UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04356
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FRANKLIN CALIFORNIA TAX-FREE TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 6/30
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Date of reporting period: 6/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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JUNE 30, 2006
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Franklin California Insured
Tax-Free Income Fund
Franklin California
Intermediate-Term
Tax-Free Income Fund
Franklin California
Limited-Term
Tax-Free Income Fund
Franklin California
Tax-Exempt Money Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
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WANT TO RECEIVE
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Eligible shareholders can
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franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ......................................................... 1
SPECIAL FEATURE:
Understanding Interest Rates ............................................... 4
ANNUAL REPORT
State Update and Municipal Bond Market Overview ............................ 7
Franklin California Insured Tax-Free Income Fund ........................... 10
Franklin California Intermediate-Term Tax-Free Income Fund ................. 19
Franklin California Limited-Term Tax-Free Income Fund ...................... 27
Franklin California Tax-Exempt Money Fund .................................. 34
Financial Highlights and Statements of Investments ......................... 38
Financial Statements ....................................................... 71
Notes to Financial Statements .............................................. 76
Report of Independent Registered Public Accounting Firm .................... 86
Tax Designation ............................................................ 87
Board Members and Officers ................................................. 88
Shareholder Information .................................................... 92
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Annual Report
State Update and Municipal Bond Market Overview
California's large and diverse economy has performed fairly close to the nation
overall in recent years. A wide variety of industries including professional
services, education, health services, trade and manufacturing powered the
state's economy. A new defense buildup aided southern California's economic
momentum, while some signs indicated a high-technology turnaround, which could
benefit northern California. The state's employment picture improved, recording
job gains every month during the reporting period. As of June 2006 the
unemployment rate stood at 4.9%, which was slightly higher than the 4.6%
national rate. 1
Robust economic growth and a $7.5 billion tax-revenue increase over projections
for fiscal year 2006 helped California reduce its structural deficit to an
estimated $2.5 billion for fiscal year 2007. 2 Capital gains from rising stock
markets and housing sales contributed to the higher-than-expected tax receipts,
yet the state continued to face structural deficit problems. Deficit financing
bonds eased immediate liquidity pressures, but the large discrepancy between
ongoing revenues and expenditures remained. In the November 2005 election,
voters rejected Governor Schwarzenegger's Reform Agenda, a series of ballot
initiatives that would have capped state spending and granted the governor the
authority to make midyear budget cuts. Another concern was the governor's fiscal
year 2007 budget proposal to spend much of the state's recently replenished
reserves.
Based on the state's strong economy and tax revenue surge, independent credit
rating agency Standard & Poor's raised California's general obligation bond
rating from A to A+ with a stable outlook. 3 Overall debt levels rose rapidly,
nearly doubling in the past four years to $1,455 per capita, but are expected to
stay manageable. 2 The state's finances improved although legislators continued
to grapple with fiscal structural issues.
For the fiscal year ended June 30, 2006, the municipal bond market performed
comparatively well as the fixed income markets continued to face a tightening
Federal Reserve Board (Fed) policy, volatile oil prices, increased inflation
expectations, concerns about the dollar, mixed economic releases and the
aftermath
1. Source: Bureau of Labor Statistics.
2. Source: Standard & Poor's, "Summary: California; General Obligation,"
RATINGSDIRECT, 5/17/06.
3. This does not indicate Standard & Poor's rating of the Fund.
Annual Report | 7
of Hurricanes Katrina and Rita. In the recent interest rate environment,
municipal bonds, which have domestic tax advantages, outperformed U.S. Treasury
bonds. The Lehman Brothers Municipal Bond Index returned +0.89% for the period,
while the Lehman Brothers U.S. Treasury Index had a -1.68% return. 4
During the reporting period, longer-term yields rose, but not as much as
shorter-term yields, which increased as the Fed followed its tightening policy
and raised the federal funds target rate from 3.25% to 5.25%. Demand persisted
from foreign and domestic buyers who continued to buy intermediate-and
longer-term Treasury bonds as they sought relatively higher yield and expected
inflation to remain fairly contained. Over the reporting period, short-term
rates rose more than longer-term rates, which resulted in a flattening of the
yield curve (the spread between yields of short-term and long-term bonds).
Toward the end of December, shorter- and intermediate-term interest rates began
to converge and eventually the Treasury yield curve inverted, meaning short-term
rates grew higher than those on longer-maturity bonds. Over the 12-month
reporting period, 2-year Treasury yields increased 150 basis points (100 basis
points equal one percentage point), while 10-year Treasury yields rose 121 basis
points and 30-year Treasury yields rose 100 basis points. On June 30, 2006, the
2-year Treasury note yielded 5.16%, the 10-year Treasury note yielded 5.15% and
the 30-year Treasury bond yielded 5.19%. The municipal yield curve also
flattened over the reporting period but remained steeper than the Treasury
curve. According to Municipal Market Data, the 2-year municipal note yield rose
110 basis points and the 10-year increased 69 basis points, while the 30-year
municipal yield increased 37 basis points during the period. 5 Consequently,
long-maturity municipal bonds continued to perform comparatively well.
4. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond
Index is a market value-weighted index engineered for the long-term
tax-exempt bond market. All bonds included have a minimum credit rating of
at least Baa. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million.
The bonds must be dated after 12/31/90, and must be at least one year from
their maturity date. Remarketed issues, taxable municipal bonds, bonds
with floating rates and derivatives are excluded from the index. The index
has four main bond sectors: general obligation, revenue, insured and
prerefunded. The Lehman Brothers U.S. Treasury Index includes public
obligations of the U.S. Treasury with a remaining maturity of one year or
more. All issues must have at least one year to final maturity regardless
of call features, have at least $250 million par amount outstanding and be
rated investment grade (Baa3 or better). They must also be dollar
denominated, nonconvertible and publicly issued.
5. Source: Thomson Financial.
8 | Annual Report
Motivated by a relatively low interest rate environment, along with expectations
that rates might continue to rise, municipal bond issuers actively refunded
higher yielding outstanding debt and accessed the debt market to finance capital
needs. As a result, the municipal bond market had record issuance with more than
$408 billion in new deals nationally for 2005.6 Refunding deals represented more
than $130 billion.6 Just as homebuyers seek to lower their mortgage rates,
municipalities tend to borrow more when interest rates are low. So far in 2006,
supply has been lighter than in the first six months of 2005. Demand for
municipal bonds remained strong over the Funds' fiscal year as investors found
municipal bonds' taxable equivalent yields attractive. Healthy demand came from
a wide range of traditional buyers such as mutual funds, individuals, and
property and casualty companies, and also from nontraditional crossover
participants. Crossover buyers typically invest in taxable securities; however,
they will enter the municipal bond market when municipal valuations are
attractive, as they were during the reporting period. This broad base of buyers
and tight bond supply supported the municipal bond market.
6. Source: THE BOND BUYER.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2006, THE END OF THE REPORTING PERIOD. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE, INDUSTRY, SECURITY OR FUNDS.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE.
Annual Report | 9
Franklin California Insured Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Insured 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 the preservation of capital by investing at least 80% of its net
assets in insured securities that pay interest free from such taxes.1, (2)
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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This annual report for Franklin California Insured Tax-Free Income Fund covers
the fiscal year ended June 30, 2006.
PERFORMANCE OVERVIEW
The Fund's Class A share price, as measured by net asset value, decreased from
$12.85 on June 30, 2005, to $12.43 on June 30, 2006. The Fund's Class A shares
paid dividends totaling 54.48 cents per share for the same period.3 The
Performance Summary beginning on page 13 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.22%, based on an
annualization of the current 4.56 cent per share dividend and the maximum
offering price of $12.98 on June 30, 2006. An investor in the 2006 maximum
combined effective federal and California personal income tax bracket of 41.05%
would need to earn a distribution rate of 7.16% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class B and
C shares' performance, please see the Performance Summary.
The Fund was subject to bond calls during the 12 months under review as many
municipal bond issuers sought to take advantage of lower interest rates and
exercised call options on their outstanding higher-coupon bonds issued several
years ago. In general, we were limited to reinvesting the proceeds from these
bond calls as well as from cash inflows at current, lower interest rates, which
tended to reduce the Fund's income and cause dividend distributions to decline
slightly, as shown in the dividend distributions table.
1. For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable.
2. Fund shares are not insured by any U.S. or other government agency. They
are subject to market risks and will fluctuate in value.
3. Assumes shares were purchased and held for the entire accrual period,
which differs from the calendar month. Since dividends accrue daily, your
actual distributions will vary depending on the date you purchased your
shares and any account activity. All Fund distributions will vary
depending upon current market conditions, and past distributions are not
indicative of future trends.
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 41.
10 | Annual Report
DIVIDEND DISTRIBUTIONS 2
Franklin California Insured Tax-Free Income Fund
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DIVIDEND PER SHARE
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MONTH CLASS A CLASS B CLASS C
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July 4.62 cents 4.06 cents 4.03 cents
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August 4.62 cents 4.06 cents 4.03 cents
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September 4.52 cents 3.95 cents 3.94 cents
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October 4.52 cents 3.95 cents 3.94 cents
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November 4.52 cents 3.95 cents 3.94 cents
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December 4.52 cents 3.93 cents 3.93 cents
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January 4.52 cents 3.93 cents 3.93 cents
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February 4.52 cents 3.93 cents 3.93 cents
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March 4.52 cents 3.93 cents 3.93 cents
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April 4.52 cents 3.93 cents 3.93 cents
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May 4.52 cents 3.93 cents 3.93 cents
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June 4.56 cents 4.00 cents 3.99 cents
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TOTAL 54.48 CENTS 47.55 CENTS 47.45 CENTS
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INVESTMENT STRATEGY
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our 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, the Fund's portfolio becomes
well diversified with a broad range of coupons, calls and maturities. This broad
diversification may help mitigate interest rate risk. We generally stay fully
invested to maximize income distribution.
MANAGER'S DISCUSSION
Consistent with our strategy, we sought to remain fully invested in bonds that
maintain an average weighted maturity of 15 to 30 years with good call features.
The combination of our value oriented philosophy of investing primarily for
income and a relatively steep municipal yield curve compared to Treasuries
favored the use of longer term bonds. We also maintained our conservative,
buy-and-hold investment strategy as we attempted to provide shareholders with
high, current, tax-free income.
PORTFOLIO BREAKDOWN
Franklin California Insured
Tax-Free Income
Fund 6/30/06
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% OF TOTAL
LONG-TERM INVESTMENTS*
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General Obligation 19.3%
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Prerefunded 16.6%
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Transportation 12.5%
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Utilities 12.4%
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Subject to Government Appropriations 11.0%
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Tax-Supported 8.6%
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Hospital & Health Care 7.8%
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Higher Education 7.2%
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Other Revenue 4.0%
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Housing 0.6%
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* Does not include short-term investments and other net assets.
Annual Report | 11
Thank you for your participation in Franklin California Insured 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 JUNE 30, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
12 | Annual Report
Performance Summary as of 6/30/06
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FRCIX) CHANGE 6/30/06 6/30/05
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Net Asset Value (NAV) -$0.42 $12.43 $12.85
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DISTRIBUTIONS (JULY 2005-JUNE 2006)
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Dividend Income $0.5448
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CLASS B (SYMBOL: FRCBX) CHANGE 6/30/06 6/30/05
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Net Asset Value (NAV) -$0.42 $12.49 $12.91
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DISTRIBUTIONS (JULY 2005-JUNE 2006)
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Dividend Income $0.4755
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CLASS C (SYMBOL: FRCAX) CHANGE 6/30/06 6/30/05
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Net Asset Value (NAV) -$0.42 $12.55 $12.97
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DISTRIBUTIONS (JULY 2005-JUNE 2006)
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Dividend Income $0.4745
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Annual Report | 13
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. THE
FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +0.96% +27.83% +70.01%
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Average Annual Total Return 2 -3.33% +4.12% +5.00%
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Distribution Rate 3 4.22%
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Taxable Equivalent Distribution Rate 4 7.16%
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30-Day Standardized Yield 5 3.67%
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Taxable Equivalent Yield 4 6.23%
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CLASS B 1-YEAR 5-YEAR INCEPTION (2/1/00)
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Cumulative Total Return 1 +0.41% +24.44% +42.52%
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Average Annual Total Return 2 -3.46% +4.13% +5.68%
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Distribution Rate 3 3.84%
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Taxable Equivalent Distribution Rate 4 6.51%
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30-Day Standardized Yield 5 3.27%
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Taxable Equivalent Yield 4 5.55%
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CLASS C 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +0.40% +24.39% +60.98%
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Average Annual Total Return 2 -0.57% +4.46% +4.88%
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Distribution Rate 3 3.82%
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Taxable Equivalent Distribution Rate 4 6.48%
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30-Day Standardized Yield 5 3.29%
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Taxable Equivalent Yield 4 5.58%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
14 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index. The Consumer Price Index (CPI), calculated by the U.S.
Bureau of Labor Statistics, is a commonly used measure of the inflation rate.
CLASS A (7/1/96-6/30/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN
CALIFORNIA INSURED LEHMAN BROTHERS
DATE TAX-FREE INCOME FUND MUNICIPAL BOND INDEX 6 CPI 6
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7/1/1996 $9,577 $10,000 $10,000
7/31/1996 $9,661 $10,090 $10,019
8/31/1996 $9,697 $10,088 $10,038
9/30/1996 $9,830 $10,229 $10,070
10/31/1996 $9,923 $10,345 $10,102
11/30/1996 $10,073 $10,534 $10,121
12/31/1996 $10,037 $10,490 $10,121
1/31/1997 $10,033 $10,510 $10,153
2/28/1997 $10,119 $10,606 $10,185
3/31/1997 $9,990 $10,465 $10,211
4/30/1997 $10,078 $10,552 $10,223
5/31/1997 $10,207 $10,711 $10,217
6/30/1997 $10,286 $10,825 $10,230
7/31/1997 $10,569 $11,125 $10,243
8/31/1997 $10,480 $11,021 $10,262
9/30/1997 $10,594 $11,152 $10,287
10/31/1997 $10,657 $11,223 $10,313
11/30/1997 $10,720 $11,289 $10,306
12/31/1997 $10,865 $11,454 $10,294
1/31/1998 $10,972 $11,572 $10,313
2/28/1998 $10,983 $11,576 $10,332
3/31/1998 $10,994 $11,586 $10,351
4/30/1998 $10,944 $11,534 $10,370
5/31/1998 $11,097 $11,716 $10,389
6/30/1998 $11,153 $11,762 $10,402
7/31/1998 $11,174 $11,792 $10,415
8/31/1998 $11,330 $11,974 $10,428
9/30/1998 $11,504 $12,123 $10,440
10/31/1998 $11,516 $12,123 $10,466
11/30/1998 $11,564 $12,166 $10,466
12/31/1998 $11,572 $12,196 $10,459
1/31/1999 $11,666 $12,341 $10,485
2/28/1999 $11,659 $12,287 $10,498
3/31/1999 $11,688 $12,304 $10,530
4/30/1999 $11,689 $12,335 $10,606
5/31/1999 $11,633 $12,264 $10,606
6/30/1999 $11,455 $12,087 $10,606
7/31/1999 $11,464 $12,131 $10,638
8/31/1999 $11,313 $12,034 $10,664
9/30/1999 $11,323 $12,039 $10,715
10/31/1999 $11,151 $11,908 $10,734
11/30/1999 $11,238 $12,035 $10,740
12/31/1999 $11,153 $11,945 $10,740
1/31/2000 $11,066 $11,893 $10,772
2/29/2000 $11,261 $12,032 $10,836
3/31/2000 $11,536 $12,294 $10,925
4/30/2000 $11,438 $12,222 $10,932
5/31/2000 $11,390 $12,158 $10,944
6/30/2000 $11,708 $12,480 $11,002
7/31/2000 $11,858 $12,654 $11,027
8/31/2000 $12,089 $12,849 $11,027
9/30/2000 $12,060 $12,782 $11,085
10/31/2000 $12,151 $12,922 $11,104
11/30/2000 $12,253 $13,020 $11,110
12/31/2000 $12,549 $13,341 $11,104
1/31/2001 $12,621 $13,473 $11,174
2/28/2001 $12,652 $13,516 $11,219
3/31/2001 $12,766 $13,637 $11,244
4/30/2001 $12,571 $13,489 $11,289
5/31/2001 $12,706 $13,635 $11,340
6/30/2001 $12,738 $13,726 $11,359
7/31/2001 $12,937 $13,929 $11,327
8/31/2001 $13,232 $14,159 $11,327
9/30/2001 $13,189 $14,111 $11,378
10/31/2001 $13,326 $14,279 $11,340
11/30/2001 $13,273 $14,159 $11,321
12/31/2001 $13,132 $14,025 $11,276
1/31/2002 $13,301 $14,268 $11,302
2/28/2002 $13,418 $14,440 $11,347
3/31/2002 $13,113 $14,157 $11,410
4/30/2002 $13,317 $14,434 $11,474
5/31/2002 $13,403 $14,522 $11,474
6/30/2002 $13,521 $14,675 $11,481
7/31/2002 $13,673 $14,864 $11,493
8/31/2002 $13,881 $15,043 $11,532
9/30/2002 $14,288 $15,372 $11,551
10/31/2002 $13,930 $15,117 $11,570
11/30/2002 $13,894 $15,054 $11,570
12/31/2002 $14,160 $15,372 $11,544
1/31/2003 $14,090 $15,333 $11,595
2/28/2003 $14,313 $15,547 $11,685
3/31/2003 $14,344 $15,557 $11,755
4/30/2003 $14,477 $15,660 $11,729
5/31/2003 $14,828 $16,026 $11,710
6/30/2003 $14,732 $15,958 $11,723
7/31/2003 $14,141 $15,400 $11,736
8/31/2003 $14,195 $15,515 $11,780
9/30/2003 $14,539 $15,971 $11,819
10/31/2003 $14,524 $15,890 $11,806
11/30/2003 $14,742 $16,056 $11,774
12/31/2003 $14,855 $16,189 $11,761
1/31/2004 $14,956 $16,282 $11,819
2/29/2004 $15,224 $16,527 $11,883
3/31/2004 $15,148 $16,469 $11,959
4/30/2004 $14,729 $16,079 $11,997
5/31/2004 $14,654 $16,021 $12,068
6/30/2004 $14,698 $16,079 $12,106
7/31/2004 $14,898 $16,291 $12,087
8/31/2004 $15,220 $16,617 $12,093
9/30/2004 $15,301 $16,705 $12,119
10/31/2004 $15,467 $16,849 $12,183
11/30/2004 $15,329 $16,710 $12,189
12/31/2004 $15,557 $16,914 $12,144
1/31/2005 $15,798 $17,072 $12,170
2/28/2005 $15,756 $17,015 $12,240
3/31/2005 $15,640 $16,908 $12,336
4/30/2005 $15,908 $17,175 $12,419
5/31/2005 $16,016 $17,296 $12,406
6/30/2005 $16,124 $17,403 $12,412
7/31/2005 $16,069 $17,325 $12,470
8/31/2005 $16,253 $17,500 $12,534
9/30/2005 $16,146 $17,382 $12,687
10/31/2005 $16,038 $17,276 $12,712
11/30/2005 $16,108 $17,359 $12,610
12/31/2005 $16,256 $17,508 $12,559
1/31/2006 $16,302 $17,556 $12,655
2/28/2006 $16,425 $17,674 $12,680
3/31/2006 $16,315 $17,552 $12,750
4/30/2006 $16,270 $17,546 $12,859
5/31/2006 $16,329 $17,624 $12,923
6/30/2006 $16,282 $17,557 $12,948
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------
CLASS A 6/30/06
- -------------------------------------------------------------------------------
1-Year -3.33%
- -------------------------------------------------------------------------------
5-Year +4.12%
- -------------------------------------------------------------------------------
10-Year +5.00%
- -------------------------------------------------------------------------------
CLASS B (2/1/00-6/30/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN
CALIFORNIA INSURED LEHMAN BROTHERS
DATE TAX-FREE INCOME FUND MUNICIPAL BOND INDEX 6 CPI 6
- --------------------------------------------------------------------------------
2/1/2000 $10,000 $10,000 $10,000
2/29/2000 $10,166 $10,116 $10,059
3/31/2000 $10,418 $10,337 $10,142
4/30/2000 $10,317 $10,276 $10,148
5/31/2000 $10,277 $10,223 $10,160
6/30/2000 $10,559 $10,494 $10,213
7/31/2000 $10,689 $10,640 $10,237
8/31/2000 $10,892 $10,804 $10,237
9/30/2000 $10,860 $10,747 $10,290
10/31/2000 $10,946 $10,865 $10,308
11/30/2000 $11,033 $10,947 $10,314
12/31/2000 $11,294 $11,217 $10,308
1/31/2001 $11,353 $11,328 $10,373
2/28/2001 $11,377 $11,364 $10,415
3/31/2001 $11,473 $11,466 $10,438
4/30/2001 $11,301 $11,342 $10,480
5/31/2001 $11,417 $11,464 $10,527
6/30/2001 $11,440 $11,541 $10,545
7/31/2001 $11,613 $11,712 $10,515
8/31/2001 $11,872 $11,905 $10,515
9/30/2001 $11,828 $11,865 $10,563
10/31/2001 $11,946 $12,006 $10,527
11/30/2001 $11,893 $11,905 $10,509
12/31/2001 $11,771 $11,792 $10,468
1/31/2002 $11,907 $11,997 $10,492
2/28/2002 $12,014 $12,141 $10,533
3/31/2002 $11,727 $11,903 $10,592
4/30/2002 $11,913 $12,136 $10,652
5/31/2002 $11,984 $12,210 $10,652
6/30/2002 $12,084 $12,339 $10,658
7/31/2002 $12,213 $12,498 $10,669
8/31/2002 $12,393 $12,648 $10,705
9/30/2002 $12,749 $12,925 $10,723
10/31/2002 $12,426 $12,711 $10,741
11/30/2002 $12,378 $12,658 $10,741
12/31/2002 $12,618 $12,925 $10,717
1/31/2003 $12,550 $12,892 $10,764
2/28/2003 $12,742 $13,072 $10,847
3/31/2003 $12,763 $13,080 $10,912
4/30/2003 $12,876 $13,167 $10,889
5/31/2003 $13,191 $13,475 $10,871
6/30/2003 $13,090 $13,418 $10,883
7/31/2003 $12,561 $12,948 $10,895
8/31/2003 $12,603 $13,045 $10,936
9/30/2003 $12,901 $13,428 $10,972
10/31/2003 $12,881 $13,361 $10,960
11/30/2003 $13,067 $13,500 $10,930
12/31/2003 $13,172 $13,612 $10,918
1/31/2004 $13,246 $13,690 $10,972
2/29/2004 $13,486 $13,896 $11,031
3/31/2004 $13,414 $13,847 $11,102
4/30/2004 $13,028 $13,519 $11,137
5/31/2004 $12,956 $13,470 $11,203
6/30/2004 $12,989 $13,519 $11,238
7/31/2004 $13,159 $13,697 $11,220
8/31/2004 $13,447 $13,972 $11,226
9/30/2004 $13,512 $14,046 $11,250
10/31/2004 $13,641 $14,167 $11,309
11/30/2004 $13,524 $14,050 $11,315
12/31/2004 $13,718 $14,221 $11,274
1/31/2005 $13,923 $14,354 $11,297
2/28/2005 $13,880 $14,307 $11,363
3/31/2005 $13,771 $14,216 $11,451
4/30/2005 $14,000 $14,441 $11,528
5/31/2005 $14,088 $14,543 $11,517
6/30/2005 $14,176 $14,633 $11,523
7/31/2005 $14,122 $14,567 $11,576
8/31/2005 $14,277 $14,714 $11,635
9/30/2005 $14,177 $14,615 $11,777
10/31/2005 $14,076 $14,526 $11,801
11/30/2005 $14,131 $14,596 $11,706
12/31/2005 $14,253 $14,721 $11,659
1/31/2006 $14,287 $14,761 $11,748
2/28/2006 $14,388 $14,860 $11,771
3/31/2006 $14,285 $14,758 $11,836
4/30/2006 $14,239 $14,752 $11,937
5/31/2006 $14,284 $14,818 $11,996
6/30/2006 $14,252 $14,762 $12,020
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS B 6/30/06
- --------------------------------------------------------------------------------
1-Year -3.46%
- --------------------------------------------------------------------------------
5-Year +4.13%
- --------------------------------------------------------------------------------
Since Inception (2/1/00) +5.68%
- --------------------------------------------------------------------------------
Annual Report | 15
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 6/30/06
- --------------------------------------------------------------------------------
1-Year -0.57%
- --------------------------------------------------------------------------------
5-Year +4.46%
- --------------------------------------------------------------------------------
10-Year +4.88%
- --------------------------------------------------------------------------------
CLASS C (7/1/96-6/30/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN
CALIFORNIA INSURED LEHMAN BROTHERS
DATE TAX-FREE INCOME FUND MUNICIPAL BOND INDEX 6 CPI 6
- --------------------------------------------------------------------------------
7/1/1996 $10,000 $10,000 $10,000
7/31/1996 $10,089 $10,090 $10,019
8/31/1996 $10,113 $10,088 $10,038
9/30/1996 $10,246 $10,229 $10,070
10/31/1996 $10,338 $10,345 $10,102
11/30/1996 $10,498 $10,534 $10,121
12/31/1996 $10,447 $10,490 $10,121
1/31/1997 $10,438 $10,510 $10,153
2/28/1997 $10,531 $10,606 $10,185
3/31/1997 $10,393 $10,465 $10,211
4/30/1997 $10,469 $10,552 $10,223
5/31/1997 $10,606 $10,711 $10,217
6/30/1997 $10,683 $10,825 $10,230
7/31/1997 $10,970 $11,125 $10,243
8/31/1997 $10,873 $11,021 $10,262
9/30/1997 $10,986 $11,152 $10,287
10/31/1997 $11,045 $11,223 $10,313
11/30/1997 $11,113 $11,289 $10,306
12/31/1997 $11,249 $11,454 $10,294
1/31/1998 $11,363 $11,572 $10,313
2/28/1998 $11,360 $11,576 $10,332
3/31/1998 $11,366 $11,586 $10,351
4/30/1998 $11,318 $11,534 $10,370
5/31/1998 $11,470 $11,716 $10,389
6/30/1998 $11,522 $11,762 $10,402
7/31/1998 $11,528 $11,792 $10,415
8/31/1998 $11,682 $11,974 $10,428
9/30/1998 $11,865 $12,123 $10,440
10/31/1998 $11,862 $12,123 $10,466
11/30/1998 $11,916 $12,166 $10,466
12/31/1998 $11,909 $12,196 $10,459
1/31/1999 $12,010 $12,341 $10,485
2/28/1999 $11,996 $12,287 $10,498
3/31/1999 $12,020 $12,304 $10,530
4/30/1999 $12,015 $12,335 $10,606
5/31/1999 $11,952 $12,264 $10,606
6/30/1999 $11,765 $12,087 $10,606
7/31/1999 $11,769 $12,131 $10,638
8/31/1999 $11,609 $12,034 $10,664
9/30/1999 $11,614 $12,039 $10,715
10/31/1999 $11,434 $11,908 $10,734
11/30/1999 $11,517 $12,035 $10,740
12/31/1999 $11,425 $11,945 $10,740
1/31/2000 $11,321 $11,893 $10,772
2/29/2000 $11,515 $12,032 $10,836
3/31/2000 $11,799 $12,294 $10,925
4/30/2000 $11,695 $12,222 $10,932
5/31/2000 $11,640 $12,158 $10,944
6/30/2000 $11,958 $12,480 $11,002
7/31/2000 $12,105 $12,654 $11,027
8/31/2000 $12,333 $12,849 $11,027
9/30/2000 $12,297 $12,782 $11,085
10/31/2000 $12,395 $12,922 $11,104
11/30/2000 $12,482 $13,020 $11,110
12/31/2000 $12,776 $13,341 $11,104
1/31/2001 $12,854 $13,473 $11,174
2/28/2001 $12,881 $13,516 $11,219
3/31/2001 $12,989 $13,637 $11,244
4/30/2001 $12,785 $13,489 $11,289
5/31/2001 $12,915 $13,635 $11,340
6/30/2001 $12,941 $13,726 $11,359
7/31/2001 $13,136 $13,929 $11,327
8/31/2001 $13,427 $14,159 $11,327
9/30/2001 $13,378 $14,111 $11,378
10/31/2001 $13,510 $14,279 $11,340
11/30/2001 $13,450 $14,159 $11,321
12/31/2001 $13,302 $14,025 $11,276
1/31/2002 $13,466 $14,268 $11,302
2/28/2002 $13,576 $14,440 $11,347
3/31/2002 $13,263 $14,157 $11,410
4/30/2002 $13,462 $14,434 $11,474
5/31/2002 $13,553 $14,522 $11,474
6/30/2002 $13,654 $14,675 $11,481
7/31/2002 $13,800 $14,864 $11,493
8/31/2002 $14,014 $15,043 $11,532
9/30/2002 $14,426 $15,372 $11,551
10/31/2002 $14,051 $15,117 $11,570
11/30/2002 $13,997 $15,054 $11,570
12/31/2002 $14,268 $15,372 $11,544
1/31/2003 $14,191 $15,333 $11,595
2/28/2003 $14,407 $15,547 $11,685
3/31/2003 $14,431 $15,557 $11,755
4/30/2003 $14,558 $15,660 $11,729
5/31/2003 $14,912 $16,026 $11,710
6/30/2003 $14,798 $15,958 $11,723
7/31/2003 $14,203 $15,400 $11,736
8/31/2003 $14,249 $15,515 $11,780
9/30/2003 $14,585 $15,971 $11,819
10/31/2003 $14,563 $15,890 $11,806
11/30/2003 $14,772 $16,056 $11,774
12/31/2003 $14,890 $16,189 $11,761
1/31/2004 $14,973 $16,282 $11,819
2/29/2004 $15,244 $16,527 $11,883
3/31/2004 $15,162 $16,469 $11,959
4/30/2004 $14,727 $16,079 $11,997
5/31/2004 $14,646 $16,021 $12,068
6/30/2004 $14,683 $16,079 $12,106
7/31/2004 $14,886 $16,291 $12,087
8/31/2004 $15,197 $16,617 $12,093
9/30/2004 $15,271 $16,705 $12,119
10/31/2004 $15,428 $16,849 $12,183
11/30/2004 $15,285 $16,710 $12,189
12/31/2004 $15,503 $16,914 $12,144
1/31/2005 $15,746 $17,072 $12,170
2/28/2005 $15,685 $17,015 $12,240
3/31/2005 $15,563 $16,908 $12,336
4/30/2005 $15,833 $17,175 $12,419
5/31/2005 $15,931 $17,296 $12,406
6/30/2005 $16,031 $17,403 $12,412
7/31/2005 $15,969 $17,325 $12,470
8/31/2005 $16,143 $17,500 $12,534
9/30/2005 $16,031 $17,382 $12,687
10/31/2005 $15,917 $17,276 $12,712
11/30/2005 $15,979 $17,359 $12,610
12/31/2005 $16,117 $17,508 $12,559
1/31/2006 $16,142 $17,556 $12,655
2/28/2006 $16,268 $17,674 $12,680
3/31/2006 $16,140 $17,552 $12,750
4/30/2006 $16,101 $17,546 $12,859
5/31/2006 $16,138 $17,624 $12,923
6/30/2006 $16,098 $17,557 $12,948
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE 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.
