
Refunding, AMBAC Insured, 5.00%, 9/01/36 ............................................ 7,800,000 6,489,834
Campbell RDA Tax Allocation, Central Campbell Redevelopment Project, Series A, 6.00%,
10/01/33 ............................................................................ 5,000,000 5,047,100
Campbell USD,
GO, Series A, FGIC Insured, 5.00%, 8/01/28 .......................................... 5,205,000 4,890,878
GO, Series E, FSA Insured, 5.00%, 8/01/29 ........................................... 6,260,000 6,009,162
Series B, FGIC Insured, zero cpn., 8/01/20 .......................................... 5,000,000 2,577,900
Series B, FGIC Insured, zero cpn., 8/01/21 .......................................... 6,280,000 2,982,372
Capistrano University School CFD Special Tax, Number 90-2 Talega,
5.875%, 9/01/33 ..................................................................... 5,785,000 5,227,442
6.00%, 9/01/33 ...................................................................... 7,100,000 6,586,954
Centinela Valley UHSD, GO, Refunding, Series A, MBIA Insured, 5.50%, 8/01/33 ........... 15,630,000 14,381,007
Central California Joint Powers Health Financing Authority COP, Community Hospitals of
Central California,
6.00%, 2/01/20 ...................................................................... 5,000,000 5,280,750
Pre-Refunded, 5.625%, 2/01/21 ....................................................... 6,750,000 7,242,952
Pre-Refunded, 6.00%, 2/01/30 ........................................................ 34,960,000 36,923,004
Pre-Refunded, 5.75%, 2/01/31 ........................................................ 18,070,000 19,440,248
(a) Cerritos Community College District GO, Election of 2004, Series B, MBIA Insured, 5.00%,
8/01/31 ............................................................................. 16,580,000 15,533,802
Cerritos PFAR Tax Allocation, Redevelopment Project, Refunding, Series A, AMBAC Insured,
5.00%, 11/01/22 ..................................................................... 6,675,000 5,967,250
Chabot-Las Positas Community College District GO,
Capital Appreciation Bonds, Series C, AMBAC Insured, zero cpn., 8/01/38 ............. 52,010,000 7,469,156
Capital Appreciation Bonds, Series C, AMBAC Insured, zero cpn., 8/01/39 ............. 54,045,000 7,358,227
Capital Appreciation Bonds, Series C, AMBAC Insured, zero cpn., 8/01/40 ............. 56,165,000 7,265,504
30 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Chabot-Las Positas Community College District GO, (continued)
Capital Appreciation Bonds, Series C, AMBAC Insured, zero cpn., 8/01/41 ............. $ 58,365,000 $ 7,058,079
Election of 2004, Series B, AMBAC Insured, 5.00%, 8/01/31 ........................... 11,500,000 10,503,640
Series B, AMBAC Insured, 5.00%, 8/01/30 ............................................. 17,330,000 15,989,178
Chaffey UHSD, GO,
Series B, 5.00%, 8/01/25 ........................................................... 6,510,000 6,329,152
Series C, FSA Insured, 5.00%, 5/01/27 ............................................... 6,980,000 6,847,240
Chico RDA Tax Allocation, Chico Amended and Merged Redevelopment Project,
AMBAC Insured, 5.00%, 4/01/32 ....................................................... 5,000,000 4,401,150
Chino Valley USD, GO, Election of 2002, Series D, FGIC Insured, 5.00%, 8/01/31 ......... 23,825,000 21,450,124
Chula Vista COP, Cops Phase I, MBIA Insured, 5.00%, 3/01/34 ............................ 10,360,000 9,401,078
Chula Vista IDR,
Adjustment, San Diego Gas and Electric Co., Series B, 5.50%, 12/01/21 ............... 14,000,000 13,421,520
Daily, San Diego Gas and Electric Co., Series A, 5.30%, 7/01/21 ..................... 8,500,000 8,246,530
Claremont RDA Tax Allocation, Consolidated Redevelopment Project, Refunding, 5.50%,
8/01/23 ............................................................................ 4,950,000 4,910,004
Colton Joint USD, GO, Election of 2001, Series B, FGIC Insured, 5.00%, 8/01/27 ......... 7,000,000 6,430,620
Colusa County COP, ABAG Finance Corp., Series B, 7.00%, 2/01/18 ....................... 1,305,000 1,307,819
Commerce Joint Powers Financing Authority Revenue, Redevelopment Projects, Series B,
Radian Insured, 5.125%, 8/01/35 .................................................... 8,025,000 6,647,348
Compton USD, GO,
AMBAC Insured, 5.00%, 6/01/29 ....................................................... 5,660,000 5,144,600
Election of 2002, Series C, AMBAC Insured, 5.00%, 6/01/31 ........................... 5,000,000 4,502,900
Contra Costa Community College District GO, Election of 2002, FGIC Insured, 5.00%,
8/01/26 ............................................................................ 11,700,000 11,590,254
Contra Costa County COP, Merrithew Memorial Hospital Project, ETM, zero cpn.,
11/01/15 ............................................................................ 6,810,000 5,116,762
Contra Costa Home Mortgage Finance Authority HMR, Pre-Refunded, zero cpn., 9/01/17 ..... 8,615,000 3,295,065
Contra Costa Home Mortgage Finance Authority HMR, Pre-Refunded, zero cpn., 9/01/17 ..... 7,700,000 3,199,812
Contra Costa Home Mortgage Finance Authority HMR, Pre-Refunded, zero cpn., 9/01/17 ..... 7,135,000 2,848,934
Contra Costa Home Mortgage Finance Authority HMR, Pre-Refunded, zero cpn., 9/01/17 ..... 6,275,000 2,713,122
Contra Costa Transportation Authority Revenue, Sales Tax, Series A, FGIC Insured, ETM,
6.50%, 3/01/09 ..................................................................... 535,000 544,346
Corcoran Hospital District Revenue, Series A, California Mortgage Insured, 6.55%,
7/01/12 ............................................................................ 500,000 501,305
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ........... 13,880,000 15,393,614
Corona-Norco USD,
GO, Election of 2006, Series A, FSA Insured, 5.00%, 8/01/31 ........................ 5,130,000 4,754,022
PFA Special Tax Revenue, Series A, 5.40%, 9/01/35 .................................. 7,140,000 5,973,824
Coronado CDA Tax Allocation, Coronado Community Development Project, Refunding,
MBIA Insured, 5.00%, 9/01/34 ........................................................ 6,115,000 5,629,897
CSAC Finance Corp. COP, Sutter County, Health Facilities Program, 7.80%, 1/01/21 ....... 1,935,000 1,943,746
Cudahy RDA Tax Allocation, Refunding, Series C, 6.00%, 10/01/27 ........................ 6,365,000 6,286,901
Daly City Housing Development Finance Agency Mobile Home Park Revenue,
Senior Franciscan Mobile, Refunding, Series A, 5.00%, 12/15/47 ...................... 20,645,000 16,657,418
Delano UHSD, GO,
Election of 2005, Series A, XLCA Insured, 5.00%, 8/01/31 ............................ 5,160,000 4,361,077
Refunding, Series A, MBIA Insured, 5.15%, 2/01/32 .................................. 8,520,000 7,280,766
Semiannual Report | 31
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Desert Community College District GO, Capital Appreciation Bonds, Series C, FSA Insured,
zero cpn., 8/01/46 .................................................................. $ 396,230,000 $ 36,560,142
Desert Sands USD, GO, Election of 2001, FSA Insured, Pre-Refunded, 5.00%, 6/01/29 ...... 16,425,000 17,793,695
Downey USD, GO, Election of 2002, Series C, FSA Insured, Pre-Refunded, 5.00%,
2/01/30 ............................................................................. 4,860,000 5,295,456
Duarte COP, Refunding, Series A, 5.25%,
4/01/19 ............................................................................. 5,000,000 4,909,100
4/01/24 ............................................................................. 5,000,000 4,586,750
4/01/31 ............................................................................. 12,500,000 10,835,500
East Bay MUD Wastewater System Revenue, Refunding, Sub Series A, AMBAC Insured,
5.00%, 6/01/37 ...................................................................... 38,085,000 35,241,574
East Bay MUD Water System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 6/01/37 ................................... 99,545,000 93,078,557
Sub Series A, MBIA Insured, 5.00%, 6/01/28 .......................................... 7,000,000 6,711,950
Sub Series A, MBIA Insured, 5.00%, 6/01/29 .......................................... 27,495,000 26,232,430
Sub Series A, MBIA Insured, 5.00%, 6/01/30 .......................................... 15,000,000 14,238,150
Sub Series A, MBIA Insured, 5.00%, 6/01/35 .......................................... 21,985,000 20,630,284
East Side UHSD Santa Clara County GO, Series F, FSA Insured, 5.00%, 8/01/35 ............ 22,685,000 20,674,202
Eastern Municipal Water District Water and Sewer Revenue COP, Series B, FGIC Insured,
Pre-Refunded, 5.00%, 7/01/30 ........................................................ 31,370,000 33,154,012
El Camino Hospital District Revenue, Series A, ETM, 7.25%, 8/15/09 ..................... 1,560,000 1,627,891
El Centro Financing Authority Hospital Revenue, El Centro Regional Medical Center
Project, California Mortgage Insured, 5.25%, 3/01/26 ................................ 8,500,000 8,375,645
El Dorado County Special Tax, CFD No. 1992-1,
5.875%, 9/01/24 ..................................................................... 4,475,000 4,039,806
6.00%, 9/01/31 ...................................................................... 8,850,000 7,846,410
Refunding, 6.25%, 9/01/29 ........................................................... 19,750,000 18,151,830
El Paso de Robles GO, Capital Appreciation, Series A, FGIC Insured, Pre-Refunded,
zero cpn.,
8/01/16 ............................................................................. 2,050,000 1,391,991
8/01/22 ............................................................................. 11,485,000 5,545,762
8/01/27 ............................................................................. 11,495,000 4,174,869
El Rancho USD, GO, Election of 2003, Series A, FGIC Insured, 5.00%, 8/01/28 ............ 5,635,000 5,067,781
Elk Grove USD, Special Tax, Capital Appreciation, CFD 1, MBIA Insured, zero cpn.,
12/01/19 ............................................................................ 2,775,000 1,516,149
12/01/20 ............................................................................ 2,765,000 1,405,864
12/01/21 ............................................................................ 4,195,000 1,906,753
12/01/22 ............................................................................ 4,195,000 1,766,347
12/01/23 ............................................................................ 4,195,000 1,646,412
12/01/24 ............................................................................ 4,200,000 1,540,770
Emeryville PFAR,
Housing Increment Loan, 6.20%, 9/01/25 .............................................. 3,115,000 3,120,825
Shellmound Park Redevelopment and Housing Project, Refunding, Series B, MBIA Insured,
5.00%, 9/01/28 ...................................................................... 10,000,000 9,765,400
Fairfield COP, Fairfield Water Financing, Series A, XLCA Insured, 5.00%, 4/01/42 ....... 10,000,000 8,704,800
Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A,
MBIA Insured, 5.00%, 3/01/33 ........................................................ 8,715,000 8,155,148
32 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Fontana RDA Tax Allocation, Jurupa Hills Redevelopment Project, Refunding, Series A,
5.50%, 10/01/27 ..................................................................... $ 12,500,000 $ 12,646,500
Fontana USD, GO, Convertible Capital Appreciation, Series D, FGIC Insured, 5.80%,
5/01/17 ............................................................................. 4,685,000 4,823,301
Foothill-De Anza Community College District GO,
Capital Appreciation, zero cpn., 8/01/27 ............................................ 5,205,000 1,700,786
