UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-06481
Franklin Municipal Securities Trust
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650 312-2000
Date of fiscal year end: 5/31
Date of reporting period: 11/30/17
Item 1. Reports to Stockholders.
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| | | | Semiannual Report
and Shareholder Letter November 30, 2017 |
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Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Shareholder:
The six months ended November 30, 2017, benefited from mostly upbeat economic data as the US job market continued to improve and the unemployment rate declined. Accordingly, the US Federal Reserve (Fed) increased its target range for the federal funds rate a quarter point to 1.00%–1.25% at its June meeting. The Fed held steady during the remainder of the period with inflation under control and below its 2.0% target.
During the period, the US bond market in general, and municipal bonds in particular, performed positively as demand for fixed income increased. Factors contributing to this positive investment environment for municipals included consistently low inflation and steady interest rates, unstable wage growth, geopolitical concerns and federal government fiscal reform uncertainty.
A couple of weeks after the end of the reporting period, the Fed raised its target range a quarter point to 1.25%–1.50% amid ongoing labor market strength and rising economic activity in the US. The Fed’s inflation outlook remained essentially the same.
In addition, Franklin Municipal Securities Trust’s semiannual report includes more detail about municipal bond market conditions and discussions from the portfolio managers. On our website, franklintempleton.com, you can find updated commentary by our municipal bond experts. Municipal bonds can provide tax-free income and diversification from equities. Despite periods of volatility, municipal bonds historically have had a solid long-term record of performance, driven mostly by their income component. Please remember all securities markets fluctuate, as do mutual fund share prices.
As always, we recommend investors consult their financial advisors to help them make the best decisions for the long term. In a constantly changing market environment, we remain
committed to our disciplined strategy as we manage the Fund, keeping in mind the trust you have placed in us. We appreciate your confidence in us and encourage you to contact us when you have questions about your Franklin Templeton tax-free investment.
Sincerely,
Rupert H. Johnson, Jr.
Chairman
Franklin Municipal Securities Trust
Sheila Amoroso
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
This letter reflects our analysis and opinions as of November 30, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, state, industry, security or fund. Statements of fact are from sources considered reliable.
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| Not FDIC Insured | | | | | May Lose Value | | | | | No Bank Guarantee |
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Contents
Semiannual Report
Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
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Semiannual Report
Municipal Bond Market Overview
The municipal bond market outperformed the US Treasury market but underperformed the US stock market during the six-month period ended November 30, 2017. Investment-grade municipal bonds, as measured by the Bloomberg Barclays Municipal Bond Index, posted a +0.40% total return for the period, while US Treasuries, as measured by the Bloomberg Barclays US Treasury Index, had a -0.04% total return.1 US equities, as represented by the Standard & Poor’s® 500 Index, delivered a +10.89% total return for the reporting period.1
Municipal issuance in 2017 was $365 billion through November.2 This represents a 14% decline from the first 11 months of 2016, during which time $426 billion in primary market supply was sold.2 Barclays noted that after accounting for redemptions (bonds that matured or were called out of the market), net issuance stands at $36 billion thus far in 2017.3 According to the Investment Company Institute’s Trends in Mutual Fund Investing, municipal bond funds continued to report inflows. Net inflows totaled approximately $1.4 billion in November, bringing year-to-date flows to $27.5 billion.4 The data indicated that inflows can be primarily attributed to money going into long-term and national municipal bond funds. Strong demand, combined with diminished bond supply, continued to be a factor in the municipal asset class.
In general, the US bond market performed well in municipals as a variety of factors continued to cause demand for fixed income to soar. Investor skepticism about the strength of the US economy, consistently low readings on the inflation front, a lack of persistent wage growth, concerns over North Korea’s nuclear ambitions and questions about the Trump administration’s ability to pass fiscal legislation have all led to a robust investment environment for municipals and US-based fixed income in general.
The Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% at its June meeting. The target range stood at 1.00%–1.25% at period-end. The Fed also increased the discount rate 0.25% to 1.75% in June. The Fed decided to raise interest rates at its June meeting due to the strength of the US jobs market and continued economic growth.
The central bank made no change to its short-term interest rate policy at its November meeting. In the Federal Open Market Committee statement released on November 1, 2017, the Fed indicated that the labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. The Committee also stated that on a 12-month basis, overall inflation excluding food and energy prices have declined. The Committee mentioned that the balance sheet normalization program initiated in October 2017 is proceeding.
Several developments affected Puerto Rico bonds over the reporting period. Please visit franklintempleton.com/ investor/products/fund-resources/puerto-rico for the latest Puerto Rico updates from Franklin Templeton.
At period-end, we maintained our positive view of the municipal bond market. We believe municipal bonds continue to be an attractive asset class among fixed income securities, and we intend to follow our solid discipline of investing to maximize income, while seeking value in the municipal bond market.
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
1. Source: Morningstar. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed.
2. Source: The Bond Buyer, Thomson Reuters.
3. Source: Barclays Municipal Credit Research.
4. Source: Investment Company Institute, Trends in Mutual Fund Investing November 2017, 12/28/17.
See www.franklintempletondatasources.com for additional data provider information.
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Franklin California High Yield Municipal Fund
This semiannual report for Franklin California High Yield Municipal Fund covers the period ended November 30, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to provide a high level of income exempt from federal and California personal income taxes by investing at least 80% of its net assets in municipal securities in any rating category, including higher yielding, lower rated securities, that pay interest free from such taxes.1 Its secondary goal is capital appreciation to the extent possible and consistent with its principal goal.