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.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B
and C) per share on 6/30/06.
4. Taxable equivalent distribution rate and yield assume the published rates
as of 6/22/06 for the maximum combined effective federal and California
personal income tax rate of 41.05%, based on the federal income tax rate
of 35.00%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/06.
6. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond
Index is a market value-weighted index engineered for the long-term
tax-exempt bond market. All bonds included have a minimum credit rating of
at least Baa. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million.
The bonds must be dated after 12/31/90, and must be at least one year from
their maturity date. Remarketed issues, taxable municipal bonds, bonds
with floating rates and derivatives are excluded from the index. The index
has four main bond sectors: general obligation, revenue, insured and
prerefunded.
16 | Annual Report
Your Fund's Expenses
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND
EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual 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
CLASS A VALUE 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,001.50 $3.03
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.77 $3.06
- -----------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $998.70 $5.75
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.04 $5.81
- -----------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $998.70 $5.75
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.04 $5.81
- -----------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
0.61%; B: 1.16%; and C: 1.16%), multiplied by the average account value
over the period, multiplied by 181/365 to reflect the one-half year
period.
18 | Annual Report
Franklin California Intermediate-Term Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Intermediate-Term
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 the preservation of capital by investing at least 80%
of its total assets in securities that pay interest free from such taxes.1 The
Fund maintains a dollar-weighted average portfolio maturity (the time at which
the debt must be repaid) of 3 to 10 years.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin California Intermediate-Term Tax-Free Income Fund
6/30/06
- --------------------------------------------------------------------------------
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- --------------------------------------------------------------------------------
AAA 56.0%
- --------------------------------------------------------------------------------
AA 7.4%
- --------------------------------------------------------------------------------
A 15.6%
- --------------------------------------------------------------------------------
BBB 7.4%
- --------------------------------------------------------------------------------
Below Investment Grade 0.6%
- --------------------------------------------------------------------------------
Not Rated by S&P 13.0%
- --------------------------------------------------------------------------------
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
and Fitch are the secondary and tertiary rating agencies. Securities not
rated by an independent rating agency are assigned comparable internal
ratings. Ratings for securities not rated by S&P are in the table below.
** Does not include short-term investments and other net assets.
RATINGS MOODY'S FITCH INTERNAL
AAA or Aaa 1.6% -- 0.8%
A 0.5% -- 2.8%
BBB or Baa 1.6% 0.3% 5.4%
- ------------------------------------------------------------
Total 3.7% 0.3% 9.0%
- --------------------------------------------------------------------------------
This annual report for Franklin California Intermediate-Term Tax-Free Income
Fund covers the fiscal year ended June 30, 2006.
PERFORMANCE OVERVIEW
The Fund's Class A share price, as measured by net asset value, decreased from
$11.68 on June 30, 2005, to $11.30 on June 30, 2006. The Fund's Class A shares
1. For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally taxable.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 54.
Annual Report | 19
PORTFOLIO BREAKDOWN
Franklin California Intermediate-Term
Tax-Free Income Fund
6/30/06
- --------------------------------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS*
- --------------------------------------------------------------------------------
General Obligation 24.5%
- --------------------------------------------------------------------------------
Tax-Supported 18.7%
- --------------------------------------------------------------------------------
Hospital & Health Care 15.3%
- --------------------------------------------------------------------------------
Utilities 11.1%
- --------------------------------------------------------------------------------
Prerefunded 10.0%
- --------------------------------------------------------------------------------
Subject to Government Appropriations 7.9%
- --------------------------------------------------------------------------------
Transportation 5.8%
- --------------------------------------------------------------------------------
Higher Education 2.4%
- --------------------------------------------------------------------------------
Other Revenue 2.2%
- --------------------------------------------------------------------------------
Housing 2.1%
- --------------------------------------------------------------------------------
* Does not include short-term investments and other net assets.
DIVIDEND DISTRIBUTIONS 2
Franklin California Intermediate-Term Tax-Free Income Fund
- --------------------------------------------------------------------------------
DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
July 3.53 cents 2.99 cents
- --------------------------------------------------------------------------------
August 3.53 cents 2.99 cents
- --------------------------------------------------------------------------------
September 3.53 cents 2.99 cents
- --------------------------------------------------------------------------------
October 3.53 cents 2.99 cents
- --------------------------------------------------------------------------------
November 3.53 cents 2.99 cents
- --------------------------------------------------------------------------------
December 3.53 cents 3.01 cents
- --------------------------------------------------------------------------------
January 3.53 cents 3.01 cents
- --------------------------------------------------------------------------------
February 3.53 cents 3.01 cents
- --------------------------------------------------------------------------------
March 3.57 cents 3.04 cents
- --------------------------------------------------------------------------------
April 3.57 cents 3.04 cents
- --------------------------------------------------------------------------------
May 3.57 cents 3.04 cents
- --------------------------------------------------------------------------------
June 3.57 cents 3.04 cents
================================================================================
TOTAL 42.52 CENTS 36.14 CENTS
- --------------------------------------------------------------------------------
paid dividends totaling 42.52 cents per share for the same period.2 The
Performance Summary beginning on page 22 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.71%, based on an
annualization of the current 3.57 cent per share dividend and the maximum
offering price of $11.56 on June 30, 2006. An investor in the 2006 maximum
combined effective federal and California personal income tax bracket of 41.05%
would need to earn a distribution rate of 6.29% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C
shares' performance, please see the Performance Summary.
INVESTMENT STRATEGY
We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should
2. Assumes shares were purchased and held for the entire accrual period,
which differs from the calendar month. Since dividends accrue daily, your
actual distributions will vary depending on the date you purchased your
shares and any account activity. All Fund distributions will vary
depending upon current market conditions, and past distributions are not
indicative of future trends.
20 | Annual Report
provide the most relative value in the market. As we invest throughout different
interest rate environments, the Fund's portfolio becomes well diversified with a
broad range of coupons, calls and maturities. This broad diversification may
help mitigate interest rate risk. We generally stay fully invested to maximize
income distributions.
MANAGER'S DISCUSSION
Consistent with our strategy, we sought to remain fully invested in a portfolio
of bonds that maintain an average weighted maturity of 3 to 10 years. We also
maintained our conservative, buy-and-hold investment strategy as we attempted to
provide shareholders with high, current, tax-free income.
Thank you for your participation in Franklin California Intermediate-Term
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 JUNE 30, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
Annual Report | 21
Performance Summary as of 6/30/06
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
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 and graphs do 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.
- ---------------------------------------------------------------------------------------------
CLASS A (SYMBOL: FKCIX) CHANGE 6/30/06 6/30/05
- ---------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.38 $11.30 $11.68
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS (JULY 2005-JUNE 2006)
- ---------------------------------------------------------------------------------------------
Dividend Income $0.4252
- ---------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FCCIX) CHANGE 6/30/06 6/30/05
- ---------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.38 $11.32 $11.70
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS (JULY 2005-JUNE 2006)
- ---------------------------------------------------------------------------------------------
Dividend Income $0.3614
- ---------------------------------------------------------------------------------------------
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN
INCLUDES MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ---------------------------------------------------------------------------------------------
CLASS A 1 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 2 +0.37% +21.72% +58.64%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 3 -1.89% +3.54% +4.49%
- ---------------------------------------------------------------------------------------------
Distribution Rate 4 3.71%
- ---------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 6.29%
- ---------------------------------------------------------------------------------------------
30-Day Standardized Yield(6) 3.51%
- ---------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.95%
CLASS C 1-YEAR 3-YEAR INCEPTION (7/1/03)
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 2 -0.18% +6.08% +6.09%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 3 -1.14% +1.99% +1.99%
- ---------------------------------------------------------------------------------------------
Distribution Rate 4 3.22%
- ---------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 5.46%
- ---------------------------------------------------------------------------------------------
30-Day Standardized Yield(6) 3.04%
- ---------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 5.16%
- ---------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
22 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index. The Consumer Price Index (CPI), calculated by the U.S.
Bureau of Labor Statistics, is a commonly used measure of the inflation rate.
CLASS A (7/1/96-6/30/06) 1
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN CALIFORNIA LEHMAN BROTHERS
INTERMEDIATE-TERM MUNICIPAL BOND INDEX:
DATE TAX-FREE INCOME FUND 10-YEAR COMPONENT 7 CPI 7
- --------------------------------------------------------------------------------
7/1/1996 $9,771 $10,000 $10,000
7/31/1996 $9,848 $10,096 $10,019
8/31/1996 $9,851 $10,096 $10,038
9/30/1996 $9,947 $10,200 $10,070
10/31/1996 $10,053 $10,329 $10,102
11/30/1996 $10,225 $10,538 $10,121
12/31/1996 $10,191 $10,490 $10,121
1/31/1997 $10,223 $10,532 $10,153
2/28/1997 $10,293 $10,631 $10,185
3/31/1997 $10,202 $10,489 $10,211
4/30/1997 $10,282 $10,566 $10,223
5/31/1997 $10,419 $10,715 $10,217
6/30/1997 $10,509 $10,834 $10,230
7/31/1997 $10,763 $11,138 $10,243
8/31/1997 $10,699 $11,030 $10,262
9/30/1997 $10,800 $11,170 $10,287
10/31/1997 $10,862 $11,229 $10,313
11/30/1997 $10,915 $11,281 $10,306
12/31/1997 $11,037 $11,459 $10,294
1/31/1998 $11,149 $11,586 $10,313
2/28/1998 $11,162 $11,585 $10,332
3/31/1998 $11,166 $11,578 $10,351
4/30/1998 $11,140 $11,514 $10,370
5/31/1998 $11,294 $11,710 $10,389
6/30/1998 $11,329 $11,753 $10,402
7/31/1998 $11,373 $11,771 $10,415
8/31/1998 $11,529 $11,976 $10,428
9/30/1998 $11,685 $12,154 $10,440
10/31/1998 $11,698 $12,159 $10,466
11/30/1998 $11,732 $12,196 $10,466
12/31/1998 $11,755 $12,234 $10,459
1/31/1999 $11,882 $12,421 $10,485
2/28/1999 $11,844 $12,310 $10,498
3/31/1999 $11,867 $12,303 $10,530
4/30/1999 $11,879 $12,336 $10,606
5/31/1999 $11,797 $12,250 $10,606
6/30/1999 $11,621 $12,022 $10,606
7/31/1999 $11,696 $12,103 $10,638
8/31/1999 $11,656 $12,058 $10,664
9/30/1999 $11,702 $12,099 $10,715
10/31/1999 $11,599 $12,013 $10,734
11/30/1999 $11,698 $12,145 $10,740
12/31/1999 $11,583 $12,081 $10,740
1/31/2000 $11,597 $12,032 $10,772
2/29/2000 $11,688 $12,127 $10,836
3/31/2000 $11,899 $12,362 $10,925
4/30/2000 $11,826 $12,300 $10,932
5/31/2000 $11,819 $12,227 $10,944
6/30/2000 $12,077 $12,560 $11,002
7/31/2000 $12,224 $12,733 $11,027
8/31/2000 $12,428 $12,931 $11,027
9/30/2000 $12,410 $12,871 $11,085
10/31/2000 $12,481 $13,003 $11,104
11/30/2000 $12,530 $13,074 $11,110
12/31/2000 $12,726 $13,381 $11,104
1/31/2001 $12,877 $13,554 $11,174
2/28/2001 $12,915 $13,577 $11,219
3/31/2001 $12,964 $13,692 $11,244
4/30/2001 $12,819 $13,523 $11,289
5/31/2001 $12,972 $13,670 $11,340
6/30/2001 $13,033 $13,752 $11,359
7/31/2001 $13,187 $13,940 $11,327
8/31/2001 $13,412 $14,178 $11,327
9/30/2001 $13,392 $14,158 $11,378
10/31/2001 $13,524 $14,333 $11,340
11/30/2001 $13,422 $14,149 $11,321
12/31/2001 $13,292 $13,999 $11,276
1/31/2002 $13,505 $14,263 $11,302
2/28/2002 $13,648 $14,467 $11,347
3/31/2002 $13,334 $14,169 $11,410
4/30/2002 $13,594 $14,498 $11,474
5/31/2002 $13,698 $14,566 $11,474
6/30/2002 $13,791 $14,747 $11,481
7/31/2002 $13,945 $14,943 $11,493
8/31/2002 $14,135 $15,138 $11,532
9/30/2002 $14,424 $15,499 $11,551
10/31/2002 $14,091 $15,218 $11,570
11/30/2002 $14,050 $15,093 $11,570
12/31/2002 $14,317 $15,423 $11,544
1/31/2003 $14,214 $15,341 $11,595
2/28/2003 $14,434 $15,606 $11,685
3/31/2003 $14,430 $15,613 $11,755
4/30/2003 $14,526 $15,730 $11,729
5/31/2003 $14,847 $16,180 $11,710
6/30/2003 $14,743 $16,103 $11,723
7/31/2003 $14,210 $15,427 $11,736
8/31/2003 $14,332 $15,559 $11,780
9/30/2003 $14,720 $16,083 $11,819
10/31/2003 $14,639 $15,960 $11,806
11/30/2003 $14,762 $16,132 $11,774
12/31/2003 $14,885 $16,302 $11,761
1/31/2004 $14,957 $16,371 $11,819
2/29/2004 $15,222 $16,659 $11,883
3/31/2004 $15,153 $16,564 $11,959
4/30/2004 $14,799 $16,107 $11,997
5/31/2004 $14,730 $16,116 $12,068
6/30/2004 $14,816 $16,170 $12,106
7/31/2004 $14,980 $16,391 $12,087
8/31/2004 $15,263 $16,750 $12,093
9/30/2004 $15,336 $16,839 $12,119
10/31/2004 $15,450 $16,973 $12,183
11/30/2004 $15,312 $16,781 $12,189
12/31/2004 $15,478 $16,978 $12,144
1/31/2005 $15,605 $17,122 $12,170
2/28/2005 $15,518 $17,014 $12,240
3/31/2005 $15,392 $16,865 $12,336
4/30/2005 $15,654 $17,192 $12,419
5/31/2005 $15,715 $17,308 $12,406
6/30/2005 $15,803 $17,408 $12,412
7/31/2005 $15,715 $17,259 $12,470
8/31/2005 $15,858 $17,469 $12,534
9/30/2005 $15,770 $17,311 $12,687
10/31/2005 $15,668 $17,179 $12,712
11/30/2005 $15,744 $17,286 $12,610
12/31/2005 $15,861 $17,444 $12,559
1/31/2006 $15,911 $17,501 $12,655
2/28/2006 $15,987 $17,604 $12,680
3/31/2006 $15,870 $17,424 $12,750
4/30/2006 $15,850 $17,393 $12,859
5/31/2006 $15,914 $17,512 $12,923
6/30/2006 $15,509 $17,434 $12,948
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS A 1 6/30/06
- --------------------------------------------------------------------------------
1-Year -1.89%
- --------------------------------------------------------------------------------
5-Year +3.54%
- --------------------------------------------------------------------------------
10-Year +4.49%
- --------------------------------------------------------------------------------
CLASS C (7/1/03-6/30/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN CALIFORNIA LEHMAN BROTHERS
INTERMEDIATE-TERM MUNICIPAL BOND INDEX:
DATE TAX-FREE INCOME FUND 10-YEAR COMPONENT 7 CPI 7
- --------------------------------------------------------------------------------
7/1/2003 $10,000 $10,000 $10,000
7/31/2003 $9,641 $9,580 $10,011
8/31/2003 $9,719 $9,662 $10,049
9/30/2003 $9,977 $9,988 $10,082
10/31/2003 $9,918 $9,911 $10,071
11/30/2003 $10,005 $10,018 $10,044
12/31/2003 $10,084 $10,124 $10,033
1/31/2004 $10,128 $10,167 $10,082
2/29/2004 $10,302 $10,345 $10,136
3/31/2004 $10,242 $10,286 $10,201
4/30/2004 $9,998 $10,002 $10,234
5/31/2004 $9,956 $10,008 $10,294
6/30/2004 $10,000 $10,042 $10,327
7/31/2004 $10,106 $10,179 $10,310
8/31/2004 $10,300 $10,402 $10,316
9/30/2004 $10,345 $10,457 $10,338
10/31/2004 $10,417 $10,541 $10,392
11/30/2004 $10,320 $10,421 $10,397
12/31/2004 $10,426 $10,544 $10,359
1/31/2005 $10,507 $10,633 $10,381
2/28/2005 $10,444 $10,566 $10,441
3/31/2005 $10,354 $10,474 $10,523
4/30/2005 $10,525 $10,676 $10,593
5/31/2005 $10,561 $10,748 $10,582
6/30/2005 $10,615 $10,810 $10,588
7/31/2005 $10,551 $10,718 $10,637
8/31/2005 $10,642 $10,848 $10,691
9/30/2005 $10,578 $10,750 $10,822
10/31/2005 $10,505 $10,669 $10,844
11/30/2005 $10,551 $10,735 $10,757
12/31/2005 $10,624 $10,833 $10,713
1/31/2006 $10,653 $10,868 $10,795
2/28/2006 $10,699 $10,933 $10,817
3/31/2006 $10,616 $10,820 $10,876
4/30/2006 $10,598 $10,801 $10,969
5/31/2006 $10,645 $10,875 $11,023
6/30/2006 $10,609 $10,826 $11,045
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------
CLASS C 6/30/06
- -------------------------------------------------------------------------------
1-Year -1.14%
- -------------------------------------------------------------------------------
3-Year +1.99%
- -------------------------------------------------------------------------------
Since Inception (7/1/03) +1.99%
- -------------------------------------------------------------------------------
Annual Report | 23
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE 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 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.
1. Past expense reductions by the Fund's manager increased the Fund's total
returns. If the manager had not taken this action, the Fund's total
returns would have been lower.
2. Cumulative total return represents the change in value of an investment
over the periods indicated.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated.
4. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Class C)
per share on 6/30/06.
5. Taxable equivalent distribution rate and yield assume the published rates
as of 6/22/06 for the maximum combined effective federal and California
personal income tax rate of 41.05%, based on the federal income tax rate
of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/06.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond
Index: 10-Year Component is the 10-year (8-12) component of the
Municipal Bond Index, which is a market value-weighted index engineered for the
long-term tax-exempt bond market. All bonds included have a minimum credit
rating of at least Baa. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million. The
bonds must be dated after 12/31/90, and must be at least one year from their
maturity date. Remarketed issues, taxable municipal bonds, bonds with floating
rates and derivatives are excluded from the index. The index has four main bond
sectors: general obligation, revenue, insured and prerefunded.
24 | Annual Report
Your Fund's Expenses
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 25
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ----------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,000.10 $3.27
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.52 $3.31
- ----------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 997.40 $5.84
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.84 $5.91
- ----------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
0.66% and C: 1.18%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
26 | Annual Report
Franklin California Limited-Term Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Limited-Term 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 the preservation of capital, by investing at least 80% of its net
assets in securities that pay interest free from such taxes. 1 The Fund
maintains a dollar-weighted average portfolio maturity (the time at which the
debt must be repaid) of five years or less.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
CREDIT QUALITY BREAKDOWN*
Franklin California Limited-Term Tax-Free Income Fund
Based on Total Long-Term Investments as of 6/30/06**
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE GRAPH IN THE PRINTED MATERIAL.]
AAA .......................... 54.8%
AA ........................... 6.9%
A ............................ 26.2%
Not Rated by S&P ............. 12.1%
* 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. NR
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
AAA or Aaa 1.3% 6.6%
AA or Aa 4.2% --
- ---------------------------------------------------------
Total 5.5% 6.6%
- --------------------------------------------------------------------------------
This annual report for Franklin California Limited-Term Tax-Free Income Fund
covers the fiscal year ended June 30, 2006.
PERFORMANCE OVERVIEW
The Fund's Class A share price, as measured by net asset value, decreased from
$9.94 on June 30, 2005, to $9.80 on June 30, 2006. The Fund's Class A shares
1. For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 63.
Annual Report | 27
PORTFOLIO BREAKDOWN
Franklin California Limited-Term
Tax-Free Income Fund
6/30/06
- --------------------------------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS*
- --------------------------------------------------------------------------------
General Obligation 22.9%
- --------------------------------------------------------------------------------
Utilities 21.4%
- --------------------------------------------------------------------------------
Hospital & Health Care 15.4%
- --------------------------------------------------------------------------------
Tax-Supported 12.7%
- --------------------------------------------------------------------------------
Higher Education 12.2%
- --------------------------------------------------------------------------------
Subject to Government Appropriations 8.1%
- --------------------------------------------------------------------------------
Other Revenue 4.1%
- --------------------------------------------------------------------------------
Transportation 3.2%
- --------------------------------------------------------------------------------
* Does not include short-term investments and other net assets.
