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
----------------------------------
(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: 6/30/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
(GRAPHIC)
JUNE 30, 2008
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
ANNUAL REPORT AND SHAREHOLDER LETTER
TAX-FREE INCOME
FRANKLIN
CALIFORNIA TAX-FREE TRUST
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(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Annual Report
State Update and Municipal Bond Market Overview
Following a few years of increasing surpluses and high revenues, California's
economy slowed in fiscal year 2007 in part due to the national housing downturn.
The combined effects of the subprime mortgage and credit crises eroded the
state's record-high real estate values and cut home sales and construction
levels to their lowest points in decades. These conditions caused financial
services, construction, and retail trade employment levels to drop, but
employment in the government, education and health services, and leisure and
hospitality sectors increased. These gains were offset by a slight, albeit
steady, increase in the unemployment rate. In June 2008, California's 6.9%
unemployment rate was higher than the 5.5% national average.(1) Per capita
income remained stable at 108% of the national level, and per capita effective
buying income was 102%.(2)
Despite a $4.6 billion revenue decline, California ended fiscal year 2007 with
adequate budget stabilization and general fund basis reserves at about 4.8% of
expenditures.(2) In fiscal year 2008, however, the state faced budgetary strains
resulting from the housing slowdown. The downturn in real estate caused a
larger-than-expected decline in personal income and sales tax revenues.
California had to sell $3.3 billion of sales tax-backed deficit funding bonds to
finance fiscal year 2008 operations.(2) Education- and corrections-related costs
also pressured the budget. In January 2008, the legislature made midyear budget
cuts to address the revenue shortfall. For the 2008-2009 fiscal year, the budget
gap was projected to be $17.2 billion.(3) In May 2008, the governor announced
plans to borrow against future profits from the state lottery of up to $15
billion over three years to close the budget deficit.(3)
According to independent credit rating agency Standard & Poor's (S&P),
California's overall net tax-supported debt levels are growing. Debt per capita
of $1,722 has almost doubled over the past five years, and could rise to a high,
yet manageable, level if the state sells its remaining authorized, unissued
general obligation and lease debt.(2) S&P issued the state an A+ rating and
stable outlook, reflecting the state's large and diverse economy and moderate
net tax-supported debt levels.(4)
(1.) Source: Bureau of Labor Statistics.
(2.) Source: Standard & Poor's, "California; General Obligation," RATINGSDIRECT,
6/13/08.
(3.) Source: www.gov.ca.gov, Press Release, "Governor Schwarzenegger Proposes
Responsible Budget with Creative Solutions in Face of Worse Deficit,"
5/14/08.
(4.) This does not indicate S&P's rating of the Fund.
Annual Report | 7
The year ended June 30, 2008, proved challenging for the municipal bond market.
A measured pullback in the municipal market was exacerbated during the reporting
period, as all financial markets felt the impact of subprime loan defaults. Many
major financial institutions tightened credit and reassessed the risk of their
direct and indirect exposure to subprime loans. A lack of liquidity across most
markets in August 2007 and February 2008 contributed to an increase in overall
volatility and declining values in most asset classes.
The municipal bond insurance industry, which includes seven companies that had
AAA ratings -- MBIA, AMBAC, FSA, FGIC, XLCA, CIFG and Assured Guaranty -- faced
particular difficulties. Rising levels of subprime mortgage defaults during the
reporting period, combined with the bond insurers' exposure to subprime
mortgages, prompted the three major independent credit rating agencies, S&P,
Moody's Investors Service and Fitch Ratings, to undertake in-depth evaluations
of the bond insurance companies in December 2007. As a result, the rating
agencies downgraded several municipal bond insurers and lowered the outlook for
some to negative. At period-end, only FSA and Assured Guaranty maintained AAA
ratings by Moody's and S&P.
Illiquidity plagued the financial markets as they felt the impact of the
perceived weakness in the bond insurance industry. This was especially notable
in the municipal bond market. In a marked shift amid recent volatility, high
grade municipal yields were well in excess of Treasury yields, on a nominal
basis, across the yield curve. Insured bonds generally underperformed during the
12 months under review as evidenced by the +3.23% return of the Lehman Brothers
Municipal Bond Index compared with the +2.78% return of the Lehman Brothers
Insured Municipal Bond Index.(5) During the fourth quarter of 2007, the market
appeared to develop a three-tier perception of the bond insurance companies,
which affected the traditional trading spreads of the "Big Four" insurers --
MBIA, AMBAC, FGIC and FSA. FSA and Assured Guaranty became more desirable than
MBIA and AMBAC; MBIA and AMBAC were more desirable than FGIC, XLCA and CIFG.
Historically, the market perceived MBIA, AMBAC, FSA and FGIC as having ample
claims-paying ability and therefore required no extra yield for securities
carrying their
(5.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. 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 Baa3/BBB-. They must have an
outstanding par value of at least $7 million and be issued as part of a
transaction of at least $75 million. The bonds must be dated after
12/31/90, and must be at least one year from their maturity date.
Remarketed issues, taxable municipal bonds, bonds with floating rates and
derivatives are excluded from the index. The index has four main bond
sectors: general obligation, revenue, insured and prerefunded. The Lehman
Brothers Insured Municipal Bond Index is composed of all the insured bonds
in the Lehman Brothers Municipal Bond Index with a maturity of at least one
year and ratings of Aaa/AAA.
8 | Annual Report
insurance. Assured Guaranty, XLCA and CIFG are newer entrants to the industry
and were still developing their businesses, so the market generally required
more yield from them.
Investors should be aware that insurance companies insure municipal bonds that
tend to be of very high quality. Many municipal bond issuers use insurance to
appeal to a wider audience of potential buyers. The majority of issuers whose
bonds are insured carry underlying (i.e., prior to insurance) ratings of A or
better, and the historical average default rate for such bonds is less than
1%.(6) Ultimately, the underlying credit quality of state and local governments
and their agencies supports the municipal market, and the underlying credit
quality of an insured bond is not affected by an insurance company's credit
quality.
Bond insurers' problems pressured the short-term municipal market beginning in
January 2008. Money market funds began to eliminate holdings of variable rate
debt with credit providers they deemed to be at risk of downgrade. This caused
dealers to boost yields substantially on some variable rate demand notes
(VRDNs), hoping to entice buyers to hold them rather than put them back to the
remarketing agents who were already struggling with too much inventory on their
balance sheets. Within a few weeks, this lack of liquidity disrupted the auction
rate securities (ARS) market as well. Inventory in the ARS market, primarily for
those with insurance backing, increased dramatically. Auctions have recently
failed due to dealers' liquidity constraints. It is important to note that this
is a liquidity issue and a supply and demand imbalance, not a credit or default
scenario.
Over the 12-month reporting period, municipal bond market returns lagged those
of the U.S. Treasury market as uncertainty regarding the impact of problems
associated with subprime securities drove global investors to the relative
safety of U.S. Treasuries. Furthermore, investors began to require additional
compensation for taking on risk, leading to wider spreads for credit-driven
securities. For the year ended June 30, 2008, the Lehman Brothers Municipal Bond
Index had a +3.23% total return compared with the +10.33% return of the Lehman
Brothers U.S. Treasury Index.(7)
The recent environment contributed to dramatically steeper Treasury and
municipal bond yield curves (spread between short- and longer-term yields). On
June 30, 2008, two-year, 10-year and 30-year Treasury yields were 2.63%,
(6.) Sources: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2007," RATINGSDIRECT, 5/3/07; Moody's Investors Service,
March 2007.
(7.) Source: (C) 2008 Morningstar. See footnote 1 for a description of the
Lehman Brothers Municipal Bond Index. The Lehman Brothers U.S. Treasury
Index is the U.S. Treasury component of the U.S. Government Index and
covers public obligations of the U.S. Treasury with a remaining maturity of
one year or more.
Annual Report | 9
3.99%, and 4.53%, respectively. The yields on two-year, 10-year and 30-year
Treasuries fell 224, 104 and 60 basis points (100 basis points equal one
percentage point), respectively, over the period. Yields at the short end of the
municipal AAA curve also declined over the period; however, yields increased at
the long end of the curve. The insurers' problems weighed heavily on long
maturity insured municipal bonds, causing a spike in yields. At period-end, the
market for these bonds improved considerably; however, their yields still
exceeded long-term Treasury yields, which is highly unusual.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2008, THE END OF THE REPORTING PERIOD. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE.
10 | Annual Report
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 municipal securities that pay interest free from such taxes.
(1, 2)
CREDIT QUALITY BREAKDOWN*
Franklin California Insured Tax-Free Income Fund
Based on Total Long-Term Investments as of 6/30/08**
(PIE CHART)
AAA 34.3%
AA 50.0%
A 10.5%
BBB 1.6%
Not Rated by S&P 3.6%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below.
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 1.0% --
AA or Aa 0.7% --
A 1.5% 0.4%
---- ----
Total 3.2% 0.4%
==== ====
This annual report for Franklin California Insured Tax-Free Income Fund covers
the fiscal year ended June 30, 2008.
(1.) For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid imposition of 28% backup withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W-8BEN.
(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.
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 42.
Annual Report | 11
DIVIDEND DISTRIBUTIONS*
Franklin California Insured Tax-Free Income Fund
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS B CLASS C
- ----- ---------- ---------- ----------
July 2007 4.50 cents 3.94 cents 3.92 cents
August 2007 4.50 cents 3.94 cents 3.92 cents
September 2007 4.50 cents 3.93 cents 3.92 cents
October 2007 4.50 cents 3.93 cents 3.92 cents
November 2007 4.50 cents 3.93 cents 3.92 cents
December 2007 4.50 cents 3.93 cents 3.92 cents
January 2008 4.50 cents 3.93 cents 3.92 cents
February 2008 4.50 cents 3.93 cents 3.92 cents
March 2008 4.41 cents 3.82 cents 3.82 cents
April 2008 4.41 cents 3.82 cents 3.82 cents
May 2008 4.41 cents 3.82 cents 3.82 cents
June 2008 4.46 cents 3.91 cents 3.89 cents
* 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.
PERFORMANCE OVERVIEW
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, decreased from
$12.48 on June 30, 2007, to $12.19 on June 30, 2008. The Fund's Class A shares
paid dividends totaling 53.63 cents per share for the same period.(3) The
Performance Summary beginning on page 14 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.20%, based on an
annualization of the current 4.46 cent per share dividend and the maximum
offering price of $12.73 on June 30, 2008. An investor in the 2008 maximum
combined effective federal and California personal income tax bracket of 41.05%
would need to earn a distribution rate of 7.12% 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 period 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 addition, the Fund had prerefunded bonds that reached their
maturity or call dates. In general, we were limited to reinvesting these
proceeds as well
(3.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
12 | Annual Report
as those 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.
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 securities. This broad diversification
may help mitigate interest rate risk. We do not use leverage or exotic
derivatives, nor do we use hedging techniques that could add volatility and
contribute to underperformance in adverse markets. 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.
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, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
PORTFOLIO BREAKDOWN
Franklin California Insured
Tax-Free Income Fund
6/30/08
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Prerefunded 24.5%
General Obligation 20.1%
Transportation 12.0%
Hospital & Health Care 11.5%
Utilities 11.5%
Subject to Government Appropriations 7.3%
Tax-Supported 6.1%
Higher Education 3.3%
Other Revenue 3.2%
Housing 0.5%
* Does not include short-term investments and other net assets.
Annual Report | 13
Performance Summary as of 6/30/08
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
CLASS A (SYMBOL: FRCIX) CHANGE 6/30/08 6/30/07
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.29 $12.19 $12.48
DISTRIBUTIONS (7/1/07-6/30/08)
Dividend Income $0.5363
CLASS B (SYMBOL: FRCBX) CHANGE 6/30/08 6/30/07
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.28 $12.26 $12.54
DISTRIBUTIONS (7/1/07-6/30/08)
Dividend Income $0.4678
CLASS C (SYMBOL: FRCAX) CHANGE 6/30/08 6/30/07
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.28 $12.32 $12.60
DISTRIBUTIONS (7/1/07-6/30/08)
Dividend Income $0.4666
14 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN
INCLUDES MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY. UNTIL
AUGUST 31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN
DAYS OF PURCHASE.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ ------------------
Cumulative Total Return(1) +1.98% +18.09% +56.03%
Average Annual Total Return(2) -2.33% +2.49% +4.10%
Distribution Rate(3) 4.20%
Taxable Equivalent Distribution Rate(4) 7.12%
30-Day Standardized Yield(5) 3.59%
Taxable Equivalent Yield(4) 6.09%
Total Annual Operating Expenses(6) 0.61%
CLASS B 1-YEAR 5-YEAR INCEPTION (2/1/00)
- ------- ------ ------ ------------------
Cumulative Total Return(1) +1.49% +15.01% +50.95%
Average Annual Total Return(2) -2.42% +2.49% +5.02%
Distribution Rate(3) 3.83%
Taxable Equivalent Distribution Rate(4) 6.50%
30-Day Standardized Yield(5) 3.20%
Taxable Equivalent Yield(4) 5.43%
Total Annual Operating Expenses(6) 1.16%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ ------------------
Cumulative Total Return(1) +1.48% +14.98% +47.71%
Average Annual Total Return(2) +0.50% +2.83% +3.98%
Distribution Rate(3) 3.79%
Taxable Equivalent Distribution Rate(4) 6.43%
30-Day Standardized Yield(5) 3.21%
Taxable Equivalent Yield(4) 5.44%
Total Annual Operating Expenses(6) 1.16%
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.
Annual Report | 15
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.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 6/30/08
- ------- -------
1-Year -2.33%
5-Year +2.49%
10-Year +4.10%
CLASS A (7/1/98-6/30/08)
(PERFORMANCE GRAPH)
FRANKLIN CALIFORNIA
INSURED TAX-FREE LEHMAN BROTHERS
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ---------- --------------------- -------------------- -------
7/1/1998 9,578 $10,000 $10,000
7/31/1998 9,595 $10,025 $10,012
8/31/1998 9,729 $10,180 $10,025
9/30/1998 9,879 $10,307 $10,037
10/31/1998 9,889 $10,307 $10,061
11/30/1998 9,930 $10,343 $10,061
12/31/1998 9,937 $10,369 $10,055
1/31/1999 10,018 $10,492 $10,080
2/28/1999 10,012 $10,446 $10,092
3/31/1999 10,036 $10,461 $10,123
4/30/1999 10,037 $10,487 $10,196
5/31/1999 9,990 $10,426 $10,196
6/30/1999 9,836 $10,276 $10,196
7/31/1999 9,844 $10,313 $10,227
8/31/1999 9,715 $10,231 $10,252
9/30/1999 9,723 $10,235 $10,301
10/31/1999 9,575 $10,124 $10,319
11/30/1999 9,650 $10,232 $10,325
12/31/1999 9,577 $10,156 $10,325
1/31/2000 9,502 $10,111 $10,356
2/29/2000 9,670 $10,229 $10,417
3/31/2000 9,906 $10,452 $10,503
4/30/2000 9,822 $10,391 $10,509
5/31/2000 9,781 $10,337 $10,521
6/30/2000 10,054 $10,611 $10,577
7/31/2000 10,183 $10,758 $10,601
8/31/2000 10,381 $10,924 $10,601
9/30/2000 10,356 $10,867 $10,656
10/31/2000 10,434 $10,986 $10,675
11/30/2000 10,522 $11,069 $10,681
12/31/2000 10,776 $11,342 $10,675
1/31/2001 10,838 $11,455 $10,742
2/28/2001 10,865 $11,491 $10,785
3/31/2001 10,963 $11,594 $10,810
4/30/2001 10,794 $11,468 $10,853
5/31/2001 10,911 $11,592 $10,902
6/30/2001 10,938 $11,669 $10,920
7/31/2001 11,109 $11,842 $10,890
8/31/2001 11,362 $12,037 $10,890
9/30/2001 11,326 $11,997 $10,939
10/31/2001 11,444 $12,140 $10,902
11/30/2001 11,397 $12,038 $10,883
12/31/2001 11,277 $11,924 $10,840
1/31/2002 11,422 $12,131 $10,865
2/28/2002 11,522 $12,277 $10,908
3/31/2002 11,260 $12,036 $10,969
4/30/2002 11,436 $12,271 $11,031
5/31/2002 11,509 $12,346 $11,031
6/30/2002 11,611 $12,476 $11,037
7/31/2002 11,741 $12,637 $11,049
8/31/2002 11,919 $12,789 $11,086
9/30/2002 12,269 $13,069 $11,104
10/31/2002 11,962 $12,852 $11,123
11/30/2002 11,931 $12,799 $11,123
12/31/2002 12,160 $13,069 $11,098
1/31/2003 12,099 $13,036 $11,147
2/28/2003 12,290 $13,218 $11,233
3/31/2003 12,317 $13,226 $11,301
4/30/2003 12,432 $13,313 $11,276
5/31/2003 12,733 $13,625 $11,258
6/30/2003 12,651 $13,567 $11,270
7/31/2003 12,143 $13,092 $11,282
8/31/2003 12,189 $13,190 $11,325
9/30/2003 12,485 $13,578 $11,362
10/31/2003 12,472 $13,509 $11,350
11/30/2003 12,659 $13,650 $11,319
12/31/2003 12,756 $13,763 $11,307
1/31/2004 12,843 $13,842 $11,362
2/29/2004 13,073 $14,050 $11,423
3/31/2004 13,008 $14,001 $11,497
4/30/2004 12,648 $13,670 $11,534
5/31/2004 12,584 $13,620 $11,601
6/30/2004 12,622 $13,670 $11,638
7/31/2004 12,793 $13,850 $11,620
8/31/2004 13,070 $14,127 $11,626
9/30/2004 13,139 $14,202 $11,650
10/31/2004 13,282 $14,324 $11,712
11/30/2004 13,163 $14,206 $11,718
12/31/2004 13,359 $14,379 $11,675
1/31/2005 13,566 $14,514 $11,699
2/28/2005 13,530 $14,466 $11,767
3/31/2005 13,430 $14,374 $11,859
4/30/2005 13,661 $14,601 $11,939
5/31/2005 13,753 $14,704 $11,926
6/30/2005 13,846 $14,795 $11,933
7/31/2005 13,799 $14,729 $11,988
8/31/2005 13,957 $14,877 $12,049
9/30/2005 13,865 $14,777 $12,196
10/31/2005 13,772 $14,687 $12,221
11/30/2005 13,832 $14,758 $12,123
12/31/2005 13,959 $14,885 $12,074
1/31/2006 13,998 $14,925 $12,166
2/28/2006 14,103 $15,025 $12,190
3/31/2006 14,008 $14,922 $12,258
4/30/2006 13,970 $14,916 $12,362
5/31/2006 14,020 $14,983 $12,423
6/30/2006 13,981 $14,926 $12,448
7/31/2006 14,134 $15,104 $12,485
8/31/2006 14,333 $15,328 $12,509
9/30/2006 14,418 $15,435 $12,448
10/31/2006 14,516 $15,532 $12,380
11/30/2006 14,660 $15,661 $12,362
12/31/2006 14,608 $15,606 $12,380
1/31/2007 14,579 $15,566 $12,418
2/28/2007 14,770 $15,771 $12,485
3/31/2007 14,706 $15,732 $12,598
4/30/2007 14,758 $15,779 $12,680
5/31/2007 14,705 $15,709 $12,758
6/30/2007 14,653 $15,627 $12,782
7/31/2007 14,753 $15,748 $12,779
8/31/2007 14,676 $15,681 $12,756
9/30/2007 14,884 $15,913 $12,791
10/31/2007 14,937 $15,984 $12,818
11/30/2007 14,979 $16,085 $12,894
12/31/2007 15,032 $16,130 $12,886
1/31/2008 15,110 $16,333 $12,950
2/29/2008 14,355 $15,586 $12,987
3/31/2008 14,783 $16,031 $13,100
4/30/2008 15,030 $16,219 $13,179
5/31/2008 15,120 $16,317 $13,290
6/30/2008 14,944 $16,132 $13,424
AVERAGE ANNUAL TOTAL RETURN
CLASS B 6/30/08
- ------- -------
1-Year -2.42%
5-Year +2.49%
Since Inception (2/1/00) +5.02%
CLASS B (2/1/00-6/30/08)
(PERFORMANCE GRAPH)
FRANKLIN CALIFORNIA
INSURED TAX-FREE LEHMAN BROTHERS
DATE INCOME FUND - CLASS B MUNICIPAL BOND INDEX CPI
- ---------- --------------------- -------------------- -------
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 $10,748 $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 $13,360 $10,960
11/30/2003 $13,067 $13,500 $10,930
12/31/2003 $13,172 $13,611 $10,918
1/31/2004 $13,246 $13,689 $10,972
2/29/2004 $13,486 $13,895 $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 $13,971 $11,226
9/30/2004 $13,512 $14,046 $11,250
10/31/2004 $13,641 $14,166 $11,309
11/30/2004 $13,524 $14,049 $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 $14,306 $11,363
3/31/2005 $13,771 $14,216 $11,451
4/30/2005 $14,000 $14,440 $11,528
5/31/2005 $14,088 $14,542 $11,517
6/30/2005 $14,176 $14,632 $11,523
7/31/2005 $14,122 $14,566 $11,576
8/31/2005 $14,277 $14,713 $11,635
9/30/2005 $14,177 $14,614 $11,777
10/31/2005 $14,076 $14,526 $11,801
11/30/2005 $14,131 $14,595 $11,706
12/31/2005 $14,253 $14,721 $11,659
1/31/2006 $14,286 $14,761 $11,748
2/28/2006 $14,386 $14,860 $11,771
3/31/2006 $14,284 $14,757 $11,836
4/30/2006 $14,238 $14,752 $11,937
5/31/2006 $14,282 $14,818 $11,996
6/30/2006 $14,237 $14,762 $12,020
7/31/2006 $14,385 $14,938 $12,056
8/31/2006 $14,580 $15,159 $12,079
9/30/2006 $14,671 $15,265 $12,020
10/31/2006 $14,752 $15,361 $11,955
11/30/2006 $14,891 $15,489 $11,937
12/31/2006 $14,832 $15,434 $11,955
1/31/2007 $14,796 $15,394 $11,991
2/28/2007 $14,981 $15,597 $12,056
3/31/2007 $14,922 $15,559 $12,165
4/30/2007 $14,956 $15,605 $12,244
5/31/2007 $14,896 $15,536 $12,319
6/30/2007 $14,836 $15,455 $12,343
7/31/2007 $14,930 $15,575 $12,340
8/31/2007 $14,847 $15,508 $12,317
9/30/2007 $15,048 $15,737 $12,351
10/31/2007 $15,095 $15,807 $12,378
11/30/2007 $15,142 $15,908 $12,451
12/31/2007 $15,177 $15,952 $12,443
1/31/2008 $15,248 $16,153 $12,505
2/29/2008 $14,486 $15,414 $12,541
3/31/2008 $14,918 $15,854 $12,650
4/30/2008 $15,167 $16,040 $12,726
5/31/2008 $15,258 $16,137 $12,834
6/30/2008 $15,095 $15,955 $12,963
16 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 6/30/08
- ------- -------
1-Year +0.50%
5-Year +2.83%
10-Year +3.98%
CLASS C (7/1/98-6/30/08)
(PERFORMANCE GRAPH)
FRANKLIN CALIFORNIA
INSURED TAX-FREE LEHMAN BROTHERS
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ---------- --------------------- -------------------- -------
7/1/1998 $10,000 $10,000 $10,000
7/31/1998 $10,005 $10,025 $10,012
8/31/1998 $10,139 $10,180 $10,025
9/30/1998 $10,298 $10,307 $10,037
10/31/1998 $10,295 $10,307 $10,061
11/30/1998 $10,342 $10,343 $10,061
12/31/1998 $10,336 $10,369 $10,055
1/31/1999 $10,423 $10,492 $10,080
2/28/1999 $10,412 $10,446 $10,092
3/31/1999 $10,432 $10,461 $10,123
4/30/1999 $10,428 $10,487 $10,196
5/31/1999 $10,373 $10,426 $10,196
6/30/1999 $10,210 $10,276 $10,196
7/31/1999 $10,214 $10,313 $10,227
8/31/1999 $10,075 $10,231 $10,252
9/30/1999 $10,080 $10,235 $10,301
10/31/1999 $ 9,923 $10,124 $10,319
11/30/1999 $ 9,995 $10,232 $10,325
12/31/1999 $ 9,916 $10,156 $10,325
1/31/2000 $ 9,826 $10,111 $10,356
2/29/2000 $ 9,994 $10,229 $10,417
3/31/2000 $10,240 $10,452 $10,503
4/30/2000 $10,150 $10,391 $10,509
5/31/2000 $10,103 $10,337 $10,521
6/30/2000 $10,378 $10,611 $10,577
7/31/2000 $10,505 $10,758 $10,601
8/31/2000 $10,704 $10,924 $10,601
9/30/2000 $10,673 $10,867 $10,656
10/31/2000 $10,757 $10,986 $10,675
11/30/2000 $10,833 $11,069 $10,681
12/31/2000 $11,089 $11,342 $10,675
1/31/2001 $11,156 $11,455 $10,742
2/28/2001 $11,179 $11,491 $10,785
3/31/2001 $11,273 $11,594 $10,810
4/30/2001 $11,096 $11,468 $10,853
5/31/2001 $11,209 $11,592 $10,902
6/30/2001 $11,231 $11,669 $10,920
7/31/2001 $11,401 $11,842 $10,890
8/31/2001 $11,653 $12,037 $10,890
9/30/2001 $11,611 $11,997 $10,939
10/31/2001 $11,726 $12,140 $10,902
11/30/2001 $11,673 $12,038 $10,883
12/31/2001 $11,545 $11,924 $10,840
1/31/2002 $11,687 $12,131 $10,865
2/28/2002 $11,783 $12,277 $10,908
3/31/2002 $11,511 $12,036 $10,969
4/30/2002 $11,684 $12,271 $11,031
5/31/2002 $11,762 $12,346 $11,031
6/30/2002 $11,851 $12,476 $11,037
7/31/2002 $11,977 $12,637 $11,049
8/31/2002 $12,162 $12,789 $11,086
9/30/2002 $12,520 $13,069 $11,104
10/31/2002 $12,194 $12,852 $11,123
11/30/2002 $12,148 $12,799 $11,123
12/31/2002 $12,383 $13,069 $11,098
1/31/2003 $12,316 $13,036 $11,147
2/28/2003 $12,503 $13,218 $11,233
3/31/2003 $12,525 $13,226 $11,301
4/30/2003 $12,635 $13,313 $11,276
5/31/2003 $12,942 $13,625 $11,258
6/30/2003 $12,843 $13,567 $11,270
7/31/2003 $12,326 $13,092 $11,282
8/31/2003 $12,367 $13,190 $11,325
9/30/2003 $12,658 $13,578 $11,362
10/31/2003 $12,639 $13,509 $11,350
11/30/2003 $12,821 $13,650 $11,319
12/31/2003 $12,923 $13,763 $11,307
1/31/2004 $12,995 $13,842 $11,362
2/29/2004 $13,230 $14,050 $11,423
3/31/2004 $13,159 $14,001 $11,497
4/30/2004 $12,781 $13,670 $11,534
5/31/2004 $12,711 $13,620 $11,601
6/30/2004 $12,743 $13,670 $11,638
7/31/2004 $12,919 $13,850 $11,620
8/31/2004 $13,190 $14,127 $11,626
9/30/2004 $13,253 $14,202 $11,650
10/31/2004 $13,390 $14,324 $11,712
11/30/2004 $13,265 $14,206 $11,718
12/31/2004 $13,455 $14,379 $11,675
1/31/2005 $13,666 $14,514 $11,699
2/28/2005 $13,613 $14,466 $11,767
3/31/2005 $13,507 $14,374 $11,859
4/30/2005 $13,741 $14,601 $11,939
5/31/2005 $13,827 $14,704 $11,926
6/30/2005 $13,913 $14,795 $11,933
7/31/2005 $13,860 $14,729 $11,988
8/31/2005 $14,011 $14,877 $12,049
9/30/2005 $13,913 $14,777 $12,196
10/31/2005 $13,815 $14,687 $12,221
11/30/2005 $13,868 $14,758 $12,123
12/31/2005 $13,987 $14,885 $12,074
1/31/2006 $14,008 $14,925 $12,166
2/28/2006 $14,117 $15,025 $12,190
3/31/2006 $14,006 $14,922 $12,258
4/30/2006 $13,972 $14,916 $12,362
5/31/2006 $14,005 $14,983 $12,423
6/30/2006 $13,971 $14,926 $12,448
7/31/2006 $14,116 $15,104 $12,485
8/31/2006 $14,306 $15,328 $12,509
9/30/2006 $14,395 $15,435 $12,448
10/31/2006 $14,474 $15,532 $12,380
11/30/2006 $14,609 $15,661 $12,362
12/31/2006 $14,552 $15,606 $12,380
1/31/2007 $14,517 $15,566 $12,418
2/28/2007 $14,698 $15,771 $12,485
3/31/2007 $14,639 $15,732 $12,598
4/30/2007 $14,672 $15,779 $12,680
5/31/2007 $14,625 $15,709 $12,758
6/30/2007 $14,555 $15,627 $12,782
7/31/2007 $14,659 $15,748 $12,779
8/31/2007 $14,565 $15,681 $12,756
9/30/2007 $14,762 $15,913 $12,791
10/31/2007 $14,819 $15,984 $12,818
11/30/2007 $14,854 $16,085 $12,894
12/31/2007 $14,899 $16,130 $12,886
1/31/2008 $14,957 $16,333 $12,950
2/29/2008 $14,210 $15,586 $12,987
3/31/2008 $14,623 $16,031 $13,100
4/30/2008 $14,870 $16,219 $13,179
5/31/2008 $14,951 $16,317 $13,290
6/30/2008 $14,771 $16,132 $13,424
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE
STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES
IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
(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 6/30/08.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/27/08 for the maximum combined effective federal and California
personal income tax rate of 41.05%, based on the federal income tax rate of
35.00%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/08.