Credit Quality Composition*
11/30/17
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| Ratings | | % of Total
Investments | |
| AAA | | | 1.77% | |
| AA | | | 20.79% | |
| A | | | 21.71% | |
| BBB | | | 19.24% | |
| Below Investment Grade | | | 7.51% | |
| Refunded | | | 9.47% | |
| Not Rated | | | 19.51% | |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by US government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $10.89 on May 31, 2017, to $10.78 on November 30, 2017. The Fund’s Class A shares paid dividends totaling 19.79 cents per share for the reporting period.2 The Performance Summary beginning on page 7 shows that at the end of this reporting period the Fund’s Class A shares’
distribution rate was 3.50% based on an annualization of November’s 3.28 cent per share dividend and the maximum offering price of $11.26 on November 30, 2017. An investor in the 2017 maximum combined effective federal and California personal income tax bracket of 50.83% (including 3.8% Medicare tax) would need to earn a distribution rate of 7.12% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. Dividend distributions were affected by low interest rates during the period. This and other factors resulted in reduced income for the portfolio and caused dividends to be lower at the end of the period.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
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| Dividend Distributions* | |
| 6/1/17–11/30/17 | |
| | | | | Dividend per Share (cents) | |
| Month | | | | Class A | | Class C | | | Class R6** | | | Advisor Class | |
| June | | | | 3.36 | | | 2.86 | | | | — | | | | 3.44 | |
| July | | | | 3.31 | | | 2.81 | | | | — | | | | 3.39 | |
| August | | | | 3.28 | | | 2.78 | | | | 3.27 | | | | 3.36 | |
| September | | | | 3.28 | | | 2.77 | | | | 3.39 | | | | 3.37 | |
| October | | | | 3.28 | | | 2.77 | | | | 3.39 | | | | 3.37 | |
| November | | | | 3.28 | | | 2.77 | | | | 3.39 | | | | 3.37 | |
| Total | | | | 19.79 | | | 16.76 | | | | 13.44 | | | | 20.30 | |
*The distribution amount is the sum of all estimated tax-basis net investment income distributions for the period shown. A portion or all of the distribution may be reclassified as return of capital or short-term or long-term capital gains once final tax designations are known. 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.
**Effective 8/1/17, the Fund began offering Class R6 shares. See the prospectus for details.
1. The Fund may invest up to 100% of its assets in bonds whose interest payments are subject to federal alternative minimum tax. All or a significant portion of the income on these obligations may be subject to such tax. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, US investors must be properly certified on Form W-9 and non-US investors on Form W-8BEN.
2. The distribution amount is the sum of all estimated tax-basis net investment income distributions for the period shown. A portion or all of the distribution may be reclassified as return of capital or short-term or long-term capital gains once final tax designations are known. 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 20.
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
State Update
California’s large and diverse economy continued to expand during the six months under review. Universities and innovative businesses supported the state’s expansion. Job growth in the state outpaced that of the nation. Unemployment slightly decreased from 4.7% in May 2017 to 4.6% at period-end, yet remained above the 4.1% national rate.3
Enactment of California’s fiscal year 2018 budget, which the governor signed in June, extended the state’s recent track record of balanced fiscal operations. Highlights of the budget were increased spending for general fund expenditures, education, Medi-Cal funding and pension contributions. Additionally, California approved legislation raising taxes on motor fuel and vehicle registrations. The state continued to make deposits to its budget stabilization account, resulting in large budget reserves.
California’s net tax-supported debt was $2,217 per capita and 4.2% of personal income, compared with the $1,006 and 2.5% national medians, respectively.4 During the period under review, independent credit rating agency Standard & Poor’s (S&P) assigned California’s general obligations bonds a rating of AA- with a stable outlook.5 The rating reflected S&P’s view on the state’s expanding economy, increasing budgetary reserve levels, strong overall liquidity and declining debt ratios. In contrast, S&P cited several challenges to the state, including high housing costs, a volatile revenue structure, retirement benefit liabilities and a large backlog of deferred maintenance and infrastructure needs. Nevertheless, the stable outlook reflected S&P’s view that California has brought its finances into structural alignment.
Investment Strategy
We use a consistent, disciplined strategy in an effort to maximize tax-exempt income for our shareholders while balancing risk and return within the Fund’s range of allowable investments. We generally employ a buy-and-hold approach and invest in securities we believe should provide the most relative value in the market. We do not use leverage or derivatives, nor do we use hedging techniques that could add volatility and contribute to underperformance in adverse markets.
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| Portfolio Composition | | | | |
| 11/30/17 | | | | |
| | | % of Total
Investments* | |
| Tax-Supported | | | 22.0% | |
| Transportation | | | 13.9% | |
| General Obligation | | | 13.4% | |
| Hospital & Health Care | | | 12.1% | |
| Refunded** | | | 11.4% | |
| Other Revenue | | | 8.3% | |
| Utilities | | | 6.6% | |
| Higher Education | | | 4.1% | |
| Housing | | | 3.6% | |
| Subject to Government Appropriations | | | 3.4% | |
| Corporate-Backed | | | 1.2% | |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
Manager’s Discussion
Consistent with our strategy, we sought to remain invested in bonds that have an average weighted maturity of 15 to 30 years with good call features. Based on the combination of our value-oriented philosophy of investing primarily for income and a positively sloping municipal yield curve, in which interest rates for longer term bonds are higher than those for shorter term bonds, we favored the use of longer term bonds. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
The Fund holds a very small portion of its assets in Puerto Rico bonds, which have traded materially lower following the recent hurricanes. Puerto Rico and its municipal issuers continue to experience significant financial difficulties and we continue to monitor developments affecting them.
Thank you for your continued participation in Franklin California High Yield Municipal Fund. We look forward to serving your future investment needs.
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Government - US: Medians - Total State Debt Remains Essentially Flat in 2017, 5/3/17.
5. This does not indicate S&P’s rating of the Fund.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
Performance Summary as of November 30, 2017
The performance tables do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 11/30/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
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| Share Class | | Cumulative
Total Return1 | | | Average Annual
Total Return2 | |
| | |
A | | | | | | | | |
6-Month | | | +0.81% | | | | -3.44% | |
1-Year | | | +6.85% | | | | +2.35% | |
5-Year | | | +22.29% | | | | +3.21% | |
10-Year | | | +71.12% | | | | +5.06% | |
| | |
Advisor | | | | | | | | |
6-Month | | | +0.86% | | | | +0.86% | |
1-Year | | | +6.83% | | | | +6.83% | |
5-Year | | | +22.97% | | | | +4.22% | |
10-Year | | | +72.85% | | | | +5.62% | |
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| Share Class | | Distribution
Rate3 | | | Taxable Equivalent
Distribution Rate4 | | | 30-Day
Standardized Yield5 | | | Taxable Equivalent 30-Day
Standardized Yield4 | |
A | | | 3.50% | | | | 7.12% | | | | 2.55% | | | | 5.19% | |
Advisor | | | 3.74% | | | | 7.61% | | | | 2.76% | | | | 5.61% | |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 8 for Performance Summary footnotes.