DIVIDEND DISTRIBUTIONS 2
Franklin California Limited-Term
Tax-Free Income Fund - Class A
- --------------------------------------------------------------------------------
MONTH DIVIDEND PER SHARE
- --------------------------------------------------------------------------------
July 1.67 cents
- --------------------------------------------------------------------------------
August 1.67 cents
- --------------------------------------------------------------------------------
September 1.67 cents
- --------------------------------------------------------------------------------
October 1.67 cents
- --------------------------------------------------------------------------------
November 1.67 cents
- --------------------------------------------------------------------------------
December 1.67 cents
- --------------------------------------------------------------------------------
January 1.67 cents
- --------------------------------------------------------------------------------
February 1.67 cents
- --------------------------------------------------------------------------------
March 1.85 cents
- --------------------------------------------------------------------------------
April 1.85 cents
- --------------------------------------------------------------------------------
May 2.08 cents
- --------------------------------------------------------------------------------
June 2.08 cents
================================================================================
TOTAL 21.22 CENTS
- --------------------------------------------------------------------------------
paid dividends totaling 21.22 cents per share for the same period.2 The
Performance Summary beginning on page 29 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 2.61%. An investor in
the 2006 maximum combined effective federal and California personal income tax
bracket of 41.05% would need to earn a distribution rate of 4.43% from a taxable
investment to match the Fund's Class A tax-free distribution rate.
INVESTMENT STRATEGY
We generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. We generally stay
fully invested to maximize income distribution.
MANAGER'S DISCUSSION
Consistent with our investment strategy, we invested in bonds we believed could
provide the most relative value from an income perspective. Seeking a
dollar-weighted average portfolio maturity of five years or less, we
concentrated in the one- to two-year range in an effort to take advantage of
rising yields. As a result of our strategy, the Fund was positioned to capture
changes in short-term interest rates, preserve capital and produce tax-free
income.
Thank you for your participation in Franklin California Limited-Term Tax-Free
Income Fund. We look forward to serving your future investment needs.
2. Assumes shares were purchased and held for the entire accrual period,
which differs from the calendar month. Since dividends accrue daily, your
actual distributions will vary depending on the date you purchased your
shares and any account activity. All Fund distributions will vary
depending upon current market conditions, and past distributions are not
indicative of future trends.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
28 | Annual Report
Performance Summary as of 6/30/06
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table and graph do 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: FCALX) CHANGE 6/30/06 6/30/05
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.14 $9.80 $9.94
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (JULY 2005-JUNE 2006)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.2122
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURN
INCLUDES THE MAXIMUM SALES CHARGE. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE.
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ----------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR INCEPTION (9/2/03)
- ----------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +0.74% +2.68%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -1.54% +0.13%
- ----------------------------------------------------------------------------------------------------------
Distribution Rate 4 2.61%
- ----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 5 4.43%
- ----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 6 2.88%
- ----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5 4.89%
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 29
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes Fund expenses, account fees and reinvested distributions. The
unmanaged index includes reinvestment of any income or distributions. It differs
from the Fund in composition and does not pay management fees or expenses. One
cannot invest directly in an index. The Consumer Price Index (CPI), calculated
by the U.S. Bureau of Labor Statistics, is a commonly used measure of the
inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------
CLASS A 6/30/06
- -------------------------------------------------------------------------------
1-Year -1.54%
- -------------------------------------------------------------------------------
Since Inception (9/2/03) +0.13%
- -------------------------------------------------------------------------------
CLASS A (9/2/03-6/30/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN CALIFORNIA LEHMAN BROTHERS
LIMITED-TERM MUNICIPAL BOND INDEX:
DATE TAX-FREE INCOME FUND 5-YEAR COMPONENT 7 CPI 7
- --------------------------------------------------------------------------------
9/2/2003 $9,775 $10,000 $10,000
9/30/2003 $9,873 $10,253 $10,033
10/31/2003 $9,814 $10,186 $10,022
11/30/2003 $9,824 $10,227 $9,995
12/31/2003 $9,844 $10,267 $9,984
1/31/2004 $9,873 $10,316 $10,033
2/29/2004 $9,942 $10,442 $10,087
3/31/2004 $9,914 $10,398 $10,152
4/30/2004 $9,807 $10,190 $10,184
5/31/2004 $9,750 $10,137 $10,244
6/30/2004 $9,781 $10,175 $10,276
7/31/2004 $9,842 $10,269 $10,260
8/31/2004 $9,913 $10,449 $10,265
9/30/2004 $9,905 $10,463 $10,287
10/31/2004 $9,926 $10,521 $10,341
11/30/2004 $9,888 $10,452 $10,347
12/31/2004 $9,920 $10,547 $10,309
1/31/2005 $9,922 $10,544 $10,330
2/28/2005 $9,895 $10,492 $10,390
3/31/2005 $9,877 $10,425 $10,471
4/30/2005 $9,909 $10,546 $10,542
5/31/2005 $9,922 $10,576 $10,531
6/30/2005 $9,955 $10,625 $10,536
7/31/2005 $9,942 $10,567 $10,585
8/31/2005 $9,959 $10,634 $10,639
9/30/2005 $9,976 $10,615 $10,769
10/31/2005 $9,962 $10,570 $10,791
11/30/2005 $9,949 $10,595 $10,704
12/31/2005 $9,976 $10,647 $10,661
1/31/2006 $9,993 $10,671 $10,742
2/28/2006 $10,000 $10,691 $10,764
3/31/2006 $9,988 $10,649 $10,823
4/30/2006 $10,007 $10,672 $10,915
5/31/2006 $10,028 $10,709 $10,970
6/30/2006 $10,037 $10,659 $10,991
30 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE 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.
1. The Fund's manager has agreed in advance to waive a portion of its
management fees. If the manager had not taken this action, the Fund's
distribution rate and total return would have been lower, and yield for
the period would have been 2.22%. The fee waiver may be discontinued at
any time upon notice to the Fund's Board of Trustees.
2. Cumulative total return represents the change in value of an investment
over the periods indicated.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated.
4. Distribution rate is based on an annualization of the current 2.18 cent
per share monthly dividend and the maximum offering price of $10.03 per
share on 6/30/06.
5. Taxable equivalent distribution rate and yield assume the published rates
as of 6/22/06 for the maximum combined effective federal and California
personal income tax rate of 41.05%, based on the federal income tax rate
of 35.00%.
6. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/06.
7. Source: Standard & Poor's Micropal. The Lehman Brothers Municipal Bond
Index: 5-Year Component is the 5-year (4-6) component of the Municipal
Bond Index, which is a market value-weighted index engineered for the long-term
tax-exempt bond market. All bonds included have a minimum credit rating of at
least Baa. They must have an outstanding par value of at least $7 million and be
issued as part of a transaction of at least $75 million. The bonds must be dated
after 12/31/90, and must be at least one year from their maturity date.
Remarketed issues, taxable municipal bonds, bonds with floating rates and
derivatives are excluded from the index. The index has four main bond sectors:
general obligation, revenue, insured and prerefunded.
Annual Report | 31
Your Fund's Expenses
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
32 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,005.40 $2.49
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ---------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, of 0.50%, multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
Annual Report | 33
Franklin California Tax-Exempt Money Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Tax-Exempt Money 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
the preservation of capital and liquidity. 1 The Fund's portfolio invests at
least 80% of its total assets in short-term municipal debt securities issued in
California. The Fund tries to maintain a stable $1.00 share price.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN WILL FLUCTUATE. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC) OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin California Tax-Exempt Money Fund's annual
report for the fiscal year ended June 30, 2006.
PERFORMANCE OVERVIEW
With rising short-term interest rates, money market portfolio yields climbed
during the period. Largely as a result, Franklin California Tax-Exempt Money
Fund's seven-day effective yield rose from 1.79% at the beginning of the period
to 3.20% on June 30, 2006.
INVESTMENT STRATEGY
We invest predominantly in high quality, short-term municipal securities whose
interest is free from federal and California state personal income tax. Although
the Fund tries to invest all of its assets in tax-free securities, it is
possible, although not anticipated, that a portion of its assets may be in
securities that pay taxable interest, including interest that may be subject to
federal alternative minimum tax. We maintain a dollar-weighted average portfolio
maturity of 90 days or less.
1. For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 66.
34 | Annual Report
MANAGER'S DISCUSSION
Short-term municipal bond yields increased during the reporting period,
reflecting the Federal Reserve Board's eight consecutive increases to the
federal funds target rate. The Bond Market Association Municipal Swap Index, a
benchmark for variable rate securities, which make up a large portion of
Franklin California Tax-Exempt Money Fund, averaged a rate of 3.00% for the
period under review. 2
The Fund participated in several new issues during the period under review
including the California School Cash Reserves Program notes, Los Angeles County
tax and revenue anticipation notes, and the California State University
tax-exempt commercial paper program.
Thank you for your continued participation in Franklin California Tax-Exempt
Money Fund. We look forward to serving your future investment needs.
2. Source: Thomson Financial. The Bond Market Association Municipal Swap
Index is a weekly high-grade market index composed of seven-day tax-exempt
variable rate demand notes produced by the Municipal Market Data Group.
Actual issues are selected from Municipal Market Data's database of more
than 10,000 active issues based on several specific criteria.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
PERFORMANCE SUMMARY
Franklin California Tax-Exempt Money Fund
Symbol: FCLXX
6/30/06
- --------------------------------------------------------------------------------
Seven-day effective yield 1 3.20%
- --------------------------------------------------------------------------------
Seven-day annualized yield 3.16%
- --------------------------------------------------------------------------------
Taxable equivalent yield 2 5.35%
- --------------------------------------------------------------------------------
1. Seven-day effective yield assumes the compounding of daily dividends.
2. Taxable equivalent yield assumes the published rates as of 6/22/06 for the
maximum combined effective federal and California personal income tax rate
of 41.05%, based on the federal income tax rate of 35.00%.
Annualized and effective yields are for the seven-day period ended 6/30/06. The
Fund's average weighted maturity was 58 days. Yield reflects Fund expenses and
fluctuations in interest rates on portfolio investments.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN WILL FLUCTUATE. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Franklin California Tax-Exempt Money Fund
6/30/06
- --------------------------------------------------------------------------------
% OF TOTAL
INVESTMENTS
- --------------------------------------------------------------------------------
Variable Rate Notes 73.0%
- --------------------------------------------------------------------------------
Notes and Bonds 19.8%
- --------------------------------------------------------------------------------
Tax-Exempt Commercial Paper 5.8%
- --------------------------------------------------------------------------------
Put or Option Tender Bonds 1.4%
- --------------------------------------------------------------------------------
Annual Report | 35
Your Fund's Expenses
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) listed in the table below provides actual account values
and expenses. The "Ending Account Value" is derived from the Fund's actual
return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) of 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 Fund's actual expense ratio 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.
36 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line of the table 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 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,013.10 $2.75
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.07 $2.76
- ---------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 0.55%, multiplied by
the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.
Annual Report | 37
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
-----------------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS A 2006 2005 2004 2003 2002
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 12.85 $ 12.24 $ 12.83 $ 12.32 $ 12.17
-----------------------------------------------------------------------
Income from investment operations: a
Net investment income b .............................. 0.55 0.55 0.56 0.57 0.59
Net realized and unrealized gains (losses) ........... (0.43) 0.62 (0.59) 0.51 0.15
-----------------------------------------------------------------------
Total from investment operations ...................... 0.12 1.17 (0.03) 1.08 0.74
-----------------------------------------------------------------------
Less distributions from net investment income ......... (0.54) (0.56) (0.56) (0.57) (0.59)
-----------------------------------------------------------------------
Redemption fees ....................................... -- d -- d -- -- --
-----------------------------------------------------------------------
Net asset value, end of year .......................... $ 12.43 $ 12.85 $ 12.24 $ 12.83 $ 12.32
=======================================================================
Total return c ........................................ 0.96% 9.70% (0.22)% 8.97% 6.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $1,751,279 $1,780,642 $1,698,669 $1,912,784 $1,789,914
Ratios to average net assets:
Expenses ............................................. 0.61% 0.61% 0.61% 0.61% 0.61%
Net investment income ................................ 4.34% 4.38% 4.51% 4.50% 4.74%
Portfolio turnover rate ............................... 5.75% 3.87% 12.21% 9.79% 16.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to timing of
sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b Based on average shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
d Amount is less than $0.01 per share.
38 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
-------------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS B 2006 2005 2004 2003 2002
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................... $ 12.91 $ 12.29 $ 12.88 $ 12.37 $ 12.21
-------------------------------------------------------------------
Income from investment operations: a
Net investment income b ................................... 0.48 0.49 0.50 0.50 0.53
Net realized and unrealized gains (losses) ................ (0.43) 0.62 (0.60) 0.51 0.15
-------------------------------------------------------------------
Total from investment operations ........................... 0.05 1.11 (0.10) 1.01 0.68
-------------------------------------------------------------------
Less distributions from net investment income .............. (0.47) (0.49) (0.49) (0.50) (0.52)
-------------------------------------------------------------------
Redemption fees ............................................ -- d -- d -- -- --
-------------------------------------------------------------------
Net asset value, end of year ............................... $ 12.49 $ 12.91 $ 12.29 $ 12.88 $ 12.37
===================================================================
Total return c ............................................. 0.41% 9.15% (0.77)% 8.34% 5.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................ $68,922 $78,038 $77,169 $85,698 $56,303
Ratios to average net assets:
Expenses .................................................. 1.16% 1.16% 1.16% 1.16% 1.16%
Net investment income ..................................... 3.79% 3.83% 3.96% 3.95% 4.20%
Portfolio turnover rate .................................... 5.75% 3.87% 12.21% 9.79% 16.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to timing of
sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b Based on average shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
d Amount is less than $0.01 per share.
Annual Report | See notes to financial statements. | 39
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
------------------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS C 2006 2005 2004 2003 2002
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 12.97 $ 12.34 $ 12.93 $ 12.41 $ 12.26
------------------------------------------------------------------------
Income from investment operations: a
Net investment income b .............................. 0.48 0.49 0.50 0.50 0.53
Net realized and unrealized gains (losses) ........... (0.43) 0.63 (0.60) 0.52 0.14
------------------------------------------------------------------------
Total from investment operations ...................... 0.05 1.12 (0.10) 1.02 0.67
------------------------------------------------------------------------
Less distributions from net investment income ......... (0.47) (0.49) (0.49) (0.50) (0.52)
------------------------------------------------------------------------
Redemption fees ....................................... -- d -- d -- -- --
------------------------------------------------------------------------
Net asset value, end of year .......................... $ 12.55 $ 12.97 $ 12.34 $ 12.93 $ 12.41
========================================================================
Total returnc ......................................... 0.40% 9.19% (0.78)% 8.39% 5.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $133,560 $129,156 $120,610 $136,674 $108,802
Ratios to average net assets:
Expenses ............................................. 1.16% 1.16% 1.16% 1.16% 1.16%
Net investment income ................................ 3.79% 3.83% 3.96% 3.95% 4.19%
Portfolio turnover rate ............................... 5.75% 3.87% 12.21% 9.79% 16.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to timing of
sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b Based on average shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
d Amount is less than $0.01 per share.
40 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
MUNICIPAL BONDS 98.8%
CALIFORNIA 98.8%
ABAG Finance Authority for Nonprofit Corps. COP,
Lincoln Child Center Inc., California Mortgage Insured, 6.125%, 11/01/24 .................... $ 2,055,000 $ 2,154,626
Lytton Gardens Inc., California Mortgage Insured, 6.00%, 2/15/30 ............................ 3,500,000 3,629,010
Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ............................... 5,000,000 5,154,400
ABAG Finance Authority for Nonprofit Corps. Revenue,
Poway Retirement Housing Foundation Housing Inc. Project, Series A, California Mortgage
Insured, 5.375%, 11/15/25 .................................................................. 5,145,000 5,343,751
Sansum-Santa Barbara, Refunding, Series A, California Mortgage Insured, 5.60%,
4/01/26 .................................................................................... 2,750,000 2,833,930
Acalanes UHSD, GO, Capital Appreciation, Election of 2002, Series A, FGIC Insured,
zero cpn., 8/01/25 ........................................................................... 9,045,000 3,350,178
Alameda Corridor Transportation Authority Revenue, AMBAC Insured, zero cpn. to 10/01/12,
5.25% thereafter, 10/01/21 .................................................................. 64,660,000 48,799,549
5.45% thereafter, 10/01/25 .................................................................. 25,000,000 18,794,000
Alameda Power and Telecommunication Electric System Revenue COP, MBIA Insured, 5.75%,
7/01/30 ...................................................................................... 3,305,000 3,555,750
Alhambra City Elementary School District GO,
Capital Appreciation, Election of 1999, Series B, FGIC Insured, zero cpn., 9/01/27 .......... 3,035,000 1,065,589
Series A, FSA Insured, Pre-Refunded, 5.60%, 9/01/24 ......................................... 2,065,000 2,193,319
Antelope Valley UHSD, GO, Series A, MBIA Insured, 5.00%, 2/01/27 ............................... 5,000,000 5,119,350
Arcata Joint Powers Financing Authority Wastewater Revenue, FSA Insured, 5.80%,
12/01/22 ..................................................................................... 1,080,000 1,131,052
Atascadero CDA Tax Allocation, Redevelopment Project, XLCA Insured, 5.00%, 9/01/34 ............. 4,315,000 4,358,927
Baldwin Park RDA Tax Allocation, Refunding, FSA Insured, 5.70%, 9/01/25 ........................ 4,000,000 4,351,160
Beaumont USD, COP, Refunding, Series A, FSA Insured, 5.80%, 1/01/21 ............................ 1,500,000 1,544,415
Brea and Olinda USD, GO, Series A, FGIC Insured, 5.60%, 8/01/20 ................................ 1,000,000 1,063,460
Brentwood Infrastructure Financing Authority Infrastructure Revenue, Refunding, Series A,
FSA Insured, 5.00%, 9/02/32 .................................................................. 3,800,000 3,820,406
Cabrillo Community College District GO, Series C, AMBAC Insured, Pre-Refunded, 5.375%,
5/01/26 ...................................................................................... 5,400,000 5,790,960
Calexico USD, CFD No. 1 Special Tax, AMBAC Insured, Pre-Refunded, 5.60%, 9/01/17 ............... 2,930,000 3,049,632
California Community College Financing Authority Lease Revenue, Grossmont Palomar and
Shasta, Series A, MBIA Insured, 5.125%, 4/01/31 .............................................. 3,030,000 3,119,961
California Educational Facilities Authority Revenue,
Pomona College, Series B, Pre-Refunded, 5.50%, 7/01/29 ...................................... 4,455,000 4,707,955
Stanford University, Refunding, Series M, 5.25%, 12/01/26 ................................... 6,450,000 6,642,016
Stanford University, Refunding, Series O, 5.125%, 1/01/31 ................................... 24,705,000 25,342,142
Stanford University, Series N, 5.35%, 6/01/27 ............................................... 21,250,000 21,852,437
Stanford University, Series N, 5.20%, 12/01/27 .............................................. 6,000,000 6,157,920
Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 ................................ 245,000 252,032
University of Southern California, Series C, Pre-Refunded, 5.125%, 10/01/28 ................. 3,845,000 3,949,007
California Health Facilities Financing Authority Revenue,
Catholic Healthcare West, 2005, Refunding, Series A, 5.00%, 7/01/28 ......................... 12,995,000 13,018,131
Catholic Healthcare West, 2005, Series A, Pre-Refunded, 5.00%, 7/01/28 ...................... 2,005,000 2,069,982
Catholic Healthcare West, Refunding, ACA Insured, 5.00%, 7/01/28 ............................ 10,000,000 9,868,600
Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 ................. 3,970,000 4,056,705
Catholic Healthcare West, Series A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/17 .............. 1,030,000 1,050,600
Annual Report | 41
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Health Facilities Financing Authority Revenue, (continued)
Community Health Facilities, Series A, California Mortgage Insured, 5.80%, 8/01/25 ............ $ 1,160,000 $ 1,220,042
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 .............................................. 15,400,000 15,789,620
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/18 ............................................. 5,000,000 5,136,250
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/20 ............................................. 4,000,000 4,100,360
Marshall Hospital, Series A, California Mortgage Insured, 5.30%, 11/01/28 ..................... 3,325,000 3,379,497
Northern California Presbyterian, 5.40%, 7/01/28 .............................................. 5,000,000 5,024,200
Orange County Health Facility, Series A, California Mortgage Insured, 6.20%,
11/01/24 ..................................................................................... 3,435,000 3,600,258
Senior Living, Aldersly, Series A, California Mortgage Insured, 5.25%, 3/01/32 ................ 2,000,000 2,046,040
Sutter Health, Refunding, Series A, MBIA Insured, 5.00%, 8/15/19 .............................. 1,700,000 1,750,303
Sutter Health, Refunding, Series A, MBIA Insured, 5.00%, 8/15/38 .............................. 4,000,000 4,032,040
The Help Group, California Mortgage Insured, 5.40%, 8/01/22 ................................... 5,000,000 5,156,550
True to Life Children's Services, Series A, California Mortgage Insured, 5.625%,
9/01/25 ...................................................................................... 1,250,000 1,301,188
UCSF-Stanford Health Care, Series A, FSA Insured, 5.00%, 11/15/28 ............................. 9,530,000 9,670,949
California HFAR, Home Mortgage, Series N, AMBAC Insured, zero cpn. to 2/01/10,
6.30% thereafter, 8/01/31 ...................................................................... 240,000 193,164
California Infrastructure and Economic Development Bank Revenue, Bay Area Toll Bridges,
first lien, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/33 .............................. 8,460,000 9,002,455
California PCFA, PCR, Southern California Edison Co., Series C, MBIA Insured, 5.55%,
9/01/31 ........................................................................................ 4,800,000 4,976,544
California Public School District Financing Authority Lease Revenue, Southern Kern USD,
Series B, FSA Insured, ETM, 5.90%, 9/01/26 ..................................................... 1,615,000 1,848,028
California State Department of Water Resources Central Valley Project Revenue, Water System,
Series Q, MBIA Insured,
5.375%, 12/01/27 .............................................................................. 365,000 372,720
Pre-Refunded, 5.375%, 12/01/27 ................................................................ 635,000 648,684
California State Department of Water Resources Water Revenue,
Central Valley Project, Refunding, Series AD, FSA Insured, 5.00%, 12/01/26 .................... 2,170,000 2,235,925
Series W, FSA Insured, 5.125%, 12/01/29 ....................................................... 5,000,000 5,114,500
System, Central Valley Project, Refunding, Series AC, MBIA Insured, 5.00%,
12/01/26 ..................................................................................... 3,575,000 3,678,603
California State GO,
5.00%, 10/01/27 ............................................................................... 30,790,000 31,200,431
AMBAC Insured, 6.30%, 9/01/06 ................................................................. 9,000,000 9,035,100
FGIC Insured, 5.375%, 6/01/26 ................................................................. 1,610,000 1,636,114
FSA Insured, Pre-Refunded, 5.50%, 9/01/29 ..................................................... 34,500,000 36,542,400
MBIA Insured, 6.00%, 8/01/16 .................................................................. 210,000 210,323
MBIA Insured, 6.00%, 10/01/21 ................................................................. 65,000 65,344
Refunding, 5.125%, 6/01/31 .................................................................... 25,000,000 25,426,500
Refunding, MBIA Insured, 5.00%, 8/01/29 ....................................................... 20,250,000 20,554,357
California State Local Government Finance Authority Revenue, Marin Valley Mobile,
Senior Series A, FSA Insured, 5.80%, 10/01/20 .................................................. 4,275,000 4,458,611
California State Public Works Board Lease Revenue, Department of Mental Health Hospital,
Series A, AMBAC Insured, 5.00%,
12/01/21 ...................................................................................... 4,100,000 4,191,389
12/01/26 ...................................................................................... 5,675,000 5,734,190
42 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State University Foundation Revenue, Monterey Bay, MBIA Insured, Pre-Refunded,
5.35%, 6/01/31 ............................................................................... $ 2,000,000 $ 2,132,800