(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(7.) Source: (C) 2008 Morningstar. 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
Baa3/BBB-. They must have an outstanding par value of at least $7 million
and be issued as part of a transaction of at least $75 million. The bonds
must be dated after 12/31/90, and must be at least one year from their
maturity date. Remarketed issues, taxable municipal bonds, bonds with
floating rates and derivatives are excluded from the index. The index has
four main bond sectors: general obligation, revenue, insured and
prerefunded. The Consumer Price Index (CPI), calculated by the U.S. Bureau
of Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 17
Your Fund's Expenses
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
18 | 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 EXPENSES PAID
ACCOUNT ENDING ACCOUNT DURING PERIOD*
VALUE 1/1/08 VALUE 6/30/08 1/1/08-6/30/08
------------ -------------- --------------
CLASS A
Actual $1,000 $ 994.00 $3.02
Hypothetical (5% return before expenses) $1,000 $1,021.83 $3.07
CLASS B
Actual $1,000 $ 992.10 $5.75
Hypothetical (5% return before expenses) $1,000 $1,019.10 $5.82
CLASS C
Actual $1,000 $ 991.30 $5.74
Hypothetical (5% return before expenses) $1,000 $1,019.10 $5.82
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.61%; B: 1.16%; and C: 1.16%), multiplied by
the average account value over the period, multiplied by 182/366 to reflect
the one-half year period.
Annual Report | 19
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 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 3 to 10 years.
CREDIT QUALITY BREAKDOWN*
Franklin California Intermediate-Term Tax-Free Income Fund
6/30/08
% OF TOTAL
LONG-TERM
RATINGS INVESTMENTS**
- ------- -------------
AAA 17.2%
AA 35.7%
A 26.6%
BBB 7.1%
Below Investment Grade 0.6%
Not Rated by S&P 12.8%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below.
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.8% 0.3%
A 1.7% 2.9%
BBB or Baa 0.9% 6.2%
--- ---
Total 3.4% 9.4%
This annual report for Franklin California Intermediate-Term Tax-Free Income
Fund covers the fiscal year ended June 30, 2008.
(1.) For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid imposition of 28% backup withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W-8BEN.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 55.
20 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin California Intermediate-Term Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------
MONTH CLASS A CLASS C
- ----- ---------- ----------
July 2007 3.57 cents 3.05 cents
August 2007 3.57 cents 3.05 cents
September 2007 3.57 cents 3.04 cents
October 2007 3.57 cents 3.04 cents
November 2007 3.57 cents 3.04 cents
December 2007 3.60 cents 3.08 cents
January 2008 3.60 cents 3.08 cents
February 2008 3.60 cents 3.08 cents
March 2008 3.60 cents 3.07 cents
April 2008 3.60 cents 3.07 cents
May 2008 3.60 cents 3.07 cents
June 2008 3.60 cents 3.08 cents
* 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.
PERFORMANCE OVERVIEW
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, decreased from
$11.33 on June 30, 2007, to $11.27 on June 30, 2008. The Fund's Class A shares
paid dividends totaling 43.02 cents per share for the same period.(2) The
Performance Summary beginning on page 23 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.75%, based on an
annualization of the current 3.60 cent per share dividend and the maximum
offering price of $11.53 on June 30, 2008. An investor in the 2008 maximum
combined effective federal and California personal income tax bracket of 41.05%
would need to earn a distribution rate of 6.36% 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
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 21
PORTFOLIO BREAKDOWN
Franklin California Intermediate-Term Tax-Free Income Fund 6/30/08
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
General Obligation 23.2%
Hospital & Health Care 18.6%
Tax-Supported 15.9%
Utilities 10.7%
Prerefunded 8.4%
Subject to Government Appropriations 7.2%
Transportation 6.5%
Other Revenue 4.0%
Higher Education 3.0%
Housing 2.5%
* Does not include short-term investments and other net assets.
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 securities. This broad diversification
may help mitigate interest rate risk. We do not use leverage or exotic
derivatives, nor do we use hedging techniques that could add volatility and
contribute to underperformance in adverse markets. 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, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
22 | Annual Report
Performance Summary as of 6/30/08
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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKCIX) CHANGE 6/30/08 6/30/07
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.06 $11.27 $11.33
DISTRIBUTIONS (7/1/07-6/30/08)
Dividend Income $0.4302
CLASS C (SYMBOL: FCCIX) CHANGE 6/30/08 6/30/07
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.07 $11.29 $11.36
DISTRIBUTIONS (7/1/07-6/30/08)
Dividend Income $0.3673
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. UNTIL AUGUST
31, 2008, 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) +3.29% +15.73% +50.64%
Average Annual Total Return(3) +0.97% +2.50% +3.94%
Distribution Rate(4) 3.75%
Taxable Equivalent Distribution Rate(5) 6.36%
30-Day Standardized Yield(6) 3.43%
Taxable Equivalent Yield(5) 5.82%
Total Annual Operating Expenses(7) 0.67%
INCEPTION
CLASS C 1-YEAR 5-YEAR (7/1/03)
- ------- ------ ------ ---------
Cumulative Total Return(2) +2.63% +12.86% +12.87%
Average Annual Total Return(3) +1.63% +2.45% +2.45%
Distribution Rate(4) 3.27%
Taxable Equivalent Distribution Rate(5) 5.55%
30-Day Standardized Yield(6) 2.99%
Taxable Equivalent Yield(5) 5.07%
Total Annual Operating Expenses(7) 1.20%
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 | 23
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.
AVERAGE ANNUAL TOTAL RETURN
CLASS A(1) 6/30/08
- ---------- -------
1-Year +0.97%
5-Year +2.50%
10-Year +3.94%
CLASS A (7/1/98-6/30/08)(1)
FRANKLIN CALIFORNIA
INTERMEDIATE-TERM LEHMAN BROTHERS
TAX-FREE INCOME FUND MUNICIPAL BOND INDEX:
DATE - CLASS A 10-YEAR COMPONENT CPI
---- -------------------- --------------------- -------
7/1/1998 $ 9,774 $10,000 $10,000
7/31/1998 $ 9,812 $10,016 $10,012
8/31/1998 $ 9,947 $10,190 $10,025
9/30/1998 $10,081 $10,342 $10,037
10/31/1998 $10,092 $10,346 $10,061
11/30/1998 $10,122 $10,377 $10,061
12/31/1998 $10,142 $10,409 $10,055
1/31/1999 $10,252 $10,569 $10,080
2/28/1999 $10,219 $10,474 $10,092
3/31/1999 $10,238 $10,468 $10,123
4/30/1999 $10,249 $10,496 $10,196
5/31/1999 $10,178 $10,423 $10,196
6/30/1999 $10,026 $10,229 $10,196
7/31/1999 $10,091 $10,298 $10,227
8/31/1999 $10,057 $10,260 $10,252
9/30/1999 $10,096 $10,294 $10,301
10/31/1999 $10,007 $10,222 $10,319
11/30/1999 $10,093 $10,333 $10,325
12/31/1999 $ 9,993 $10,280 $10,325
1/31/2000 $10,006 $10,238 $10,356
2/29/2000 $10,084 $10,318 $10,417
3/31/2000 $10,266 $10,519 $10,503
4/30/2000 $10,203 $10,466 $10,509
5/31/2000 $10,197 $10,404 $10,521
6/30/2000 $10,419 $10,686 $10,577
7/31/2000 $10,547 $10,834 $10,601
8/31/2000 $10,723 $11,003 $10,601
9/30/2000 $10,707 $10,952 $10,656
10/31/2000 $10,768 $11,064 $10,675
11/30/2000 $10,811 $11,124 $10,681
12/31/2000 $10,980 $11,386 $10,675
1/31/2001 $11,110 $11,532 $10,742
2/28/2001 $11,143 $11,552 $10,785
3/31/2001 $11,185 $11,650 $10,810
4/30/2001 $11,060 $11,506 $10,853
5/31/2001 $11,192 $11,631 $10,902
6/30/2001 $11,244 $11,701 $10,920
7/31/2001 $11,377 $11,861 $10,890
8/31/2001 $11,571 $12,064 $10,890
9/30/2001 $11,554 $12,047 $10,939
10/31/2001 $11,668 $12,196 $10,902
11/30/2001 $11,580 $12,039 $10,883
12/31/2001 $11,468 $11,911 $10,840
1/31/2002 $11,652 $12,136 $10,865
2/28/2002 $11,775 $12,309 $10,908
3/31/2002 $11,504 $12,056 $10,969
4/30/2002 $11,728 $12,336 $11,031
5/31/2002 $11,819 $12,394 $11,031
6/30/2002 $11,899 $12,548 $11,037
7/31/2002 $12,031 $12,715 $11,049
8/31/2002 $12,196 $12,881 $11,086
9/30/2002 $12,444 $13,188 $11,104
10/31/2002 $12,157 $12,948 $11,123
11/30/2002 $12,122 $12,842 $11,123
12/31/2002 $12,352 $13,123 $11,098
1/31/2003 $12,264 $13,053 $11,147
2/28/2003 $12,453 $13,278 $11,233
3/31/2003 $12,450 $13,285 $11,301
4/30/2003 $12,533 $13,384 $11,276
5/31/2003 $12,809 $13,767 $11,258
6/30/2003 $12,719 $13,701 $11,270
7/31/2003 $12,260 $13,126 $11,282
8/31/2003 $12,365 $13,239 $11,325
9/30/2003 $12,700 $13,684 $11,362
10/31/2003 $12,630 $13,580 $11,350
11/30/2003 $12,736 $13,726 $11,319
12/31/2003 $12,842 $13,871 $11,307
1/31/2004 $12,904 $13,930 $11,362
2/29/2004 $13,133 $14,174 $11,423
3/31/2004 $13,073 $14,094 $11,497
4/30/2004 $12,768 $13,704 $11,534
5/31/2004 $12,709 $13,713 $11,601
6/30/2004 $12,783 $13,758 $11,638
7/31/2004 $12,924 $13,947 $11,620
8/31/2004 $13,168 $14,252 $11,626
9/30/2004 $13,232 $14,328 $11,650
10/31/2004 $13,329 $14,442 $11,712
11/30/2004 $13,211 $14,278 $11,718
12/31/2004 $13,354 $14,446 $11,675
1/31/2005 $13,463 $14,568 $11,699
2/28/2005 $13,389 $14,477 $11,767
3/31/2005 $13,279 $14,350 $11,859
4/30/2005 $13,505 $14,628 $11,939
5/31/2005 $13,558 $14,726 $11,926
6/30/2005 $13,634 $14,811 $11,933
7/31/2005 $13,559 $14,685 $11,988
8/31/2005 $13,682 $14,864 $12,049
9/30/2005 $13,606 $14,729 $12,196
10/31/2005 $13,518 $14,617 $12,221
11/30/2005 $13,583 $14,708 $12,123
12/31/2005 $13,684 $14,842 $12,074
1/31/2006 $13,726 $14,891 $12,166
2/28/2006 $13,792 $14,979 $12,190
3/31/2006 $13,691 $14,825 $12,258
4/30/2006 $13,674 $14,799 $12,362
5/31/2006 $13,729 $14,900 $12,423
6/30/2006 $13,687 $14,834 $12,448
7/31/2006 $13,840 $15,031 $12,485
8/31/2006 $14,029 $15,288 $12,509
9/30/2006 $14,110 $15,400 $12,448
10/31/2006 $14,192 $15,492 $12,380
11/30/2006 $14,287 $15,615 $12,362
12/31/2006 $14,221 $15,542 $12,380
1/31/2007 $14,192 $15,472 $12,418
2/28/2007 $14,349 $15,690 $12,485
3/31/2007 $14,344 $15,658 $12,598
4/30/2007 $14,364 $15,707 $12,680
5/31/2007 $14,309 $15,626 $12,758
6/30/2007 $14,254 $15,542 $12,782
7/31/2007 $14,349 $15,682 $12,779
8/31/2007 $14,344 $15,720 $12,756
9/30/2007 $14,503 $15,931 $12,791
10/31/2007 $14,574 $15,986 $12,818
11/30/2007 $14,645 $16,163 $12,894
12/31/2007 $14,665 $16,208 $12,886
1/31/2008 $14,865 $16,538 $12,950
2/29/2008 $14,331 $15,851 $12,987
3/31/2008 $14,623 $16,259 $13,100
4/30/2008 $14,734 $16,356 $13,179
5/31/2008 $14,845 $16,437 $13,290
6/30/2008 $14,724 $16,267 $13,424
AVERAGE ANNUAL TOTAL RETURN
CLASS C 6/30/08
- ------- -------
1-Year +1.63%
5-Year +2.45%
Since Inception (7/1/03) +2.45%
CLASS C (7/1/03-6/30/08)
FRANKLIN CALIFORNIA
INTERMEDIATE-TERM LEHMAN BROTHERS
TAX-FREE INCOME FUND MUNICIPAL BOND INDEX:
DATE - CLASS C 10-YEAR COMPONENT CPI
---- -------------------- --------------------- -------
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 $10,668 $10,844
11/30/2005 $10,551 $10,735 $10,757
12/31/2005 $10,624 $10,833 $10,713
1/31/2006 $10,652 $10,868 $10,795
2/28/2006 $10,698 $10,933 $10,817
3/31/2006 $10,615 $10,820 $10,876
4/30/2006 $10,597 $10,801 $10,969
5/31/2006 $10,644 $10,875 $11,023
6/30/2006 $10,598 $10,826 $11,045
7/31/2006 $10,720 $10,971 $11,078
8/31/2006 $10,861 $11,158 $11,100
9/30/2006 $10,919 $11,240 $11,045
10/31/2006 $10,969 $11,307 $10,985
11/30/2006 $11,037 $11,397 $10,969
12/31/2006 $10,991 $11,343 $10,985
1/31/2007 $10,964 $11,292 $11,019
2/28/2007 $11,081 $11,451 $11,078
3/31/2007 $11,063 $11,428 $11,179
4/30/2007 $11,083 $11,464 $11,251
5/31/2007 $11,036 $11,405 $11,320
6/30/2007 $10,988 $11,343 $11,342
7/31/2007 $11,056 $11,446 $11,339
8/31/2007 $11,037 $11,474 $11,318
9/30/2007 $11,164 $11,627 $11,349
10/31/2007 $11,204 $11,668 $11,374
11/30/2007 $11,263 $11,797 $11,441
12/31/2007 $11,263 $11,830 $11,434
1/31/2008 $11,421 $12,070 $11,490
2/29/2008 $11,007 $11,569 $11,524
3/31/2008 $11,215 $11,867 $11,624
4/30/2008 $11,305 $11,937 $11,694
5/31/2008 $11,375 $11,997 $11,793
6/30/2008 $11,287 $11,872 $11,912
24 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE
STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES
IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS 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 6/30/08.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/27/08 for the maximum combined effective federal and California
personal income tax rate of 41.05%, based on the federal income tax rate of
35.00%.
(6.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/08.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(8.) Source: (C) 2008 Morningstar. 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 Baa3/BBB-. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million. The
bonds must be dated after 12/31/90, and must be at least one year from
their maturity date. Remarketed issues, taxable municipal bonds, bonds with
floating rates and derivatives are excluded from the index. The index has
four main bond sectors: general obligation, revenue, insured and
prerefunded. The Consumer Price Index (CPI), calculated by the U.S. Bureau
of Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 25
Your Fund's Expenses
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
26 | 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
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,003.90 $3.34
Hypothetical (5% return before expenses) $1,000 $1,021.53 $3.37
CLASS C
Actual $1,000 $1,001.20 $6.07
Hypothetical (5% return before expenses) $1,000 $1,081.80 $6.12
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.67% and C: 1.22%), multiplied by the
average account value over the period, multiplied by 182/366 to reflect the
one-half year period.
Annual Report | 27
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.
CREDIT QUALITY BREAKDOWN*
Franklin California Limited-Term Tax-Free Income Fund
6/30/08
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ---------------- -----------------------
AAA 17.4%
AA 44.7%
A 18.0%
BBB 19.1%
Not Rated by S&P 0.8%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. 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
- ---------- -------
AAA or Aaa 0.8%
We are pleased to bring you Franklin California Limited-Term Tax-Free Income
Fund's annual report for the fiscal year ended June 30, 2008.
PERFORMANCE OVERVIEW
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$9.86 on June 30, 2007, to $9.94 on June 30, 2008. The Fund's Class A
(1.) For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid imposition of 28% backup withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W-8BEN.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 64.
28 | Annual Report
shares paid dividends totaling 27.50 cents per share for the same period.(2) The
Performance Summary beginning on page 30 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 2.48%. An investor in
the 2008 maximum combined effective federal and California personal income tax
bracket of 41.05% would need to earn a distribution rate of 4.21% from a taxable
investment to match the Fund's Class A tax-free distribution rate.
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. We do not use
leverage or exotic derivatives, nor do we use hedging techniques that could add
volatility and contribute to underperformance in adverse markets. 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 three-year range. Short-term rates trended down over
the period and we sought to take advantage of relatively higher yields present
on this area of the yield curve. As a result of our strategy, the Fund was
positioned to 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.) 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, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
DIVIDEND DISTRIBUTIONS*
Franklin California Limited-Term
Tax-Free Income Fund - Class A
MONTH DIVIDEND PER SHARE
- -------------- ------------------
July 2007 2.30 cents
August 2007 2.36 cents
September 2007 2.36 cents
October 2007 2.36 cents
November 2007 2.45 cents
December 2007 2.28 cents
January 2008 2.28 cents
February 2008 2.28 cents
March 2008 2.14 cents
April 2008 2.14 cents
May 2008 2.14 cents
June 2008 2.50 cents
* 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.
PORTFOLIO BREAKDOWN
Franklin California Limited-Term
Tax-Free Income Fund
6/30/08
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Utilities 23.0%
Hospital & Health Care 22.6%
General Obligation 20.2%
Tax-Supported 12.7%
Other Revenue 10.3%
Subject to Government Appropriations 4.7%
Corporate-Backed 3.8%
Transportation 1.9%
Higher Education 0.8%
* Does not include short-term investments and other net assets.
Annual Report | 29
Performance Summary as of 6/30/08
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 6/30/08 6/30/07
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.08 $9.94 $9.86
DISTRIBUTIONS (7/1/07-6/30/08)
Dividend Income $0.2750
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.
UNTIL AUGUST 31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN
SEVEN DAYS OF PURCHASE.
INCEPTION
CLASS A 1-YEAR 3-YEAR (9/2/03)
- ------- ------ ------ ---------
Cumulative Total Return(2) +3.64% +8.01% +10.09%
Average Annual Total Return(3) +1.28% +1.82% +1.53%
Distribution Rate(4) 2.48%
Taxable Equivalent Distribution Rate(5) 4.21%
30-Day Standardized Yield(6) 2.21%
Taxable Equivalent Yield(5) 3.75%
Total Annual Operating Expenses(7)
Without Waiver 1.26%
With Waiver 0.50%
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.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
LIMIT THEIR RESPECTIVE FEES AND TO ASSUME AS THEIR OWN CERTAIN EXPENSES
OTHERWISE PAYABLE BY THE FUND SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES DO
NOT EXCEED 0.50% (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING
THOSE RELATING TO LITIGATION AND INDEMNIFICATION, REORGANIZATIONS AND
LIQUIDATION) UNTIL 10/31/08.
