-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QwTW+tS8y8MV8NovyTFKIt7fQmSbrVG06DH5+nPC1szD/R5CRUNwOHtUv9gSwqlh /coNo9GxMMfZlJnViCOFeQ== 0000773478-05-000004.txt : 20050228 0000773478-05-000004.hdr.sgml : 20050228 20050228141359 ACCESSION NUMBER: 0000773478-05-000004 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050228 DATE AS OF CHANGE: 20050228 EFFECTIVENESS DATE: 20050228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN CALIFORNIA TAX FREE TRUST CENTRAL INDEX KEY: 0000773478 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04356 FILM NUMBER: 05644625 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 N-CSRS 1 fctftsemincsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-04356 --------- FRANKLIN CALIFORNIA TAX-FREE TRUST ---------------------------------- (Exact name of registrant as specified in charter) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 (Address of principal executive offices) (Zip code) MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ----------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (650) 312-2000 -------------- Date of fiscal year end: 06/30 ----- Date of reporting period: 12/31/04 -------- ITEM 1. REPORTS TO STOCKHOLDERS. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- DECEMBER 31, 2004 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- SEMIANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? FRANKLIN CALIFORNIA TAX-FREE TRUST Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. - -------------------------------------------------------------------------------- [LOGO](R) FRANKLIN(R) TEMPLETON(R) INVESTMENTS FRANKLIN o Templeton o Mutual Series FRANKLIN TEMPLETON INVESTMENTS GAIN FROM OUR PERSPECTIVE Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups -- Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a driving force in fixed income investing around the globe. They also bring expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with research offices in over 25 countries, they offer investors the broadest global reach in the industry. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among undervalued stocks, arbitrage situations and distressed companies. TRUE DIVERSIFICATION Because our management groups work independently and adhere to distinctly different investment approaches, Franklin, Templeton and Mutual Series funds typically have a low overlap of securities. That's why our funds can be used to build truly diversified portfolios covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable account services that have helped us become one of the most trusted names in financial services. - -------------------------------------------------------------------------------- MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS - -------------------------------------------------------------------------------- [GRAPHIC] Not part of the semiannual report CONTENTS SHAREHOLDER LETTER ....................................................... 1 SPECIAL FEATURE: Understanding Your Tax-Free Income Fund .................................. 4 SEMIANNUAL REPORT State Update and Municipal Bond Market Overview .......................... 7 Franklin California Insured Tax-Free Income Fund ......................... 9 Franklin California Intermediate-Term Tax-Free Income Fund ............... 16 Franklin California Limited-Term Tax-Free Income Fund .................... 23 Franklin California Tax-Exempt Money Fund ................................ 28 Financial Highlights and Statements of Investments ....................... 32 Financial Statements ..................................................... 66 Notes to Financial Statements ............................................ 71 Shareholder Information .................................................. 82 - -------------------------------------------------------------------------------- SHAREHOLDER LETTER Dear Shareholder: During the six-month period ended December 31, 2004, the U.S. economy continued to grow, although somewhat slower than at the beginning of 2004. Growth was supported by low interest rates, benign inflation, improving economic data and positive corporate earnings reports. Counterbalancing these positive factors were record-high oil prices and concerns about U.S. budget deficits and their potential long-term effects on interest rates and economic growth. U.S. bond markets surprisingly posted steady returns when many analysts expected rates to rise and hurt bonds' performance. The 10-year Treasury yield began at a period high of 4.62%. Many analysts forecast higher long-term rates because of inflation fears and the Federal Reserve Board's (Fed's) "measured pace" of raising short-term rates. The Fed raised the federal funds target rate four times during the period, bringing it from 1.25% to 2.25%. However, rising oil prices tempered expectations for strong growth and growth-driven inflation, and the yield on the 10-year Treasury declined to 4.24% at period-end. We continue to believe that inflation still remains relatively tame and that in the near future there is little reason to fear the high inflation and high interest rates we experienced in the 1970s and 1980s. Long-term interest rates are largely - -------------------------------------------------------------------------------- EDELIVERY DETAILS Log in at franklintempleton.com and click on eDelivery. Shareholders who are registered at franklintempleton.com can receive these reports via email. Not all accounts are eligible for eDelivery. - ----------------------------------------------------- NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE - ----------------------------------------------------- Not part of the semiannual report | 1 driven by the market's expectation of inflation. As the economy keeps improving, it is reasonable to expect prices for goods and services to rise. Productivity is still strong by historical standards and there is a perceived slack in the economy that might allow it to grow without exerting large inflationary pressures. While we do agree with most market observers who think rates might be too low given the fundamentals, we do not believe that inflation or interest rates should rise rapidly. The economic environment appears relatively stable, and we expect rates to gradually reach levels typical of this environment. At the same time, we remain mindful of potential inflationary risks posed by the U.S. budget and trade deficits and their effect on the value of the U.S. dollar versus other currencies. A sustained dollar decline would make import prices higher for American consumers, which would contribute to higher inflation, but no one can tell the extent to which the dollar might fall and how effectively the government can reduce the deficits. Oil prices reached a record high in October, but declined to $43 a barrel by period-end. Although there is much discussion about the point at which the price of oil can trigger a recession or stagflation, there is no definite consensus. However, recent supply and demand conditions made it hard to anticipate future oil price movements and what effect, if any, they could have on our economy. We believe that, at recent levels, the price of oil is likely to have a minor, lagging negative effect on economic growth. We also believe that increased oil prices alone will not lead to higher overall inflation. At times of such volatility, we continue to recommend investors consult their financial advisors and review their portfolios to design a strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. Municipal bonds provide tax-free income and diversification from equities. Despite periods of volatility, municipal bonds have a solid long-term record of performance, driven mostly by their income component. In the enclosed semiannual report for Franklin California Tax-Free Trust, the portfolio managers discuss municipal bond market conditions, investment decisions and Fund performance during the period. You can also find specific performance data and financial information about your Fund. Please remember that all securities markets fluctuate, as do mutual fund share prices. If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, read timely commentary from portfolio managers, and find helpful financial planning tools. We hope you will take advantage of these online services. 2 | Not part of the semiannual report We appreciate your confidence in us and encourage you to contact us when you have questions about your Franklin Templeton tax-free investment. Sincerely, /s/ Charles B. Johnson Charles B. Johnson Chairman Franklin California Tax-Free Trust /s/ Sheila Amoroso Sheila Amoroso /s/ Rafael R. Costas Jr. Rafael R. Costas Jr. Senior Vice Presidents and Co-Directors Franklin Municipal Bond Department THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2004. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES CONSIDERED RELIABLE. Not part of the semiannual report | 3 SPECIAL FEATURE UNDERSTANDING YOUR TAX-FREE INCOME FUND -- WHAT CAUSES DIVIDENDS AND FUND PRICES TO FLUCTUATE DID YOU EVER WONDER WHY YOUR TAX-FREE INCOME FUND SHARE PRICE FLUCTUATES? OR WHY THE DIVIDENDS YOU RECEIVE FROM YOUR TAX-FREE INCOME FUND AREN'T ALWAYS THE SAME? AT FRANKLIN TEMPLETON INVESTMENTS, MAXIMIZING TAX-FREE INCOME AND PRESERVING OUR SHAREHOLDERS' CAPITAL ARE OUR TOP PRIORITIES. EVEN SO, CHANGES IN THE ECONOMY AND INTEREST RATES CAN HAVE AN IMPACT ON YOUR FUND'S SHARE PRICE AND DIVIDENDS. BELOW, YOU'LL FIND ANSWERS TO COMMONLY ASKED QUESTIONS ABOUT THE RELATIONSHIP BETWEEN MUNICIPAL BONDS AND INTEREST RATES. UNDERSTANDING WHAT AFFECTS YOUR TAX-FREE INCOME FUND MAY HELP YOU BECOME A MORE EFFECTIVE INVESTOR. Q. WHAT IS THE DIFFERENCE BETWEEN SHORT- AND LONG-TERM INTEREST RATES? A. The Federal Reserve Board controls the Federal funds target rate (Fed funds rate), which in turn influences the market for shorter-term securities. The Fed closely monitors the economy and has the power to raise or lower the Fed funds rate in order to keep inflation in check or to help stimulate the economy. The Fed funds rate is the rate that banks charge other banks for overnight loans. Long-term interest rates, as represented by yields of the 10-year or 30-year Treasury bond, are market-driven and tend to move in anticipation of changes in the economy and inflation. Q. WHAT CAUSES INTEREST RATES TO RISE AND FALL? A. Interest rate trends are primarily determined by economic factors such as inflation, the strength of the U.S. dollar and the pace of economic growth. For example, strong economic growth can lead to inflation. If the Fed becomes concerned about inflation, it may attempt to cool the economy by raising the Fed funds rate, as it did from late June 2004 to December 2004. On the other hand, if the economy slows down, the Fed may lower the Fed funds rate to stimulate economic growth, as we witnessed from January 2001 to June 2003. Over the summer of 2003, and again in spring 2004, long-term interest rates rose from historic lows in response to indications of the beginning of an economic recovery. [GRAPHIC Q&A] - ----------------------------------------------------- NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE - ----------------------------------------------------- 4 | Not part of the semiannual report Q. HOW DO CHANGES IN INTEREST RATES AFFECT BOND PRICES? A. Typically, bond prices move in the opposite direction of interest rates. So, when interest rates rise, bond prices fall, and conversely, when rates decline, bond prices tend to rise in value. When rates go up, newly issued bonds, with their new, higher yields become more attractive than comparable existing bonds with lower yields. So, investors who want to sell their existing bonds have to reduce their prices to make them equally attractive. [GRAPHIC] Generally, tax-free income fund portfolios comprising municipal bonds with longer maturities are more sensitive to changes in long-term interest rates than portfolios with shorter-term municipal bonds. Similarly funds with shorter-term municipal bonds are typically more influenced by short-term rate changes than funds with longer-term municipal bonds. But, while tax-free income fund prices will fluctuate with interest rate changes, it's important to remember that price movement is only part of the picture. As a tax-free income fund investor, you also receive monthly tax-free income(1), which has historically been the largest component of total return for municipal bonds.(2) Total return includes price movement (capital appreciation or depreciation) and income. And since bonds generally pay interest whether prices move up or down, the interest from municipal bonds can help cushion a fund's overall total return, especially when rates are rising. Q. HOW DO INTEREST RATES AFFECT MY TAX-FREE DIVIDENDS? A. When interest rates decline, municipal bond issuers often "call" or redeem existing higher-yielding bonds and replace them with new, lower-yielding bonds to reduce the amount of interest they pay on the debt. As funds then have to reinvest proceeds from the called bonds into new lower-yielding bonds, their investment earnings decline, and the dividends paid out to shareholders also decline. (1) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (2) Source: Lehman Brothers Municipal Bond Index, 12/31/04. Total return includes compounded income and capital appreciation over the 20-year period ending 12/31/04. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. [GRAPHIC Q&A] Not part of the semiannual report | 5 Higher interest rates may lead to higher dividends. When interest rates rise, fewer bonds are called and fund managers may have the opportunity to invest in new, higher-yielding bonds. As a result, the funds' investment earnings can increase, and they are able to pay out higher dividends to shareholders over time. Q. WHAT IS THE BENEFIT OF FRANKLIN'S INVESTMENT APPROACH WHEN INTEREST RATES ARE VOLATILE? A. Since 1977, Franklin has consistently adhered to a strategy of investing for high, current, tax-free income while working to preserve shareholders' capital.(1) Our straightforward, "plain-vanilla" approach to investing means we do not use leverage or invest in speculative derivatives or futures, which could increase the level of risk for our fund portfolios, especially when interest rates are volatile. Similarly, we do not try to time the market and predict interest rate movements. Instead, we carefully select bonds for our fund portfolios that we believe should provide a high level of stable income until maturity. We generally invest in current coupon securities to maximize tax-free income. Over time, as we invest in different interest rate climates, the portfolios become well diversified with a broad range of ()securities. As a result of this strategy, we own many older securities with higher coupons, which are generally less sensitive to interest rate movements and help to provide stability to our fund portfolios. Our tax-free income fund investment strategy cannot eliminate interest rate risk, but it can help to reduce this risk. Q. HOW DO STATE BUDGET DEFICITS AND CREDIT RATING DOWNGRADES AFFECT MY TAX-FREE INCOME FUND? A. Many states have been facing budget challenges, as the recent economic slowdown has had an impact on virtually every tax-related revenue source. As finances for state governments have deteriorated, independent rating agencies have downgraded debt ratings or issued negative outlooks for some states' general obligation debt. Rating downgrades may lead to increased price volatility for certain fund holdings over the short term. However, over the long term, because of our income-focused strategy, lower-rated bonds may also present an attractive investment opportunity. Lower ratings on state debt can translate into higher yields paid to bondholders and potentially higher dividends to shareholders over time. Q. WHAT ARE THE KEY BENEFITS OF INVESTING IN TAX-FREE INCOME FUNDS? A. It's important to remember the reasons to own tax-free income funds don't change when market conditions change. For long-term investors seeking monthly, tax-free income and portfolio diversification, we believe tax-free income funds are an attractive investment option. At Franklin, we will continue to serve our shareholders by seeking to provide a high level of tax-free income consistent with prudent investment management and the preservation of shareholders' capital. [LOGO](R) FRANKLIN(R) TEMPLETON(R) INVESTMENTS 6 | Not part of the semiannual report SEMIANNUAL REPORT STATE UPDATE AND MUNICIPAL BOND MARKET OVERVIEW California's diverse, wealthy economy experienced a trend of moderate economic recovery in private sector employment and personal income growth. The state's natural advantages of location on the Pacific Rim and proximity to population and industry centers, including high technology, trade and entertainment, continued to power the Golden State's economic progress. Southern California showed strong signs of economic and job growth, driven by new defense buildup, healthy travel and tourism and busy port activities. Northern California's economy stabilized with recent indications of a high technology turnaround, but with little job growth during the period. California's unemployment rate was 5.8% in December 2004 while the national average was 5.4%.(1) State finances improved as tax collections for fiscal year 2004 reflected high personal income and sales tax receipts. Through October 2004, tax revenues were about $1 billion ahead of budget. The state averted an immediate liquidity crisis when voters approved $15 billion of deficit-financing bonds in March 2004.(2) The Economic Recovery Bonds allowed the state to fund past, current and future general fund operating deficits and for the time being eliminated immediate liquidity concerns. However, heavy reliance on bond issuance does not address the structural gap between ongoing revenues and expenses, and true fiscal reform such as tax increases and expense cuts may be necessary to hold down future liquidity pressures. Furthermore, a rising debt level that nearly doubled in the last four years is not currently a credit concern but puts California in an above-average level of indebtedness relative to other states. Given the established recovery trend in the state's economy and tax revenues, as well as an improved budgetary and liquidity outlook, independent credit rating agency Standard & Poor's (S&P) assigned California's general obligation bonds an A rating with a stable outlook.(3) However, the state's rating still remained well below the 50-state credit quality averages due to significant ongoing fiscal challenges, plus administrative and legal factors that weaken its financial flexibility compared with other states. (1) Source: Bureau of Labor Statistics. (2) Source: Standard & Poor's, "Research: Summary: California; Tax Secured, General Obligation," RATINGSDIRECT, 12/10/04. (3) This does not indicate Standard & Poor's rating of the Fund. Semiannual Report | 7 Municipal bonds performed well during the six-month reporting period as interest rates generally declined while the financial markets had to digest a presidential election, federal funds target rate increases, record high oil prices, mixed economic releases and the continued war on terrorism. Municipal and Treasury bond yields moved downward: 10- and 30-year Treasury bond yields declined 38 and 46 basis points (100 basis points equal one percent) and 10- and 30-year AAA municipal bond yields, as indicated by Municipal Market Data, declined 43 and 41 basis points.(4) As yields fell, bond prices rose and the Lehman Brothers Municipal Bond Index returned 5.19% for the period under review.(5) Municipal bonds were able to record positive results even though the Federal Reserve Board, responding to strong second quarter 2004 growth in gross domestic product and employment, continued a measured pace of interest rate increases. With four successive 25 basis-point hikes during the reporting period, the federal funds target rate rose from 1.25% to 2.25%. At the same time, employment and economic growth numbers generally did not meet market expectations during the third and fourth quarters. Consequently, bond markets rose and brought intermediate- and long-term yields lower so that the yield curve, which illustrates bond yields from short to long maturities, flattened somewhat during the reporting period. New-issue volume for municipal bonds was relatively large for the calendar year. Municipalities issued more than $358 billion in new debt as overall interest rate levels remained low.(6) Although this figure was down 6.6% from 2003 (a record year), 2004 was the third successive year of more than $300 billion dollars in new issuance.(6) Demand for municipal bonds remained strong as investors sought to reinvest proceeds from a combination of coupon payments, maturities and bond calls. During the reporting period, municipal bonds continued to offer attractive yields relative to comparable taxable fixed income securities, which also assisted in boosting demand from relative value investors who looked for opportunities in the taxable and tax-exempt markets. (4) Source: Thomson Financial. (5) Source: Lehman Brothers Inc. The Lehman Brothers Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. All bonds included have a minimum credit rating of at least Baa. They must have an outstanding par value of at least $5 million and be issued as part of a transaction of at least $50 million. The bonds must be dated after 12/31/90, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates and derivatives are excluded from the index. The index has four main bond sectors: general obligation, revenue, insured and prerefunded. (6) Source: THE BOND BUYER. THIS DISCUSSION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES CONSIDERED RELIABLE. 8 | Semiannual 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 high, current income exempt from federal and California state personal income taxes consistent with prudent investment management and the preservation of capital by investing at least 80% of its total assets in insured securities that pay interest free from such taxes.(1), (2) - -------------------------------------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. - -------------------------------------------------------------------------------- We are pleased to bring you Franklin California Insured Tax-Free Income Fund's semiannual report for the period ended December 31, 2004. PERFORMANCE OVERVIEW Because bond yield and price typically move in opposite directions, as municipal bond yields fell, bond prices rose for the six-month reporting period. The Fund's Class A share price, as measured by net asset value, increased from $12.24 on June 30, 2004, to $12.67 on December 31, 2004. The Fund's Class A shares paid dividends totaling 28.02 cents per share for the same period.(3) The Performance Summary beginning on page 11 shows that at the end of this reporting period the Fund's Class A shares' distribution rate was 4.19%. An investor in the 2004 maximum combined federal and California state personal income tax bracket of 41.05% would need to earn a distribution rate of 7.11% 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. INVESTMENT STRATEGY We use a consistent, disciplined strategy to maximize income for our shareholders by seeking to maintain our exposure to higher coupon securities. We generally employ a buy-and-hold approach and invest in securities that we believe should provide the most relative value in the market. As we invest throughout different interest rate environments, the Fund's portfolio becomes well diversified with a broad range of coupons, calls and maturities. This broad diversification may (1) For investors subject to the alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. (2) The insurance relates only to the payment of principal and interest on the portfolio's insured securities. No representation is made as to any insurer's ability to meet its commitments. (3) Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. 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 35. Semiannual Report | 9 PORTFOLIO BREAKDOWN Franklin California Insured Tax-Free Income Fund 12/31/04 - --------------------------------------------------------------- % OF TOTAL LONG-TERM INVESTMENTS* - --------------------------------------------------------------- General Obligation 19.4% - --------------------------------------------------------------- Transportation 17.5% - --------------------------------------------------------------- Utilities 12.4% - --------------------------------------------------------------- Subject to Government Appropriations 11.6% - --------------------------------------------------------------- Tax-Supported 11.4% - --------------------------------------------------------------- Hospital & Health Care 8.2% - --------------------------------------------------------------- Higher Education 7.1% - --------------------------------------------------------------- Prerefunded 7.1% - --------------------------------------------------------------- Other Revenue 4.6% - --------------------------------------------------------------- Housing 0.7% - --------------------------------------------------------------- * Does not include short-term investments and other net assets. DIVIDEND DISTRIBUTIONS* Franklin California Insured Tax-Free Income Fund 7/1/04-12/31/04 - -------------------------------------------------------------------------------- DIVIDEND PER SHARE --------------------------------------- MONTH CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- July 4.68 cents 4.11 cents 4.09 cents - -------------------------------------------------------------------------------- August 4.68 cents 4.11 cents 4.09 cents - -------------------------------------------------------------------------------- September 4.68 cents 4.11 cents 4.11 cents - -------------------------------------------------------------------------------- October 4.68 cents 4.11 cents 4.11 cents - -------------------------------------------------------------------------------- November 4.68 cents 4.11 cents 4.11 cents - -------------------------------------------------------------------------------- December 4.62 cents 4.02 cents 4.03 cents - -------------------------------------------------------------------------------- TOTAL 28.02 CENTS 24.57 CENTS 24.54 CENTS - -------------------------------------------------------------------------------- * Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. help mitigate interest rate risk. We generally stay fully invested to maximize income distribution. MANAGER'S DISCUSSION The Fund was subject to bond calls during the six months under review as many municipal bond issuers sought to take advantage of lower interest rates and exercised call options on their outstanding higher-coupon bonds issued several years ago. In general, we were limited to reinvesting the proceeds from these bond calls as well as from cash inflows at current, lower interest rates, which tended to reduce the Fund's income and cause dividend distributions to decline slightly, as shown in the dividend distributions table. Our value- oriented philosophy of investing primarily for income, combined with a relatively steep yield curve, favored longer-term bonds. Consistent with our strategy, we sought to remain fully invested in bonds that maintain an average weighted maturity of 15 to 30 years in maturity with good call features. We also maintained our conservative, buy-and-hold investment strategy as we attempted to provide shareholders with high, current, tax-free income. 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 DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 10 | Semiannual Report PERFORMANCE SUMMARY AS OF 12/31/04 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 does not reflect any taxes due on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION - -------------------------------------------------------------------------- CLASS A CHANGE 12/31/04 6/30/04 - -------------------------------------------------------------------------- Net Asset Value (NAV) +$ 0.43 $ 12.67 $ 12.24 - -------------------------------------------------------------------------- DISTRIBUTIONS (7/1/04-12/31/04) - -------------------------------------------------------------------------- Dividend Income $ 0.2802 - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- CLASS B CHANGE 12/31/04 6/30/04 - -------------------------------------------------------------------------- Net Asset Value (NAV) +$ 0.44 $ 12.73 $ 12.29 - -------------------------------------------------------------------------- DISTRIBUTIONS (7/1/04-12/31/04) - -------------------------------------------------------------------------- Dividend Income $ 0.2457 - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- CLASS C CHANGE 12/31/04 6/30/04 - -------------------------------------------------------------------------- Net Asset Value (NAV) +$ 0.44 $ 12.78 $ 12.34 - -------------------------------------------------------------------------- DISTRIBUTIONS (7/1/04-12/31/04) - -------------------------------------------------------------------------- Dividend Income $ 0.2454 - -------------------------------------------------------------------------- Semiannual Report | 11 PERFORMANCE SUMMARY (CONTINUED) PERFORMANCE CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN INCLUDES MAXIMUM SALES CHARGES.