California State University of Los Angeles Auxiliary Services Inc. Revenue, MBIA Insured,
Pre-Refunded, 5.125%, 6/01/33 ................................................................ 3,200,000 3,380,576
California State University Revenue, Systemwide, Series C, MBIA Insured, 5.00%,
11/01/28 ..................................................................................... 23,215,000 23,787,018
California State University Revenue and Colleges Revenue, Systemwide, Series A,
AMBAC Insured, 5.00%, 11/01/33 ............................................................... 22,000,000 22,295,680
California Statewide CDA,
COP, California Mortgage Insured, 5.75%, 8/01/21 ........................................... 9,585,000 10,097,127
COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ...................................... 12,250,000 12,441,100
COP, FSA Insured, 5.50%, 8/15/31 ........................................................... 7,000,000 7,380,310
COP, Kaiser Permanente, ETM, 5.30%, 12/01/15 ............................................... 9,700,000 10,048,230
COP, MBIA Insured, 5.00%, 4/01/18 .......................................................... 3,000,000 3,079,200
MFHR, Silver Ridge Apartments, Mandatory Put 8/01/21, Series H, FNMA Insured, 5.80%,
8/01/33 ................................................................................... 2,785,000 2,927,313
California Statewide CDA Revenue,
Brentwood School, Series A, FSA Insured, 5.25%, 10/01/29 ................................... 7,625,000 7,877,006
COP, John Muir/Mt. Diablo Health System, MBIA Insured, 5.125%, 8/15/22 ..................... 5,000,000 5,154,800
Hospital Monterey Peninsula, Series B, FSA Insured, 5.25%, 6/01/23 ......................... 2,000,000 2,105,040
Refunding, California Mortgage Insured, 5.00%, 8/01/21 ..................................... 2,035,000 2,078,651
California Statewide CDA Water and Wastewater Revenue, Pooled Financing Program,
Series A, FSA Insured, 5.00%, 10/01/32 ..................................................... 9,320,000 9,423,732
Series B, FSA Insured, 5.75%, 10/01/29 ..................................................... 1,465,000 1,552,856
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 ....................................... 3,420,000 3,657,837
Campbell USD, GO, FSA Insured, 5.00%, 8/01/27 .................................................. 7,150,000 7,326,462
Castaic Lake Water Agency Revenue COP, Series A, MBIA Insured, 5.00%, 8/01/29 .................. 8,000,000 8,100,480
Chaffey Community College District GO,
Refunding, Series A, FSA Insured, 5.00%, 7/01/27 ........................................... 270,000 276,550
Series A, FSA Insured, Pre-Refunded, 5.00%, 7/01/27 ........................................ 5,480,000 5,848,585
Charter Oak USD, GO, Election of 2000, Series D, FGIC Insured, 5.00%, 8/01/30 .................. 3,115,000 3,199,230
Chico PFAR, Merged Redevelopment Project Area, MBIA Insured, 5.125%, 4/01/24 ................... 2,790,000 2,883,716
Chino Basin Regional Financing Authority Revenue, Municipal Water District, Sewer System
Project, Refunding, AMBAC Insured, 6.00%, 8/01/16 ............................................ 2,000,000 2,003,120
Chula Vista Elementary School District GO, Election of 1998, Series F, MBIA Insured, 5.00%,
8/01/28 ...................................................................................... 2,685,000 2,743,909
Clovis PFAR, 2001 Corp. Yard Project, AMBAC Insured, 5.00%, 3/01/27 ............................ 3,265,000 3,321,027
Coachella Valley USD, GO, Election of 2005, Series A, FGIC Insured, 5.00%,
8/01/27 .................................................................................... 3,650,000 3,743,549
8/01/28 .................................................................................... 3,850,000 3,942,939
Compton USD, GO, Election of 2002, Series B, MBIA Insured, Pre-Refunded, 5.00%,
6/01/29 ...................................................................................... 2,000,000 2,131,500
Corona-Norco USD,
COP, Refunding, FSA Insured, 5.125%, 4/15/25 ............................................... 5,355,000 5,471,525
COP, Refunding, FSA Insured, 5.125%, 4/15/29 ............................................... 2,540,000 2,586,431
Annual Report | 43
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Corona-Norco USD, (continued)
GO, Capital Appreciation, Series B, FSA Insured, zero cpn., 9/01/23 ........................ $ 2,320,000 $ 1,011,265
GO, Capital Appreciation, Series B, FSA Insured, zero cpn., 9/01/24 ........................ 2,620,000 1,084,235
GO, Capital Appreciation, Series C, FGIC Insured, zero cpn., 9/01/25 ....................... 4,655,000 1,824,713
GO, Capital Appreciation, Series C, FGIC Insured, zero cpn., 9/01/26 ....................... 6,080,000 2,256,227
GO, Series B, FSA Insured, zero cpn., 3/01/25 .............................................. 1,400,000 562,366
Coronado CDA Tax Allocation, Community Development Project, MBIA Insured, 5.375%,
9/01/26 ...................................................................................... 2,700,000 2,860,785
Cucamonga County Water District COP, FGIC Insured, 5.00%, 9/01/29 .............................. 5,070,000 5,139,307
Culver City USD, GO, MBIA Insured, Pre-Refunded,
5.125%, 8/01/37 ............................................................................ 650,000 673,901
5.20%, 8/01/38 ............................................................................. 3,285,000 3,447,213
Delano USD, COP, Refinancing Project, MBIA Insured, 5.125%, 1/01/22 ............................ 1,620,000 1,741,419
East Bay MUD Water System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/26 ..................... 14,000,000 14,254,940
El Centro Financing Authority Wastwater Revenue, Series A, FSA Insured, 5.25%,
10/01/35 ..................................................................................... 6,200,000 6,463,872
El Monte City School District GO, Election of 2004, Series A, FGIC Insured, 5.00%,
5/01/30 ...................................................................................... 4,500,000 4,609,305
El Monte Water Authority Revenue, Water System Project, AMBAC Insured, Pre-Refunded,
5.60%, 9/01/34 ............................................................................... 1,800,000 1,953,360
Escondido Joint Powers Financing Authority Lease Revenue, AMBAC Insured, 5.125%,
9/01/30 ...................................................................................... 3,770,000 3,842,384
Escondido USD, GO, Series A, FSA Insured, 5.00%, 8/01/26 ....................................... 11,665,000 11,921,630
Eureka USD, GO, FSA Insured, 5.00%, 8/01/25 .................................................... 4,145,000 4,259,070
Fairfield Suisun USD, GO,
Election of 2002, MBIA Insured, 5.00%, 8/01/25 ............................................. 4,185,000 4,313,731
MBIA Insured, 5.00%, 8/01/27 ............................................................... 12,000,000 12,286,440
Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A,
MBIA Insured, 5.00%, 3/01/33 ................................................................. 5,000,000 5,049,700
Folsom COP, Central Business District Fire Station, MBIA Insured, 5.125%, 10/01/26 ............. 2,030,000 2,091,042
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 1/15/17 .......................... 20,000,000 11,658,600
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 1/15/18 .......................... 25,000,000 13,711,000
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 1/15/19 .......................... 5,970,000 3,085,833
senior lien, Refunding, Series A, MBIA Insured, 5.00%, 1/01/35 ............................. 66,735,000 67,116,057
Fresno USD, GO, Refunding,
Series B, MBIA Insured, 5.00%, 2/01/21 ..................................................... 2,860,000 3,020,932
Series C, MBIA Insured, 5.90%, 2/01/20 ..................................................... 2,065,000 2,369,753
Series C, MBIA Insured, 5.90%, 8/01/22 ..................................................... 3,000,000 3,476,700
Fullerton School District GO, Capital Appreciation, Series A, FGIC Insured, zero cpn.,
8/01/23 ...................................................................................... 3,030,000 1,326,110
Fullerton University Foundation Auxiliary Organization Revenue, Series A, MBIA Insured,
5.75%,
7/01/25 .................................................................................... 1,250,000 1,348,200
7/01/30 .................................................................................... 1,000,000 1,077,790
Gilroy USD, GO, Election of 2002, FGIC Insured, 5.00%, 8/01/30 ................................. 8,650,000 8,865,212
Glendale USD, GO, Series C, FSA Insured, 5.50%, 9/01/24 ........................................ 2,750,000 2,890,992
44 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Glendora PFAR Tax Allocation, Project No. 1, Refunding, Series A, MBIA Insured, 5.00%,
9/01/24 ........................................................................................ $ 5,000,000 $ 5,148,100
Grossmont UHSD,
COP, FSA Insured, Pre-Refunded, 5.75%, 9/01/26 ............................................... 2,250,000 2,384,618
GO, Capital Appreciation, Election of 2004, FSA Insured, zero cpn., 8/01/24 .................. 5,110,000 2,123,256
Hartnell Community College District GO, Election of 2002, Series B, FSA Insured, 5.00%,
6/01/31 ........................................................................................ 5,000,000 5,123,450
Hemet USD, COP, Nutrition Center Project, FSA Insured, Pre-Refunded, 5.875%, 4/01/27 ............. 1,250,000 1,294,188
Hollister RDA Tax Allocation, Community Development Project, Refunding, AMBAC Insured,
5.125%, 10/01/32 ............................................................................... 19,815,000 20,423,122
Huntington Beach City and School District COP, MBIA Insured, 5.25%, 7/01/29 ...................... 1,795,000 1,881,142
Jefferson San Mateo County UHSD, GO, Refunding, Series A, MBIA Insured, 6.45%,
8/01/25 ...................................................................................... 3,045,000 3,755,429
8/01/29 ...................................................................................... 3,075,000 3,873,301
Jurupa Community Services District Special Tax, CFD No. 2, Series A, AMBAC Insured,
5.00%, 9/01/32 ................................................................................. 7,000,000 7,077,070
Jurupa USD, COP, FSA Insured, 5.625%, 9/01/24 .................................................... 1,600,000 1,711,360
Kern Community College District COP, Refunding, MBIA Insured, 5.00%, 1/01/25 ..................... 7,800,000 7,953,192
Kern County High School District GO, FSA Insured, ETM, 6.625%,
8/01/14 ...................................................................................... 1,535,000 1,807,033
8/01/15 ...................................................................................... 1,400,000 1,660,778
Lancaster Financing Authority Tax Allocation Revenue, Subordinated, Redevelopment
Projects No. 5 and 6, Series B, FGIC Insured, 5.00%, 2/01/35 ................................... 5,775,000 5,858,391
Lancaster School District GO, Capital Appreciation, Election of 1999, MBIA Insured, zero cpn.,
8/01/25 ...................................................................................... 5,495,000 2,162,777
7/01/26 ...................................................................................... 5,965,000 2,231,745
Lodi COP, Wastewater Treatment Project, Refunding, AMBAC Insured, 6.70%, 8/01/26 ................. 8,800,000 8,993,336
Lodi Electric Systems Revenue COP, Series A, MBIA Insured, Pre-Refunded, 5.50%,
1/15/32 ........................................................................................ 4,000,000 4,199,560
Lodi USD, GO, MBIA Insured, 5.00%, 8/01/23 ....................................................... 2,150,000 2,206,481
Long Beach Bond Finance Authority Lease Revenue,
Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/19 ..................... 4,000,000 4,128,680
Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/26 ..................... 11,000,000 11,220,110
Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.25%, 11/01/30 ..................... 2,000,000 2,074,900
Public Safety Facilities Projects, AMBAC Insured, 5.00%, 11/01/26 ............................ 6,780,000 6,897,091
Public Safety Facilities Projects, AMBAC Insured, 5.00%, 11/01/31 ............................ 10,500,000 10,624,005
Long Beach Bond Finance Authority Tax Allocation Revenue, North Long Beach
Redevelopment Projects, Series A, AMBAC Insured,
5.00%, 8/01/25 ............................................................................... 7,015,000 7,143,304
5.00%, 8/01/31 ............................................................................... 3,135,000 3,170,864
Pre-Refunded, 5.00%, 8/01/25 ................................................................. 6,535,000 6,916,383
Pre-Refunded, 5.00%, 8/01/31 ................................................................. 8,865,000 9,382,361
Long Beach University School District GO, Election of 1999, Series C, MBIA Insured,
5.125%, 8/01/31 ................................................................................ 13,870,000 14,236,029
Los Angeles Community College District GO,
Series A, MBIA Insured, Pre-Refunded, 5.00%, 6/01/26 ......................................... 4,000,000 4,209,920
Series B, FSA Insured, 5.00%, 8/01/27 ........................................................ 4,000,000 4,107,640
Annual Report | 45
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Los Angeles COP,
Municipal Improvement Corp., Municipal Improvement Corp. of Los Angeles AW,
AMBAC Insured, 5.00%, 6/01/27 ............................................................. $ 5,895,000 $ 6,015,376
Real Property Program, MBIA Insured, 5.00%, 2/01/27 ........................................ 9,890,000 10,057,833
Los Angeles County COP, Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%,
11/01/27 ................................................................................... 2,500,000 2,587,575
11/01/33 ................................................................................... 2,500,000 2,582,600
Los Angeles County MTA Sales Tax Revenue, Proposition A, first tier, Senior Series A,
MBIA Insured, Pre-Refunded, 5.25%, 7/01/27 ................................................... 27,870,000 28,564,242
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects,
District No. 14, Sub Series B, FGIC Insured, 5.00%, 10/01/29 ................................. 6,460,000 6,608,257
Los Angeles Harbor Department Revenue, Series B, MBIA Insured, 6.20%, 8/01/25 .................. 2,500,000 2,528,925
Los Angeles Mortgage Revenue, Refunding, Series I, MBIA Insured, 6.50%, 7/01/22 ................ 790,000 792,370
Los Angeles Wastewater System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/26 ................. 10,000,000 10,240,400
Los Angeles Water and Power Revenue, Power System, Refunding, Series A, MBIA Insured,
5.00%, 7/01/24 ............................................................................... 12,000,000 12,236,400
Lynwood PFA Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.85%,
9/01/18 ...................................................................................... 1,765,000 1,888,762
Lynwood PFA Water Revenue, Water System Improvement Project, MBIA Insured,
5.85%, 6/01/22 ............................................................................. 665,000 704,115
5.90%, 6/01/29 ............................................................................. 3,105,000 3,288,319
Marin Municipal Water District COP, Financing Project, AMBAC Insured, 5.00%, 7/01/29 ........... 1,200,000 1,224,528
Mendocino County COP, Public Facilities Corp., MBIA Insured, 5.25%, 6/01/30 .................... 2,680,000 2,799,528
Menlo Park CDA Tax Allocation, Las Pulgas Community Development Project, Refunding,
AMBAC Insured, 5.375%, 6/01/22 ............................................................... 10,000,000 10,201,700
Merced Irrigation District Electricity System Revenue, Refunding, XLCA Insured, 5.00%,
9/01/26 ...................................................................................... 10,000,000 10,238,800
Metropolitan Water District Southern California Waterworks Revenue, Series C, MBIA Insured,
Pre-Refunded, 5.00%, 7/01/27 ................................................................. 2,500,000 2,515,975
Millbrae COP, Police Department Expansion, AMBAC Insured, 5.875%, 3/01/24 ...................... 1,025,000 1,095,069
Modesto Irrigation District COP, Capital Improvements, Series A, FSA Insured, 5.00%,
7/01/26 .................................................................................... 5,000,000 5,088,700
7/01/31 .................................................................................... 8,285,000 8,391,959
Modesto Wastewater Treatment Facility Revenue, MBIA Insured, Pre-Refunded, 5.75%,
11/01/22 ..................................................................................... 14,375,000 14,894,800
Montebello Community RDA Tax Allocation,
Housing, Series A, FSA Insured, 5.45%, 9/01/19 ............................................. 1,100,000 1,141,162
Montebello Hills Redevelopment Project, Refunding, MBIA Insured, 5.60%, 3/01/19 ............ 2,460,000 2,489,249
Montebello COP, Capital Improvement Project, Refunding, FSA Insured, 5.375%,
11/01/26 ..................................................................................... 8,715,000 9,267,880
Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, 5.00%, 8/01/26 ................. 4,000,000 4,112,160
Morgan Hill USD, GO, FGIC Insured, 5.50%, 8/01/25 .............................................. 3,840,000 4,080,960
Mount Diablo USD,
CFD No. 1 Special Tax, Refunding, AMBAC Insured, 5.75%, 8/01/15 ............................ 1,000,000 1,011,370
CFD No. 1 Special Tax, Refunding, AMBAC Insured, 5.75%, 8/01/16 ............................ 2,270,000 2,295,810
CFD No. 1 Special Tax, Refunding, AMBAC Insured, 5.375%, 8/01/19 ........................... 7,290,000 7,370,992
GO, Election of 2002, FGIC Insured, 5.00%, 7/01/25 ......................................... 6,025,000 6,189,302
46 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Murrieta Valley USD, COP, MBIA Insured, 5.00%, 8/01/27 ......................................... $ 2,380,000 $ 2,429,623
Natomas USD, GO, FSA Insured, 5.00%, 9/01/26 ................................................... 2,535,000 2,599,161
Nevada Irrigation District Revenue COP, Cascade Bench Flume Project, MBIA Insured, 5.50%,
1/01/17 ...................................................................................... 4,600,000 4,730,778
Nevada Joint UHSD, GO,
Election of 2002, Series B, FSA Insured, 5.00%, 8/01/30 .................................... 5,125,000 5,252,510
Series A, FSA Insured, 5.00%, 8/01/26 ...................................................... 1,295,000 1,323,490
Newark USD, GO, Capital Appreciation,
Series B, FGIC Insured, zero cpn., 8/01/24 ................................................. 9,905,000 3,607,401
Series C, FSA Insured, zero cpn., 8/01/22 .................................................. 2,165,000 940,866
Series C, FSA Insured, zero cpn., 8/01/23 .................................................. 2,465,000 1,004,364
Series C, FSA Insured, zero cpn., 8/01/24 .................................................. 2,560,000 983,194
Series C, FSA Insured, zero cpn., 8/01/25 .................................................. 2,705,000 979,264
Norco RDA Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, 5.625%,
3/01/30 ...................................................................................... 1,000,000 1,063,510
North City West School Facilities Financing Authority Special Tax, Series B, FSA Insured,
Pre-Refunded,
5.75%, 9/01/15 ............................................................................. 1,260,000 1,288,942
6.00%, 9/01/19 ............................................................................. 2,500,000 2,558,350
Northern California Public Power Agency Revenue, AMBAC Insured, Pre-Refunded, 7.50%,
7/01/23 ...................................................................................... 3,200,000 4,185,344
Oakland Revenue, 1800 Harrison Foundation, Series A, AMBAC Insured, Pre-Refunded,
6.00%, 1/01/29 ............................................................................... 10,000,000 10,691,700
Oceanside COP, AMBAC Insured, 5.20%, 4/01/23 ................................................... 2,500,000 2,596,125
Orange County Sanitation Districts COP, FGIC Insured, 5.00%, 2/01/33 ........................... 8,000,000 8,118,640
Orinda COP, City Offices, AMBAC Insured, 5.00%, 7/01/30 ........................................ 2,155,000 2,184,567
Palm Springs Financing Authority Lease Revenue, Convention Center Project, Refunding,
Series A, MBIA Insured, 5.00%, 11/01/25 ...................................................... 2,295,000 2,345,628
Parlier USD, GO, Series B, AMBAC Insured, 6.00%, 6/01/16 ....................................... 1,130,000 1,163,279
Pasadena Area Community College District GO, Election of 2002, Series A, FGIC Insured,
5.00%, 6/01/28 ............................................................................... 4,000,000 4,088,800
Pasadena USD, GO, Series B, FGIC Insured, Pre-Refunded, 5.25%, 7/01/24 ......................... 1,000,000 1,049,790
Patterson Joint USD, GO, Capital Appreciation,
Series A, FGIC Insured, zero cpn., 8/01/22 ................................................. 1,900,000 878,294
Series A, FGIC Insured, zero cpn., 8/01/24 ................................................. 2,075,000 862,183
Series A, FGIC Insured, zero cpn., 8/01/25 ................................................. 2,170,000 854,090
Series A, FGIC Insured, zero cpn., 8/01/26 ................................................. 2,265,000 843,962
Series C, FGIC Insured, zero cpn., 8/01/23 ................................................. 1,985,000 868,755
Peralta Community College District GO, Election of 2000, Series B, MBIA Insured, 5.25%,
8/01/32 ...................................................................................... 8,450,000 8,810,392
Perris CFD Special Tax, No. 93-1, Series A, AMBAC Insured, 5.125%, 8/15/23 ..................... 4,000,000 4,154,320
Placer County COP, Administrative and Emergency Services, MBIA Insured, 5.65%,
6/01/24 ...................................................................................... 4,000,000 4,147,320
Plumas County COP, Capital Improvement Program, Series A, AMBAC Insured, 5.00%,
6/01/33 ...................................................................................... 3,280,000 3,333,366
Pomona PFA Lease Revenue, Series AN, AMBAC Insured, 5.00%,
10/01/30 ................................................................................... 5,190,000 5,262,452
10/01/35 ................................................................................... 6,635,000 6,673,549
Annual Report | 47
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Porterville COP, Sewer System Refining Project, Refunding, AMBAC Insured, 5.25%,
10/01/23 ..................................................................................... $ 3,000,000 $ 3,106,920
Poway RDA Tax Allocation,
Paguay Redevelopment Project, AMBAC Insured, 5.00%, 12/15/25 ............................... 9,195,000 9,351,591
Refunding, MBIA Insured, 5.75%, 6/15/33 .................................................... 11,475,000 12,374,525
Rancho Cucamonga RDA Tax Allocation, Rancho Redevelopment Project,
Housing Set Aside, MBIA Insured, 5.25%, 9/01/26 ............................................ 2,000,000 2,043,800
Refunding, FSA Insured, 5.25%, 9/01/20 ..................................................... 2,500,000 2,604,575
Redding Joint Powers Financing Authority Lease Revenue, Civic Center Project, Series A,
MBIA Insured,
5.75%, 3/01/19 ............................................................................. 3,090,000 3,161,286
5.25%, 3/01/26 ............................................................................. 75,000 76,491
Redwood City School District GO, FGIC Insured, 5.00%, 7/15/27 .................................. 3,000,000 3,062,490
Rescue USD, GO, Election of 1998, MBIA Insured, 5.00%, 9/01/30 ................................. 7,015,000 7,190,656
Ripon RDA Tax Allocation, Community Redevelopment Project, MBIA Insured, 5.85%,
11/01/30 ..................................................................................... 3,975,000 4,345,748
Riverside County COP, Historic Courthouse, MBIA Insured, Pre-Refunded, 5.875%,
11/01/27 ..................................................................................... 3,000,000 3,134,280
Roseville Financing Authority Revenue, senior lien, Series A, AMBAC Insured, 5.00%,
9/01/25 ...................................................................................... 3,100,000 3,171,703
Rowland USD, GO, Series A, FSA Insured, Pre-Refunded, 5.25%, 9/01/25 ........................... 5,685,000 6,045,031
Sacramento Area Flood Control Agency Special Assessment,
Capital AD No. 2, FGIC Insured, Pre-Refunded, 5.80%, 11/01/16 .............................. 1,000,000 1,026,440
Operation and Maintenance, FGIC Insured, 5.80%, 11/01/16 ................................... 1,475,000 1,513,999
Operation and Maintenance, FGIC Insured, 5.90%, 11/01/25 ................................... 2,690,000 2,761,957
Sacramento City Financing Authority Revenue,
Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/26 .............................. 8,395,000 8,629,556
Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/32 .............................. 21,500,000 21,976,870
City Hall and Redevelopment Projects, Series A, FSA Insured, Pre-Refunded, 5.00%,
12/01/28 .................................................................................. 10,000,000 10,611,800
Sacramento County Airport System Revenue, Series A, MBIA Insured, Pre-Refunded, 6.00%,
7/01/17 ...................................................................................... 5,920,000 6,038,400
Sacramento County Sanitation District Financing Authority Revenue, Sacramento Regional
County Sanitation, Series A, AMBAC Insured, 5.00%, 12/01/35 .................................. 10,000,000 10,192,600
Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, FSA Insured,
5.75%, 9/01/30 ............................................................................... 3,435,000 3,704,167
Salida USD, COP, Financing Project, AMBAC Insured, 5.375%, 5/01/26 ............................. 1,645,000 1,646,793
San Bernardino City USD, GO, Election of 2004, Series B, FSA Insured, 5.00%, 8/01/28 ........... 14,170,000 14,580,647
San Bernardino County COP, 1997 Public Improvement Financing Project, MBIA Insured,
5.25%, 10/01/25 .............................................................................. 7,000,000 7,235,620
San Bernardino County SFMR, Captial Appreciation, Series A, GNMA Insured, ETM, zero cpn.,
5/01/22 ...................................................................................... 28,405,000 11,763,647
San Buenaventura Public Facilities Financing Authority Lease Revenue, Refunding,
FSA Insured, 5.75%, 6/01/14 .................................................................. 2,250,000 2,291,850
San Carlos School District GO, MBIA Insured, Pre-Refunded, 5.50%, 10/01/24 ..................... 2,110,000 2,256,160
San Diego Public Facilities Financing Authority Sewer Revenue, Series B, FGIC Insured,
5.25%, 5/15/27 ............................................................................... 2,950,000 3,008,911
48 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Francisco BART District Sales Tax Revenue,
5.00%, 7/01/28 ............................................................................. $ 2,795,000 $ 2,856,462
FGIC Insured, Pre-Refunded, 5.50%, 7/01/26 ................................................. 6,500,000 6,869,070
FGIC Insured, Pre-Refunded, 5.50%, 7/01/34 ................................................. 12,000,000 12,681,360
San Francisco City and County Airports Commission International Airport Revenue, Refunding,
Second Series 28A, MBIA Insured, 5.125%,
5/01/24 .................................................................................... 9,745,000 9,997,980
5/01/27 .................................................................................... 16,575,000 16,886,610
San Francisco City and County Public Utilities Commission Water Revenue, Refunding,
Series A, FSA Insured, 5.00%, 11/01/31 ....................................................... 3,885,000 3,961,029
San Francisco Community College District GO, Series A, FGIC Insured, 5.00%, 6/15/26 ............ 6,000,000 6,145,320
San Francisco State University Foundation Inc. Auxiliary Organization Housing Revenue,
MBIA Insured, 5.00%, 9/01/31 ................................................................. 13,415,000 13,569,943
San Gabriel USD, GO, Capital Appreciation, Series A, FSA Insured, zero cpn.,
8/01/26 .................................................................................... 3,530,000 1,315,313
2/01/27 .................................................................................... 1,850,000 668,553
San Joaquin Delta Community College District GO, Election of 2004, Series A, FSA Insured,
Pre-Refunded, 5.00%, 8/01/29 ................................................................. 5,050,000 5,164,382
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, MBIA Insured, zero cpn., 1/15/26 ................ 13,155,000 5,034,813
Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ......................................... 18,075,000 18,492,532
Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 .......................................... 11,860,000 12,093,168
senior lien, MBIA Insured, 5.00%, 1/01/33 .................................................. 10,035,000 10,046,741