MBIA Insured, zero cpn., 8/01/26 .................................................... 5,290,000 1,843,882
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, zero cpn., 1/15/21 ................................. 51,180,000 22,833,445
Capital Appreciation, Refunding, zero cpn., 1/15/25 ................................. 57,000,000 18,591,690
Capital Appreciation, Refunding, zero cpn., 1/15/30 ................................. 98,460,000 21,361,882
Capital Appreciation, Refunding, zero cpn., 1/15/31 ................................. 14,635,000 2,974,271
Capital Appreciation, Refunding, zero cpn., 1/15/32 ................................. 100,000,000 18,752,000
Capital Appreciation, Refunding, zero cpn., 1/15/33 ................................. 132,460,000 23,061,286
Capital Appreciation, Refunding, zero cpn., 1/15/34 ................................. 100,000,000 16,161,000
Capital Appreciation, Refunding, zero cpn., 1/15/35 ................................. 20,000,000 2,999,800
Capital Appreciation, Refunding, zero cpn., 1/15/36 ................................. 182,160,000 25,353,029
Capital Appreciation, Refunding, zero cpn., 1/15/37 ................................. 170,615,000 22,029,809
Capital Appreciation, Refunding, zero cpn., 1/15/38 ................................. 160,560,000 19,230,271
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.80% thereafter, 1/15/20 .... 49,500,000 46,098,360
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.85% thereafter, 1/15/23 .... 10,000,000 8,996,600
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/26 ... 30,000,000 26,424,000
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/27 ... 80,835,000 68,280,516
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/28 ... 80,500,000 69,415,150
Capital Appreciation, Refunding, zero cpn. to 7/15/09, 5.875% thereafter, 1/15/29 ... 112,230,000 95,834,319
Capital Appreciation, senior lien, Series A, ETM, 7.05%, 1/01/09 .................... 10,000,000 10,118,200
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/22 ................ 30,835,000 15,127,034
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/23 ................ 5,765,000 2,661,643
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/24 ................ 72,045,000 31,412,340
Capital Appreciation, senior lien, Series A, ETM, zero cpn., 1/01/28 ................ 2,000,000 687,060
Capital Appreciation, senior lien, Series A, Pre-Refunded, 7.15%, 1/01/14 ........... 5,500,000 5,930,595
Refunding, 5.75%, 1/15/40 ........................................................... 395,510,000 354,072,417
senior lien, Series A, 5.00%, 1/01/35 ............................................... 15,955,000 12,809,312
senior lien, Series A, ETM, zero cpn., 1/01/25 ...................................... 20,660,000 8,503,656
senior lien, Series A, ETM, zero cpn., 1/01/26 ...................................... 23,475,000 9,102,431
senior lien, Series A, ETM, zero cpn., 1/01/27 ...................................... 15,000,000 5,485,950
senior lien, Series A, ETM, zero cpn., 1/01/29 ...................................... 35,310,000 11,384,650
senior lien, Series A, Pre-Refunded, 7.10%, 1/01/12 ................................. 8,000,000 8,621,440
Fremont GO, Election of 2002, Fire Safety Project, Series B, FGIC Insured, 5.00%,
8/01/34 ............................................................................. 7,235,000 6,734,917
Fremont USD Alameda County GO, Election 2002, Series B, FSA Insured, 5.00%,
8/01/28 ............................................................................. 10,000,000 9,396,500
Glendale Community College District GO, FGIC Insured, zero cpn., 8/01/28 ............... 15,000,000 5,001,150
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Asset-Backed, Refunding, Series A, FGIC Insured, 5.00%, 6/01/45 ..................... 20,000,000 16,035,800
Asset-Backed, Senior Series A-1, 5.125%, 6/01/47 .................................... 5,000,000 3,303,400
Asset-Backed, Senior Series A-1, 5.75%, 6/01/47 ..................................... 77,500,000 57,096,575
Semiannual Report | 33
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, (continued)
Enhanced, Asset-Backed, Refunding, Series A, 5.00%, 6/01/45 ......................... $ 64,000,000 $ 50,476,160
Enhanced, Asset-Backed, Refunding, Series A, AMBAC Insured, 5.00%, 6/01/30 .......... 34,150,000 29,192,444
Enhanced, Asset-Backed, Refunding, Series A, Radian Insured, 5.00%, 6/01/45 ......... 30,000,000 23,766,600
Enhanced, Asset-Backed, Series A-3, Pre-Refunded, 5.50%, 6/01/33 .................... 15,000,000 15,980,100
Enhanced, Asset-Backed, Series A-3, Pre-Refunded, 5.50%, 6/01/43 .................... 57,000,000 60,724,380
Enhanced, Asset-Backed, Series B, Pre-Refunded, 5.625%, 6/01/38 ..................... 138,000,000 147,744,180
Enhanced, Series A, AMBAC Insured, 5.00%, 6/01/45 ................................... 14,085,000 11,158,419
Series A-1, Pre-Refunded, 6.75%, 6/01/39 ............................................ 5,290,000 5,914,590
Hartnell Community College District GO, Election of 2002, Series A, MBIA Insured,
Pre-Refunded, 5.00%, 8/01/27 ........................................................ 5,020,000 5,397,755
Hawaiian Gardens RDA Tax Allocation, Project No. 1, ETM, 8.00%, 12/01/10 ............... 2,360,000 2,488,998
Hawthorne School District GO, Capital Appreciation, Election of 2004, Series C, Assured
Guaranty, zero cpn., 8/01/48 ........................................................ 37,665,000 2,766,118
Helix Water District COP, Installment Purchase, Series A, FSA Insured, 5.25%, 4/01/24 .. 8,925,000 8,928,748
Huntington Beach City and School District, Capital Appreciation, Election of 2002,
Series A, FGIC Insured, zero cpn., 8/01/28 .......................................... 10,005,000 2,975,787
Huntington Beach UHSD, GO, Election of 2004, FSA Insured, 5.00%,
8/01/27 ............................................................................. 3,530,000 3,380,222
8/01/29 ............................................................................. 11,000,000 10,389,280
Imperial Irrigation District Electric Revenue, System, Refunding, BHAC Insured, 5.125%,
11/01/38 ............................................................................ 4,800,000 4,536,528
Indio Water Authority Water Revenue, AMBAC Insured, 5.00%, 4/01/36 ..................... 18,020,000 16,596,600
Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing
Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ................................. 3,225,000 3,369,254
Inland Empire Tobacco Securitization Authority Tobacco Settlement Revenue, Capital
Appreciation, Series B, zero cpn. to 12/01/11, 5.75% thereafter, 6/01/26 ............ 35,000,000 24,953,600
Intercommunity Hospital Financing Authority COP, Northbay Healthcare System, Refunding,
ACA Insured, 5.25%, 11/01/19 ........................................................ 10,550,000 9,722,985
Irvine 1915 Act GO,
AD No. 00-18, Group 4, 5.375%, 9/02/26 .............................................. 2,500,000 2,204,725
AD No. 03-19, Group 2, Refunding, 5.45%, 9/02/23 .................................... 2,000,000 1,835,220
AD No. 03-19, Group 2, Refunding, 5.50%, 9/02/29 .................................... 4,295,000 3,762,978
Irvine USD Financing Authority Special Tax, Series A,
5.00%, 9/01/26 ...................................................................... 3,000,000 2,544,570
5.125%, 9/01/36 ..................................................................... 11,180,000 9,310,704
Kaweah Delta Health Care District GO, Election of 2003, MBIA Insured, 5.00%, 8/01/34 ... 16,500,000 14,742,255
Kern Community College District COP, AMBAC Insured, 5.00%, 3/01/34 ..................... 15,000,000 13,233,150
Kern County Board of Education COP, Refunding, Series A, MBIA Insured, 5.20%,
5/01/28 ............................................................................. 3,150,000 3,022,866
Kern High School District GO,
Election of 1990, Series E, FGIC Insured, 5.125%, 8/01/33 ........................... 5,275,000 4,838,705
Election of 2004, Series B, FSA Insured, 5.00%, 8/01/30 ............................. 13,270,000 12,243,300
La Mirada SFMR, MBS, Series A, 7.65%, 4/01/24 .......................................... 100,000 103,253
La Palma Community Development Commission Tax Allocation, La Palma Community
Development Project No. 1, Refunding, 6.10%, 6/01/22 ................................ 2,210,000 2,213,691
La Quinta RDA Tax Allocation, Redevelopment Project Area No. 1, AMBAC Insured, 5.125%,
9/01/32 ............................................................................. 10,825,000 9,640,745
34 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Laguna Beach USD, CFD Special Tax No. 98-1, 5.375%, 9/01/34 ............................ $ 5,375,000 $ 4,475,763
Lake Elsinore PFA Tax Allocation Revenue,
Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.80%, 9/01/25 ......... 6,750,000 6,761,475
Series A, 5.50%, 9/01/30 ............................................................ 15,550,000 14,607,981
Lancaster RDA, RMR, Los Angeles County, Series A, ETM, 10.125%, 9/01/16 ................ 5,000 7,051
Lemon Grove CDA Tax Allocation, 1998 Refunding, 5.75%, 8/01/28 ......................... 8,115,000 8,157,523
Local Medical Facilities Financing Authority COP, Insured California Health Clinic
Project, California Mortgage Insured, 7.55%, 3/01/20 ................................ 830,000 832,075
Lodi Electric Systems Revenue COP, Capital Appreciation Bond, Series B, MBIA Insured,
Pre-Refunded, zero cpn., 1/15/19 .................................................... 6,360,000 3,497,428
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series A, 5.00%,
12/01/23 ............................................................................ 9,200,000 8,266,200
Long Beach Bond Finance Authority Lease Revenue, Aquarium of The South Pacific,
Refunding, AMBAC Insured, 5.00%, 11/01/26 ........................................... 20,000,000 17,781,000
Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A,
5.50%, 11/15/28 ..................................................................... 8,000,000 7,111,760
5.00%, 11/15/29 ..................................................................... 17,465,000 14,406,180
5.50%, 11/15/30 ..................................................................... 5,000,000 4,397,500
5.00%, 11/15/35 ..................................................................... 69,800,000 55,458,194
5.50%, 11/15/37 ..................................................................... 35,000,000 29,809,150
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 13,878,797
Los Angeles Community College District GO,
Election of 2001, Series A, FGIC Insured, 5.00%, 8/01/32 ............................ 21,500,000 20,325,670
Series A, MBIA Insured, Pre-Refunded, 5.00%, 6/01/26 ................................ 69,275,000 73,329,666
Los Angeles COP, Department of Public Social Services, Series A, AMBAC Insured, 5.50%,
8/01/24 ............................................................................. 4,000,000 4,018,360
8/01/31 ............................................................................. 5,000,000 4,993,150
Los Angeles County COP,
Antelope Valley Courthouse, Series A, AMBAC Insured, Pre-Refunded, 5.25%,
11/01/33 ......................................................................... 8,000,000 8,444,240
Insured Health Clinic Program, Refunding, Series F, California Mortgage Insured,
5.875%, 1/01/21 .................................................................. 7,520,000 7,597,155
Series 1992, California Mortgage Insured, 6.625%, 7/01/22 ........................... 875,000 877,319
Los Angeles County Infrastructure and Economic Development Bank Revenue, County
Department Public Social Services, AMBAC Insured, 5.00%, 9/01/35 .................... 7,765,000 7,080,748