30 | Annual Report
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.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 6/30/08
- ------- -------
1-Year +1.28%
3-Year +1.82%
Since Inception (9/2/03) +1.53%
CLASS A (9/2/03-6/30/08)
FRANKLIN CALIFORNIA
LIMITED-TERM LEHMAN BROTHERS
TAX-FREE INCOME FUND MUNICIPAL BOND INDEX:
DATE - CLASS A 5-YEAR COMPONENT CPI
---- -------------------- --------------------- -------
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 $ 9,999 $10,691 $10,764
3/31/2006 $ 9,988 $10,649 $10,823
4/30/2006 $10,006 $10,672 $10,915
5/31/2006 $10,028 $10,709 $10,970
6/30/2006 $10,028 $10,659 $10,991
7/31/2006 $10,071 $10,759 $11,024
8/31/2006 $10,126 $10,875 $11,046
9/30/2006 $10,170 $10,934 $10,991
10/31/2006 $10,183 $10,980 $10,932
11/30/2006 $10,217 $11,025 $10,915
12/31/2006 $10,231 $11,002 $10,932
1/31/2007 $10,244 $10,979 $10,965
2/28/2007 $10,289 $11,079 $11,024
3/31/2007 $10,313 $11,105 $11,124
4/30/2007 $10,327 $11,122 $11,196
5/31/2007 $10,351 $11,089 $11,265
6/30/2007 $10,375 $11,069 $11,287
7/31/2007 $10,410 $11,165 $11,284
8/31/2007 $10,445 $11,251 $11,263
9/30/2007 $10,481 $11,353 $11,294
10/31/2007 $10,516 $11,396 $11,318
11/30/2007 $10,553 $11,518 $11,386
12/31/2007 $10,588 $11,570 $11,378
1/31/2008 $10,676 $11,857 $11,434
2/29/2008 $10,636 $11,566 $11,468
3/31/2008 $10,702 $11,793 $11,567
4/30/2008 $10,725 $11,782 $11,637
5/31/2008 $10,759 $11,818 $11,735
6/30/2008 $10,761 $11,698 $11,853
Annual Report | 31
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS,
THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE
STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES
IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 2/1/06, these shares were offered without an initial sales
charge; thus actual total returns would have differed.
(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yield for the
period would have been 1.79%.
(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 2.10 cent per
share current monthly dividend and the maximum offering price of $10.17 per
share on 6/30/08.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/27/08 for the maximum combined effective federal and California
personal income tax rate of 41.05%, based on the federal income tax rate of
35.00%.
(6.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/08.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(8.) Source: (C) 2008 Morningstar. 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 Baa3/BBB-. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75 million. The
bonds must be dated after 12/31/90, and must be at least one year from
their maturity date. Remarketed issues, taxable municipal bonds, bonds with
floating rates and derivatives are excluded from the index. The index has
four main bond sectors: general obligation, revenue, insured and
prerefunded. The Consumer Price Index (CPI), calculated by the U.S. Bureau
of Labor Statistics, is a commonly used measure of the inflation rate.
32 | Annual Report
Your Fund's Expenses
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 33
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 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
- ------- ----------------- -------------- ----------------------
Actual $1,000 $1,015.60 $2.46
Hypothetical (5% return before expenses) $1,000 $1,022.43 $2.46
* Expenses are calculated using the most recent annualized six-month expense
ratio, net of expense waiver, of 0.49%, multiplied by the average account
value over the period, multiplied by 182/366 to reflect the one-half year
period.
34 | Annual Report
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 securities that pay interest free from such
taxes. The Fund tries to maintain a stable $1.00 share price.
This annual report for Franklin California Tax-Exempt Money Fund covers the
fiscal year ended June 30, 2008.
PERFORMANCE OVERVIEW
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.
With declining short-term interest rates, money market portfolio yields
decreased during the period. Largely as a result, Franklin California Tax-Exempt
Money Fund's seven-day effective yield fell from 3.15% at the beginning of the
period to 0.99% on June 30, 2008.
INVESTMENT STRATEGY
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 invest at least 80% of the Fund's total assets 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 up to 20% 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. To avoid imposition of 28% backup withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W-8BEN.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 68.
Annual Report | 35
PORTFOLIO BREAKDOWN
Franklin California Tax-Exempt Money Fund 6/30/08
% OF TOTAL
INVESTMENTS
-----------
Variable Rate Notes 82.7%
Notes and Bonds 11.7%
Tax-Exempt Commercial Paper 5.6%
PERFORMANCE SUMMARY
Franklin California Tax-Exempt Money Fund
SYMBOL: FCLXX
6/30/08
Seven-day effective yield(1) 0.99%
Seven-day annualized yield 0.98%
Taxable equivalent yield(2) 1.66%
Total annual operating expenses(3) 0.55%
1. Seven-day effective yield assumes the compounding of daily dividends.
2. Taxable equivalent yield assumes the published rates as of 6/27/08 for the
maximum combined effective federal and California personal income tax rate
of 41.05%, based on the federal income tax rate of 35.00%.
3. Figures are as stated in the Fund's prospectus current as of the date of
this report.
Annualized and effective yields are for the seven-day period ended 6/30/08. The
Fund's average weighted maturity was 32 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.
MANAGER'S DISCUSSION
Short-term municipal bond yields declined during the reporting period,
reflecting increased demand for high-quality short-term instruments and the
Federal Reserve Board's seven consecutive federal funds target rate cuts.
The Securities Industry and Financial Markets Association (SIFMA) 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 2.93% for the
period under review.(2)
The Fund participated and reinvested in several issues during the year under
review including California School Cash Reserves Program tax and revenue
anticipation notes, Los Angeles County, California, tax and revenue anticipation
notes, and Sacramento County, California, Sanitation District Financing
Authority revenue variable rate demand notes.
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 SIFMA 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 index is unmanaged and does
not reflect management fees and expenses that affect Fund performance. One
cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
36 | Annual Report
Your Fund's Expenses
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) of the table provides actual account values and
expenses. The "Ending Account Value" is derived from the Fund's actual return,
which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) 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.
Annual Report | 37
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 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 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
Actual $1,000 $1,009.20 $2.70
Hypothetical (5% return before expenses) $1,000 $1,022.18 $2.72
* Expenses are calculated using the most recent annualized six-month expense
ratio of 0.54%, multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
38 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.48 $ 12.43 $ 12.85 $ 12.24 $ 12.83
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) .................... 0.54 0.54 0.55 0.55 0.56
Net realized and unrealized gains (losses) .. (0.29) 0.05 (0.43) 0.62 (0.59)
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 0.25 0.59 0.12 1.17 (0.03)
---------- ---------- ---------- ---------- ----------
Less distributions from net investment income .. (0.54) (0.54) (0.54) (0.56) (0.56)
---------- ---------- ---------- ---------- ----------
Redemption fees ................................ --(c) --(c) --(c) --(c) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 12.19 $ 12.48 $ 12.43 $ 12.85 $ 12.24
========== ========== ========== ========== ==========
Total return(d) ................................ 1.98% 4.79% 0.96% 9.70% (0.22)%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.61% 0.61% 0.61% 0.61% 0.61%
Net investment income .......................... 4.33% 4.29% 4.34% 4.38% 4.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $1,875,898 $1,810,358 $1,751,279 $1,780,642 $1,698,669
Portfolio turnover rate ........................ 13.14% 6.77% 5.75% 3.87% 12.21%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Amount rounds to less than $0.01 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 39
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
YEAR ENDED JUNE 30,
-------------------------------------------------------
CLASS B 2008 2007 2006 2005 2004
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.54 $ 12.49 $ 12.91 $ 12.29 $ 12.88
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.47 0.48 0.48 0.49 0.50
Net realized and unrealized gains (losses) .. (0.28) 0.04 (0.43) 0.62 (0.60)
------- ------- ------- ------- -------
Total from investment operations ............... 0.19 0.52 0.05 1.11 (0.10)
------- ------- ------- ------- -------
Less distributions from net investment income .. (0.47) (0.47) (0.47) (0.49) (0.49)
------- ------- ------- ------- -------
Redemption fees ................................ --(c) --(c) --(c) --(c) --
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 12.26 $ 12.54 $ 12.49 $ 12.91 $ 12.29
======= ======= ======= ======= =======
Total return(d) ................................ 1.49% 4.20% 0.41% 9.15% (0.77)%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.16% 1.16% 1.16% 1.16% 1.16%
Net investment income .......................... 3.78% 3.74% 3.79% 3.83% 3.96%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $48,875 $59,127 $68,922 $78,038 $77,169
Portfolio turnover rate ........................ 13.14% 6.77% 5.75% 3.87% 12.21%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Amount rounds to less than $0.01 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
40 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
YEAR ENDED JUNE 30,
------------------------------------------------------------
CLASS C 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.60 $ 12.55 $ 12.97 $ 12.34 $ 12.93
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.47 0.48 0.48 0.49 0.50
Net realized and unrealized gains (losses) .. (0.28) 0.04 (0.43) 0.63 (0.60)
-------- -------- -------- -------- --------
Total from investment operations ............... 0.19 0.52 0.05 1.12 (0.10)
-------- -------- -------- -------- --------
Less distributions from net investment income .. (0.47) (0.47) (0.47) (0.49) (0.49)
-------- -------- -------- -------- --------
Redemption fees ................................ --(c) --(c) --(c) --(c) --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 12.32 $ 12.60 $ 12.55 $ 12.97 $ 12.34
======== ======== ======== ======== ========
Total return(d) ................................ 1.48% 4.17% 0.40% 9.19% (0.78)%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.16% 1.16% 1.16% 1.16% 1.16%
Net investment income .......................... 3.78% 3.74% 3.79% 3.83% 3.96%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $163,407 $139,476 $133,560 $129,156 $120,610
Portfolio turnover rate ........................ 13.14% 6.77% 5.75% 3.87% 12.21%
(a) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Amount rounds to less than $0.01 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 41
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS 99.1%
CALIFORNIA 99.1%
ABAG Finance Authority for Nonprofit Corps. COP,
Lincoln Child Center Inc., California Mortgage Insured, 6.125%, 11/01/24 ................ $ 1,950,000 $ 1,992,394
Lytton Gardens Inc., Refunding, California Mortgage Insured, 6.00%, 2/15/30 ............. 3,500,000 3,544,555
Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ........................... 5,000,000 5,046,450
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 5,218,162
Sansum-Santa Barbara, Refunding, Series A, California Mortgage Insured, 5.60%,
4/01/26 .............................................................................. 2,750,000 2,816,798
Acalanes UHSD, GO, Capital Appreciation, Election of 2002, Series A, FGIC Insured,
zero cpn., 8/01/25 ...................................................................... 9,045,000 3,757,203
Alameda Corridor Transportation Authority Revenue, AMBAC Insured, zero cpn. to 10/01/12,
5.25% thereafter, 10/01/21 .............................................................. 64,660,000 52,379,773
5.45% thereafter, 10/01/25 .............................................................. 25,000,000 20,067,750
Alameda Power and Telecommunication Electric System Revenue COP, Refunding, Series A,
MBIA Insured, 5.75%, 7/01/30 ............................................................ 3,305,000 3,454,419
Alhambra City Elementary School District GO,
Capital Appreciation, Election of 1999, Series B, FGIC Insured, zero cpn., 9/01/27 ...... 3,035,000 1,047,439
Series A, FSA Insured, Pre-Refunded, 5.60%, 9/01/24 ..................................... 2,065,000 2,164,141
Antelope Valley UHSD, GO, Series A, MBIA Insured, 5.00%, 2/01/27 ........................... 5,000,000 5,105,350
Arcadia USD, GO, Capital Appreciation, Election of 2006, Series A, FSA Insured, zero cpn.,
8/01/29 ................................................................................. 5,110,000 1,635,047
8/01/33 ................................................................................. 11,690,000 2,933,255
8/01/39 ................................................................................. 9,620,000 1,708,031
8/01/46 ................................................................................. 27,665,000 3,254,787
Atascadero CDA Tax Allocation, Redevelopment Project, XLCA Insured, 5.00%, 9/01/34 ......... 4,315,000 3,959,444
Auburn USD, COP, Refinancing Project, Assured Guaranty, 5.00%, 6/01/38 ..................... 10,000,000 9,786,900
Bakersfield City School District GO, Series A, FSA Insured, 5.00%,
11/01/27 ................................................................................ 2,415,000 2,478,998
11/01/28 ................................................................................ 2,535,000 2,592,950
Bakersfield Wastewater Revenue, Series A, FSA Insured, 5.00%, 9/15/32 ...................... 10,430,000 10,606,267
Baldwin Park RDA Tax Allocation, Refunding, FSA Insured, 5.70%, 9/01/25 .................... 4,000,000 4,236,640
Baldwin Park USD, GO,
(a) Capital Appreciation, Election of 2006, FSA Insured, zero cpn., 8/01/28 ................. 5,810,000 1,813,127
Election of 2006, FSA Insured, 5.00%, 8/01/31 ........................................... 5,440,000 5,499,133
Beaumont USD, COP, Refunding, Series A, FSA Insured, 5.80%, 1/01/21 ........................ 1,500,000 1,515,000
Brea and Olinda USD, GO, Series A, FGIC Insured, 5.60%, 8/01/20 ............................ 1,000,000 1,039,950
Brentwood Infrastructure Financing Authority Infrastructure Revenue, Refunding, Series A,
FSA Insured, 5.00%, 9/02/32 ............................................................. 3,800,000 3,789,170
Cabrillo Community College District GO,
Capital Appreciation, Election of 2004, Series B, MBIA Insured, zero cpn., 8/01/39 ...... 12,570,000 2,126,467
Series C, AMBAC Insured, Pre-Refunded, 5.375%, 5/01/26 5,400,000 5,780,700
California Community College Financing Authority Lease Revenue, Grossmont Palomar and
Shasta, Series A, MBIA Insured, 5.125%, 4/01/31 ......................................... 3,030,000 3,050,786
California Educational Facilities Authority Revenue,
Pomona College, Series B, Pre-Refunded, 5.50%, 7/01/29 .................................. 4,455,000 4,668,662
Stanford University, Refunding, Series O, 5.125%, 1/01/31 ............................... 24,705,000 24,867,806
42 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Health Facilities Financing Authority Revenue,
Asian Community Center, Series A, AMBAC Insured, 5.00%, 4/01/37 ......................... $ 10,550,000 $ 10,039,907
Catholic Healthcare West, Refunding, ACA Insured, 5.00%, 7/01/28 ........................ 10,000,000 9,363,600
Catholic Healthcare West, Refunding, Series A, 5.00%, 7/01/28 ........................... 12,995,000 12,093,667
Catholic Healthcare West, Series A, Pre-Refunded, 5.00%, 7/01/28 ........................ 2,005,000 2,025,050
Community Health Facilities, Series A, California Mortgage Insured, 5.80%, 8/01/25 ...... 1,095,000 1,118,805
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 ........................................ 15,400,000 15,508,878
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/18 ....................................... 5,000,000 5,083,700
Kaiser Permanente, Series B, ETM, 5.00%, 10/01/20 ....................................... 4,000,000 4,065,960
Marshall Hospital, Refunding, Series A, California Mortgage Insured, 5.30%, 11/01/28 .... 3,325,000 3,330,619
Northern California Presbyterian, Refunding, 5.40%, 7/01/28 ............................. 5,000,000 4,703,150
Orange County Health Facility, Series A, California Mortgage Insured, 6.20%, 11/01/24 ... 3,435,000 3,509,814
Senior Living, Aldersly, Series A, California Mortgage Insured, 5.25%, 3/01/32 .......... 2,000,000 1,991,800
Sutter Health, Refunding, Series A, MBIA Insured, 5.00%, 8/15/19 ........................ 1,585,000 1,613,007
Sutter Health, Refunding, Series A, MBIA Insured, 5.00%, 8/15/38 ........................ 3,735,000 3,735,859
Sutter Health, Series A, MBIA Insured, Pre-Refunded, 5.00%, 8/15/19 ..................... 115,000 120,098
Sutter Health, Series A, MBIA Insured, Pre-Refunded, 5.00%, 8/15/38 ..................... 265,000 276,747
The Help Group, Refunding, California Mortgage Insured, 5.40%, 8/01/22 .................. 5,000,000 5,061,950
True to Life Children's Services, Series A, California Mortgage Insured, 5.625%,
9/01/25 .............................................................................. 1,250,000 1,278,988
UCSF-Stanford Health Care, Series A, FSA Insured, Pre-Refunded, 5.00%, 11/15/28 ......... 9,530,000 9,735,371
California HFAR, Home Mortgage, Series N, AMBAC Insured, zero cpn. to 2/01/10,
6.30% thereafter, 8/01/31 ............................................................... 240,000 219,194
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 8,914,894
California PCFA, PCR, Southern California Edison Co., Refunding, Series C, MBIA Insured,
5.55%, 9/01/31 .......................................................................... 4,800,000 4,612,272
California Public School District Financing Authority Lease Revenue, Southern Kern USD,
Series B, FSA Insured, ETM, 5.90%, 9/01/26 .............................................. 1,615,000 1,852,389
California State Department of Water Resources Central Valley Project Revenue, Water System,
Refunding, Series Q, MBIA Insured, 5.375%, 12/01/27 ..................................... 365,000 365,858
California State Department of Water Resources Water Revenue,
Central Valley Project, Refunding, Series AC, MBIA Insured, 5.00%, 12/01/26 ............. 3,535,000 3,626,415
Central Valley Project, Refunding, Series AD, FSA Insured, 5.00%, 12/01/26 .............. 2,145,000 2,210,573
Central Valley Project, Series AC, MBIA Insured, Pre-Refunded, 5.00%, 12/01/26 .......... 40,000 43,658
Central Valley Project, Series AD, FSA Insured, Pre-Refunded, 5.00%, 12/01/26 ........... 25,000 27,268
FSA Insured, Pre-Refunded, 5.125%, 12/01/29 ............................................. 115,000 122,903
Refunding, FSA Insured, 5.125%, 12/01/29 ................................................ 4,885,000 4,975,714
California State GO,
FGIC Insured, 5.375%, 6/01/26 ........................................................... 1,350,000 1,358,951
FSA Insured, Pre-Refunded, 5.50%, 9/01/29 ............................................... 34,500,000 36,117,015
MBIA Insured, 6.00%, 8/01/16 ............................................................ 210,000 210,496
MBIA Insured, 6.00%, 10/01/21 ........................................................... 65,000 65,439
MBIA Insured, Pre-Refunded, 5.00%, 8/01/29 .............................................. 19,520,000 20,413,626
Pre-Refunded, 5.00%, 10/01/27 ........................................................... 30,790,000 31,350,070
Pre-Refunded, 5.125%, 6/01/31 ........................................................... 24,705,000 26,199,900
Refunding, 5.125%, 6/01/31 .............................................................. 295,000 296,448
Refunding, MBIA Insured, 5.00%, 8/01/29 ................................................. 730,000 733,402
Annual Report | 43
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California State GO, (continued)
Various Purpose, 5.00%, 11/01/32 ........................................................ $ 22,500,000 $ 22,310,775
Various Purpose, Refunding, 5.00%, 3/01/32 .............................................. 3,000,000 2,975,130
Various Purpose, Refunding, 5.00%, 12/01/32 ............................................. 14,585,000 14,462,486
California State Local Government Finance Authority Revenue, Marin Valley Mobile,
Senior Series A, FSA Insured, 5.80%, 10/01/20 ........................................... 3,770,000 3,839,707
California State Public Works Board Lease Revenue, Department of Mental Health Hospital,
Series A, AMBAC Insured, 5.00%,
12/01/21 ................................................................................ 4,100,000 4,173,677
12/01/26 ................................................................................ 5,675,000 5,733,679
California State University Foundation Revenue, Monterey Bay, MBIA Insured, Pre-Refunded,
5.35%, 6/01/31 .......................................................................... 2,000,000 2,133,480
California State University of Los Angeles Auxiliary Services Inc. Revenue, MBIA Insured,
Pre-Refunded, 5.125%, 6/01/33 ........................................................... 3,200,000 3,393,632
California State University Revenue, Systemwide, Series A, FSA Insured, 5.00%, 11/01/33 .... 10,000,000 10,123,300
California State University Revenue and Colleges Revenue, Systemwide, Refunding, Series A,
AMBAC Insured, 5.00%, 11/01/33 .......................................................... 22,000,000 22,091,960
California Statewide CDA,
COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ................................... 12,250,000 11,634,927
COP, Kaiser Permanente, ETM, 5.30%, 12/01/15 ............................................ 9,700,000 10,151,729
COP, MBIA Insured, 5.00%, 4/01/18 ....................................................... 3,000,000 2,936,400
COP, Refunding, California Mortgage Insured, 5.75%, 8/01/21 ............................. 9,585,000 9,794,336
COP, Refunding, FSA Insured, 5.50%, 8/15/31 ............................................. 7,000,000 7,206,570
MFHR, Silver Ridge Apartments, Mandatory Put 8/01/21, Series H, FNMA Insured, 5.80%,
8/01/33 .............................................................................. 2,785,000 2,849,111
California Statewide CDA Revenue,
Adventist, Series B, Assured Guaranty, 5.00%, 3/01/37 ................................... 17,000,000 16,299,770
Catholic Healthcare West, Series K, Assured Guaranty, 5.50%, 7/01/41 .................... 17,000,000 17,436,220
COP, John Muir/Mt. Diablo Health System, MBIA Insured, 5.125%, 8/15/22 .................. 5,000,000 5,066,350
Henry Mayo Newhall Memorial, Series B, MBIA Insured, 5.05%, 10/01/28 .................... 7,825,000 7,602,144
Hospital Monterey Peninsula, Series B, FSA Insured, 5.25%, 6/01/23 ...................... 2,000,000 2,067,140
Lodi Memorial Hospital, Series A, California Mortgage Insured, 5.00%, 12/01/27 .......... 15,000,000 14,852,250
Refunding, California Mortgage Insured, 5.00%, 8/01/21 .................................. 2,035,000 2,037,625
St. Ignatius College Preparatory, AMBAC Insured, 5.00%, 6/01/37 ......................... 7,215,000 7,074,091
St. Joseph Health System, Series E, FSA Insured, 5.25%, 7/01/47 ......................... 20,000,000 20,092,600
Sutter Health, Series C, FSA Insured, 5.05%, 8/15/38 .................................... 15,000,000 14,907,150
California Statewide CDA Water and Wastewater Revenue, Pooled Financing Program,
Refunding, Series A, FSA Insured, 5.00%, 10/01/32 ....................................... 9,320,000 9,400,804
Refunding, Series B, FSA Insured, 5.75%, 10/01/29 ....................................... 1,465,000 1,502,270
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 .................................... 2,400,000 2,546,472
Series B, FSA Insured, Pre-Refunded, 5.65%, 10/01/26 .................................... 1,020,000 1,065,186
Campbell USD, GO, FSA Insured, 5.00%, 8/01/27 .............................................. 7,150,000 7,327,820
Castaic Lake Water Agency Revenue COP,
1999 Project, Refunding, AMBAC Insured, 4.50%, 8/01/26 .................................. 7,700,000 7,239,694
Series A, MBIA Insured, 5.00%, 8/01/29 .................................................. 8,000,000 8,004,880
44 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Chabot-Las Positas Community College District GO, Capital Appreciation Bonds, Series C,
AMBAC Insured, zero cpn.,
8/01/35 ................................................................................. $ 10,000,000 $ 2,177,300
8/01/36 ................................................................................. 10,000,000 2,052,500
8/01/37 ................................................................................. 15,045,000 2,910,455
Chaffey Community College District GO,
Refunding, Series A, FSA Insured, 5.00%, 7/01/27 ........................................ 270,000 279,272
Series A, FSA Insured, Pre-Refunded, 5.00%, 7/01/27 ..................................... 5,480,000 5,906,070
Charter Oak USD, GO, Election of 2000, Series D, FGIC Insured, 5.00%, 8/01/30 .............. 3,115,000 3,025,662
Chico PFAR, Merged Redevelopment Project Area, MBIA Insured, 5.125%, 4/01/24 ............... 2,790,000 2,837,737
Chino Basin Regional Financing Authority Revenue, Municipal Water District, Sewer System
Project, Refunding, AMBAC Insured, 6.00%, 8/01/16 ....................................... 2,000,000 2,005,480
Chula Vista Elementary School District GO, Election of 1998, Series F, MBIA Insured, 5.00%,
8/01/28 ................................................................................. 2,685,000 2,729,893
Clovis PFAR, 2001 Corp. Yard Project, AMBAC Insured, 5.00%, 3/01/27 ........................ 3,265,000 3,321,550
Compton USD, GO, Election of 2002, Series B, MBIA Insured, Pre-Refunded, 5.00%,
6/01/29 ................................................................................. 2,000,000 2,170,000
Corona-Norco USD,
COP, Refunding, FSA Insured, 5.125%, 4/15/25 ............................................ 5,355,000 5,418,671