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
PERFORMANCE SUMMARY
Net Asset Value
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| Share Class (Symbol) | | 11/30/17 | | | 8/1/17 | | | 5/31/17 | | | Change | |
A (FCAMX) | | | $10.78 | | | | N/A | | | | $10.89 | | | | -$0.11 | |
C (FCAHX) | | | $10.86 | | | | N/A | | | | $10.97 | | | | -$0.11 | |
R6 (FCAQX) | | | $10.81 | | | | $10.88 | | | | N/A | | | | -$0.07 | |
Advisor (FVCAX) | | | $10.80 | | | | N/A | | | | $10.91 | | | | -$0.11 | |
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Distributions (6/1/17–11/30/17) | |
| Share Class | | Net Investment
Income | | | | | | | | | | |
A | | | $0.1979 | | | | | | | | | | | | | |
C | | | $0.1676 | | | | | | | | | | | | | |
R6 (8/1/17–11/30/17) | | | $0.1344 | | | | | | | | | | | | | |
Advisor | | | $0.2030 | | | | | | | | | | | | | |
|
Total Annual Operating Expenses6 | |
| Share Class | | | | | | | | | | | | |
A | | | 0.63% | | | | | | | | | | | | | |
Advisor | | | 0.53% | | | | | | | | | | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest-rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. Investments in lower rated bonds include higher risk of default and loss of principal. The Fund holds a very small portion of its assets in Puerto Rico municipal bonds that have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
3. Distribution rate is based on an annualization of the respective class’s November dividend and the maximum offering price (NAV for Advisor Class) per share on 11/30/17.
4. Taxable equivalent distribution rate and yield assume the published rates as of 6/19/17 for the maximum combined effective federal and California state personal income tax rate of 50.83%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
5. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
6. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
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| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | | | |
Share Class | | Beginning
Account
Value1 | | | | Ending
Account
Value 11/30/17 | | Expenses
Paid During
Period2,3 | | | | Ending
Account
Value 11/30/17 | | Expenses Paid During
Period 6/1/17–11/30/173 | | | | Annualized
Expense
Ratio |
A | | $1,000 | | | | $1,008.10 | | $3.17 | | | | $1,021.91 | | $3.19 | | | | 0.63% |
C | | $1,000 | | | | $1,005.30 | | $5.93 | | | | $1,019.15 | | $5.97 | | | | 1.18% |
R6 | | $1,000 | | | | $1,005.90 | | $1.66 | | | | $1,022.56 | | $2.54 | | | | 0.50% |
Advisor | | $1,000 | | | | $1,008.60 | | $2.67 | | | | $1,022.41 | | $2.69 | | | | 0.53% |
1. For Classes A, C and Advisor, 6/1/17 for Actual and Hypothetical. For Class R6, 8/1/17 for Actual and 6/1/17 for Hypothetical.
2. For Classes A, C and Advisor, 6/1/17–11/30/17. For Class R6, 8/1/17–11/30/17.
3. Expenses are equal to the annualized expense ratio for the six-month period as indicated above––in the far right column––multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. The multiplier is 121/365 for Actual Class R6 expenses to reflect the number of days since inception.
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Franklin Tennessee Municipal Bond Fund
This semiannual report for Franklin Tennessee Municipal Bond Fund covers the period ended November 30, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to maximize income exempt from federal and Tennessee personal income taxes, consistent with prudent investing and the preservation of capital, by investing at least 80% of its net assets in investment grade municipal securities that pay interest free from such taxes.1
Credit Quality Composition*
11/30/17
| | | | |
| Ratings | | % of Total
Investments | |
| AAA | | | 2.72% | |
| AA | | | 54.95% | |
| A | | | 16.27% | |
| BBB | | | 4.73% | |
| Below Investment Grade | | | 0.62% | |
| Refunded | | | 18.36% | |
| Not Rated | | | 2.35% | |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by US government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $11.11 on May 31, 2017, to $10.91 on November 30, 2017. The Fund’s Class A shares paid dividends totaling 17.42 cents per share for the reporting period.2 The Performance Summary beginning on page 13 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 3.04% based on an annualization of November’s 2.89 cent per share dividend and the maximum
offering price of $11.39 on November 30, 2017. An investor in the 2017 maximum combined effective federal and Tennessee personal income tax bracket of 45.82% (including 3.8% Medicare tax) would need to earn a distribution rate of 5.61% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. Dividend distributions were affected by low interest rates during the period. This and other factors resulted in reduced income for the portfolio and caused divi dends to be lower at the end of the period.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Dividend Distributions*
6/1/17–11/30/17
| | | | | | | | | | | | |
| | | Dividend per Share (cents) | |
| Month | | Class A | | | Class R6** | | | Advisor Class | |
| June | | | 2.93 | | | | — | | | | 3.02 | |
| July | | | 2.93 | | | | — | | | | 3.02 | |
| August | | | 2.89 | | | | 2.91 | | | | 2.98 | |
| September | | | 2.89 | | | | 3.01 | | | | 2.98 | |
| October | | | 2.89 | | | | 3.01 | | | | 2.98 | |
| November | | | 2.89 | | | | 3.01 | | | | 2.98 | |
| Total | | | 17.42 | | | | 11.94 | | | | 17.96 | |
*The distribution amount is the sum of all estimated tax-basis net investment income distributions for the period shown. A portion or all of the distribution may be reclassified as return of capital or short-term or long-term capital gains once final tax designations are known. 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.
**Effective 8/1/17, the Fund began offering Class R6 shares. See the prospectus for details.
State Update
Over the six months under review, Tennessee’s diverse economy grew. The state is a distribution and manufacturing hub partly due to its access to the Mississippi River,
1. The Fund may invest up to 100% of its assets in bonds whose interest payments are subject to federal alternative minimum tax. All or a significant portion of the income on these obligations may be subject to such tax. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, US investors must be properly certified on Form W-9 and non-US investors on Form W-8BEN.