Los Angeles County MTA Sales Tax Revenue,
Proposition A, Senior Series A, FSA Insured, Pre-Refunded, 5.00%, 7/01/24 ........... 5,000,000 5,337,500
Proposition A, Series C, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/26 ................ 35,000 36,076
Proposition C, Refunding, Series C, AMBAC Insured, 5.00%, 7/01/26 ................... 12,965,000 12,549,083
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 6,189,190
District No. 14, Sub Series B, FGIC Insured, 5.00%, 10/01/34 ........................ 30,820,000 26,927,742
Series A, MBIA Insured, 5.00%, 10/01/34 ............................................. 7,110,000 6,212,078
Los Angeles CRDA,
Financing Authority Revenue, Pooled Financing, Beacon Normandie, Series B, 6.625%,
9/01/14 .......................................................................... 575,000 576,179
MFHR, Angelus Plaza Project, Refunding, Series A, 6.40%, 7/01/23 .................... 4,915,000 4,633,076
Semiannual Report | 35
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Los Angeles CRDA Tax Allocation, Series G, ETM, 6.75%, 7/01/10 ......................... $ 4,365,000 $ 4,511,839
Los Angeles Department of Airports Revenue, Los Angeles International Airport, Series C,
5.125%, 5/15/33 ..................................................................... 16,000,000 14,730,080
Los Angeles Department of Water and Power Waterworks Revenue, System,
Sub Series A-1, AMBAC Insured, 5.00%, 7/01/36 ....................................... 14,385,000 13,243,694
Sub Series A-1, AMBAC Insured, 5.00%, 7/01/38 ....................................... 30,000,000 27,519,600
Sub Series A-1, AMBAC Insured, 5.00%, 7/01/40 ....................................... 17,000,000 15,516,070
Sub Series A-2, AMBAC Insured, 5.00%, 7/01/44 ....................................... 60,000,000 53,734,800
Los Angeles Harbor Department Revenue, Refunding, Series A, AMBAC Insured, 5.00%,
8/01/25 ............................................................................. 15,000,000 14,421,150
Los Angeles MFR, Housing, Refunding, Senior Series G, FSA Insured, 5.75%, 1/01/24 ...... 275,000 274,992
Los Angeles USD,
COP, Administration Building Project, Series B, AMBAC Insured, 5.00%, 10/01/31 ...... 28,210,000 26,426,282
GO, Election of 2002, Series B, AMBAC Insured, 4.50%, 7/01/31 ....................... 29,000,000 24,081,600
GO, Election of 2004, Series F, FGIC Insured, 5.00%, 7/01/30 ........................ 100,000 93,314
GO, Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/30 ....................... 13,815,000 12,891,329
GO, Election of 2004, Series G, AMBAC Insured, 5.00%, 7/01/31 ....................... 6,000,000 5,583,060
GO, Election of 2004, Series H, FSA Insured, 5.00%, 7/01/32 ......................... 33,575,000 31,744,155
GO, Refunding, Series A-1, MBIA Insured, 4.50%, 1/01/28 ............................. 40,000,000 33,958,800
GO, Series A, MBIA Insured, Pre-Refunded, 5.00%, 1/01/28 ............................ 170,250,000 183,243,480
GO, Series G, AMBAC Insured, 5.00%, 7/01/24 ......................................... 16,770,000 16,201,162
Los Angeles Wastewater System Revenue, Refunding, Series A,
FGIC Insured, 5.00%, 6/01/32 ........................................................ 6,000,000 5,560,320
FSA Insured, 4.875%, 6/01/29 ........................................................ 34,335,000 31,056,351
FSA Insured, 5.00%, 6/01/32 ......................................................... 17,500,000 16,200,975
Los Angeles Water and Power Revenue,
Power System, Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 ..................... 2,000,000 1,932,160
Power System, Series B, FSA Insured, 5.00%, 7/01/28 ................................. 10,575,000 10,076,706
Power System, Sub Series A-1, AMBAC Insured, 5.00%, 7/01/37 ......................... 12,345,000 11,336,043
Power System, Sub Series A-1, FSA Insured, 5.00%, 7/01/31 ........................... 10,000,000 9,268,000
Power System, Sub Series A-1, FSA Insured, 5.00%, 7/01/35 ........................... 63,435,000 58,259,973
Refunding, Series A, Sub Series A-2, 5.00%, 7/01/30 ................................. 7,000,000 6,505,450
Series A, Sub Series A-2, MBIA Insured, 5.00%, 7/01/23 .............................. 6,550,000 6,363,194
Lynwood PFA Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.90%,
9/01/28 ............................................................................. 6,470,000 6,639,320
M-S-R Public Power Agency San Juan Project Revenue, Series E, MBIA Insured, 6.00%,
7/01/22 ............................................................................. 6,330,000 6,504,012
Madera County COP, Valley Children's Hospital, MBIA Insured,
5.00%, 3/15/23 ...................................................................... 8,500,000 8,145,210
5.75%, 3/15/28 ...................................................................... 27,500,000 27,574,525
(b) Madera-Chowchilla Power Authority Hydroelectric Revenue, Refunding, 8.00%, 1/01/14 ..... 1,315,000 1,318,038
Manhattan Beach COP, Metlox Public Improvements, 5.00%, 1/01/33 ........................ 5,575,000 5,199,245
Manteca Financing Authority Sewer Revenue, Series A, MBIA Insured, 5.00%, 12/01/33 ..... 3,340,000 3,111,511
Marysville Hospital Revenue, Fremont Rideout Health, Refunding, Series A, AMBAC Insured,
5.00%, 1/01/22 ...................................................................... 5,000,000 4,904,750
Metropolitan Water District of Southern California Waterworks Revenue,
Series A, 5.00%, 7/01/32 ............................................................ 25,000,000 23,382,250
Series A, 5.00%, 7/01/37 ............................................................ 12,250,000 11,329,167
Series B1, FGIC Insured, 5.00%, 10/01/33 ............................................ 5,000,000 4,773,550
36 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Milpitas RDA Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, ETM,
5.40%, 1/15/17 ...................................................................... $ 12,155,000 $ 13,018,491
5.50%, 1/15/24 ...................................................................... 11,790,000 12,400,132
Milpitas USD, FGIC Insured, Pre-Refunded, 5.875%, 9/01/24 .............................. 11,970,000 12,721,357
Modesto High School District Stanislaus County GO, Capital Appreciation, Series A,
FGIC Insured, zero cpn.,
8/01/21 .......................................................................... 9,660,000 4,559,037
8/01/23 .......................................................................... 10,815,000 4,386,131
5/01/27 .......................................................................... 12,770,000 4,012,206
Modesto Irrigation District COP, Refunding and Capital Improvements, Series B, 5.30%,
7/01/22 ............................................................................. 3,800,000 3,807,258
Modesto Schools Infrastructure Financing Agency Special Tax, AMBAC Insured, 5.20%,
9/01/37 ............................................................................. 4,315,000 3,927,901
Monterey Peninsula Community College District GO, Series C, FSA Insured, 5.00%,
8/01/34 ............................................................................. 10,000,000 9,207,300
Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, zero cpn.,
8/01/27 ............................................................................. 6,315,000 2,167,940
8/01/28 ............................................................................. 6,625,000 2,136,430
Murrieta Valley USD,
GO, FSA Insured, 4.50%, 9/01/28 ..................................................... 5,300,000 4,426,772
PFA, Special Tax Revenue, Series A, FGIC Insured, 5.00%, 9/01/37 .................... 6,975,000 6,048,301
Natomas USD, GO, Election of 2006, BHAC Insured, 5.00%, 8/01/32 ........................ 16,450,000 15,225,791
Needles PFAR Tax Allocation, Redevelopment Project, Series A, 7.50%, 8/15/22 ........... 1,385,000 1,388,269
New Haven USD, GO, Capital Appreciation, Series C, FGIC Insured, zero cpn., 8/01/23 .... 14,700,000 6,848,730
Norco RDA Tax Allocation, Area No. 1, Refunding, MBIA Insured, 5.125%, 3/01/30 ......... 8,515,000 8,064,471
Northern California Power Agency Multiple Capital Facilities Revenue, Refunding,
Series A, AMBAC Insured, 5.00%, 8/01/25 ............................................. 19,250,000 18,715,235
Northern California Power Agency Public Power Revenue, Hydroelectric Project No. 1,
Refunding, Series A, MBIA Insured,
5.125%, 7/01/23 .................................................................. 6,270,000 6,338,970
5.00%, 7/01/28 ................................................................... 12,510,000 11,592,892
5.20%, 7/01/32 ................................................................... 12,930,000 13,070,937
Oakland Revenue, 1800 Harrison Foundation,
Series A, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ............................... 13,825,000 14,436,203
Series B, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ............................... 13,470,000 14,065,509
Oceanside USD, GO, Election of 2000, Series D, FGIC Insured, 5.00%,
8/01/29 ............................................................................. 5,755,000 5,229,281
8/01/33 ............................................................................. 5,590,000 5,009,311
Orange County Airport Revenue, Refunding, MBIA Insured, 5.625%, 7/01/12 ................ 5,000,000 5,060,300
Orange County CFD No. 2003-1 Special Tax, Ladera Ranch, Series A,
5.50%, 8/15/24 ...................................................................... 1,100,000 1,019,711
5.60%, 8/15/28 ...................................................................... 3,250,000 2,994,615
5.625%, 8/15/34 ..................................................................... 5,000,000 4,478,050
Orange County CFD No. 2004-1 Special Tax, Ladera Ranch, Series A,
5.15%, 8/15/29 ...................................................................... 6,405,000 5,535,777
5.20%, 8/15/34 ...................................................................... 11,000,000 9,304,350
Semiannual Report | 37
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Orange County Water District Revenue COP, Series B, MBIA Insured,
5.00%, 8/15/28 ...................................................................... $ 22,950,000 $ 21,415,333
5.00%, 8/15/34 ...................................................................... 19,435,000 17,758,731
ETM, 5.00%, 8/15/34 ................................................................. 4,140,000 3,933,455
Oxnard Harbor District Revenue, ACA Insured, 5.60%, 8/01/19 ............................ 10,820,000 10,240,048
Palmdale CRDA Tax Allocation,
Merged Project, sub. lien, AMBAC Insured, 5.50%, 12/01/29 ........................... 3,055,000 2,915,234
Merged Redevelopment Project, Refunding, MBIA Insured, 5.00%, 9/01/34 ............... 6,980,000 6,114,131
Palo Verde Community College District COP, AMBAC Insured, 5.50%, 1/01/37 ............... 21,000,000 19,056,450
Peralta Community College District GO, Election of 2000, Series C, MBIA Insured, 5.00%,
8/01/31 ............................................................................. 4,105,000 3,906,236
8/01/34 ............................................................................. 6,920,000 6,554,762
Perris PFAR Tax Allocation, Series A, 5.75%, 10/01/31 .................................. 5,000,000 5,030,100
Perris SFMR, Series A, GNMA Secured, ETM, zero cpn., 6/01/23 ........................... 19,095,000 8,222,689
Perris Special Tax, CFD No. 91-1, 8.75%, 9/01/21 ....................................... 5,005,000 5,048,694
Port Hueneme RDA Tax Allocation, R-76 Project, Refunding, 6.50%, 5/01/23 ............... 2,390,000 2,393,705
Port of Oakland Revenue, Series L, FGIC Insured, 5.375%, 11/01/27 ...................... 5,000,000 4,314,050