COP, Refunding, FSA Insured, 5.125%, 4/15/29 ............................................ 2,540,000 2,560,244
GO, Capital Appreciation, Refunding, Series B, FSA Insured, zero cpn., 3/01/25 .......... 1,400,000 597,156
GO, Capital Appreciation, Series B, FSA Insured, zero cpn., 9/01/23 ..................... 2,320,000 1,084,368
GO, Capital Appreciation, Series B, FSA Insured, zero cpn., 9/01/24 ..................... 2,620,000 1,155,525
GO, Capital Appreciation, Series C, FGIC Insured, zero cpn., 9/01/25 .................... 4,655,000 1,856,181
GO, Capital Appreciation, Series C, FGIC Insured, zero cpn., 9/01/26 .................... 6,080,000 2,277,690
Coronado CDA Tax Allocation, Community Development Project, MBIA Insured, 5.375%,
9/01/26 ................................................................................. 2,700,000 2,787,021
Cucamonga County Water District COP, FGIC Insured, 5.00%, 9/01/29 .......................... 5,070,000 5,092,308
Culver City USD, GO, MBIA Insured, Pre-Refunded,
5.125%, 8/01/37 ......................................................................... 650,000 658,255
5.20%, 8/01/38 .......................................................................... 3,285,000 3,442,384
Delano USD, COP, Refinancing Project, MBIA Insured, 5.125%, 1/01/22 ........................ 1,620,000 1,713,166
East Bay MUD Water System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/26 ................. 14,000,000 14,798,700
(a) East Side UHSD Santa Clara County GO, Election of 2008, Series A, Assured Guaranty,
5.00%, 8/01/38 .......................................................................... 4,255,000 4,274,913
El Centro Financing Authority Wastewater Revenue, Series A, FSA Insured, 5.25%,
10/01/35 ................................................................................ 6,200,000 6,324,186
El Monte City School District GO, Election of 2004,
Series A, FGIC Insured, 5.00%, 5/01/30 .................................................. 4,500,000 4,371,615
Series B, FSA Insured, 5.00%, 8/01/32 ................................................... 5,535,000 5,627,711
El Monte Water Authority Revenue, Water System Project, AMBAC Insured, Pre-Refunded,
5.60%, 9/01/34 .......................................................................... 1,800,000 1,947,546
Escondido Joint Powers Financing Authority Lease Revenue, AMBAC Insured, 5.125%,
9/01/30 ................................................................................. 3,770,000 3,800,763
Escondido USD, GO, Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/26 ..................... 11,665,000 12,484,466
Eureka USD, GO, FSA Insured, 5.00%, 8/01/25 ................................................ 4,145,000 4,289,329
Fairfield Suisun USD, GO,
Election of 2002, MBIA Insured, 5.00%, 8/01/25 .......................................... 4,185,000 4,277,196
MBIA Insured, 5.00%, 8/01/27 ............................................................ 12,000,000 12,225,600
Annual Report | 45
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A,
MBIA Insured, 5.00%, 3/01/33 ............................................................ $ 5,000,000 $ 5,015,450
Folsom COP, Central Business District Fire Station, MBIA Insured, 5.125%, 10/01/26 ......... 2,030,000 2,080,912
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 1/15/17 ....................... 20,000,000 12,898,200
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 1/15/18 ....................... 25,000,000 15,150,250
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 1/15/19 ....................... 5,970,000 3,405,348
senior lien, Refunding, Series A, MBIA Insured, 5.00%, 1/01/35 .......................... 66,735,000 61,933,417
Franklin-McKinley School District GO, Election of 2004, Series A, FGIC Insured, 5.00%,
8/01/29 ................................................................................. 5,280,000 5,125,771
Fresno USD, GO, Refunding,
Series B, MBIA Insured, 5.00%, 2/01/21 .................................................. 2,860,000 2,718,802
Series C, MBIA Insured, 5.90%, 2/01/20 .................................................. 2,065,000 2,124,245
Series C, MBIA Insured, 5.90%, 8/01/22 .................................................. 3,000,000 3,082,980
Fullerton School District GO, Capital Appreciation, Series A, FGIC Insured, zero cpn.,
8/01/23 ................................................................................. 3,030,000 1,370,863
Fullerton University Foundation Auxiliary Organization Revenue, Series A, MBIA Insured,
5.75%,
7/01/25 ................................................................................. 1,250,000 1,310,200
7/01/30 ................................................................................. 1,000,000 1,046,190
Gilroy USD, GO, Election of 2002, FGIC Insured, 5.00%, 8/01/30 ............................. 8,650,000 8,513,330
Glendale USD, GO, Series C, FSA Insured, 5.50%, 9/01/24 .................................... 2,750,000 2,837,038
Glendora PFAR Tax Allocation, Project No. 1, Refunding, Series A, MBIA Insured, 5.00%,
9/01/24 ................................................................................. 5,000,000 5,095,250
Grossmont UHSD,
COP, FSA Insured, Pre-Refunded, 5.75%, 9/01/26 .......................................... 2,250,000 2,309,783
GO, Capital Appreciation, Election of 2004, FSA Insured, zero cpn., 8/01/24 ............. 5,110,000 2,263,270
Hartnell Community College District GO, Election of 2002, Series B, FSA Insured, 5.00%,
6/01/31 ................................................................................. 5,000,000 5,097,950
Hollister RDA Tax Allocation, Community Development Project, Refunding, AMBAC Insured,
5.125%, 10/01/32 ........................................................................ 19,815,000 19,908,329
Huntington Beach City and School District COP, MBIA Insured, Pre-Refunded, 5.25%,
7/01/29 ................................................................................. 1,795,000 1,894,353
Jefferson San Mateo County UHSD, GO, Refunding, Series A, MBIA Insured, 6.45%,
8/01/25 ................................................................................. 3,045,000 3,354,494
8/01/29 ................................................................................. 3,075,000 3,357,008
Jurupa Community Services District Special Tax, CFD No. 2, Series A, AMBAC Insured,
5.00%, 9/01/32 .......................................................................... 7,000,000 7,020,370
Jurupa USD, COP, FSA Insured, 5.625%, 9/01/24 .............................................. 1,600,000 1,673,888
Kern High School District GO,
Election of 2004, Series C, FGIC Insured, 5.00%, 8/01/33 ................................ 7,535,000 7,335,172
FSA Insured, ETM, 6.625%, 8/01/14 ....................................................... 1,535,000 1,804,700
FSA Insured, ETM, 6.625%, 8/01/15 ....................................................... 1,400,000 1,671,166
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 5,569,121
Lancaster School District GO, Capital Appreciation, Election of 1999, MBIA Insured, zero cpn.,
8/01/25 ................................................................................. 5,495,000 2,219,321
7/01/26 ................................................................................. 5,965,000 2,274,693
Las Virgenes USD, GO, Series A, FSA Insured, 5.00%, 8/01/28 ................................ 5,245,000 5,374,342
46 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Lodi Electric Systems Revenue COP, Series A, MBIA Insured, Pre-Refunded, 5.50%,
1/15/32 ................................................................................. $ 4,000,000 $ 4,121,720
Lodi USD, GO, MBIA Insured, 5.00%, 8/01/23 ................................................. 2,150,000 2,187,152
Lodi USD School Facilities Improvement District No. 1 GO, Election of 2006, FSA Insured,
5.00%,
8/01/30 ................................................................................. 6,450,000 6,581,838
8/01/32 ................................................................................. 8,220,000 8,351,602
Long Beach Bond Finance Authority Lease Revenue,
Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/19 ................ 4,000,000 4,032,200
Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/26 ................ 11,000,000 10,703,220
Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.25%, 11/01/30 ................ 2,000,000 1,956,120
Public Safety Facilities Projects, AMBAC Insured, 5.00%, 11/01/26 ....................... 6,780,000 6,636,196
Public Safety Facilities Projects, AMBAC Insured, 5.00%, 11/01/31 ....................... 10,500,000 9,932,580
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 6,990,798
5.00%, 8/01/31 .......................................................................... 3,135,000 3,010,478
Pre-Refunded, 5.00%, 8/01/25 ............................................................ 6,535,000 6,994,084
Pre-Refunded, 5.00%, 8/01/31 ............................................................ 8,865,000 9,487,766
Long Beach University School District GO, Election of 1999, Series C, MBIA Insured,
5.125%, 8/01/31 ......................................................................... 13,870,000 13,995,801
Los Angeles Community College District GO,
Series A, MBIA Insured, Pre-Refunded, 5.00%, 6/01/26 .................................... 4,000,000 4,240,680
Series B, FSA Insured, 5.00%, 8/01/27 ................................................... 4,000,000 4,111,680
Los Angeles COP,
Municipal Improvement Corp. of Los Angeles, Program AW Certificates, AMBAC Insured,
5.00%, 6/01/27 ....................................................................... 5,895,000 5,976,646
Real Property Program, MBIA Insured, 5.00%, 2/01/27 ..................................... 9,890,000 10,041,614
Los Angeles County COP, Antelope Valley Courthouse, Series A, AMBAC Insured,
Pre-Refunded, 5.25%,
11/01/27 ............................................................................. 2,500,000 2,646,875
11/01/33 ............................................................................. 2,500,000 2,646,875
Los Angeles County Public Works Financing Authority Lease Revenue, Master Refunding
Project, Refunding, Series B, FGIC Insured, 5.00%, 9/01/31 .............................. 7,600,000 7,248,652
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects,
District No. 14, Refunding, Sub Series B, FGIC Insured, 5.00%, 10/01/28 ................. 5,000,000 4,887,550
Los Angeles Department of Water and Power Waterworks Revenue, System, Sub Series A-2,
AMBAC Insured, 5.00%, 7/01/44 ........................................................... 25,000,000 24,834,500
Los Angeles Mortgage Revenue, Refunding, Series I, MBIA Insured, 6.50%, 7/01/22 ............ 740,000 740,696
Los Angeles USD, GO,
Election of 2002, Series C, FSA Insured, 5.00%, 7/01/32 ................................. 19,000,000 19,316,540
Election of 2004, Series H, FSA Insured, 5.00%, 7/01/27 ................................. 5,000,000 5,153,400
Election of 2004, Series H, FSA Insured, 5.00%, 7/01/28 ................................. 5,000,000 5,134,850
Election of 2005, Series E, FSA Insured, 5.00%, 7/01/27 ................................. 5,800,000 5,977,944
Los Angeles Wastewater System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/26 ............. 10,000,000 10,073,100
Los Angeles Water and Power Revenue, Power System,
Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 ....................................... 12,000,000 12,065,760
Sub Series A-1, AMBAC Insured, 5.00%, 7/01/37 ........................................... 20,000,000 20,100,600
Sub Series A-1, FSA Insured, 5.00%, 7/01/35 ............................................. 5,000,000 5,055,850
Annual Report | 47
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Lynwood PFA Tax Allocation, Project Area A, Refunding, Series A, FSA Insured, 5.85%,
9/01/18 ................................................................................. $ 1,765,000 $ 1,839,359
Lynwood PFA Water Revenue, Water System Improvement Project, MBIA Insured,
5.85%, 6/01/22 .......................................................................... 665,000 685,495
5.90%, 6/01/29 .......................................................................... 3,105,000 3,202,932
Marin Municipal Water District COP, Financing Project, AMBAC Insured, 5.00%, 7/01/29 ....... 1,200,000 1,210,500
Mendocino County COP, Public Facilities Corp., MBIA Insured, 5.25%, 6/01/30 ................ 2,680,000 2,737,968
Merced Irrigation District Electricity System Revenue, Refunding, XLCA Insured, 5.00%,
9/01/26 ................................................................................. 10,000,000 9,789,100
Millbrae COP, Police Department Expansion, AMBAC Insured, 5.875%, 3/01/24 .................. 1,025,000 1,064,893
Modesto Irrigation District COP, Capital Improvements, Series A, FSA Insured, 5.00%,
7/01/26 ................................................................................. 5,000,000 5,083,250
7/01/31 ................................................................................. 8,285,000 8,361,553
Monrovia USD, GO, Election of 2006, Series A, FSA Insured, 5.00%, 8/01/31 .................. 4,915,000 4,993,148
Montebello CRDA Tax Allocation, Montebello Hills Redevelopment Project, Refunding,
MBIA Insured, 5.60%, 3/01/19 ............................................................ 2,460,000 2,468,143
Montebello COP, Capital Improvement Project, Refunding, FSA Insured, 5.375%,
11/01/26 ................................................................................ 8,715,000 9,095,584
Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, 5.00%, 8/01/26 ............. 4,000,000 4,348,640
Morgan Hill USD, GO, FGIC Insured, Pre-Refunded, 5.50%, 8/01/25 ............................ 3,840,000 4,101,734
Mount Diablo USD, GO, Election of 2002, FGIC Insured, 5.00%, 7/01/25 ....................... 6,025,000 6,123,388
Murrieta Valley USD, COP, MBIA Insured, 5.00%, 8/01/27 ..................................... 2,380,000 2,430,147
Natomas USD, GO, FSA Insured, 5.00%, 9/01/26 ............................................... 2,535,000 2,618,579
Nevada Joint UHSD, GO, Series A, FSA Insured, 5.00%, 8/01/26 ............................... 1,295,000 1,319,799
Newark USD, GO, Capital Appreciation,
Series B, FGIC Insured, zero cpn., 8/01/24 .............................................. 9,905,000 3,980,919
Series C, FSA Insured, zero cpn., 8/01/22 ............................................... 2,165,000 1,046,366
Series C, FSA Insured, zero cpn., 8/01/23 ............................................... 2,465,000 1,116,990
Series C, FSA Insured, zero cpn., 8/01/24 ............................................... 2,560,000 1,093,453
Series C, FSA Insured, zero cpn., 8/01/25 ............................................... 2,705,000 1,089,060
Norco RDA Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, 5.625%,
3/01/30 ................................................................................. 1,000,000 1,044,040
Northern California Public Power Agency Revenue, AMBAC Insured, Pre-Refunded, 7.50%,
7/01/23 ................................................................................. 3,200,000 4,168,864
Oakland Revenue, 1800 Harrison Foundation, Series A, AMBAC Insured, Pre-Refunded,
6.00%, 1/01/29 .......................................................................... 10,000,000 10,505,700
Oceanside COP, AMBAC Insured, 5.20%, 4/01/23 ............................................... 2,500,000 2,556,675
Orange County Sanitation Districts COP, FGIC Insured, 5.00%, 2/01/33 ....................... 8,000,000 8,021,040
Palm Springs Financing Authority Lease Revenue, Convention Center Project, Refunding,
Series A, MBIA Insured, 5.00%, 11/01/25 ................................................. 2,295,000 2,339,959
Pasadena Area Community College District GO, Election of 2002, Series A, FGIC Insured,
5.00%, 6/01/28 .......................................................................... 4,000,000 4,300,240
Pasadena USD, GO, Series B, FGIC Insured, Pre-Refunded, 5.25%, 7/01/24 ..................... 1,000,000 1,045,510
Patterson Joint USD, GO, Capital Appreciation,
Series A, FGIC Insured, zero cpn., 8/01/22 .............................................. 1,900,000 912,285
Series A, FGIC Insured, zero cpn., 8/01/24 .............................................. 2,075,000 883,743
Series A, FGIC Insured, zero cpn., 8/01/25 .............................................. 2,170,000 869,150
Series A, FGIC Insured, zero cpn., 8/01/26 .............................................. 2,265,000 852,342
Series C, FGIC Insured, zero cpn., 8/01/23 .............................................. 1,985,000 898,074
48 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Peralta Community College District GO, Election of 2000, Series B, MBIA Insured, 5.25%,
8/01/32 ................................................................................. $ 8,450,000 $ 8,677,051
Perris CFD No. 93-1 Special Tax, Series A, AMBAC Insured, 5.125%, 8/15/23 .................. 4,000,000 3,782,360
Plumas County COP, Capital Improvement Program, Series A, AMBAC Insured, 5.00%,
6/01/33 ................................................................................. 3,280,000 3,281,509
Pomona PFA Lease Revenue, Series AN, AMBAC Insured, 5.00%, 10/01/30 ........................ 5,190,000 5,214,652
Porterville COP, Sewer System Refining Project, Refunding, AMBAC Insured, 5.25%,
10/01/23 ................................................................................ 3,000,000 3,051,510
Poway RDA Tax Allocation,
MBIA Insured, Pre-Refunded, 5.75%, 6/15/33 .............................................. 9,250,000 10,099,150
Paguay Redevelopment Project, AMBAC Insured, 5.00%, 12/15/25 ............................ 9,195,000 9,238,400
Refunding, MBIA Insured, 5.75%, 6/15/33 ................................................. 2,225,000 2,349,978
Rancho Cucamonga RDA Tax Allocation, Rancho Redevelopment Project, Refunding,
FSA Insured, 5.25%, 9/01/20 ............................................................. 2,500,000 2,562,000
Redwood City School District GO, FGIC Insured, 5.00%, 7/15/27 .............................. 3,000,000 3,023,910
Ripon RDA Tax Allocation, Community Redevelopment Project, MBIA Insured, Pre-Refunded,
5.85%, 11/01/30 ......................................................................... 3,975,000 4,341,574
Rohnert Park Community Development Commission Tax Allocation, Redevelopment Project,
Series R, FGIC Insured, 5.00%, 8/01/37 .................................................. 5,000,000 4,589,250
Roseville Financing Authority Revenue, senior lien, Series A, AMBAC Insured, 5.00%,
9/01/25 ................................................................................. 5,675,000 5,720,003
Rowland USD, GO, Series A, FSA Insured, Pre-Refunded, 5.25%, 9/01/25 ....................... 5,685,000 6,055,662
Sacramento Area Flood Control Agency Revenue, Consolidated, Capital AD, Refunding,
Series A, FGIC Insured, 5.00%, 10/01/32 ................................................. 5,000,000 4,916,800
Sacramento Area Flood Control Agency Special Assessment, Subordinated, Capital AD No. 2,
FGIC Insured, 5.80%, 11/01/16 ........................................................... 1,000,000 1,011,480
Sacramento City Financing Authority Revenue,
Capital Improvement, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/26 ............. 8,395,000 8,873,935
Capital Improvement, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/32 ............. 21,500,000 22,726,575
City Hall and Redevelopment Projects, Series A, FSA Insured, Pre-Refunded, 5.00%,
12/01/28 ............................................................................. 10,000,000 10,734,800
Sacramento County Sanitation District Financing Authority Revenue, Sacramento Regional
County Sanitation District, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/35 ...... 10,000,000 10,914,400
Salida Area Public Facilities Financing Agency CFD, Special Tax, No. 1988-1, FSA Insured,
5.75%, 9/01/30 .......................................................................... 3,435,000 3,635,810
Salida USD, COP, Financing Project, AMBAC Insured, 5.375%, 5/01/26 ......................... 1,645,000 1,647,336
Salinas UHSD, GO, Election of 2002, Series B, MBIA Insured, 5.00%, 6/01/31 ................. 5,000,000 5,012,750
San Bernardino City USD, GO, Election of 2004, Series B, FSA Insured, 5.00%, 8/01/28 ....... 14,170,000 14,482,874
San Bernardino County COP, 1997 Public Improvement Financing Project, MBIA Insured,
5.25%, 10/01/25 ......................................................................... 7,000,000 7,120,190
San Bernardino County SFMR, Capital Appreciation, Series A, GNMA Secured, ETM, zero cpn.,
5/01/22 ................................................................................. 28,405,000 13,424,203
San Carlos School District GO, MBIA Insured, Pre-Refunded, 5.50%, 10/01/24 ................. 2,110,000 2,234,912
San Diego Public Facilities Financing Authority Sewer Revenue, Series B, FGIC Insured,
5.25%, 5/15/27 .......................................................................... 2,950,000 2,949,823
San Francisco BART District Sales Tax Revenue,
5.00%, 7/01/28 .......................................................................... 2,795,000 2,824,711
FGIC Insured, Pre-Refunded, 5.50%, 7/01/26 .............................................. 6,500,000 6,811,740
FGIC Insured, Pre-Refunded, 5.50%, 7/01/34 .............................................. 12,000,000 12,575,520
Annual Report | 49
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Francisco City and County Airports Commission International Airport Revenue, Refunding,
Second Series 28A, MBIA Insured, 5.125%,
5/01/24 ................................................................................. $ 9,745,000 $ 9,343,409
5/01/27 ................................................................................. 16,575,000 15,577,682
San Francisco City and County Public Utilities Commission Water Revenue, Refunding,
Series A, FSA Insured, 5.00%, 11/01/31 .................................................. 3,885,000 3,913,127
San Francisco Community College District GO, Series A, FGIC Insured, 5.00%, 6/15/26 ........ 6,000,000 6,133,440
San Francisco State University Foundation Inc. Auxiliary Organization Housing Revenue,
MBIA Insured, Pre-Refunded, 5.00%, 9/01/31 .............................................. 13,415,000 14,365,184
San Gabriel USD, GO, Capital Appreciation,
Election of 2002, Series C, FSA Insured, zero cpn., 8/01/30 ............................. 5,635,000 1,730,339
Election of 2002, Series C, FSA Insured, zero cpn., 8/01/31 ............................. 5,870,000 1,697,134
Election of 2002, Series C, FSA Insured, zero cpn., 7/01/32 ............................. 6,115,000 1,675,082
Series A, FSA Insured, zero cpn., 8/01/26 ............................................... 3,530,000 1,388,173
Series A, FSA Insured, zero cpn., 2/01/27 ............................................... 1,850,000 702,575
San Joaquin Delta Community College District GO, Election of 2004,
(a) Capital Appreciation, Series B, FSA Insured, zero cpn., 8/01/31 ......................... 10,475,000 2,775,037
(a) Capital Appreciation, Series B, FSA Insured, zero cpn., 8/01/32 ......................... 15,185,000 3,784,102
Series A, FSA Insured, 5.00%, 8/01/29 ................................................... 520,000 529,906
Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/29 ..................................... 4,530,000 4,949,659
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, MBIA Insured, zero cpn., 1/15/26 ............. 13,155,000 4,642,136
Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ...................................... 18,075,000 18,119,826
Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ....................................... 12,860,000 12,864,372
senior lien, MBIA Insured, 5.00%, 1/01/33 ............................................... 10,035,000 9,964,855
San Jose Airport Revenue, Refunding, Series B, AMBAC Insured, 5.00%, 3/01/33 ............... 12,135,000 11,733,574
San Jose Financing Authority Lease Revenue, Civic Center Project, Series B, AMBAC Insured,
5.00%, 6/01/27 .......................................................................... 10,000,000 10,112,700
San Jose MFHR, Sixth and Martha Family Apartments, FNMA Insured, 5.875%, 3/01/33 ........... 3,500,000 3,534,615
San Jose RDA Tax Allocation, Merged Area Redevelopment Project, Series B, XLCA Insured,
5.00%, 8/01/31 .......................................................................... 15,470,000 14,658,444
San Juan USD, GO, Election of 1998, Series A, MBIA Insured, 5.00%, 8/01/28 ................. 5,115,000 5,095,512
San Leandro COP, Library and Fire Stations Financing, AMBAC Insured, Pre-Refunded, 5.75%,
11/01/29 ................................................................................ 5,000,000 5,325,250
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 5,807,410
5.80%, 10/01/30 ......................................................................... 7,800,000 8,271,978
San Marino USD, GO, Series A, MBIA Insured, zero cpn., 7/01/25 ............................. 6,080,000 2,486,963
San Mateo GO, Library Improvement Project, Series A, AMBAC Insured, 5.25%, 8/01/30 ......... 5,790,000 5,950,267
Santa Ana USD, COP, Capital Appreciation Financing Project, FSA Insured, zero cpn.,
4/01/24 ................................................................................. 14,245,000 6,367,657
Santa Clara COP, Refunding, AMBAC Insured, 5.00%, 2/01/27 .................................. 5,555,000 5,627,271
Santa Clara County Financing Authority Revenue, El Camino, Series B, AMBAC Insured,
5.125%, 2/01/41 ......................................................................... 11,545,000 10,992,341
Santa Monica PFA Lease Revenue, Civic Center Parking Project, XLCA Insured, 5.00%,
7/01/33 ................................................................................. 11,050,000 11,112,432
Santa Rita USD, GO, Election 2006, Series A, FSA Insured, 5.00%, 8/01/32 ................... 6,160,000 6,240,511
Santa Rosa Wastewater Revenue, Series B, FGIC Insured, Pre-Refunded, 5.125%, 9/01/31 ....... 4,000,000 4,264,880
50 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Santa Rosa Wastewater Service Facilities District Revenue, Refunding and Improvement,
AMBAC Insured, 6.00%, 7/02/15 ........................................................... $ 2,000,000 $ 2,182,740
Santee School District GO, Series A, FSA Insured, 5.00%, 8/01/31 ........................... 6,845,000 6,912,902
Shasta Tehama Trinity Joint Community College District GO, Election of 2002, Series B,
FSA Insured, 5.00%, 8/01/30 ............................................................. 9,070,000 9,238,611
Sonoma CDA Tax Allocation, Redevelopment Project, MBIA Insured, 5.70%, 12/01/30 ............ 3,455,000 3,607,331