2. The distribution amount is the sum of all estimated tax-basis net investment income distributions for the period shown. A portion or all of the distribution may be reclassified as return of capital or short-term or long-term capital gains once final tax designations are known. 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 38.
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FRANKLIN TENNESSEE MUNICIPAL BOND FUND
transportation network and abundant supply of land. Tennessee’s unemployment rate declined from 4.0% in May 2017 to 3.1% at period-end, below the nation’s 4.1% average.3
Tennessee’s fiscal year 2018 budget included general fund spending reductions and additional funding for the rainy day reserve. Additionally, the enacted budget featured funding for state employee pay increases, the state’s employee retirement program, other post-employment benefits and education. The state approved increases in the gas tax and vehicle fees, as well as a new fee on electric vehicles and rental cars. Conversely, the state reduced certain taxes, including the sales tax on groceries and the tax rate on dividends and interest income.
Tennessee’s net tax-supported debt was relatively low at $322 per capita and 0.8% of personal income, compared with the $1,006 and 2.5% national medians, respectively.4 During the period under review, independent credit rating agency Standard & Poor’s (S&P) maintained the state’s general obligations bonds AAA rating with a stable outlook.5 The rating reflected S&P’s view of the state’s strong growth, improving rainy day reserves, strong financial management practices and performance, long-standing funding of the state’s retirement obligations and low debt burden. The outlook reflected S&P’s view of Tennessee’s solid management of its long-term liabilities and potential to continue to exhibit economic growth, supported by its growing employment.
Investment Strategy
We use a consistent, disciplined strategy in an effort to maximize tax-exempt income for our shareholders while balancing risk and return within the Fund’s range of allowable investments. We generally employ a buy-and-hold approach and invest in securities we believe should provide the most relative value in the market. We do not use leverage or derivatives, nor do we use hedging techniques that could add volatility and contribute to underperformance in adverse markets.
Manager’s Discussion
Consistent with our strategy, we sought to remain invested in bonds that have an average weighted maturity of 15 to 30 years with good call features. Based on the combination of our value-oriented philosophy of investing primarily for income and a positively sloping municipal yield curve, in which
Portfolio Composition
11/30/17
| | | | |
| | | % of Total
Investments* | |
| Utilities | | | 25.4% | |
| Refunded** | | | 21.0% | |
| Hospital & Health Care | | | 18.3% | |
| General Obligation | | | 10.4% | |
| Higher Education | | | 9.6% | |
| Transportation | | | 6.9% | |
| Other Revenue | | | 4.5% | |
| Housing | | | 3.4% | |
| Subject to Government Appropriations | | | 0.5% | |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
interest rates for longer term bonds are higher than those for shorter term bonds, we favored the use of longer term bonds. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
The Fund holds a very small portion of its assets in Puerto Rico bonds, which have traded materially lower following the recent hurricanes. Puerto Rico and its municipal issuers continue to experience significant financial difficulties and we continue to monitor developments affecting them.
Thank you for your continued participation in Franklin Tennessee Municipal Bond Fund. We look forward to serving your future investment needs.
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Government - US: Medians - Total State Debt Remains Essentially Flat in 2017, 5/3/17.
5. This does not indicate S&P’s rating of the Fund.
See www.franklintempletondatasources.com for additional data provider information.
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franklintempleton.com | | Semiannual Report | | | 11 | |
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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| 12 | | Semiannual Report | | franklintempleton.com |
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
Performance Summary as of November 30, 2017
The performance tables do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 11/30/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | | | | | |
| Share Class | | Cumulative
Total Return1 | | | Average Annual
Total Return2 | |
| | |
A | | | | | | | | |
6-Month | | | -0.24% | | | | -4.45% | |
1-Year | | | +2.11% | | | | -2.23% | |
5-Year | | | +6.06% | | | | +0.31% | |
10-Year | | | +41.81% | | | | +3.10% | |
| | |
Advisor3 | | | | | | | | |
6-Month | | | -0.28% | | | | -0.28% | |
1-Year | | | +2.21% | | | | +2.21% | |
5-Year | | | +6.18% | | | | +1.21% | |
10-Year | | | +41.97% | | | | +3.57% | |
| | | | | | | | | | | | | | | | |
| Share Class | | Distribution
Rate4 | | | Taxable Equivalent
Distribution Rate5 | | | 30-Day
Standardized Yield6 | | | Taxable Equivalent 30-Day
Standardized Yield5 | |
A | | | 3.04% | | | | 5.61% | | | | 1.50% | | | | 2.77% | |
Advisor | | | 3.28% | | | | 6.05% | | | | 1.68% | | | | 3.10% | |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 14 for Performance Summary footnotes.
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| franklintempleton.com | | Semiannual Report | | | 13 | |
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
PERFORMANCE SUMMARY
Net Asset Value
| | | | | | | | | | | | | | | | |
| Share Class (Symbol) | | 11/30/17 | | | 8/1/17 | | | 5/31/17 | | | Change | |
A(FRTIX) | | | $10.91 | | | | N/A | | | | $11.11 | | | | - $0.20 | |
R6 (FTMQX) | | | $10.90 | | | | $11.06 | | | | N/A | | | | -$0.16 | |
Advisor (FTMZX) | | | $10.91 | | | | N/A | | | | $11.12 | | | | -$0.21 | |
Distributions (6/1/17–11/30/17)
| | | | |
| Share Class | | Net Investment
Income | |
A | | | $0.1742 | |
R6 (8/1/17–11/30/17) | | | $0.1194 | |
Advisor | | | $0.1796 | |
Total Annual Operating Expenses7
| | | | |
| Share Class | | | |
A | | | 0.72 | % |
Advisor | | | 0.62 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest-rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally 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 holds a very small portion of its assets in Puerto Rico municipal bonds that have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
3. Effective 9/15/16, the Fund began offering Advisor class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 9/15/16, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 9/15/16, actual Advisor class performance is used reflecting all charges and fees applicable to that class. Since 9/15/16 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were -1.18% and -0.98%.