Porterville COP, Infrastructure Financing Project, AMBAC Insured, 5.00%,
7/01/30 ............................................................................. 7,420,000 6,798,056
7/01/36 ............................................................................. 6,535,000 5,904,176
Poway COP, Royal Mobile Home Park Project, Refunding, FSA Insured,
5.875%, 8/01/15 ..................................................................... 6,250,000 6,298,625
6.00%, 8/01/20 ...................................................................... 5,400,000 5,436,720
6.00%, 8/01/28 ...................................................................... 15,000,000 15,096,000
Poway USD, GO, MBIA Insured, 5.00%, 8/01/27 ............................................ 5,020,000 4,953,385
Ramona USD, COP, Convertible Capital Appreciation Bonds, Refunding, FGIC Insured,
zero cpn. to 5/01/12, 5.00% thereafter, 5/01/32 ..................................... 5,500,000 3,782,350
Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center,
Pre-Refunded, 5.625%, 7/01/34 ....................................................... 10,000,000 11,102,000
Refunding, Series A, 5.00%, 7/01/38 ................................................. 14,000,000 11,492,180
Series A, 5.00%, 7/01/47 ............................................................ 60,000,000 48,531,600
Rancho Water District Financing Authority Revenue, AMBAC Insured, ETM, zero cpn.,
8/15/16 ............................................................................. 8,605,000 6,171,678
8/15/17 ............................................................................. 13,605,000 9,193,171
8/15/18 ............................................................................. 13,605,000 8,610,877
Redding California Electricity System Revenue COP, Series A, FGIC Insured, 5.00%,
6/01/35 ............................................................................. 12,725,000 11,254,499
Redondo Beach PFAR, Wastewater System Financing Project, Series A, MBIA Insured,
5.00%, 5/01/34 ...................................................................... 5,060,000 4,760,853
Rialto RDA Tax Allocation, Series A, 6.25%, 9/01/37 .................................... 13,525,000 13,623,327
Rialto USD, GO, Series A, FGIC Insured, zero cpn., 6/01/19 ............................. 13,985,000 7,899,567
Richmond Joint Powers Financing Authority Revenue, Lease, Series A, MBIA Insured,
Pre-Refunded, 5.00%,
2/01/26 ............................................................................. 6,500,000 6,898,970
2/01/31 ............................................................................. 7,000,000 7,429,660
Riverside Community College District GO, Election of 2004, Series C, MBIA Insured,
5.00%, 8/01/32 ...................................................................... 6,930,000 6,414,269
38 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Riverside County Asset Leasing Corp. Leasehold Revenue, Riverside County Hospital
Project,
MBIA Insured, zero cpn., 6/01/23 .................................................... $ 14,160,000 $ 5,638,654
MBIA Insured, zero cpn., 6/01/24 .................................................... 13,005,000 4,826,806
Series A, 6.50%, 6/01/12 ............................................................ 20,125,000 21,644,840
Riverside County COP, Capital Improvement, Family Law, Refunding, Series A, FGIC
Insured, 5.00%,
11/01/30 ............................................................................ 9,905,000 8,817,233
11/01/36 ............................................................................ 6,345,000 5,558,664
Riverside County Flood Control and Water Conservation District Elsinore Valley AD,
Zone 3, 7.875%,
9/01/09 ............................................................................. 260,000 271,513
9/01/10 ............................................................................. 280,000 303,850
9/01/11 ............................................................................. 305,000 341,704
9/01/12 ............................................................................. 325,000 372,824
9/01/13 ............................................................................. 350,000 410,081
9/01/14 ............................................................................. 380,000 455,046
9/01/15 ............................................................................. 410,000 497,629
9/01/16 ............................................................................. 440,000 539,876
9/01/17 ............................................................................. 475,000 584,910
Riverside County PFA, COP,
5.75%, 5/15/19 ...................................................................... 3,500,000 3,391,745
5.80%, 5/15/29 ...................................................................... 14,230,000 12,648,905
Riverside County PFA Tax Allocation Revenue, Redevelopment Projects, Refunding,
Series A, XLCA Insured, 5.00%, 10/01/35 ............................................. 17,500,000 14,587,825
Riverside County RDA Tax Allocation, Jurupa Valley Project Area, AMBAC Insured,
Pre-Refunded,
5.00%, 10/01/28 ..................................................................... 14,035,000 15,182,642
5.125%, 10/01/35 .................................................................... 17,035,000 18,488,767
Riverside County SFMR, Capital Appreciation Mortgage,
Series A, ETM, zero cpn., 9/01/14 ................................................... 20,220,000 16,101,995
Series A, ETM, zero cpn., 11/01/20 .................................................. 25,055,000 12,934,393
Series B, ETM, zero cpn., 6/01/23 ................................................... 26,160,000 10,687,145
Riverside Electric Revenue, Issue D, FSA Insured, 5.00%, 10/01/33 ...................... 10,000,000 9,415,600
RNR School Financing Authority Special Tax, CFD No. 92-1, Series A, AMBAC Insured,
5.00%, 9/01/36 ...................................................................... 10,090,000 8,710,092
Rocklin USD, GO,
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/09 .................... 4,100,000 3,990,243
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/10 .................... 4,595,000 4,324,492
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/11 .................... 5,145,000 4,638,732
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/12 .................... 5,760,000 4,942,886
Capital Appreciation, Series A, FGIC Insured, zero cpn., 9/01/16 .................... 33,960,000 23,208,604
Election of 2002, FGIC Insured, zero cpn., 8/01/25 .................................. 8,160,000 2,910,998
Election of 2002, FGIC Insured, zero cpn., 8/01/26 .................................. 8,695,000 2,902,478
Election of 2002, FGIC Insured, zero cpn., 8/01/27 .................................. 9,080,000 2,834,504
Election of 2002, FGIC Insured, zero cpn., 8/01/28 .................................. 16,615,000 4,847,759
Roseville City School District GO, Capital Appreciation, Series A, zero cpn.,
8/01/11 ............................................................................. 3,115,000 2,819,947
8/01/17 ............................................................................. 30,770,000 19,381,408
Semiannual Report | 39
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Roseville Electric System Revenue COP, FSA Insured, 5.00%,
2/01/29 ............................................................................. $ 10,000,000 $ 9,426,900
2/01/34 ............................................................................. 17,000,000 15,778,550
Roseville Joint UHSD,
Capital Appreciation, Series A, zero cpn., 8/01/10 .................................. 1,820,000 1,716,788
Capital Appreciation, Series A, zero cpn., 8/01/11 .................................. 1,965,000 1,778,875
Capital Appreciation, Series A, zero cpn., 8/01/17 .................................. 18,155,000 11,424,941
GO, Election of 2004, Series B, FGIC Insured, 5.00%, 8/01/30 ........................ 8,375,000 7,564,216
Roseville Natural Gas Financing Authority Gas Revenue, 5.00%, 2/15/26 .................. 5,000,000 4,274,400
Sacramento Area Flood Control Agency Revenue, Consolidated, Capital Assessment District,
Series A, FGIC Insured, 5.00%, 10/01/37 ............................................. 8,715,000 7,851,605
Sacramento City Financing Authority Revenue, Capital Improvement,
AMBAC Insured, 5.00%, 12/01/33 ...................................................... 485,000 445,550
AMBAC Insured, Pre-Refunded, 5.00%, 12/01/33 ........................................ 7,035,000 7,597,941
Community Reinsurance Capital Program, Series A, AMBAC Insured, 5.00%,
12/01/31 ......................................................................... 16,915,000 15,442,042
Community Reinsurance Capital Program, Series A, AMBAC Insured, 5.00%,
12/01/36 ......................................................................... 10,000,000 9,030,600
Pre-Refunded, 5.625%, 6/01/30 ....................................................... 6,000,000 6,373,740
Series A, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/32 .............................. 26,250,000 27,768,562
Sacramento City USD, GO, Election of 1999, Series B, FGIC Insured, 5.00%, 7/01/30 ...... 5,250,000 4,950,698
Sacramento County Airport System Revenue,
Senior Series A, FSA Insured, 5.00%, 7/01/41 ........................................ 10,000,000 9,005,300
Senior Series B, FSA Insured, 5.25%, 7/01/39 ........................................ 20,000,000 16,881,800
Sacramento County Sanitation District Financing Authority Revenue,
AMBAC Insured, Pre-Refunded, 5.625%, 12/01/30 ....................................... 5,000,000 5,375,000
Sacramento Regional County of Sanitation, FGIC Insured, 5.00%, 12/01/36 ............. 66,095,000 60,823,924
Sacramento Regional County Sanitation District, Series A, AMBAC Insured,
Pre-Refunded, 5.00%, 12/01/35 .................................................... 40,000,000 43,320,800
Sanitation District 1, MBIA Insured, 5.00%, 8/01/30 ................................. 11,900,000 11,058,075
Sacramento MUD Electric Revenue,
Refunding, Series T, FGIC Insured, 5.00%, 5/15/30 ................................... 9,095,000 8,240,979
Sacramento MUD, Series R, MBIA Insured, 5.00%, 8/15/33 .............................. 4,500,000 4,056,210
Series N, MBIA Insured, 5.00%, 8/15/28 .............................................. 63,500,000 58,676,540
sub. lien, Refunding, 8.00%, 11/15/10 ............................................... 16,110,000 16,151,564
Sacramento USD, COP, Refunding, MBIA Insured, 5.00%, 3/01/31 ........................... 6,000,000 5,457,960
Saddleback Valley USD, GO,
Election of 2004, Series A, MBIA Insured, 4.50%, 8/01/30 ............................ 5,250,000 4,410,630
FSA Insured, 5.00%, 8/01/27 ......................................................... 4,680,000 4,689,032
FSA Insured, 5.00%, 8/01/29 ......................................................... 4,335,000 4,268,544
Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, Refunding,
FSA Insured, 5.25%, 9/01/28 ......................................................... 6,800,000 6,878,336
San Bernardino County COP, Medical Center Financing Project,
Refunding, 5.00%, 8/01/26 ........................................................... 13,045,000 11,759,676
Series A, MBIA Insured, 5.50%, 8/01/22 .............................................. 40,830,000 40,891,653
San Bernardino County Housing Authority MFMR,
Sequoia Plaza Mobil Home, GNMA Secured, 6.75%, 4/20/41 .............................. 6,920,000 7,289,736
Series A, GNMA Secured, 6.70%, 3/20/43 .............................................. 3,345,000 3,460,871
40 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Bernardino Joint Powers Financing Authority Lease Revenue, City Hall Project,