South Gate COP, Series A, AMBAC Insured, 5.00%, 9/01/24 .................................... 3,155,000 3,208,288
South San Francisco COP, Conference Center Financing, 5.00%, 4/01/29 ....................... 2,000,000 2,008,500
Southern California Public Power Authority Power Project Revenue, Series A, AMBAC Insured,
Pre-Refunded, 5.00%, 7/01/33 ............................................................ 29,000,000 31,280,560
Southern Kern USD, COP, Capital Appreciation, Building Program, Series B, FSA Insured,
5.625%, 9/01/26 ......................................................................... 2,250,000 2,279,948
Southern Mono Health Care District GO, Series A, MBIA Insured, 5.00%, 8/01/24 .............. 3,005,000 3,056,926
Southern Mono Health Care District Revenue, Capital Appreciation, Series A, MBIA Insured,
zero cpn.,
8/01/28 ................................................................................. 2,340,000 767,497
8/01/29 ................................................................................. 2,440,000 749,373
8/01/30 ................................................................................. 2,550,000 734,145
8/01/31 ................................................................................. 2,660,000 718,971
Stanislaus County Board of Education COP, FSA Insured, 5.70%, 9/01/24 ...................... 2,000,000 2,067,820
Stockton Revenue COP, Wastewater System Project, Refunding, Series A, MBIA Insured,
5.00%, 9/01/23 .......................................................................... 6,500,000 6,583,200
Susanville PFAR, MBIA Insured, 5.70%, 6/01/30 .............................................. 3,000,000 3,152,430
Tahoe-Truckee USD, GO, ID No. 2, Series A, FGIC Insured, Pre-Refunded, 5.75%, 8/01/20 ...... 4,340,000 4,570,931
Truckee PFA Lease Revenue, Series A, AMBAC Insured, Pre-Refunded, 6.00%, 11/01/30 .......... 1,990,000 2,058,038
Turlock PFA Sewer Revenue, FGIC Insured, 5.50%, 9/15/29 .................................... 6,855,000 7,052,287
Union City CRDA Tax Allocation Revenue, Community Redevelopment Project,
AMBAC Insured, Pre-Refunded, 5.75%, 10/01/32 ............................................ 14,100,000 14,840,673
Union Elementary School District GO, Capital Appreciation,
Series A, FGIC Insured, zero cpn., 9/01/24 .............................................. 2,000,000 848,040
Series B, FGIC Insured, zero cpn., 9/01/25 .............................................. 5,500,000 2,193,125
Series B, FGIC Insured, zero cpn., 9/01/26 .............................................. 5,850,000 2,191,527
University of California Revenues,
Limited Project, Series D, FGIC Insured, 5.00%, 5/15/37 ................................. 6,460,000 6,491,783
Multiple Purpose Projects, Series K, Pre-Refunded, 5.00%, 9/01/23 ....................... 3,160,000 3,208,380
Multiple Purpose Projects, Series M, FGIC Insured, Pre-Refunded, 5.125%, 9/01/30 ........ 8,720,000 9,081,182
Vacaville PFA Tax Allocation Revenue, Vacaville Redevelopment Projects, FSA Insured, 5.00%,
9/01/31 ................................................................................. 5,095,000 5,116,807
Vacaville USD, GO, Election of 2001, MBIA Insured, 5.00%, 8/01/30 .......................... 5,000,000 4,986,550
Vista USD, GO,
Capital Appreciation, Series A, FSA Insured, zero cpn., 8/01/26 ......................... 7,150,000 2,811,738
Capital Appreciation, Series A, FSA Insured, zero cpn., 2/01/27 ......................... 4,795,000 1,820,997
Series A, FSA Insured, 5.25%, 8/01/25 ................................................... 5,000,000 5,162,550
Washington Township Health Care District Revenue, Refunding,
5.00%, 7/01/18 .......................................................................... 2,000,000 2,016,020
5.125%, 7/01/23 ......................................................................... 450,000 452,043
Washington USD, GO, Yolo County, Election of 1999, Series A, FGIC Insured, 5.375%,
8/01/25 ................................................................................. 2,045,000 2,103,242
Annual Report | 51
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Weaver USD, GO, Election of 2006, Series C, AMBAC Insured, zero cpn., 8/01/47 .............. $ 18,685,000 $ 2,158,491
West Basin Municipal Water District Revenue COP, Refunding, Series A, MBIA Insured, 5.00%,
8/01/24 ................................................................................. 2,500,000 2,518,850
8/01/30 ................................................................................. 5,745,000 5,654,229
Western Placer USD Financing Corp. COP, Pre-Refunded, 5.55%, 11/01/30 ...................... 6,930,000 7,624,871
Westlands Water District Revenue COP,
MBIA Insured, 5.00%, 9/01/29 ............................................................ 11,775,000 11,728,489
Series A, MBIA Insured, 5.00%, 9/01/35 .................................................. 1,460,000 1,425,967
Series A, MBIA Insured, 5.00%, 9/01/37 .................................................. 4,340,000 4,222,820
Woodland Finance Authority Lease Revenue, Capital Projects, Refunding, XLCA Insured,
5.00%, 3/01/32 .......................................................................... 6,340,000 6,313,435
Woodland Finance Authority Wastewater Revenue, second senior lien, MBIA Insured, 5.00%,
3/01/33 ................................................................................. 3,870,000 3,821,122
3/01/35 ................................................................................. 2,590,000 2,552,290
Woodside Elementary School District GO, Election of 2005, MBIA Insured, Pre-Refunded,
5.00%, 10/01/29 ......................................................................... 4,435,000 4,867,634
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $2,014,774,195) ................................................................... 2,069,461,546
--------------
SHORT TERM INVESTMENTS 0.2%
MUNICIPAL BONDS 0.2%
CALIFORNIA 0.2%
(b) California State Department of Water Resources Power Supply Revenue, Refunding,
Sub Series G-3, FSA Insured, Weekly VRDN and Put, 1.30%, 5/01/16 ........................ 2,000,000 2,000,000
(b) California State GO, Series A-3, Daily VRDN and Put, 2.16%, 5/01/33 ........................ 1,300,000 1,300,000
(b) Los Angeles Water and Power Revenue, Refunding, Sub Series B-1, Weekly VRDN and Put,
1.30%, 7/01/34 .......................................................................... 400,000 400,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $3,700,000) ............................................. 3,700,000
--------------
TOTAL INVESTMENTS (COST $2,018,474,195) 99.3% 2,073,161,546
OTHER ASSETS, LESS LIABILITIES 0.7% 15,018,770
--------------
NET ASSETS 100.0% $2,088,180,316
==============
See Selected Portfolio Abbreviations on page 72.
(a) Security purchased on a when-issued basis. See Note 1(b).
(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.
The accompanying notes are an integral part of these financial statements.
52 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
YEAR ENDED JUNE 30,
----------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.33 $ 11.30 $ 11.68 $ 11.36 $ 11.74
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.44 0.43 0.43 0.43 0.44
Net realized and unrealized gains (losses) .. (0.07) 0.04 (0.39) 0.32 (0.38)
-------- -------- -------- -------- --------
Total from investment operations ............... 0.37 0.47 0.04 0.75 0.06
-------- -------- -------- -------- --------
Less distributions from net investment income .. (0.43) (0.44) (0.42) (0.43) (0.44)
-------- -------- -------- -------- --------
Redemption fees ................................ --(c) --(c) --(c) --(c) --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.27 $ 11.33 $ 11.30 $ 11.68 $ 11.36
======== ======== ======== ======== ========
Total return(d) ................................ 3.29% 4.13% 0.37% 6.67% 0.50%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.66% 0.67% 0.66% 0.67% 0.67%
Net investment income .......................... 3.85% 3.76% 3.74% 3.67% 3.76%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $517,443 $458,146 $463,545 $453,335 $384,196
Portfolio turnover rate ........................ 22.97% 11.25% 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 the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Amount rounds to less than $0.01 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 53
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
YEAR ENDED JUNE 30,
----------------------------------------------------
CLASS C 2008 2007 2006 2005 2004(a)
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.36 $ 11.32 $ 11.70 $ 11.37 $11.73
------- ------- ------- ------- ------
Income from investment operations(b):
Net investment income(c) .................... 0.38 0.37 0.37 0.36 0.37
Net realized and unrealized gains (losses) .. (0.08) 0.05 (0.39) 0.33 (0.36)
------- ------- ------- ------- ------
Total from investment operations ............... 0.30 0.42 (0.02) 0.69 0.01
------- ------- ------- ------- ------
Less distributions from net investment income (0.37) (0.38) (0.36) (0.36) (0.37)
------- ------- ------- ------- ------
Redemption fees ................................ --(d) --(d) --(d) --(d) --
------- ------- ------- ------- ------
Net asset value, end of year ................... $ 11.29 $ 11.36 $ 11.32 $ 11.70 $11.37
======= ======= ======= ======= ======
Total return(e) ................................ 2.63% 3.68% (0.18)% 6.15% 0.11%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.21% 1.20% 1.20% 1.22% 1.22%
Net investment income .......................... 3.30% 3.23% 3.20% 3.12% 3.21%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $36,842 $27,025 $25,173 $19,082 $9,142
Portfolio turnover rate ........................ 22.97% 11.25% 13.28% 4.17% 17.36%
(a) For the period July 1, 2003 (effective date) to June 30, 2004.
(b) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
54 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS 95.7%
CALIFORNIA 93.0%
ABAG Finance Authority for Nonprofit Corps. COP, Rhoda Haas Goldman Plaza, California
Mortgage Insured, 5.125%, 5/15/15 ....................................................... $ 3,000,000 $ 3,032,819
ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Assn., Series C,
5.125%, 3/01/18 ......................................................................... 2,695,000 2,723,163
5.25%, 3/01/19 .......................................................................... 2,315,000 2,341,923
ABAG Revenue, Refunding, Series A-E, 5.40%, 9/15/14 ........................................ 2,455,000 2,505,868
ABAG Water and Wastewater Revenue, Pooled Financing Program, Refunding, Series A,
FSA Insured, 5.00%, 10/01/10 ............................................................ 1,905,000 1,953,806
Alameda Corridor Transportation Authority Revenue, Capital Appreciation, sub. lien,
Refunding, Series A, AMBAC Insured, zero cpn., 10/01/17 ................................. 10,000,000 6,461,700
Alameda-Contra Costa Transportation District COP, Refunding, AMBAC Insured, 4.375%,
8/01/14 ................................................................................. 1,330,000 1,354,299
Antelope Valley UHSD, GO, Series A, MBIA Insured,
4.50%, 8/01/13 .......................................................................... 1,230,000 1,277,453
4.625%, 8/01/14 ......................................................................... 1,250,000 1,300,700
Arcadia USD, GO, Capital Appreciation, Election of 2006, Series A, FSA Insured, zero cpn.,
8/01/22 ................................................................................. 4,065,000 1,992,378
Bakersfield Wastewater Revenue, Series A, FSA Insured, 5.00%, 9/15/22 ...................... 2,595,000 2,725,632
(a) Baldwin Park USD, GO, Capital Appreciation, Election of 2006, FSA Insured, zero cpn.,
8/01/24 ................................................................................. 5,265,000 2,151,279
Banning Utility Authority Water Enterprise Revenue, Refunding and Improvement Projects,
FGIC Insured, 5.00%, 11/01/21 ............................................................. 1,080,000 1,093,133
Burbank Electric Revenue, MBIA Insured, 4.00%,
6/01/11 ................................................................................. 1,000,000 1,022,050
6/01/12 ................................................................................. 1,000,000 1,020,670
Burbank USD, GO,
Capital Appreciation, Election of 1997, Series C, FGIC Insured, zero cpn., 8/01/15 ...... 4,600,000 3,361,772
Capital Appreciation, Election of 1997, Series C, FGIC Insured, zero cpn., 8/01/16 ...... 4,670,000 3,226,596
Election of 1997, Series C, FGIC Insured, 4.00%, 8/01/12 ................................ 2,500,000 2,554,700
Burbank Water and Power Electric Revenue, MBIA Insured, 4.00%, 6/01/11 ..................... 5,045,000 5,062,153
California Educational Facilities Authority Revenue, Stanford University, Refunding,
Series R, 4.00%, 11/01/11 ............................................................... 1,000,000 1,031,410
California Health Facilities Financing Authority Revenue,
Catholic Healthcare West, Series K, 5.125%, 7/01/22 ..................................... 20,000,000 19,992,800
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/13 ....................................... 5,000,000 5,092,100
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/14 ....................................... 2,000,000 2,036,840
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ....................................... 3,850,000 3,918,492
Paradise Valley Estates, Refunding, California Mortgage Insured, 3.875%, 1/01/09 ........ 1,555,000 1,564,439
Paradise Valley Estates, Refunding, California Mortgage Insured, 4.125%, 1/01/10 ........ 1,000,000 1,012,810
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.00%, 1/01/11 ......... 1,480,000 1,532,584
Paradise Valley Estates, Refunding, California Mortgage Insured, 4.375%, 1/01/12 ........ 1,000,000 1,019,630
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.00%, 1/01/13 ......... 1,815,000 1,899,633
Paradise Valley Estates, Refunding, California Mortgage Insured, 5.00%, 1/01/14 ......... 1,635,000 1,702,329
Sutter Health, Series A, 5.25%, 8/15/22 ................................................. 5,000,000 5,210,950
The Episcopal Home, California Mortgage Insured, 4.625%, 2/01/12 ........................ 1,350,000 1,385,978
The Episcopal Home, California Mortgage Insured, 4.75%, 2/01/13 ......................... 1,200,000 1,233,312
Annual Report | 55
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California HFA, SFM Purchase Revenue, Class III, Series A-1, MBIA Insured, 5.70%,
8/01/11 ................................................................................. $ 185,000 $ 186,983
California Municipal Finance Authority COP, Community Hospitals of Central California,
5.00%, 2/01/18 .......................................................................... 2,185,000 2,112,283
5.00%, 2/01/19 .......................................................................... 4,590,000 4,389,830
5.00%, 2/01/20 .......................................................................... 2,325,000 2,197,730
5.00%, 2/01/21 .......................................................................... 2,000,000 1,875,420
Refunding, 5.00%, 2/01/14 ............................................................... 1,765,000 1,760,764
Refunding, 5.00%, 2/01/17 ............................................................... 4,025,000 3,928,923
California State Department of Water Resources Power Supply Revenue, Series A,
5.50%, 5/01/12 .......................................................................... 2,000,000 2,153,920
Pre-Refunded, 5.125%, 5/01/18 ........................................................... 2,500,000 2,698,800
California State Economic Recovery Revenue, Series A, 5.00%, 7/01/15 ....................... 10,670,000 11,403,669
California State GO,
5.25%, 6/01/16 .......................................................................... 515,000 518,554
Pre-Refunded, 5.00%, 11/01/12 ........................................................... 1,335,000 1,421,521
Refunding, 4.00%, 2/01/10 ............................................................... 6,900,000 7,034,274
Refunding, 5.00%, 11/01/12 .............................................................. 665,000 698,396
Refunding, 5.25%, 2/01/14 ............................................................... 4,000,000 4,282,600
Refunding, MBIA Insured, 5.00%, 2/01/18 ................................................. 5,000 5,060
Various Purpose, 5.00%, 11/01/22 ........................................................ 4,675,000 4,790,285
Various Purpose, Refunding, 5.125%, 3/01/24 ............................................. 2,715,000 2,799,355
Veterans, Refunding, Series B, 5.25%, 12/01/15 .......................................... 2,310,000 2,337,743
California State Municipal Finance Authority Revenue, Loma Linda University, 5.00%,
4/01/24 ................................................................................. 1,180,000 1,185,723
California State Public Works Board Lease Revenue,
Department of Forestry and Fire Protection, Series A, 4.875%, 10/01/18 .................. 1,325,000 1,339,615
Various California Community College Projects, Refunding, Series C, 5.50%, 9/01/09 ...... 1,555,000 1,563,008
California Statewide CDA, COP,
Kaiser Permanente, ETM, 5.30%, 12/01/15 ................................................. 2,000,000 2,093,140
St. Joseph Health System Obligation Group, 5.25%, 7/01/11 ............................... 1,005,000 1,022,829
California Statewide CDA Revenue,
Daughters of Charity Health, Refunding, Series G, 5.25%, 7/01/13 ........................ 1,000,000 1,030,510
Insured Health Facility, Jewish Home, California Mortgage Insured, 5.00%, 11/15/18 ...... 3,000,000 3,044,940
Kaiser Permanente, Mandatory Put 6/01/12, Series C, 3.85%, 11/01/29 ..................... 10,000,000 10,068,400
Lodi Memorial Hospital, Series A, California Mortgage Insured, 5.00%, 12/01/22 .......... 8,000,000 8,041,440
Mission Community, California Mortgage Insured, 4.40%, 11/01/10 ......................... 1,100,000 1,129,843
Mission Community, California Mortgage Insured, 4.50%, 11/01/11 ......................... 1,145,000 1,178,812
Viewpoint School, Refunding, ACA Insured, 4.50%, 10/01/17 ............................... 460,000 430,146
Viewpoint School, Refunding, ACA Insured, 4.75%, 10/01/18 ............................... 480,000 455,294
Carlsbad USD, GO, Election of 2006, Series A, MBIA Insured, 5.00%,
8/01/22 ................................................................................. 1,510,000 1,562,291
8/01/24 ................................................................................. 1,665,000 1,716,399
Castaic Lake Water Agency Revenue COP, Water System Improvement Project, Capital
Appreciation, zero cpn, AMBAC Insured, 08/01/22 .......................................... 10,445,000 4,980,907
Cathedral City 1915 Act Special Assessment, Limited Obligation, Cove ID 04-02, 5.00%,
9/02/24 ................................................................................. 1,000,000 923,640
56 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Central California Joint Powers Health Financing Authority COP, Community Hospitals of
Central California, Pre-Refunded,
5.125%, 2/01/13 ......................................................................... $ 1,375,000 $ 1,454,736
5.25%, 2/01/14 .......................................................................... 1,435,000 1,522,621
5.75%, 2/01/16 .......................................................................... 1,585,000 1,701,260
Central Valley Financing Authority Cogeneration Project Revenue, Carson Ice General Project,
Refunding, MBIA Insured, 5.00%, 7/01/17 ................................................. 2,000,000 2,021,720
Cerritos PFAR Tax Allocation, Redevelopment Project, Refunding, Series A, AMBAC Insured,
3.00%, 11/01/11 ......................................................................... 2,585,000 2,548,371
Chaffey Community College District COP, Pre-Refunded, 5.10%, 9/01/13 ....................... 1,860,000 1,907,486
Clovis MFR, Mandatory Put 11/01/10, Refunding, FNMA Insured, 5.10%, 11/01/30 ............... 4,105,000 4,167,765
Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, FGIC Insured, zero cpn.,
8/01/17 ................................................................................. 5,235,000 3,382,386
Coalinga COP, Custody Facility, Refunding, 4.25%, 4/01/10 .................................. 1,000,000 1,020,710
Compton Public Finance Authority Lease Revenue, Various Capital Projects, Refunding,
AMBAC Insured, 5.00%, 9/01/22 ........................................................... 15,190,000 15,333,697
Conejo Valley USD, GO, Election of 1998,
Series C, FSA Insured, zero cpn., 8/01/17 ............................................... 2,500,000 1,673,600
Series D, FGIC Insured, 4.50%, 8/01/19 .................................................. 4,000,000 4,065,800
Contra Costa Community College District GO, Election of 2002, FGIC Insured, 4.75%,
8/01/18 ................................................................................. 2,450,000 2,501,793
Corona-Norco USD, PFA Special Tax Revenue, Series A, 5.25%, 9/01/25 ........................ 2,235,000 2,052,244
Duarte RDA Tax Allocation, Merged Redevelopment Project Area, Pre-Refunded, 5.125%,
10/01/16 ................................................................................ 1,790,000 1,840,031
Fairfax School District GO, Election of 2000, Series A, FGIC Insured, 5.00%, 11/01/17 ...... 830,000 865,657
Fairfield-Suisun Sewer District Sewer Revenue, Refunding, Series A, FGIC Insured, 5.00%,
5/01/12 ................................................................................. 600,000 617,952
Folsom PFA Lease Revenue, City Hall and Community Center, Refunding, FSA Insured, 5.00%,
10/01/17 ................................................................................ 1,275,000 1,339,375
Foothill/Eastern Corridor Agency Toll Road Revenue, Refunding, MBIA Insured, 5.00%,
1/15/16 ................................................................................. 1,000,000 1,019,930
Fresno USD, GO, Election of 2001, Series D, MBIA Insured, 5.00%, 8/01/21 ................... 1,355,000 1,402,276
Galt Capital Improvements Authority Lease Revenue, Culture and Recreation Improvement
Project, 5.00%, 4/01/12 ................................................................. 1,955,000 1,983,445
Galt Middle School Joint Powers Authority Special Tax, CFD No. 1, Refunding, 5.40%,
9/01/12 ................................................................................. 1,955,000 2,000,493
Garden Grove Agency Community Development Tax Allocation, Garden Grove Community Project,
Refunding, AMBAC Insured, 4.25%, 10/01/13 ............................................... 2,025,000 2,066,897
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, Asset-Backed, ETM,
5.00%, 6/01/12 .......................................................................... 1,500,000 1,573,140
Huntington Beach PFAR, Lease Capital Improvement Refinancing Project, Refunding, Series B,
AMBAC Insured,
4.125%, 8/01/14 ......................................................................... 2,140,000 2,177,728
4.25%, 8/01/15 .......................................................................... 2,080,000 2,117,024
Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing
Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ..................................... 670,000 697,751
Inland Empire Tobacco Asset Securitization Corp. Revenue, Series A, 5.00%, 6/01/21 ......... 11,995,000 11,378,817
Annual Report | 57
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Irvine 1915 Act GO, AD No. 03-19, Group 2, Refunding,
4.875%, 9/02/16 ......................................................................... $ 1,000,000 $ 959,260
5.00%, 9/02/18 .......................................................................... 1,000,000 945,000
5.125%, 9/02/19 ......................................................................... 1,000,000 938,750
Irvine 1915 Act Special Assessment, AD No. 00-18,
Group 2, 4.375%, 9/02/10 ................................................................ 885,000 890,496
Group 2, 4.70%, 9/02/12 ................................................................. 1,475,000 1,470,501
Group 2, 4.80%, 9/02/13 ................................................................. 1,175,000 1,171,205
Group 2, 5.125%, 9/02/17 ................................................................ 1,705,000 1,678,573
Group 3, 4.75%, 9/02/15 ................................................................. 1,000,000 964,610
Group 3, 5.00%, 9/02/17 ................................................................. 1,000,000 969,900
Irvine USD Financing Authority Special Tax, Series A,
4.70%, 9/01/15 .......................................................................... 1,095,000 1,039,911
4.80%, 9/01/17 .......................................................................... 1,400,000 1,319,528
4.875%, 9/01/18 ......................................................................... 1,570,000 1,472,173
5.00%, 9/01/20 .......................................................................... 1,150,000 1,068,534
Kings River Conservation District Pine Flat Power Revenue, Refunding, Series E, 5.125%,
1/01/18 ................................................................................. 1,735,000 1,762,829
Lake Elsinore PFA Tax Allocation Revenue,
Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.40%, 9/01/08 ............. 330,000 330,485
Series A, 5.00%, 9/01/09 ................................................................ 645,000 658,397
Lake Elsinore School Financing Authority Revenue, Refunding, 6.00%, 9/01/11 ................ 1,000,000 1,003,970
Lancaster COP, School District Project, Refunding, FSA Insured, 5.125%, 4/01/14 ............ 2,000,000 2,041,900
Lemon Grove CDA Tax Allocation, 1998, Refunding, 5.20%, 8/01/08 ............................ 215,000 215,361
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series A, 5.00%,
12/01/19 ................................................................................ 5,000,000 4,952,650
Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A, 5.00%,
11/15/17 ................................................................................ 3,950,000 3,800,137
Long Beach Community College District GO, Election of 2002, Series B, FGIC Insured, 5.00%,
5/01/17 ................................................................................. 1,000,000 1,061,630
Los Angeles Convention and Exhibition Center Authority Lease Revenue, Refunding, Series A,
AMBAC Insured, 3.00%, 8/15/12 ........................................................... 4,525,000 4,425,224
Los Angeles County MTA Sales Tax Revenue, Proposition A, first tier senior, Refunding,