4. Distribution rate is based on an annualization of the respective class’s November dividend and the maximum offering price (NAV for Advisor Class) per share on 11/30/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 6/19/17 for the maximum combined effective federal and Tennessee state personal income tax rate of 45.82%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
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FRANKLIN TENNESSEE MUNICIPAL BOND FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| | | | | | | Actual (actual return after expenses) | | | | Hypothetical (5% annual return before expenses) | | |
Share Class | | Beginning
Account
Value1 | | | | Ending
Account
Value 11/30/17 | | Expenses
Paid During
Period2,3 | | | | Ending
Account
Value 11/30/17 | | Expenses Paid During
Period 6/1/17–11/30/173 | | | | Annualized
Expense
Ratio |
A | | $1,000 | | | | $997.60 | | $3.76 | | | | $1,021.31 | | $3.80 | | | | 0.75% |
R6 | | $1,000 | | | | $997.20 | | $2.05 | | | | $1,021.96 | | $3.14 | | | | 0.62% |
Advisor | | $1,000 | | | | $997.20 | | $3.25 | | | | $1,021.81 | | $3.29 | | | | 0.65% |
1. For Classes A and Advisor, 6/1/17 for Actual and Hypothetical. For Class R6, 8/1/17 for Actual and 6/1/17 for Hypothetical.
2. For Classes A and Advisor, 6/1/17–11/30/17. For Class R6, 8/1/17–11/30/17.
3. Expenses are equal to the annualized expense ratio for the six-month period as indicated above––in the far right column––multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period. The multiplier is 121/365 for Actual Class R6 expenses to reflect the number of days since inception.
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| franklintempleton.com | | Semiannual Report | | | 15 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
Franklin California High Yield Municipal Fund
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended
November 30, 2017 | | | Year Ended May 31, | |
| | | (unaudited) | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $10.89 | | | | $11.10 | | | | $10.65 | | | | $10.42 | | | | $10.59 | | | | $10.40 | |
| | | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment incomeb | | | 0.19 | | | | 0.40 | | | | 0.41 | | | | 0.44 | | | | 0.49 | | | | 0.46 | |
Net realized and unrealized gains (losses) | | | (0.10 | ) | | | (0.22 | ) | | | 0.46 | | | | 0.24 | | | | (0.18 | ) | | | 0.17 | |
Total from investment operations | | | 0.09 | | | | 0.18 | | | | 0.87 | | | | 0.68 | | | | 0.31 | | | | 0.63 | |
Less distributions from net investment income. | | | (0.20 | ) | | | (0.39 | ) | | | (0.42 | ) | | | (0.45 | ) | | | (0.48 | ) | | | (0.44 | ) |
Net asset value, end of period | | | $10.78 | | | | $10.89 | | | | $11.10 | | | | $10.65 | | | | $10.42 | | | | $10.59 | |
| | | | | | |
Total returnc | | | 0.81% | | | | 1.71% | | | | 8.37% | | | | 6.63% | | | | 3.22% | | | | 6.10% | |
| | | | | | |
| Ratios to average net assetsd | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses | | | 0.63% | | | | 0.63% | | | | 0.65% | | | | 0.63% | | | | 0.63% | | | | 0.61% | |
Net investment income | | | 3.54% | | | | 3.66% | | | | 3.83% | | | | 4.17% | | | | 4.95% | | | | 4.31% | |
| | | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s) | | | $1,388,811 | | | | $1,377,514 | | | | $1,442,703 | | | | $1,294,192 | | | | $1,203,532 | | | | $1,330,444 | |
Portfolio turnover rate | | | 5.47% | | | | 19.73% | | | | 12.23% | | | | 11.98% | | | | 22.26% | | | | 5.47% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
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| 16 | | Semiannual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended
November 30, 2017 | | | Year Ended May 31, | |
| | | (unaudited) | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class C | | | | | | | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $10.97 | | | | $11.17 | | | | $10.72 | | | | $10.49 | | | | $10.65 | | | | $10.46 | |
| | | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment incomeb | | | 0.16 | | | | 0.34 | | | | 0.36 | | | | 0.39 | | | | 0.44 | | | | 0.40 | |
Net realized and unrealized gains (losses) | | | (0.10 | ) | | | (0.21 | ) | | | 0.45 | | | | 0.23 | | | | (0.18 | ) | | | 0.17 | |
Total from investment operations | | | 0.06 | | | | 0.13 | | | | 0.81 | | | | 0.62 | | | | 0.26 | | | | 0.57 | |
Less distributions from net investment income. | | | (0.17 | ) | | | (0.33 | ) | | | (0.36 | ) | | | (0.39 | ) | | | (0.42 | ) | | | (0.38 | ) |
Net asset value, end of period | | | $10.86 | | | | $10.97 | | | | $11.17 | | | | $10.72 | | | | $10.49 | | | | $10.65 | |
| | | | | | |
Total returnc | | | 0.53% | | | | 1.22% | | | | 7.73% | | | | 6.01% | | | | 2.74% | | | | 5.48% | |
| | | | | | |
| Ratios to average net assetsd | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses | | | 1.18% | | | | 1.18% | | | | 1.20% | | | | 1.18% | | | | 1.18% | | | | 1.16% | |
Net investment income | | | 2.99% | | | | 3.11% | | | | 3.28% | | | | 3.62% | | | | 4.40% | | | | 3.76% | |
| | | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s) | | | $347,762 | | | | $358,308 | | | | $377,550 | | | | $326,456 | | | | $278,775 | | | | $322,824 | |