San Jose Financing Authority Lease Revenue, Civic Center Project, Series B, AMBAC Insured,
5.00%, 6/01/27 ............................................................................... 10,000,000 10,132,100
San Jose MFHR, Sixth and Martha Family Apartments, FNMA Insured, 5.875%, 3/01/33 ............... 3,500,000 3,627,435
San Juan USD, GO, Election of 1998, Series A, MBIA Insured, 5.00%, 8/01/28 ..................... 5,115,000 5,230,906
San Leandro COP, Library and Fire Stations Financing, AMBAC Insured, 5.75%, 11/01/29 ........... 5,000,000 5,335,850
San Marcos Public Facilities Authority Revenue, Senior Tax Increment Project Area 3,
Series A, MBIA Insured, Pre-Refunded,
5.75%, 10/01/29 ............................................................................ 5,340,000 5,832,401
5.80%, 10/01/30 ............................................................................ 7,800,000 8,428,914
San Marino USD, GO, Series A, MBIA Insured, zero cpn., 7/01/25 ................................. 6,080,000 2,402,816
San Mateo GO, Library Improvement Project, Series A, AMBAC Insured, 5.25%, 8/01/30 ............. 5,790,000 6,076,952
Santa Ana USD, COP, Capital Appreciation Financing Project, FSA Insured, zero cpn.,
4/01/24 ...................................................................................... 14,245,000 6,015,521
Santa Clara COP, Refunding, AMBAC Insured, 5.00%, 2/01/27 ...................................... 5,555,000 5,663,767
Santa Clara County Financing Authority Lease Revenue, Refunding, Series A, AMBAC Insured,
5.00%, 11/15/22 .............................................................................. 3,950,000 4,051,554
Santa Monica Community College District GO, Series B, AMBAC Insured, 5.75%, 7/01/20 ............ 1,495,000 1,511,370
Santa Monica PFA Lease Revenue, Civic Center Parking Project, XLCA Insured, 5.00%,
7/01/33 ...................................................................................... 11,050,000 11,195,086
Santa Rosa Wastewater Revenue, Series B, FGIC Insured, 5.125%, 9/01/31 ......................... 4,000,000 4,126,320
Santa Rosa Wastewater Service Facilities District Revenue, Refunding and Improvement,
AMBAC Insured, 6.00%, 7/02/15 ................................................................ 2,000,000 2,260,820
Sequoia UHSD, GO, Refunding, FSA Insured, 5.00%, 7/01/28 ....................................... 3,060,000 3,152,167
Shasta Tehama Trinity Joint Community College District GO, Election of 2002, Series B,
FSA Insured, 5.00%, 8/01/30 .................................................................. 9,070,000 9,315,253
Annual Report | 49
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Sonoma CDA Tax Allocation, Redevelopment Project, MBIA Insured, 5.70%, 12/01/30 ................... $ 3,455,000 $ 3,686,658
Sonoma Valley USD, GO, FSA Insured, 6.00%, 7/15/21 ................................................ 2,400,000 2,428,584
South Gate COP, Series A, AMBAC Insured, 5.00%, 9/01/24 ........................................... 3,155,000 3,226,871
South San Francisco COP, 5.00%, 4/01/29 ........................................................... 2,000,000 2,009,060
Southern California Public Power Authority Power Project Revenue, Series A, AMBAC Insured,
5.00%, 7/01/33 .................................................................................. 29,000,000 29,499,090
Southern Kern USD, COP, Capital Appreciation Building Program, Series B, FSA Insured,
5.625%, 9/01/26 ................................................................................. 2,250,000 2,327,783
Southern Mono Health Care District GO, Series A, MBIA Insured, 5.00%, 8/01/24 ..................... 3,005,000 3,074,325
Southern Mono Health Care District Revenue, Capital Appreciation, Series A, MBIA Insured,
zero cpn.,
8/01/28 ....................................................................................... 2,340,000 765,110
8/01/29 ....................................................................................... 2,440,000 756,693
8/01/30 ....................................................................................... 2,550,000 749,930
8/01/31 ....................................................................................... 2,660,000 739,852
Stanislaus County Board of Education COP, FSA Insured, 5.70%, 9/01/24 ............................. 2,000,000 2,128,940
Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series B,
FSA Insured, 5.90%, 7/01/12 ..................................................................... 2,490,000 2,586,886
Stockton Revenue COP, Wastewater System Project, Refunding, Series A, MBIA Insured,
5.00%, 9/01/23 .................................................................................. 6,500,000 6,665,685
Susanville PFAR, MBIA Insured, 5.70%, 6/01/30 ..................................................... 3,000,000 3,238,410
Tahoe-Truckee Joint USD, GO, Series B, FGIC Insured, Pre-Refunded, 5.95%, 9/01/20 ................. 3,620,000 3,704,237
Tahoe-Truckee USD, GO, ID No. 2, Series A, FGIC Insured, Pre-Refunded, 5.75%,
8/01/20 ......................................................................................... 4,340,000 4,622,838
Travis USD, COP, FGIC Insured, 5.00%, 9/01/36 ..................................................... 8,230,000 8,346,619
Tri-City Hospital District Revenue,
MBIA Insured, 6.00%, 2/01/22 .................................................................. 2,350,000 2,353,173
Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 ............................................ 2,750,000 2,810,005
Truckee PFA Lease Revenue, Series A, AMBAC Insured, Pre-Refunded, 6.00%, 11/01/30 ................. 1,990,000 2,125,897
Turlock Auxiliary Organization Revenue COP, California State University, Stanislaus Foundation,
MBIA Insured, 5.875%, 6/01/22 ................................................................... 1,920,000 1,974,010
Turlock PFA Sewer Revenue, FGIC Insured, 5.50%, 9/15/29 ........................................... 6,855,000 7,199,190
Union City CRDA Tax Allocation Revenue, Community Redevelopment Project, AMBAC Insured,
5.75%, 10/01/32 ................................................................................. 14,100,000 15,035,958
Union Elementary School District GO, Capital Appreciation,
Series A, FGIC Insured, zero cpn., 9/01/24 .................................................... 2,000,000 820,360
Series B, FGIC Insured, zero cpn., 9/01/25 .................................................... 5,500,000 2,135,870
Series B, FGIC Insured, zero cpn., 9/01/26 .................................................... 5,850,000 2,149,641
University of California Revenues, Multi Purpose Projects,
Series H, FGIC Insured, Pre-Refunded, 5.50%, 9/01/28 .......................................... 2,500,000 2,575,300
Series K, 5.00%, 9/01/23 ...................................................................... 3,160,000 3,227,118
Series M, FGIC Insured, 5.125%, 9/01/30 ....................................................... 8,720,000 8,990,146
Vacaville PFA Tax Allocation Revenue, Vacaville Redevelopment Projects, FSA Insured, 5.00%,
9/01/31 ......................................................................................... 5,095,000 5,133,773
Vacaville USD, GO, Election of 2001, MBIA Insured, 5.00%, 8/01/30 ................................. 12,670,000 12,938,224
Vallejo Revenue, Water Improvement Project, Refunding, Series A, FSA Insured, 5.875%,
5/01/26 ......................................................................................... 12,500,000 12,774,375
50 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Vista USD, GO,
Capital Appreciation, Series A, FSA Insured, zero cpn., 8/01/26 ......................... $ 7,150,000 $ 2,664,161
Capital Appreciation, Series A, FSA Insured, zero cpn., 2/01/27 ......................... 4,795,000 1,732,817
Series A, FSA Insured, 5.25%, 8/01/25 ................................................... 5,000,000 5,240,350
Washington Township Health Care District Revenue,
5.00%, 7/01/18 .......................................................................... 2,000,000 2,026,380
5.125%, 7/01/23 ......................................................................... 450,000 455,418
Washington USD, GO, Yolo County, Election of 1999, Series A, FGIC Insured, 5.375%,
8/01/25 ................................................................................... 2,045,000 2,161,545
West Basin Municipal Water District Revenue COP,
1992 Project, Refunding, Series A, AMBAC Insured, 5.50%, 8/01/17 ........................ 3,370,000 3,459,979
Refunding, Series A, MBIA Insured, 5.00%, 8/01/24 ....................................... 2,500,000 2,573,375
Refunding, Series A, MBIA Insured, 5.00%, 8/01/30 ....................................... 5,745,000 5,861,279
Western Placer USD Financing Corp. COP, 5.55%, 11/01/30 ..................................... 6,930,000 6,970,748
Westlands Water District Revenue COP,
MBIA Insured, 5.00%, 9/01/29 ............................................................ 11,775,000 11,958,219
Series A, MBIA Insured, 5.00%, 9/01/35 .................................................. 1,460,000 1,478,323
Woodland Finance Authority Lease Revenue, Capital Projects, Refunding, XLCA Insured,
5.00%, 3/01/32 ............................................................................ 6,340,000 6,433,008
Woodland Finance Authority Wastewater Revenue, second senior lien, MBIA Insured, 5.00%,
3/01/33 ................................................................................. 3,870,000 3,924,025
3/01/35 ................................................................................. 2,590,000 2,622,505
Woodside Elementary School District GO, Election of 2005, MBIA Insured, 5.00%,
10/01/29 .................................................................................. 4,435,000 4,563,615
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,829,970,764) ........................................... 1,929,452,136
--------------
SHORT TERM INVESTMENT 0.0%a
MUNICIPAL BOND 0.0%a
CALIFORNIA (COST $300,000) 0.0%a
b California State Department of Water Resources Power Supply Revenue, Series B-3,
Daily VRDN and Put, 3.91%, 5/01/22 ......................................................... 300,000 300,000
--------------
TOTAL INVESTMENTS (COST $1,830,270,764) 98.8% ............................................... 1,929,752,136
OTHER ASSETS, LESS LIABILITIES 1.2% ......................................................... 24,008,621
--------------
NET ASSETS 100.0% ........................................................................... $1,953,760,757
==============
See Selected Portfolio Abbreviations on page 70.
a Rounds to less than 0.1% of net assets.
b Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.
Annual Report | See notes to financial statements. | 51
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
---------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS A 2006 2005 2004 2003 2002
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................... $ 11.68 $ 11.36 $ 11.74 $ 11.41 $ 11.25
---------------------------------------------------------------
Income from investment operations: a
Net investment income b .................................... 0.43 0.43 0.44 0.44 0.47
Net realized and unrealized gains (losses) ................. (0.39) 0.32 (0.38) 0.34 0.17
---------------------------------------------------------------
Total from investment operations ............................ 0.04 0.75 0.06 0.78 0.64
---------------------------------------------------------------
Less distributions from net investment income ............... (0.42) (0.43) (0.44) (0.45) (0.48)
---------------------------------------------------------------
Redemption fees ............................................. -- d -- d -- -- --
---------------------------------------------------------------
Net asset value, end of year ................................ $ 11.30 $ 11.68 $ 11.36 $ 11.74 $ 11.41
===============================================================
Total return c .............................................. 0.37% 6.67% 0.50% 6.92% 5.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................. $463,545 $453,335 $384,196 $414,558 $324,061
Ratios to average net assets:
Expenses before waiver and payments by affiliate ........... 0.66% 0.67% 0.67% 0.68% 0.70%
Expenses net of waiver and payments by affiliate ........... 0.66% 0.67% 0.67% 0.68% 0.68%
Net investment income ...................................... 3.74% 3.67% 3.76% 3.80% 4.13%
Portfolio turnover rate ..................................... 13.28% 4.17% 17.36% 9.56% 12.05%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to timing of
sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
d Amount is less than $0.01 per share.
52 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
------------------------------------
YEAR ENDED JUNE 30,
CLASS C 2006 2005 2004
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................................... $ 11.70 $ 11.37 $ 11.73
------------------------------------
Income from investment operations: a
Net investment income b ............................................... 0.37 0.36 0.37
Net realized and unrealized gains (losses) ............................ (0.39) 0.33 (0.36)
------------------------------------
Total from investment operations ....................................... (0.02) 0.69 0.01
------------------------------------
Less distributions from net investment income .......................... (0.36) (0.36) (0.37)
------------------------------------
Redemption fees ........................................................ -- d -- d --
------------------------------------
Net asset value, end of year ........................................... $ 11.32 $ 11.70 $ 11.37
====================================
Total return c ......................................................... (0.18)% 6.15% 0.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................................ $25,173 $19,082 $9,142
Ratios to average net assets:
Expenses .............................................................. 1.20% 1.22% 1.22%
Net investment income ................................................. 3.20% 3.12% 3.21%
Portfolio turnover rate ................................................ 13.28% 4.17% 17.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to timing of
sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
d Amount is less than $0.01 per share.
Annual Report | See notes to financial statements. | 53
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 99.2%
MUNICIPAL BONDS 99.2%
CALIFORNIA 97.0%
ABAG Finance Authority for Nonprofit Corps. COP, Rhoda Haas Goldman Plaza, California
Mortgage Insured, 5.125%, 5/15/15 .............................................................. $ 3,000,000 $ 3,093,570
ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Assn., Series C,
5.125%, 3/01/18 .............................................................................. 2,695,000 2,722,839
5.25%, 3/01/19 ............................................................................... 2,315,000 2,351,276
ABAG Revenue, Refunding, Series A-E,
5.00%, 9/15/06 ............................................................................... 595,000 595,637
5.05%, 9/15/07 ............................................................................... 610,000 615,643
5.40%, 9/15/14 ............................................................................... 2,455,000 2,495,557
ABAG Water and Wastewater Revenue, Pooled Financing Program, Series A, FSA Insured, 5.00%,
10/01/10 ....................................................................................... 3,035,000 3,163,987
Alameda Corridor Transportation Authority Revenue, Capital Appreciation, sub. lien, Refunding,
Series A, AMBAC Insured, zero cpn., 10/01/17 ................................................... 10,000,000 5,972,600
Alameda-Contra Costa Transportation District COP, Refunding, AMBAC Insured, 4.375%,
8/01/14 ........................................................................................ 1,330,000 1,342,914
Antelope Valley UHSD, GO, Series A, MBIA Insured,
4.50%, 8/01/13 ............................................................................... 1,230,000 1,265,227
4.625%, 8/01/14 .............................................................................. 1,250,000 1,289,113
Antioch PFA, Reassessment Revenue, sub. lien, Refunding, Sub Series B, 5.40%, 9/02/07 ............ 1,080,000 1,084,720
Banning Utility Authority Water Enterprise Revenue, Refunding and Improvement Projects,
FGIC Insured, 5.00%, 11/01/21 .................................................................. 1,080,000 1,120,500
Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Series F, 5.00%,
4/01/21 ........................................................................................ 10,000,000 10,398,000
Brentwood Infrastructure Financing Authority Infrastructure Revenue, Refunding, Series A,
FSA Insured, 4.00%, 9/02/17 .................................................................... 1,485,000 1,423,759
Burbank Electric Revenue, MBIA Insured, 4.00%,
6/01/11 ...................................................................................... 1,000,000 1,006,170
6/01/12 ...................................................................................... 1,000,000 1,005,200
Burbank USD, GO,
Capital Appreciation, Election of 1997, Series C, FGIC Insured, zero cpn., 8/01/15 ........... 4,600,000 3,075,100
Capital Appreciation, Election of 1997, Series C, FGIC Insured, zero cpn., 8/01/16 ........... 4,670,000 2,962,881
Election of 1997, Series C, FGIC Insured, 4.00%, 8/01/12 ..................................... 2,500,000 2,513,350
Burbank Water and Power Electric Revenue, MBIA Insured, 4.00%, 6/01/11 ........................... 5,045,000 5,048,481
California Educational Facilities Authority Revenue,
Pooled College and University Projects, Series B, Pre-Refunded, 6.125%, 4/01/13 .............. 1,000,000 1,036,400
Stanford University, Refunding, Series R, 4.00%, 11/01/11 .................................... 1,000,000 1,008,070
California Health Facilities Financing Authority Revenue,
The Episcopal Home, California Mortgage Insured, 4.625%, 2/01/12 ............................. 1,350,000 1,378,188
The Episcopal Home, California Mortgage Insured, 4.75%, 2/01/13 .............................. 1,200,000 1,230,636
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/13 ............................................ 5,000,000 5,215,000
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/14 ............................................ 2,000,000 2,082,940
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ............................................ 3,850,000 4,005,424
Paradise Valley Estates, California Mortgage Insured, 3.875%, 1/01/09 ........................ 1,555,000 1,518,457
Paradise Valley Estates, California Mortgage Insured, 4.125%, 1/01/10 ........................ 1,000,000 998,870
Paradise Valley Estates, California Mortgage Insured, 5.00%, 1/01/11 ......................... 1,480,000 1,527,330
Paradise Valley Estates, California Mortgage Insured, 4.375%, 1/01/12 ........................ 1,000,000 1,008,490
Paradise Valley Estates, California Mortgage Insured, 5.00%, 1/01/13 ......................... 1,815,000 1,893,535
54 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Health Facilities Financing Authority Revenue, (continued)
Paradise Valley Estates, California Mortgage Insured, 5.00%, 1/01/14 ........................... $ 1,635,000 $ 1,698,242
Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 .............................. 3,750,000 3,832,800
California HFA, SFM Purchase, Class III, Series A-1, MBIA Insured, 5.70%, 8/01/11 .................. 435,000 440,481
California State Department of Water Resources Central Valley Project Revenue, Water System,
Refunding, Series S, 5.00%, 12/01/19 ........................................................... 1,915,000 1,959,964
Series S, Pre-Refunded, 5.00%, 12/01/19 ........................................................ 2,085,000 2,142,609
California State Department of Water Resources Power Supply Revenue, Series A,
5.50%, 5/01/12 ................................................................................. 2,000,000 2,143,540
Pre-Refunded, 5.125%, 5/01/18 .................................................................. 2,500,000 2,680,600
California State Department of Water Resources Water Revenue, Central Valley Project, Series Z,
FGIC Insured, 3.50%, 12/01/12 .................................................................... 5,000,000 4,837,700
California State Economic Recovery Revenue, Series A, 5.00%, 7/01/15 ............................... 10,670,000 11,214,490
California State GO,
5.25%, 6/01/16 ................................................................................. 630,000 639,885
Pre-Refunded, 5.00%, 11/01/12 .................................................................. 1,335,000 1,408,145
Refunding, 4.00%, 2/01/10 ...................................................................... 6,900,000 6,908,970
Refunding, 5.00%, 11/01/12 ..................................................................... 665,000 694,925
Refunding, 5.25%, 2/01/14 ...................................................................... 4,000,000 4,264,560
Refunding, MBIA Insured, 5.00%, 2/01/18 ........................................................ 1,175,000 1,207,877
Veterans, Series B, 5.00%, 12/01/12 ............................................................ 2,000,000 2,004,900
Veterans, Series B, 5.25%, 12/01/15 ............................................................ 2,310,000 2,352,643
Veterans, Series B, 5.375%, 12/01/16 ........................................................... 605,000 607,105
California State Public Works Board Lease Revenue,
Department of Forestry and Fire Protection, Series A, 4.875%, 10/01/18 ......................... 1,325,000 1,342,358
Various Community College Projects, Refunding, Series C, 5.50%, 9/01/09 ........................ 1,555,000 1,589,318
California Statewide CDA, COP,
California Lutheran Homes, ETM, 5.375%, 11/15/06 ............................................... 1,000,000 1,005,640
Kaiser Permanente, ETM, 5.30%, 12/01/15 ........................................................ 2,000,000 2,071,800
St. Joseph Health System, Refunding, 5.00%, 7/01/12 ............................................ 2,180,000 2,236,462
St. Joseph Health System Obligation Group, 5.25%, 7/01/11 ...................................... 1,005,000 1,041,944
California Statewide CDA Revenue,
Daughters of Charity Health, Series G, 5.25%, 7/01/13 .......................................... 1,000,000 1,044,530
Daughters of Charity Health, Series G, 5.00%, 7/01/22 .......................................... 5,000,000 5,025,100
Insured Health Facility, Jewish Home, California Mortgage Insured, 5.00%, 11/15/18 ............. 3,000,000 3,089,130
Kaiser Permanente, Mandatory Put 5/01/11, Series I, 3.45%, 4/01/35 ............................. 5,000,000 4,863,250
Kaiser Permanente, Mandatory Put 6/01/12, Series C, 3.85%, 11/01/29 ............................ 10,000,000 9,716,500
Mission Community, California Mortgage Insured, 4.40%, 11/01/10 ................................ 1,100,000 1,108,118
Mission Community, California Mortgage Insured, 4.50%, 11/01/11 ................................ 1,145,000 1,157,893
Viewpoint School, ACA Insured, 4.50%, 10/01/17 ................................................. 460,000 445,372
Viewpoint School, ACA Insured, 4.75%, 10/01/18 ................................................. 480,000 472,531
Cathedral City 1915 Act Special Assessment, Limited Obligation, Cove ID 04-02, 5.00%,
9/02/24 .......................................................................................... 1,000,000 983,530
Central California Joint Powers Health Financing Authority COP, Community Hospitals of
Central California,
5.125%, 2/01/13 ................................................................................ 1,375,000 1,387,196
5.25%, 2/01/14 ................................................................................. 1,435,000 1,454,975
5.75%, 2/01/16 ................................................................................. 1,585,000 1,635,118
Annual Report | 55
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Central Valley Financing Authority Cogeneration Project Revenue, Carson Ice General Project,
Refunding, MBIA Insured, 5.00%, 7/01/17 .......................................................... $ 2,000,000 $ 2,057,460
Cerritos PFAR Tax Allocation, Redevelopment Project, Series A, AMBAC Insured, 3.00%,
11/01/11 ......................................................................................... 2,585,000 2,425,066
Chaffey Community College District COP, Pre-Refunded, 5.10%, 9/01/13 ............................... 1,860,000 1,946,509
Clovis MFR, Mandatory Put 11/01/10, Refunding, FNMA Insured, 5.10%, 11/01/30 ....................... 4,105,000 4,160,212
Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, FGIC Insured, zero cpn.,
8/01/17 .......................................................................................... 5,235,000 3,150,685
Coalinga COP, Custody Facility, Refunding, 4.25%, 4/01/10 .......................................... 1,000,000 990,530
Compton COP, Civic Center and Capital Improvement, Refunding, Series A,
5.00%, 9/01/08 ................................................................................. 4,340,000 4,408,746
5.50%, 9/01/15 ................................................................................. 1,180,000 1,220,321
Conejo Valley USD, GO, Election of 1998,
Series C, FSA Insured, zero cpn., 8/01/17 ...................................................... 2,500,000 1,504,625
Series D, FGIC Insured, 4.50%, 8/01/18 ......................................................... 3,850,000 3,880,992
Series D, FGIC Insured, 4.50%, 8/01/19 ......................................................... 4,000,000 3,999,880
Contra Costa Community College District GO, Election of 2002, FGIC Insured, 4.75%,
8/01/18 .......................................................................................... 2,450,000 2,495,178
Corona PFA Lease Revenue, City Hall Project, Series B, MBIA Insured, 3.75%, 9/01/13 ................ 1,000,000 979,670
Corona-Norco USD, PFA Special Tax Revenue, Series A, 5.25%, 9/01/25 ................................ 2,235,000 2,208,247
Duarte RDA Tax Allocation, Merged Redevelopment Project Area, Refunding, 5.125%,
10/01/16 ......................................................................................... 3,435,000 3,490,475
Fairfax School District GO, Election of 2000, Series A, FGIC Insured, 5.00%, 11/01/17 .............. 880,000 914,971
Fairfield Suisun Sewer District Sewer Revenue, Series A, Refunding, FGIC Insured, 5.00%,
5/01/12 .......................................................................................... 600,000 630,540
Folsom PFA Lease Revenue, City Hall and Community Center, Refunding, FSA Insured, 5.00%,
10/01/17 ......................................................................................... 1,275,000 1,328,308
Foothill/Eastern Corridor Agency Toll Road Revenue, Refunding, MBIA Insured, 5.00%,
1/15/16 .......................................................................................... 1,000,000 1,040,930
Fremont UHSD Santa Clara County GO, Series C, FSA Insured, Pre-Refunded, 4.25%,
9/01/13 .......................................................................................... 1,310,000 1,334,091
Fresno USD, GO, Election of 2001, Series D, MBIA Insured, 5.00%, 8/01/21 ........................... 1,355,000 1,411,097
Galt Capital Improvements Authority Lease Revenue, Culture and Recreation Improvement
Project, 5.00%, 4/01/12 .......................................................................... 2,390,000 2,430,104
Galt Middle School Joint Powers Authority Special Tax, CFD No. 1, Refunding, 5.40%,
9/01/12 .......................................................................................... 1,955,000 2,008,528
Garden Grove Agency Community Development Tax Allocation, Garden Grove Community Project,
Refunding, AMBAC Insured, 4.25%, 10/01/13 ........................................................ 2,025,000 2,052,621
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, Asset-Backed, ETM,
5.00%, 6/01/12 ................................................................................... 1,500,000 1,579,725
Hi-Desert Memorial Health Care District Revenue, Refunding,
5.10%, 10/01/06 ................................................................................ 615,000 615,074
5.125%, 10/01/07 ............................................................................... 650,000 650,527
Huntington Beach PFAR, Lease Capital Improvement Refinancing Project, Series B,
AMBAC Insured,
4.125%, 8/01/14 ................................................................................ 2,140,000 2,141,905
4.25%, 8/01/15 ................................................................................. 2,080,000 2,087,509
56 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing
Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 .............................................. $ 1,000,000 $ 1,053,220
Irvine 1915 Act GO, AD No. 03-19, Group 2,
4.875%, 9/02/16 ................................................................................ 1,000,000 997,960
5.00%, 9/02/18 ................................................................................. 1,000,000 999,930
5.125%, 9/02/19 ................................................................................ 1,000,000 1,004,230
Irvine 1915 Act Special Assessment, AD No. 00-18,
Group 2, 4.375%, 9/02/10 ....................................................................... 885,000 884,788
Group 2, 4.70%, 9/02/12 ........................................................................ 1,475,000 1,493,791