Series A, FSA Insured, 5.00%, 7/01/15 ................................................... 5,345,000 5,473,761
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Project,
Refunding, Series A, FSA Insured, 5.00%, 10/01/17 ....................................... 1,000,000 1,051,170
Los Angeles USD, GO,
Election of 2004, Series F, FGIC Insured, 5.00%, 7/01/21 ................................ 5,975,000 6,206,232
Refunding, MBIA Insured, 5.25%, 7/01/13 ................................................. 3,500,000 3,783,430
Refunding, Series A-1, FGIC Insured, 5.00%, 7/01/21 ..................................... 10,895,000 11,271,640
Refunding, Series A-1, FGIC Insured, 5.00%, 7/01/25 ..................................... 6,265,000 6,402,141
Refunding, Series A-2, FGIC Insured, 5.00%, 7/01/22 ..................................... 5,000,000 5,135,350
M-S-R Public Power Agency San Juan Project Revenue, Refunding, Series I, MBIA Insured,
4.25%, 7/01/11 .......................................................................... 5,055,000 5,198,107
5.00%, 7/01/18 .......................................................................... 1,000,000 1,025,680
Marina Joint Powers Financing Authority MFHR, Abrams B Apartments Financing, Mandatory
Put 11/15/16, FNMA Insured,
3.90%, 11/15/36 ......................................................................... 3,440,000 3,381,967
3.95%, 11/15/36 ......................................................................... 1,450,000 1,430,628
58 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Metropolitan Water District of Southern California Waterworks Revenue, Series A, 5.00%,
7/01/26 ................................................................................. $ 7,790,000 $ 8,087,188
Montebello USD, GO, Capital Appreciation, FGIC Insured, zero cpn.,
8/01/18 ................................................................................. 1,455,000 892,410
8/01/19 ................................................................................. 1,480,000 855,455
Moreno Valley USD, GO,
Capital Appreciation, Refunding, MBIA Insured, zero cpn., 8/01/24 ....................... 7,500,000 3,148,875
Election of 2004, Series A, FSA Insured, 5.00%, 8/01/17 ................................. 2,000,000 2,174,320
Election of 2004, Series A, FSA Insured, 5.00%, 8/01/18 ................................. 2,300,000 2,500,468
Moulton-Niguel Water District GO, Consolidated, Refunding, AMBAC Insured, 5.00%,
9/01/16 ................................................................................. 3,520,000 3,714,269
Nevada County COP, Refunding, MBIA Insured, 4.125%, 10/01/12 ............................... 1,040,000 1,062,287
Orange County CFD No. 2002-1 Special Tax, Ladera Ranch, Series A,
4.60%, 8/15/14 .......................................................................... 1,000,000 972,420
4.75%, 8/15/15 .......................................................................... 1,000,000 971,730
4.90%, 8/15/16 .......................................................................... 1,285,000 1,252,207
Orange County CFD No. 2003-1 Special Tax, Ladera Ranch, Series A,
4.90%, 8/15/17 .......................................................................... 1,000,000 963,620
5.10%, 8/15/18 .......................................................................... 1,000,000 969,970
Orange County CFD No. 2004-1 Special Tax, Ladera Ranch, Series A,
4.70%, 8/15/18 .......................................................................... 1,765,000 1,624,224
4.80%, 8/15/19 .......................................................................... 1,945,000 1,787,144
4.85%, 8/15/20 .......................................................................... 2,000,000 1,832,880
Orange County CFD No. 86-2 Special Tax, Rancho Santa Margarita, Refunding, Series A,
5.375%, 8/15/12 ......................................................................... 1,500,000 1,504,890
Oroville Hospital Revenue, Oroville Hospital, Series A, California Mortgage Insured, 5.125%,
12/01/12 ................................................................................ 1,435,000 1,436,794
Oxnard Harbor District Revenue, Series A, 5.10%, 8/01/14 ................................... 1,000,000 976,670
Palm Desert Financing Authority Tax Allocation Revenue,
Project Area No. 1, As Amended, Series A, MBIA Insured, 5.00%, 4/01/23 .................. 7,690,000 7,822,806
Refunding, MBIA Insured, 4.75%, 8/01/18 ................................................. 1,050,000 1,070,496
Pomona RDA Tax Allocation, Mountain Meadows Redevelopment Project, Refunding, Series X,
5.35%, 12/01/16 ......................................................................... 1,000,000 1,060,370
Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center, Series A,
5.00%,
7/01/16 ................................................................................. 1,420,000 1,483,715
7/01/21 ................................................................................. 1,695,000 1,710,882
Redlands USD, GO, Election of 2002, FSA Insured, 5.00%, 7/01/19 ............................ 1,000,000 1,045,330
Richmond Joint Powers Financing Authority Revenue, Multiple Redevelopment Projects,
Series B, ETM, 5.35%, 5/15/13 ........................................................... 1,720,000 1,812,209
Riverside County COP, Capital Improvement, Family Law, Refunding, Series A, FGIC Insured,
5.00%,
11/01/18 ................................................................................ 1,540,000 1,589,465
11/01/19 ................................................................................ 1,615,000 1,655,714
Riverside USD, GO, Election of 2001, Series A, FGIC Insured, 4.00%, 2/01/13 ................ 1,000,000 1,009,140
Sacramento City USD, GO, Election of 1999, Series D, FSA Insured, 5.00%, 7/01/19 ........... 1,465,000 1,531,408
Sacramento MUD Financing Authority Revenue, Cosumnes Project, MBIA Insured, 5.00%,
7/01/21 ................................................................................. 3,305,000 3,298,721
Annual Report | 59
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Bernardino County COP, Medical Center Financing Project, Refunding, 6.00%, 8/01/09 ..... $ 1,335,000 $ 1,382,606
San Carlos School District GO, Election of 2005, Series A, MBIA Insured, 5.00%, 10/01/22 ... 3,215,000 3,328,972
San Francisco City and County Airports Commission International Airport Revenue, Issue 34D,
Refunding, Second Series, 5.25%, 5/01/26 ................................................ 5,425,000 5,495,254
San Joaquin County COP,
General Hospital Project, Refunding, MBIA Insured, 5.00%, 9/01/17 ....................... 1,000,000 1,015,490
Solid Waste System Facilities Projects, MBIA Insured, 5.00%, 4/01/17 .................... 1,340,000 1,387,932
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Capital Appreciation,
Refunding, Series A,
5.60%, 1/15/16 .......................................................................... 3,000,000 3,029,280
MBIA Insured, zero cpn., 1/15/26 ........................................................ 19,000,000 6,704,720
San Jose Airport Revenue, Refunding, Series B, AMBAC Insured, 5.00%,
3/01/24 ................................................................................. 3,490,000 3,506,822
3/01/25 ................................................................................. 3,665,000 3,669,874
3/01/26 ................................................................................. 3,850,000 3,836,333
San Jose MFHR, Countrybrook Project, Refunding, Series A, FNMA Insured, 4.95%, 4/01/12 ..... 4,100,000 4,127,060
San Jose RDA Tax Allocation, Merged Area Redevelopment Project, Series B, XLCA Insured,
5.00%, 8/01/26 .......................................................................... 8,000,000 7,831,920
San Marcos Public Facilities Authority Revenue, Senior Tax Increment Project Area 3,
Series A, MBIA Insured,
ETM, 5.10%, 10/01/09 .................................................................... 515,000 532,958
Pre-Refunded, 5.30%, 10/01/11 ........................................................... 350,000 377,227
Sanger USD, GO, Election of 2006, Series A, FSA Insured, 5.00%,
8/01/19 ................................................................................. 1,325,000 1,406,845
8/01/20 ................................................................................. 1,510,000 1,590,604
Santa Ana USD, GO, Election of 1999, Series B, FGIC Insured, zero cpn., 8/01/14 ............ 3,125,000 2,410,094
Santa Clara 1915 Act, Reassessment District 187, Refunding, Series 1, 5.25%, 9/02/11 ....... 1,410,000 1,430,558
Santa Monica-Malibu USD, COP, Series C, MBIA Insured,
4.00%, 5/01/12 .......................................................................... 525,000 532,413
4.25%, 5/01/14 .......................................................................... 840,000 852,482
4.25%, 5/01/15 .......................................................................... 875,000 885,194
4.25%, 11/01/15 ......................................................................... 670,000 677,806
South County Regional Wastewater Authority Revenue, Regional Wastewater Facilities Project,
Refunding, FSA Insured, 3.25%, 8/01/11 .................................................. 1,000,000 1,007,280
South Gate PFA Tax Allocation Revenue, South Gate Redevelopment Project No. 1,
XLCA Insured, 5.00%, 9/01/16 ............................................................ 1,845,000 1,881,107
South Gate PFA Water Revenue, Refunding, Series A, FGIC Insured, 5.45%, 10/01/08 ........... 1,040,000 1,047,103
Southern California Public Power Authority Natural Gas Project Revenue, Project No. 1,
Series A, 5.25%, 11/01/19 ............................................................... 1,500,000 1,503,705
Stockton Revenue, O'Connor Woods Housing Corp., Series A, 5.375%, 11/01/11 ................. 840,000 849,232
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Series B,
ETM, 4.25%, 6/01/09 ..................................................................... 880,000 900,434
ETM, 4.50%, 6/01/11 ..................................................................... 1,540,000 1,604,341
Pre-Refunded, 4.60%, 6/01/12 ............................................................ 1,760,000 1,838,390
Pre-Refunded, 4.70%, 6/01/13 ............................................................ 1,500,000 1,570,965
Pre-Refunded, 4.80%, 6/01/14 ............................................................ 725,000 761,308
Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.10%, 6/01/12 ...... 1,000,000 1,041,620
60 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
University of California Regents Medical Center Pooled Revenue, Series D, 5.00%, 5/15/24 ... $ 7,000,000 $ 7,186,200
University of California Revenues,
Limited Project, Series B, FSA Insured, 5.00%, 5/15/21 .................................. 5,000,000 5,200,550
Multiple Purpose Projects, Series N, FGIC Insured, 4.00%, 9/01/12 ....................... 1,380,000 1,395,484
Vista USD, GO, Election of 2002, Series C, FSA Insured, 5.00%,
8/01/22 ................................................................................. 1,755,000 1,842,434
8/01/25 ................................................................................. 1,395,000 1,448,568
West Contra Costa USD, GO, Series B, FSA Insured, 4.00%, 8/01/12 ........................... 1,875,000 1,926,825
Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital,
ETM, 5.00%, 6/01/11 ..................................................................... 1,060,000 1,117,441
ETM, 5.00%, 6/01/12 ..................................................................... 2,225,000 2,366,866
Pre-Refunded, 5.00%, 6/01/13 ............................................................ 2,335,000 2,504,451
Yucaipa Valley Water District Water System Revenue COP, Series A, MBIA Insured,
5.00%, 9/01/15 .......................................................................... 1,080,000 1,128,805
5.25%, 9/01/20 .......................................................................... 1,325,000 1,382,214
---------------
515,430,127
---------------
U.S. TERRITORIES 2.7%
PUERTO RICO 1.4%
Puerto Rico Commonwealth GO, Public Improvement, FSA Insured, 5.25%, 7/01/16 ............... 2,500,000 2,680,200
Puerto Rico Electric Power Authority Power Revenue, Series WW, 5.375%, 7/01/23 ............. 5,000,000 5,142,100
---------------
7,822,300
---------------
VIRGIN ISLANDS 1.3%
Virgin Islands PFAR, senior lien,
Fund Loan Notes, Refunding, Series A, 5.40%, 10/01/12 ................................... 4,150,000 4,200,506
Refunding, Series A, 5.30%, 10/01/11 .................................................... 1,000,000 1,012,400
Virgin Islands Water and Power Authority Water System Revenue, Refunding, 5.00%,
7/01/09 ................................................................................. 1,500,000 1,533,930
---------------
6,746,836
---------------
TOTAL U.S. TERRITORIES ..................................................................... 14,569,136
---------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $528,192,360) .................... 529,999,263
---------------
SHORT TERM INVESTMENTS 3.5%
MUNICIPAL BONDS 3.5%
CALIFORNIA 3.5%
(b) California Health Facilities Financing Authority Revenue,
Adventist Health, Refunding, Series C, MBIA Insured, Daily VRDN and Put, 7.75%,
9/01/15 ................................................................................. 100,000 100,000
Adventist Hospital, Series A, MBIA Insured, Daily VRDN and Put, 7.75%, 9/01/28 .......... 500,000 500,000
(b) California Infrastructure and Economic Development Bank Revenue, Asian Art Museum
Foundation, MBIA Insured, Daily VRDN and Put, 7.75%, 6/01/34 ............................ 7,400,000 7,400,000
(b) California State Department of Water Resources Power Supply Revenue, Series C-7, FSA
Insured, Weekly VRDN and Put, 1.30%, 5/01/22 ............................................ 2,600,000 2,600,000
(b) California State GO, Series A-3, Daily VRDN and Put, 2.16%, 5/01/33 ........................ 200,000 200,000
(b) East Bay MUD Water System Revenue, Refunding, Sub Series A-3, Weekly VRDN and Put,
1.25%, 6/01/38 .......................................................................... 1,000,000 1,000,000
Annual Report | 61
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------------------------- ---------------- ---------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
(b) Los Angeles Water and Power Revenue, Refunding, Sub Series B-1, Weekly VRDN and Put,
1.30%, 7/01/34 .......................................................................... $ 600,000 $ 600,000
Orange County Recovery COP, Series A, MBIA Insured, ETM, 6.00%, 7/01/08 .................... 1,500,000 1,500,000
(b) Orange County Special Financing Authority Teeter Plan Revenue,
Series D, AMBAC Insured, Weekly VRDN and Put, 7.85%, 11/01/14 ........................... 2,300,000 2,300,000
Series E, AMBAC Insured, Weekly VRDN and Put, 7.85%, 11/01/14 ........................... 2,100,000 2,100,000
(b) Richmond Wastewater Revenue, Refunding, Series B, AMBAC Insured, Weekly VRDN and Put,
7.00%, 8/01/37 .......................................................................... 1,300,000 1,300,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $19,600,000) ............................................ 19,600,000
---------------
TOTAL INVESTMENTS (COST $547,792,360) 99.2% ................................................ 549,599,263
OTHER ASSETS, LESS LIABILITIES 0.8% ........................................................ 4,685,579
---------------
NET ASSETS 100.0% .......................................................................... $ 554,284,842
===============
See Selected Portfolio Abbreviations on page 72.
(a) Security purchased on a when-issued basis. See Note 1(b).
(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.
The accompanying notes are an integral part of these financial statements.
62 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
Year Ended June 30,
---------------------------------------------------
CLASS A 2008 2007 2006 2005 2004(a)
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 9.86 $ 9.80 $ 9.94 $ 9.91 $ 10.00
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................ 0.31 0.27 0.21 0.15 0.11
Net realized and unrealized gains (losses) ...... 0.05 0.06 (0.14) 0.03 (0.10)
------- ------- ------- ------- -------
Total from investment operations ................... 0.36 0.33 0.07 0.18 0.01
------- ------- ------- ------- -------
Less distributions from net investment income ...... (0.28) (0.27) (0.21) (0.15) (0.10)
------- ------- ------- ------- -------
Redemption fees .................................... --(d) -- -- --(d) --
------- ------- ------- ------- -------
Net asset value, end of year ....................... $ 9.94 $ 9.86 $ 9.80 $ 9.94 $ 9.91
======= ======= ======= ======= =======
Total return(e) .................................... 3.64% 3.45% 0.74% 1.81% 0.06%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses before waiver and payments by affiliates .. 1.24% 1.26% 1.10% 1.05% 1.20%
Expenses net of waiver and payments by affiliates .. 0.49% 0.50% 0.50% 0.50% 0.50%
Net investment income .............................. 3.08% 2.74% 2.10% 1.48% 1.30%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $24,883 $12,044 $11,149 $16,318 $16,244
Portfolio turnover rate ............................ 6.55% 17.44% 24.19% 5.43% 7.42%
(a) For the period September 2, 2003 (commencement of operations) to June 30,
2004.
(b) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing
of sales and repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 63
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS 51.6%
CALIFORNIA 41.2%
Alameda-Contra Costa Transit District COP, FHR Computer System Project, 4.00%, 8/01/12 ..... $ 600,000 $ 606,288
Brea and Olinda USD, GO, Election of 1999, Series A, FGIC Insured, 2.60%, 8/01/09 .......... 120,000 120,215
California Educational Facilities Authority Revenue, Santa Clara University, Refunding,
Series A,
FSA Insured, 2.625%, 9/01/09 ............................................................ 100,000 100,804
California Health Facilities Financing Authority Revenue,
Catholic Healthcare West, Series G, 5.00%, 7/01/09 ...................................... 750,000 771,517
Sutter Health, Series A, 5.00%, 8/15/12 ................................................. 1,000,000 1,058,970
California State Economic Recovery GO, Series A,
5.00%, 1/01/09 .......................................................................... 415,000 421,964
5.25%, 7/01/13 .......................................................................... 200,000 216,292
California State GO, Refunding,
5.00%, 4/01/15 .......................................................................... 500,000 532,005
FSA Insured, 5.25%, 2/01/10 ............................................................. 445,000 463,597
California Statewide CDA Revenue, Viewpoint School, Refunding, ACA Insured, 3.50%,
10/01/08 ................................................................................ 320,000 320,304
California Statewide Communities Development Authority PCR, Southern California Education
Co., Mandatory Put 4/01/13, Refunding, Series A, XLCA Insured, 4.10%, 4/01/28 ........... 500,000 483,555
Fontana PFA Lease Revenue, AMBAC Insured, 5.00%, 9/01/14 ................................... 375,000 401,194
Foothill-De Anza Community College District GO, Election of 1999, Series B, 2.60%,
8/01/08 ................................................................................. 100,000 100,073
Glendora PFAR Tax Allocation, Project No. 1, Refunding, Series A, MBIA Insured, 2.125%,
9/01/08 ................................................................................. 105,000 105,014
Hercules RDA Tax Allocation Revenue, Series A, AMBAC Insured, 5.00%, 8/01/14 ............... 500,000 529,215
Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A, 5.00%,
11/15/09 ................................................................................ 400,000 403,924
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Project,
Refunding, Series A, FSA Insured, 4.00%, 10/01/08 ....................................... 500,000 502,780
Lynwood USD, GO, Election of 2002, Series A, FSA Insured, 4.00%, 8/01/10 ................... 100,000 102,751
Manteca USD Special Tax, CFD No. 89-1, AMBAC Insured, 2.50%, 9/01/08 ....................... 250,000 250,262
North Orange County Community College District GO, Election of 2002, Series B, FGIC Insured,
2.125%, 8/01/08 ......................................................................... 500,000 499,970
Poway RDA Tax Allocation, Paguay Redevelopment Project, Series A, MBIA Insured, 3.00%,
6/15/09 ................................................................................. 100,000 100,907
Rio Linda Unified Elementary School District, Election of 2002, Series A, FSA Insured, 4.00%,
8/01/10 ................................................................................. 100,000 102,751
Sacramento Power Authority Cogeneration Project Revenue, Refunding, AMBAC Insured, 4.00%,
7/01/08 ................................................................................. 1,000,000 1,000,000
Santa Clara County Financing Authority Revenue, El Camino, Series B, AMBAC Insured, 5.00%,
2/01/15 ................................................................................. 1,025,000 1,071,074
---------------
10,265,426
---------------
U.S. TERRITORIES 10.4%
GUAM 1.0%
Guam International Airport Authority Revenue, Series A, MBIA Insured, 2.375%, 10/01/08 ..... 250,000 249,465
---------------
PUERTO RICO 9.4%
Puerto Rico Commonwealth GO, Public Improvement, Mandatory Put 7/01/08, Refunding,
Series C, MBIA Insured, 5.00%, 7/01/28 .................................................. 370,000 370,000
Puerto Rico Commonwealth Government Development Bank Revenue, senior notes, Series B,
5.00%, 12/01/08 ......................................................................... 600,000 605,286
64 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Electric Power Authority Power Revenue, Series WW, 5.25%, 7/01/13 .............. $ 1,000,000 $ 1,049,160
Puerto Rico PBA Revenue Guaranteed, Mandatory Put 7/01/17, Refunding, AMBAC Insured,
5.50%, 7/01/35 .......................................................................... 300,000 307,050
---------------
2,331,496
---------------
TOTAL U.S. TERRITORIES ..................................................................... 2,580,961
---------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $12,877,600) ..................... 12,846,387
---------------
SHORT TERM INVESTMENTS 40.0%
MUNICIPAL BONDS 40.0%
CALIFORNIA 40.0%
(a) Anaheim COP, Refunding, Weekly VRDN and Put, 7.75%, 8/01/19 ................................ 300,000 300,000
(a) Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area,
Series A, AMBAC Insured, Weekly VRDN and Put, 5.75%, 4/01/39 ............................ 450,000 450,000
Series B-1, AMBAC Insured, Weekly VRDN and Put, 7.25%, 4/01/45 .......................... 200,000 200,000
Series C, AMBAC Insured, Weekly VRDN and Put, 5.75%, 4/01/45 ............................ 200,000 200,000
(a) California Health Facilities Financing Authority Revenue,
Adventist Health, Refunding, Series C, MBIA Insured, Daily VRDN and Put, 7.75%,
9/01/15 .............................................................................. 300,000 300,000
Adventist Hospital, Series A, MBIA Insured, Daily VRDN and Put, 7.75%, 9/01/28 .......... 300,000 300,000
Adventist Hospital, Series B, MBIA Insured, Daily VRDN and Put, 7.75%, 9/01/28 .......... 200,000 200,000
(a) California HFAR, MFH, Series D, Daily VRDN and Put, 2.85%, 2/01/31 ......................... 655,000 655,000
(a) California State Department of Water Resources Power Supply Revenue,
Series B-4, Daily VRDN and Put, 2.00%, 5/01/22 .......................................... 700,000 700,000
Series B-5, Daily VRDN and Put, 2.16%, 5/01/22 .......................................... 100,000 100,000
(a) California State Economic Recovery Revenue,
Series C-3, Daily VRDN and Put, 2.16%, 7/01/23 .......................................... 200,000 200,000
Series C-16, FSA Insured, Weekly VRDN and Put, 1.25%, 7/01/23 ........................... 200,000 200,000
(a) Irvine 1915 Act Special Assessment,
AD No. 03-19, Series A, Daily VRDN and Put, 1.60%, 9/02/29 .............................. 300,000 300,000
AD No. 93-14, Daily VRDN and Put, 2.14%, 9/02/25 ........................................ 500,000 500,000
(a) Los Angeles Convention and Exhibition Center Authority Lease Revenue, Refunding, Series F,
AMBAC Insured, Weekly VRDN and Put, 7.25%, 8/15/21 ...................................... 500,000 500,000
(a) Los Angeles Water and Power Revenue, Refunding, Sub Series B-1, Weekly VRDN and Put,
1.30%, 7/01/34 .......................................................................... 300,000 300,000
(a) Metropolitan Water District of Southern California Waterworks Revenue,
Authorization, Series B, Weekly VRDN and Put, 1.30%, 7/01/28 ............................ 400,000 400,000
Refunding, Series B-3, Daily VRDN and Put, 2.16%, 7/01/35 ............................... 500,000 500,000
Series B, Weekly VRDN and Put, 1.30%, 7/01/27 ........................................... 200,000 200,000
(a) Orange County Special Financing Authority Teeter Plan Revenue, Series D, AMBAC Insured,
Weekly VRDN and Put, 7.85%, 11/01/14 .................................................... 1,000,000 1,000,000
(a) Oxnard Financing Authority Lease Revenue, Civic Center Phase 2 Project, AMBAC Insured,
Weekly VRDN and Put, 6.00%, 6/01/36 ..................................................... 400,000 400,000
(a) Pasadena COP, City Hall and Park Improvement Projects, AMBAC Insured, Weekly VRDN and Put,
5.00%, 2/01/33 .......................................................................... 1,000,000 1,000,000
Annual Report | 65
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------------------- ---------------- ---------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
(a) San Francisco City and County GO, Laguna Honda Hospital, Series D, MBIA Insured,
Weekly VRDN and Put, 5.00%, 6/15/30 ..................................................... $ 500,000 $ 500,000
(a) Southern California Public Power Authority Power Project Revenue, Palo Verde Project,
Refunding, Series C, AMBAC Insured, Weekly VRDN and Put, 8.00%, 7/01/17 ................. 550,000 550,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $9,955,000) ............................................. 9,955,000
---------------
TOTAL INVESTMENTS (COST $22,832,600) 91.6% ................................................. 22,801,387
---------------
OTHER ASSETS, LESS LIABILITIES 8.4% ........................................................ 2,081,710
---------------
NET ASSETS 100.0% .......................................................................... $ 24,883,097
===============
See Selected Portfolio Abbreviations on page 72.