Portfolio turnover rate | | | 5.47% | | | | 19.73% | | | | 12.23% | | | | 11.98% | | | | 22.26% | | | | 5.47% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 17 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin California High Yield Municipal Fund (continued)
| | | | |
| | | Period Ended
November 30, 2017
(unaudited)a | |
Class R6 | | | | |
| Per share operating performance | | | | |
(for a share outstanding throughout the period) | | | | |
Net asset value, beginning of period | | | $10.88 | |
| | | | |
| |
Income from investment operationsb: | | | | |
| |
Net investment incomec | | | 0.14 | |
Net realized and unrealized gains (losses) | | | (0.08 | ) |
| | | | |
| |
Total from investment operations | | | 0.06 | |
| | | | |
| |
Less distributions from net investment income. | | | (0.13 | ) |
| | | | |
| |
Net asset value, end of period | | | $10.81 | |
| |
Total returnd | | | 0.59% | |
| |
| Ratios to average net assetse | | | | |
Expenses before waiver and payments by affiliates | | | 0.51% | |
Expenses net of waiver and payments by affiliates | | | 0.50% | |
Net investment income | | | 3.67% | |
| |
| Supplemental data | | | | |
Net assets, end of period (000’s) | | | $8,413 | |
Portfolio turnover rate. | | | 5.47% | |
aFor the period August 1, 2017 (effective date) to November 30, 2017.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
| | | | |
| 18 | | Semiannual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended November 30, 2017 (unaudited) | | | Year Ended May 31, | |
| | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Net asset value, beginning of period | | | $10.91 | | | | $11.12 | | | | $10.67 | | | | $10.44 | | | | $10.61 | | | | $10.41 | |
| | | | |
| | | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Net investment incomeb | | | 0.20 | | | | 0.41 | | | | 0.43 | | | | 0.45 | | | | 0.50 | | | | 0.47 | |
| | | | | | |
Net realized and unrealized gains (losses) | | | (0.11 | ) | | | (0.22 | ) | | | 0.45 | | | | 0.24 | | | | (0.18 | ) | | | 0.18 | |
| | | | |
| | | | | | |
Total from investment operations | | | 0.09 | | | | 0.19 | | | | 0.88 | | | | 0.69 | | | | 0.32 | | | | 0.65 | |
| | | | |
| | | | | | |
| Less distributions from net investment income. | | | (0.20 | ) | | | (0.40 | ) | | | (0.43 | ) | | | (0.46 | ) | | | (0.49 | ) | | | (0.45 | ) |
| | | | |
| | | | | | |
| Net asset value, end of period | | | $10.80 | | | | $10.91 | | | | $11.12 | | | | $10.67 | | | | $10.44 | | | | $10.61 | |
| | | | |
| | | | | | |
| Total returnc | | | 0.86% | | | | 1.80% | | | | 8.46% | | | | 6.73% | | | | 3.32% | | | | 6.30% | |
| | | | | | |
| Ratios to average net assetsd | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Expenses | | | 0.53% | | | | 0.53% | | | | 0.55% | | | | 0.53% | | | | 0.53% | | | | 0.51% | |
| | | | | | |
Net investment income | | | 3.64% | | | | 3.76% | | | | 3.93% | | | | 4.27% | | | | 5.05% | | | | 4.41% | |
| | | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Net assets, end of period (000’s) | | | $753,255 | | | | $720,890 | | | | $635,463 | | | | $474,392 | | | | $315,131 | | | | $303,904 | |
| | | | | | |
Portfolio turnover rate | | | 5.47% | | | | 19.73% | | | | 12.23% | | | | 11.98% | | | | 22.26% | | | | 5.47% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 19 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 2017 (unaudited)
Franklin California High Yield Municipal Fund
| | | | | | | | | | |
| | | | | Units | | | Value | |
| | Common Stocks and Other Equity Interests (Cost $611,327) 0.0%† | | | | | | | | |
| | Consumer Discretionary 0.0%† | | | | | | | | |
a,b,c 1155 Island Avenue LLC, LP. | | | 7,830,849 | | | $ | 611,323 | |
| | | | | | | | | | |
| | | |
| | | | | Principal
Amount | | | | |
| | Corporate Bonds (Cost $3,893,328) 0.2% | | | | | | | | |
| | Consumer Discretionary 0.2% | | | | | | | | |
d 1155 Island Avenue LLC, PIK, 10.00%, 12/11/24 | | $ | 3,893,328 | | | | 3,893,328 | |
| | | | | | | | | | |
| | Municipal Bonds 94.7% | | | | | | | | |
| | California 92.2% | | | | | | | | |
| | ABAG Finance Authority for Nonprofit Corps. Revenue, Episcopal Senior Communities, Refunding, 6.125%, 7/01/41 | | | 7,500,000 | | | | 8,361,525 | |
| | Alameda Special Tax, CFD No. 13-1, Alameda Landing Public Improvements, 5.00%, 9/01/46 | | | 1,400,000 | | | | 1,531,264 | |
| | Artesia RDA Tax Allocation, | | | | | | | | |
| | Artesia Redevelopment Project Area, 5.50%, 6/01/42 | | | 6,355,000 | | | | 6,356,779 | |
| | Artesia Redevelopment Project Area, 5.70%, 6/01/42 | | | 2,870,000 | | | | 2,871,320 | |
| | Housing Set-Aside, Artesia Redevelopment Project Area, 7.70%, 6/01/46 | | | 3,185,000 | | | | 3,371,577 | |
| | Azusa Special Tax, | | | | | | | | |
| | CFD No. 2005-1, Rosedale, Improvement Area No. 1, 5.00%, 9/01/27 | | | 1,960,000 | | | | 1,970,800 | |
| | CFD No. 2005-1, Rosedale, Improvement Area No. 1, 5.00%, 9/01/37 | | | 1,625,000 | | | | 1,632,930 | |
| | Baldwin Park USD, | | | | | | | | |
| | GO, Los Angeles County, Capital Appreciation, Election of 2006, AGMC Insured, Pre-Refunded, zero cpn., 8/01/31 | | | 5,735,000 | | | | 2,623,935 | |
| | GO, Los Angeles County, Capital Appreciation, Election of 2006, Refunding, BAM Insured, zero cpn., 8/01/42 | | | 10,000,000 | | | | 2,367,600 | |
| | Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Subordinate, Series S-4, Pre-Refunded, 5.25%, 4/01/53 | | | 15,000,000 | | | | 17,716,500 | |
| | Beaumont USD, GO, Election of 2008, Series C, AGMC Insured, 6.00%, 8/01/41 | | | 1,925,000 | | | | 2,204,067 | |
| | Buena Park Community RDA Tax Allocation, Consolidated Redevelopment Project, 6.25%, 9/01/35 | | | 5,000,000 | | | | 5,180,050 | |
| | California County Tobacco Securitization Agency Tobacco Settlement Revenue, Asset-Backed, Los Angeles County Securitization Corp., 5.70%, 6/01/46. | | | 3,000,000 | | | | 3,009,990 | |
| | California Health Facilities Financing Authority Revenue, | | | | | | | | |
| | Adventist Health System/West, Refunding, Series A, 4.00%, 3/01/39 | | | 9,000,000 | | | | 9,437,760 | |
| | California-Nevada Methodist Homes, Refunding, California Mortgage Insured, 5.00%, 7/01/45 | | | 4,500,000 | | | | 5,063,490 | |
| | Children’s Hospital Los Angeles, Refunding, Series A, 4.00%, 8/15/49 | | | 3,375,000 | | | | 3,539,092 | |
| | El Camino Hospital, 4.00%, 2/01/42 | | | 6,500,000 | | | | 6,752,785 | |
| | El Camino Hospital, 5.00%, 2/01/42 | | | 5,000,000 | | | | 5,736,000 | |
| | Kaiser Permanente, Refunding, Series A, Subseries A-2, 4.00%, 11/01/38 | | | 10,000,000 | | | | 10,657,000 | |
| | Kaiser Permanente, Series A, Subseries A-2, 4.00%, 11/01/51 | | | 25,000,000 | | | | 26,123,750 | |
| | Lucile Salter Packard Children’s Hospital at Stanford, Series A, 5.00%, 8/15/43 | | | 7,160,000 | | | | 8,019,558 | |
| | Providence Health and Services, Series C, Pre-Refunded, 6.50%, 10/01/33 | | | 4,000,000 | | | | 4,174,120 | |
| | Sutter Health, Refunding, Series B, 5.00%, 11/15/46. | | | 26,925,000 | | | | 31,031,601 | |
| | California Infrastructure and Economic Development Bank Revenue, Goodwill Industries of Sacramento Valley and Northern Nevada Project, Series A, 5.00%, 1/01/47 | | | 10,360,000 | | | | 9,960,622 | |
| | California Municipal Finance Authority COP, | | | | | | | | |
| | Community Hospitals of Central California Obligated Group, Pre-Refunded, 5.25%, 2/01/24 | | | 5,000,000 | | | | 5,215,600 | |
| | Community Hospitals of Central California Obligated Group, Pre-Refunded, 5.375%, 2/01/29 | | | 7,000,000 | | | | 7,311,850 | |
| | Community Hospitals of Central California Obligated Group, Pre-Refunded, 5.50%, 2/01/39 | | | 10,600,000 | | | | 11,087,388 | |
| | California Municipal Finance Authority Revenue, | | | | | | | | |
| | American Heritage Education Foundation Project, Refunding, Series A, 5.00%, 6/01/36 | | | 1,000,000 | | | | 1,110,140 | |
| | American Heritage Education Foundation Project, Refunding, Series A, 5.00%, 6/01/46 | | | 1,750,000 | | | | 1,919,838 | |
| | | | |
20 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | California PFAR, | | | | | | | | |
| | University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/27 | | $ | 1,125,000 | | | $ | 1,277,921 | |
| | University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/32 | | | 825,000 | | | | 908,795 | |
| | University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/37 | | | 1,325,000 | | | | 1,438,288 | |
| | University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/47 | | | 1,950,000 | | | | 2,128,113 | |
| | California Public Finance Authority Revenue, | | | | | | | | |
| | Henry Mayo Newhall Hospital, Refunding, 5.00%, 10/15/37 | | | 1,100,000 | | | | 1,223,882 | |
| | Henry Mayo Newhall Hospital, Refunding, 5.00%, 10/15/47 | | | 5,000,000 | | | | 5,515,000 | |
| | California School Finance Authority Charter School Revenue, | | | | | | | | |
| | Aspire Public Schools-Obligated Group, Refunding, 5.00%, 8/01/46 | | | 2,500,000 | | | | 2,720,125 | |
| | Aspire Public Schools-Obligated Group, Refunding, Series B, 5.00%, 8/01/35 | | | 1,000,000 | | | | 1,113,710 | |
| | Aspire Public Schools-Obligated Group, Refunding, Series B, 5.00%, 8/01/45 | | | 1,100,000 | | | | 1,188,462 | |
| | Rocketship Education Obligated Group, Series A, 5.00%, 6/01/34 | | | 1,000,000 | | | | 1,063,150 | |
| | Rocketship Education Obligated Group, Series A, 5.125%, 6/01/47 | | | 1,100,000 | | | | 1,150,193 | |
| | Rocketship Education Obligated Group, Series A, 5.25%, 6/01/52 | | | 1,200,000 | | | | 1,265,100 | |
| | Summit Public Schools-Obligated Group, 5.00%, 6/01/47 | | | 1,500,000 | | | | 1,675,245 | |
| | California School Finance Authority School Facility Revenue, | | | | | | | | |
| | Alliance for College-Ready Public Schools Projects, Series C, 5.00%, 7/01/46 | | | 10,000,000 | | | | 10,920,700 | |
| | Green Dot Public Schools Projects, Series A, 5.00%, 8/01/35 | | | 2,525,000 | | | | 2,757,881 | |
| | Green Dot Public Schools Projects, Series A, 5.00%, 8/01/45 | | | 3,500,000 | | | | 3,771,810 | |
| | Kipp LA Projects, Series A, 5.00%, 7/01/35 | | | 1,200,000 | | | | 1,378,164 | |
| | Kipp LA Projects, Series A, 5.00%, 7/01/45 | | | 1,675,000 | | | | 1,896,720 | |
| | Kipp LA Projects, Series A, 5.00%, 7/01/47 | | | 1,500,000 | | | | 1,682,970 | |
| | California State Educational Facilities Authority Revenue, | | | | | | | | |
| | Chapman University, 5.00%, 4/01/40 | | | 5,000,000 | | | | 5,562,600 | |