Group 2, 4.80%, 9/02/13 ........................................................................ 1,175,000 1,189,923
Group 2, 5.125%, 9/02/17 ....................................................................... 1,705,000 1,723,261
Group 3, 4.75%, 9/02/15 ........................................................................ 1,000,000 992,620
Group 3, 5.00%, 9/02/17 ........................................................................ 1,000,000 1,005,310
Irvine USD Financing Authority Special Tax, Series A,
4.70%, 9/01/15 ................................................................................. 1,095,000 1,082,911
4.80%, 9/01/17 ................................................................................. 1,400,000 1,382,080
4.875%, 9/01/18 ................................................................................ 1,570,000 1,552,180
5.00%, 9/01/20 ................................................................................. 1,150,000 1,146,458
Kings River Conservation District Pine Flat Power Revenue, Refunding, Series E, 5.125%,
1/01/18 .......................................................................................... 1,735,000 1,801,902
Lake Elsinore PFA Tax Allocation Revenue,
Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.40%, 9/01/08 .................... 945,000 946,210
Series A, 5.00%, 9/01/09 ....................................................................... 1,230,000 1,234,895
Lake Elsinore School Financing Authority Revenue, Refunding, 6.00%, 9/01/11 ........................ 1,000,000 1,032,840
Lancaster COP, School District Project, Refunding, FSA Insured, 5.125%, 4/01/14 .................... 2,000,000 2,079,400
Las Virgenes USD, GO, Series D, FGIC Insured, 3.30%, 9/01/13 ....................................... 1,415,000 1,337,458
Lemon Grove CDA Tax Allocation, 1998, Refunding,
5.00%, 8/01/06 ................................................................................. 195,000 195,023
5.10%, 8/01/07 ................................................................................. 205,000 206,009
5.20%, 8/01/08 ................................................................................. 215,000 217,004
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series A, 5.00%,
12/01/19 ......................................................................................... 5,000,000 5,018,400
Long Beach Community College District GO, Election of 2002, Series B, FGIC Insured, 5.00%,
5/01/17 .......................................................................................... 1,000,000 1,053,120
Los Altos School District GO, Refunding, AMBAC Insured, 5.00%, 8/01/22 ............................. 5,000,000 5,209,550
Los Angeles Convention and Exhibition Center Authority Lease Revenue, Refunding, Series A,
AMBAC Insured, 3.00%, 8/15/12 .................................................................... 4,525,000 4,230,241
Los Angeles County MTA, Sales Tax Revenue, Proposition A, first tier, Refunding, Series A,
FSA Insured, 5.00%, 7/01/15 ...................................................................... 5,345,000 5,566,016
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Project, Refunding,
Series A, FSA Insured, 5.00%, 10/01/17 ........................................................... 1,000,000 1,041,810
Los Angeles USD, GO,
Election of 2004, Series C, FGIC Insured, 5.00%, 7/01/19 ....................................... 2,035,000 2,120,633
Election of 2005, Series C, AMBAC Insured, 5.00%, 7/01/21 ...................................... 8,420,000 8,796,963
Refunding, MBIA Insured, 5.25%, 7/01/13 ........................................................ 3,500,000 3,764,355
Refunding, Series A-1, FGIC Insured, 5.00%, 7/01/21 ............................................ 10,895,000 11,343,002
Lynwood PFAR, Water System Improvement Project, 6.15%, 6/01/08 ..................................... 300,000 306,348
Annual Report | 57
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
M-S-R Public Power Agency San Juan Project Revenue, Refunding, Series I, MBIA Insured,
4.25%, 7/01/11 ................................................................................. $ 5,055,000 $ 5,143,614
5.00%, 7/01/18 ................................................................................. 1,000,000 1,030,200
Metropolitan Water District Southern California GO, Waterworks, Series B, Pre-Refunded,
4.125%, 3/01/13 ................................................................................ 1,000,000 1,011,570
4.25%, 3/01/14 ................................................................................. 1,000,000 1,016,850
4.30%, 3/01/15 ................................................................................. 1,000,000 1,018,960
Montebello USD, GO, Capital Appreciation, FGIC Insured, zero cpn.,
8/01/18 ........................................................................................ 1,455,000 828,564
8/01/19 ........................................................................................ 1,480,000 800,295
Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, 5.00%,
8/01/17 ........................................................................................ 2,000,000 2,098,720
8/01/18 ........................................................................................ 2,300,000 2,405,524
Morgan Hill USD, GO, FGIC Insured, 4.25%, 8/01/14 .................................................. 1,585,000 1,601,008
Moulton-Niguel Water District GO, Consolidated, Refunding, AMBAC Insured, 5.00%,
9/01/16 .......................................................................................... 3,520,000 3,697,619
Murrieta COP, Road Improvement Project, 6.00%,
4/01/07 ........................................................................................ 235,000 238,650
4/01/08 ........................................................................................ 245,000 251,047
Nevada County COP, Refunding, MBIA Insured, 4.125%, 10/01/12 ....................................... 1,040,000 1,043,598
North City West School Facilities Financing Authority Special Tax, Series B, FSA Insured,
Pre-Refunded, 5.625%, 9/01/08 .................................................................... 500,000 511,390
Orange County CFD No. 86-2 Special Tax, Rancho Santa Margarita, Refunding, Series A,
5.375%, 8/15/12 .................................................................................. 1,500,000 1,560,270
Orange County CFD Special Tax,
No. 02-1, Ladera Ranch, Series A, 4.60%, 8/15/14 ............................................... 1,000,000 1,006,310
No. 02-1, Ladera Ranch, Series A, 4.75%, 8/15/15 ............................................... 1,000,000 1,009,450
No. 02-1, Ladera Ranch, Series A, 4.90%, 8/15/16 ............................................... 1,285,000 1,298,441
No. 03-1, Ladera Ranch, Series A, 4.90%, 8/15/17 ............................................... 1,000,000 1,007,110
No. 03-1, Ladera Ranch, Series A, 5.10%, 8/15/18 ............................................... 1,000,000 1,012,430
No. 04-1, Ladera Ranch, Series A, 4.70%, 8/15/18 ............................................... 1,765,000 1,734,536
No. 04-1, Ladera Ranch, Series A, 4.80%, 8/15/19 ............................................... 1,945,000 1,913,335
No. 04-1, Ladera Ranch, Series A, 4.85%, 8/15/20 ............................................... 2,000,000 1,963,840
Orange County Recovery COP, Series A, MBIA Insured, ETM, 6.00%, 7/01/08 ............................ 1,500,000 1,564,590
Oroville Hospital Revenue, Oroville Hospital, Series A, California Mortgage Insured, 5.125%,
12/01/12 ......................................................................................... 1,435,000 1,457,443
Oxnard Harbor District Revenue, Series A, 5.10%, 8/01/14 ........................................... 1,000,000 1,005,260
Pajaro Valley USD, GO, Election of 2002, Series A, FSA Insured, Pre-Refunded, 5.00%,
8/01/16 .......................................................................................... 1,500,000 1,591,530
Palm Desert Financing Authority Lease Revenue, Blythe County Administrative Project,
Pre-Refunded, 6.375%, 8/01/11 .................................................................... 855,000 873,545
Palm Desert Financing Authority Tax Allocation Revenue,
a Project Area No. 1, As Amended, Series A, MBIA Insured, 5.00%, 4/01/23 ......................... 7,690,000 7,923,776
Refunding, MBIA Insured, 4.75%, 8/01/18 ........................................................ 1,050,000 1,071,840
Pomona RDA Tax Allocation, Mountain Meadows Redevelopment Project, Refunding, Series X,
5.35%, 12/01/16 .................................................................................. 1,000,000 1,046,250
58 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Poway RDA Tax Allocation, Paguay Redevelopment Project, Series A, MBIA Insured, 4.50%,
6/15/14 .......................................................................................... $ 4,595,000 $ 4,688,233
Redlands USD, GO, Election of 2002, FSA Insured, 5.00%, 7/01/19 .................................... 1,000,000 1,037,570
Richmond Joint Powers Financing Authority Revenue, Multiple Redevelopment Projects,
Series B, ETM, 5.35%, 5/15/13 .................................................................... 2,000,000 2,075,100
Riverside County COP, Capital Improvement, Family Law, Refunding, Series A, FGIC Insured,
5.00%,
11/01/18 ....................................................................................... 1,540,000 1,595,609
11/01/19 ....................................................................................... 1,615,000 1,667,116
Riverside County Housing Authority MFHR, Brandon Place Apartments, Mandatory Put 7/01/09,
Series B, FNMA Insured, 5.625%, 7/01/29 .......................................................... 985,000 1,011,703
Riverside USD, GO, Election of 2001, Series A, FGIC Insured, 4.00%, 2/01/13 ........................ 1,000,000 998,260
Sacramento City USD, GO, Election of 1999, Series D, FSA Insured, 5.00%, 7/01/19 ................... 1,465,000 1,520,040
Sacramento County Sanitation District Financing Authority Revenue, Sacramento Regional
County Sanitation, Series A, AMBAC Insured, 5.00%, 12/01/18 ...................................... 9,155,000 9,589,405
Sacramento MUD Financing Authority Revenue, Cosumnes Project, MBIA Insured, 5.00%,
7/01/21 .......................................................................................... 3,305,000 3,439,414
San Bernardino City USD, GO, Refunding,
FSA Insured, 5.00%, 8/01/18 .................................................................... 1,140,000 1,192,303
Series A, FSA Insured, 5.00%, 8/01/19 .......................................................... 1,680,000 1,751,266
San Bernardino County COP, Medical Center Financing Project, Refunding, 6.00%,
8/01/09 .......................................................................................... 2,000,000 2,103,180
San Carlos School District GO, Election of 2005, Series A, MBIA Insured, 5.00%,
10/01/22 ......................................................................................... 3,215,000 3,340,128
San Francisco BART District Sales Tax Revenue, Refunding, Series A, MBIA Insured, 5.00%,
7/01/20 .......................................................................................... 5,000,000 5,228,200
San Francisco City and County GO, Refunding, Series 1, FGIC Insured, 5.00%, 6/15/12 ................ 3,650,000 3,759,828
San Francisco City and County Redevelopment Financing Authority Tax Allocation,
Redevelopment Projects, Series A, Pre-Refunded, zero cpn., 8/01/17 ............................... 3,825,000 2,198,227
San Joaquin County COP,
General Hospital Project, Refunding, MBIA Insured, 5.00%, 9/01/17 .............................. 1,000,000 1,033,010
Solid Waste System Facilities Projects, MBIA Insured, 5.00%, 4/01/17 ........................... 1,340,000 1,392,675
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Capital Appreciation,
Refunding, Series A, zero cpn. to 1/15/07, 5.60% thereafter, 1/15/16 ............................. 3,000,000 2,890,320
San Jose MFHR, Countrybrook Project, Refunding, Series A, FNMA Insured, 4.95%,
4/01/12 .......................................................................................... 4,445,000 4,542,746
San Marcos Public Facilities Authority Revenue, Senior Tax Increment Project Area 3, Series A,
MBIA Insured,
ETM, 5.10%, 10/01/09 ........................................................................... 515,000 535,337
Pre-Refunded, 5.30%, 10/01/11 .................................................................. 350,000 376,166
Santa Ana COP, Refunding, Series A, AMBAC Insured, 4.25%, 6/01/13 .................................. 1,405,000 1,427,649
Santa Ana USD, GO, Election of 1999, Series B, FGIC Insured, zero cpn., 8/01/14 .................... 3,125,000 2,201,219
Santa Clara 1915 Act, Reassessment District 187, Refunding, Series 1, 5.25%, 9/02/11 ............... 1,720,000 1,772,942
Santa Clara County Financing Authority Lease Revenue, Multiple Facilities Projects, Refunding,
Series A, AMBAC Insured, 4.50%, 5/15/12 .......................................................... 2,900,000 2,946,052
Annual Report | 59
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Santa Monica-Malibu USD, COP, Series C, MBIA Insured,
4.00%, 5/01/12 ................................................................................. $ 525,000 $ 523,625
4.25%, 5/01/14 ................................................................................. 840,000 845,057
4.25%, 5/01/15 ................................................................................. 875,000 876,846
4.25%, 11/01/15 ................................................................................ 670,000 671,414
South County Regional Wastewater Authority Revenue, Regional Wastewater Facilities Project,
Refunding, FSA Insured, 3.25%, 8/01/11 ........................................................... 1,000,000 960,870
South Gate PFA Tax Allocation Revenue, South Gate Redevelopment Project No. 1,
XLCA Insured, 5.00%, 9/01/16 ..................................................................... 2,000,000 2,086,920
South Gate PFA Water Revenue, Refunding, Series A, FGIC Insured,
5.35%, 10/01/07 ................................................................................ 995,000 1,014,840
5.45%, 10/01/08 ................................................................................ 1,040,000 1,078,199
Stockton Health Facilities Revenue, Dameron Hospital Assn., Refunding, Series A, 5.35%,
12/01/09 ......................................................................................... 385,000 398,644
Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A,
FSA Insured, 5.75%, 7/01/11 ...................................................................... 1,295,000 1,344,029
Stockton Revenue, O'Connor Woods Housing Corp., Series A, 5.375%, 11/01/11 ......................... 1,200,000 1,218,468
Sunline Transport Agency COP, Transport Finance Corp., Series B, 5.75%, 7/01/06 .................... 445,000 445,000
Sweetwater Authority Water Revenue, AMBAC Insured, 5.00%, 4/01/18 .................................. 2,860,000 2,978,947
Sweetwater UHSD, COP, FSA Insured, 4.15%, 9/01/12 .................................................. 1,000,000 1,005,350
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Series B,
Pre-Refunded, 4.60%, 6/01/12 ................................................................... 1,760,000 1,814,437
Pre-Refunded, 4.70%, 6/01/13 ................................................................... 1,500,000 1,553,025
Pre-Refunded, 4.80%, 6/01/14 ................................................................... 725,000 753,841
ETM, 4.25%, 6/01/09 ............................................................................ 880,000 889,794
ETM, 4.375%, 6/01/10 ........................................................................... 1,665,000 1,695,736
ETM, 4.50%, 6/01/11 ............................................................................ 1,540,000 1,580,825
Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.10%, 6/01/12 .............. 1,000,000 1,040,750
University of California Revenues,
Limited Project, Series B, FSA Insured, 5.00%, 5/15/21 ......................................... 5,000,000 5,167,000
Multi Purpose Projects, Series N, FGIC Insured, 4.00%, 9/01/12 ................................. 1,380,000 1,383,133
Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/15 ................................... 3,645,000 3,807,093
Victor Valley UHSD, COP, Refunding, AMBAC Insured, 5.00%, 11/15/21 ................................. 1,140,000 1,183,958
West Contra Costa USD, GO, Series B, FSA Insured, 4.00%, 8/01/12 ................................... 1,875,000 1,879,969
Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital, 5.00%,
6/01/11 ........................................................................................ 1,060,000 1,084,910
6/01/12 ........................................................................................ 2,225,000 2,285,498
6/01/13 ........................................................................................ 2,335,000 2,392,371
Whittier UHSD, GO, Refunding, MBIA Insured, 5.00%, 8/01/20 ......................................... 6,075,000 6,340,356
Yucaipa Valley Water District Water System Revenue COP, Series A, MBIA Insured,
5.00%, 9/01/15 ................................................................................. 1,080,000 1,143,655
5.25%, 9/01/20 ................................................................................. 1,325,000 1,410,714
------------
474,220,969
------------
60 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 2.2%
PUERTO RICO 0.6%
Puerto Rico Commonwealth GO, Public Improvement, FSA Insured, 5.25%, 7/01/16 ................. $ 2,500,000 $ 2,693,275
------------
VIRGIN ISLANDS 1.6%
Virgin Islands PFAR, senior lien,
Fund Loan Notes, Refunding, Series A, 5.40%, 10/01/12 .................................... 4,150,000 4,290,975
Refunding, Series A, 5.30%, 10/01/11 ..................................................... 1,000,000 1,027,750
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
4.875%, 7/01/06 .......................................................................... 500,000 500,000
5.00%, 7/01/09 ........................................................................... 2,000,000 2,010,980
------------
7,829,705
------------
TOTAL U.S. TERRITORIES ....................................................................... 10,522,980
------------
TOTAL LONG TERM INVESTMENTS (COST $481,441,028) .............................................. 484,743,949
------------
SHORT TERM INVESTMENTS 1.5%
MUNICIPAL BONDS 1.5%
CALIFORNIA 1.5%
b California State Department of Water Resources Power Supply Revenue, Series B-3,
Daily VRDN and Put, 3.91%, 5/01/22 .......................................................... 600,000 600,000
b California State Economic Recovery Revenue, Series C-3, Daily VRDN and Put, 3.90%,
7/01/23 ..................................................................................... 1,600,000 1,600,000
b California State GO, Kindergarten-University,
Refunding, Series B-2, Daily VRDN and Put, 3.91%, 5/01/34 ................................. 400,000 400,000
Series A-5, Daily VRDN and Put, 3.88%, 5/01/34 ............................................ 2,800,000 2,800,000
Series B-3, Daily VRDN and Put, 3.91%, 5/01/34 ............................................ 300,000 300,000
b Daly City HFA, MFR, Refunding, Weekly VRDN and Put, 3.90%, 10/15/29 .......................... 100,000 100,000
b Metropolitan Water District Southern California Waterworks Revenue, Series C-2, Daily VRDN
and Put, 3.87%, 7/01/36 ..................................................................... 1,500,000 1,500,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $7,300,000) ............................................... 7,300,000
------------
TOTAL INVESTMENTS (COST $488,741,028) 100.7% ................................................. 492,043,949
OTHER ASSETS, LESS LIABILITIES (0.7)% ........................................................ (3,326,000)
------------
NET ASSETS 100.0% ............................................................................ $488,717,949
============
See Selected Portfolio Abbreviations on page 70.
a See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
b Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.
Annual Report | See notes to financial statements. | 61
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
---------------------------------
YEAR ENDED JUNE 30,
CLASS A 2006 2005 2004 e
---------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................. $ 9.94 $ 9.91 $ 10.00
---------------------------------
Income from investment operations: a
Net investment income b ........................................................... 0.21 0.15 0.11
Net realized and unrealized gains (losses) ........................................ (0.14) 0.03 (0.10)
---------------------------------
Total from investment operations ................................................... 0.07 0.18 0.01
---------------------------------
Less distributions from net investment income ...................................... (0.21) (0.15) (0.10)
---------------------------------
Redemption fees .................................................................... -- -- d --
---------------------------------
Net asset value, end of year ....................................................... $ 9.80 $ 9.94 $ 9.91
=================================
Total return c ..................................................................... 0.74% 1.81% 0.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................................... $11,149 $16,318 $16,244
Ratios to average net assets:
Expenses before waiver and payments by affiliate .................................. 1.10% 1.05% 1.20%f
Expenses net of waiver and payments by affiliate .................................. 0.50% 0.50% 0.50%f
Net investment income ............................................................. 2.10% 1.48% 1.30%f
Portfolio turnover rate ............................................................ 24.19% 5.43% 7.42%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to timing of
sales and repurchase of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
d Amount is less than $0.01 per share.
e For the period September 2, 2003 (commencement of operations) to June 30,
2004.
f Annualized.
62 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 63.1%
MUNICIPAL BONDS 63.1%
CALIFORNIA 61.0%
Brea and Olinda USD, GO, Election of 1999, Series A, FGIC Insured, 2.60%, 8/01/09 .................. 120,000 $ 114,915
California Educational Facilities Authority Revenue, Santa Clara University, Series A, FSA Insured,
2.625%, 9/01/09 .................................................................................. 100,000 95,340
California Health Facilities Financing Authority Revenue, Catholic Healthcare West, Series G,
5.00%, 7/01/09 ................................................................................... 750,000 768,360
California State Economic Recovery GO, Series A, 5.00%, 1/01/09 .................................... 415,000 425,910
California State Public Works Board Lease Revenue, Department of Corrections, Series C, 5.00%,
6/01/07 .......................................................................................... 500,000 504,905
California State University at Channel Islands Financing Authority Revenue, Rental Housing and
Town Center, Mandatory Put 8/01/07, Series A, 2.50%, 8/01/44 ..................................... 320,000 315,216
California Statewide CDA Revenue,
Kaiser Permanente, Mandatory Put 5/01/07, Series G, 2.30%, 4/01/34 ............................. 400,000 394,972
Viewpoint School, ACA Insured, 3.50%, 10/01/08 ................................................. 320,000 310,803
Foothill-De Anza Community College District GO, Election of 1999, Series B, 2.60%,
8/01/08 .......................................................................................... 100,000 96,587
Glendora PFAR Tax Allocation, Project No. 1, Refunding, Series A, MBIA Insured,
2.00%, 9/01/07 ................................................................................. 100,000 97,173
2.125%, 9/01/08 ................................................................................ 105,000 99,957
Lodi USD, COP, Capital Projects, Refunding, FSA Insured, 3.00%, 2/01/08 ............................ 110,000 108,284
Lompoc USD, GO, Election of 2002, Series B, MBIA Insured, 3.50%, 6/01/07 ........................... 335,000 334,230
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Project, Refunding,
Series A, FSA Insured, 4.00%, 10/01/08 ........................................................... 500,000 502,955
Lynwood USD, GO, Election of 2002, Series A, FSA Insured, 4.00%, 8/01/10 ........................... 100,000 100,708
Manteca USD Special Tax, CFD No. 89-1, AMBAC Insured, 2.50%, 9/01/08 ............................... 250,000 240,393
North Orange County Community College District GO, Election of 2002, Series B, FGIC Insured,
2.125%, 8/01/08 .................................................................................. 500,000 477,080
Placer County Water Agency Water Revenue COP, Refunding, MBIA Insured, 2.375%,
7/01/07 .......................................................................................... 105,000 103,030
Poway RDA Tax Allocation, Paguay Redevelopment Project, Series A, MBIA Insured, 3.00%,
6/15/09 .......................................................................................... 100,000 96,748
Rio Linda Unified Elementary School District, Election of 2002, Series A, FSA Insured, 4.00%,
8/01/10 .......................................................................................... 100,000 100,708
Sacramento Power Authority Cogeneration Project Revenue, Refunding, AMBAC Insured, 4.00%,
7/01/08 .......................................................................................... 1,000,000 1,003,410
University of California Revenues, General, Refunding, Series A, AMBAC Insured, 5.00%,
5/15/08 .......................................................................................... 500,000 510,645
-----------
6,802,329
-----------
U.S. TERRITORIES 2.1%
GUAM 2.1%
Guam International Airport Authority Revenue, Series A, MBIA Insured, 2.375%, 10/01/08 ............. 250,000 238,355
-----------
TOTAL LONG TERM INVESTMENTS (COST $7,600,897) ...................................................... 7,040,684
-----------
Annual Report | 63
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 44.1%
MUNICIPAL BONDS 44.1%
CALIFORNIA 39.5%
a California Infrastructure and Economic Development Bank Insured Revenue, Rand Corp., Series B,
AMBAC Insured, Daily VRDN and Put, 3.89%, 4/01/42 ........................................... $ 400,000 $ 400,000
a California State Department of Water Resources Power Supply Revenue,
Series B-5, Daily VRDN and Put, 3.90%, 5/01/22 ............................................ 200,000 200,000
Series B-6, Daily VRDN and Put, 3.91%, 5/01/22 ............................................ 200,000 200,000
a California State Economic Recovery GO, Series C-1, Daily VRDN and Put, 4.00%, 7/01/23 ........ 100,000 100,000
a California State GO,
Kindergarten-University, Refunding, Series A-3, Daily VRDN and Put, 3.97%,
5/01/34 .................................................................................. 100,000 100,000
Kindergarten-University, Series B-3, Daily VRDN and Put, 3.91%, 5/01/34 ................... 200,000 200,000
Series A-3, Daily VRDN and Put, 3.90%, 5/01/33 ............................................ 200,000 200,000
b California Statewide CDA Revenue, TRAN, Series A-1, 4.50%, 6/29/07 ........................... 500,000 503,750
a Irvine 1915 Act Special Assessment, AD No. 03-19, Series A, Daily VRDN and Put, 3.91%,
9/02/29 ..................................................................................... 100,000 100,000
b Los Angeles County Schools Pooled Financing Program COP, GO, TRAN, Series A, 4.50%,
6/29/07 ..................................................................................... 500,000 503,700
a Metropolitan Water District Southern California Waterworks Revenue, Series C-1, Daily VRDN and
Put, 3.85%, 7/01/36 ......................................................................... 700,000 700,000
a Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Series A, Weekly VRDN and Put,
3.99%, 10/01/26 ............................................................................. 200,000 200,000
a Orange County Sanitation District COP, Refunding,
Series A, Daily VRDN and Put, 3.92%, 8/01/29 .............................................. 200,000 200,000
Series B, Daily VRDN and Put, 3.92%, 8/01/30 .............................................. 300,000 300,000
San Ramon Valley USD, GO, TRAN, 4.25%, 10/25/06 .............................................. 500,000 500,775
------------
4,408,225
------------
U.S. TERRITORIES 4.6%
PUERTO RICO 4.6%
a Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, 3.87%, 12/01/15 ........................................................ 100,000 100,000
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Revenue, Ana G. Mendez University System Project, 5.00%, 3/01/07 ........ 405,000 407,146
------------
507,146
------------
TOTAL SHORT TERM INVESTMENTS (COST $4,510,048) ................................................ 4,915,371
------------
TOTAL INVESTMENTS (COST $12,110,945) 107.2% ................................................... 11,956,055
OTHER ASSETS, LESS LIABILITIES (7.2)% ......................................................... (806,863)
------------
NET ASSETS 100.0% ............................................................................. $ 11,149,192
============
See Selected Portfolio Abbreviations on page 70.
a Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.