Refunding, MBIA Insured, 5.70%, 1/01/23 ............................................. $ 6,315,000 $ 6,367,478
San Carlos School District GO, Election of 2005, Series A, MBIA Insured, 5.00%,
10/01/26 ............................................................................ 5,070,000 4,935,087
10/01/30 ............................................................................ 9,820,000 9,223,730
San Diego County COP, MBIA Insured, 5.00%, 8/15/28 ..................................... 24,000,000 21,156,960
San Diego County Water Authority Water Revenue COP, Series A,
FSA Insured, 5.00%, 5/01/34 ......................................................... 106,705,000 100,396,600
MBIA Insured, 5.00%, 5/01/25 ........................................................ 12,440,000 11,964,792
San Diego Public Facilities Financing Authority Sewer Revenue,
Series A, FGIC Insured, 5.25%, 5/15/27 .............................................. 21,750,000 21,887,460
Series B, FGIC Insured, 5.25%, 5/15/22 .............................................. 5,200,000 5,232,864
San Diego Public Facilities Financing Authority Water Revenue,
MBIA Insured, 5.00%, 8/01/26 ........................................................ 12,210,000 11,149,073
Subordinated, Refunding, MBIA Insured, 5.00%, 8/01/32 ............................... 20,000,000 17,718,400
San Diego RDA Tax Allocation, Horton Project, Refunding, Series A, FSA Insured, 6.00%,
11/01/15 ............................................................................ 5,000,000 5,014,350
San Diego USD, GO,
Capital Appreciation Bond, Series A, FGIC Insured, zero cpn., 7/01/21 ............... 12,160,000 5,948,307
Capital Appreciation Bond, Series A, FGIC Insured, zero cpn., 7/01/22 ............... 8,440,000 3,820,788
Capital Appreciation Bond, Series A, FGIC Insured, zero cpn., 7/01/23 ............... 11,120,000 4,661,838
Election of 1998, Refunding, Series G-1, FSA Insured, 4.50%, 7/01/29 ................ 9,710,000 8,164,168
Election of 1998, Series B, MBIA Insured, 5.00%, 7/01/25 ............................ 6,975,000 7,216,056
Election of 1998, Series D, FGIC Insured, 5.00%, 7/01/27 ............................ 16,000,000 16,794,400
Election of 1998, Series E, FSA Insured, 5.00%, 7/01/28 ............................. 10,000,000 10,533,700
Series C, FSA Insured, 5.00%, 7/01/26 ............................................... 6,490,000 6,895,560
San Francisco BART District GO, Election of 2004, Series B, 5.00%,
8/01/32 ............................................................................. 28,000,000 26,832,120
8/01/35 ............................................................................. 15,000,000 14,276,100
San Francisco BART District Sales Tax Revenue,
FGIC Insured, Pre-Refunded, 5.50%, 7/01/34 .......................................... 11,790,000 12,195,694
FSA Insured, 5.00%, 7/01/31 ......................................................... 10,000,000 9,592,600
FSA Insured, 5.00%, 7/01/36 ......................................................... 6,760,000 6,428,760
San Francisco City and County Airports Commission Airport Revenue, Refunding,
Series 28B, MBIA Insured, 5.00%, 5/01/27 ............................................ 5,050,000 4,592,066
San Francisco City and County Airports Commission International Airport Revenue,
Issue 32G, Refunding, Second Series, FGIC Insured, 4.50%, 5/01/28 ................... 7,500,000 6,272,625
Issue 32G, Refunding, Second Series, FGIC Insured, 4.50%, 5/01/32 ................... 5,260,000 4,256,129
Refunding, Second Series 28A, MBIA Insured, 5.125%, 5/01/32 ......................... 26,290,000 21,616,690
Second Series, Issue 23B, FGIC Insured, Pre-Refunded, 5.125%, 5/01/30 ............... 10,000,000 10,265,600
San Francisco City and County COP, 30 Van Ness Avenue Property, Series A, MBIA Insured,
5.00%, 9/01/31 ...................................................................... 5,805,000 5,108,110
San Francisco City and County RDA, Hotel Tax Revenue, FSA Insured, 6.75%, 7/01/25 ...... 315,000 315,857
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, 5.60%, 1/15/16 ........................... 19,500,000 19,121,895
Capital Appreciation, Refunding, Series A, 5.65%, 1/15/17 ........................... 17,000,000 16,517,200
Capital Appreciation, Refunding, Series A, 5.70%, 1/15/19 ........................... 57,000,000 54,892,140
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/23 ........................... 80,000,000 73,555,200
Semiannual Report | 41
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, (continued)
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/24 ........................... $ 80,000,000 $ 72,861,600
Refunding, Series A, 5.50%, 1/15/28 ................................................. 247,300,000 210,192,635
Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 .................................. 85,500,000 78,582,195
Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ................................... 21,200,000 18,644,552
senior lien, 5.00%, 1/01/33 ......................................................... 82,040,000 66,179,207
senior lien, ETM, zero cpn., 1/01/25 ................................................ 5,700,000 2,346,120
senior lien, ETM, zero cpn., 1/01/28 ................................................ 33,545,000 11,523,714
senior lien, ETM, zero cpn., 1/01/29 ................................................ 37,050,000 11,945,661
senior lien, Refunding, Series A, 5.65%, 1/15/18 .................................... 60,000,000 57,895,800
senior lien, Refunding, Series A, 5.70%, 1/15/20 .................................... 80,000,000 76,156,000
senior lien, Refunding, Series A, 5.75%, 1/15/22 .................................... 90,000,000 83,441,700
San Jose Airport Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 3/01/31 ................................... 11,000,000 9,799,680
Refunding, Series B, AMBAC Insured, 5.00%, 3/01/37 .................................. 65,000,000 57,263,700
Series D, MBIA Insured, 5.00%, 3/01/28 .............................................. 10,000,000 9,063,300
San Jose Financing Authority Lease Revenue,
Civic Center Project, Refunding, Series A, AMBAC Insured, 5.00%, 6/01/39 ............ 20,885,000 18,901,552
Civic Center Project, Series B, AMBAC Insured, 5.00%, 6/01/27 ....................... 46,400,000 44,706,400
Refunding, Series F, MBIA Insured, 5.00%, 9/01/21 ................................... 14,045,000 14,082,079
Refunding, Series F, MBIA Insured, 5.00%, 9/01/22 ................................... 14,730,000 14,583,878
San Jose Financing Authority Revenue, Fourth and San Fernando Parking Facility,
Series A, AMBAC Insured, 5.00%, 9/01/24 ............................................. 5,000,000 4,908,350
San Jose GO,
Libraries and Parks Projects, MBIA Insured, 5.00%, 9/01/36 .......................... 35,150,000 32,940,822
Libraries Parks and Public Safety Projects, 5.00%, 9/01/28 .......................... 11,600,000 11,541,536
Libraries Parks and Public Safety Projects, MBIA Insured, 5.00%, 9/01/34 ............ 15,820,000 15,090,382
San Jose RDA, MFHR, Miraido Village, Series A, GNMA Secured, 5.75%, 7/20/38 ............ 7,110,000 6,552,647
San Jose RDA Tax Allocation,
Housing Set-Aside Merged Area, Series E, MBIA Insured, 5.85%, 8/01/27 ............... 7,325,000 7,010,391
Merged Area Redevelopment Project, Refunding, MBIA Insured, 5.625%, 8/01/28 ......... 2,030,000 2,053,386
Merged Area Redevelopment Project, Series B, XLCA Insured, 5.00%, 8/01/32 ........... 13,395,000 11,614,938
San Jose USD, COP, Refunding, FSA Insured, zero cpn.,
1/01/27 ............................................................................. 7,105,000 2,403,479
1/01/29 ............................................................................. 7,105,000 2,109,190
San Jose USD Santa Clara County GO, Series A, FSA Insured, 5.00%,
8/01/24 ............................................................................. 9,200,000 9,224,748
8/01/27 ............................................................................. 9,150,000 9,177,816
San Juan Basin Authority Lease Revenue, AMBAC Insured, 5.00%, 12/01/34 ................. 4,000,000 3,694,960
San Juan USD, GO, Election of 1998, Series B, MBIA Insured, zero cpn.,
8/01/26 ............................................................................. 15,825,000 5,876,455
8/01/27 ............................................................................. 18,605,000 5,861,133
8/01/28 ............................................................................. 19,470,000 5,735,473
San Luis Obispo County Financing Authority Revenue, Nacimiento Water Project, Series A,
MBIA Insured, 5.00%, 9/01/32 ........................................................ 12,500,000 11,399,625
San Marcos PFAR, Series A, ETM, 6.25%, 9/02/22 ......................................... 15,000,000 16,225,050
42 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Marcos Public Facilities Authority Revenue,
Refunding, 5.80%, 9/01/18 ........................................................... $ 4,745,000 $ 4,819,781
Senior Tax Increment Project Area 3, Series A, MBIA Insured, Pre-Refunded, 5.75%,
10/01/29 ......................................................................... 5,340,000 5,783,807
Senior Tax Increment Project Area 3, Series A, MBIA Insured, Pre-Refunded, 5.80%,
10/01/30 ......................................................................... 8,035,000 8,149,097
San Mateo County Joint Powers Authority Lease Revenue, Capital Projects, Refunding,
Series A, FSA Insured, 5.00%, 7/15/29 ............................................... 13,000,000 12,800,840
San Mateo Flood Control District COP, Colma Creek Flood Control Zone, AMBAC Insured,
5.00%, 8/01/39 ...................................................................... 6,555,000 5,931,554
San Mateo RDA Tax Allocation, Pre-Refunded, 5.60%, 8/01/25 ............................. 10,185,000 10,946,125
San Mateo UHSD,
COP, Phase I Projects, Capital Appreciation, Series B, zero cpn. to 12/14/19, 5.00%
thereafter, 12/15/43 ............................................................. 11,535,000 4,680,557
GO, Capital Appreciation, Election of 2000, Series B, FGIC Insured, zero cpn.,
9/01/22 .......................................................................... 5,000,000 2,226,800
GO, Election of 2000, Series A, FGIC Insured, Pre-Refunded, 5.00%, 9/01/25 .......... 13,865,000 14,719,639
San Ramon PFA Tax Allocation Revenue, MBIA Insured, 5.30%, 2/01/28 ..................... 18,360,000 18,053,388
San Ramon Valley Fire Protection District COP, XLCA Insured, 5.00%, 8/01/36 ............ 5,655,000 5,031,254
San Ramon Valley USD, GO, Election of 2002,
FSA Insured, 5.00%, 8/01/26 ......................................................... 2,800,000 2,709,952
FSA Insured, 5.40%, 3/01/28 ......................................................... 27,410,000 27,558,014
MBIA Insured, 5.00%, 8/01/25 ........................................................ 14,215,000 13,742,920
MBIA Insured, 5.00%, 8/01/28 ........................................................ 14,770,000 14,072,413
Sanger USD, GO, Election of 2006, Series A, FSA Insured, 5.00%, 8/01/27 ................ 6,000,000 5,554,980
(b) Santa Barbara Housing Authority Revenue, Refunding and Acquisition, 6.25%, 11/15/20 .... 4,605,000 4,121,199
Santa Clara County Financing Authority Revenue, El Camino, Series B, AMBAC Insured,
5.125%, 2/01/41 ..................................................................... 20,000,000 17,693,800
Santa Clara Housing Authority MFHR, Elena Gardens Apartments Project, Series A,
GNMA Secured, 6.40%, 6/20/35 ........................................................ 5,425,000 5,318,941
Santa Clara USD, COP, 5.375%, 7/01/31 .................................................. 7,575,000 7,601,058