- -------------------------------------------------------------------------------------------------------- CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR - -------------------------------------------------------------------------------------------------------- Cumulative Total Return(1) +5.84% +4.72% +39.42% +87.83% - -------------------------------------------------------------------------------------------------------- Average Annual Total Return(2) +1.37% +0.28% +5.95% +6.05% - -------------------------------------------------------------------------------------------------------- Distribution Rate(3) 4.19% - -------------------------------------------------------------------------------------------------------- Taxable Equivalent Distribution Rate(4) 7.11% - -------------------------------------------------------------------------------------------------------- 30-Day Standardized Yield(5) 3.60% - -------------------------------------------------------------------------------------------------------- Taxable Equivalent Yield(4) 6.11% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (2/1/00) - -------------------------------------------------------------------------------------------------------- Cumulative Total Return(1) +5.61% +4.13% +16.52% +37.34% - -------------------------------------------------------------------------------------------------------- Average Annual Total Return(2) +1.61% +0.13% +4.32% +6.35% - -------------------------------------------------------------------------------------------------------- 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% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/95) - -------------------------------------------------------------------------------------------------------- Cumulative Total Return(1) +5.59% +4.10% +35.62% +66.84% - -------------------------------------------------------------------------------------------------------- Average Annual Total Return(2) +4.59% +3.10% +6.28% +5.44% - -------------------------------------------------------------------------------------------------------- Distribution Rate(3) 3.78% - -------------------------------------------------------------------------------------------------------- Taxable Equivalent Distribution Rate(4) 6.41% - -------------------------------------------------------------------------------------------------------- 30-Day Standardized Yield(5) 3.21% - -------------------------------------------------------------------------------------------------------- Taxable Equivalent Yield(4) 5.44% - --------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236. 12 | Semiannual Report PERFORMANCE SUMMARY (CONTINUED) ENDNOTES MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS; THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. (1) Cumulative total return represents the change in value of an investment over the periods indicated and does not include a sales charge. (2) Average annual total return represents the average annual change in value of an investment over the periods indicated and includes any current, applicable, maximum sales charge. Six-month return has not been annualized. (3) Distribution rate is based on an annualization of the respective class's current monthly dividend and the maximum offering price (NAV for Classes B and C) per share on 12/31/04. (4) Taxable equivalent distribution rate and yield assume the published rates as of 12/23/04 for the maximum combined federal and California state personal income tax bracket of 41.05%, based on the federal income tax rate of 35.00%. (5) Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 12/31/04. Semiannual Report | 13 YOUR FUND'S EXPENSES FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND As a Fund shareholder, you can incur two types of costs: o Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and o Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table below provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period, by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 14 | Semiannual Report YOUR FUND'S EXPENSES (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------- BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING CLASS A VALUE 6/30/04 VALUE 12/31/04 PERIOD* 6/30/04-12/31/04 - ------------------------------------------------------------------------------------------------------- Actual $ 1,000 $ 1,058.40 $ 3.16 - ------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,022.13 $ 3.11 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- CLASS B - ------------------------------------------------------------------------------------------------------- Actual $ 1,000 $ 1,056.10 $ 6.01 - ------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,019.36 $ 5.90 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- CLASS C - ------------------------------------------------------------------------------------------------------- Actual $ 1,000 $ 1,055.90 $ 6.01 - ------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,019.36 $ 5.90 - -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A: 0.61%; B: 1.16%; and C: 1.16%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. Semiannual Report | 15 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 high, current income exempt from federal and California state personal income taxes consistent with prudent investment management and the preservation of capital, by investing at least 80% of its total assets in securities that pay interest free from such taxes and by maintaining a dollar-weighted average portfolio maturity (the time at which the debt must be repaid) of 3 to 10 years.(1) - -------------------------------------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. - -------------------------------------------------------------------------------- CREDIT QUALITY BREAKDOWN* Franklin California Intermediate-Term Tax-Free Income Fund 12/31/04 - -------------------------------------------------------------------------------- % OF TOTAL RATINGS LONG-TERM INVESTMENTS** - -------------------------------------------------------------------------------- AAA 52.5% - -------------------------------------------------------------------------------- AA 5.2% - -------------------------------------------------------------------------------- A 19.1% - -------------------------------------------------------------------------------- BBB 9.6% - -------------------------------------------------------------------------------- Below Investment Grade 0.6% - -------------------------------------------------------------------------------- Not Rated by S&P 13.0% - -------------------------------------------------------------------------------- * Standard & Poor's (S&P) is the primary independent rating agency. Moody's and Fitch are the secondary and tertiary rating agencies. Securities not rated by an independent rating agency are assigned comparable internal ratings. Ratings for securities not rated by S&P are in the table below. ** Does not include short-term investments and other net assets. RATINGS MOODY'S FITCH INTERNAL AAA or Aaa 2.3% -- 1.0% A 0.6% -- 0.5% BBB or Baa 1.2% 0.3% 7.1% - -------------------------------------------------------------- Total 4.1% 0.3% 8.6% - -------------------------------------------------------------------------------- We are pleased to bring you Franklin California Intermediate-Term Tax-Free Income Fund's semiannual report for the period ended December 31, 2004. PERFORMANCE OVERVIEW Because bond yield and price typically move in opposite directions, as municipal bond yields fell, bond prices rose for the six-month reporting period. The Fund's (1) For investors subject to the alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 48. 16 | Semiannual Report Class A share price, as measured by net asset value, increased from $11.36 on June 30, 2004, to $11.65 on December 31, 2004. The Fund's Class A shares paid dividends totaling 21.53 cents per share for the same period.(2) The Performance Summary beginning on page 19 shows that at the end of this reporting period the Fund's Class A shares' distribution rate was 3.55%. An investor in the 2004 maximum combined federal and California state personal income tax bracket of 41.05% would need to earn a distribution rate of 6.02% from a taxable investment to match the Fund's Class A tax-free distribution rate. For the Fund's Class C shares' performance, please see the Performance Summary. INVESTMENT STRATEGY We use a consistent, disciplined strategy to maximize income for our shareholders by seeking to maintain our exposure to higher coupon securities. We generally employ a buy-and-hold approach and invest in securities that we believe should provide the most relative value in the market. As we invest throughout different interest rate environments, the Fund's portfolio becomes well diversified with a broad range of coupons, calls and maturities. This broad diversification may help mitigate interest rate risk. We generally stay fully invested to maximize income distributions. MANAGER'S DISCUSSION The Fund was subject to bond calls during the six months under review as many municipal bond issuers sought to take advantage of lower interest rates and exercised call options on their outstanding higher-coupon bonds issued several years ago. In general, we were limited to reinvesting the proceeds from these bond calls as well as from cash inflows at current, lower interest rates, which tended to reduce the Fund's income and cause dividend distributions to decline slightly, as shown in the dividend distributions table. Consistent with our strategy, we typically look 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. PORTFOLIO BREAKDOWN Franklin California Intermediate-Term Tax-Free Income Fund 12/31/04 - -------------------------------------------------------------------------------- % OF TOTAL LONG-TERM INVESTMENTS* - -------------------------------------------------------------------------------- General Obligation 26.4% - -------------------------------------------------------------------------------- Tax-Supported 18.9% - -------------------------------------------------------------------------------- Hospital & Health Care 13.2% - -------------------------------------------------------------------------------- Subject to Government Appropriations 11.4% - -------------------------------------------------------------------------------- Utilities 10.8% - -------------------------------------------------------------------------------- Prerefunded 6.2% - -------------------------------------------------------------------------------- Other Revenue 5.2% - -------------------------------------------------------------------------------- Transportation 3.6% - -------------------------------------------------------------------------------- Housing 2.7% - -------------------------------------------------------------------------------- Higher Education 1.6% - -------------------------------------------------------------------------------- * Does not include short-term investments and other net assets. (2) Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. Semiannual Report | 17 DIVIDEND DISTRIBUTIONS* Franklin California Intermediate-Term Tax-Free Income Fund 7/1/04-12/31/04 - --------------------------------------------------------------------- DIVIDEND PER SHARE ----------------------------- MONTH CLASS A CLASS C - --------------------------------------------------------------------- July 3.60 cents 3.05 cents - --------------------------------------------------------------------- August 3.60 cents 3.05 cents - --------------------------------------------------------------------- September 3.60 cents 3.07 cents - --------------------------------------------------------------------- October 3.60 cents 3.07 cents - --------------------------------------------------------------------- November 3.60 cents 3.07 cents - --------------------------------------------------------------------- December 3.53 cents 2.99 cents - --------------------------------------------------------------------- TOTAL 21.53 CENTS 18.30 CENTS - --------------------------------------------------------------------- * Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. 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 DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 18 | Semiannual Report PERFORMANCE SUMMARY AS OF 12/31/04 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 does not reflect any taxes due on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION - -------------------------------------------------------------------------- CLASS A CHANGE 12/31/04 6/30/04 - -------------------------------------------------------------------------- Net Asset Value (NAV) +$ 0.29 $ 11.65 $ 11.36 - -------------------------------------------------------------------------- DISTRIBUTIONS (7/1/04-12/31/04) - -------------------------------------------------------------------------- Dividend Income $ 0.2153 - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- CLASS C CHANGE 12/31/04 6/30/04 - -------------------------------------------------------------------------- Net Asset Value (NAV) +$ 0.30 $ 11.67 $ 11.37 - -------------------------------------------------------------------------- DISTRIBUTIONS (7/1/04-12/31/04) - -------------------------------------------------------------------------- Dividend Income $ 0.1830 - -------------------------------------------------------------------------- PERFORMANCE CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN INCLUDES MAXIMUM SALES CHARGES.
- ---------------------------------------------------------------------------------------------------- CLASS A(1) 6-MONTH 1-YEAR 5-YEAR 10-YEAR - ---------------------------------------------------------------------------------------------------- Cumulative Total Return(2) +4.47% +3.97% +33.55% +84.92% - ---------------------------------------------------------------------------------------------------- Average Annual Total Return(3) +2.13% +1.61% +5.47% +6.10% - ---------------------------------------------------------------------------------------------------- Distribution Rate(4) 3.55% - ---------------------------------------------------------------------------------------------------- Taxable Equivalent Distribution Rate(5) 6.02% - ---------------------------------------------------------------------------------------------------- 30-Day Standardized Yield(6) 3.01% - ---------------------------------------------------------------------------------------------------- Taxable Equivalent Yield(5) 5.11% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- CLASS C 6-MONTH 1-YEAR INCEPTION (7/1/03) - ---------------------------------------------------------------------------------------------------- Cumulative Total Return(2) +4.26% +3.39% +4.38% - ---------------------------------------------------------------------------------------------------- Average Annual Total Return(3) +3.26% +2.39% +2.89% - ---------------------------------------------------------------------------------------------------- Distribution Rate(4) 3.07% - ---------------------------------------------------------------------------------------------------- Taxable Equivalent Distribution Rate(5) 5.21% - ---------------------------------------------------------------------------------------------------- 30-Day Standardized Yield(6) 2.50% - ---------------------------------------------------------------------------------------------------- Taxable Equivalent Yield(5) 4.24% - ----------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236. Semiannual Report | 19 PERFORMANCE SUMMARY (CONTINUED) ENDNOTES MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS; THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS 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 and does not include a sales charge. (3) Average annual total return represents the average annual change in value of an investment over the periods indicated and includes any current, applicable, maximum sales charge. Six-month return has not been annualized. (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 12/31/04. (5) Taxable equivalent distribution rate and yield assume the published rates as of 12/23/04 for the maximum combined federal and California state personal income tax bracket of 41.05%, based on the federal income tax rate of 35.00%. (6) Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 12/31/04. 20 | Semiannual Report YOUR FUND'S EXPENSES FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND As a Fund shareholder, you can incur two types of costs: o Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and o Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table below provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period, by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Semiannual Report | 21 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 6/30/04 VALUE 12/31/04 PERIOD* 6/30/04-12/31/04 - --------------------------------------------------------------------------------------------------- Actual $1,000 $1,044.70 $3.45 - --------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,021.83 $3.41 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- CLASS C - --------------------------------------------------------------------------------------------------- Actual $1,000 $1,042.60 $6.28 - --------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.06 $6.21 - ---------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A: 0.67% and C: 1.22%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. 22 | Semiannual Report FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Limited-Term Tax-Free Income Fund seeks to provide high, current income exempt from federal and California personal income taxes consistent with prudent investment management and the preservation of capital, by investing at least 80% of its total assets in securities that pay interest free from such taxes and by maintaining a dollar-weighted average portfolio maturity (the time at which the debt must be repaid) of five years or less.(1) - -------------------------------------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CREDIT QUALITY BREAKDOWN* Franklin California Limited-Term Tax-Free Income Fund Based on Total Long-Term Investments as of 12/31/04** [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] AAA .......................... 70.7% AA ........................... 9.6% A ............................ 5.5% Not Rated by S&P ............. 14.2% * 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 8.5% A 5.7% - ------------------------------------- Total 14.2% - -------------------------------------------------------------------------------- We are pleased to bring you Franklin California Limited-Term Tax-Free Income Fund's semiannual report for the period ended December 31, 2004. PERFORMANCE OVERVIEW Because bond yield and price typically move in opposite directions, as municipal bond yields fell, bond prices rose for the six-month reporting period. The Fund's 1. For investors subject to the alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 57. Semiannual Report | 23 PORTFOLIO BREAKDOWN Franklin California Limited-Term Tax-Free Income Fund 12/31/04 - ---------------------------------------------- % OF TOTAL LONG-TERM INVESTMENT* - ---------------------------------------------- General Obligation 24.3% - ---------------------------------------------- Tax-Supported 22.7% - ---------------------------------------------- Utilities 15.3% - ---------------------------------------------- Subject to Government Appropriations 8.9% - ---------------------------------------------- Transportation 8.8% - ---------------------------------------------- Higher Education 7.5% - ---------------------------------------------- Other Revenue 6.3% - ---------------------------------------------- Hospital & Health Care 6.2% - ---------------------------------------------- * Does not include short-term investments and other net assets. DIVIDEND DISTRIBUTIONS(2) Franklin California Limited-Term Tax-Free Income Fund - Class A 7/1/04-12/31/04 - --------------------------------------------- MONTH DIVIDEND PER SHARE - --------------------------------------------- July 1.17 cents - --------------------------------------------- August 1.17 cents - --------------------------------------------- September 1.17 cents - --------------------------------------------- October 1.17 cents - --------------------------------------------- November 1.17 cents - --------------------------------------------- December 1.22 cents - --------------------------------------------- TOTAL 7.07 CENTS - --------------------------------------------- Class A share price, as measured by net asset value, increased from $9.91 on June 30, 2004, to $9.98 on December 31, 2004. The Fund's Class A shares paid dividends totaling 7.07 cents per share for the same period.(2) The Performance Summary beginning on page 25 also shows that at the end of this reporting period the Fund's Class A shares' distribution rate was 1.47%. An investor in the 2004 maximum combined federal and California state personal income tax bracket of 41.05% would need to earn a distribution rate of 2.49% 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. As we invest throughout different interest rate environments, the Fund's portfolio becomes well diversified with a broad range of coupons, calls and maturities. This broad diversification may help mitigate interest rate risk. We generally stay fully invested to maximize income distribution. MANAGER'S DISCUSSION Consistent with our investment philosophy, 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 on the one- to two-year range in an effort to take advantage of rising yields. As a result of our strategy, the Fund was positioned to capture changes in short-term interest rates, preserve capital and produce tax-free income. Thank you for your participation in Franklin California Limited-Term Tax-Free Income Fund. We look forward to serving your future investment needs. (2) Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 24 | Semiannual Report PERFORMANCE SUMMARY AS OF 12/31/04 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 does not reflect any taxes due on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------------- CLASS A CHANGE 12/31/04 6/30/04 - ----------------------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.07 $9.98 $9.91 - ----------------------------------------------------------------------------------------------- DISTRIBUTIONS (7/1/04-12/31/04) - ----------------------------------------------------------------------------------------------- Dividend Income $0.0707 - -----------------------------------------------------------------------------------------------
PERFORMANCE(1)
- ----------------------------------------------------------------------------------------------- CLASS A 6-MONTH 1-YEAR INCEPTION (9/2/03) - ----------------------------------------------------------------------------------------------- Cumulative Total Return(2) +1.42% +0.78% +1.53% - ----------------------------------------------------------------------------------------------- Average Annual Total Return(3) +1.42% +0.78% +1.15% - ----------------------------------------------------------------------------------------------- Distribution Rate(4) 1.47% - ----------------------------------------------------------------------------------------------- Taxable Equivalent Distribution Rate(5) 2.49% - ----------------------------------------------------------------------------------------------- 30-Day Standardized Yield(6) 1.66% - ----------------------------------------------------------------------------------------------- Taxable Equivalent Yield(5) 2.82% - -----------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236. ENDNOTES MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS; THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC AND REGULATORY CHANGES IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. (1) The Fund's manager has agreed in advance to waive a portion of its management fees. If the manager had not taken this action, the Fund's distribution rate and total return would have been lower, and yield for the period would have been 1.09%. After 3/1/05, the fee waiver may be discontinued at any time upon notice to the Fund's Board of Trustees. (2) Cumulative total return represents the change in value of an investment over the periods indicated. (3) Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized. (4) Distribution rate is based on an annualization of the current 1.22 cent per share monthly dividend and the maximum offering price of $9.98 per share on 12/31/04. (5) Taxable equivalent distribution rate and yield assume the published rates as of 12/23/04 for the maximum combined federal and California state personal income tax bracket of 41.05%, based on the federal income tax rate of 35.00%. (6) Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 12/31/04. Semiannual Report | 25 YOUR FUND'S EXPENSES FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND As a Fund shareholder, you can incur two types of costs: o Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and o Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table below provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period, by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 26 | Semiannual Report YOUR FUND'S EXPENSES (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------- BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING CLASS A VALUE 6/30/04 VALUE 12/31/04 PERIOD* 6/30/04-12/31/04 - ------------------------------------------------------------------------------------------------------- Actual $1,000 $1,014.20 $2.54 - ------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55 - -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers, of 0.50%, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. Semiannual Report | 27 FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California Tax-Exempt Money Fund seeks to provide high, current income exempt from federal and California state personal income taxes consistent with prudent investment management, preservation of capital and liquidity. The Fund's portfolio invests at least 80% of its total assets in short-term municipal debt securities issued in California.(1) The Fund tries to maintain a stable $1.00 share price. - -------------------------------------------------------------------------------- AN INVESTMENT IN THE FUND IS NOT GUARANTEED BY THE U.S. GOVERNMENT OR ANY OTHER ENTITY OR INSTITUTION. 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS 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. - -------------------------------------------------------------------------------- We are pleased to bring you Franklin California Tax-Exempt Money Fund's semiannual report for the period ended December 31, 2004. PERFORMANCE OVERVIEW With rising short-term interest rates, money market portfolio yields climbed during the period. Largely as a result, Franklin California Tax-Exempt Money Fund's seven-day effective yield rose from 0.47% at the beginning of the period to 1.28% on December 31, 2004. INVESTMENT STRATEGY We invest predominantly in high quality, short-term municipal securities whose interest is free from federal income tax and California state personal income tax. Although the Fund tries to invest all of its assets in tax-free securities, it is possible, although not anticipated, that a portion of its assets may be in securities that pay taxable interest, including interest that may be subject to federal alternative minimum tax. We maintain a dollar-weighted average portfolio maturity of 90 days or less. MANAGER'S DISCUSSION During the reporting period, short-term municipal bond yields increased, reflecting the consecutive increases in the federal funds target rate by the Federal Reserve Board. The Bond Market Association Municipal Swap Index, a benchmark for (1) For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 61. 28 | Semiannual Report variable rate securities, which make up a large portion of Franklin California Tax-Exempt Money Fund, averaged a rate of 1.45% for the period under review.(2) During the reporting period, the Fund participated in several deals including California State revenue anticipation notes, San Joaquin County Transportation Authority sales tax revenue commercial paper, Los Angeles Wastewater System revenue mandatory puts and California State 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 Bond Market Association Municipal Swap Index is a weekly high-grade market index composed of 7-day tax-exempt variable rate demand notes produced by the Municipal Market Data Group. Actual issues are selected from Municipal Market Data's database of more than 10,000 active issues based on several specific criteria. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. PORTFOLIO BREAKDOWN 12/31/04 - -------------------------------------------- % OF TOTAL INVESTMENTS - -------------------------------------------- Variable Rate Notes 76.4% - -------------------------------------------- Notes and Bonds 15.3% - -------------------------------------------- Tax-Exempt Commercial Paper 4.8% - -------------------------------------------- Put or Option Tender Bonds 3.5% - -------------------------------------------- PERFORMANCE SUMMARY Franklin California Tax-Exempt Money Fund 12/31/04 - -------------------------------------------- Seven-day effective yield(1) 1.28% - -------------------------------------------- Seven-day annualized yield 1.28% - -------------------------------------------- Taxable equivalent yield(2) 2.16% - -------------------------------------------- (1) Seven-day effective yield assumes the compounding of daily dividends. (2) Taxable equivalent yield assumes the published rates as of 12/23/04 for the maximum combined federal and California state personal income tax bracket of 41.05%, based on the federal income tax rate of 35.00%. Annualized and effective yields are for the seven-day period ended 12/31/04. The Fund's average weighted maturity was 36 days. Yields reflect Fund expenses and fluctuations in interest rates on portfolio investments. PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS 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. Semiannual Report | 29 YOUR FUND'S EXPENSES FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND As a Fund shareholder, you can incur two types of costs: o Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and o Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table below provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period, by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 30 | Semiannual 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 6/30/04 VALUE 12/31/04 PERIOD* 6/30/04-12/31/04 - -------------------------------------------------------------------------------------------------------- Actual $1,000 $1,004.30 $2.83 - -------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.38 $2.85 - --------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 0.56%, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. Semiannual Report | 31 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