b See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
64 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
----------------------------------------------------------------
YEAR ENDED JUNE 30,
CLASS A 2006 2005 2004 2003 2002
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------
Income from investment operations - net investment income .... 0.023 0.012 0.004 0.007 0.012
Less distributions from net investment income ................ (0.023) (0.012) (0.004) (0.007) (0.012)
----------------------------------------------------------------
Net asset value, end of year ................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================================
Total return a ............................................... 2.33% 1.20% 0.38% 0.71% 1.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................. $610,593 $688,121 $631,895 $671,392 $679,788
Ratios to average net assets:
Expenses .................................................... 0.55% 0.56% 0.56% 0.56% 0.56%
Net investment income ....................................... 2.30% 1.22% 0.38% 0.71% 1.20%
a Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
Annual Report | See notes to financial statements. | 65
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 102.2%
MUNICIPAL BONDS 102.2%
CALIFORNIA 102.2%
a Alameda County IDAR, United Manufacturing Project, Series A, Weekly VRDN and Put, 3.97%,
6/01/30 ..................................................................................... $ 1,000,000 $ 1,000,000
a Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area,
Series A, AMBAC Insured, Weekly VRDN and Put, 3.87%, 4/01/36 .............................. 12,500,000 12,500,000
Series B, AMBAC Insured, Weekly VRDN and Put, 3.85%, 4/01/39 .............................. 15,800,000 15,800,000
a Butte County Housing Authority MFR, Pine Tree Apartment Project, Weekly VRDN and Put,
3.94%, 12/01/10 ............................................................................. 1,237,000 1,237,000
a California Health Facilities Financing Authority Revenue,
Catholic Healthcare West, MBIA Insured, Weekly VRDN and Put, 3.97%, 7/01/16 ............... 3,955,000 3,955,000
Pooled Loan Program, Series B, FGIC Insured, Weekly VRDN and Put, 3.92%, 10/01/10 ......... 1,900,000 1,900,000
Scripps Health, Series A, MBIA Insured, Weekly VRDN and Put, 3.78%, 10/01/22 .............. 3,200,000 3,200,000
a California Infrastructure and Economic Development Bank Revenue,
Goodwill Industries Orange County, Weekly VRDN and Put, 3.88%, 3/01/31 .................... 2,000,000 2,000,000
Independent System Operating Corp. Project, Refunding, Series B, MBIA Insured,
Weekly VRDN and Put, 3.89%, 4/01/08 ...................................................... 3,300,000 3,300,000
Independent System Operating Corp. Project, Refunding, Series C, MBIA Insured,
Weekly VRDN and Put, 3.92%, 4/01/09 ...................................................... 8,000,000 8,000,000
J. Paul Getty Trust, Refunding, Series B, Annual VRDN and Put, Mandatory Put 2/02/07,
3.25%, 4/01/33 ........................................................................... 9,000,000 9,000,000
b California School Cash Reserve Program Authority COP, 2006-2007 TRAN, Series A, 4.50%,
7/06/07 ..................................................................................... 20,000,000 20,193,200
California School Cash Reserve Program Authority Revenue, Pool, Series A, AMBAC Insured,
4.00%, 7/06/06 .............................................................................. 7,500,000 7,501,401
a California State Department of Water Resources Power Supply Revenue,
Refunding, Sub Series F-1, Daily VRDN and Put, 3.91%, 5/01/19 ............................. 3,800,000 3,800,000
Refunding, Sub Series F-5, Weekly VRDN and Put, 4.00%, 5/01/22 ............................ 1,500,000 1,500,000
Series B-2, Daily VRDN and Put, 4.00%, 5/01/22 ............................................ 3,750,000 3,750,000
Series C-8, Weekly VRDN and Put, 3.86%, 5/01/22 ........................................... 6,000,000 6,000,000
Series C-12, Weekly VRDN and Put, 3.92%, 5/01/22 .......................................... 6,700,000 6,700,000
a California State Economic Development Financing Authority Revenue,
Calco Project, Weekly VRDN and Put, 3.95%, 4/01/27 ........................................ 1,360,000 1,360,000
KQED Inc. Project, Refunding, Weekly VRDN and Put, 3.94%, 4/01/20 ......................... 900,000 900,000
a California State Economic Recovery Revenue,
Series C-3, Daily VRDN and Put, 3.90%, 7/01/23 ............................................ 625,000 625,000
Series C-7, Daily VRDN and Put, 3.88%, 7/01/23 ............................................ 10,100,000 10,100,000
Series C-9, Daily VRDN and Put, 3.91%, 7/01/23 ............................................ 1,500,000 1,500,000
Series C-14, XLCA Insured, Weekly VRDN and Put,, 3.94%, 7/01/23 ........................... 30,300,000 30,300,000
a California State GO,
Kindergarten-University, Refunding, Series B-2, Daily VRDN and Put, 3.91%, 5/01/34 ........ 1,150,000 1,150,000
Refunding, Series B, Sub Series B-7, Daily VRDN and Put, 3.92%, 5/01/40 ................... 2,700,000 2,700,000
Series B-1, Weekly VRDN and Put, 3.90%, 5/01/33 ........................................... 5,000,000 5,000,000
Series C-2, Weekly VRDN and Put, 3.92%, 5/01/33 ........................................... 6,700,000 6,700,000
California State University Revenue, TECP, 3.58%, 7/13/06 .................................... 29,590,000 29,590,000
California Statewide CDA Revenue,
a North Peninsula Jewish, Daily VRDN and Put, 3.93%, 7/01/34 ................................ 3,000,000 3,000,000
b TRAN, Series A-1, 4.50%, 6/29/07 .......................................................... 15,000,000 15,133,950
66 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
a Carlsbad USD, COP, School Facility Bridge Funding Program, FSA Insured, Weekly VRDN and
Put, 3.92%, 9/01/14 ........................................................................... $ 500,000 $ 500,000
a Chico MFMR, Webb Homes Project, Monthly VRDN and Put, 3.32%, 1/01/10 ........................... 1,020,000 1,020,000
a Chino Basin Regional Financing Authority Revenue, Inland Empire Utilities, Series A,
AMBAC Insured, Weekly VRDN and Put, 3.87%, 6/01/32 ............................................ 5,285,000 5,285,000
a Commerce Joint Powers Financing Authority IDR, Weekly VRDN and Put, 3.97%, 11/01/14 ............ 1,490,000 1,490,000
a Eastern Municipal Water District Water and Sewer Revenue COP, Refunding, Series B,
MBIA Insured, Weekly VRDN and Put, 3.92%, 7/01/33 ............................................. 2,465,000 2,465,000
a Elsinore Valley Municipal Water District COP, Series A, FGIC Insured, Weekly VRDN and Put,
3.94%, 7/01/29 ................................................................................ 15,000,000 15,000,000
a Fremont PFA, COP, Weekly VRDN and Put, 3.92%, 8/01/30 .......................................... 5,700,000 5,700,000
a Grant Joint UHSD, COP,
School Facilities Bridge Funding Program, FSA Insured, Weekly VRDN and Put, 3.92%,
9/01/34 .................................................................................... 4,900,000 4,900,000
Various Bridge Funding Program, FSA Insured, Weekly VRDN and Put, 3.92%, 7/01/37 ............ 10,000,000 10,000,000
a Hillsborough COP, Water and Sewer System Project, Refunding, Series B, Weekly VRDN and
Put, 3.95%, 6/01/30 ........................................................................... 4,100,000 4,100,000
a Irvine 1915 Act Special Assessment,
AD No. 00-18, Series A, Daily VRDN and Put, 3.91%, 9/02/26 .................................. 2,227,000 2,227,000
AD No. 93-14, Daily VRDN and Put, 3.90%, 9/02/25 ............................................ 1,256,000 1,256,000
AD No. 94-13, Daily VRDN and Put, 3.91%, 9/02/22 ............................................ 3,600,000 3,600,000
AD No. 97-13, Daily VRDN and Put, 3.91%, 9/02/23 ............................................ 454,000 454,000
a Irvine Ranch Water District GO,
Consolidated ID, Daily VRDN and Put, 3.84%, 6/01/15 ......................................... 2,575,000 2,575,000
Nos. 105 140 240 and 250, Daily VRDN and Put, 3.90%, 1/01/21 ................................ 4,700,000 4,700,000
a Irvine Ranch Water District Revenue, Consolidated Bonds, Daily VRDN and Put, 3.91%,
8/01/16 ....................................................................................... 400,000 400,000
a Los Angeles COP, Kadima Hebrew Academy, Series A, Weekly VRDN and Put, 3.94%,
8/01/35 ....................................................................................... 1,300,000 1,300,000
b Los Angeles County GO, TRAN, Series A, 4.50%, 6/29/07 .......................................... 20,000,000 20,191,000
a Los Angeles County Pension Obligation Revenue, Refunding,
Series A, AMBAC Insured, Weekly VRDN and Put, 3.87%, 6/30/07 ................................ 500,000 500,000
Series B, AMBAC Insured, Weekly VRDN and Put, 3.87%, 6/30/07 ................................ 1,200,000 1,200,000
b Los Angeles County Schools Pooled Financing Program COP, GO, TRAN, Series A, 4.50%,
6/29/07 ....................................................................................... 10,000,000 10,095,500
a Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-4,
Weekly VRDN and Put, 3.92%, 7/01/35 ........................................................... 6,650,000 6,650,000
a Los Angeles MFR, Casden Project, Series K, Weekly VRDN and Put, 3.90%, 7/01/10 ................. 145,507 145,507
a Los Angeles Wastewater System Revenue, Refunding, Sub Series A, FGIC Insured, Weekly VRDN
and Put, 3.92%, 12/01/31 ...................................................................... 5,000,000 5,000,000
a Los Angeles Water and Power Revenue, Refunding, Sub Series B-5, Weekly VRDN and Put,
3.95%, 7/01/34 ................................................................................ 3,700,000 3,700,000
a Metropolitan Water District Southern California Waterworks Revenue,
Refunding, Series A, AMBAC Insured, Weekly VRDN and Put, 3.89%, 6/01/23 ..................... 6,270,000 6,270,000
Refunding, Series B-1, Daily VRDN and Put, 3.91%, 7/01/35 ................................... 100,000 100,000
Refunding, Series B-4, Weekly VRDN and Put, 3.87%, 7/01/35 .................................. 7,000,000 7,000,000
Annual Report | 67
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
a Metropolitan Water District Southern California Waterworks Revenue, (continued)
Refunding, Series C-1, Weekly VRDN and Put, 3.91%, 7/01/30 .................................... $ 3,000,000 $ 3,000,000
Series C, Weekly VRDN and Put, 3.88%, 7/01/28 ................................................. 13,200,000 13,200,000
Series C-1, Daily VRDN and Put, 3.85%, 7/01/36 ................................................ 2,000,000 2,000,000
a Murrieta Valley USD, COP, School Facility Bridge Funding Program, FSA Insured, Weekly VRDN
and Put, 3.92%, 6/01/23 ......................................................................... 1,700,000 1,700,000
a Northern California Public Power Agency Revenue, Hydroelectric Project No. 1, Refunding,
Series A, MBIA Insured, Weekly VRDN and Put, 3.87%, 7/01/23 ..................................... 8,700,000 8,700,000
a Oakland COP, Capital Equipment Project, Weekly VRDN and Put, 3.95%, 12/01/15 ..................... 5,700,000 5,700,000
a Orange County Apartment Development Revenue, Aliso Creek Project Refunding, Series B,
Weekly VRDN and Put, 3.89%, 11/01/22 ............................................................ 7,000,000 7,000,000
a Orange County Sanitation District COP,
Daily VRDN and Put, 3.91%, 2/01/36 ............................................................ 13,000,000 13,000,000
Refunding, Series B, Daily VRDN and Put, 3.92%, 8/01/30 ....................................... 1,400,000 1,400,000
a Pajaro Valley USD, COP, School Facility Bridge Funding Program, FSA Insured, Weekly VRDN
and Put, 3.92%, 9/01/31 ......................................................................... 700,000 700,000
a Rancho Water District Financing Authority Revenue,
Refunding, Series A, FGIC Insured, Weekly VRDN and Put, 3.91%, 8/01/29 ........................ 5,700,000 5,700,000
Series B, FGIC Insured, Weekly VRDN and Put, 3.91%, 8/01/31 ................................... 3,880,000 3,880,000
b Ravenswood City School District Revenue, TRAN, 4.50%, 7/05/07 .................................... 2,555,000 2,574,648
a Riverside County Asset Leasing Corp. Leasehold Revenue, Southwest Justice Center, Series B,
MBIA Insured, Weekly VRDN and Daily Put, 3.87%, 11/01/32 ........................................ 5,000,000 5,000,000
a Riverside County COP, Riverside County Public Facilities, ACES, Series B, Weekly VRDN and Put,
3.92%, 12/01/15 ................................................................................. 1,600,000 1,600,000
Riverside County Teeter Obligation Revenue, TECP, 3.60%, 8/03/06 ................................. 2,000,000 2,000,000
a Sacramento County COP, Administration Center and Courthouse Project, Weekly VRDN and Put,
3.92%, 6/01/20 .................................................................................. 15,065,000 15,065,000
b Sacramento County GO, TRAN, 4.50%, 7/17/07 ....................................................... 15,000,000 15,133,650
a Sacramento County Sanitation District Financing Authority Revenue, Series C, Weekly VRDN and
Put, 3.94%, 12/01/30 ............................................................................ 28,600,000 28,600,000
Sacramento County TRAN, Series A, 4.00%, 7/10/06 ................................................. 25,000,000 25,008,772
San Diego County Regional Transportation Commission Sales Tax Revenue, TECP, 3.46%,
7/14/06 ......................................................................................... 4,500,000 4,500,000
a San Francisco City and County RDA, MFR, Fillmore Center, Refunding, Series B-2, Weekly VRDN
and Put, 3.96%, 12/01/17 ........................................................................ 1,000,000 1,000,000
a San Jose RDAR, Merged Area Redevelopment Project, Series A, Weekly VRDN and Put, 3.87%,
7/01/26 ......................................................................................... 3,300,000 3,300,000
a San Mateo UHSD, COP, School Facility Bridge Funding Program, FSA Insured, Daily VRDN and
Put, 3.92%, 9/01/34 ............................................................................. 10,000,000 10,000,000
San Ramon Valley USD, GO, TRAN, 4.25%, 10/25/06 .................................................. 7,500,000 7,514,166
a Santa Clara County Housing Authority MFHR, Benton Park Central Apartments, Refunding,
Series A, FNMA Insured, Weekly VRDN and Put, 3.91%, 12/15/25 .................................... 5,000,000 5,000,000
a South Placer Wastewater Authority Wastewater Revenue, Series B, FGIC Insured, Weekly VRDN
and Put, 3.98%, 11/01/35 ........................................................................ 15,400,000 15,400,000
a Southern California Public Power Authority Power Project Revenue, Palo Verde Project,
Refunding, Series C, AMBAC Insured, Weekly VRDN and Put, 3.87%, 7/01/17 ......................... 700,000 700,000
68 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
a Southern California Public Power Authority Transmission Project Revenue, Southern
Transmission, Refunding,
AMBAC Insured, Weekly VRDN and Put, 3.87%, 7/01/19 ......................................... $ 13,315,000 $ 13,315,000
Series A, FSA Insured, Weekly VRDN and Put, 3.92%, 7/01/23 ................................. 1,000,000 1,000,000
Series B, FSA Insured, Weekly VRDN and Put, 3.92%, 7/01/23 ................................. 6,600,000 6,600,000
a Stanislaus Waste to Energy Financing Agency Revenue, Solid Waste Facility, Ogden Martin
Systems Project, Refunding, MBIA Insured, Weekly VRDN and Put, 3.92%, 1/01/10 ................ 3,000,000 3,000,000
a Turlock Irrigation District COP, Capital Improvement and Refunding Project, Daily VRDN and Put,
3.93%, 1/01/31 ............................................................................... 1,900,000 1,900,000
a Tustin 1915 Act Special Assessment, Reassessment District No. 95-2, Series A, Daily VRDN and
Put, 3.91%, 9/02/13 .......................................................................... 16,569,000 16,569,000
a Union City MFR, Housing Mission Sierra, Refunding, Series A, FNMA Insured, Weekly VRDN and
Put, 3.91%, 7/15/29 .......................................................................... 2,000,000 2,000,000
a Upland CRDA, MFHR, FNMA Insured, Weekly VRDN and Put, 3.91%, 2/15/30 .......................... 1,000,000 1,000,000
a Vallejo Housing Authority MFR, FNMA Insured, Weekly VRDN and Put, 3.92%, 5/15/22 .............. 1,985,000 1,985,000
a Watereuse Finance Authority Revenue, FSA Insured, Weekly VRDN and Put, 3.92%,
5/01/28 ...................................................................................... 14,700,000 14,700,000
a Western Placer Union School COP, Facilities Project B, Weekly VRDN and Put, 3.95%,
8/01/23 ...................................................................................... 5,000,000 5,000,000
a Western Riverside County Regional Wastewater Authority Revenue, Regional Wastewater
Treatment, Daily VRDN and Put, 3.92%, 4/01/28 ................................................ 1,350,000 1,350,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $624,014,794) 102.2% ....................................... 624,014,794
OTHER ASSETS, LESS LIABILITIES (2.2)% ......................................................... (13,421,759)
------------
NET ASSETS 100.0% ............................................................................. $610,593,035
============
See Selected Portfolio Abbreviations on page 70.
a Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.
b See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.
Annual Report | See notes to financial statements. | 69
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006
SELECTED PORTFOLIO ABBREVIATIONS
1915 ACT - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
ACA - American Capital Access Holdings Inc.
ACES - Adjustable Convertible Exempt Securities
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
BART - Bay Area Rapid Transit
CDA - Community Development Authority/Agency
CFD - Community Facilities District
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority/Agency Revenue
ID - Improvement District
IDAR - Industrial Development Authority/Agency Revenue
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PFAR - Public Financing Authority Revenue
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
TECP - Tax-Exempt Commercial Paper
TRAN - Tax and Revenue Anticipation Notes
UHSD - Unified/Union High School District
USD - Unified/Union School District
XLCA - XL Capital Assurance
70 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2006
--------------------------------------------------------------------------
FRANKLIN FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN
CALIFORNIA INTERMEDIATE-TERM LIMITED-TERM CALIFORNIA
INSURED TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT
INCOME FUND INCOME FUND INCOME FUND MONEY FUND
--------------------------------------------------------------------------
Assets:
Investments in securities:
Cost ............................................. $1,830,270,764 $488,741,028 $12,110,945 $624,014,794
=========================================================================
Value ............................................ $1,929,752,136 $492,043,949 $11,956,055 $624,014,794
Cash .............................................. 73,958 46,415 97,743 3,796
Receivables:
Investment securities sold ....................... -- -- -- 69,962,053
Capital shares sold .............................. 3,433,096 791,095 37,446 1,206,495
Interest ......................................... 27,489,871 6,331,156 114,357 2,634,089
-------------------------------------------------------------------------
Total assets ............................... 1,960,749,061 499,212,615 12,205,601 697,821,227
-------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................. -- 7,904,320 1,009,095 83,321,948
Capital shares redeemed .......................... 3,078,701 1,686,654 20,571 3,466,814
Affiliates ....................................... 1,263,970 306,998 3,040 266,886
Distributions to shareholders .................... 2,503,349 542,154 8,635 87,392
Accrued expenses and other liabilities ............ 142,284 54,540 15,068 85,152
-------------------------------------------------------------------------
Total liabilities .......................... 6,988,304 10,494,666 1,056,409 87,228,192
-------------------------------------------------------------------------
Net assets, at value ..................... $1,953,760,757 $488,717,949 $11,149,192 $610,593,035
=========================================================================
Net assets consist of:
Paid-in capital ................................... $1,858,584,784 $487,948,815 $11,490,522 $610,632,792
Undistributed net investment income (distributions
in excess of net investment income) .............. (411,175) 51,700 9,549 --
Net unrealized appreciation (depreciation) ........ 99,481,372 3,302,921 (154,890) --
Accumulated net realized gain (loss) .............. (3,894,224) (2,585,487) (195,989) (39,757)
-------------------------------------------------------------------------
Net assets, at value ..................... $1,953,760,757 $488,717,949 $11,149,192 $610,593,035
=========================================================================
Annual Report | See notes to financial statements. | 71
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2006
---------------------------------------------------------------------------
FRANKLIN FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN
CALIFORNIA INTERMEDIATE-TERM LIMITED-TERM CALIFORNIA
INSURED TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT
INCOME FUND INCOME FUND INCOME FUND MONEY FUND
---------------------------------------------------------------------------
CLASS A:
Net assets, at value ................................ $1,751,279,486 $463,544,593 $11,149,192 $610,593,035
================================================================
Shares outstanding .................................. 140,860,744 41,035,894 1,137,414 610,618,229
================================================================
Net asset value per share a ......................... $ 12.43 $ 11.30 $ 9.80 $ 1.00
================================================================
Maximum offering price per share (net asset value
per share / 95.75%, 97.75%, 100% and 100%,
respectively) ...................................... $ 12.98 $ 11.56 $ 9.80 $ 1.00
================================================================
CLASS B:
Net assets, at value ................................ $ 68,921,761
==============
Shares outstanding .................................. 5,516,857
==============
Net asset value and maximum offering price
per share a ........................................ $ 12.49
==============
CLASS C:
Net assets, at value ................................ $ 133,559,510 $ 25,173,356
===============================
Shares outstanding .................................. 10,641,590 2,223,831
===============================
Net asset value and maximum offering price
per share a ........................................ $ 12.55 $ 11.32
===============================
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Funds.
72 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended June 30, 2006
--------------------------------------------------------------------------
FRANKLIN FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN
CALIFORNIA INTERMEDIATE-TERM LIMITED-TERM CALIFORNIA
INSURED TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT
INCOME FUND INCOME FUND INCOME FUND MONEY FUND
--------------------------------------------------------------------------
Investment income:
Interest ........................................... $ 97,937,016 $ 21,341,224 $ 376,866 $19,111,736
----------------------------------------------------------------------
Expenses:
Management fees (Note 3a) .......................... 9,167,305 2,435,398 72,613 3,271,523
Administrative fees (Note 3b) ...................... -- -- 29,045 --
Distribution fees: (Note 3c)
Class A ........................................... 1,774,452 461,098 21,759 --
Class B ........................................... 479,570 -- -- --
Class C ........................................... 858,385 148,828 -- --
Transfer agent fees (Note 3e) ...................... 544,583 160,497 5,416 305,705
Custodian fees ..................................... 29,679 7,275 209 10,429
Reports to shareholders ............................ 81,206 24,596 374 30,845
Registration and filing fees ....................... 6,326 5,606 2,902 3,461
Professional fees .................................. 52,392 19,591 15,203 20,342
Trustees' fees and expenses ........................ 39,695 9,568 319 13,797
Other .............................................. 100,452 51,996 11,416 37,649
----------------------------------------------------------------------
Total expenses .............................. 13,134,045 3,324,453 159,256 3,693,751
Expenses waived/paid by affiliates (Note 3f) -- -- (86,643) --
----------------------------------------------------------------------
Net expenses .............................. 13,134,045 3,324,453 72,613 3,693,751
----------------------------------------------------------------------
Net investment income .................... 84,802,971 18,016,771 304,253 15,417,985
----------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .......... 3,176,524 (628,704) (195,989) --
Net change in unrealized appreciation (depreciation)
on investments .................................... (70,002,864) (15,917,910) (12,763) --
----------------------------------------------------------------------
Net realized and unrealized gain (loss) ............. (66,826,340) (16,546,614) (208,752) --
----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................... $ 17,976,631 $ 1,470,157 $ 95,501 $15,417,985
======================================================================
Annual Report | See notes to financial statements. | 73
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------
FRANKLIN CALIFORNIA
FRANKLIN CALIFORNIA INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
2006 2005 2006 2005
--------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 84,802,971 $ 84,647,208 $ 18,016,771 $ 16,001,722
Net realized gain (loss) from investments ........ 3,176,524 2,988,793 (628,704) 143,177
Net change in unrealized appreciation
(depreciation) on investments .................. (70,002,864) 92,867,197 (15,917,910) 11,730,841
----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................ 17,976,631 180,503,198 1,470,157 27,875,740
----------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ........................................ (75,973,378) (77,406,348) (16,979,691) (15,662,738)
Class B ........................................ (2,755,237) (3,033,725) -- --
Class C ........................................ (4,878,248) (4,771,542) (731,140) (398,883)
----------------------------------------------------------------------
Total distributions to shareholders ............... (83,606,863) (85,211,615) (17,710,831) (16,061,621)
----------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ........................................ 29,461,839 (3,352,260) 25,665,201 57,643,754
Class B ........................................ (6,675,179) (2,989,995) -- --
Class C ........................................ 8,767,960 2,437,233 6,873,745 9,619,939
----------------------------------------------------------------------
Total capital share transactions .................. 31,554,620 (3,905,022) 32,538,946 67,263,693
----------------------------------------------------------------------
Redemption fees ................................... 670 1,039 2,648 1,435
----------------------------------------------------------------------
Net increase (decrease) in net assets ....... (34,074,942) 91,387,600 16,300,920 79,079,247
Net assets:
Beginning of year ................................. 1,987,835,699 1,896,448,099 472,417,029 393,337,782
----------------------------------------------------------------------
End of year ....................................... $1,953,760,757 $1,987,835,699 $488,717,949 $472,417,029
======================================================================
Undistributed net investment income (distributions
in excess of net investment income) included in
net assets:
End of year ...................................... $ (411,175) $ (1,550,375) $ 51,700 $ (253,901)
======================================================================
74 | See notes to financial statements. | Annual Report
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
-------------------------------------------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
2006 2005 2006 2005
-------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 304,253 $ 277,888 $ 15,417,985 $ 7,726,362
Net realized gain (loss) from investments ............... (195,989) -- -- (1,565)
Net change in unrealized appreciation (depreciation)
on investments ........................................ (12,763) 40,741 -- --
------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................. 95,501 318,629 15,417,985 7,724,797
------------------------------------------------------------------
Distributions to shareholders from net investment
income .................................................. (309,451) (278,610) (15,443,179) (7,724,797)
Capital share transactions (Note 2) ...................... (4,954,835) 26,500 (77,503,087) 56,226,162
Redemption fees .......................................... -- 7,050 -- --
------------------------------------------------------------------
Net increase (decrease) in net assets ............. (5,168,785) 73,569 (77,528,281) 56,226,162
Net assets:
Beginning of year ........................................ 16,317,977 16,244,408 688,121,316 631,895,154
------------------------------------------------------------------
End of year .............................................. $11,149,192 $16,317,977 $610,593,035 $688,121,316
==================================================================
Undistributed net investment income included in net assets:
End of year .............................................. $ 9,549 $ 14,747 $ -- $ --
==================================================================
Annual Report | See notes to financial statements. | 75
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin California Tax-Free Trust (the Trust) is registered under the
Investment Company Act of 1940 (1940 Act) as an open-end investment company,
consisting of four series (the Funds). All Funds are diversified, except the
Franklin California Intermediate-Term Tax-Free Income Fund. The classes of
shares offered within each of the Funds are indicated below. 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.