Santa Clarita Community College District GO, Election of 2006, MBIA Insured, 5.00%,
8/01/32 ............................................................................. 9,765,000 8,713,700
Santa Cruz City Elementary School District GO, MBIA Insured, 5.00%, 8/01/29 ............ 5,625,000 5,365,519
Santa Cruz City High School District GO, MBIA Insured, 5.00%, 8/01/29 .................. 11,535,000 10,481,278
Santa Margarita Water District Special Tax, Community Facilities District No. 99-1,
Pre-Refunded, 6.00%, 9/01/30 ........................................................ 9,000,000 9,942,750
Santa Maria Bonita School District COP, MBIA Insured, 7.00%, 3/01/16 ................... 410,000 410,918
Santa Maria Water and Wastewater Revenue, COP, Series A, AMBAC Insured, 5.55%,
8/01/27 ............................................................................. 21,000,000 21,139,440
Santa Monica RDA Tax Allocation, Earthquake Recovery Redevelopment Project,
AMBAC Insured, Pre-Refunded, 6.00%, 7/01/29 ......................................... 13,110,000 13,609,229
(a) Santee School District COP, Capital Improvement Project, Assured Guaranty, 5.50%,
10/01/48 ............................................................................ 15,460,000 14,649,896
Saugus USD, GO, Series B, FSA Insured, Pre-Refunded, 5.00%, 8/01/29 .................... 5,000,000 5,410,700
School Facilities Financing Authority Revenue, Capital Appreciation, Grant Joint UHSD,
Series A, FSA Insured, zero cpn., 8/01/42 ........................................... 49,000,000 5,834,920
Semiannual Report | 43
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Shafter Joint Powers Financing Authority Lease Revenue, Community Correctional Facility
Project, Series A,
5.95%, 1/01/11 ...................................................................... $ 1,195,000 $ 1,203,628
6.05%, 1/01/17 ...................................................................... 5,135,000 5,172,331
Simi Valley USD, GO, Election 2004, Series A, MBIA Insured, Pre-Refunded, 5.00%,
8/01/26 ............................................................................. 6,000,000 6,473,760
Snowline Joint USD, CFD Special Tax, No. 2002-1, Series A,
5.30%, 9/01/29 ...................................................................... 1,615,000 1,365,692
5.40%, 9/01/34 ...................................................................... 2,000,000 1,665,120
Solano County COP, GO, MBIA Insured, Pre-Refunded, 5.00%, 11/01/32 ..................... 24,665,000 26,495,636
Sonoma County Water Agency Water Revenue, Series A, FSA Insured, 5.00%, 7/01/36 ........ 5,600,000 5,286,960
South Gate Utility Authority Revenue, Water and Sewer Systems Project, FGIC Insured,
5.00%, 10/01/32 ..................................................................... 6,475,000 5,418,928
Southern California Public Power Authority Natural Gas Project Revenue, Project No.1,
Series A, 5.00%, 11/01/33 ........................................................... 17,500,000 13,213,025
Southern California Public Power Authority Power Project Revenue,
6.75%, 7/01/13 ...................................................................... 10,000,000 11,227,400
Series A, AMBAC Insured, ETM, zero cpn., 7/01/11 .................................... 12,000,000 11,004,720
Series A, AMBAC Insured, ETM, zero cpn., 7/01/12 .................................... 16,890,000 14,832,122
Series A, AMBAC Insured, ETM, zero cpn., 7/01/13 .................................... 16,000,000 13,445,600
Southern California Public Power Authority Project Revenue, Magnolia Power Project,
Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/36 ............................... 15,800,000 17,005,856
Southern California Public Power Authority Transmission Project Revenue,
Southern Transmission Project, 6.125%, 7/01/18 ...................................... 1,135,000 1,137,701
Standard Elementary School District GO, Election of 2006, Series A, AMBAC Insured,
5.00%, 11/01/30 ..................................................................... 5,000,000 4,611,650
Stockton COP, Essential Services Building Parking Facility, Pre-Refunded,
5.875%, 8/01/23 ..................................................................... 2,295,000 2,386,272
6.00%, 8/01/31 ...................................................................... 6,585,000 6,853,602
Stockton East Water District COP, Capital Appreciation, 1990 Project, Series A, zero
cpn., 4/01/16 ....................................................................... 103,885,000 70,552,459
Stockton Revenue, O'Connor Woods Housing Corp., Series A, 6.35%, 11/01/31 .............. 9,110,000 8,544,907
Stockton Revenue COP, Wastewater System Project, Refunding, Series A, MBIA Insured,
5.20%, 9/01/29 ...................................................................... 19,160,000 17,210,470
Stockton USD, GO,
Election of 2000, Series 2004, MBIA Insured, 5.00%, 1/01/27 ......................... 5,030,000 4,692,940
MBIA Insured, 5.00%, 1/01/28 ........................................................ 5,335,000 4,949,013
Suisun City PFA Tax Allocation Revenue, Capital Appreciation Redevelopment Project,
Series A, zero cpn., 10/01/28 ....................................................... 17,855,000 4,783,355
Sweetwater UHSD, GO, Election of 2006, Series A, FSA Insured, 5.625%, 8/01/47 .......... 10,000,000 10,093,100
Tahoe Forest Hospital District Revenue, Series A,
5.90%, 7/01/29 ...................................................................... 1,635,000 1,469,571
Pre-Refunded, 5.90%, 7/01/29 ........................................................ 6,355,000 6,645,169
Thousand Oaks SFHMR, Capital Appreciation, Mortgage-Backed Securities Program,
Refunding, Series A, GNMA Secured, zero cpn., 9/01/23 ............................... 16,000 65,359
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Series B, Pre-Refunded, 5.00%, 6/01/28 .......................... 17,390,000 18,418,966
44 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Tobacco Securitization Authority Southern California Tobacco Settlement Revenue,
Asset-Backed Bonds,
Senior Series A, Pre-Refunded, 5.50%, 6/01/36 ....................................... $ 80,500,000 $ 87,076,850
Senior Series A, Pre-Refunded, 5.625%, 6/01/43 ...................................... 123,165,000 133,755,958
Sub Series B, Pre-Refunded, 6.00%, 6/01/43 .......................................... 48,435,000 53,223,284
Tobacco Securitization Authority Tobacco Settlement Revenue, Series A, Pre-Refunded,
5.25%, 6/01/31 ...................................................................... 6,800,000 7,245,740
5.375%, 6/01/41 ..................................................................... 30,250,000 32,329,385
Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.50%,
6/01/31 ............................................................................. 4,385,000 4,099,493
Trabuco Canyon PFA, Special Tax Revenue, Refunding,
Series A, FSA Insured, 6.00%, 10/01/10 .............................................. 10,750,000 11,059,600
Series A, FSA Insured, 6.10%, 10/01/15 .............................................. 13,220,000 14,469,026
Series C, FSA Insured, 6.00%, 7/01/12 ............................................... 2,140,000 2,260,589
Series C, FSA Insured, 6.10%, 7/01/19 ............................................... 5,215,000 5,938,008
Tracy COP, I-205 Corridor Improvement and Refinancing Project, AMBAC Insured, 5.125%,
10/01/27 ............................................................................ 5,000,000 4,861,050
Tustin CFD No. 04-01 Special Tax, John Laing Homes,
5.375%, 9/01/29 ..................................................................... 1,000,000 865,120
5.50%, 9/01/34 ...................................................................... 1,500,000 1,288,125
Union City CRDA Tax Allocation Revenue, Community Redevelopment Project,
AMBAC Insured, Pre-Refunded, 5.75%, 10/01/33 ........................................ 4,830,000 5,040,105
University of California Regents Medical Center Pooled Revenue, Series A, MBIA Insured,
4.50%, 5/15/47 ...................................................................... 66,335,000 53,047,436
University of California Regents Revenue, Series A, MBIA Insured, 4.50%, 5/15/37 ....... 36,715,000 30,310,435
University of California Revenues,
General, Refunding, Series J, FSA Insured, 4.50%, 5/15/35 ........................... 35,000,000 28,017,500
Limited Project, Series B, FSA Insured, 5.00%, 5/15/29 .............................. 17,300,000 16,344,348
Limited Project, Series B, FSA Insured, 5.00%, 5/15/33 .............................. 15,000,000 13,983,000
Limited Project, Series D, FGIC Insured, 5.00%, 5/15/37 ............................. 10,000,000 8,943,100
Limited Project, Series D, FGIC Insured, 5.00%, 5/15/41 ............................. 22,500,000 19,632,825
Multiple Purpose Projects, Series O, FGIC Insured, Pre-Refunded, 5.00%, 9/01/23 ..... 9,200,000 9,715,936
Multiple Purpose Projects, Series O, FGIC Insured, Pre-Refunded, 5.00%, 9/01/26 ..... 13,430,000 14,183,154
Research Facilities, Series E, AMBAC Insured, Pre-Refunded, 5.00%, 9/01/31 .......... 5,000,000 5,176,850
Series O, FGIC Insured, Pre-Refunded, 5.25%, 9/01/34 ................................ 61,235,000 64,953,189
UCLA Medical Center, Series A, AMBAC Insured, 5.00%, 5/15/34 ........................ 3,710,000 3,393,537
UCLA Medical Center, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 5/15/34 .......... 6,290,000 6,758,668
Upland COP, San Antonio Community Hospital, Refunding, 5.70%, 1/01/11 .................. 8,635,000 8,739,743
Vacaville PFAR, Local Agency, 8.65%, 9/02/18 ........................................... 4,130,000 3,917,222
Vacaville USD, GO, Election of 2001, AMBAC Insured, 5.00%, 8/01/32 ..................... 12,790,000 11,491,048
Vallejo PFA Local Agency Revenue, Hiddenbrooke Improvement District, Series A, 5.80%,
9/01/31 ............................................................................. 4,535,000 4,050,390
Vallejo RDA Tax Allocation, Waterfront Redevelopment Project, 7.90%, 5/01/19 ........... 2,030,000 2,038,851
Vista Community Development Commission Tax Allocation Revenue, Vista Redevelopment
Project Area, 5.875%, 9/01/37 ....................................................... 5,000,000 4,750,300
Semiannual Report | 45
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Vista USD, GO,
Election of 2002, Series C, FSA Insured, 5.00%, 8/01/28 ............................. $ 4,370,000 $ 4,077,997
Series B, FGIC Insured, 5.00%, 8/01/28 .............................................. 6,000,000 5,447,580
Washington Township Health Care District Revenue, Refunding,
5.25%, 7/01/29 ...................................................................... 6,500,000 5,804,435
Series A, 5.00%, 7/01/37 ............................................................ 7,000,000 5,632,830
West Contra Costa USD, GO,
Election of 2002, Series C, FGIC Insured, 5.00%, 8/01/34 ............................ 11,605,000 10,085,441
Series A, FSA Insured, 5.00%, 8/01/35 ............................................... 32,000,000 28,723,840
West Covina PFA Lease Revenue, Big League Dreams Project, Series A, 5.00%,
6/01/30 ............................................................................. 4,200,000 3,590,286
6/01/36 ............................................................................. 5,045,000 4,261,158
West Hollywood COP, Refunding, MBIA Insured, 5.00%, 2/01/25 ............................ 6,250,000 6,363,000
West Kern Community College District COP, AMBAC Insured, 5.625%, 11/01/34 .............. 11,035,000 10,313,532
West Sacramento Financing Authority Special Tax Revenue, Series A, XLCA Insured, 5.00%,
9/01/34 ............................................................................. 5,000,000 4,095,150