(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.
The accompanying notes are an integral part of these financial statements.
66 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
YEAR ENDED JUNE 30,
----------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------
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 .. 0.024 0.029 0.023 0.012 0.004
Less distributions from net investment income .............. (0.024) (0.029) (0.023) (0.012) (0.004)
-------- -------- -------- -------- --------
Net asset value, end of year ............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Total return(a) ............................................ 2.43% 2.97% 2.33% 1.20% 0.38%
RATIOS TO AVERAGE NET ASSETS
Expenses ................................................... 0.54% 0.55% 0.55% 0.56% 0.56%
Net investment income ...................................... 2.37% 2.94% 2.30% 1.22% 0.38%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................ $709,264 $658,903 $610,593 $688,121 $631,895
(a) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 67
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- ---------------
MUNICIPAL BONDS 99.1%
CALIFORNIA 94.3%
(a) Antelope Valley-East Kern Water Agency COP, Series A-2, Weekly VRDN and Put, 1.25%, 6/01/37 $ 7,000,000 $ 7,000,000
(a) Butte County Housing Authority MFR, Pine Tree Apartment Project, Weekly VRDN and Put,
1.45%, 12/01/10 ......................................................................... 717,000 717,000
(b) California Communities Note Program Note Participation Revenue, Series A-3, TRAN, 3.00%,
6/30/09 ................................................................................. 15,000,000 15,200,100
(a) California Health Facilities Financing Authority Revenue, Stanford Hospital, Series C,
FSA Insured, Weekly VRDN and Put, 1.35%, 11/15/36 ....................................... 9,000,000 9,000,000
California Infrastructure and Economic Development Bank Revenue, J. Paul Getty Trust,
Mandatory Put 4/01/09, Refunding, Series A1, 1.70%, 10/01/47 ............................ 17,600,000 17,600,000
(a) Series B, Daily VRDN and Put, 1.90%, 4/01/33 ............................................ 800,000 800,000
(a) California PCFA, PCR, Pacific Gas and Electric Co., Refunding, Series C, Daily VRDN and Put,
1.70%, 11/01/26 ......................................................................... 7,500,000 7,500,000
California School Cash Reserve Program Authority COP,
2007-2008 TRAN, Series A, 4.25%, 7/01/08 ................................................ 12,000,000 12,000,000
(b) Series A, 3.00%, 7/06/09 ................................................................ 8,000,000 8,108,080
(a) California State Department of Water Resources Power Supply Revenue,
Series C-4, Weekly VRDN and Put, 1.40%, 5/01/22 ......................................... 5,000,000 5,000,000
Series C-8, Weekly VRDN and Put, 1.20%, 5/01/22 ......................................... 7,600,000 7,600,000
Series C-10, Weekly VRDN and Put, 1.30%, 5/01/22 ........................................ 23,000,000 23,000,000
Series C-12, Weekly VRDN and Put, 1.60%, 5/01/22 ........................................ 18,800,000 18,800,000
Series C-15, Weekly VRDN and Put, 1.20%, 5/01/22 ........................................ 5,000,000 5,000,000
(a) California State Economic Development Financing Authority Revenue, KQED Inc. Project,
Refunding, Weekly VRDN and Put, 1.35%, 4/01/20 .......................................... 810,000 810,000
(a) California State Economic Recovery GO, Series C-1, Daily VRDN and Put, 2.85%, 7/01/23 ...... 1,100,000 1,100,000
(a) California State Economic Recovery Revenue,
Series C-3, Daily VRDN and Put, 2.16%, 7/01/23 .......................................... 400,000 400,000
Series C-11, Weekly VRDN and Put, 1.05%, 7/01/23 ........................................ 4,255,000 4,255,000
California State GO,
(a) Kindergarten-University, Public, Refunding, Series A-6, Weekly VRDN and Put, 1.20%,
5/01/34 .............................................................................. 1,500,000 1,500,000
(a) Kindergarten-University, Public, Refunding, Series B-4, Weekly VRDN and Put, 1.20%,
5/01/34 .............................................................................. 2,100,000 2,100,000
(a) Kindergarten-University, Refunding, Series A-3, Daily VRDN and Put, 2.85%, 5/01/34 ...... 2,500,000 2,500,000
(a) Kindergarten-University, Series A-10, Weekly VRDN and Put, 1.20%, 5/01/34 ............... 2,800,000 2,800,000
Pre-Refunded, 5.10%, 2/01/34 ............................................................ 2,420,000 2,488,688
(a) Series A-1, Daily VRDN and Put, 2.85%, 5/01/33 .......................................... 4,000,000 4,000,000
(a) Series A-3, Daily VRDN and Put, 2.16%, 5/01/33 .......................................... 4,000,000 4,000,000
(a) Series B-1, Weekly VRDN and Put, 1.28%, 5/01/33 ......................................... 5,000,000 5,000,000
(a) Series B-3, Weekly VRDN and Put, 1.35%, 5/01/33 ......................................... 4,600,000 4,600,000
(a) Series C-2, Weekly VRDN and Put, 1.50%, 5/01/33 ......................................... 6,700,000 6,700,000
(a) California Statewide CDA Revenue,
John Muir Health, Refunding, Series A, Asset Guaranteed, Daily VRDN and Put, 1.60%,
8/15/36 .............................................................................. 2,600,000 2,600,000
John Muir Health, Refunding, Series C, Daily VRDN and Put, 1.90%, 8/15/27 ............... 3,800,000 3,800,000
Series A, Assured Guaranty, Weekly VRDN and Put, 1.33%, 3/01/37 ......................... 5,000,000 5,000,000
Sweep Loan Program, Refunding, Series A, Weekly VRDN and Put, 1.29%, 8/01/35 ............ 1,050,000 1,050,000
Touro University Project, Refunding, Weekly VRDN and Put, 1.45%, 9/01/29 ................ 2,000,000 2,000,000
University Retirement Community Project, Daily VRDN and Put, 1.50%, 11/15/38 ............ 1,670,000 1,670,000
68 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
(a) California Transportation Finance Authority Revenue, FSA Insured, Weekly VRDN and Put,
1.32%, 10/01/27 ......................................................................... $ 11,305,000 $ 11,305,000
(a) Calleguas-Las Virgines PFAR, Municipal Water District Project, Refunding, Series A,
Weekly VRDN and Put, 1.25%, 7/01/37 ..................................................... 8,825,000 8,825,000
(a) Carlsbad USD, COP, School Facility Bridge Funding Program, FSA Insured, Weekly VRDN and
Put, 1.80%,
9/01/14 ................................................................................. 400,000 400,000
9/01/23 ................................................................................. 1,900,000 1,900,000
(a) Chico MFMR, Webb Homes Project, Monthly VRDN and Put, 1.65%, 1/01/10 ....................... 545,000 545,000
(a) East Bay MUD Wastewater System Revenue, Refunding, Sub Series A, Weekly VRDN and Put,
1.25%, 6/01/33 .......................................................................... 5,000,000 5,000,000
(a) East Bay MUD Water System Revenue, Refunding, Sub. Series A, FSA Insured, Weekly VRDN and
Put, 1.27%, 6/01/25 ..................................................................... 5,000,000 5,000,000
(a) Fremont PFA, COP, Weekly VRDN and Put, 1.35%, 8/01/30 ...................................... 5,100,000 5,100,000
(a) Grant Joint UHSD, COP, Various Bridge Funding Program, FSA Insured, Weekly VRDN and Put,
1.80%, 7/01/37 .......................................................................... 10,000,000 10,000,000
(a) Hillsborough COP, Refunding, Series A, Weekly VRDN and Put, 1.28%, 6/01/30 ................. 700,000 700,000
Imperial Irrigation District Revenue, TECP, Series A, 1.55%, 10/24/08 ...................... 16,500,000 16,500,000
(a) Irvine 1915 Act, AD No. 94-15, Refunding, Daily VRDN and Put, 1.60%, 9/02/20 ............... 3,799,000 3,799,000
(a) Irvine 1915 Act Special Assessment,
AD No. 00-18, Series A, Daily VRDN and Put, 1.60%, 9/02/26 .............................. 3,027,000 3,027,000
AD No. 03-19, Series A, Daily VRDN and Put, 1.60%, 9/02/29 .............................. 1,274,000 1,274,000
AD No. 03-19, Series B, Daily VRDN and Put, 2.30%, 9/02/29 .............................. 904,000 904,000
AD No. 93-14, Daily VRDN and Put, 2.14%, 9/02/25 ........................................ 1,456,000 1,456,000
AD No. 94-13, Daily VRDN and Put, 1.60%, 9/02/22 ........................................ 1,800,000 1,800,000
AD No. 97-13, Daily VRDN and Put, 1.60%, 9/02/23 ........................................ 4,554,000 4,554,000
(a) Irvine Public Facilities and Infrastructure Authority Lease Revenue, Capital Improvement
Project, Weekly VRDN and Put, 1.31%, 11/01/10 ........................................... 4,950,000 4,950,000
(a) Irvine Ranch Water District COP, Irvine Ranch Water District, Refunding, Daily VRDN and Put,
2.90%, 3/01/32 .......................................................................... 12,000,000 12,000,000
(a) Irvine Ranch Water District GO,
Consolidated ID, Daily VRDN and Put, 2.44%, 6/01/15 ..................................... 2,275,000 2,275,000
District Nos. 105, 140, 240 and 250, Daily VRDN and Put, 2.14%, 1/01/21 ................. 6,500,000 6,500,000
(a) Los Angeles COP, Kadima Hebrew Academy, Series A, Weekly VRDN and Put, 1.35%, 8/01/35 ...... 1,300,000 1,300,000
(b) Los Angeles County TRAN, Series A, 3.00%, 6/30/09 .......................................... 12,000,000 12,167,280
(a) Los Angeles Department of Water and Power Revenue, Refunding, Sub Series B-7, Weekly VRDN
and Put, 1.23%, 7/01/34 ................................................................. 8,000,000 8,000,000
(a) Los Angeles Department of Water and Power Waterworks Revenue,
Refunding, Sub Series B-4, Weekly VRDN and Put, 1.23%, 7/01/35 .......................... 6,650,000 6,650,000
Sub Series B-2, Daily VRDN and Put, 1.60%, 7/01/35 ...................................... 19,550,000 19,550,000
(a) Los Angeles MFR, Casden Project, Series K, Weekly VRDN and Put, 1.35%, 7/01/10 ............. 145,507 145,507
(a) Los Angeles Water and Power Revenue,
Power System, Sub Series A-2, Weekly VRDN and Put, 1.50%, 7/01/35 ....................... 2,050,000 2,050,000
Refunding, Sub Series B-2, Weekly VRDN and Put, 1.20%, 7/01/34 .......................... 1,300,000 1,300,000
Refunding, Sub Series B-3, Daily VRDN and Put, 1.65%, 7/01/34 ........................... 1,100,000 1,100,000
(a) Manhattan Beach COP, Refunding, Weekly VRDN and Put, 1.35%, 8/01/32 ........................ 2,500,000 2,500,000
Annual Report | 69
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
(a) Metropolitan Water District of Southern California Waterworks Revenue,
Refunding, Series A, Weekly VRDN and Put, 1.28%, 7/01/25 ................................ $ 8,660,000 $ 8,660,000
Refunding, Series A-1, Weekly VRDN and Put, 1.20%, 7/01/21 .............................. 3,105,000 3,105,000
Refunding, Series B-1, Daily VRDN and Put, 1.60%, 7/01/35 ............................... 4,450,000 4,450,000
Refunding, Series B-3, Daily VRDN and Put, 2.16%, 7/01/35 ............................... 300,000 300,000
Refunding, Series B-4, Weekly VRDN and Put, 1.26%, 7/01/35 .............................. 7,000,000 7,000,000
Series C, Weekly VRDN and Put, 1.20%, 7/01/28 ........................................... 13,200,000 13,200,000
(a) Monterey Peninsula Water Management District COP, Wastewater Reclamation Project,
Weekly VRDN and Put, 1.50%, 7/01/22 ..................................................... 3,600,000 3,600,000
(a) Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Refunding, Series D,
Weekly VRDN and Put, 1.29%, 12/01/40 .................................................... 15,000,000 15,000,000
(a) Oakland COP, Capital Equipment Project, Weekly VRDN and Put, 1.33%, 12/01/15 ............... 4,800,000 4,800,000
(a) Orange County Apartment Development Revenue, Harbor Pointe, Refunding, Issue D,
Weekly VRDN and Put, 1.31%, 12/01/22 .................................................... 2,500,000 2,500,000
(a) Orange County Sanitation District COP, Refunding,
Series A, Daily VRDN and Put, 1.60%, 8/01/29 ............................................ 8,035,000 8,035,000
Series B, Daily VRDN and Put, 1.60%, 8/01/30 ............................................ 17,900,000 17,900,000
(a) Orange County Water District Revenue COP, Series A, Weekly VRDN and Put, 1.28%,
8/01/41 ................................................................................. 11,700,000 11,700,000
8/01/42 ................................................................................. 1,550,000 1,550,000
(a) Pajaro Valley USD, COP, School Facility Bridge Funding Program, FSA Insured, Weekly VRDN
and Put, 1.90%, 9/01/31 ................................................................. 700,000 700,000
(a) Perris UHSD, COP, School Financing Project, FSA Insured, Weekly VRDN and Put, 1.80%,
9/01/33 ................................................................................. 1,185,000 1,185,000
(a) Pittsburg PFA Water Revenue, Refunding, Weekly VRDN and Put, 1.35%, 6/01/35 ................ 4,900,000 4,900,000
(a) Rancho Water District Financing Authority Revenue, Refunding, Series B, Weekly VRDN and
Put, 1.50%, 8/01/31 ..................................................................... 3,500,000 3,500,000
(a) Riverside County COP, Riverside County Public Facilities, ACES, Series B, Weekly VRDN and
Put, 1.50%, 12/01/15 .................................................................... 3,000,000 3,000,000
Riverside County Teeter Obligation Revenue, TECP, 1.50%, 8/14/08 ........................... 12,900,000 12,900,000
(a) Sacramento County COP, Administration Center and Courthouse Project, Weekly VRDN and Put,
1.32%, 6/01/20 .......................................................................... 13,865,000 13,865,000
Sacramento County GO, TRAN, 4.50%, 7/09/08 ................................................. 10,000,000 10,001,792
(a) Sacramento County Sanitation District Financing Authority Revenue,
Series C, Weekly VRDN and Put, 1.35%, 12/01/30 .......................................... 30,100,000 30,100,000
sub. lien, Sanitation District, Refunding, Series E, Weekly VRDN and Put, 1.25%,
12/01/40 ............................................................................. 3,000,000 3,000,000
(a) Sacramento Suburban Water District COP, Refunding, Series A-2, Weekly VRDN and Put,
1.28%, 11/01/28 ......................................................................... 3,000,000 3,000,000
(a) San Bernardino County Flood Control District Judgment Obligation Revenue, Refunding,
Weekly VRDN and Put, 1.50%, 8/01/37 ..................................................... 2,000,000 2,000,000
(a) San Diego County COP, Weekly VRDN and Put, 1.35%, 11/01/30 ................................. 1,400,000 1,400,000
(a) San Diego County Regional Transportation Commission Sales Tax Revenue, Limited Tax,
Refunding, Series A, Weekly VRDN and Put, 1.25%, 4/01/38 ................................ 1,100,000 1,100,000
(a) San Jose RDAR, Merged Area Redevelopment Project,
Series A, Weekly VRDN and Put, 1.26%, 7/01/26 ........................................... 5,400,000 5,400,000
Series B, Weekly VRDN and Put, 1.20%, 7/01/26 ........................................... 11,500,000 11,500,000
Series B, Weekly VRDN and Put, 1.35%, 8/01/32 ........................................... 1,300,000 1,300,000
70 | Annual Report
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (CONTINUED)
FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- ---------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
(a) Santa Clara County Financing Authority Lease Revenue, Valley Medical Center Facilities
Replacement Project, Series B, Weekly VRDN and Put, 1.35%, 11/15/25 ..................... $ 3,500,000 $ 3,500,000
(a) Santa Clara County Housing Authority MFHR, Benton Park Central Apartments, Refunding,
Series A, Weekly VRDN and Put, 1.31%, 12/15/25 .......................................... 5,000,000 5,000,000
(a) Santa Clara Electric Revenue, Refunding, Sub Series B, Weekly VRDN and Put, 1.28%,
7/01/27 ................................................................................. 2,000,000 2,000,000
(a) South Placer Wastewater Authority Wastewater Revenue, Refunding, Series B, Weekly VRDN
and Put, 1.25%, 11/01/27 ................................................................ 20,000,000 20,000,000
(a) Southern California Public Power Authority Transmission Project Revenue, Southern
Transmission, Refunding,
Series A, FSA Insured, Weekly VRDN and Put, 1.70%, 7/01/23 ........................... 4,000,000 4,000,000
Series B, FSA Insured, Weekly VRDN and Put, 1.28%, 7/01/23 ........................... 6,600,000 6,600,000
(a) Turlock Irrigation District COP, Capital Improvement and Refunding Project, Daily VRDN and
Put,
1.50%, 1/01/31 .......................................................................... 900,000 900,000
Turlock Irrigation District Revenue, TECP, 1.50%, 7/17/08 .................................. 3,000,000 3,000,000
(a) Tustin 1915 Act Special Assessment, Reassessment District No. 95-2, Series A, Daily VRDN
and Put, 1.60%, 9/02/13 ................................................................. 8,669,000 8,669,000
(a) Union City MFR, Housing Mission Sierra, Refunding, Series A, Weekly VRDN and Put, 1.31%,
7/15/29 ................................................................................. 4,500,000 4,500,000
University of California Regents Revenue, TECP, 1.45%, 8/14/08 ............................. 6,900,000 6,900,000
(a) Val Verde USD, COP, Refunding, Series A, Weekly VRDN and Put, 1.35%, 3/01/36 ............... 8,400,000 8,400,000
(a) WateReuse Finance Authority Revenue, FSA Insured, Weekly VRDN and Put, 1.32%,
5/01/28 ................................................................................. 16,670,000 16,670,000
(a) West Basin Municipal Water District Revenue COP, Refunding, Series A-1, Weekly VRDN and
Put, 1.29%, 8/01/27 ..................................................................... 10,000,000 10,000,000
---------------
669,066,447
---------------
U.S. TERRITORY 4.8%
PUERTO RICO 4.8%
Puerto Rico Commonwealth GO, Public Improvement,
Mandatory Put 7/01/08, Refunding, Series C, MBIA Insured, 5.00%, 7/01/28 ................ 5,000,000 5,000,000
(a) Refunding, Series A-3, FSA Insured, Daily VRDN and Put, 1.80%, 7/01/29 .................. 200,000 200,000
(a) Refunding, Series A-4, FSA Insured, Daily VRDN and Put, 1.80%, 7/01/31 .................. 1,000,000 1,000,000
(a) Refunding, Series B, Daily VRDN and Put, 1.80%, 7/01/32 ................................. 10,000,000 10,000,000
(a) Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series A, Weekly VRDN and Put, 1.45%, 7/01/28 ................................ 6,500,000 6,500,000
(a) Puerto Rico Commonwealth Revenue, Refunding, Series A-9, Daily VRDN and Put, 1.32%,
7/01/34 ................................................................................. 11,000,000 11,000,000
---------------
33,700,000
---------------
TOTAL MUNICIPAL BONDS (COST $702,766,447) .................................................. 702,766,447
OTHER ASSETS, LESS LIABILITIES 0.9% ........................................................ 6,497,721
---------------
NET ASSETS 100.0% .......................................................................... $ 709,264,168
===============
See Selected Portfolio Abbreviations on page 72.
(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.
(b) Security purchased on a when-issued basis. See Note 1(b).
The accompanying notes are an integral part of these financial statements.
Annual Report | 71
Franklin California Tax-Free Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2008
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 Security
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 Revenue
ID - Improvement District
MBIA - Municipal Bond Investors Assurance Corp.
MFH - Multi-Family Housing
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PFAR - Public Financing Authority Revenue
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
TECP - Tax-Exempt Commercial Paper
TRAN - Tax and Revenue Anticipation Note
UHSD - Unified/Union High School District
USD - Unified/Union School District
XLCA - XL Capital Assurance
The accompanying notes are an integral part of these financial statements.
72 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2008
FRANKLIN FRANKLIN
FRANKLIN CALIFORNIA 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 .............................................. $2,018,474,195 $547,792,360 $22,832,600 $702,766,447
-------------- ------------ ----------- ------------
Value ............................................. $2,073,161,546 $549,599,263 $22,801,387 $702,766,447
Cash ................................................. 584,260 3,505,383 44,203 45,630,333
Receivables:
Investment securities sold ........................ 2,847,398 -- -- --
Capital shares sold ............................... 2,551,522 2,982,425 2,082,551 1,729,666
Interest .......................................... 29,278,138 7,016,326 196,485 1,487,382
Affiliates ........................................ -- -- 5,852 --
-------------- ------------ ----------- ------------
Total assets ................................... 2,108,422,864 563,103,397 25,130,478 751,613,828
-------------- ------------ ----------- ------------
Liabilities:
Payables:
Investment securities purchased ................... 12,522,878 5,560,913 -- 35,475,460
Capital shares redeemed ........................... 3,755,388 2,262,364 205,569 6,433,086
Affiliates ........................................ 1,350,336 352,961 -- 300,693
Distributions to shareholders ..................... 2,427,730 564,706 15,333 60,415
Professional fees ................................. 62,715 25,067 20,215 26,028
Accrued expenses and other liabilities ............... 123,501 52,544 6,264 53,978
-------------- ------------ ----------- ------------
Total liabilities .............................. 20,242,548 8,818,555 247,381 42,349,660
-------------- ------------ ----------- ------------
Net assets, at value ........................ $2,088,180,316 $554,284,842 $24,883,097 $709,264,168
============== ============ =========== ============
Net assets consist of:
Paid-in capital ...................................... $2,034,834,242 $555,701,514 $25,062,772 $709,295,402
Undistributed net investment income (distributions
in excess of net investment income) ............... (145,237) 287,034 56,127 --
Net unrealized appreciation (depreciation) ........... 54,687,351 1,806,903 (31,213) --
Accumulated net realized gain (loss) ................. (1,196,040) (3,510,609) (204,589) (31,234)
-------------- ------------ ----------- ------------
Net assets, at value ........................ $2,088,180,316 $554,284,842 $24,883,097 $709,264,168
============== ============ =========== ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 73
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2008
FRANKLIN FRANKLIN
FRANKLIN CALIFORNIA 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 ................................. $1,875,898,056 $517,442,612 $24,883,097 $709,264,168
-------------- ------------ ----------- ------------
Shares outstanding ................................... 153,835,823 45,930,974 2,502,337 709,294,725
-------------- ------------ ----------- ------------
Net asset value per share(a) ......................... $ 12.19 $ 11.27 $ 9.94 $ 1.00
-------------- ------------ ----------- ------------
Maximum offering price per share (net asset value
per share / 95.75%, 97.75%, 97.75% and
100%, respectively) ............................... $ 12.73 $ 11.53 $ 10.17 $ 1.00
CLASS B:
Net assets, at value ................................. $ 48,875,169
--------------
Shares outstanding ................................... 3,987,697
--------------
Net asset value and maximum offering price
per share(a) ...................................... $ 12.26
--------------
CLASS C:
Net assets, at value ................................. $ 163,407,091 $ 36,842,230
-------------- ------------
Shares outstanding ................................... 13,262,724 3,262,894
-------------- ------------
Net asset value and maximum offering price
per share(a) ...................................... $ 12.32 $ 11.29
-------------- ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Funds.
The accompanying notes are an integral part of these financial statements.