--------------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED JUNE 30, CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period $ 12.24 $ 12.83 $ 12.32 $ 12.17 $ 11.76 $ 12.12 --------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .......... .28 .56 .57 .59 .61 .61 Net realized and unrealized gains (losses) ......................... .43 (.59) .51 .15 .40 (.36) --------------------------------------------------------------------------------------- Total from investment operations ... .71 (.03) 1.08 .74 1.01 .25 --------------------------------------------------------------------------------------- Less distributions from: Net investment income ............. (.28) (.56) (.57) (.59) (.60) (.61) Net realized gains ................ -- -- -- -- -- --(e) --------------------------------------------------------------------------------------- Total distributions ................ (.28) (.56) (.57) (.59) (.60) (.61) --------------------------------------------------------------------------------------- Redemption fees .................... --(c) -- -- -- -- -- --------------------------------------------------------------------------------------- Net asset value, end of period ..... $ 12.67 $ 12.24 $ 12.83 $ 12.32 $12.17 $11.76 ======================================================================================= Total return(b) .................... 5.84% (.22)% 8.97% 6.15% 8.73% 2.24% .. RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .. $ 1,760,219 $1,698,669 $1,912,784 $1,789,914 $1,665,581 $1,558,857 Ratios to average net assets: Expenses .......................... .61%(d) .61% .61% .61% .61% .60% Net investment income ............. 4.44%(d) 4.51% 4.50% 4.74% 5.00% 5.24% Portfolio turnover rate ............ 2.56% 12.21% 9.79% 16.99% 10.09% 29.40%
(a) Based on average daily shares outstanding. (b) Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. (c) Amount is less than $.001 per share. (d) Annualized. (e) The fund made a capital gain distribution of $.0016. 32 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND (CONTINUED)
---------------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED JUNE 30, CLASS B (UNAUDITED) 2004 2003 2002 2001 2000(e) ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .. $ 12.29 $ 12.88 $ 12.37 $ 12.21 $ 11.78 $ 11.36 ---------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ............. .25 .50 .50 .53 .54 .23 Net realized and unrealized gains (losses) ............................ .44 (.60) .51 .15 .42 .42 ---------------------------------------------------------------------------------------- Total from investment operations ...... .69 (.10) 1.01 .68 .96 .65 ---------------------------------------------------------------------------------------- Less distributions from net investment income ............................ (.25) (.49) (.50) (.52) (.53) (.23) ---------------------------------------------------------------------------------------- Redemption fees ....................... --(c) -- -- -- -- -- ---------------------------------------------------------------------------------------- Net asset value, end of period ........ $ 12.73 $ 12.29 $ 12.88 $ 12.37 $ 12.21 $ 11.78 ======================================================================================== Total return(b) ....................... 5.61% (.77)% 8.34% 5.62% 8.29% 5.76% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ..... $ 79,351 $ 77,169 $ 85,698 $ 56,303 $ 20,926 $ 1,884 Ratios to average net assets: Expenses ............................. 1.16%(d) 1.16% 1.16% 1.16% 1.16% 1.16%(d) Net investment income ................ 3.89%(d) 3.96% 3.95% 4.20% 4.42% 4.82%(d) Portfolio turnover rate ............... 2.56% 12.21% 9.79% 16.99% 10.09% 29.40%
(a) Based on average daily shares outstanding. (b) Total return does not reflect the contingent deferred sales charge, and is not annualized for periods less than one year. (c) Amount is less than $.001 per share. (d) Annualized. (e) For the period February 1, 2000 (effective date) to June 30, 2000. Semiannual Report | See notes to financial statements. | 33 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND (CONTINUED)
----------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED JUNE 30, CLASS C (UNAUDITED) 2004 2003 2002 2001 2000 ----------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ........ $ 12.34 $ 12.93 $ 12.41 $ 12.26 $ 11.84 $ 12.20 ----------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ................... .25 .50 .50 .53 .54 .55 Net realized and unrealized gains (losses) . .44 (.60) .52 .14 .41 (.36) ----------------------------------------------------------------------------------- Total from investment operations ............ .69 (.10) 1.02 .67 .95 .19 ----------------------------------------------------------------------------------- Less distributions from: Net investment income ...................... (.25) (.49) (.50) (.52) (.53) (.55) Net realized gains ......................... -- -- -- -- -- --(e) ----------------------------------------------------------------------------------- Total distributions ......................... (.25) (.49) (.50) (.52) (.53) (.55) ----------------------------------------------------------------------------------- Redemption fees ............................. --(c) -- -- -- -- -- ----------------------------------------------------------------------------------- Net asset value, end of period .............. $ 12.78 $ 12.34 $ 12.93 $ 12.41 $ 12.26 $ 11.84 =================================================================================== Total return(b) ............................. 5.59% (.78)% 8.39% 5.51% 8.17% 1.66% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ........... $ 125,459 $ 120,610 $136,674 $ 108,802 $ 79,803 $ 67,395 Ratios to average net assets: Expenses ................................... 1.16%(d) 1.16% 1.16% 1.16% 1.16% 1.16% Net investment income ...................... 3.89%(d) 3.96% 3.95% 4.19% 4.45% 4.68% Portfolio turnover rate ..................... 2.56% 12.21% 9.79% 16.99% 10.09% 29.40%
(a) Based on average daily shares outstanding. (b) Total return does not reflect the contingent deferred sales charge, and is not annualized for periods less than one year. (c) Amount is less than $.001 per share. (d) Annualized. (e) The fund made a capital gain distribution of $.0016. 34 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS 97.3% BONDS 88.9% ABAG Finance Authority for Nonprofit Corps. COP, Lincoln Child Center Inc., California Mortgage Insured, 6.125%, 11/01/24 .................. $ 2,055,000 $ 2,256,965 Lytton Gardens Inc., California Mortgage Insured, 6.00%, 2/15/30 .......................... 3,500,000 3,729,390 Odd Fellows Home, California Mortgage Insured, 6.00%, 8/15/24 ............................. 5,000,000 5,330,200 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 5,445,777 Sansum-Santa Barbara, Series A, California Mortgage Insured, 5.60%, 4/01/26 ............... 2,750,000 2,879,552 Alameda Power and Telecommunication Electric System Revenue COP, MBIA Insured, 5.75%, 7/01/30 .................................................................................... 3,305,000 3,634,674 Alhambra City Elementary School District GO, Series A, FSA Insured, 5.60%, 9/01/24 ............ 2,065,000 2,282,279 Alhambra COP, Police Facilities AD No. 91-1, AMBAC Insured, 6.75%, 9/01/23 .................... 10,730,000 10,861,442 Antelope Valley UHSD, GO, Series A, MBIA Insured, 5.00%, 2/01/27 .............................. 5,000,000 5,190,450 Arcata Joint Powers Financing Authority Wastewater Revenue, FSA Insured, 5.80%, 12/01/22 ................................................................................... 1,080,000 1,199,351 Atascadero CDA Tax Allocation, Redevelopment Project, XLCA Insured, 5.00%, 9/01/34 ............ 4,315,000 4,382,443 Baldwin Park California RDA Tax Allocation, Refunding, FSA Insured, 5.70%, 9/01/25 ............ 4,000,000 4,447,960 Beaumont USD, COP, Refunding, Series A, FSA Insured, 5.80%, 1/01/21 ........................... 1,500,000 1,625,550 Brea Olinda USD, GO, Series A, FGIC Insured, 5.60%, 8/01/20 ................................... 1,000,000 1,126,370 Cabrillo Community College District GO, Series C, AMBAC Insured, Pre-Refunded, 5.375%, 5/01/26 .................................................................................... 5,400,000 6,184,728 Calexico USD, CFD No. 1 Special Tax, AMBAC Insured, Pre-Refunded, 5.60%, 9/01/17 .............. 2,930,000 3,241,605 California Community College Financing Authority Lease Revenue, Grossmont Palomar and Shasta, Series A, MBIA Insured, 5.125%, 4/01/31 ............................................ 3,030,000 3,152,685 California Educational Facilities Authority Revenue, Pomona College, Series B, 5.50%, 7/01/29 .................................................. 4,455,000 4,753,039 Stanford University, Refunding, Series O, 5.125%, 1/01/31 ................................. 24,705,000 25,435,527 Stanford University, Series N, 5.25%, 12/01/26 ............................................ 6,450,000 6,768,049 Stanford University, Series N, 5.35%, 6/01/27 ............................................. 21,250,000 22,440,000 Stanford University, Series N, 5.20%, 12/01/27 ............................................ 6,000,000 6,277,500 Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16 .............................. 2,060,000 2,172,311 University of Southern California, Refunding, Series C, 5.125%, 10/01/28 .................. 3,845,000 3,967,156 California Health Facilities Financing Authority Revenue, Catholic Healthcare West, Refunding, Series A, MBIA Insured, 6.00%, 7/01/17 ............... 5,000,000 5,346,750 Catholic Healthcare West, Series A, 5.00%, 7/01/28 ........................................ 15,000,000 14,655,450 Catholic Healthcare West, Refunding, ACA Insured, 5.00%, 7/01/28 .......................... 10,000,000 10,018,900 Community Health Facilities, Series A, California Mortgage Insured, 5.80%, 8/01/25 ........ 1,190,000 1,275,073 Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 .......................................... 15,400,000 15,928,990 Kaiser Permanente, Series B, ETM, 5.00%, 10/01/18 ......................................... 5,000,000 5,279,100 Kaiser Permanente, Series B, ETM, 5.00%, 10/01/20 ......................................... 4,000,000 4,194,640 Marshall Hospital, Series A, California Mortgage Insured, 5.30%, 11/01/28 ................. 3,325,000 3,417,701 Northern California Presbyterian, 5.40%, 7/01/28 .......................................... 5,000,000 5,031,500 Orange County Health Facility, Series A, California Mortgage Insured, 6.20%, 11/01/24 ................................................................................ 3,435,000 3,754,970 Scripps Memorial Hospital, Series A, MBIA Insured, 6.40%, 10/01/12 ........................ 3,500,000 3,535,735 Senior Living, Aldersly, Series A, California Mortgage Insured, 5.25%, 3/01/32 ............ 2,000,000 2,046,460 Sutter Health, Series A, MBIA Insured, 5.00%, 8/15/19 ..................................... 1,700,000 1,795,540 Sutter Health, Series A, MBIA Insured, 5.00%, 8/15/38 ..................................... 4,000,000 4,069,600 The Help Group, California Mortgage Insured, 5.40%, 8/01/22 ............................... 5,000,000 5,259,650
Semiannual Report | 35 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Health Facilities Financing Authority Revenue, (cont.) True to Life Children's Services, Series A, California Mortgage Insured, 5.625%, 9/01/25 ................................................................................. $ 1,250,000 $ 1,333,375 UCSF-Stanford Health Care, Series A, FSA Insured, 5.00%, 11/15/28 ......................... 9,530,000 9,824,763 California Infrastructure and Economic Development Bank Revenue, Bay Area Toll Bridges, first lien, Series A, AMBAC Insured, 5.00%, 7/01/33 ........................................ 8,460,000 8,725,559 California PCFA, PCR, Southern California Edison Co., Series C, MBIA Insured, 5.55%, 9/01/31 .................................................................................... 4,800,000 5,040,048 California Public School District Financing Authority Lease Revenue, Southern Kern USD, Series B, FSA Insured, ETM, 5.90%, 9/01/26 ................................................. 1,615,000 1,923,287 California State Department of Water Resources Central Valley Project Revenue, Water System, Refunding, Series Q, MBIA Insured, 5.375%, 12/01/27 ........................................ 1,000,000 1,040,170 California State Department of Water Resources Water Revenue, Series W, FSA Insured, 5.125%, 12/01/29 ........................................................................... 5,000,000 5,180,500 California State GO, 5.00%, 10/01/27 ........................................................................... 30,790,000 31,228,450 AMBAC Insured, 6.30%, 9/01/06 ............................................................. 9,000,000 9,602,460 FSA Insured, 5.50%, 9/01/29 ............................................................... 34,500,000 36,993,660 MBIA Insured, 6.00%, 8/01/16 .............................................................. 210,000 214,788 MBIA Insured, 6.00%, 10/01/21 ............................................................. 65,000 65,603 MBIA Insured, 5.00%, 8/01/29 .............................................................. 20,250,000 20,783,587 Refunding, 5.125%, 6/01/31 ................................................................ 25,000,000 25,594,500 Refunding, FGIC Insured, 5.375%, 6/01/26 .................................................. 5,000,000 5,151,250 California State Local Government Finance Authority Revenue, Marin Valley Mobile Country Club Park Acquisition, Senior Series A, FSA Insured, 5.80%, 10/01/20 ....................... 4,275,000 4,753,757 California State Public Works Board Lease Revenue, Department of Mental Health Hospital, Series A, AMBAC Insured, 5.00%, 12/01/21 .................................................................................. 4,100,000 4,353,954 12/01/26 .................................................................................. 5,675,000 5,860,062 California State University Foundation Revenue, Monterey Bay, MBIA Insured, 5.35%, 6/01/31 .................................................................................... 2,000,000 2,117,560 California State University Fresno Auxiliary Residence Student Project Revenue, MBIA Insured, Pre-Refunded, 6.25%, 2/01/17 ............................................................... 1,500,000 1,519,860 California State University of Los Angeles Auxiliary Services Inc. Revenue, MBIA Insured, 5.125%, 6/01/33 ............................................................................ 3,200,000 3,290,368 California State University Revenue and Colleges, Systemwide, Series A, AMBAC Insured, 5.00%, 11/01/33 ............................................................................ 22,000,000 22,513,260 California Statewide CDA Revenue COP, John Muir/Mt. Diablo Health System, MBIA Insured, 5.125%, 8/15/22 ............................................................................ 5,000,000 5,260,050 California Statewide CDA Revenue, Brentwood School, Series A, FSA Insured, 5.25%, 10/01/29 .................................. 7,625,000 8,015,857 Hospital Monterey Peninsula, Series B, FSA Insured, 5.25%, 6/01/23 ........................ 2,000,000 2,151,760 Refunding, California Mortgage Insured, 5.00%, 8/01/21 .................................... 2,035,000 2,127,267 California Statewide CDA Water and Wastewater Revenue, Pooled Financing Program, Series A, FSA Insured, 5.00%, 10/01/32 .................................................... 9,320,000 9,572,013 Series B, FSA Insured, 5.65%, 10/01/26 .................................................... 3,420,000 3,769,456 Series B, FSA Insured, 5.75%, 10/01/29 .................................................... 1,465,000 1,607,398
36 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California Statewide CDA, COP, California Mortgage Insured, 5.75%, 8/01/21 .......................................... $ 9,585,000 $ 10,445,254 COP, Children's Hospital, Los Angeles, 5.25%, 8/15/29 ..................................... 12,250,000 12,516,682 COP, FSA Insured, 5.50%, 8/15/31 .......................................................... 7,000,000 7,545,230 COP, Kaiser Permanente, ETM, 5.30%, 12/01/15 .............................................. 9,700,000 10,370,561 COP, MBIA Insured, 5.00%, 4/01/18 ......................................................... 3,000,000 3,166,140 MFR, Silver Ridge Apartments, Series H, FNMA Insured, 5.80%, 8/01/33 ...................... 2,785,000 2,984,712 Cambria Community Services District Water and Wastewater Revenue, Refunding, Series A, MBIA Insured, 6.00%, 5/01/15 ............................................................... 1,330,000 1,371,682 Campbell USD, GO, FSA Insured, 5.00%, 8/01/27 ................................................. 7,150,000 7,408,830 Castaic Lake Water Agency Revenue COP, Series A, MBIA Insured, 5.00%, 8/01/29 ................. 8,000,000 8,220,240 Chaffey Community College District GO, Series A, FSA Insured, 5.00%, 7/01/27 .................. 5,750,000 5,967,407 Chico PFAR, Merged Redevelopment Project Area, MBIA Insured, 5.125%, 4/01/24 .................. 2,790,000 2,946,100 Chino Basin Regional Financing Authority Revenue, Municipal Water District, Sewer System Project, Refunding, AMBAC Insured, 6.00%, 8/01/16 .......................................... 2,000,000 2,046,460 Chula Vista Elementary School District GO, Election of 1998, Series F, MBIA Insured, 5.00%, 8/01/28 .................................................................................... 2,685,000 2,786,278 Chula Vista PFA Local Agency Revenue, Series 1995-A, FSA Insured, 6.125%, 9/02/14 ............. 3,785,000 3,988,709 Clovis PFAR, 2001 Corp. Yard Project, AMBAC Insured, 5.00%, 3/01/27 ........................... 3,265,000 3,361,709 Compton USD, GO, Election of 2002, Series B, MBIA Insured, 5.00%, 6/01/29 ..................... 2,000,000 2,069,700 Contra Costa Mosquito Abatement District COP, Public Improvements Project, Refunding, FSA Insured, 6.25%, 2/01/06 ................................................................ 560,000 561,686 Corona-Norco USD, COP, Refunding, FSA Insured, 5.125%, 4/15/25 ................................................................................... 5,355,000 5,574,073 4/15/29 ................................................................................... 2,540,000 2,618,486 Coronado CDA Tax Allocation, Community Development Project, MBIA Insured, 5.375%, 9/01/26 .................................................................................... 2,700,000 2,925,396 Cucamonga County Water District COP, FGIC Insured, 5.00%, 9/01/29 ............................. 5,070,000 5,219,109 Culver City USD, GO, MBIA Insured, 5.125%, 8/01/37 ........................................................................... 650,000 670,937 5.20%, 8/01/38 ............................................................................ 3,285,000 3,403,654 Delano USD, COP, Refinancing Project, MBIA Insured, 5.125%, 1/01/22 ........................... 1,620,000 1,821,755 East Bay MUD Water System Revenue, Refunding, MBIA Insured, 5.00%, 6/01/26 .................... 14,000,000 14,503,440 El Dorado County Public Agency Financing Authority Revenue, FGIC Insured, 5.50%, 2/15/16 ................................................................................... 2,250,000 2,380,320 2/15/21 ................................................................................... 3,500,000 3,702,720 El Monte Water Authority Revenue, Water System Project, AMBAC Insured, 5.60%, 9/01/34 .................................................................................... 1,800,000 1,992,816 Escondido Joint Powers Financing Authority Lease Revenue, AMBAC Insured, 5.125%, 9/01/30 .................................................................................... 3,770,000 3,890,075 Escondido USD, GO, Series A, FSA Insured, 5.00%, 8/01/26 ...................................... 11,665,000 12,111,186 Eureka USD, GO, FSA Insured, 5.00%, 8/01/25 ................................................... 4,145,000 4,341,970 Fairfield Suisun USD, GO, Election of 2002, MBIA Insured, 5.00%, 8/01/25 ............................................ 4,185,000 4,402,704 MBIA Insured, 5.00%, 8/01/27 .............................................................. 12,000,000 12,457,080 Florin Resource Conservation District COP, Elk Grove Water Service, Refunding, Series A, MBIA Insured, 5.00%, 3/01/33 ............................................................... 5,000,000 5,118,950
Semiannual Report | 37 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Folsom COP, Central Business District Fire Station, MBIA Insured, 5.125%, 10/01/26 ............ $ 2,030,000 $ 2,140,209 Foothill/Eastern Corridor Agency Toll Road Revenue, senior lien, Refunding, Series A, MBIA Insured, 5.00%, 1/01/35 ............................................................... 66,735,000 67,645,265 Franklin-McKinley School District COP, Financing Project, Series A, AMBAC Insured, 5.125%, 9/01/27 .................................................................................... 2,765,000 2,901,757 Fremont UHSD Santa Clara County GO, Series C, FSA Insured, 5.00%, 9/01/26 ..................... 10,000,000 10,385,800 Fresno USD, GO, Refunding, Series B, MBIA Insured, 5.00%, 2/01/21 .................................................... 2,860,000 3,150,061 Series C, MBIA Insured, 5.90%, 2/01/20 .................................................... 2,065,000 2,487,540 Series C, MBIA Insured, 5.90%, 8/01/22 .................................................... 3,000,000 3,629,220 Fullerton University Foundation Auxiliary Organization Revenue, Series A, MBIA Insured, 5.75%, 7/01/25 ................................................................................... 1,250,000 1,396,350 7/01/30 ................................................................................... 1,000,000 1,102,350 Glendale USD, GO, Series C, FSA Insured, 5.50%, 9/01/24 ....................................... 2,750,000 2,996,510 Glendora PFAR, Tax Allocation, Project No. 1, Series A, MBIA Insured, 5.00%, 9/01/24 .......... 5,000,000 5,243,100 Grant Joint UHSD, GO, FSA Insured, 5.00%, 8/01/26 ............................................. 5,235,000 5,457,121 Grossmont UHSD, COP, FSA Insured, Pre-Refunded, 5.75%, 9/01/26 ................................ 2,250,000 2,558,565 Hemet USD, COP, Nutrition Center Project, FSA Insured, 5.875%, 4/01/27 ........................ 1,250,000 1,364,900 Hercules COP, Capital Improvement Projects, Refunding, AMBAC Insured, 6.00%, 6/01/15 .................................................................................... 125,000 126,653 Hollister RDA Tax Allocation, Community Development Project, Refunding, AMBAC Insured, 5.125%, 10/01/32 ........................................................................... 19,815,000 20,555,288 Huntington Beach City School District COP, MBIA Insured, 5.25%, 7/01/29 ....................... 1,795,000 1,899,882 Jefferson San Mateo County UHSD, GO, Refunding, Series A, MBIA Insured, 6.45%, 8/01/25 ................................................................................... 3,045,000 3,932,831 8/01/29 ................................................................................... 3,075,000 3,955,465 Jurupa Community Services District Special Tax, CFD No. 2, Series A, AMBAC Insured, 5.00%, 9/01/32 ............................................................................. 7,000,000 7,164,920 Jurupa USD, COP, FSA Insured, 5.625%, 9/01/24 ................................................. 1,600,000 1,783,776 Kern Community College District COP, Refunding, MBIA Insured, 5.00%, 1/01/25 .................. 7,800,000 8,152,794 Kern County High School District GO, FSA Insured, ETM, 6.625%, 8/01/14 ................................................................................... 1,535,000 1,927,960 8/01/15 ................................................................................... 1,400,000 1,772,428 Lakewood PFA Water Revenue, FGIC Insured, Pre-Refunded, 5.70%, 4/01/16 ........................ 2,485,000 2,558,059 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 5,925,150 Lodi COP, Wastewater Treatment Project, Refunding, AMBAC Insured, 6.70%, 8/01/26 .............. 8,800,000 9,533,920 Lodi Electric System Revenue COP, Series A, MBIA Insured, Pre-Refunded, 5.50%, 1/15/32 .................................................................................... 4,000,000 4,512,960 Lodi USD, GO, MBIA Insured, 5.00%, 8/01/23 .................................................... 2,150,000 2,267,648 Long Beach Bond Finance Authority Lease Revenue, Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/19 .................. 4,000,000 4,281,920 Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.00%, 11/01/26 .................. 11,000,000 11,432,190 Aquarium of The South Pacific, Refunding, AMBAC Insured, 5.25%, 11/01/30 .................. 2,000,000 2,107,300 Public Safety Facilities Projects, AMBAC Insured, 5.00%, 11/01/26 ......................... 6,780,000 7,023,673 Public Safety Facilities Projects, AMBAC Insured, 5.00%, 11/01/31 ......................... 10,500,000 10,758,720
38 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Long Beach Bond Finance Authority Tax Allocation Revenue, North Long Beach Redevelopment Projects, Series A, AMBAC Insured, 5.00%, 8/01/25 ................................................................................... $ 13,550,000 $ 14,086,038 8/01/31 ................................................................................... 12,000,000 12,288,120 Long Beach Harbor Revenue, MBIA Insured, 5.25%, 5/15/25 ....................................... 25,000,000 25,582,750 Long Beach University School District GO, Election of 1999, Series C, MBIA Insured, 5.125%, 8/01/31 ............................................................................ 13,870,000 14,368,627 Los Angeles Community College District GO, Series A, MBIA Insured, 5.00%, 6/01/26 .................................................... 4,000,000 4,147,120 Series B, FSA Insured, 5.00%, 8/01/27 ..................................................... 4,000,000 4,152,360 Los Angeles COP, Municipal Improvement Corp. MICLA AW, AMBAC Insured, 5.00%, 6/01/27 ....................... 5,895,000 6,115,886 Real Property Program, MBIA Insured, 5.00%, 2/01/27 ....................................... 9,890,000 10,210,535 Los Angeles County COP, Antelope Valley Courthouse, Series A, AMBAC Insured, 5.25%, 11/01/27 .................................................................................. 2,500,000 2,630,225 11/01/33 .................................................................................. 2,500,000 2,613,175 Los Angeles County MTA Sales Tax Revenue, Proposition A, First Tier, Refunding, Senior Series A, MBIA Insured, 5.25%, 7/01/27 ..................................................... 27,870,000 28,953,307 Los Angeles Harbor Department Revenue, Series B, MBIA Insured, 6.20%, 8/01/25 ................. 2,500,000 2,646,950 Los Angeles Mortgage Revenue, Refunding, Series I, MBIA Insured, 6.50%, 7/01/22 ............... 820,000 836,638 Los Angeles Wastewater System Revenue, Refunding, MBIA, Insured, 5.00%, 6/01/26 ............... 10,000,000 10,417,400 Los Angeles Water and Power Revenue, Power System, Refunding, Series A, MBIA Insured, 5.00%, 7/01/24 ............................................................................. 12,000,000 12,581,640 Lynwood PFA Tax Allocation, Project Area A, Series A, FSA Insured, 5.85%, 9/01/18 ............. 1,765,000 2,035,627 Lynwood PFA Water Revenue, Water System Improvement Project, MBIA Insured, 5.85%, 6/01/22 ............................................................................ 665,000 750,539 5.90%, 6/01/29 ............................................................................ 3,105,000 3,438,694 Marin Municipal Water District COP, Financing Project, AMBAC Insured, 5.00%, 7/01/29 .......... 1,200,000 1,237,500 Mendocino County COP, Public Facilities Corp., MBIA Insured, 5.25%, 6/01/30 ................... 2,680,000 2,811,293 Menlo Park CDA Tax Allocation, Las Pulgas Community Development Project, Refunding, AMBAC Insured, 5.375%, 6/01/22 ............................................................. 10,000,000 10,530,300 Metropolitan Water District Southern California Waterworks Revenue, Series A, MBIA Insured, Pre-Refunded, 5.00%, 7/01/30 ...................................... 6,525,000 7,105,856 Series C, MBIA Insured, Pre-Refunded, 5.00%, 7/01/27 ...................................... 2,500,000 2,638,000 Millbrae COP, Police Department Expansion, AMBAC Insured, 5.875%, 3/01/24 ..................... 1,025,000 1,153,525 Modesto Irrigation District COP, Capital Improvements, Series A, FSA Insured, 5.00%, 7/01/26 ................................................................................... 5,000,000 5,178,800 7/01/31 ................................................................................... 8,285,000 8,471,164 Modesto Wastewater Treatment Facility Revenue, MBIA Insured, 5.75%, 11/01/22 .................. 14,375,000 15,732,575 Montebello Community RDA Tax Allocation, Housing, Series A, FSA Insured, 5.45%, 9/01/19 ............................................ 1,100,000 1,195,678 Montebello Hills Redevelopment Project, Refunding, MBIA Insured, 5.60%, 3/01/19 ........... 2,460,000 2,521,992 Montebello COP, Capital Improvement Project, Refunding, FSA Insured, 5.375%, 11/01/26 ................................................................................... 8,715,000 9,436,602 Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, 5.00%, 8/01/26 ................ 4,000,000 4,185,720 Morgan Hill USD, GO, FGIC Insured, 5.50%, 8/01/25 ............................................. 3,840,000 4,196,083