Western Placer Unified School COP, Refinancing Project, Series B, Assured Guaranty,
5.125%, 8/01/47 ..................................................................... 10,275,000 9,136,427
Westlands Water District Revenue COP,
MBIA Insured, 5.00%, 9/01/26 ........................................................ 13,150,000 12,260,271
MBIA Insured, 5.00%, 9/01/34 ........................................................ 13,500,000 12,173,490
Series A, MBIA Insured, 5.00%, 9/01/30 .............................................. 6,250,000 5,684,375
Series A, MBIA Insured, 5.00%, 9/01/31 .............................................. 7,490,000 6,791,258
Series A, MBIA Insured, 5.00%, 9/01/35 .............................................. 6,910,000 6,202,070
Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital, Pre-Refunded,
5.60%, 6/01/22 ...................................................................... 14,285,000 15,654,646
5.75%, 6/01/31 ...................................................................... 28,000,000 30,828,840
William S. Hart UHSD, GO, Series A, MBIA Insured, 5.00%, 9/01/27 ....................... 8,685,000 8,466,920
Yuba Community College District GO,
Capital Appreciation, Election of 2006, Series B, AMBAC Insured, zero cpn.,
8/01/39 .......................................................................... 7,075,000 934,891
Election of 2006, Series A, AMBAC Insured, 5.00%, 8/01/46 ........................... 24,080,000 20,846,297
Yucaipa Valley Water District Water System Revenue COP, Series A, MBIA Insured, 5.00%,
9/01/29 ............................................................................. 10,100,000 9,452,792
9/01/34 ............................................................................. 12,765,000 11,756,310
---------------
12,300,779,371
---------------
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 6,283,082
5.625%, 5/15/43 ..................................................................... 25,500,000 22,175,565
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/44 ...................................................................... 10,500,000 10,110,870
Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series A, 5.50%, 7/01/32 ............................. 30,000,000 27,292,500
Public Improvement, Refunding, Series A, MBIA Insured, 5.50%, 7/01/20 ............... 10,000,000 9,863,100
46 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Commonwealth GO, (continued)
Public Improvement, Refunding, Series B, 5.25%, 7/01/32 ............................. $ 7,505,000 $ 6,554,342
Public Improvement, Series A, 5.125%, 7/01/31 ....................................... 95,185,000 85,238,167
Public Improvement, Series A, Pre-Refunded, 5.00%, 7/01/27 .......................... 26,750,000 28,483,668
Public Improvement, Series A, Pre-Refunded, 5.125%, 7/01/31 ......................... 47,740,000 50,546,635
Public Improvement, Series B, Pre-Refunded, 5.25%, 7/01/32 .......................... 12,495,000 13,595,060
Public Improvement, Series B, Pre-Refunded, 5.00%, 7/01/35 .......................... 21,200,000 22,715,376
Refunding, sub-series C-9, MBIA Insured, 6.00%, 7/01/27 ............................. 21,000,000 21,136,290
Series A, 5.125%, 7/01/28 ........................................................... 10,000,000 8,771,100
Series A, 5.25%, 7/01/32 ............................................................ 10,000,000 8,806,100
Series A, 5.25%, 7/01/33 ............................................................ 26,050,000 22,867,472
Series A, 6.00%, 7/01/38 ............................................................ 10,000,000 9,715,500
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, Pre-Refunded, 5.00%, 7/01/36 .............................................. 63,000,000 67,503,240
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series A, MBIA Insured, 5.00%, 7/01/38 ................................... 5,800,000 5,175,572
Refunding, Series N, FGIC Insured, 5.25%, 7/01/39 ................................... 7,000,000 6,259,890
Series B, Pre-Refunded, 6.00%, 7/01/31 .............................................. 13,000,000 13,806,000
Series B, Pre-Refunded, 6.00%, 7/01/39 .............................................. 13,200,000 14,018,400
Series D, Pre-Refunded, 5.375%, 7/01/36 ............................................. 45,000,000 48,097,350
Series D, Pre-Refunded, 5.75%, 7/01/41 .............................................. 20,000,000 21,638,200
Series K, Pre-Refunded, 5.00%, 7/01/40 .............................................. 30,000,000 32,251,800
Series K, Pre-Refunded, 5.00%, 7/01/45 .............................................. 30,000,000 32,251,800
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, 5.00%,
7/01/46 ............................................................................. 20,000,000 16,836,200
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/31 ....................................................... 8,000,000 6,924,080
FGIC Insured, 5.00%, 7/01/24 ........................................................ 6,505,000 5,742,419
Puerto Rico Electric Power Authority Power Revenue,
Series II, Pre-Refunded, 5.25%, 7/01/31 ............................................. 48,000,000 51,870,240
Series WW, 5.00%, 7/01/28 ........................................................... 12,030,000 10,631,392
Series WW, 5.25%, 7/01/33 ........................................................... 32,250,000 29,117,557
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 6,966,056
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 ................................................ 26,510,000 24,503,458
Refunding, Series M-3, MBIA Insured, 6.00%, 7/01/24 ................................. 21,535,000 21,209,606
Refunding, Series M-3, MBIA Insured, 6.00%, 7/01/27 ................................. 15,000,000 14,733,600
Refunding, Series M-3, MBIA Insured, 6.00%, 7/01/28 ................................. 10,000,000 9,806,300
Refunding, Series N, 5.00%, 7/01/37 ................................................. 50,000,000 41,991,000
Series D, Pre-Refunded, 5.375%, 7/01/33 ............................................. 73,490,000 78,149,266
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
Pre-Refunded, 5.50%, 8/01/29 ........................................................ 139,995,000 148,846,884
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, Series A, 5.25%, 8/01/57 ...... 10,000,000 8,722,700
---------------
1,071,207,837
---------------
Semiannual Report | 47
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
VIRGIN ISLANDS 0.1%
Virgin Islands PFAR, senior lien,
Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/22 ............................... $ 7,000,000 $ 6,361,460
Refunding, Series A, 5.50%, 10/01/14 ................................................ 3,865,000 3,882,315
---------------
10,243,775
---------------
TOTAL U.S. TERRITORIES ................................................................. 1,081,451,612
---------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $14,018,934,565) .............................................................. 13,382,230,983
---------------
SHORT TERM INVESTMENTS 1.8%
MUNICIPAL BONDS 1.8%
CALIFORNIA 1.8%
(c) Anaheim COP, Refunding, Weekly VRDN and Put, 8.25%, 8/01/19 ............................ 19,100,000 19,100,000
(c) Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Refunding,
Series B-1, Weekly VRDN and Put, 7.68%, 4/01/45 ..................................... 18,000,000 18,000,000
(c) California Health Facilities Financing Authority Revenue,
Adventist Hospital, Series B, MBIA Insured, Daily VRDN and Put, 6.00%, 9/01/28 ...... 11,700,000 11,700,000
Stanford Hospital, Series C, FSA Insured, Weekly VRDN and Put, 8.50%, 11/15/36 ...... 9,000,000 9,000,000
(c) California State Department of Water Resources Power Supply Revenue, Series B-6,
Daily VRDN and Put, 5.05%, 5/01/22 .................................................. 900,000 900,000
(c) California State Economic Recovery Revenue,
Series C-2, Daily VRDN and Put, 5.05%, 7/01/23 ...................................... 5,500,000 5,500,000
Series C-16, FSA Insured, Weekly VRDN and Put, 8.00%, 7/01/23 ....................... 2,595,000 2,595,000
(c) California State GO, Series C-1, Weekly VRDN and Put, 7.00%, 5/01/33 ................... 900,000 900,000
(c) California Statewide CDA Revenue, Series A, Assured Guaranty, Weekly VRDN and Put,
8.29%, 3/01/37 ...................................................................... 5,000,000 5,000,000
(c) California Transportation Finance Authority Revenue, FSA Insured, Weekly VRDN and Put,
7.75%, 10/01/27 ..................................................................... 12,300,000 12,300,000
(c) East Bay MUD Water System Revenue, Refunding,
Sub Series A, FSA Insured, Weekly VRDN and Put, 7.80%, 6/01/25 ...................... 7,390,000 7,390,000
Sub Series A-3, Weekly VRDN and Put, 8.00%, 6/01/38 ................................. 700,000 700,000
(c) Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series B-2,
Weekly VRDN and Put, 7.15%, 12/01/37 ................................................ 9,900,000 9,900,000
(c) Los Angeles Convention and Exhibition Center Authority Lease Revenue, Refunding,
Series F, AMBAC Insured, Weekly VRDN and Put, 10.25%, 8/15/21 ....................... 13,395,000 13,395,000
(c) Los Angeles Water and Power Revenue, Refunding, Sub Series B-1, Weekly VRDN and Put,
6.00%, 7/01/34 ...................................................................... 2,650,000 2,650,000
(c) Metropolitan Water District of Southern California Waterworks Revenue, Refunding,
Series A, Weekly VRDN and Put, 7.72%, 7/01/25 ....................................... 8,260,000 8,260,000
(c) Orange County Sanitation Districts COP, Nos. 1-3 5-7 and 11, Refunding, AMBAC Insured,
Daily VRDN and Put, 8.86%, 8/01/16 .................................................. 1,300,000 1,300,000
(c) Perris UHSD, COP, School Financing Project, FSA Insured, Weekly VRDN and Put, 8.50%,
9/01/33 ............................................................................. 1,185,000 1,185,000
(c) Richmond Wastewater Revenue, Refunding, Series B, AMBAC Insured, Weekly VRDN and
Put, 10.00%, 8/01/37 ................................................................ 28,915,000 28,915,000
(c) Santa Clara Electric Revenue, Refunding, Sub Series B, Weekly VRDN and Put, 7.97%,
7/01/27 ............................................................................. 2,000,000 2,000,000
48 | Semiannual Report
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL AMOUNT VALUE
---------------- ---------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
(c) Southern California Public Power Authority Transmission Project Revenue,
Southern Transmission, Refunding,
Series A, FSA Insured, Weekly VRDN and Put, 8.50%, 7/01/23 .......................... $ 4,000,000 $ 4,000,000
Series B, FSA Insured, Weekly VRDN and Put, 8.40%, 7/01/23 .......................... 56,335,000 56,335,000
(c) WateReuse Finance Authority Revenue, FSA Insured, Weekly VRDN and Put, 7.75%,
5/01/28 ............................................................................. 16,270,000 16,270,000
(c) West Basin Municipal Water District Revenue COP, Refunding, Series A-1, Weekly VRDN and
Put, 7.68%, 8/01/27 ................................................................. 9,685,000 9,685,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $246,980,000) ....................................... 246,980,000
---------------
TOTAL INVESTMENTS (COST $14,265,914,565) 99.1% ......................................... 13,629,210,983
OTHER ASSETS, LESS LIABILITIES 0.9% .................................................... 130,013,191
---------------
NET ASSETS 100.0% ...................................................................... $13,759,224,174
===============
See Selected Portfolio Abbreviations page 50.