74 | Annual Report
Franklin California Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended June 30, 2008
FRANKLIN FRANKLIN
FRANKLIN CALIFORNIA 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 ............................................. $101,941,165 $23,399,424 $ 555,086 $20,669,144
------------ ----------- --------- -----------
Expenses:
Management fees (Note 3a) ............................ 9,534,229 2,593,205 77,575 3,441,754
Administrative fees (Note 3b) ........................ -- -- 31,030 --
Distribution fees: (Note 3c)
Class A ........................................... 1,865,778 488,311 22,316 --
Class B ........................................... 348,797 -- -- --
Class C ........................................... 964,122 191,300 -- --
Transfer agent fees (Note 3e) ........................ 539,332 185,742 16,195 268,912
Custodian fees ....................................... 30,788 7,698 215 10,554
Reports to shareholders .............................. 75,098 28,566 2,378 31,687
Registration and filing fees ......................... 11,744 6,196 4,214 5,422
Professional fees .................................... 75,118 29,827 24,379 33,603
Trustees' fees and expenses .......................... 60,687 15,032 410 20,964
Other ................................................ 118,900 64,098 14,769 38,816
------------ ----------- --------- -----------
Total expenses ................................. 13,624,593 3,609,975 193,481 3,851,712
Expenses waived/paid by affiliates (Note 3f) ... -- -- (116,744) --
------------ ----------- --------- -----------
Net expenses ................................ 13,624,593 3,609,975 76,737 3,851,712
------------ ----------- --------- -----------
Net investment income .................... 88,316,572 19,789,449 478,349 16,817,432
------------ ----------- --------- -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............ 1,805,353 (188,726) -- (5,363)
Net change in unrealized appreciation (depreciation)
on investments .................................... (50,951,854) (3,989,373) 43,612 --
------------ ----------- --------- -----------
Net realized and unrealized gain (loss) ................. (49,146,501) (4,178,099) 43,612 (5,363)
------------ ----------- --------- -----------
Net increase (decrease) in net assets resulting
from operations ...................................... $ 39,170,071 $15,611,350 $ 521,961 $16,812,069
------------ ----------- --------- -----------
The accompanying notes are an integral part of these financial statements.
Annual Report | 75
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,
------------------------------- ---------------------------
2008 2007 2008 2007
-------------- -------------- ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 88,316,572 $ 84,814,026 $ 19,789,449 $ 18,092,055
Net realized gain (loss) from investments ........... 1,805,353 479,220 (188,726) (824,806)
Net change in unrealized appreciation
(depreciation) on investments .................... (50,951,854) 6,157,833 (3,989,373) 2,493,355
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ..................... 39,170,071 91,451,079 15,611,350 19,760,604
-------------- -------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A .......................................... (80,334,698) (77,084,097) (18,451,219) (17,341,633)
Class B .......................................... (2,018,683) (2,440,278) -- --
Class C .......................................... (5,492,590) (5,080,702) (949,254) (884,836)
-------------- -------------- ------------ ------------
Total distributions to shareholders .................... (87,845,971) (84,605,077) (19,400,473) (18,226,469)
-------------- -------------- ------------ ------------
Capital share transactions: (Note 2)
Class A .......................................... 109,413,411 53,086,761 62,821,795 (6,879,252)
Class B .......................................... (9,067,886) (10,190,789) -- --
Class C .......................................... 27,534,725 5,455,724 10,074,524 1,795,959
-------------- -------------- ------------ ------------
Total capital share transactions ....................... 127,880,250 48,351,696 72,896,319 (5,083,293)
-------------- -------------- ------------ ------------
Redemption fees ........................................ 14,774 2,737 5,999 2,856
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets ......... 79,219,124 55,200,435 69,113,195 (3,546,302)
Net assets:
Beginning of year ...................................... 2,008,961,192 1,953,760,757 485,171,647 488,717,949
-------------- -------------- ------------ ------------
End of year ............................................ $2,088,180,316 $2,008,961,192 $554,284,842 $485,171,647
============== ============== ============ ============
Undistributed net investment income (distributions in
excess of net investment income) included in net
assets:
End of year ............................................ $ (145,237) $ (243,504) $ 287,034 $ (84,882)
============== ============== ============ ============
The accompanying notes are an integral part of these financial statements.
76 | 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,
------------------------- -----------------------------
2008 2007 2008 2007
----------- ----------- ------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 478,349 $ 301,122 $ 16,817,432 $ 19,267,011
Net realized gain (loss) from investments ........... -- (8,600) (5,363) --
Net change in unrealized appreciation
(depreciation) on investments .................... 43,612 80,065 -- --
----------- ----------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................... 521,961 372,587 16,812,069 19,267,011
----------- ----------- ------------- -------------
Distributions to shareholders from net investment
income .............................................. (426,918) (305,975) (16,817,432) (19,267,011)
Capital share transactions (Note 2) .................... 12,743,732 828,517 50,366,184 48,310,312
----------- ----------- ------------- -------------
Redemption fees ........................................ 1 -- -- --
----------- ----------- ------------- -------------
Net increase (decrease) in net assets ............ 12,838,776 895,129 50,360,821 48,310,312
Net assets:
Beginning of year ...................................... 12,044,321 11,149,192 658,903,347 610,593,035
----------- ----------- ------------- -------------
End of year ............................................ $24,883,097 $12,044,321 $ 709,264,168 $ 658,903,347
=========== =========== ============= =============
Undistributed net investment income included in net assets:
End of year ............................................ $ 56,127 $ 4,696 $ -- $ --
=========== =========== ============= =============
The accompanying notes are an integral part of these financial statements.
Annual Report | 77
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin California Tax-Free Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as a diversified, open-end
investment company, consisting of four funds (Funds). 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.
78 | 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 BASIS
The Funds may purchase securities on a when-issued 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 it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its income and net
realized gains.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of June 30, 2008, and have
determined that no provision for income tax is required in the Funds' financial
statements.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. 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 of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
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 per share
distributions, by class, are generally due to differences in class specific
expenses.
Annual Report | 79
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. INSURANCE
The scheduled payments of interest and principal for each insured municipal
security in the Trust are insured by either a new issue insurance policy or a
secondary insurance policy. Some municipal securities in the Funds are secured
by collateral guaranteed by an agency of the U.S. government. Insurance
companies typically insure municipal bonds that tend to be of very high quality,
with the majority of underlying municipal bonds rated A or better. However,
there is a risk that in the event of an issuer default, the insurer may not be
able to fulfill its obligations under the terms of the policy.
Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security or paid by a third party.
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, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
80 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2008, there were an unlimited number of shares authorized (without
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, 2008
Shares sold ................. 26,443,274 $ 328,888,594 13,016,223 $ 148,492,416
Shares issued in reinvestment
of distributions ......... 3,723,380 46,287,251 1,016,666 11,595,555
Shares redeemed ............. (21,388,540) (265,762,434) (8,527,412) (97,266,176)
----------- ------------- ---------- -------------
Net increase (decrease) ..... 8,778,114 $ 109,413,411 5,505,477 $ 62,821,795
=========== ============= ========== =============
Year ended June 30, 2007
Shares sold ................. 17,455,918 $ 220,629,858 7,640,775 $ 87,751,826
Shares issued in reinvestment
of distributions ......... 3,462,745 43,770,823 934,758 10,732,062
Shares redeemed ............. (16,721,698) (211,313,920) (9,185,930) (105,363,140)
----------- ------------- ---------- -------------
Net increase (decrease) ..... 4,196,965 $ 53,086,761 (610,397) $ (6,879,252)
=========== ============= ========== =============
CLASS B SHARES:
Year ended June 30, 2008
Shares sold ................. 69,936 $ 866,284
Shares issued in reinvestment
of distributions ......... 103,853 1,298,021
Shares redeemed ............. (900,350) (11,232,191)
----------- -------------
Net increase (decrease) ..... (726,561) $ (9,067,886)
=========== =============
Year ended June 30, 2007
Shares sold ................. 7,839 $ 99,798
Shares issued in reinvestment
of distributions ......... 125,167 1,589,956
Shares redeemed ............. (935,605) (11,880,543)
----------- -------------
Net increase (decrease) ..... (802,599) $ (10,190,789)
=========== =============
CLASS C SHARES:
Year ended June 30, 2008
Shares sold ................. 3,725,402 $ 46,696,824 1,323,158 $ 15,093,148
Shares issued in reinvestment
of distributions ......... 264,495 3,320,505 44,836 512,396
Shares redeemed ............. (1,792,999) (22,482,604) (484,788) (5,531,020)
----------- ------------- ---------- -------------
Net increase (decrease) ..... 2,196,898 $ 27,534,725 883,206 $ 10,074,524
=========== ============= ========== =============
Year ended June 30, 2007
Shares sold ................. 2,114,348 $ 27,009,041 687,478 $ 7,915,490
Shares issued in reinvestment
of distributions ......... 232,714 2,969,972 43,530 500,866
Shares redeemed ............. (1,922,826) (24,523,289) (575,151) (6,620,397)
----------- ------------- ---------- -------------
Net increase (decrease) ..... 424,236 $ 5,455,724 155,857 $ 1,795,959
=========== ============= ========== =============
Annual Report | 81
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN CALIFORNIA
LIMITED-TERM FRANKLIN CALIFORNIA
TAX-FREE INCOME FUND TAX-EXEMPT
------------------------- MONEY FUND
SHARES AMOUNT AMOUNT
---------- ------------ -------------------
CLASS A SHARES:
Year ended June 30, 2008
Shares sold ...................................... 2,328,002 $ 23,168,039 $ 671,938,023
Shares issued in reinvestment of distributions ... 25,666 254,869 16,911,703
Shares redeemed .................................. (1,072,790) (10,679,176) (638,483,542)
---------- ------------ -------------
Net increase (decrease) .......................... 1,280,878 $ 12,743,732 $ 50,366,184
========== ============ =============
Year ended June 30, 2007
Shares sold ...................................... 446,382 $ 4,398,181 $ 541,175,032
Shares issued in reinvestment of distributions ... 20,692 203,904 19,212,287
Shares redeemed .................................. (383,029) (3,773,568) (512,077,007)
---------- ------------ -------------
Net increase (decrease) .......................... 84,045 $ 828,517 $ 48,310,312
========== ============ =============
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
Effective January 1, 2008, Franklin California Insured Tax-Free Income Fund and
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 Franklin California Tax-Exempt Money 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
- ---------- ---------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion
82 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES (CONTINUED)
Prior to January 1, 2008, Franklin California Insured Tax-Free Income Fund and
Franklin California Intermediate-Term Tax-Free Income Fund paid fees to Advisers
based on the month-end net assets of each of the funds and Franklin California
Tax-Exempt Money Fund paid fees to Advisers based on the average daily net
assets of the fund as follows:
ANNUALIZED
FEE RATE NET ASSETS
- ---------- ---------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion
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 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.
C. DISTRIBUTION FEES
The Funds' 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 servicing, sale and distribution of each fund's
shares up to the maximum annual plan rate for each class. Under the Class A
reimbursement distribution plans, costs exceeding the maximum for the current
plan year cannot be reimbursed in subsequent periods.
Annual Report | 83
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
In addition, under the funds' compensation distribution plans, the funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- -------------------- --------------------
Reimbursement Plans:
Class A ......... 0.10% 0.10% --
Compensation Plans:
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 CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- --------------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ...... $517,079 $35,172
Contingent deferred sales charges retained .. $106,873 $11,013
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
-------------------- -------------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ...... $6,507 $ --
Contingent deferred sales charges retained .. $5,871 $87,785
E. TRANSFER AGENT FEES
For the year ended June 30, 2008, the Funds paid transfer agent fees as noted in
the Statements 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 .. $320,236 $103,295 $3,217 $175,363
84 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
F. WAIVER AND EXPENSE REIMBURSEMENTS
FT Services and Advisers have agreed in advance to waive all or a portion of
their respective fees and to assume payment of other expenses through October
31, 2008 for Franklin California Limited-Term Tax-Free Income Fund. Total
expenses waived or paid are not subject to reimbursement by the fund subsequent
to the fund's fiscal year end. After October 31, 2008, FT Services and Advisers
may discontinue this waiver at any time upon notice to the fund's Board of
Trustees.
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At June 30, 2008, the capital loss carryforwards were as follows:
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- --------------------
Capital loss carryforwards expiring in:
2009 ............................... $783,847 $ 321,166
2010 ............................... -- 112,465
2011 ............................... -- 145,149
2012 ............................... -- 865,726
2013 ............................... -- 421,949
2015 ............................... -- 1,083,972
2016 ............................... -- 154,257
-------- ----------
$783,847 $3,104,684
======== ==========
FRANKLIN CALIFORNIA
LIMITED-TERM FRANKLIN CALIFORNIA
TAX-FREE TAX-EXEMPT
INCOME FUND MONEY FUND
-------------------- --------------------
Capital loss carryforwards expiring in:
2009 ............................... $ -- $21,840
2012 ............................... -- 2,466
2013 ............................... -- 1,565
2015 ............................... 204,589 --
2016 ............................... -- 5,363
-------- -------
$204,589 $31,234
======== =======
During the year ended June 30, 2008, the Franklin California Insured Tax-Free
Income Fund utilized $1,465,725 of capital loss carryforwards.
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, 2008, Franklin California Insured Tax-Free Income Fund
and Franklin California Intermediate-Term Tax-Free Income Fund deferred realized
capital losses of $359,251 and $405,924, respectively.
Annual Report | 85
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
On June 30, 2008, Franklin California Intermediate-Term Tax-Free Income Fund and
Franklin California Tax-Exempt Money Fund had expired capital loss carryforwards
of $69,184 and $9,293, respectively, which were reclassified to paid-in capital.
The tax character of distributions paid during the years ended June 30, 2008 and
2007, was as follows:
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
INSURED INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Distributions paid from:
tax exempt income ... $87,845,971 $84,605,077 $19,400,473 $18,226,469
=========== =========== =========== ===========
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Distributions paid from:
tax exempt income ... $426,918 $305,975 $16,817,432 $19,267,011
======== ======== =========== ===========
At June 30, 2008, 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 ........................................ $2,017,534,210 $547,754,373
============== ============
Unrealized appreciation .................................... $ 76,386,356 $ 7,110,829
Unrealized depreciation .................................... (20,759,020) (5,265,939)
-------------- ------------
Net unrealized appreciation (depreciation) ................. $ 55,627,336 $ 1,844,890
============== ============
Distributable earnings - undistributed tax exempt income ... $ 1,289,568 $ 813,754
============== ============
FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA
LIMITED-TERM TAX-EXEMPT
TAX-FREE INCOME FUND MONEY FUND
-------------------- --------------------
Cost of investments ........................................ $22,832,600 $702,766,447
=========== ============
Unrealized appreciation .................................... $ 46,527 $ --
Unrealized depreciation .................................... (77,740) --
----------- ------------
Net unrealized appreciation (depreciation) ................. $ (31,213) $ --
=========== ============
Distributable earnings - undistributed tax exempt income ... $ 71,459 $ 60,415
=========== ============
86 | Annual Report
Franklin California Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of bond discounts.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended June 30, 2008, 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 $371,186,105 $181,243,869 $7,926,625
Sales $265,072,596 $116,428,052 $ 565,000
6. CONCENTRATION OF RISK
Each of the Funds invests a large percentage of its total assets in obligations
of issuers within California and U.S. territories. Such concentration may
subject the Funds to risks associated with industrial or regional matters, and
economic, political or legal developments occurring within California and U.S.
territories.
7. NEW ACCOUNTING PRONOUNCEMENT
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Trust believes the adoption of SFAS 157 will have no material impact on its
financial statements.
8. SUBSEQUENT EVENT - UPCOMING ACQUISITIONS/MERGERS
On July 10, 2008, the Board of Trustees for the Franklin California Tax-Free
Trust approved a proposal to merge Franklin California Limited-Term Tax-Free
Income Fund into the Franklin Federal Limited-Term Tax-Free Income Fund, subject
to approval by the shareholders of Franklin California Limited-Term Tax-Free
Income Fund.
Annual Report | 87
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, 2008, 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, 2008 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
August 19, 2008
88 | 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, 2008. A portion of the Funds'
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2009, shareholders will be notified of amounts for use in preparing
their 2008 income tax returns.
Annual Report | 89
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. Generally, each board member
serves 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 143 Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank
holding company) (until 2002); and President, Chief Executive Officer and
Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
ROBERT F. CARLSON (1928) Trustee Since 2007 122 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and past President, Board
of Administration, California Public Employees Retirement Systems (CALPERS)
(1971-January 2008); member and Chairman of the Board, Sutter Community
Hospitals; member, Corporate Board, Blue Shield of California; and Chief
Counsel, California Department of Transportation.
SAM GINN (1937) Trustee Since 2007 122 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC
(wireless company); Chairman of the Board and Chief Executive Officer, AirTouch
Communications (cellular communications) (1993-1998) and Pacific Telesis Groups
(telephone holding company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 2006 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas),
San Mateo, CA 94403-1906 H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to
the President of the United States and Secretary of the Cabinet (1990-1993);
General Counsel to the United States Treasury Department (1989-1990); and
Counselor to the Secretary and Assistant Secretary for Public Affairs and Public
Liaison-United States Treasury Department (1988-1989).
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
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1985 122 Center for Creative Land Recycling
One Franklin Parkway (brownfield 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).
FRANK A. OLSON (1932) Trustee Since 2007 143 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and
San Mateo, CA 94403-1906 Sentient Jet (private jet
service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of
the Board (1980-2000) and Chief Executive Officer (1977-1999); and FORMERLY,
Chairman of the Board, President and Chief Executive Officer, UAL Corporation
(airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 143 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary,
PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines
(aviation) (2003-2005) and Providian Financial Corp. (credit card provider)
(1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting
Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 122 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
January 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private
equity investing); serves on private and non-profit boards; and FORMERLY, Chief
Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000);
Chief Financial Officer and Executive Vice President - Finance and Strategy,
Staples, Inc. (office supplies) (1992-1996); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice
President and Partner, Bain & Company (consulting firm) (1986-1990).
Annual Report | 91
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
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 143 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.; Director, Templeton Worldwide, 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 42 of the investment companies in Franklin
Templeton Investments.
**GREGORY E. JOHNSON (1961) Trustee Since 2007 94 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.;
President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.;
and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies
in Franklin Templeton Investments.
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.
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.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Director of
Compliance, Franklin Resources, Inc. (1994-2001).
92 | 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
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable
One Franklin Parkway Chief Financial 2004, Chief
San Mateo, CA 94403-1906 Officer and Financial Officer
Chief and Chief
Accounting Accounting Officer
Officer since February
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 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) Vice President Since February Not Applicable Not Applicable
500 East Broward Blvd. 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton
Worldwide, Inc.; and officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 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
46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President and President since Not Applicable Not Applicable
One Franklin Parkway Chief 1993 and Chief
San Mateo, CA 94403-1906 Executive 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.; Director, Franklin Advisers, Inc. and Templeton Worldwide, 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 44 of the investment companies in Franklin Templeton
Investments.
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of
30 of the investment companies in Franklin Templeton Investments.
Annual Report | 93
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ --------------- ------------------ ----------------------- ----------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer
of some of the other subsidiaries of Franklin Resources, Inc. and of 46 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) Senior Vice Since February Not Applicable Not Applicable
500 East Broward Blvd. President and 2008
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 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 is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Trust under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
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 HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON 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. WILSON IS AN INDEPENDENT BOARD MEMBER 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.
94 | Annual Report
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, 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
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 material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.
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
Annual Report | 95
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to 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 continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted that such systems and procedures had functioned smoothly during the
Florida hurricanes and blackouts experienced in recent years. 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 and that a portion of such bonus was required to
be invested in a predesignated list of funds within such person's fund
management area so as to be aligned with the interests of Fund shareholders. The
Board also took into account the quality of 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,
the high industry ranking given to the Franklin Templeton website, and the
firsthand experience of the individual Board members 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 2007 and the
previous 10 years ended December 31, 2007, 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 2007 and for the previous three-, five- and 10-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 2007, and for
the previous three-, five- and 10-year periods on an annualized basis was in the
highest quintile of its performance universe. The Board expressed its
satisfaction with such performance.
96 | Annual Report
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND - The Lipper report
for this Fund showed the investment performance of its Class A shares during
2007 and the previous 10 years ended December 31, 2007, in comparison with a
performance universe consisting of all retail and institutional California
intermediate municipal debt funds as selected by Lipper. Such Lipper report
comparison showed that the Fund's income return in 2007 was in the highest
quintile and during each of the previous three-, five- and 10-year periods on an
annualized basis was in either the highest or second-highest quintile of its
performance universe. The Lipper report also showed that the Fund's total return
during 2007 was in the second-highest quintile of its performance universe, and
for each of the previous three-, five- and 10-year periods on an annualized
basis was in the highest or second-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 the four
years ended December 31, 2007, being the first four full years of operations for
this Fund. The Lipper report showed that the Fund's income return throughout
this period was in the lowest quintile of such universe. The Lipper report
showed the Fund's total return during 2007 to be in the second-highest quintile
of its performance universe, with the previous two-year period on an annualized
basis being in the second-lowest quintile of its performance universe and the
previous three- and four-year periods on an annualized basis being in the lowest
quintile of such universe. In explaining such performance, management pointed
out the Fund's objective of investing in higher-quality 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
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 2007 and the 10-year period ended
December 31, 2007, 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
second-lowest quintile of its performance universe during 2007, as well as in
each of the previous three- and 10-year periods on an annualized basis and to be
in the middle quintile for the five-year annualized period. In discussing such
performance, management explained that it reflected the Fund's conservative
approach, noting that it had no derivative holdings or investments in non-rated
or tier 2 securities. The Board found such performance acceptable in view of
such factors, noting that the Fund's annualized returns for all such periods
were in each case within 9 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
Annual Report | 97
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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. In
reviewing comparative costs, emphasis was given to each Fund's contractual
investment management fee in comparison with the contractual investment
management fee rate that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expense ratio of the Fund in comparison with those of such
group. The Lipper contractual investment management fee analysis includes
administrative fees as being part of management fees and total expenses for
comparative consistency were shown by Lipper for Fund Class A shares in the case
of Franklin California Insured Tax-Free Income Fund and California
Intermediate-Term Tax-Free Income Fund. The results of such expense comparisons
showed that the contractual investment management fee rates of Franklin
California Insured Tax-Free Income Fund and Franklin California
Intermediate-Term Tax-Free Income Fund were below the median of their Lipper
expense groups and their actual total expense ratios were the lowest in their
respective Lipper expense groups. 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, which caused actual total expenses to be the lowest in its Lipper
expense group. The Lipper expense comparison for Franklin California Tax-Exempt
Money Fund showed its contractual investment management fee to be within 1 basis
point of its Lipper expense group median, while its actual total expenses were
in the second least expensive quintile of such group and the Board found these
expenses to be acceptable.
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 Fund. 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, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the 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. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for 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
98 | Annual Report
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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
and other regulatory 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. The Board also considered
the extent to which the Manager and its affiliates might derive ancillary
benefits from fund operations, including its interest in a joint venture entity
that financed up-front commissions paid to brokers/dealers who sold fund Class B
shares prior to February 2005 when the offering of such shares was discontinued.
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 Board 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 Board 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 realizing a larger profit margin on
management services provided such a fund. The Board 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 $13.5 million at December 31, 2007, 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 $7.5 billion net asset level.
At December 31, 2007, 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 $516 million and $724 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 agreement for these three Funds provides a sharing of
benefits with each Fund and its shareholders.
Annual Report | 99
Franklin California Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
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.
100 | Annual Report
One Franklin Parkway
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) San Mateo, CA 94403-1906
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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 A2008 08/08
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(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 $122,882 for the fiscal year ended June 30, 2008 and $101,232 for the
fiscal year ended June 30, 2007.
(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.
The aggregate 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 were $0 for the fiscal year ended June
30, 2008 and $46,000 for the fiscal year ended June 30, 2007. The services for
which these fees were paid included tax compliance and advice.
(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 $2,524 for the fiscal year ended June 30, 2008
and $0 for the fiscal year ended June 30, 2007. The services for which these
fees were paid include 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 other than
services reported in paragraphs (a)-(c) of Item 4 were $281,553 for the fiscal
year ended June 30, 2008 and $0 for the fiscal year ended June 30, 2007. The
services for which these fees were paid include review of materials provided to
the fund Board in connection with the investment management contract renewal
process.
(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 $284,077 for the fiscal year ended June 30, 2008 and $46,000 for
the fiscal year ended June 30, 2007.
(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 Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN CALIFORNIA TAX-FREE TRUST
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date August 27, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date August 27, 2008
By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date August 27, 2008