Semiannual Report | 39 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Mount Diablo USD, CFD No. 1 Special Tax, FSA Insured, 6.00%, 8/01/24 ........................................ $ 1,000,000 $ 1,037,350 CFD No. 1 Special Tax, Refunding, AMBAC Insured, 5.75%, 8/01/15 ........................... 1,000,000 1,061,640 CFD No. 1 Special Tax, Refunding, AMBAC Insured, 5.75%, 8/01/16 ........................... 2,270,000 2,409,923 CFD No. 1 Special Tax, Refunding, AMBAC Insured, 5.375%, 8/01/19 .......................... 7,290,000 7,691,606 GO, Election of 2002, FGIC Insured, 5.00%, 7/01/25 ........................................ 6,025,000 6,309,199 Murrieta Valley USD, COP, MBIA Insured, 5.00%, 8/01/27 ........................................ 2,380,000 2,462,062 Natomas USD, GO, FSA Insured, 5.00%, 9/01/26 .................................................. 2,535,000 2,643,346 Nevada Irrigation District Revenue COP, Cascade Bench Flume Project, MBIA Insured, 5.50%, 1/01/17 .................................................................................... 4,600,000 4,949,002 Nevada Joint UHSD, Series A, FSA Insured, 5.00%, 8/01/26 ...................................... 1,295,000 1,344,534 Norco RDA Tax Allocation, Redevelopment Project Area No. 1, MBIA Insured, 5.625%, 3/01/30 .................................................................................... 1,000,000 1,099,500 North City West School Facilities Financing Authority Special Tax, Refunding, Series B, FSA Insured, 5.75%, 9/01/15 ............................................................................ 1,260,000 1,353,152 6.00%, 9/01/19 ............................................................................ 2,500,000 2,685,950 Northern California Public Power Agency Revenue, AMBAC Insured, Pre-Refunded, 7.50%, 7/01/23 .................................................................................... 3,200,000 4,414,528 Oakland Revenue, 1800 Harrison Foundation, Series A, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/29 ............................................................................. 10,000,000 11,515,500 Oceanside COP, AMBAC Insured, 5.20%, 4/01/23 ............................................................. 2,500,000 2,659,900 Oceanside Civic Center Project, Refunding, MBIA Insured, 5.75%, 8/01/15 ................... 1,000,000 1,040,340 Wastereuse Association, Finance Program, Series A, AMBAC Insured, Pre-Refunded, 6.50%, 10/01/17 ......................................................................... 2,180,000 2,204,808 Orange County Sanitation District COP, FGIC Insured, 5.00%, 2/01/33 ........................... 8,000,000 8,207,200 Oroville PFA Tax Allocation Revenue, Oroville Redevelopment Project No. 1, AMBAC Insured, Pre-Refunded, 5.90%, 9/15/21 ............................................................................ 1,245,000 1,304,349 6.10%, 9/15/23 ............................................................................ 2,860,000 3,000,283 Oxnard Financing Authority Solid Waste Revenue, AMBAC Insured, 6.00%, 5/01/16 ................. 5,000,000 5,150,050 Oxnard UHSD, GO, Series B, FSA Insured, ETM, 5.875%, 8/01/27 .................................. 3,615,000 3,751,502 Palm Springs Financing Authority Lease Revenue, Convention Center Project, Refunding, Series A, MBIA Insured, 5.00%, 11/01/25 .................................................... 2,295,000 2,401,993 Paramount USD, COP, Master Lease Program, FSA Insured, Pre-Refunded, 6.30%, 9/01/26 .................................................................................... 4,750,000 4,981,468 Parlier USD, GO, Series B, AMBAC Insured, 6.00%, 6/01/16 ...................................... 1,130,000 1,208,535 Pasadena Area Community College District GO, Election of 2002, Series A, FGIC Insured, 5.00%, 6/01/28 ............................................................................. 4,000,000 4,135,680 Pasadena USD, GO, Series B, FGIC Insured, Pre-Refunded, 5.25%, 7/01/24 ........................ 1,000,000 1,125,940 Peralta Community College District GO, Election of 2000, Series B, MBIA Insured, 5.25%, 8/01/32 .................................................................................... 8,450,000 8,935,875 Perris CFD Special Tax, No. 93-1, Series A, AMBAC Insured, 5.125%, 8/15/23 .................... 4,000,000 4,283,400 Placer County COP, Administrative and Emergency Services, MBIA Insured, 5.65%, 6/01/24 .................................................................................... 4,000,000 4,329,320 Placer County Water Agency Water Revenue COP, Capital Improvement Projects, FSA Insured, 5.90%, 7/01/25 ............................................................................. 2,350,000 2,440,193
40 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Plumas County COP, Capital Improvement Program, Series A, AMBAC Insured, 5.00%, 6/01/33 .................................................................................... $ 3,280,000 $ 3,369,019 Porterville COP, Sewer System Refining Project, Refunding, AMBAC Insured, 5.25%, 10/01/23 ................................................................................... 3,000,000 3,184,680 Poway RDA Tax Allocation, Paguay Redevelopment Project, AMBAC Insured, 5.00%, 12/15/25 .............................. 9,195,000 9,542,571 Refunding, MBIA Insured, 5.75%, 6/15/33 ................................................... 11,475,000 12,848,787 Rancho Cucamonga RDA Tax Allocation, Rancho Redevelopment Project, Housing Set Aside, MBIA Insured, 5.25%, 9/01/26 ........................................... 2,000,000 2,073,080 Refunding, FSA Insured, 5.25%, 9/01/20 .................................................... 2,500,000 2,705,350 Redding Joint Powers Financing Authority Lease Revenue, Civic Center Project, Series A, MBIA Insured, 5.75%, 3/01/19 ............................................................................ 3,090,000 3,352,496 5.25%, 3/01/26 ............................................................................ 75,000 80,586 Redwood City School District GO, FGIC Insured, 5.00%, 7/15/27 ................................. 3,000,000 3,102,600 Ripon RDA Tax Allocation, Community Redevelopment Project, MBIA Insured, 5.85%, 11/01/30 ................................................................................... 3,975,000 4,431,887 Riverside County COP, Historic Courthouse, MBIA Insured, 5.875%, 11/01/27 ..................... 3,000,000 3,310,050 Rowland USD, GO, Series A, FSA Insured, 5.25%, 9/01/25 ........................................ 5,685,000 6,071,751 Sacramento Area Flood Control Agency Special Assessment, Capital AD No. 2, FGIC Insured, 5.80%, 11/01/16 ........................................... 1,000,000 1,082,570 Operation and Maintenance, FGIC Insured, 5.80%, 11/01/16 .................................. 1,475,000 1,596,791 Operation and Maintenance, FGIC Insured, 5.90%, 11/01/25 .................................. 2,690,000 2,907,782 Sacramento City Financing Authority Revenue, Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/26 ............................. 8,395,000 8,673,210 Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/32 ............................. 21,500,000 21,995,575 City Hall and Redevelopment Projects, Series A, FSA Insured, 5.00%, 12/01/28 .............. 10,000,000 10,288,900 Sacramento County Airport System Revenue, Series A, MBIA Insured, 6.00%, 7/01/17 .............. 5,920,000 6,258,683 Sacramento County Sanitation District Financing Authority Revenue, Sacramento Regional County Sanitation, Series A, AMBAC Insured, 5.00%, 12/01/35 ................................ 10,000,000 10,306,900 Salida Area Public Facilities Financing Agency CFD No. 1988-1 Special Tax, FSA Insured, 5.75%, 9/01/30 ............................................................................. 3,435,000 3,795,022 Salida USD, COP, Financing Project, AMBAC Insured, 5.375%, 5/01/26 ............................ 1,645,000 1,656,416 San Bernardino County COP, 1997 Public Improvement Financing Project, MBIA Insured, 5.25%, 10/01/25 ............................................................................ 7,000,000 7,359,380 San Buenaventura Public Facilities Financing Authority Lease Revenue, Refunding, FSA Insured, 5.75%, 6/01/14 ................................................................ 2,250,000 2,328,390 San Carlos School District GO, MBIA Insured, 5.50%, 10/01/24 .................................. 2,110,000 2,310,007 San Diego Public Facilities Financing Authority Sewer Revenue, Series B, FGIC Insured, 5.25%, 5/15/27 ............................................................................. 2,950,000 3,118,091 San Francisco BART District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/26 .............................................................. 6,500,000 7,179,965 FGIC Insured, 5.50%, 7/01/34 .............................................................. 12,000,000 13,096,920 Refunding, AMBAC Insured, 5.00%, 7/01/28 .................................................. 8,000,000 8,259,040 San Francisco City and County Airport Commission International Airport Revenue, Issue 9B, Second Series, FGIC Insured, Pre-Refunded, 6.00%, 5/01/25 ....................... 6,400,000 6,548,736 Issue 11, Second Series, FGIC Insured, Pre-Refunded, 6.00%, 5/01/11 ....................... 2,105,000 2,152,868
Semiannual Report | 41 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Francisco City and County Airports Commission International Airport Revenue, Refunding, Second Series-28A, MBIA Insured, 5.125%, 5/01/24 ................................................................................... $ 9,745,000 $ 10,126,907 5/01/27 ................................................................................... 16,575,000 16,975,121 San Francisco City and County Public Utilities Commission Water Revenue, Refunding, Series A, FSA Insured, 5.00%, 11/01/31 ..................................................... 3,885,000 3,981,737 San Francisco Community College District GO, Series A, FGIC Insured, 5.00%, 6/15/26 ........... 6,000,000 6,207,000 San Francisco State University Foundation Inc. Auxiliary Organization Housing Revenue, MBIA Insured, 5.00%, 9/01/31 ............................................................... 13,415,000 13,739,777 San Gabriel USD, COP, Facilities Development Program, Series A, FSA Insured, Pre-Refunded, 6.00%, 9/01/15 ............................................................................. 1,000,000 1,046,780 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A, MBIA Insured, 5.375%, 1/15/29 ........................................ 18,075,000 18,920,368 Refunding, Series A, MBIA Insured, 5.25%, 1/15/30 ......................................... 11,860,000 12,437,226 senior lien, MBIA Insured, 5.00%, 1/01/33 ................................................. 10,035,000 10,131,236 San Jose Financing Authority Lease Revenue, Civic Center Project, Series B, AMBAC Insured, 5.00%, 6/01/27 ............................................................................. 10,000,000 10,337,000 San Jose MFHR, Sixth and Martha Family Apartments, FNMA Insured, 5.875%, 3/01/33 .............. 3,500,000 3,664,220 San Juan USD, GO, Election of 1998, Series A, MBIA Insured, 5.00%, 8/01/28 .................... 5,115,000 5,291,365 San Leandro COP, Library and Fire Stations Financing, AMBAC Insured, 5.75%, 11/01/29........... 5,000,000 5,598,400 San Marcos Public Facilities Authority Revenue, Senior Tax Increment Project Area-3-A, MBIA Insured, 5.75%, 10/01/29 ........................................................................... 5,340,000 5,969,853 5.80%, 10/01/30 ........................................................................... 7,800,000 8,782,878 San Mateo GO, Library Improvement Project, Series A, AMBAC Insured, 5.25%, 8/01/30 ............ 5,790,000 6,133,752 Santa Clara COP, Refunding, AMBAC Insured, 5.00%, 2/01/27 ..................................... 5,555,000 5,756,313 Santa Clara County Financing Authority Lease Revenue, Refunding, Series A, AMBAC Insured, 5.00%, 11/15/22 ............................................................................ 3,950,000 4,150,305 Santa Cruz County COP, Sub-Joint Wastewater Treatment Project, AMBAC Insured, 6.20%, 9/01/19 .................................................................................... 475,000 478,477 Santa Fe Springs PFA Water Revenue, Series A, MBIA Insured, 5.90%, 5/01/21 ................................................................................... 900,000 960,489 5/01/26 ................................................................................... 1,190,000 1,269,171 Santa Monica Community College District GO, Series B, AMBAC Insured, 5.75%, 7/01/20............ 1,495,000 1,550,913 Santa Monica PFA Lease Revenue, Civic Center Parking Project, XLCA Insured, 5.00%, 7/01/33 .................................................................................... 11,050,000 11,267,464 Santa Rosa Wastewater Revenue, Series B, FGIC Insured, 5.125%, 9/01/31 ........................ 4,000,000 4,163,240 Santa Rosa Wastewater Service Facilities District Revenue, Refunding and Improvement, AMBAC Insured, 6.00%, 7/02/15 .............................................................. 2,000,000 2,393,120 Sonoma CDA Tax Allocation, Redevelopment Project, MBIA Insured, 5.70%, 12/01/30 ............... 3,455,000 3,841,649 Sonoma Valley USD, GO, FSA Insured, 6.00%, 7/15/21 ............................................ 2,400,000 2,544,864 South Gate COP, Series A, AMBAC Insured, 5.00%, 9/01/24 ....................................... 3,155,000 3,310,037 South San Francisco COP, 5.00%, 4/01/29 ....................................................... 2,000,000 2,025,500 Southern Mono Health Care District GO, Series A, MBIA Insured, 5.00%, 8/01/24 ................. 3,005,000 3,135,687 Southern Public Power Authority Power Projects Revenue, Series A, AMBAC Insured, 5.00%, 7/01/33 .................................................................................... 29,000,000 29,741,820 Stanislaus County Board of Education COP, FSA Insured, 5.70%, 9/01/24 ......................... 2,000,000 2,219,000
42 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series B, FSA Insured, 5.90%, 7/01/12 ................................................................ $ 2,770,000 $ 3,058,634 Stockton Revenue COP, Wastewater System Project, Refunding, Series A, MBIA Insured, 5.00%, 9/01/23 ............................................................................. 6,500,000 6,848,010 Susanville PFAR, MBIA Insured, 5.70%, 6/01/30 ................................................. 3,000,000 3,297,120 Tahoe-Truckee Joint USD, GO, Series B, FGIC Insured, 5.95%, 9/01/20 ........................... 3,620,000 3,917,926 Tahoe-Truckee USD, GO, ID No. 2, Series A, FGIC Insured, Pre-Refunded, 5.75%, 8/01/20 .................................................................................... 4,340,000 4,988,570 Thousand Oaks RDA Tax Allocation, Thousand Oaks Boulevard Redevelopment, Refunding, MBIA Insured, 5.375%, 12/01/25 ............................................................. 2,390,000 2,474,749 Tri-City Hospital District Revenue, MBIA Insured, 6.00%, 2/01/22 .............................................................. 2,350,000 2,357,661 Refunding, Series A, MBIA Insured, 5.625%, 2/15/17 ........................................ 2,750,000 2,904,220 Truckee PFA Lease Revenue, Series A, AMBAC Insured, 6.00%, 11/01/30 ........................... 1,990,000 2,209,616 Turlock Auxiliary Organization Revenue COP, California State University, Stanislaus Foundation, MBIA Insured, 5.875%, 6/01/22 .............................................................. 2,000,000 2,136,720 Turlock PFA Sewer Revenue, FGIC Insured, 5.50%, 9/15/29 ....................................... 6,855,000 7,481,410 Union City CRDA Tax Allocation Revenue, Community Redevelopment Project, AMBAC Insured, 5.75%, 10/01/32 ............................................................................ 14,100,000 15,658,332 University of California Revenues, Multi Purpose Projects, Series H, FGIC Insured, 5.50%, 9/01/28 .................................................... 2,500,000 2,708,125 Series K, 5.00%, 9/01/23 .................................................................. 3,160,000 3,282,703 Series M, FGIC Insured, 5.125%, 9/01/30 ................................................... 8,720,000 9,082,403 Vacaville PFA Tax Allocation Revenue, Vacaville Redevelopment Projects, FSA Insured, 5.00%, 9/01/31 .................................................................................... 5,095,000 5,204,543 Vallejo Revenue, Water Improvement Project, Refunding, Series A, FSA Insured, 5.875%, 5/01/26 .................................................................................... 12,500,000 13,319,125 Vista USD, GO, Series A, FSA Insured, 5.25%, 8/01/25 .......................................... 5,000,000 5,354,100 Washington Township Health Care District Revenue, 5.00%, 7/01/18 ............................................................................ 2,000,000 2,060,720 5.125%, 7/01/23 ........................................................................... 450,000 459,576 Washington USD, GO, Yolo County Election of 1999, Series A, FGIC Insured, 5.375%, 8/01/25 .................................................................................... 2,045,000 2,215,635 Waugh School District Special Tax GO, Corona/Ely CFD No.1, AMBAC Insured, 5.80%, 9/01/26 .................................................................................... 5,640,000 5,885,848 West Basin Municipal Water District Revenue COP, 1992 Project, Refunding, Series A, AMBAC Insured, 5.50%, 8/01/17 .......................... 3,370,000 3,643,105 Refunding, Series A, MBIA Insured, 5.00%, 8/01/24 ......................................... 2,500,000 2,620,625 Refunding, Series A, MBIA Insured, 5.00%, 8/01/30 ......................................... 5,745,000 5,901,953 Westlands Water District Revenue COP, MBIA Insured, 5.00%, 9/01/29 ............................ 11,775,000 12,115,886 William S. Hart Joint School Financing Authority Special Tax Revenue, Community Facilities, Refunding, FSA Insured, 6.60%, 9/01/18 ..................................................... 1,285,000 1,345,138 Woodland Finance Authority Lease Revenue, Capital Projects, Refunding, XLCA Insured, 5.00%, 3/01/32 ............................................................................. 6,340,000 6,502,114 Yucaipa-Sweetwater School Facilities Financing Authority Special Tax Revenue, Sweetwater, Series A, MBIA Insured, 5.70%, 9/01/19 ..................................................... 4,000,000 4,170,440 --------------- TOTAL BONDS (COST $1,617,884,224) ............................................................. 1,745,767,646 ---------------
Semiannual Report | 43 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS 8.4% Acalanes UHSD, GO, Capital Appreciation, Election of 2002, Series A, FGIC Insured, 8/01/25 .................................................................................... $ 9,045,000 $ 2,972,458 Alameda Corridor Transportation Authority Revenue, AMBAC Insured, zero cpn. to 10/01/12, 5.25% thereafter, 10/01/21 ................................................................ 64,660,000 46,173,059 5.45% thereafter, 10/01/25 ................................................................ 25,000,000 17,436,500 Alhambra City Elementary School District GO, Capital Appreciation, Election of 1999, Series B, FGIC Insured, 9/01/27 ............................................................ 3,035,000 938,149 California HFAR, Home Mortgage, Series N, AMBAC Insured, 8/01/31 .............................. 1,435,000 1,056,461 Corona-Norco USD, GO, Series B, FSA Insured, 9/01/23 ............................................................ 2,320,000 923,360 Series B, FSA Insured, 9/01/24 ............................................................ 2,620,000 981,164 Series B, FSA Insured, 3/01/25 ............................................................ 1,400,000 504,364 Series C, FGIC Insured, 9/01/25 ........................................................... 4,655,000 1,635,069 Series C, FGIC Insured, 9/01/26 ........................................................... 6,080,000 2,004,515 Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, MBIA Insured, 1/15/17 ................................................................................... 20,000,000 11,014,200 1/15/18 ................................................................................... 25,000,000 12,902,250 1/15/19 ................................................................................... 5,970,000 2,896,166 Fullerton School District GO, Capital Appreciation, Series A, FGIC Insured, 8/01/23 ........... 3,030,000 1,210,909 Grossmont UHSD, GO, Capital Appreciation, Election of 2004, FSA Insured, 8/01/24 .............. 5,110,000 1,903,373 Lancaster School District GO, Capital Appreciation, Election of 1999, MBIA Insured, 8/01/25 ................................................................................... 5,495,000 1,938,251 7/01/26 ................................................................................... 5,965,000 1,983,482 Newark USD, GO, Capital Appreciation, Series B, FGIC Insured, 8/01/24 ........................................................... 9,905,000 3,402,467 Series C, FSA Insured, 8/01/22 ............................................................ 2,165,000 841,297 Series C, FSA Insured, 8/01/23 ............................................................ 2,465,000 894,055 Series C, FSA Insured, 8/01/24 ............................................................ 2,560,000 871,296 Series C, FSA Insured, 8/01/25 ............................................................ 2,705,000 864,464 Patterson Joint USD, GO, Series A, FGIC Insured, 8/01/22 ................................................................................... 1,900,000 808,773 8/01/23 ................................................................................... 1,985,000 793,285 8/01/24 ................................................................................... 2,075,000 780,304 8/01/25 ................................................................................... 2,170,000 765,425 8/01/26 ................................................................................... 2,265,000 749,964 San Bernardino County SFMR, Series A, GNMA Secured, ETM, 5/01/22 .............................. 28,405,000 12,176,939 San Gabriel USD, GO, Capital Appreciation Bonds, Series A, FSA Insured, 8/01/26 ................................................................................... 3,530,000 1,168,818 2/01/27 ................................................................................... 1,850,000 589,392 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, Series A, MBIA Insured, 1/15/26 ................................................. 13,155,000 4,433,235 San Marino USD, GO, Series A, MBIA Insured, 7/01/25 ........................................... 6,080,000 2,153,658 Santa Ana USD, COP, Capital Appreciation Financing Project, FSA Insured, 4/01/24 .............. 14,245,000 5,446,861 Southern Kern USD, COP, Convertible Capital Appreciation Building Program, Series B, FSA Insured, 9/01/26 ....................................................................... 2,250,000 2,183,085 Southern Mono Health Care District Revenue, Capital Appreciation Bonds, Series A, MBIA Insured, 8/01/28 ................................................................................... 2,340,000 666,409 8/01/29 ................................................................................... 2,440,000 654,115
44 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) ZERO COUPON/STEP-UP BONDS (CONT.) Southern Mono Health Care District Revenue, Capital Appreciation Bonds, Series A, MBIA Insured, (cont.) 8/01/30 ................................................................................. $ 2,550,000 $ 644,717 8/01/31 ................................................................................. 2,660,000 635,687 Union Elementary School District GO, Capital Appreciation, Series A, FGIC Insured, 9/01/24 ......................................................... 2,000,000 748,980 Series B, FGIC Insured, 9/01/25 ......................................................... 5,500,000 1,931,875 Series B, FGIC Insured, 9/01/26 ......................................................... 5,850,000 1,928,687 Vista USD, GO, Capital Appreciation, Series A, FSA Insured, 8/01/26 ................................................................................. 7,150,000 2,367,437 2/01/27 ................................................................................. 4,795,000 1,527,639 Western Placer USD Financing Corp. COP, Convertible Capital Appreciation, zero cpn. to 11/01/05, 5.55% thereafter, 11/01/30 ..................................................... 6,930,000 6,778,787 --------------- TOTAL ZERO COUPON/STEP-UP BONDS (COST $149,999,881).......................................... 165,281,381 --------------- TOTAL LONG TERM INVESTMENTS (COST $1,767,884,105)............................................ 1,911,049,027 --------------- SHORT TERM INVESTMENTS 1.5% BONDS (a) California State Department of Water Resources Power Supply Revenue, Series B-5, Daily VRDN and Put, 2.10%, 5/01/22 .......................................... 5,900,000 5,900,000 Series B-6, Daily VRDN and Put, 2.15%, 5/01/22 .......................................... 100,000 100,000 (a) California State Economic Recovery Revenue, Series C-3, Daily VRDN and Put, 2.10%, 7/01/23 ............................................................................ 7,000,000 7,000,000 (a) California State GO, Kindergarten University, Series B-3, Daily VRDN and Put, 2.15%, 5/01/34 ................................................................................... 2,300,000 2,300,000 (a) Irvine 1915 Act Revenue, AD No. 94-15, Daily VRDN and Put, 2.15%, 9/02/20 ................... 1,200,000 1,200,000 (a) Irvine 1915 Act Special Assessment, AD No. 93-14, Daily VRDN and Put, 2.10%, 9/02/25 ........................................ 1,300,000 1,300,000 AD No. 97-16, Daily VRDN and Put, 2.15%, 9/02/22 ........................................ 2,000,000 2,000,000 (a) Irvine USD Special Tax, CFD No. 03-1, Daily VRDN and Put, 2.15%, 9/01/39 ........................................ 1,900,000 1,900,000 CFD No. 01-1, Daily VRDN and Put, 2.15%, 9/01/38 ........................................ 300,000 300,000 (a) Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Daily VRDN and Put, 2.15%, 7/01/35 ................................................... 400,000 400,000 (a) Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series B-1, Daily VRDN and Put, 2.15%, 7/01/35 ........................................................ 3,700,000 3,700,000 (a) Orange County Sanitation Districts COP, Refunding, Series B, Daily VRDN and Put, 2.15%, 8/01/30 ................................................................................... 4,200,000 4,200,000 --------------- TOTAL SHORT TERM INVESTMENTS (COST $30,300,000).............................................. 30,300,000 --------------- TOTAL INVESTMENTS (COST $1,798,184,105) 98.8%................................................ 1,941,349,027 OTHER ASSETS, LESS LIABILITIES 1.2%.......................................................... 23,678,825 --------------- NET ASSETS 100.0%............................................................................ $ 1,965,027,852 ===============
See glossary of terms on page 65. (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. VRDNs are valued at cost Semiannual Report | See notes to financial statements. | 45 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND
--------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED JUNE 30, CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .......... $ 11.36 $ 11.74 $ 11.41 $ 11.25 $ 10.92 $ 11.02 --------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ..................... .21 .44 .44 .47 .51 .52 Net realized and unrealized gains (losses) ... .30 (.38) .34 .17 .34 (.10) --------------------------------------------------------------------------------- Total from investment operations .............. .51 .06 .78 .64 .85 .42 --------------------------------------------------------------------------------- Less distributions from net investment income . (.22) (.44) (.45) (.48) (.52) (.52) --------------------------------------------------------------------------------- Redemption fees ............................... --(c) -- -- -- -- -- --------------------------------------------------------------------------------- Net asset value, end of period ................ $ 11.65 $ 11.36 $ 11.74 $ 11.41 $ 11.25 $ 10.92 ================================================================================= Total return(b) ............................... 4.47% .50% 6.92% 5.80% 7.86% 3.95% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ............. $ 423,945 $ 384,196 $ 414,558 $ 324,061 $224,156 $ 186,880 Ratios to average net assets: Expenses ..................................... .67%(d) .67% .68% .70% .72% .74% Expenses net of waiver and payments by affiliate ............................... .67%(d) .67% .68% .68% .60% .60% Net investment income ........................ 3.62%(d) 3.76% 3.80% 4.13% 4.56% 4.79% Portfolio turnover rate ....................... 4.11% 17.36% 9.56% 12.05% 8.02% 10.29%
(a) Based on average daily shares outstanding. (b) Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. (c) Amount is less than $.001 per share. (d) Annualized. 46 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND (CONTINUED)
------------------------------ SIX MONTHS ENDED YEAR DECEMBER 31, ENDED 2004 JUNE 30, CLASS C (UNAUDITED) 2004 ------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ............. $ 11.37 $ 11.73 ------------------------------ Income from investment operations: Net investment income(a) ........................ .18 .37 Net realized and unrealized gains (losses) ...... .30 (.36) ------------------------------ Total from investment operations ................. .48 .01 ------------------------------ Less distributions from net investment income .... (.18) (.37) ------------------------------ Redemption fees .................................. --(c) -- ------------------------------ Net asset value, end of period ................... $ 11.67 $ 11.37 ============================== Total return(b) .................................. 4.26% .11% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ................ $ 12,062 $ 9,142 Ratios to average net assets: Expenses ........................................ 1.22%(d) 1.22% Net investment income ........................... 3.07%(d) 3.21% Portfolio turnover rate .......................... 4.11% 17.36%
(a) Based on average daily shares outstanding. (b) Total return does not reflect the contingent deferred sales charge, and is not annualized for periods less than one year. (c) Amount is less than $.001 per share. (d) Annualized. Semiannual Report | See notes to financial statements. | 47 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS 96.4% BONDS 90.9% ABAG Finance Authority for Nonprofit Corps. COP, Partner North County Health Project, 5.50%, 3/01/06 ....................................... $ 330,000 $ 335,745 Rhoda Haas Goldman Plaza, California Mortgage Insured, 5.125%, 5/15/15 .................... 3,000,000 3,177,930 ABAG Finance Authority for Nonprofit Corps. Revenue, San Diego Hospital Association, Series C, 5.125%, 3/01/18 ........................................................................... 2,695,000 2,785,336 5.25%, 3/01/19 ............................................................................ 2,315,000 2,399,984 ABAG Revenue, Refunding, Series A-E, 5.00%, 9/15/06 ............................................................................ 595,000 609,339 5.05%, 9/15/07 ............................................................................ 610,000 624,799 5.40%, 9/15/14 ............................................................................ 2,455,000 2,506,800 ABAG Water and Wastewater Revenue, Pooled Financing Program, Series A, FSA Insured, 5.00%, 10/01/10 ................................................................................... 3,035,000 3,338,743 Alameda-Contra Costa Transportation District COP, Refunding, AMBAC Insured, 4.375%, 8/01/14 .................................................................................... 1,330,000 1,389,823 Antelope Valley UHSD, GO, Series A, MBIA Insured, 4.50%, 8/01/13 ............................................................................ 1,230,000 1,330,872 4.625%, 8/01/14 ........................................................................... 1,250,000 1,352,412 Antioch PFA, Reassessment Revenue, sub. lien, Series B, 5.20%, 9/02/05 ............................................................................ 1,965,000 1,990,702 5.40%, 9/02/07 ............................................................................ 1,100,000 1,143,483 Brentwood Infrastructure Financing Authority Revenue, Refunding, Series A, FSA Insured, 4.00%, 9/02/17 ............................................................................. 1,485,000 1,486,114 Burbank Electric Revenue, MBIA Insured, 4.00%, 6/01/11 ................................................................................... 1,000,000 1,057,860 6/01/12 ................................................................................... 1,000,000 1,052,350 Burbank USD, GO, Election of 1997, Series C, FGIC Insured, 4.00%, 8/01/12 ..................... 2,500,000 2,624,925 Burbank Water and Power Electric Revenue, MBIA Insured, 4.00%, 6/01/11 ........................ 5,045,000 5,071,083 California Educational Facilities Authority Revenue, Pooled College and University Projects, Series B, Pre-Refunded, 6.125%, 4/01/13 ........... 1,000,000 1,103,130 Stanford University, Refunding, Series R, 4.00%, 11/01/11 ................................. 1,000,000 1,064,420 California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series B, ETM, 5.25%, 10/01/13 ......................................... 5,000,000 5,439,600 Kaiser Permanente, Series B, ETM, 5.25%, 10/01/14 ......................................... 2,000,000 2,161,800 Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ......................................... 3,850,000 4,136,055 Paradise Valley Estates, California Mortgage Insured, 3.875%, 1/01/09 ..................... 1,555,000 1,586,411 Paradise Valley Estates, California Mortgage Insured, 4.125%, 1/01/10 ..................... 1,000,000 1,038,590 Paradise Valley Estates, California Mortgage Insured, 5.00%, 1/01/11 ...................... 1,480,000 1,599,007 Paradise Valley Estates, California Mortgage Insured, 4.375%, 1/01/12 ..................... 1,000,000 1,038,110 Paradise Valley Estates, California Mortgage Insured, 5.00%, 1/01/13 ...................... 1,815,000 1,966,462 Paradise Valley Estates, California Mortgage Insured, 5.00%, 1/01/14 ...................... 1,635,000 1,757,429 Sutter Health, Refunding, Series A, MBIA Insured, 5.875%, 8/15/16 ......................... 3,750,000 4,031,175 The Episcopal Home, California Mortgage Insured, 4.625%, 2/01/12 .......................... 1,350,000 1,422,751 The Episcopal Home, California Mortgage Insured, 4.75%, 2/01/13 ........................... 1,200,000 1,271,616 California HFAR, SFM Purchase, Class III, Series A-1, MBIA Insured, 5.70%, 8/01/11 ............ 905,000 932,811 California State Department of Water Resources Central Valley Project Revenue, Water System, Refunding, Series S, 5.00%, 12/01/19 ....................................................... 4,000,000 4,235,760
48 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) California State Department of Water Resources Power Supply Revenue, Series A, 5.50%, 5/01/12 ............................................................................ $ 2,000,000 $ 2,260,440 5.125%, 5/01/18 ........................................................................... 2,500,000 2,680,750 California State Department of Water Resources Water Revenue, Central Valley Project, Series Z, FGIC Insured, 3.50%, 12/01/12 .............................................................. 5,000,000 5,086,400 California State Economic Recovery Revenue, Series A, 5.00%, 7/01/15 .......................... 10,670,000 11,708,725 California State GO, 5.00%, 11/01/12 ........................................................................... 665,000 726,306 5.25%, 2/01/14 ............................................................................ 4,000,000 4,461,120 5.25%, 6/01/16 ............................................................................ 2,000,000 2,096,760 Pre-Refunded, 5.00%, 11/01/12 ............................................................. 1,335,000 1,497,683 Refunding, 5.00%, 12/01/05 ................................................................ 7,000,000 7,175,910 Refunding, 4.00%, 2/01/10 ................................................................. 6,900,000 7,218,987 Refunding, MBIA Insured, 5.00%, 2/01/18 ................................................... 1,175,000 1,249,178 Veterans, Series B, 5.00%, 12/01/12 ....................................................... 2,000,000 2,045,820 Veterans, Series B, 5.25%, 12/01/15 ....................................................... 2,310,000 2,370,799 Veterans, Series B, 5.375%, 12/01/16 ...................................................... 605,000 618,141 California State Public Works Board Lease Revenue, Department of Forestry and Fire Protection, Series A, 4.875%, 10/01/18 .................... 1,325,000 1,367,374 Various Community College Projects, Refunding, Series C, 5.50%, 9/01/09 ................... 1,555,000 1,664,736 California Statewide CDA Revenue, Insured Health Facilities, Jewish Home, California Mortgage Insured, 5.00%, 11/15/18 ...... 3,000,000 3,171,360 Kaiser Permanente, Series I, Mandatory Put 5/01/11, 3.45%, 4/01/35 ........................ 5,000,000 4,954,950 Mission Community, California Mortgage Insured, 4.40%, 11/01/10 ........................... 1,100,000 1,164,768 Mission Community, California Mortgage Insured, 4.50%, 11/01/11 ........................... 1,145,000 1,213,906 Viewpoint School, ACA Insured, 4.50%, 10/01/17 ............................................ 460,000 462,134 Viewpoint School, ACA Insured, 4.75%, 10/01/18 ............................................ 480,000 489,346 California Statewide CDA, COP, California Lutheran Homes, ETM, 5.375%, 11/15/06 .......................................... 1,000,000 1,056,620 Kaiser Permanente, ETM, 5.30%, 12/01/15 ................................................... 2,000,000 2,138,260 St. Joseph Health System Obligation Group, 5.25%, 7/01/11 ................................. 1,005,000 1,084,606 St. Joseph Health System, Refunding, 5.00%, 7/01/12 ....................................... 2,180,000 2,300,510 Central Joint Powers Health Financing Authority COP, Community Hospitals of Central California, 5.125%, 2/01/13 ............................................................................ 1,375,000 1,434,978 5.25%, 2/01/14 ............................................................................ 1,435,000 1,505,731 5.75%, 2/01/16 ............................................................................ 1,585,000 1,695,189 Central Valley Financing Authority Cogeneration Project Revenue, Carson Ice General Project, Refunding, MBIA Insured, 5.00%, 7/01/17 .................................................... 2,000,000 2,124,260 Cerritos PFAR, Tax Allocation, Redevelopment Project, Series A, AMBAC Insured, 3.00%, 11/01/11 ................................................................................... 2,585,000 2,569,154 Chaffey Community College District COP, Pre-Refunded, 5.10%, 9/01/13 .......................... 1,860,000 2,076,448 Clovis MFR, Mandatory Put Refunding, FNMA Insured, 5.10%, 11/01/30 ............................ 4,105,000 4,302,451 Coalinga COP, Custody Facility, Refunding, 4.25%, 4/01/10 ..................................... 1,000,000 1,041,410 Colma 1915 Act Special Assessment, Local ID No. 1, Refunding, 5.40%, 9/02/05 .................. 570,000 571,647 Compton Community College District GO, Series 2004-A, MBIA Insured, 4.25%, 7/01/16 ............ 1,025,000 1,063,110 Compton COP, Civic Center and Capital Improvement, Refunding, Series A, 5.00%, 9/01/08 ............................................................................ 4,340,000 4,630,476 5.50%, 9/01/15 ............................................................................ 1,180,000 1,243,201
Semiannual Report | 49 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Conejo Valley USD, GO, Election of 1998, Series D, FGIC Insured, 4.50%, 8/01/18 ................................................................................... $ 3,850,000 $ 4,004,847 8/01/19 ................................................................................... 4,000,000 4,148,000 Contra Costa Community College District GO, Election of 2002, FGIC Insured, 4.75%, 8/01/18 .................................................................................... 2,450,000 2,586,980 Contra Costa County Public Financing Lease Revenue, Refunding, Series B, MBIA Insured, 4.00%, 6/01/13 ............................................................................. 1,065,000 1,104,373 Corona PFA Lease Revenue, City Hall Project, Series B, MBIA Insured, 3.75%, 9/01/13 ............................................................................ 1,000,000 1,017,970 4.00%, 9/01/14 ............................................................................ 1,210,000 1,245,356 Duarte RDA Tax Allocation, Merged Redevelopment Project Area, Refunding, 5.125%, 10/01/16 ................................................................................... 4,200,000 4,513,866 Fairfax School District GO, Election of 2000, Series A, FGIC Insured, 5.00%, 11/01/17 ......... 895,000 999,303 Fairfield-Suisun Sewer District Sewer Revenue, Series A, Refunding, FGIC Insured, 5.00%, 5/01/12 .................................................................................... 600,000 659,052 Folsom PFA Lease Revenue, City Hall and Community Center, Refunding, FSA Insured, 5.00%, 10/01/17 ................................................................................... 1,275,000 1,387,315 Foothill/Eastern Corridor Agency Toll Road Revenue, Refunding, MBIA Insured, 5.00%, 1/15/16 .................................................................................... 1,000,000 1,067,450 Fremont UHSD Santa Clara County GO, Series C, FSA Insured, 4.25%, 9/01/13 ..................... 1,310,000 1,386,268 Galt Capital Improvements Authority Lease Revenue, Culture and Recreation Improvement Project, 5.00%, 4/01/12 .................................................................... 2,390,000 2,516,742 Galt Middle School Joint Powers Authority Special Tax, CFD No. 1, Refunding, 5.40%, 9/01/12 .................................................................................... 1,955,000 2,086,356 Garden Grove Agency Community Development Tax Allocation, Garden Grove Community Project, Refunding, AMBAC Insured, 4.25%, 10/01/13 .................................................. 2,025,000 2,141,539 Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, 5.00%, 6/01/12 .......... 1,500,000 1,607,190 Hi-Desert Memorial Health Care District Revenue, Refunding, 5.10%, 10/01/06 ........................................................................... 615,000 621,162 5.125%, 10/01/07 .......................................................................... 650,000 658,808 Hollister RDA Tax Allocation, Community Development Project, Series 1994, 5.55%, 10/01/05 ................................................................................... 585,000 602,550 Huntington Beach City School District GO, Series A, FGIC Insured, 5.00%, 8/01/18 .............. 1,245,000 1,337,130 Huntington Beach PFAR, Lease Capital Improvement Refinancing Project, Series B, AMBAC Insured, 4.00%, 8/01/13 ............................................................................ 1,500,000 1,563,000 4.125%, 8/01/14 ........................................................................... 2,140,000 2,228,596 4.25%, 8/01/15 ............................................................................ 2,080,000 2,167,984 Inland Empire Solid Waste Financing Authority Revenue, Landfill Improvement Financing Project, Series B, FSA Insured, ETM, 6.25%, 8/01/11 ................................................. 1,000,000 1,120,630 Irvine 1915 Act GO, AD No. 03-19, Group 2, 4.875%, 9/02/16 ........................................................................... 1,000,000 997,740 5.00%, 9/02/18 ............................................................................ 1,000,000 995,040 5.125%, 9/02/19 ........................................................................... 1,000,000 997,380 Irvine 1915 Act Special Assessment, AD No. 00-18, Group 2, 4.375%, 9/02/10 .................................................................. 885,000 896,248 Group 2, 4.70%, 9/02/12 ................................................................... 1,475,000 1,500,547 Group 2, 4.80%, 9/02/13 ................................................................... 1,175,000 1,197,560
50 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Irvine 1915 Act Special Assessment, AD No. 00-18, (cont.) Group 2, 5.125%, 9/02/17 ................................................................... $ 1,705,000 $ 1,724,795 Group 3, 4.75%, 9/02/15 .................................................................... 1,000,000 1,004,880 Group 3, 5.00%, 9/02/17 .................................................................... 1,000,000 1,007,620 Kings River Conservation District Pine Flat Power Revenue, Refunding, Series E, 5.125%, 1/01/18 .................................................................................... 1,735,000 1,854,889 La Palma Community Development Commission Tax Allocation, La Palma Community Development Project No. 1, Refunding, 5.80%, 6/01/05 ....................................... 160,000 162,341 La Quinta RDA Tax Allocation, Redevelopment Project Areas No. 1 and 2, MBIA Insured, 5.40%, 9/01/07 .................................................................................... 560,000 583,834 Lake Elsinore PFA Tax Allocation Revenue, Lake Elsinore Redevelopment Projects, Series A, FSA Insured, 5.40%, 9/01/08 ............... 1,230,000 1,243,628 Series A, 5.00%, 9/01/09 .................................................................. 1,500,000 1,590,525 Lake Elsinore School Financing Authority Revenue, Refunding, 6.00%, 9/01/11 ................... 1,000,000 1,086,560 Lancaster COP, School District Project, Refunding, FSA Insured, 5.125%, 4/01/14 ............... 2,000,000 2,172,980 Lancaster RDA Tax Allocation, Central Business District Redevelopment, Refunding, 5.70%, 8/01/05 ........................ 50,000 50,082 Fox Field Redevelopment Project Area, Refunding, 5.70%, 8/01/05 ........................... 75,000 75,197 Las Virgenes USD, GO, Series D, FGIC Insured, 3.30%, 9/01/13 .................................. 1,415,000 1,401,289 Lemon Grove CDA Tax Allocation, 1998, Refunding, 5.00%, 8/01/06 ............................................................................ 380,000 391,164 5.10%, 8/01/07 ............................................................................ 205,000 214,797 5.20%, 8/01/08 ............................................................................ 215,000 229,027 Los Angeles Convention and Exhibition Center Authority Lease Revenue, Refunding, Series A, AMBAC Insured, 3.00%, 8/15/12 .............................................................. 4,525,000 4,449,161 Los Angeles County MTA Sales Tax Revenue, First Tier Proposition A, First Tier, Refunding, Series A, FSA Insured, 5.00%, 7/01/15 ...................................................... 5,345,000 5,739,568 Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Project, Series A, FSA Insured, 5.00%, 10/01/17 ............................................................... 1,000,000 1,086,920 Los Angeles USD, COP, Refunding, Series A, AMBAC Insured, 4.00%, 10/01/13 .................................. 4,415,000 4,569,393 GO, Election of 2004, Series C, FGIC Insured, 5.00%, 7/01/19 .............................. 2,035,000 2,204,393 GO, Refunding, MBIA Insured, 5.25%, 7/01/13 ............................................... 3,500,000 3,965,675 Los Angeles Wastewater System Revenue, Series A, FGIC Insured, 5.00%, 6/01/14 ................. 1,075,000 1,151,992 Lynwood PFAR, Water System Improvement Project, 6.15%, 6/01/08 ................................ 565,000 583,961 M-S-R Public Power Agency San Juan Project Revenue, Refunding, Series I, MBIA Insured, 4.25%, 7/01/11 ............................................................................ 5,055,000 5,409,659 5.00%, 7/01/18 ............................................................................ 1,000,000 1,064,290 Metropolitan Water District Southern California GO, Waterworks, Refunding, Series B, 4.125%, 3/01/13 ........................................................................... 1,000,000 1,068,570 4.25%, 3/01/14 ............................................................................ 1,000,000 1,043,990 4.30%, 3/01/15 ............................................................................ 1,000,000 1,037,180 Moreno Valley USD, GO, Election of 2004, Series A, FSA Insured, 5.00%, 8/01/17 ................................................................................... 2,000,000 2,187,660 8/01/18 ................................................................................... 2,300,000 2,506,195 Morgan Hill USD, GO, FGIC Insured, 4.25%, 8/01/14 ............................................. 1,585,000 1,663,442 Moulton-Niguel Water District GO, Refunding, AMBAC Insured, 4.00%, 9/01/12 ............................................................. 2,930,000 3,077,789 Consolidated, AMBAC Insured, 5.00%, 9/01/16 ............................................... 3,520,000 3,868,022
Semiannual Report | 51 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Murrieta COP, Road Improvement Project, 6.00%, 4/01/07 ................................................................................... $ 235,000 $ 248,771 4/01/08 ................................................................................... 245,000 260,293 Nevada County COP, Refunding, MBIA Insured, 4.125%, 10/01/12 .................................. 1,040,000 1,094,631 Newport Mesa USD, GO, MBIA Insured, 4.00%, 8/01/12 ............................................ 1,000,000 1,049,970 North City West School Facilities Financing Authority Special Tax, Refunding, Series B, FSA Insured, 5.625%, 9/01/08 ............................................................... 500,000 535,955 Orange County CFD No. 86-2 Special Tax, Rancho Santa Margarita, Refunding, Series A, 5.375%, 8/15/12 ............................................................................ 1,500,000 1,610,550 Orange County CFD Special Tax, No. 02-1, Ladera Ranch, Series A, 4.60%, 8/15/14 .......................................... 1,000,000 1,014,710 No. 02-1, Ladera Ranch, Series A, 4.75%, 8/15/15 .......................................... 1,000,000 992,550 No. 02-1, Ladera Ranch, Series A, 4.90%, 8/15/16 .......................................... 1,285,000 1,273,718 No. 03-1, Ladera Ranch, Series A, 4.90%, 8/15/17 .......................................... 1,000,000 1,011,860 No. 03-1, Ladera Ranch, Series A, 5.10%, 8/15/18 .......................................... 1,000,000 1,015,260 Orange County Local Transportation Authority Sales Tax Revenue, First Senior Measure M, 6.00%, 2/15/06 ............................................................................. 500,000 521,350 Orange County Recovery COP, Series A, MBIA Insured, 6.00%, 7/01/08 ............................ 1,500,000 1,677,015 Oroville Hospital Revenue, Oroville Hospital, Series A, California Mortgage Insured, 5.125%, 12/01/12 ................................................................................... 1,435,000 1,496,059 Oxnard Harbor District Revenue, Series A, 5.10%, 8/01/14 ...................................... 1,000,000 1,039,010 Pajaro Valley USD, GO, Election of 2002, Series A, FSA Insured, 5.00%, 8/01/16 ................ 1,500,000 1,635,180 Palm Desert Financing Authority Lease Revenue, Blythe County Administrative Project, Pre-Refunded, 6.375%, 8/01/11 .............................................................. 855,000 926,931 Palm Desert Financing Authority Tax Allocation Revenue, MBIA Insured, 4.75%, 8/01/18 .......... 1,050,000 1,117,242 Pleasanton USD, GO, Refunding, Series C, MBIA Insured, 5.00%, 8/01/14 ......................... 3,535,000 3,947,817 Pomona RDA Tax Allocation, Mountain Meadows Redevelopment Project, Refunding, Series X, 5.35%, 12/01/16 ............................................................................ 1,000,000 1,098,960 Poway RDA Tax Allocation, Paguay Redevelopment Project, Series A, MBIA Insured, 4.50%, 6/15/14 .................................................................................... 4,595,000 4,893,767 Puerto Rico Commonwealth GO, Public Improvement, FSA Insured, 5.25%, 7/01/16 .................. 2,500,000 2,872,625 Redlands USD, GO, Election of 2002, FSA Insured, 5.00%, 7/01/19 ............................... 1,000,000 1,075,850 Richmond Joint Powers Financing Authority Revenue, Multiple Redevelopment Projects, Series B, ETM, 5.35%, 5/15/13 .............................................................. 2,000,000 2,204,360 Riverside County Housing Authority MFHR, Brandon Place Apartments, Mandatory Put 7/01/09, Series B, FNMA Insured, 5.625%, 7/01/29 .................................................... 995,000 1,058,222 Riverside USD, GO, Election, Series A, FGIC Insured, 4.00%, 2/01/13 ........................... 1,000,000 1,043,460 Sacramento City USD, GO, Election of 1999, Series D, FSA Insured, 5.00%, 7/01/19 .............. 1,465,000 1,576,120 San Bernardino City USD, GO, Refunding, FSA Insured, 5.00%, 8/01/17 ............................................................... 2,615,000 2,849,435 FSA Insured, 5.00%, 8/01/18 ............................................................... 1,140,000 1,242,201 Series A, FSA Insured, 5.00%, 8/01/19 ..................................................... 1,680,000 1,820,818 San Bernardino County COP, Medical Center Financing Project, Refunding, 6.00%, 8/01/09 ........ 2,000,000 2,225,580 San Francisco City and County Airports Commission International Airport Revenue, Issue 30, Refunding, Second Series, XLCA Insured, 4.00%, 5/01/14 ..................................... 2,500,000 2,566,525 San Francisco City and County GO, Refunding, Series 1, FGIC Insured, 5.00%, 6/15/12 ........... 3,650,000 3,951,928
52 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) San Joaquin County COP, General Hospital Project, Refunding, MBIA Insured, 5.00%, 9/01/17 ......................... $ 1,000,000 $ 1,062,630 Solid Waste System Facilities Projects, MBIA Insured, 4.00%, 4/01/12 ...................... 2,925,000 3,075,023 Solid Waste System Facilities Projects, MBIA Insured, 5.00%, 4/01/17 ...................... 1,340,000 1,450,791 San Jose MFHR, Countrybrook Project, Refunding, Series A, FNMA Insured, 4.95%, 4/01/12 .................................................................................... 4,665,000 4,864,615 San Marcos Public Facilities Authority Revenue, Senior Tax Increment Project Area 3, Series A, MBIA Insured, 5.30%, 10/01/11 .............. 350,000 399,032 Tax Increment Project Area 3, Series A, MBIA Insured, 4.70%, 10/01/05 ..................... 595,000 606,751 Tax Increment Project Area 3, Series A, MBIA Insured, 5.10%, 10/01/09 ..................... 515,000 571,305 Santa Ana COP, Refunding, Series A, AMBAC Insured, 4.25%, 6/01/13 ............................. 1,405,000 1,488,471 Santa Clara 1915 Act, Reassessment District 187, Refunding, Series 1, 5.25%, 9/02/11 .......... 1,720,000 1,780,062 Santa Clara County Financing Authority Lease Revenue, Multiple Facilities Projects, Refunding, Series A, AMBAC Insured, 4.50%, 5/15/12 .................................................... 2,900,000 3,040,447 Santa Monica-Malibu USD, COP, Series C, MBIA Insured, 4.00%, 5/01/12 ............................................................................ 525,000 547,318 4.25%, 5/01/14 ............................................................................ 840,000 873,004 4.25%, 5/01/15 ............................................................................ 875,000 903,368 4.25%, 11/01/15 ........................................................................... 670,000 691,721 Shafter Joint Powers Financing Authority Lease Revenue, Community Correctional Facility Project, Series A, 5.50%, 1/01/06 .......................................................... 650,000 669,253 South County Regional Wastewater Authority Revenue, Regional Wastewater Facilities Project, Refunding, FSA Insured, 3.25%, 8/01/11 ..................................................... 1,000,000 1,011,810 South Gate PFA Tax Allocation Revenue, South Gate Redevelopment Project No. 1, XLCA Insured, 5.00%, 9/01/16 ............................................................... 2,000,000 2,181,020 South Gate PFA Water Revenue, Refunding, Series A, FGIC Insured, 5.35%, 10/01/07 ........................................................................... 995,000 1,076,451 5.45%, 10/01/08 ........................................................................ 1,040,000 1,154,712 Stockton Health Facilities Revenue, Dameron Hospital Association, Refunding, Series A, 5.35%, 12/01/09 ................................................................................... 385,000 410,799 Stockton Port District Port Facilities Revenue, Refunding and Improvement, Series A, FSA Insured, 5.75%, 7/01/11 ................................................................ 1,295,000 1,428,605 Stockton Revenue, O'Connor Woods Housing Corp., Series A, 5.375%, 11/01/11 .................... 1,365,000 1,418,153 Sunline Transport Agency COP, Transport Finance Corp., Series B, 5.75%, 7/01/06 ............... 445,000 452,507 Sweetwater UHSD, COP, FSA Insured, 4.15%, 9/01/12 ............................................. 1,000,000 1,060,530 Temecula Valley USD, GO, Series E, FSA Insured, Pre-Refunded, 5.65%, 9/01/07 .................. 370,000 386,472 Tobacco Securitization Authority Northern California Tobacco Settlement Revenue, Asset Backed Bonds, Series B, 4.25%, 6/01/09 ............................................................................ 880,000 876,128 4.375%, 6/01/10 ........................................................................... 1,665,000 1,642,489 4.50%, 6/01/11 ............................................................................ 1,540,000 1,502,054 4.60%, 6/01/12 ............................................................................ 1,760,000 1,728,531 4.70%, 6/01/13 ............................................................................ 1,500,000 1,437,285 4.80%, 6/01/14 ............................................................................ 725,000 686,031 Torrance Hospital Revenue, Torrance Memorial Medical Center, Series A, 5.10%, 6/01/12 ......... 1,000,000 1,088,260 University of California Revenues, Multiple Purpose Projects N, FGIC Insured, 4.00%, 9/01/12 ................................. 1,380,000 1,436,207 Research Facilities, Series E, AMBAC Insured, 5.00%, 9/01/15 .............................. 3,645,000 3,921,874