- --------------------------------------------------------------------------------------------------------------------
CLASS A CLASS A & CLASS C CLASS A, CLASS B & CLASS C
- --------------------------------------------------------------------------------------------------------------------
Franklin California Limited-Term Franklin California Intermediate-Term Franklin California Insured Tax-Free
Tax-Free Income Fund Tax-Free Income Fund Income Fund
Franklin California Tax-Exempt
Money Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Trust 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 Trust'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.
Securities in the Franklin California Tax-Exempt Money Fund are valued at
amortized cost which approximates market value. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium.
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.
76 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Funds may purchase securities on a when-issued or 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
Funds will generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
C. INCOME TAXES
No provision has been made for U.S. income taxes because each Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its income and net realized
gains.
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. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders. Distributions to shareholders are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in class-level
expenses may result in payment of different per share distributions by class.
E. INSURANCE
The scheduled payments of interest and principal for each insured municipal
security in the Funds are insured by either a new issue insurance policy or a
secondary insurance policy. Some municipal securities in the Funds are secured
by collateral guaranteed by an agency of the U.S. government.
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.
Annual Report | 77
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (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 will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.
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 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. However, based on experience, the
Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2006, there were an unlimited number of shares authorized (no par
value). Transactions in the Franklin California Tax-Exempt Money Fund's shares
were at $1.00 per share. Transactions in the Funds' shares were as follows:
-----------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
CLASS A SHARES:
Year ended June 30, 2006
Shares sold .............................. 16,458,137 $ 208,133,962 8,873,205 $101,823,002
Shares issued in reinvestment
of distributions ........................ 3,356,852 42,468,834 894,985 10,276,725
Shares redeemed .......................... (17,500,212) (221,140,957) (7,538,142) (86,434,526)
------------------------------------------------------------------------
Net increase (decrease) .................. 2,314,777 $ 29,461,839 2,230,048 $ 25,665,201
========================================================================
Year ended June 30, 2005
Shares sold .............................. 12,779,215 $ 161,809,515 10,523,751 $122,071,290
Shares issued in reinvestment
of distributions ........................ 3,351,406 42,435,806 787,405 9,150,895
Shares redeemed .......................... (16,403,984) (207,597,581) (6,338,303) (73,578,431)
------------------------------------------------------------------------
Net increase (decrease) .................. (273,363) $ (3,352,260) 4,972,853 $ 57,643,754
========================================================================
78 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
--------------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
CLASS B SHARES:
Year ended June 30, 2006
Shares sold ................................... 84,583 $ 1,079,492
Shares issued in reinvestment
of distributions .............................. 142,305 1,809,598
Shares redeemed ............................... (753,255) (9,564,269)
--------------------------------
Net increase (decrease) ....................... (526,367) $ (6,675,179)
================================
Year ended June 30, 2005
Shares sold ................................... 428,268 $ 5,428,652
Shares issued in reinvestment
of distributions .............................. 158,196 2,012,009
Shares redeemed ............................... (821,528) (10,430,656)
--------------------------------
Net increase (decrease) ....................... (235,064) $ (2,989,995)
================================
CLASS C SHARES:
Year ended June 30, 2006
Shares sold ................................... 1,977,989 $ 25,260,241 1,143,292 $ 13,189,043
Shares issued in reinvestment
of distributions .............................. 225,829 2,883,383 39,533 454,684
Shares redeemed ............................... (1,520,721) (19,375,664) (589,548) (6,769,982)
--------------------------------------------------------------------------
Net increase (decrease) ....................... 683,097 $ 8,767,960 593,277 $ 6,873,745
==========================================================================
Year ended June 30, 2005
Shares sold ................................... 1,531,059 $ 19,551,797 1,029,411 $ 11,972,499
Shares issued in reinvestment
of distributions .............................. 213,416 2,726,173 20,848 242,687
Shares redeemed ............................... (1,558,025) (19,840,737) (223,547) (2,595,247)
--------------------------------------------------------------------------
Net increase (decrease) ....................... 186,450 $ 2,437,233 826,712 $ 9,619,939
==========================================================================
------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
------------------------------------------------------
SHARES AMOUNT AMOUNT
------------------------------------------------------
CLASS A SHARES:
Year ended June 30, 2006
Shares sold ........................................................ 528,548 $ 5,215,928 $ 469,737,284
Shares issued in reinvestment
of distributions ................................................... 19,857 195,828 15,429,953
Shares redeemed .................................................... (1,052,034) (10,366,591) (562,670,324)
-------------
Net increase (decrease) ............................................ (503,629) $ (4,954,835) $ (77,503,087)
=============
Year ended June 30, 2005
Shares sold ........................................................ 1,515,855 $ 15,099,320 $ 616,660,955
Shares issued in reinvestment
of distributions ................................................... 17,344 172,814 7,696,793
Shares redeemed .................................................... (1,531,173) (15,245,634) (568,131,586)
-------------
Net increase (decrease) ............................................ 2,026 $ 26,500 $ 56,226,162
=============
Annual Report | 79
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Funds 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 Franklin California Insured Tax-Free Income Fund and the Franklin California
Intermediate-Term Tax-Free Income Fund pay an investment management fee to
Advisers based on the month-end net assets of each of the funds and the Franklin
California Tax-Exempt Money Fund pays an investment management fee to Advisers
based on the average daily net assets as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion
The Franklin California Limited-Term Tax-Free Income Fund pays an investment
management fee to Advisers based on the average daily net assets of the fund as
follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.500% Up to and including $100 million
0.450% Over $100 million, up to and including $250 million
0.425% Over $250 million, up to and including $500 million
0.400% In excess of $500 million
B. ADMINISTRATIVE FEES
The Franklin California Limited-Term Tax-Free Income Fund pays an administrative
fee to FT Services of 0.20% per year of the average daily net assets of the
fund.
Under an agreement with Advisers, FT Services provides administrative services
to the Funds except the Franklin California Limited-Term Tax-Free Income Fund.
The fee is paid by Advisers based on average daily net assets, and is not an
additional expense of the funds.
80 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share class
pursuant to Rule 12b-1 under the 1940 Act. Under the funds' Class A
reimbursement distribution plans, the funds reimburse Distributors for costs
incurred in connection with the sale and distribution of each fund's shares up
to a certain percentage per year of their average daily net assets as follows:
---------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------
Class A ................ 0.10% 0.10%
Under the Class A reimbursement distribution plans, costs exceeding the maximum
for the current plan year cannot be reimbursed in subsequent periods.
Under the funds' compensation distribution plans, the funds pay Distributors for
costs incurred in connection with the sale and distribution of each fund's
shares up to a certain percentage per year of their average daily net assets of
each class as follows:
------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
Class A ......... -- -- 0.15%
Class B ......... 0.65% -- --
Class C ......... 0.65% 0.65% --
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
-------------------------------------------
FRANKLIN
FRANKLIN CALIFORNIA CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------
Net sales charges received a ......................... $462,452 $45,884
Contingent deferred sales charges retained ........... $137,454 $34,944
-------------------------------------------
FRANKLIN
FRANKLIN CALIFORNIA CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
-------------------------------------------
Net sales charges received a ......................... $961 $ --
Contingent deferred sales charges retained ........... $ -- $4,003
a Net of commissions paid to unaffiliated broker/dealers.
Annual Report | 81
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were retained by Investor Services:
-----------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM LIMITED-TERM FRANKLIN CALIFORNIA
TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT
INCOME FUND INCOME FUND INCOME FUND MONEY FUND
-----------------------------------------------------------------------------------------
Transfer agent fees ..... $356,167 $100,304 $3,522 $219,278
F. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
FT Services agreed in advance to voluntarily waive administrative fees and
Advisers agreed in advance to voluntarily waive a portion of management fees for
the Franklin California Limited-Term Tax-Free Income Fund. Total expenses waived
by FT Services and Advisers are not subject to reimbursement by the fund
subsequent to the fund's fiscal year end.
4. INCOME TAXES
At June 30, 2006, the funds had tax basis capital losses which may be carried
over to offset future capital gains, if any. During the year ended June 30,
2006, the Franklin California Insured Tax-Free Income Fund and the Franklin
California Intermediate-Term Tax-Free Income Fund utilized $3,015,537 and
$21,483, respectively, of capital loss carryforwards. At June 30, 2006, the
capital loss carryforwards were as follows:
------------------------------------------------------
FRANKLIN FRANKLIN
CALIFORNIA CALIFORNIA
INSURED INTERMEDIATE-TERM FRANKLIN CALIFORNIA
TAX-FREE TAX-FREE TAX-EXEMPT
INCOME FUND INCOME FUND MONEY FUND
------------------------------------------------------
Capital loss carryforwards expiring in:
2007 .................................................. $ -- $ -- $ 4,593
2008 .................................................. -- 69,184 9,293
2009 .................................................. 3,841,282 321,166 21,840
2010 .................................................. -- 112,465 --
2011 .................................................. -- 145,149 --
2012 .................................................. -- 865,726 2,466
2013 .................................................. -- 421,949 1,565
---------- ---------- -------
$3,841,282 $1,935,639 $39,757
========== ========== =======
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 June 30, 2006, the Franklin California Intermediate-Term
Tax-Free Income Fund and the Franklin California Limited-Term Tax-Free Income
Fund deferred realized capital losses of $649,848 and $195,989, respectively.
82 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
On June 30, 2006, the Franklin California Tax-Exempt Money Fund had expired
capital loss carryforwards of $9,957, which were reclassified to paid-in
capital.
The tax character of distributions paid during the years ended June 30, 2006 and
2005, was as follows:
-----------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------
2006 2005 2006 2005
-----------------------------------------------------------
Distributions paid from -
tax exempt income ......................... $83,606,863 $85,221,615 $17,710,831 $16,061,621
===========================================================
-----------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
-----------------------------------------------------------
2006 2005 2006 2005
-----------------------------------------------------------
Distributions paid from -
tax exempt income ......................... $309,451 $278,610 $15,443,179 $7,724,797
===========================================================
At June 30, 2006, the cost of investments, net unrealized appreciation
(depreciation) and undistributed tax exempt income for income tax purposes were
as follows:
-----------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------
Cost of investments ............................................. $1,829,273,245 $488,710,032
=========================================
Unrealized appreciation ......................................... $ 104,081,444 $ 6,869,708
Unrealized depreciation ......................................... (3,602,553) (3,535,791)
-----------------------------------------
Net unrealized appreciation (depreciation) ...................... $ 100,478,891 $ 3,333,917
=========================================
Distributable earnings - undistributed tax exempt income ........ $ 1,041,713 $ 562,858
=========================================
----------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
----------------------------------------------
Cost of investments ............................................. $ 12,110,945 $624,014,794
==========================================
Unrealized appreciation ......................................... $ -- $ --
Unrealized depreciation ......................................... $ (154,890) $ --
------------------------------------------
Net unrealized appreciation (depreciation) ...................... $ (154,890) $ --
==========================================
Distributable earnings - undistributed tax exempt income ........ $ 18,183 $ 87,392
==========================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of bond discounts and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts and
premiums.
Annual Report | 83
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended June 30, 2006, were as follows:
--------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------
Purchases $180,483,186 $99,437,646 $ 3,173,159
Sales $111,655,928 $63,129,741 $10,102,658
6. CONCENTRATION OF RISK
Each of the Funds invests a large percentage of its total assets in obligations
of issuers within California. Such concentration may subject the Funds to risks
associated with industrial or regional matters, and economic, political or legal
developments occurring within California.
7. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order. The relevant funds recorded the
settlement as other income and disbursement of the settlement monies to the
designated funds in accordance with the terms and conditions of the SEC's order
and the plan will be completed in August, 2006.
84 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Trust, it is
committed to making the Trust or its shareholders whole, as appropriate.
8. FASB INTERPRETATION NO. 48
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions taken or
expected to be taken in a tax return. FIN 48 provides guidance on the
measurement, recognition, classification and disclosure of tax positions, along
with accounting for the related interest and penalties. FIN 48 is effective for
fiscal years beginning after December 15, 2006, and is to be applied to all open
tax years as of the date of effectiveness. We have not yet completed our
evaluation of the impact, if any, of adopting FIN 48 on the Trust's financial
statements.
Annual Report | 85
Franklin California Tax-Free Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN CALIFORNIA TAX-FREE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin California Insured
Tax-Free Income Fund, Franklin California Intermediate-Term Tax-Free Income
Fund, Franklin California Limited-Term Tax-Free Income Fund and Franklin
California Tax-Exempt Money Fund (separate portfolios of Franklin California
Tax-Free Trust, hereafter referred to as the "Funds") at June 30, 2006, the
results of each of their operations for the year then ended, the changes in each
of their net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
August 16, 2006
86 | Annual Report
Franklin California Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds designate
100% of the distributions paid from net investment income as exempt-interest
dividends for the fiscal year ended June 30, 2006. A portion of the Funds'
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2007, shareholders will be notified of amounts for use in preparing
their 2006 income tax returns.
Annual Report | 87
Franklin California Tax-Free Trust
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1985 141 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief FORMERLY,
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1989 142 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1985 114 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Trustee Since 1992 141 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as
MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding
company) (1987-2004) and Spacehab,
Inc. (aerospace services) (1994-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004);
Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and
President, National Association of Securities Dealers, Inc. (1970-1987).
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88 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (1945) Trust and Vice Trustee since 22 None
One Franklin Parkway President 1993 and Vice
San Mateo, CA 94403-1906 President since
1986
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 141 None
One Franklin Parkway Chairman of 1985 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 123 None
One Franklin Parkway President and 1985, President
San Mateo, CA 94403-1906 Chief since 1993 and
Executive Chief Executive
Officer - Officer -
Investment Investment
Management Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer
and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the
investment companies in Franklin Templeton Investments.
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SHEILA AMOROSO (1959) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
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RAFAEL R. COSTAS, JR. (1965) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
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Annual Report | 89
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
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LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 47 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment
Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment companies in
Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant and Senior
Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission
(1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until
1979).
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90 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since March 2006
San Mateo, CA 94403-1906 and Secretary
since April 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company; and
officer of 31 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS WALSH (1961) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources, Inc. (Resources), which is the parent company of the
Fund's investment manager and distributor. Harmon E. Burns is considered
to be an interested person of the Trust under the federal securities laws
due to his position as officer and directors of Resources.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 91
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 28, 2006, the Board of Trustees ("Board"), including
a majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the four separate tax-exempt funds
within the Trust ("Fund(s)"). In reaching this decision, the Board took into
account information furnished throughout the year at regular Board meetings, as
well as information prepared specifically in connection with the annual renewal
review process. Information furnished and discussed throughout the year included
investment performance reports and related financial information for each Fund,
as well as periodic reports on shareholder services, legal, compliance, pricing,
brokerage commissions and execution and other services provided by the
Investment Manager ("Manager") and its affiliates. Information furnished
specifically in connection with the renewal process included a report for each
Fund prepared by Lipper, Inc. ("Lipper"), an independent organization, as well
as a Fund profitability analysis report prepared by management. The Lipper
reports compared each Fund's investment performance and expenses with those of
other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates including management's explanation of differences
where relevant and a three-year expense analysis with an explanation for any
increase in expense ratios. Additional information accompanying such report was
a memorandum prepared by management describing enhancements to the services
provided to the Funds by the Franklin Templeton Investments organization, as
well as a memorandum relating to economies of scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board,
92 | Annual Report
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
and the accuracy of net asset value calculations. The Board also noted the
extent of benefits provided Fund shareholders from being part of the Franklin
Templeton family of funds, including the right to exchange investments between
the same class of funds without a sales charge, the ability to reinvest Fund
dividends into other funds and the right to combine holdings in other funds to
obtain a reduced sales charge. Favorable consideration was given to management's
efforts and expenditures in establishing back-up systems and recovery procedures
to function in the event of a natural disaster, it being noted by the Board that
such systems and procedures had functioned smoothly during the hurricanes and
blackout experienced last year in Florida. Consideration was also given to the
experience of each Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed so as to be aligned with the interests of Fund
shareholders. The Board also took into account the transfer agent and
shareholder services provided Fund shareholders by an affiliate of the Manager,
noting continuing expenditures by management to increase and improve the scope
of such services, periodic favorable reports on such service conducted by third
parties and the firsthand experience of the individual Trustees who deal with
the shareholder services department in their capacities as shareholders in one
or more of the various Franklin Templeton Funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement
renewals. The Lipper reports prepared for each individual Fund showed its
investment performance in comparison with a performance universe selected by
Lipper. The following summarizes the performance results for each of the Funds.
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND - The Lipper report for this
Fund showed the investment performance of its Class A shares during 2005 and the
previous ten years ended December 31, 2005, in comparison with a performance
universe consisting of all retail and institutional California insured municipal
debt funds as selected by Lipper. The Lipper report showed that the Fund's
income return during 2005 and for the previous three-, five- and ten-year
periods on an annualized basis was in the highest quintile of its performance
universe. The Lipper report also showed that the Fund's total return during
2005, and for the previous three-, five- and ten-year periods on an annualized
basis was in the highest quintile of its performance universe. The Board
expressed its satisfaction with such performance.
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND - The Lipper report
for this Fund showed the investment performance of its Class A shares during
2005 and the previous ten years ended December 31, 2005, in comparison with a
performance universe consisting of all retail and institutional California
intermediate municipal debt funds as selected by Lipper. Such Lipper report
Annual Report | 93
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
comparison showed that the Fund's income return in 2005 was in the
second-highest quintile and during each of the previous three-, five- and
ten-year periods on an annualized basis was in either the first or
second-highest quintile of its performance universe. The Lipper report also
showed that the Fund's total return during 2005 and for each of the previous
three-, five- and ten-year periods on an annualized basis was in the highest
quintile of its performance universe. The Board expressed its satisfaction with
such performance.
FRANKLIN CALIFORNIA LIMITED TERM TAX-FREE INCOME FUND - Lipper compared this
Fund's performance to a universe of retail and institutional California
short-intermediate municipal debt funds as selected by Lipper during 2005 and
2004, being the first two full years of operations for this Fund. The Lipper
report showed that both the Fund's income and total returns during 2005 and 2004
were in the lowest quintile of such universe. In explaining such performance,
management pointed out the Fund's objective of investing in shorter maturing
securities as well as its small size. The Board found such performance to be
acceptable in view of management's explanation and also noted that the Fund's
management fees and other expenses had been partially waived or absorbed by
management.
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND - The Lipper report for this Fund
showed its investment performance during 2005 and the ten-year period ended
December 31, 2005, in comparison to a performance universe consisting of all
retail and institutional California tax-exempt money market funds as selected by
Lipper. The Lipper report showed the Fund's total return to be in the middle
quintile of its performance universe during 2005, as well as in each of the
previous three-and five-year periods on an annualized basis and to be in the
second-lowest quintile for the ten-year annualized period. In discussing this
performance, management pointed out that it followed a conservative approach
investing only in securities that present minimal credit risks and which were
rated in the top two ratings by nationally recognized rating services or
comparable unrated securities. The Board found such performance acceptable in
view of management's explanation, noting that the Fund's annualized return for
the ten-year period was within nine basis points of the performance universe
median as set forth in the Lipper report.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of each Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Prior to making such comparison, the Board relied upon a survey
showing that the scope of management advisory services covered under the Fund's
investment management agreement was similar to those provided by fund managers
to other mutual fund groups that would be used as a basis of comparison in the
Lipper reports. In reviewing comparative costs, emphasis was given to each
Fund's management fee in comparison with the effective management fee that would
have been charged by other funds within its Lipper expense group assuming they
were the same size as the Fund, as well as the actual total expenses of the Fund
in comparison with those of such group which, for comparative consistency, was
shown by Lipper for Fund Class A shares in the case of Franklin California
Insured Tax-Free
94 | Annual Report
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Income Fund and California Intermediate-Term Tax-Free Income Fund. The results
of such expense comparisons showed that the effective management fee rate of
Franklin California Insured Tax-Free Income Fund was in the second least
expensive quintile of its Lipper expense group and its actual total expenses
were in the least expensive quintile of such group. The effective management fee
rate of Franklin California Intermediate-Term Tax-Free Income Fund was in the
least expensive quintile of its Lipper expense group and its actual total
expenses were in the second least expensive quintile of such group. The Board
was satisfied with the management fee and total expenses of these Funds in
comparison to their Lipper expense groups. The Lipper expense comparison for
Franklin California Limited-Term Tax-Free Income Fund was not considered to be
particularly meaningful in view of this Fund's small size and management's
partial waiver or absorption of expenses. The Lipper expense comparison for
Franklin California Tax-Exempt Money Fund showed its effective management fee to
be in the second most expensive quintile of its Lipper group, while its actual
total expenses were in the least expensive quintile. In discussing these expense
comparisons, management pointed out that this Fund is not actively marketed and
largely serves as an alternative, and frequently temporary, investment vehicle
for shareholders of various other funds within the Franklin family of funds and
provides a number of services for shareholders, including check writing. It was
also noted that the Fund's effective management fee rate was within two basis
points of the median of its expense group as shown in the Lipper report. The
Board found the Fund's comparative expenses to be acceptable noting such facts.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. The Board also considered the extent to which the
Manager and its affiliates might derive ancillary benefits from fund operations,
including its interest in a joint venture entity which financed up-front
commissions paid to brokers/dealers who sold fund Class B shares. Specific
attention was given to the methodology followed in allocating costs to each
Fund, it being recognized that allocation methodologies are inherently
subjective and various allocation methodologies may each be reasonable while
producing different results. In this respect, the Board noted that the cost
allocation methodology was consistent with that followed in profitability report
presentations for the Funds made in prior years and that the Funds' independent
registered public accounting firm had been engaged by the Manager to perform
certain procedures on a biennial basis, specified and approved by the Manager
and the Funds' Board solely for their purposes and use in reference to the
profitability analysis. Included in the analysis were the revenue and related
costs involved in providing services to the Fund, as well as each Fund's
relative contribution to the profitability of the Manager's parent. In reviewing
and discussing such analysis, management discussed with the Board its belief
that costs incurred in establishing the infrastructure necessary to
Annual Report | 95
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
the type of mutual fund operations conducted by the Manager and its affiliates
may not be fully reflected in the expenses allocated to each Fund in determining
its profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. Based upon
its consideration of all these factors, the Board determined that the level of
profits realized by the Manager and its affiliates from providing services to
each Fund was not excessive in view of the nature, quality and extent of
services provided.
ECONOMIES OF SCALE. The Trustees also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing any precise
determination is inherently subjective, the Trustees noted that based upon the
Fund profitability analysis, it appeared as some funds get larger, at some point
economies of scale do result in the Manager's realizing a larger profit margin
on management services provided such fund. The Trustees also noted that any
economies of scale are shared with each of these Funds and their shareholders
through management fee breakpoints existing in each of the Fund's investment
management agreements so that as a Fund grows in size, its effective management
fee rate declines. The net assets of Franklin California Limited-Term Tax-Free
Income Fund were approximately $14 million at December 31, 2005, and with its
expenses being partially waived or subsidized by management the Board did not
consider economies of scale to be relevant. The management fee structure,
including administrative expenses for the other three Funds, provides for a fee
of 0.625% on the first $100 million of net assets; 0.50% on the next $150
million of net assets; 0.45% on net assets in excess of $250 million; with
additional breakpoints thereafter beginning at the $10 billion net asset level.
At December 31, 2005, the net assets of Franklin California Insured Tax-Free
Income Fund stood at approximately $2 billion, and those of Franklin California
Intermediate-Term Tax-Free Income Fund and Franklin California Tax-Exempt Money
Fund were approximately $486 million and $671 million, respectively. In
discussing these fee levels, management's position was that the existing fee
rate reaches a low level quickly, which anticipates economies of scale as assets
grow, and in support of such position pointed out the generally favorable
effective management fee rate and low total actual expense comparisons for these
Funds within their Lipper expense groups as previously discussed under
"Comparative Expenses." The Board believed that to the extent economies of scale
may be realized by the Manager and its affiliates, the schedule of fees under
the investment management agreements for these three Funds provides a sharing of
benefits with each Fund and its shareholders.
96 | Annual Report
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust'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 Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 97
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund Templeton Income Fund
TAX-FREE INCOME 5
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 7
Colorado
Connecticut
Florida 7
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 6
Michigan 6
Minnesota 6
Missouri
New Jersey
New York 7
North Carolina
Ohio 6
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 8
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders and select retirement
plans.
3. The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.
4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
6. Portfolio of insured municipal securities.
7. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
07/06 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN CALIFORNIA TAX-FREE TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
CAT A2006 08/06
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $83,871 for the fiscal year ended June 30, 2006 and $80,311 for the fiscal
year ended June 30, 2005.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $1,778 for the fiscal year ended June 30, 2006
and $0 for the fiscal year ended June 30, 2005. The services for which these
fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $174,083 for the fiscal year ended June 30,
2006 and $4,500 for the fiscal year ended June 30, 2005. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process and the
review of the ICI transfer agent survey.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $175,861 for the fiscal year ended June 30, 2006 and $4,500 for
the fiscal year ended June 30, 2005.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
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 Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN CALIFORNIA TAX-FREE TRUST
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date August 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date August 28, 2006
By /S/GALEN G. VETTER
-------------------
Galen G. Vetter
Chief Financial Officer
Date August 28, 2006