(a) Security purchased on a when-issued or delayed delivery basis. See Note
1(b).
(b) Security has been deemed illiquid because it may not be able to be sold
within seven days. At September 30, 2008, the aggregate value of these
securities was $5,439,237, representing 0.04% 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.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 49
Franklin California Tax-Free Income Fund
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2008 (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
BHAC - Brookshire Hathaway Assurance Corp.
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.
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
HFAR - Housing Finance Authority Revenue
HMR - Home Mortgage Revenue
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Security
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
RMR - Residential Mortgage Revenue
SFHMR - Single Family Home Mortgage Revenue
SFMR - Single Family Mortgage Revenue
UHSD - Unified/Union High School District
USD - Unified/Union School District
XLCA - XL Capital Assurance
The accompanying notes are an integral part of these financial statements.
50 | Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2008 (unaudited)
Assets:
Investments in securities:
Cost ......................................................................... $14,265,914,565
===============
Value ........................................................................ $13,629,210,983
Cash ............................................................................ 2,503,737
Receivables:
Investment securities sold ................................................... 41,979,020
Capital shares sold .......................................................... 25,263,242
Interest ..................................................................... 171,635,599
---------------
Total assets .............................................................. 13,870,592,581
---------------
Liabilities:
Payables:
Investment securities purchased .............................................. 73,646,674
Capital shares redeemed ...................................................... 29,019,608
Affiliates ................................................................... 8,348,251
Accrued expenses and other liabilities ............................................. 353,874
---------------
Total liabilities ......................................................... 111,368,407
---------------
Net assets, at value ................................................... $13,759,224,174
===============
Net assets consist of:
Paid-in capital ................................................................. $14,386,579,081
Undistributed net investment income ............................................. 45,662,972
Net unrealized appreciation (depreciation) ...................................... (636,703,582)
Accumulated net realized gain (loss) ............................................ (36,314,297)
---------------
Net assets, at value ................................................... $13,759,224,174
===============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 51
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2008 (unaudited)
CLASS A:
Net assets, at value ............................................................ $12,520,800,171
===============
Shares outstanding .............................................................. 1,894,473,572
===============
Net asset value per share(a) .................................................... $ 6.61
===============
Maximum offering price per share (net asset value per share / 95.75%) ........... $ 6.90
===============
CLASS B:
Net assets, at value ............................................................ $ 172,348,605
===============
Shares outstanding .............................................................. 26,100,948
===============
Net asset value and maximum offering price per share(a) ......................... $ 6.60
===============
CLASS C:
Net assets, at value ............................................................ $ 848,421,196
===============
Shares outstanding .............................................................. 128,573,808
===============
Net asset value and maximum offering price per share(a) ......................... $ 6.60
===============
ADVISOR CLASS:
Net assets, at value ............................................................ $ 217,654,202
===============
Shares outstanding .............................................................. 32,977,083
===============
Net asset value and maximum offering price per share ............................ $ 6.60
===============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
52 | Semiannual Report
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended September 30, 2008 (unaudited)
Investment income:
Interest ........................................................................ $ 374,480,979
---------------
Expenses:
Management fees (Note 3a) ....................................................... 31,604,479
Distribution fees: (Note 3c)
Class A ...................................................................... 5,747,655
Class B ...................................................................... 635,756
Class C ...................................................................... 2,741,852
Transfer agent fees (Note 3e) ................................................... 1,718,837
Custodian fees .................................................................. 104,776
Reports to shareholders ......................................................... 144,059
Registration and filing fees .................................................... 52,988
Professional fees ............................................................... 96,341
Trustees' fees and expenses ..................................................... 74,963
Other ........................................................................... 306,121
---------------
Total expenses ............................................................ 43,227,827
---------------
Net investment income .................................................. 331,253,152
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ....................................... 1,570,670
Net change in unrealized appreciation (depreciation) on investments ............. (801,731,074)
---------------
Net realized and unrealized gain (loss) ............................................ (800,160,404)
---------------
Net increase (decrease) in net assets resulting from operations .................... $ (468,907,252)
===============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 53
Franklin California Tax-Free Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
SEPTEMBER 30, 2008 YEAR ENDED
(UNAUDITED) MARCH 31, 2008
------------------ ---------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................ $ 331,253,152 $ 631,287,506
Net realized gain (loss) from investments .................................... 1,570,670 (24,578,973)
Net change in unrealized appreciation (depreciation) on investments .......... (801,731,074) (692,735,916)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ........ (468,907,252) (86,027,383)
--------------- ---------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................... (302,876,983) (580,726,226)
Class B ................................................................... (4,016,832) (9,642,680)
Class C ................................................................... (16,980,234) (26,784,211)
Advisor Class ............................................................. (4,659,936) (7,358,130)
--------------- ---------------
Total distributions to shareholders ............................................. (328,533,985) (624,511,247)
--------------- ---------------
Capital share transactions: (Note 2)
Class A ................................................................... 442,282,883 508,833,016
Class B ................................................................... (22,846,288) (71,962,863)
Class C ................................................................... 147,878,406 155,048,718
Advisor Class ............................................................. 51,449,579 64,616,045
--------------- ---------------
Total capital share transactions ................................................ 618,764,580 656,534,916
--------------- ---------------
Redemption fees ................................................................. 9,671 25,653
--------------- ---------------
Net increase (decrease) in net assets .................................. (178,666,986) (53,978,061)
Net assets:
Beginning of period ............................................................. 13,937,891,160 13,991,869,221
--------------- ---------------
End of period ................................................................... $13,759,224,174 $13,937,891,160
=============== ===============
Undistributed net investment income included in net assets:
End of period ................................................................... $ 45,662,972 $ 42,943,805
=============== ===============
The accompanying notes are an integral part of these financial statements.
54 | 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 (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as a diversified,
open-end investment company, consisting of one fund, the Franklin California
Tax-Free Income Fund (Fund). 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 Trust 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 Trust's Board of
Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED AND DELAYED DELIVERY BASIS
The Fund may purchase securities on a when-issued and delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Fund will generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
Semiannual Report | 55
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
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.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of September 30, 2008, and has
determined that no provision for income tax is required in the Fund's financial
statements.
D. 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 of
America. 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 per share
distributions, by class, are generally due to differences in class specific
expenses.
E. INSURANCE
The scheduled payments of interest and principal for each insured municipal
security in the Trust are insured by either a new issue insurance policy or a
secondary insurance policy. Some municipal securities in the Fund are secured by
collateral guaranteed by an agency of the U.S. government. Insurance companies
typically insure municipal bonds that tend to be of very high quality, with the
majority of underlying municipal bonds rated A or better. However, there is a
risk that in the event of an issuer default, the insurer may not be able to
fulfill its obligations under the terms of the policy.
Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security or paid by a third party.
56 | Semiannual Report
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. 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.
G. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the fund and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Fund, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
2. CAPITAL STOCK
At September 30, 2008, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2008 MARCH 31, 2008
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ ---------------
CLASS A SHARES
Shares sold ....................... 150,507,736 $1,054,735,723 250,567,468 $ 1,804,345,677
Shares issued in reinvestment
of distributions ............... 25,134,751 175,931,085 46,024,682 331,100,849
Shares redeemed ................... (112,946,350) (788,383,925) (226,327,357) (1,626,613,510)
------------ -------------- ------------ ---------------
Net increase (decrease) ........... 62,696,137 $ 442,282,883 70,264,793 $ 508,833,016
============ ============== ============ ===============
CLASS B SHARES:
Shares sold ....................... 253,778 $ 1,778,544 583,250 $ 4,206,660
Shares issued in reinvestment
of distributions ............... 387,918 2,714,731 909,290 6,546,058
Shares redeemed ................... (3,924,889) (27,339,563) (11,480,725) (82,715,581)
------------ -------------- ------------ ---------------
Net increase (decrease) ........... (3,283,193) $ (22,846,288) (9,988,185) $ (71,962,863)
============ ============== ============ ===============
Semiannual Report | 57
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2008 MARCH 31, 2008
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ ---------------
CLASS C SHARES:
Shares sold........................ 29,941,419 $ 209,944,118 35,182,960 $ 252,760,071
Shares issued in reinvestment
of distributions................ 1,629,292 11,390,635 2,467,718 17,723,272
Shares redeemed.................... (10,559,658) (73,456,347) (16,071,988) (115,434,625)
------------ -------------- ------------ ---------------
Net increase (decrease)............ 21,011,053 $ 147,878,406 21,578,690 $ 155,048,718
============ ============== ============ ===============
ADVISOR CLASS SHARES:
Shares sold........................ 10,273,856 $ 71,671,180 15,500,509 $ 111,734,340
Shares issued in reinvestment
of distributions................ 390,800 2,731,024 492,471 3,526,930
Shares redeemed.................... (3,302,471) (22,952,625) (7,055,487) (50,645,225)
------------ -------------- ------------ ---------------
Net increase (decrease)............ 7,362,185 $ 51,449,579 8,937,493 $ 64,616,045
============ ============== ============ ===============
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
trustees of the Trust 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
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 $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% 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
58 | Semiannual Report
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 Trust's Board of Trustees 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 for costs incurred in connection with the servicing,
sale and distribution of the Fund's shares up to the maximum annual plan rate.
Under the Class A reimbursement distribution plan, costs exceeding the maximum
for the current plan year cannot be reimbursed in subsequent periods.
In addition, under the Fund's Class B and C compensation distribution plans, the
Fund pays Distributors for costs incurred in connection with the servicing, sale
and distribution of the Fund's shares up to the maximum annual plan rate for
each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ..................................................... 0.10%
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 ......................... $1,947,065
Contingent deferred sales charges retained ............. $ 343,576
E. TRANSFER AGENT FEES
For the period ended September 30, 2008, the Fund paid transfer agent fees of
$1,718,837, of which $1,206,354 was retained by Investor Services.
Semiannual Report | 59
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At March 31, 2008, the Fund had tax basis capital losses of
$18,263,066 expiring in 2016.
For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At March 31, 2008, the Fund deferred realized capital losses of
$14,445,731.
At September 30, 2008, the cost of investments, net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ............................... $14,259,932,154
===============
Unrealized appreciation ........................... $ 326,442,513
Unrealized depreciation ........................... (957,163,684)
---------------
Net unrealized appreciation (depreciation) ........ $ (630,721,171)
===============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of bond discounts.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended September 30, 2008, aggregated $1,068,601,846 and $624,358,008,
respectively.
6. CREDIT RISK
The Fund has 6.1% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
7. 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.
60 | Semiannual Report
Franklin California Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on April 1, 2008. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The Fund has determined that
the implementation of SFAS 157 did not have a material impact on the Fund's
financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At September 30, 2008, all of the Fund's' investments in securities carried at
fair value were in Level 2 inputs.
Semiannual Report | 61
Franklin California Tax-Free Income Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (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 (800)
SEC-0330.
62 | Semiannual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(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 FUNDS
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(4)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(2)
Franklin Small Cap Growth Fund(3)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund(1)
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund(1)
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
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(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(3.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(4.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(6.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(7.) The fund invests primarily in insured municipal securities.
(8.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
11/08 Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
- - WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 S2008 11/08
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 expert is John B. Wilson and he is
"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 Trustees 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 Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting 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
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date November 25, 2008
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/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date November 25, 2008
By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date November 25, 2008