Semiannual Report | 53 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.40%, 10/01/12 ................................... $ 4,150,000 $ 4,412,197 Refunding, Series A, 5.30%, 10/01/11 .................................................... 1,000,000 1,061,170 Virgin Islands Water and Power Authority Water System Revenue, Refunding, 4.875%, 7/01/06 ......................................................................... 1,500,000 1,536,465 5.00%, 7/01/09 .......................................................................... 2,000,000 2,111,700 West Contra Costa USD, GO, Series B, FSA Insured, 4.00%, 8/01/12 ............................ 1,875,000 1,975,125 Whittier Health Facility Revenue, Presbyterian Intercommunity Hospital, 5.00%, 6/01/11 ................................................................................. 1,060,000 1,137,285 6/01/12 ................................................................................. 2,225,000 2,394,367 6/01/13 ................................................................................. 2,335,000 2,501,929 Yucaipa Valley Water District Water System Revenue COP, Series A, MBIA Insured, 5.00%, 9/01/15 .......................................................................... 1,080,000 1,195,841 5.25%, 9/01/20 .......................................................................... 1,325,000 1,471,081 --------------- TOTAL BONDS (COST $379,224,177) ............................................................. 396,085,113 --------------- ZERO COUPON/STEP-UP BONDS 5.5% Alameda Corridor Transportation Authority Revenue, Capital Appreciation, sub. lien, Refunding, Series A, AMBAC Insured, 10/01/17 ........................................................ 10,000,000 5,609,600 Burbank USD, GO, Capital Appreciation, Election of 1997, Series C, FGIC Insured, 8/01/15 ................................................................................. 4,600,000 2,933,696 8/01/16 ................................................................................. 4,670,000 2,818,952 Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, FGIC Insured, 8/01/17 ..... 5,235,000 2,977,145 Conejo Valley USD, GO, Election of 1998, Series C, FSA Insured, 8/01/17 ..................... 2,500,000 1,421,750 Montebello USD, GO, Capital Appreciation, FGIC Insured, 8/01/18 ................................................................................. 1,455,000 778,644 8/01/19 ................................................................................. 1,480,000 748,865 San Francisco City and County Redevelopment Financing Authority Tax Allocation, Redevelopment Projects, Series A, 8/01/17 ................................................ 3,825,000 1,998,830 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.60% thereafter, 1/15/16 ..................... 3,000,000 2,667,750 Santa Ana USD, GO, Election of 1999, Series B, FGIC Insured, 8/01/14 ........................ 3,125,000 2,113,031 --------------- TOTAL ZERO COUPON/STEP-UP BONDS (Cost $22,956,637) .......................................... 24,068,263 --------------- TOTAL LONG TERM INVESTMENTS (Cost $402,180,814).............................................. 420,153,376 --------------- SHORT TERM INVESTMENTS 2.5% BONDS (a) California State Department of Water Resources Power Supply Revenue, Series B-3, Daily VRDN and Put, 2.17%, 5/01/22 .............................................. 300,000 300,000 Series B-6, Daily VRDN and Put, 2.15%, 5/01/22 .............................................. 2,200,000 2,200,000 Series C-7, FSA Insured, Weekly VRDN and Put, 2.00%, 5/01/22 ................................ 1,500,000 1,500,000 (a) California State GO, Kindergarten University, Series B-3, Daily VRDN and Put, 2.15%, 5/01/34 .................................................................................... 500,000 500,000 (a) Irvine USD Special Tax, CFD No. 03-1, Daily VRDN and Put, 2.15%, 9/01/39 ........................................ 1,000,000 1,000,000 CFD No. 01-1, Daily VRDN and Put, 2.15%, 9/01/38 ........................................ 2,175,000 2,175,000
54 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS (CONT.) BONDS (CONT.) (a) Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series B-1, Daily VRDN and Put, 2.15%, 7/01/35 ................................. $ 1,700,000 $ 1,700,000 Series B, Weekly VRDN and Put, 1.95%, 7/01/27 ............................................. 700,000 700,000 Series C-2, Daily VRDN and Put, 2.10%, 7/01/36 ............................................ 700,000 700,000 (a) Orange County Sanitation Districts COP, Refunding, Series B, Daily VRDN and Put, 2.15%, 8/01/30 ...................................................................... 200,000 200,000 --------------- TOTAL SHORT TERM INVESTMENTS (COST $10,975,000)................................................ 10,975,000 --------------- TOTAL INVESTMENTS (COST $413,155,814) 98.9%.................................................... 431,128,376 OTHER ASSETS, LESS LIABILITIES 1.1%............................................................ 4,878,718 --------------- NET ASSETS 100.0%.............................................................................. $ 436,007,094 ===============
See glossary of terms on page 65. (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. VRDNs are valued at cost. Semiannual Report | See notes to financial statements. | 55 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND
----------------------------- SIX MONTHS ENDED PERIOD DECEMBER 31, ENDED 2004 JUNE 30, CLASS A (UNAUDITED) 2004(e) ----------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ............. $ 9.91 $ 10.00 ----------------------------- Income from investment operations: Net investment income(a) ........................ .07 .11 Net realized and unrealized gains (losses) ...... .07 (.10) ----------------------------- Total from investment operations ................. .14 .01 ----------------------------- Less distributions from net investment income .... (.07) (.10) ----------------------------- Redemption fees .................................. --(c) -- ----------------------------- Net asset value, end of period ................... $ 9.98 $ 9.91 ----------------------------- Total return(b) .................................. 1.42% .06% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ................ $ 19,854 $ 16,244 Ratios to average net assets: Expenses ........................................ 1.11%(d) 1.20%(d) Expenses net of waiver and payments by affiliate .50%(d) .50%(d) Net investment income ........................... 1.41%(d) 1.30%(d) Portfolio turnover rate .......................... 1.47% 7.42%
(a) Based on average daily shares outstanding. (b) Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. (c) Amount is less than $.001 per share. (d) Annualized. (e) For the period September 2, 2003 (commencement of operations) to June 30, 2004. 56 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS 73.4% BONDS Azusa Redevelopment Agency Tax Allocation, Refunding, West End Redevelopment Project Area A, AMBAC Insured, 2.00%, 8/01/06 .............................................................. $ 375,000 $ 374,074 Brea Olinda USD, GO, Election of 1999, Series A, FGIC Insured, 2.60%, 8/01/09 ................. 120,000 120,618 Cajon Valley Unified Elementary School District COP, MBIA Insured, 2.50%, 5/01/08 ............. 250,000 251,985 California Educational Facilities Authority Revenue, Santa Clara University, Series A, FSA Insured, 2.625%, 9/01/09 ............................................................... 100,000 100,194 California Health Facilities Financing Authority Revenue, AMBAC Insured, 3.75%, 7/01/05 ....... 300,000 302,613 California State Department of Water Resources Central Valley Project Revenue, Water Systems, Refunding, Series Y, FGIC Insured, 5.00%, 12/01/08 ......................................... 200,000 219,664 California State Department of Water Resources Power Supply Revenue, Series A, MBIA Insured, 3.50%, 5/01/07 ............................................................................. 555,000 569,330 California State Economic Recovery Revenue, Series A, 5.00%, 7/01/06 .......................... 500,000 520,245 California State RAN, Series A, 3.00%, 6/30/05 ................................................ 500,000 502,475 California State University at Channel Islands Financing Authority Revenue, Rental Housing and Town Center, Series A, 2.50%, 8/01/44 ...................................................... 750,000 752,602 California Statewide CDA Revenue, Kaiser Permanente, Series G, Mandatory Put 5/01/07, 2.30%, 4/01/34 ......................... 400,000 397,128 Viewpoint School, ACA Insured, 3.50%, 10/01/08 ............................................. 320,000 325,040 California Statewide CDA Water and Wastewater Revenue, Pooled Financing Program 2004, Series C, FSA Insured, 2.00%, 10/01/05 ...................... 460,000 459,729 Pooled Financing Program, Series B, FSA Insured, 2.00%, 10/01/05 ........................... 270,000 270,016 Chaffey Joint UHSD, COP, Refunding, 3.00%, 5/01/08 ............................................ 250,000 256,370 Costa Mesa RDA Tax Allocation Revenue, Downtown Redevelopment Project, FSA Insured, 2.50%, 10/01/08 .................................................................................... 265,000 266,884 Evergreen School District GO, Refunding, Series D, FGIC Insured, 2.75%, 9/01/08 ............... 150,000 152,088 Fontana USD, COP, Facility Bridge Funding, Program, FSA Insured, 3.00%, 9/01/15 ............... 500,000 502,905 Foothill-De Anza Community College District GO, Election of 1999, Series B, 2.60%, 8/01/08 ..................................................................................... 100,000 100,851 Glendale USD, GO, Series F, MBIA Insured, 2.50%, 9/01/08 ...................................... 200,000 201,042 Glendora PFAR, Tax Allocation, Project No. 1, Refunding, Series A, MBIA Insured, 2.00%, 9/01/07 ............................................................................. 100,000 98,853 2.125%, 9/01/08 ............................................................................ 105,000 103,994 Goleta Water District Revenue COP, 1991 Project and 2003 Project, Refunding, MBIA Insured, 2.00%, 12/01/05 ............................................................................ 300,000 299,955 Guam International Airport Authority Revenue, Series A, MBIA Insured, 2.375%, 10/01/08 ........ 250,000 248,002 Industry Urban Development Agency Tax Allocation, Civic Recreational Industrial, Series 1-B, MBIA Insured, 2.50%, 5/01/05 ............................................................... 500,000 500,930 Inglewood USD, GO, Election of 1998, Series C, FSA Insured, 2.50%, 10/01/08 ................... 265,000 266,410 Lodi USD, COP, Capital Projects, Refunding, FSA Insured, 3.00%, 2/01/08 ....................... 110,000 112,434 Los Angeles Convention and Exhibition Center Authority Lease Revenue, Series A, AMBAC Insured, 3.25%, 8/15/09 ............................................................................. 250,000 257,233 Los Angeles County MTA Sales Tax Revenue, Proposition A, First Tier, Refunding, Senior Series A, FSA Insured, 2.50%, 7/01/07 ...................................................... 100,000 100,602 Los Angeles USD, GO, Election of 1997, Series F, FSA Insured, 3.00%, 7/01/06 .................. 150,000 151,859 Los Angeles Water and Power Revenue, Power System, Series A, Sub Series A-1, 4.00%, 7/01/06 .................................................................................... 500,000 512,965 Lynwood USD, GO, Election of 2002, Series A, FSA Insured, 4.00%, 8/01/10 ...................... 100,000 105,991 Manteca USD Special Tax, CFD No. 89-1, AMBAC Insured, 2.50%, 9/01/08 .......................... 250,000 251,303
Semiannual Report | 57 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------ FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Modesto High School District Stanislaus County GO, Refunding, FSA Insured, 2.50%, 8/01/05 .................................................................................. $ 100,000 $ 100,299 North Orange County Community College District GO, Election of 2002, Series B, FGIC Insured, 2.125%, 8/01/08 .......................................................................... 500,000 496,165 Placer County Water Agency Water Revenue COP, Refunding, MBIA Insured, 2.375%, 7/01/07 .................................................................................. 105,000 105,316 Poway RDA Tax Allocation, Paguay Redevelopment Project, Series A, MBIA Insured, 3.00%, 6/15/09 .................................................................................. 100,000 101,963 Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series C, MBIA Insured, 5.00%, 7/01/28 .................................................................................. 200,000 215,702 Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series AA, FGIC Insured, 2.625%, 7/01/08 ............................................................ 300,000 301,845 Rio Linda Unified Elementary School District, Election of 2002, Series A, FSA Insured, 4.00%, 8/01/10 .................................................................................. 100,000 105,991 Riverside County Asset Leasing Corp. Leasehold Revenue, Hospital Project, Refunding, Series A, MBIA Insured, 3.00%, 6/01/08 ............................................................. 115,000 117,431 San Diego Community College District GO, Election of 2002, Refunding, Series A, FSA Insured, 2.50%, 5/01/07 .................................................... 300,000 302,022 Series B, FSA Insured, 4.00%, 5/01/05 .................................................... 150,000 150,998 San Diego Regional Building Authority Lease Revenue, San Miguel Conservation Fire District, Refunding, AMBAC Insured, 3.00%, 1/01/08 ................................................. 240,000 245,174 San Francisco City and County Airports Commission International Airport Revenue, Issue 29, Refunding, Second Series B, FGIC Insured, 3.00%, 5/01/07 ................................. 500,000 508,430 San Francisco City and County Public Utility Commission Warrant Revenue, Refunding, Series A, MBIA Insured, 3.00%, 10/01/08 ............................................................ 100,000 102,311 San Jose Financing Authority Lease Revenue, Central Service Yard Project, Refunding, AMBAC Insured, 3.00%, 10/15/06 ........................................................... 245,000 248,523 San Mateo Foster City School District GO, Refunding, FSA Insured, 2.50%, 9/01/08 ............ 200,000 201,042 Santa Clara Electric Revenue, Sub Series A, MBIA Insured, 3.00%, 7/01/09 .................... 225,000 228,980 Santa Clara Valley Transportation Authority Sales Tax Revenue, Measure A, AMBAC Insured, 3.00%, 4/01/36 ........................................................................... 500,000 508,165 Sonoma County COP, Series A, Refunding, MBIA Insured, 3.00%, 11/15/08 ....................... 250,000 255,960 South Coast Local Education Agencies Note Participations, Pooled TRAN, 3.00%, 6/30/05 ....... 500,000 502,260 University of California Revenues, University and College Improvements, Refunding, Series A, 3.00%, 5/15/05 ........................................................................... 120,000 120,466 --------------- TOTAL LONG TERM INVESTMENTS (COST $14,635,602)............................................... 14,575,427 --------------- SHORT TERM INVESTMENTS 25.9% BONDS (a) Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Series C, AMBAC Insured, Weekly VRDN and Put, 1.96%, 4/01/37 ...................................................... 400,000 400,000 (a) California State Department of Water Resources Power Supply Revenue, Series B-6, Daily VRDN and Put, 2.15%, 5/01/22 ........................................... 100,000 100,000 Series C-7, FSA Insured, Weekly VRDN and Put, 2.00%, 5/01/22 ............................. 300,000 300,000 (a) California State GO, Kindergarten University, Series B-3, Daily VRDN and Put, 2.15%, 5/01/34 .................................................................................. 200,000 200,000 (a) Daly City HFA, MFR, Refunding, Weekly VRDN and Put, 1.96%, 10/15/29 ......................... 100,000 100,000
58 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------ FRANKLIN CALIFORNIA LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS (CONT.) BONDS (CONT.) (a) Irvine 1915 Act Special Assessment, AD No. 00-18, Series A, Daily VRDN and Put, 2.15%, 9/02/26 .................................................................................. $ 200,000 $ 200,000 (a) Irvine Ranch Water District Revenue, Construction Bonds, Daily VRDN and Put, 2.15%, 10/01/05 ................................................................................. 45,000 45,000 (a) Irvine USD Special Tax, CFD No. 01-1, Daily VRDN and Put, 2.15%, 9/01/38 .................... 700,000 700,000 (a) Livermore COP, Capital Projects, Weekly VRDN and Put, 2.00%, 10/01/30 ....................... 200,000 200,000 (a) Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Daily VRDN and Put, 2.15%, 7/01/35 .................................................................. 800,000 800,000 (a) Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series B-2, Weekly VRDN and Put, 1.95%, 7/01/35 ............................... 200,000 200,000 Refunding, Series B-3, Daily VRDN and Put, 1.70%, 7/01/35 ................................ 200,000 200,000 Series B, Weekly VRDN and Put, 1.95%, 7/01/27 ............................................ 200,000 200,000 (a) Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Series A, Weekly VRDN and Put, 2.13%, 10/01/26........................................................................... 400,000 400,000 (a) Orange County Sanitation Districts COP, Refunding, Series B, Daily VRDN and Put, 2.15%, 8/01/30 .................................................................................. 200,000 200,000 (a) Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured, Weekly VRDN and Put, 1.92%, 12/01/15 ..................................................... 100,000 100,000 (a) Rancho Water District Financing Authority Revenue, Series B, FGIC Insured, Weekly VRDN and Put, 1.95%, 8/01/31 ...................................................................... 200,000 200,000 (a) San Bernardino County COP, County Center Refinancing Project, Refunding, Weekly VRDN and Put, 1.96%, 7/01/15 ...................................................................... 500,000 500,000 (a) Westminster COP, Civic Center Refunding Project, Series B, AMBAC Insured, Weekly VRDN and Put, 2.00%, 6/01/24 ...................................................................... 100,000 100,000 --------------- TOTAL SHORT TERM INVESTMENTS (COST $5,145,000) ................................................ 5,145,000 --------------- TOTAL INVESTMENTS (COST $19,780,602) 99.3% .................................................... 19,720,427 OTHER ASSETS, LESS LIABILITIES .7% ............................................................ 133,201 --------------- NET ASSETS 100.0% ............................................................................. $ 19,853,628 ===============
See glossary of terms on page 65. (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. VRDNs are valued at cost. Semiannual Report | See notes to financial statements. | 59 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
-------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED JUNE 30, CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------------------------------------------------------------------------------- Icome from investment operations - net investment income ............................. .004 .004 .007 .012 .027 .026 Less distributions from net investment income .. (.004) (.004) (.007) (.012) (.027) (.026) -------------------------------------------------------------------------------- Net asset value, end of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ================================================================================ Total return(a) ................................ .43% .38% .71% 1.21% 2.76% 2.64% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .............. $ 606,779 $ 631,895 $ 671,392 $ 679,788 $ 711,789 $ 696,803 Ratios to average net assets: Expenses ...................................... .56%(b) .56% .56% .56% .56% .56% Net investment income ......................... .85%(b) .38% .71% 1.20% 2.72% 2.61%
(a) Total return does not reflect the contingent deferred sales charge and is not annualized for periods less than one year. (b) Annualized. 60 | See notes to financial statements. | Annual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------- BONDS 99.8% (a) Alameda County IDAR, United Manufacturing Project, Series A, Weekly VRDN and Put, 2.00%, 6/01/30 .................................................................... $ 1,000,000 $ 1,000,000 (a) Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Series A, AMBAC Insured, Weekly VRDN and Put, 1.95%, 4/01/36 ....................................... 2,500,000 2,500,000 (a) Butte County Housing Authority MFR, Pine Tree Apartment Project, Weekly VRDN and Put, 2.00%, 12/01/10 .................................................................... 1,532,000 1,532,000 California Community College Financing Authority TRAN, Series A, 3.00%, 6/30/05 ....... 20,000,000 20,136,879 (a) California Educational Facilities Authority Revenue, University of Southern California, Series C, Annual VRDN and Put, 1.01%, 10/01/33 ......................... 6,000,000 6,000,000 (a) California Health Facilities Financing Authority Revenue, Catholic Healthcare West, MBIA Insured, Weekly VRDN and Put, 1.98%, 7/01/16 ........ 3,955,000 3,955,000 Pooled Loan Program, Series B, FGIC Insured, Weekly VRDN and Put, 2.00%, 10/01/10 .. 2,500,000 2,500,000 Scripps Health, Series A, MBIA Insured, Weekly VRDN and Put, 1.92%, 10/01/22 ....... 4,900,000 4,900,000 (a) California Infrastructure and Economic Development Bank Revenue, Independent System Operating Corp. Project, Refunding, Series B, MBIA Insured, Weekly VRDN and Put, 1.98%, 4/01/08 .............................................. 6,500,000 6,500,000 J. Paul Getty Trust, Refunding, Series B, Annual VRDN and Put, 1.17%, 4/01/33 ...... 8,000,000 8,000,000 J. Paul Getty Trust, Refunding, Series D, Annual VRDN and Put, 1.17%, 4/01/33 ...... 2,000,000 2,000,000 California School Cash Reserves Program Authority Revenue, Pool, Series A, 3.00%, 7/06/05............................................................................ 24,870,000 25,036,044 (a) California State Department of Water Resources Power Supply Revenue, Series B-3, Daily VRDN and Put, 2.17%, 5/01/22 ..................................... 11,220,000 11,220,000 Series B-5, Daily VRDN and Put, 2.10%, 5/01/22 ..................................... 300,000 300,000 Series B-6, Daily VRDN and Put, 2.15%, 5/01/22 ..................................... 7,000,000 7,000,000 Series C-8, Weekly VRDN and Put, 1.96%, 5/01/22 .................................... 6,000,000 6,000,000 Series C-12, Weekly VRDN and Put, 1.95%, 5/01/22 ................................... 6,700,000 6,700,000 (a) California State Economic Development Financing Authority Revenue, Calco Project, Weekly VRDN and Put, 2.08%, 4/01/27 ................................. 1,500,000 1,500,000 KQED Inc. Project, Refunding, Weekly VRDN and Put, 1.97%, 4/01/20 .................. 1,080,000 1,080,000 (a) California State Economic Recovery GO, Series C-4, Daily VRDN and Put, 2.20%, 7/01/23 ..................................... 4,900,000 4,900,000 Series C-6, Daily VRDN and Put, 2.13%, 7/01/23 ..................................... 8,000,000 8,000,000 (a) California State Economic Recovery Revenue, Series C-11, Weekly VRDN and Put, 1.95%, 7/01/23 ................................... 900,000 900,000 Series C-15, FSA Insured, Weekly VRDN and Put, 1.98%, 7/01/23 ...................... 3,000,000 3,000,000 (a) California State GO, Kindergarten University, Series B-3, Daily VRDN and Put, 2.15%, 5/01/34 ............ 4,600,000 4,600,000 Series A-3, Daily VRDN and Put, 2.10%, 5/01/33 ..................................... 8,700,000 8,700,000 California State RAN, Series A, 3.00%, 6/30/05 ........................................ 15,000,000 15,092,427 California Statewide CDA Revenue, TRAN, Series A-1, FSA Insured, 3.00%, 6/30/05 ....... 13,385,000 13,476,607 (a) Carlsbad USD, COP, School Facility Bridge Funding Program, FSA Insured, Weekly VRDN and Put, 1.95%, 9/01/14 ........................................................... 500,000 500,000 (a) Chico MFMR, Webb Homes Project, Weekly VRDN and Put, 1.60%, 1/01/10 ................... 1,520,000 1,520,000 (a) Chino Basin Regional Financing Authority Revenue, Inland Empire Utilities, Series A, AMBAC Insured, Weekly VRDN and Put, 1.94%, 6/01/32 ................................. 5,485,000 5,485,000 (a) Commerce Joint Powers Financing Authority IDR, Weekly VRDN and Put, 2.00%, 11/01/14. .. 1,620,000 1,620,000 (a) Elsinore Valley Municipal Water District COP, Series A, FGIC Insured, Weekly VRDN and Put, 1.95%, 7/01/29 ................................................................ 13,600,000 13,600,000
Semiannual Report | 61 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) (a) Fremont PFA, COP, Weekly VRDN and Put, 2.00%, 8/01/30 ................................. $ 5,900,000 $ 5,900,000 (a) Grant Joint UHSD, COP, School Facilities Bridge Funding Program, FSA Insured, Weekly VRDN and Put, 1.95%, 9/01/34 ............................................................................ 4,900,000 4,900,000 Various Bridge Funding Program, FSA Insured, Weekly VRDN and Put, 1.95%, 7/01/37 ... 10,000,000 10,000,000 (a) Hillsborough COP, Water and Sewer System Project, Refunding, Series B, Weekly VRDN and Put, 1.98%, 6/01/30 ............................................................ 4,300,000 4,300,000 (a) Irvine 1915 Act Revenue, AD No. 94-15, Daily VRDN and Put, 2.15%, 9/02/20 ............. 2,600,000 2,600,000 (a) Irvine 1915 Act Special Assessment, AD No. 00-18, Series A, Daily VRDN and Put, 2.15%, 9/02/26 ......................... 2,595,000 2,595,000 AD No. 03-19, Series A, Daily VRDN and Put, 2.15%, 9/02/29 ......................... 1,100,000 1,100,000 AD No. 93-14, Daily VRDN and Put, 2.10%, 9/02/25 ................................... 5,961,000 5,961,000 AD No. 97-13, Daily VRDN and Put, 2.15%, 9/02/23 ................................... 16,895,000 16,895,000 AD No. 97-16, Daily VRDN and Put, 2.15%, 9/02/22 ................................... 6,000,000 6,000,000 (a) Irvine Ranch Water District GO, Nos. 105, 140, 240 and 250, Daily VRDN and Put, 2.10%, 1/01/21 ............................................................................ 7,800,000 7,800,000 (a) Irvine Ranch Water District Revenue, Consolidated Bonds, Daily VRDN and Put, 2.15%, 10/01/10 ............................ 1,400,000 1,400,000 Consolidated Bonds, Refunding, Series B, Daily VRDN and Put, 2.25%, 10/01/09 ....... 2,300,000 2,300,000 Consolidated, Daily VRDN and Put, 2.15%, 8/01/16 ................................... 400,000 400,000 Construction Bonds, Daily VRDN and Put, 2.15%, 10/01/05 ............................ 1,500,000 1,500,000 (a) Irvine USD Special Tax, CFD No. 01-1, Daily VRDN and Put, 2.15%, 9/01/38 ................................... 15,300,000 15,300,000 CFD No. 03-1, Daily VRDN and Put, 2.15%, 9/01/39 ................................... 1,000,000 1,000,000 (a) Kern County COP, Kern Public Facilities Project, Series A, Weekly VRDN and Put, 1.95%, 8/01/06 ............................................................................ 400,000 400,000 (a) Lancaster RDA, MFHR, Woodcreek Garden Project, Refunding, Series B, FNMA Insured, Weekly VRDN and Put, 1.98%, 12/15/31 ............................................... 2,400,000 2,400,000 (a) Los Angeles County Pension Obligation Revenue, Refunding, Series A, AMBAC Insured, Weekly VRDN and Put, 1.94%, 6/30/07 ....................... 1,400,000 1,400,000 Series B, Weekly VRDN and Put, 1.94%, 6/30/07 ...................................... 3,200,000 3,200,000 Los Angeles County Schools Pooled Financing Program COP, GO, Transport, Series A, FSA Insured, 3.50%, 6/30/05 ........................................................ 8,000,000 8,073,345 (a) Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Daily VRDN and Put, 2.15%, 7/01/35 ................................................ 10,875,000 10,875,000 (a) Los Angeles MFR, Casden Project, Series K, Weekly VRDN and Put, 2.05%, 7/01/10 ........ 145,507 145,507 (a) Los Angeles Wastewater System Revenue, Refunding, Sub Series A, FGIC Insured, Annual VRDN and Put, 2.15%, 12/01/31 ............................................... 5,000,000 5,000,000 (a) Los Angeles Water and Power Revenue, Sub Series B-5, Refunding, Weekly VRDN and Put, 1.98%, 7/01/34 ..................................................................... 3,700,000 3,700,000 (a) Metropolitan Water District Southern California Waterworks Revenue, Refunding, Series A, Weekly VRDN and Put, 1.95%, 6/01/23 ........................... 6,575,000 6,575,000 Refunding, Series B-1, Daily VRDN and Put, 2.15%, 7/01/35 .......................... 4,800,000 4,800,000 Refunding, Series B-3, Daily VRDN and Put, 2.10%, 7/01/35 .......................... 2,500,000 2,500,000 Refunding, Series C-1, Weekly VRDN and Put, 1.92%, 7/01/30 ......................... 3,000,000 3,000,000 Series B-4, Weekly VRDN and Put, 1.94%, 7/01/35 .................................... 3,500,000 3,500,000 Series C, Weekly VRDN and Put, 1.97%, 7/01/28 ...................................... 13,200,000 13,200,000
62 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) (a) Northern California Public Power Agency Revenue, Hydroelectric No. 1, Refunding, Series A, MBIA Insured, Weekly VRDN and Put, 1.94%, 7/01/23 ........................ $ 8,700,000 $ 8,700,000 (a) Oakland COP, Capital Equipment Project, Weekly VRDN and Put, 1.98%, 12/01/15 .......... 6,100,000 6,100,000 (a) Orange County Sanitation Districts COP, Nos. 1-3, 5-7 and 11, Refunding, AMBAC Insured, Daily VRDN and Put, 2.15%, 8/01/16 ............................................................................ 1,250,000 1,250,000 Refunding, Series A, Daily VRDN and Put, 2.15%, 8/01/29 ............................ 4,820,000 4,820,000 Refunding, Series B, Daily VRDN and Put, 2.15%, 8/01/30 ............................ 4,900,000 4,900,000 (a) Pajaro Valley USD, COP, School Facility Bridge Funding Program, Weekly VRDN and Put, 1.95%, 9/01/31 ..................................................................... 700,000 700,000 (a) Rancho Water District Financing Authority Revenue, Refunding, Series A, FGIC Insured, Weekly VRDN and Put, 1.95%, 8/01/29 ............. 6,000,000 6,000,000 Series B, FGIC Insured, Weekly VRDN and Put, 1.95%, 8/01/31 ........................ 3,880,000 3,880,000 (a) Riverside County Asset Leasing Corp. Leasehold Revenue, Southwest Justice Center, Series B, MBIA Insured, Weekly VRDN and Daily Put, 1.94%, 11/01/32 ................. 5,000,000 5,000,000 (a) Riverside County COP, Riverside County Public Facilities, ACES, Series B, Weekly VRDN and Put, 1.88%, 12/01/15 ..................................................... 1,800,000 1,800,000 (a) Sacramento County COP, Administration Center and Courthouse Project, Weekly VRDN and Put, 2.00%, 6/01/20 ............................................................ 11,300,000 11,300,000 (a) Sacramento County Sanitation District Financing Authority Revenue, Series C, Weekly VRDN and Put, 1.97%, 12/01/30 ............................................... 28,600,000 28,600,000 Sacramento County TRAN, Series A, 3.00%, 7/11/05 ...................................... 10,000,000 10,069,473 (a) San Francisco City and County RDA, MFR, Derek Silva Community, Series D, Weekly VRDN and Put, 2.10%, 12/01/19 .............. 4,550,000 4,550,000 Fillmore Center, Refunding, Series B-2, Weekly VRDN and Put, 2.02%, 12/01/17 ....... 1,000,000 1,000,000 San Joaquin County Transportation Authority Sales Tax Revenue, TECP, 1.78%, 1/12/05 29,200,000 29,200,000 (a) San Jose RDAR, Merged Area Redevelopment Project, Series A, Weekly VRDN and Put, 1.94%, 7/01/26 ............................................................................ 3,300,000 3,300,000 (a) San Jose-Santa Clara Water Financing Authority Sewer Revenue, Series B, Weekly VRDN and Put, 1.94%, 11/15/11 ............................................................... 1,200,000 1,200,000 (a) San Mateo County MFHR, Pacific Oaks Apartment Project, Series A, Weekly VRDN and Put, 2.04%, 7/01/17 ..................................................................... 2,950,000 2,950,000 (a) Santa Ana Housing Authority MFHR, Vintage Apartments, Refunding, Series A, Weekly VRDN and Put, 2.03%, 12/15/22 ........................................................... 4,650,000 4,650,000 (a) Santa Clara County Housing Authority MFHR, Benton Park Central Apartments, Refunding, Series A, Weekly VRDN and Put, 1.98%, 12/15/25 ..................................... 5,000,000 5,000,000 (a) South San Francisco MFHR, Magnolia Plaza Apartments, Series A, Weekly VRDN and Put, 2.04%, 5/01/17 ..................................................................... 500,000 500,000 (a) Southern California Public Power Authority Transmission Project Revenue, Southern Transmission, Refunding, AMBAC Insured, Weekly VRDN and Put, 1.94%, 7/01/19 ................................. 27,715,000 27,715,000 Series A, Weekly VRDN and Put, 1.95%, 7/01/23 ...................................... 1,000,000 1,000,000 Series B, FSA Insured, Weekly VRDN and Put, 1.95%, 7/01/23 ......................... 6,600,000 6,600,000 (a) Stanislaus Waste to Energy Financing Agency Revenue, Solid Waste Facility, Ogden Martin Systems Project, Refunding, MBIA Insured, Weekly VRDN and Put, 2.00%, 1/01/10 ...... 4,100,000 4,100,000 (a) Suisun City Housing Authority MFR, Village Green, Series A, Weekly VRDN and Put, 1.95%, 6/15/18 ............................................................................ 7,300,000 7,300,000
Semiannual Report | 63 FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------- FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) (a) Turlock Irrigation District COP, Capital Improvement and Refunding Project, Daily VRDN and Put, 2.20%, 1/01/31 ....................................................... $ 1,900,000 $ 1,900,000 (a) Tustin 1915 Act, Special Assessment, Reassessment District, No. 95-2, Series A, Daily VRDN and Put, 2.15%, 9/02/13 ................................................. 16,169,000 16,169,000 (a) Union City MFR, Housing Mission Sierra, Refunding, Series A, FNMA Insured, Weekly VRDN and Put, 1.98%, 7/15/29 ....................................................... 2,000,000 2,000,000 (a) Upland CRDA, MFHR, Weekly VRDN and Put, 1.97%, 2/15/30 ................................ 1,000,000 1,000,000 (a) Val Verde USD, COP, Land Bank Program, Series A, Weekly VRDN and Put, 1.98%, 9/01/24 .. 2,600,000 2,600,000 (a) Vallecitos Water District Revenue COP, Twin Oaks Reservoir Project, Weekly VRDN and Put, 1.95%, 7/01/30 ............................................................ 2,400,000 2,400,000 (a) Vallejo Housing Authority MFR, FNMA Insured, Weekly VRDN and Put, 1.95%, 5/15/22 ...... 1,985,000 1,985,000 (a) Watereuse Finance Authority Revenue, FSA Insured, Weekly VRDN and Put, 2.00%, 5/01/28 ............................................................................ 20,900,000 20,900,000 (a) Western Placer Union School COP, Facilities Project B, Weekly VRDN and Put, 1.98%, 8/01/23 ............................................................................ 5,000,000 5,000,000 (a) Western Riverside County Regional Wastewater Authority Revenue, Regional Wastewater Treatment, Daily VRDN and Put, 2.15%, 4/01/28 ...................................... 1,450,000 1,450,000 ------------ TOTAL BONDS (COST $605,562,282) 99.8%.................................................. 605,562,282 OTHER ASSETS, LESS LIABILITIES .2%..................................................... 1,216,403 ------------ NET ASSETS 100.0%...................................................................... $606,778,685 ============
See glossary of terms on page 65. (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. VRDNs are valued at cost. 64 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED) GLOSSARY OF TERMS 1915 Act - Improvement Bond Act of 1915 MBIA - Municipal Bond Investors Assurance Corp. ABAG - The Association of Bay Area Governments MFHR - Multi-Family Housing Revenue ACA - American Capital Access Holdings Inc. MFMR - Multi-Family Mortgage Revenue ACES - Adjustable Convertible Exempt Securities MFR - Multi-Family Revenue AD - Assessment District MTA - Metropolitan Transit Authority AMBAC - American Municipal Bond Assurance Corp. MUD - Municipal Utility District BART - Bay Area Rapid Transit PCFA - Pollution Control Financing Authority CDA - Community Development Authority/Agency PCR - Pollution Control Revenue CFD - Community Facilities District PFA - Public Financing Authority COP - Certificate of Participation PFAR - Public Financing Authority Revenue CRDA - Community Redevelopment Authority/Agency RAN - Revenue Anticipation Notes ETM - Escrow to Maturity RDA - Redevelopment Agency/Authority FGIC - Financial Guaranty Insurance Co. RDAR - Redevelopment Agency/Authority FNMA - Federal National Mortgage Association SFM - Single Family Mortgage FSA - Financial Security Assistance SFMR - Single Family Mortgage Revenue GNMA - Government National Mortgage Association TECP - Tax-Exempt Commercial Paper GO - General Obligation TRAN - Tax and Revenue Anticipation Notes HFA - Housing Finance Authority/Agency UHSD - Unified/Union High School District HFAR - Housing Finance Authority/Agency Revenue USD - Unified/Union School District ID - Improvement District XLCA - XL Capital Assurance IDAR - Industrial Development Revenue IDR - Industrial Development Revenue
Semiannual Report | See notes to finanical statements. | 65 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2004 (unaudited)
-------------------------------------------------------------------------- FRANKLIN FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA INTERMEDIATE-TERM LIMITED-TERM CALIFORNIA INSURED TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT INCOME FUND INCOME FUND INCOME FUND MONEY FUND -------------------------------------------------------------------------- Assets: Investments in securities: Cost ............................................. $ 1,798,184,105 $ 413,155,814 $ 19,780,602 $ 605,562,282 ========================================================================== Value ............................................ 1,941,349,027 431,128,376 19,720,427 605,562,282 Cash .............................................. 6,842 52,550 35,951 7,662 Receivables: Capital shares sold .............................. 3,220,611 930,051 91 856,334 Interest ......................................... 27,153,254 5,340,867 140,701 2,319,994 -------------------------------------------------------------------------- Total assets ................................. 1,971,729,734 437,451,844 19,897,170 608,746,272 -------------------------------------------------------------------------- Liabilities: Payables: Capital shares redeemed .......................... 2,719,987 658,621 16,400 1,591,690 Affiliates ....................................... 1,111,392 230,009 2,834 272,148 Professional fees ................................ 15,366 10,361 9,021 7,965 Distributions to shareholders ..................... 2,814,802 522,090 9,372 58,834 Other liabilities ................................. 40,335 23,399 5,915 36,950 -------------------------------------------------------------------------- Total liabilities ............................ 6,701,882 1,444,750 43,542 1,967,587 -------------------------------------------------------------------------- Net assets, at value ........................ $ 1,965,027,852 $ 436,007,094 $ 19,853,628 $ 606,778,685 ========================================================================== Net assets consist of: Undistributed net investment income (distributions in excess of net investment income) ........... $ (1,262,970) $ (314,229) $ 13,446 $ -- Net unrealized appreciation (depreciation) ........ 143,164,922 17,972,562 (60,175) -- Accumulated net realized gain (loss) .............. (9,296,006) (1,959,197) -- -- Capital shares .................................... 1,832,421,906 420,307,958 19,900,357 606,778,685 -------------------------------------------------------------------------- Net assets, at value ........................ $ 1,965,027,852 $ 436,007,094 $ 19,853,628 $ 606,778,685 ==========================================================================
66 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2004 (unaudited)
-------------------------------------------------------------------------- FRANKLIN FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA INTERMEDIATE-TERM LIMITED-TERM CALIFORNIA INSURED TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT INCOME FUND INCOME FUND INCOME FUND MONEY FUND -------------------------------------------------------------------------- CLASS A: Net assets, at value .............................. $ 1,760,218,541 $ 423,944,812 $ 19,853,628 $ 606,778,685 ========================================================================== Shares outstanding ................................ 138,927,674 36,389,263 1,989,299 606,778,685 ========================================================================== Net asset value per share(a) ...................... $ 12.67 $ 11.65 $ 9.98 $ 1.00 ========================================================================== Maximum offering price per share (net asset value per share / 95.75%, 97.75%, 100% and 100%, respectively) ................................... $ 13.23 $ 11.92 $ 9.98 $ 1.00 ========================================================================== CLASS B: Net assets, at value .............................. $ 79,350,704 -- -- -- ========================================================================== Shares outstanding ................................ 6,234,248 -- -- -- ========================================================================== Net asset value and maximum offering price per share(a) .................................... $ 12.73 -- -- -- ========================================================================== CLASS C: Net assets, at value .............................. $ 125,458,607 $ 12,062,282 -- -- ========================================================================== Shares outstanding ................................ 9,815,144 1,033,747 -- -- ========================================================================== Net asset value and maximum offering price per share(a) .................................... $ 12.78 $ 11.67 -- -- ==========================================================================
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable, and redemption fees retained by the Fund. Semiannual Report | See notes to financial statements. | 67 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the six months ended December 31, 2004 (unaudited)
-------------------------------------------------------------------------- FRANKLIN FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA FRANKLIN CALIFORNIA INTERMEDIATE-TERM LIMITED-TERM CALIFORNIA INSURED TAX-FREE TAX-FREE TAX-FREE TAX-EXEMPT INCOME FUND INCOME FUND INCOME FUND MONEY FUND -------------------------------------------------------------------------- INVESTMENT INCOME: Interest .......................................... $ 49,045,603 $ 9,187,947 $ 180,265 $ 4,390,536 -------------------------------------------------------------------------- Expenses: Management fees (Note 3) .......................... 4,504,702 1,086,311 47,081 1,527,105 Administrative fees (Note 3) ...................... -- -- 18,894 -- Distribution fees: (Note 3) Class A .......................................... 876,040 208,120 14,156 -- Class B .......................................... 256,437 -- -- -- Class C .......................................... 402,108 34,209 -- -- Transfer agent fees (Note 3) ...................... 284,940 73,775 2,140 161,265 Custodian fees .................................... 14,790 3,196 130 4,847 Reports to shareholders ........................... 28,230 6,685 1,021 16,902 Registration and filing fees ...................... 7,820 6,210 4,023 2,449 Amortization of offering costs (Note 1) ........... -- -- 1,790 -- Professional fees ................................. 16,529 9,994 9,453 8,291 Trustees' fees and expenses ....................... 20,323 4,122 159 6,551 Other ............................................. 69,369 29,739 6,180 16,917 -------------------------------------------------------------------------- Total expenses ............................... 6,481,288 1,462,361 105,027 1,744,327 Expenses waived/paid by affiliate (Note 3) ... -- -- (57,809) -- -------------------------------------------------------------------------- Net expenses ................................ 6,481,288 1,462,361 47,218 1,744,327 -------------------------------------------------------------------------- Net investment income ...................... 42,564,315 7,725,586 133,047 2,646,209 -------------------------------------------------------------------------- Realized and unrealized gains (losses): Net realized gain (loss) from investments ......... 840,146 142,402 -- (1,565) Net change in unrealized appreciation (depreciation) on investments ..................... 66,547,883 10,482,572 122,693 -- -------------------------------------------------------------------------- Net realized and unrealized gain (loss) ............ 67,388,029 10,624,974 122,693 (1,565) -------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................................... $ 109,952,344 $ 18,350,560 $ 255,740 $ 2,644,644 ==========================================================================
68 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the six months ended December 31, 2004 (unaudited) and the year ended June 30, 2004
----------------------------------------------------------------------------- FRANKLIN CALIFORNIA INSURED TAX-FREE FRANKLIN CALIFORNIA INTERMEDIATE-TERM INCOME FUND TAX-FREE INCOME FUND ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2004 JUNE 30, 2004 DECEMBER 31, 2004 JUNE 30, 2004 ----------------------------------------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ........................... $ 42,564,315 $ 90,533,901 $ 7,725,586 $ 15,072,195 Net realized gain (loss) from investments ................................... 840,146 4,549,719 142,402 (1,444,960) Net change in unrealized appreciation (depreciation) on investments .................. 66,547,883 (102,836,172) 10,482,572 (12,387,719) ----------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 109,952,344 (7,752,552) 18,350,560 1,239,516 Distributions to shareholders from: Net investment income: Class A ........................................ (38,935,898) (81,912,569) (7,682,887) (14,985,040) Class B ........................................ (1,538,589) (3,208,586) -- -- Class C ........................................ (2,386,534) (5,018,247) (164,226) (183,314) ----------------------------------------------------------------------------- Total distributions to shareholders .............. (42,861,021) (90,139,402) (7,847,113) (15,168,354) Capital share transactions: (Note 2) Class A ........................................ 1,460,584 (126,577,971) 29,488,700 (16,567,037) Class B ........................................ (552,653) (4,527,274) -- -- Class C ........................................ 580,424 (9,710,641) 2,676,228 9,275,690 ----------------------------------------------------------------------------- Total capital share transactions ................. 1,488,355 (140,815,886) 32,164,928 (7,291,347) Redemption fees .................................. 75 -- 937 -- ----------------------------------------------------------------------------- Net increase (decrease) in net assets ..................................... 68,579,753 (238,707,840) 42,669,312 (21,220,185) Net assets: Beginning of period .............................. 1,896,448,099 2,135,155,939 393,337,782 414,557,967 ----------------------------------------------------------------------------- End of period .................................... $ 1,965,027,852 $ 1,896,448,099 $ 436,007,094 $ 393,337,782 ============================================================================= Undistributed net investment income (distributions in excess of net investment income) included in net assets: End of period ................................... $ (1,262,970) $ (966,264) $ (314,229) $ (192,702) =============================================================================
Semiannual Report | See notes to financial statements. | 69 FRANKLIN CALIFORNIA TAX-FREE TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) for the six months ended December 31, 2004 (unaudited) and the year ended June 30, 2004
---------------------------------------------------------------------------- FRANKLIN CALIFORNIA LIMITED-TERM FRANKLIN CALIFORNIA TAX-FREE INCOME FUND TAX-EXEMPT MONEY FUND ---------------------------------------------------------------------------- SIX MONTHS ENDED PERIOD ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2004 JUNE 30, 2004(a) DECEMBER 31, 2004 JUNE 30, 2004 ---------------------------------------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ........................... $ 133,047 $ 130,707 $ 2,646,209 $ 2,490,464 Net realized gain (loss) from investments ....... -- -- (1,565) -- Net change in unrealized appreciation (depreciation) on investments .................... 122,693 (182,868) -- -- ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 255,740 (52,161) 2,644,644 2,490,464 Distributions to shareholders from net investment income .............................. (133,280) (128,991) (2,644,644)(b) (2,490,464) Capital share transactions (Note 2) .............. 3,486,759 16,425,560 (25,116,469) (39,497,215) Redemption fees .................................. 1 -- -- -- ---------------------------------------------------------------------------- Net increase (decrease) in net assets ....... 3,609,220 16,244,408 (25,116,469) (39,497,215) Net assets: Beginning of period .............................. 16,244,408 -- 631,895,154 671,392,369 ---------------------------------------------------------------------------- End of period .................................... $ 19,853,628 $ 16,244,408 $ 606,778,685 $ 631,895,154 ============================================================================ Undistributed net investment income (distributions in excess of net investment income) included in net assets: End of period ................................... $ 13,446 $ 13,679 $ -- $ -- ============================================================================
(a) For the period September 2, 2003 (commencement of operations) to June 30, 2004. (b) Distributions were decreased by net realized losses from security transactions of $1,565. 70 | See notes to financial statements. | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin California Tax-Free Trust (the Trust) is registered under the Investment Company Act of 1940 as an open-end investment company, consisting of four series (the Funds). All Funds are diversified except the Franklin California Intermediate-Term Tax-Free Income Fund (Intermediate-Term Fund). The Funds' primary investment objectives are to provide a high level of current income exempt from federal and California state personal income taxes, while seeking preservation of capital. The Franklin California Tax-Exempt Money Fund (Money Fund) also seeks liquidity in its investments. 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'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. For the Money Fund, short term securities are valued at amortized cost unless otherwise noted. 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. Some 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. Occasionally, events occur between the time at which trading in a security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a portfolio security held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. All security valuation procedures are approved by the Trust's Board of Trustees. B. INCOME TAXES No provision has been made for U.S. income taxes because each fund's policy is to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and to distribute substantially all of its income. Fund distributions to shareholders are determined on an income tax basis and may differ from net investment income and realized gains for financial reporting purposes. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Discounts and premiums on securities purchased are amortized over the lives of the respective securities. For the California Insured Tax-Free Income Fund (Insured Fund), the Semiannual Report | 71 FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) Intermediate-Term Fund, and the Limited-Term Fund, dividends from net investment income are normally declared daily and distributed monthly to shareholders. For the Money Fund, dividends from net investment income and capital gains or losses are normally declared daily. Such distributions are reinvested in additional shares of the fund or distributed monthly. 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. Other expenses are charged to each fund on a specific identification basis. 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 for the Insured Fund and the Intermediate-Term Fund. D. INSURANCE The scheduled payments of interest and principal for each insured municipal security in the Insured Fund are insured by either a new issue insurance policy, a portfolio insurance policy, or a secondary insurance policy. Some municipal securities in the fund are secured by collateral guaranteed by an agency of the U.S. government. Depending on the type of coverage, premiums for insurance are either added to the cost basis of the security, included as an expense of the fund, or paid by a third party. E. OFFERING COSTS Offering costs are amortized on a straight line basis over twelve months. 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 Effective June 1, 2004, redemptions and exchanges of the Funds' shares, except for the Money Fund, held five trading days or less may be subject to the Funds' redemption fee, which is 2% of the amount redeemed. Such fees are retained by the Funds and accounted for as additional paid-in capital as noted in the Statements of Changes in Net Assets. 72 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust expects the risk of loss to be remote. 2. SHARES OF BENEFICIAL INTEREST The classes of shares offered within each of the Funds are indicated below. Effective March 1, 2005, Class B shares will no longer be offered except to existing Class B shareholders through reinvested distributions or exchanges into other Franklin Templeton funds' Class B Shares, as permitted by the applicable fund prospectus. 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 - -------------------------------------------------------------------------------- Limited -Term Fund Intermediate-Term Fund Insured Fund Money Fund At December 31, 2004, there were an unlimited number of shares authorized (no par value). Transactions in the Money Fund's shares were at $1.00 per share. Transactions in the Funds' shares were as follows:
------------------------------------------------------------ INSURED FUND INTERMEDIATE-TERM FUND ------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------ CLASS A SHARES: Six months ended December 31, 2004 Shares sold ..................... 5,936,809 $ 74,580,701 5,256,344 $ 60,794,333 Shares issued in reinvestment of distributions .............. 1,703,110 21,412,110 385,698 4,480,520 Shares redeemed ................. (7,531,575) (94,532,227) (3,085,772) (35,786,153) ------------------------------------------------------------ Net increase (decrease) ......... 108,344 $ 1,460,584 2,556,270 $ 29,488,700 ============================================================ Year ended June 30, 2004 Shares sold ..................... 18,980,728 $ 237,925,528 11,527,778 $ 133,026,492 Shares issued in reinvestment of distributions .............. 3,553,147 44,490,385 771,318 8,903,549 Shares redeemed ................. (32,804,476) (408,993,884) (13,788,055) (158,497,078) ------------------------------------------------------------ Net increase (decrease) ......... (10,270,601) $(126,577,971) (1,488,959) $ (16,567,037) ============================================================
Semiannual Report | 73 FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------------------------------------------- INSURED FUND INTERMEDIATE-TERM FUND ---------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------- CLASS B SHARES: Six months ended December 31, 2004 Shares sold ............................... 317,095 $ 4,000,728 Shares issued in reinvestment of distributions ......................... 81,611 1,030,605 Shares redeemed ........................... (442,746) (5,583,986) ------------------------------- Net increase (decrease) ................... (44,040) $ (552,653) =============================== Year ended June 30, 2004 Shares sold ............................... 1,108,542 $ 13,945,723 Shares issued in reinvestment of distributions ......................... 172,057 2,162,656 Shares redeemed ........................... (1,654,209) (20,635,653) ------------------------------- Net increase (decrease) ................... (373,610) $ (4,527,274) =============================== CLASS C SHARES: Six months ended December 31, 2004 Shares sold ............................... 805,351 $ 10,204,842 340,325 $ 3,956,167 Shares issued in reinvestment of distributions ......................... 108,068 1,370,516 8,453 98,357 Shares redeemed ........................... (870,318) (10,994,934) (118,873) (1,378,296) ---------------------------------------------------------------- Net increase (decrease) ................... 43,101 $ 580,424 229,905 $ 2,676,228 ================================================================ Year ended June 30, 2004 Shares sold ............................... 2,003,569 $ 25,356,286 1,046,200 $ 12,057,807 Shares issued in reinvestment of distributions ......................... 230,947 2,914,870 9,085 105,009 Shares redeemed ........................... (3,029,459) (37,981,797) (251,443) (2,887,126) ---------------------------------------------------------------- Net increase (decrease) ................... (794,943) $ (9,710,641) 803,842 $ 9,275,690 ================================================================
---------------------------------------------------------------- LIMITED-TERM FUND MONEY FUND ---------------------------------------------------------------- SHARES AMOUNT AMOUNT ---------------------------------------------------------------- CLASS A SHARES: Six months ended December 31, 2004 Shares sold ............................... 1,057,488 $ 10,553,691 $ 220,824,498 Shares issued in reinvestment of distributions ......................... 8,561 85,579 2,631,317 Shares redeemed ........................... (715,767) (7,152,511) (248,572,284) ---------------------------------------------------------------- Net increase (decrease) ................... 350,282 $ 3,486,759 $ (25,116,469) ================================================================ Year ended June 30, 2004(a) Shares sold ............................... 2,319,006 $ 23,220,874 $ 672,833,442 Shares issued in reinvestment of distributions ......................... 7,263 72,724 2,482,205 Shares redeemed ........................... (687,252) (6,868,038) (714,812,862) ---------------------------------------------------------------- Net increase (decrease) ................... 1,639,017 $ 16,425,560 $ (39,497,215) ================================================================
(a) For the period September 2, 2003 (commencement of operations) to June 30, 2004 for the Limited-Term Fund. 74 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES Certain officers and trustees of the Funds are also officers and/or trustees of the following entities: - ------------------------------------------------------------------------------------------- ENTITY AFFILIATION - ------------------------------------------------------------------------------------------- Franklin Advisers Inc. (Advisers) Investment manager Franklin Templeton Services LLC (FT Services) Administrative manager Franklin Templeton Distributors Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES The Insured Fund and the Intermediate-Term Fund pay an investment management fee to Advisers based on the month-end net assets and the Money Fund pays an investment management fee to Advisers based on average daily net assets as follows: - -------------------------------------------------------------------------------- ANNUALIZED FEE RATE NET ASSETS - -------------------------------------------------------------------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% In excess of $250 million The Limited-Term 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 - -------------------------------------------------------------------------------- .500% First $100 million .450% Over $100 million, up to and including $250 million .425% Over $250 million, up to and including $500 million Fees are further reduced on net assets over $500 million. B. ADMINISTRATIVE FEES The Limited-Term Fund pays an administrative fee to FT Services of .20% per year of the average daily net assets of the Fund. Under an agreement with Advisers, FT Services provides administrative services to the Insured Fund, the Intermediate-Term Fund and the Money Fund. The fee is paid by Advisers based on average daily net assets of the Funds, and is not an additional expense of the Funds. FT Services agreed in advance to voluntarily waive administrative fees, for the Limited-Term Fund, as noted in the Statements of Operations. Additionally, Advisers agreed in advance to voluntarily waive a portion of management fees for the Limited-Term Fund, as noted in the Statements of Operations. Total expenses waived by FT Services and Advisers are not subject to reimbursement by the Fund subsequent to the Fund's fiscal year end. Semiannual Report | 75 FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) C. DISTRIBUTION FEES The Funds, except the Money Fund, reimburse Distributors for costs incurred in marketing the Funds' shares under a Rule 12b-1 plan up to a certain percentage per year of their average daily net assets of each class as follows: -------------------------------------- INSURED INTERMEDIATE- LIMITED- FUND TERM FUND TERM FUND -------------------------------------- Class A ............................... .10% .10% 15% Class B ............................... .65% -- -- Class C ............................... .65% .65% -- Under the Class A distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. 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 period: -------------------------------------- INSURED INTERMEDIATE- MONEY FUND TERM FUND FUND -------------------------------------- Sales charges received ................ $ 197,387 $ 31,701 $ -- Contingent deferred sales charges retained .............................. $ 84,247 $ 3,183 $ 261 E. TRANSFER AGENT FEES The Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were paid to Investor Services: ---------------------------------------------------- INSURED INTERMEDIATE- LIMITED- MONEY FUND TERM FUND TERM FUND FUND ---------------------------------------------------- Transfer agent fees ..... $ 185,745 $ 45,643 $ 1,658 $ 118,010 76 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 4. INCOME TAXES At June 30, 2004, the following Funds had tax basis capital losses which may be carried over to offset future capital gains. Such losses expire as follows: ------------------------------------------ INSURED INTERMEDIATE- MONEY FUND TERM FUND FUND ------------------------------------------ Capital loss carryovers expiring in: 2005 .............................. $ -- $ -- $ 1,444 2006 .............................. -- -- 9,957 2007 .............................. -- -- 4,593 2008 .............................. 2,000,818 90,667 9,293 2009 .............................. 7,452,092 321,166 21,840 2010 .............................. -- 112,465 -- 2011 .............................. -- 145,149 -- 2012 .............................. -- 865,726 2,466 ------------------------------------------ $ 9,452,910 $ 1,535,173 $ 49,593 ========================================== At June 30, 2004, the following Funds had deferred capital losses occurring subsequent to October 31, 2003: --------------------------- INSURED INTERMEDIATE- FUND TERM FUND --------------------------- $ 412,406 $ 566,426 For tax purposes, such losses will be reflected in the year ending June 30, 2005. Net investment income (loss) differs for financial statement and tax purposes primarily due to differing treatments of bond discounts and offering costs. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and bond discounts. At December 31, 2004, the net unrealized appreciation (depreciation) based on the cost of investments for income tax purposes were as follows: -------------------------------- INSURED INTERMEDIATE- FUND TERM FUND -------------------------------- Cost of investments ...................... $ 1,797,618,007 $ 413,132,796 ================================ Unrealized appreciation .................. $ 143,741,170 $ 18,304,262 Unrealized depreciation .................. (10,150) (308,682) -------------------------------- Net unrealized appreciation (depreciation) $ 143,731,020 $ 17,995,580 ================================ Semiannual Report | 77 FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 4. INCOME TAXES (CONTINUED) -------------------------------- LIMITED- MONEY TERM FUND FUND -------------------------------- Cost of investments....................... $ 19,780,602 $ 605,562,282 ================================ Unrealized appreciation................... $ 14,028 $ -- Unrealized depreciation................... (74,203) -- -------------------------------- Net unrealized appreciation (depreciation) $ (60,175) $ -- ================================ 5. INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short-term securities) for the period ended December 31, 2004, were as follows: ------------------------------------------ INSURED INTERMEDIATE- LIMITED- FUND TERM FUND TERM FUND ------------------------------------------ Purchases ...................... $ 48,556,806 $ 48,121,827 $ 1,781,690 Sales .......................... $ 95,610,689 $ 16,707,327 $ 200,000 6. REGULATORY MATTERS INVESTIGATIONS As part of various investigations by a number of federal, state, and foreign regulators and governmental entities, including the Securities and Exchange Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the National Association of Securities Dealers, Inc. ("NASD"), relating to certain practices in the mutual fund industry, including late trading, market timing and marketing support payments to securities dealers who sell fund shares, Franklin Resources, Inc. and certain of its subsidiaries (as used in this section, together, the "Company"), as well as certain current or former executives and employees of the Company, received subpoenas and/or requests for documents, information and/or testimony. The Company and its current employees provided documents and information in response to those requests and subpoenas. SETTLEMENTS Beginning in August 2004, the Company entered into settlements with certain regulators investigating the mutual fund industry practices noted above. The Company believes that settlement of each of the matters described in this section is in the best interest of the Company and shareholders of the Franklin, Templeton, and Mutual Series mutual funds (the "funds"). On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary, Franklin Advisers, Inc., reached an agreement with the SEC that resolved the issues resulting from the SEC investigation into market timing activity. In connection with that agreement, the SEC issued an "Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 78 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. REGULATORY MATTERS (CONTINUED) SETTLEMENTS (CONTINUED) 1940, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the activities of a limited number of third parties that ended in 2000 and those that were the subject of the first Massachusetts administrative complaint described below. Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc. neither admitted nor denied any of the findings contained therein, Franklin Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil penalty, to be distributed to shareholders of certain funds in accordance with a plan to be developed by an independent distribution consultant. At this time, it is unclear which funds or which shareholders of any particular fund will receive distributions. The Order also required Franklin Advisers, Inc. to, among other things, enhance and periodically review compliance policies and procedures. On September 20, 2004, Franklin Resources, Inc. announced that two of its subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts (the "State of Massachusetts") related to its administrative complaint filed on February 4, 2004, concerning one instance of market timing that was also a subject of the August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as described above. Under the terms of the settlement consent order issued by the State of Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a cease-and-desist order and agreed to pay a $5 million administrative fine to the State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts Consent Order included two different sections: "Statements of Fact" and "Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS admitted the facts in the Statements of Fact. On October 25, 2004, the State of Massachusetts filed a second administrative complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it described the Massachusetts Consent Order and stated that "Franklin did not admit or deny engaging in any wrongdoing") failed to state that Franklin Advisers, Inc. and FTAS admitted the Statements of Fact portion of the Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc. reached a second agreement with the State of Massachusetts on November 19, 2004, resolving the Second Complaint. As a result of the November 19, 2004 settlement, Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts Consent Order did not change and there was no monetary fine associated with this second settlement. On November 17, 2004, Franklin Resources, Inc. announced that Franklin/Templeton Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the issues resulting from the CAGO's investigation concerning sales and marketing support payments. Under the terms of the settlement, FTDI neither admitted nor denied the allegations in the CAGO's complaint and agreed to pay Semiannual Report | 79 FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. REGULATORY MATTERS (CONTINUED) SETTLEMENTS (CONTINUED) $2 million to the State of California as a civil penalty, $14 million to the funds, to be allocated by an independent distribution consultant to be paid for by FTDI, and $2 million to the CAGO for its investigative costs. On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving the issues resulting from the SEC's investigation concerning marketing support payments to securities dealers who sell fund shares. In connection with that agreement, the SEC issued an "Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b) of the Securities Exchange Act of 1934" (the "Second Order"). Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc. neither admitted nor denied the findings contained therein, they agreed to pay the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and Franklin Advisers, Inc. also agreed to implement certain measures and undertakings relating to marketing support payments to broker-dealers for the promotion or sale of fund shares, including making additional disclosures in the funds' Prospectuses and Statements of Additional Information. The Second Order further requires the appointment of an independent distribution consultant, at the Company's expense, who shall develop a plan for the distribution of the penalty and disgorgement to the funds. OTHER LEGAL PROCEEDINGS The Trust, in addition to the Company and other funds, and certain current and former officers, employees, and directors have been named in multiple lawsuits in different federal courts in Nevada, California, Illinois, New York and Florida, alleging violations of various federal securities laws and seeking, among other relief, monetary damages, restitution, removal of fund trustees, directors, advisers, administrators, and distributors, rescission of management contracts and 12b-1 Plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach of duty with respect to alleged arrangements to permit market timing and/or late trading activity, or breach of duty with respect to the valuation of the portfolio securities of certain Templeton funds managed by Franklin Resources, Inc. subsidiaries, resulting in alleged market timing activity. The majority of these lawsuits duplicate, in whole or in part, the allegations asserted in the February 4, 2004 Massachusetts administrative complaint and the findings in the SEC's August 2, 2004 Order, as described above. The lawsuits are styled as class actions, or derivative actions on behalf of either the named funds or Franklin Resources, Inc. 80 | Semiannual Report FRANKLIN CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. REGULATORY MATTERS (CONTINUED) OTHER LEGAL PROCEEDINGS (CONTINUED) In addition, the Company, as well as certain current and former officers, employees, and directors, have been named in multiple lawsuits alleging violations of various securities laws and pendent state law claims relating to the disclosure of directed brokerage payments and/or payment of allegedly excessive advisory, commission, and distribution fees, and seeking, among other relief, monetary damages, restitution, rescission of advisory contracts, including recovery of all fees paid pursuant to those contracts, an accounting of all monies paid to the named advisers, declaratory relief, injunctive relief, and/or attorneys' fees and costs. These lawsuits are styled as class actions or derivative actions brought on behalf of certain funds. The Company and fund management strongly believes that the claims made in each of the lawsuits identified above are without merit and intends to vigorously defend against them. The Company cannot predict with certainty, however, the eventual outcome of the remaining governmental investigations or private lawsuits, nor whether they will have a material negative impact on the Company. Public trust and confidence are critical to the Company's business and any material loss of investor and/or client confidence could result in a significant decline in assets under management by the Company, which would have an adverse effect on the Company's future financial results. If the Company finds that it bears responsibility for any unlawful or inappropriate conduct that caused losses to the Trust, it is committed to making the Trust or their shareholders whole, as appropriate. The Company is committed to taking all appropriate actions to protect the interests of its funds' shareholders. Semiannual Report | 81 FRANKLIN CALIFORNIA TAX-FREE TRUST SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Fund has established Proxy Voting Policies and Procedures ("Policies") that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are also made available online at franklintempleton.com and posted on the Securities and Exchange Commission's website at sec.gov and reflect the 12-month period beginning July 1, 2003, and ending June 30, 2004. QUARTERLY STATEMENT OF INVESTMENTS The Fund files a complete statement of investments with the Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800/SEC-0330. 82 | Semiannual Report This page intentionally left blank. This page intentionally left blank. LITERATURE REQUEST LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. FRANKLIN TEMPLETON INVESTMENTS INTERNATIONAL Mutual European Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton International (Ex EM) Fund GLOBAL Mutual Discovery Fund Templeton Capital Accumulator Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund GROWTH Franklin Aggressive Growth Fund Franklin Capital Growth Fund Franklin Flex Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II(1) VALUE Franklin Balance Sheet Investment Fund(2) Franklin Equity Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(2) Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund(3) Mutual Shares Fund BLEND Franklin Blue Chip Fund Franklin Convertible Securities Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin U.S. Long-Short Fund(4) SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Technology Fund Franklin Utilities Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund TARGET FUNDS Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund(5) Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust(3) Franklin Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5),(6) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund TAX-FREE INCOME(7) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(8) LIMITED-TERM FUNDS California Limited-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Limited-Term Tax-Free Income Fund INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Michigan(8) Arizona Minnesota(8) California(9) Missouri Colorado New Jersey Connecticut New York(9) Florida(9) North Carolina Georgia Ohio(8) Kentucky Oregon Louisiana Pennsylvania Maryland Tennessee Massachusetts(8) Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(10) (1) The fund is closed to new investors. Existing shareholders can continue adding to their accounts. (2) The fund is only open to existing shareholders and select retirement plans. (3) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (4) Upon reaching approximately $350 million in assets, the fund intends to close to all investors. (5) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6) Formerly Franklin Short-Intermediate U.S. Government Securities Fund. Effective 9/1/04, the fund's name changed; its investment goal and strategy remained the same. (7) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (8) Portfolio of insured municipal securities. (9) These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and limited-term, intermediate-term and money market portfolios (CA and NY). (10) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 11/04 Not part of the semiannual report [LOGO](R) FRANKLIN(R) TEMPLETON(R) One Franklin Parkway INVESTMENTS San Mateo, CA 94403-1906 o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. SEMIANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN CALIFORNIA TAX-FREE 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 S2004 02/05 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 10(A), THE REGISTRANT IS ATTACHING AS AN EXHIBIT A COPY OF ITS CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICERS FINANCIAL AND ACCOUNTING OFFICER. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (A)(1) THE REGISTRANT HAS AN AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE. (2) THE AUDIT COMMITTEE FINANCIAL EXPERT IS FRANK W.T. LAHAYE, AND HE IS "INDEPENDENT" AS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 9. 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 10. EXHIBITS. (A) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS. (B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND GALEN G. VETTER, CHIEF FINANCIAL OFFICER (B)(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND GALEN G. VETTER, CHIEF FINANCIAL OFFICER SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN CALIFORNIA TAX-FREE TRUST By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date February 18, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date February 18, 2005 By /s/Galen G. Vetter Chief Financial Officer Date February 18, 2005 EX-99.CODE ETH 2 newcoethics0704.txt EXHIBIT (A) FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. COVERED OFFICERS AND PURPOSE OF THE CODE This code of ethics (the "Code")1 is for the investment companies within the complex registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") applies to each FT Fund's Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers" each of whom are set forth in Exhibit A) for the purpose of promoting: o Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:2 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors; o any direct or indirect business relationship with any independent public accounting firm; and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). There are some conflict of interest situations that should always be approved in writing by FT's General Counsel or Deputy General Counsel, if material. Examples of these include3: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100; o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. FT's General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the FT Funds, the adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o Upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify FT's General Counsel or Deputy General Counsel promptly if he knows of any violation of this Code. Failure to do so is itself is a violation of this Code. FT's General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation.4 However, the Independent Directors of the respective fund will consider any approvals or waivers5 sought by any Chief Executive Officers of the Funds. The FT Funds will follow these procedures in investigating and enforcing this Code: o FT's General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to him; o If, after such investigation, FT's General Counsel or Deputy General Counsel believes that no violation has occurred, FT's General Counsel is not required to take any further action; o Any matter that FT's General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies there under. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-l under the Investment Company Act and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics FRANKLIN GROUP OF FUNDS Edward B. Jamieson, President and Chief Executive Officer - Investment Management Charles B. Johnson, President and Chief Executive Officer - Investment Management Gregory E. Johnson, President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman, President and Chief Executive Officer - Investment Management Christopher Molumphy, President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Galen G. Vetter, Chief Financial Officer and Chief Accounting Officer James M. Davis, Chief Compliance Officer Laura F. Fergerson, Treasurer FRANKLIN MUTUAL SERIES FUNDS David Winters, Chairman of the Board, President, Chief Executive Officer-Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer- Finance and Administration Galen G. Vetter, Chief Financial Officer and Chief Accounting Officer James M. Davis, Chief Comlpliance Officer Michael Morantz, Treasurer TEMPLETON GROUP OF FUNDS Jeffrey A. Everett, President and Chief Executive Officer - Investment Management Martin L. Flanagan, President and Chief Executive Officer - Investment Management Mark Mobius, President and Chief Executive Officer - Investment Management Christopher J. Molumphy, President and Chief Executive Officer - Investment Management Gary P. Motyl, President and Chief Executive Officer - Investment Management Donald F. Reed, President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Galen G. Vetter, Chief Financial officer and Chief Accounting Officer James M. Davis, Chief Compliance Officer Diomedes Loo-Tam, Treasurer & Chief Financial Officer EXHIBIT B ACKNOWLEDGMENT FORM FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS. INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Murray Simpson, General Counsel, Legal SM-920/2 TELEPHONE: (650) 312-7331 Fax: (650) 312-2221 E-MAIL: Simpson, Murray (internal address); mlsimpson@frk.com (external address) - ---------------------------------------------------------------------------- COVERED OFFICER'S NAME: - ---------------------------------------------------------------------------- TITLE: - ---------------------------------------------------------------------------- DEPARTMENT: - ---------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------- CERTIFICATION FOR YEAR ENDING: - ---------------------------------------------------------------------------- TO: FT GENERAL COUNSEL, LEGAL DEPARTMENT I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment - ---------------------------- ---------------------- Signature Date signed PLEASE RETURN TO: STEPHANIE HARWOOD, SUPERVISOR, PRECLEARANCE LEGAL COMPLIANCE DEPARTMENT, 920/2ND FLOOR 650-525-8016 (PHONE) 650-312-5646 (FAX) 1 Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. 2 Reporting of these affiliations or other relationships may be made separately by completing the Directors and Officers Questionnaire and returning to FT's General Counsel or Deputy General Counsel. 3 Any activity or relationship that would present a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. 4 FT's General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 5 Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. EX-99.CERT 3 gambill302.txt EXHIBIT (B)(1) CERTIFICATIONS I, Jimmy D. Gambill, certify that: 1. I have reviewed this report on Form N-CSR of Franklin California Tax-Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 18, 2005 /S/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration I, Galen G. Vetter, certify that: 1. I have reviewed this report on Form N-CSR of Franklin California Tax-Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 18, 2005 /S/GALEN G. VETTER Chief Financial Officer EX-99.906 4 gambill906.txt EXHIBIT (B)(2) CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jimmy D. Gambill, Chief Executive Officer of the FRANKLIN CALIFORNIA TAX-FREE TRUST (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/04 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: February 18, 2005 /S/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO REGISTRANT AND WILL BE RETAINED BY REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Galen G. Vetter, Chief Financial Officer of the FRANKLIN CALIFORNIA TAX-FREE TRUST (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/04 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: February 18, 2005 /S/GALEN G. VETTER Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO REGISTRANT AND WILL BE RETAINED BY REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----