| | Loma Linda University, Refunding, Series A, 5.00%, 4/01/42 | | | 8,500,000 | | | | 9,695,355 | |
| | University of the Pacific, Refunding, 5.00%, 11/01/36 | | | 3,000,000 | | | | 3,383,520 | |
| | University of San Francisco, 6.125%, 10/01/36 | | | 2,000,000 | | | | 2,323,920 | |
| | California State GO, | | | | | | | | |
| | Various Purpose, 6.00%, 11/01/39 | | | 13,000,000 | | | | 14,080,820 | |
| | Various Purpose, FGIC Insured, 6.00%, 8/01/19 | | | 25,000 | | | | 25,177 | |
| | Various Purpose, Refunding, 5.00%, 3/01/45 | | | 5,000,000 | | | | 5,765,850 | |
| | California State Municipal Finance Authority Charter School Lease Revenue, | | | | | | | | |
| | Santa Rosa Academy Project, 5.125%, 7/01/35 | | | 450,000 | | | | 476,519 | |
| | Santa Rosa Academy Project, 5.375%, 7/01/45 | | | 1,400,000 | | | | 1,494,038 | |
| | California State Municipal Finance Authority Charter School Revenue, | | | | | | | | |
| | King Chavez Academy of Excellence Project, Refunding, Series A, 5.00%, 5/01/36 | | | 2,675,000 | | | | 2,842,723 | |
| | King Chavez Academy of Excellence Project, Refunding, Series A, 5.00%, 5/01/46 | | | 2,775,000 | | | | 2,902,761 | |
| | The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/31 | | | 1,000,000 | | | | 1,075,870 | |
| | The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/36 | | | 2,750,000 | | | | 2,910,710 | |
| | The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/41 | | | 1,750,000 | | | | 1,811,618 | |
| | The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/46 | | | 1,670,000 | | | | 1,721,603 | |
| | California State Municipal Finance Authority Mobile Home Park Revenue, | | | | | | | | |
| | Caritas Affordable Housing Inc. Projects, Senior, Series A, 5.00%, 8/15/30 | | | 1,000,000 | | | | 1,111,070 | |
| | Caritas Affordable Housing Inc. Projects, Senior, Series A, 5.25%, 8/15/39 | | | 1,200,000 | | | | 1,324,944 | |
| | Caritas Affordable Housing Inc. Projects, Senior, Series A, 5.25%, 8/15/49 | | | 3,500,000 | | | | 3,838,100 | |
| | Caritas Projects, Refunding, Senior, Series A, 4.00%, 8/15/37 | | | 1,160,000 | | | | 1,189,998 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 21 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | California State Municipal Finance Authority Mobile Home Park Revenue, (continued) | | | | | | | | |
| | Caritas Projects, Refunding, Senior, Series A, 4.00%, 8/15/42 | | $ | 1,810,000 | | | $ | 1,836,118 | |
| | Windsor Mobile Country Club, Refunding, Series A, 4.00%, 11/15/37 | | | 1,000,000 | | | | 1,046,420 | |
| | Windsor Mobile Country Club, Refunding, Series A, 4.00%, 11/15/48 | | | 5,000,000 | | | | 5,140,950 | |
| | Windsor Mobile Country Club, Series A, Pre-Refunded, 5.625%, 11/15/33 | | | 1,000,000 | | | | 1,211,660 | |
| | Windsor Mobile Country Club, Series A, Pre-Refunded, 6.00%, 11/15/48 | | | 4,000,000 | | | | 4,930,760 | |
| | California State Municipal Finance Authority Revenue, | | | | | | | | |
| | Biola University, Refunding, 5.00%, 10/01/36 | | | 1,100,000 | | | | 1,297,252 | |
| | Biola University, Refunding, 5.00%, 10/01/39 | | | 1,000,000 | | | | 1,165,350 | |
| | Biola University, Series A, Pre-Refunded, 5.625%, 10/01/23 | | | 6,000,000 | | | | 6,215,700 | |
| | Biola University, Series A, Pre-Refunded, 5.80%, 10/01/28 | | | 7,500,000 | | | | 7,780,350 | |
| | Biola University, Series A, Pre-Refunded, 5.875%, 10/01/34 | | | 6,000,000 | | | | 6,227,940 | |
| | California Baptist University, Series A, 5.00%, 11/01/36 | | | 2,500,000 | | | | 2,734,700 | |
| | California Baptist University, Series A, 5.375%, 11/01/40 | | | 5,000,000 | | | | 5,515,450 | |
| | California Baptist University, Series A, 5.50%, 11/01/45 | | | 10,000,000 | | | | 11,043,600 | |
| | Channing House Project, Refunding, Series A, 4.00%, 5/15/40 | | | 6,500,000 | | | | 6,855,810 | |
| | Community Medical Centers, Refunding, Series A, 4.00%, 2/01/42 | | | 10,000,000 | | | | 10,246,500 | |
| | Community Medical Centers, Series A, 5.00%, 2/01/40 | | | 5,000,000 | | | | 5,554,500 | |
| | The Creative Center of Los Altos Project Pinewood and Oakwood School, Refunding, Series B, 4.00%, 11/01/36 | | | 1,395,000 | | | | 1,339,423 | |
| | The Creative Center of Los Altos Project Pinewood and Oakwood School, Refunding, Series B, 4.50%, 11/01/46 | | | 1,600,000 | | | | 1,584,608 | |
| | Eisenhower Medical Center, Refunding, Series A, 5.00%, 7/01/37 | | | 2,625,000 | | | | 2,979,611 | |
| | Eisenhower Medical Center, Refunding, Series A, 4.00%, 7/01/42 | | | 4,575,000 | | | | 4,805,305 | |
| | Harbor Regional Center Project, Pre-Refunded, 8.50%, 11/01/39 | | | 5,000,000 | | | | 5,645,750 | |
| | Harbor Regional Center Project, Refunding, 5.00%, 11/01/32 | | | 3,020,000 | | | | 3,469,829 | |
| | Harbor Regional Center Project, Refunding, 5.00%, 11/01/39 | | | 6,525,000 | | | | 7,339,711 | |
| | Inland Regional Center Project, Refunding, 5.00%, 6/15/37 | | | 9,965,000 | | | | 11,086,262 | |
| | Kern Regional Center Project, Series A, 7.50%, 5/01/39 | | | 9,000,000 | | | | 9,625,410 | |
| | NorthBay Healthcare Group, 5.00%, 11/01/35 | | | 1,100,000 | | | | 1,218,943 | |
| | NorthBay Healthcare Group, 5.00%, 11/01/44 | | | 1,050,000 | | | | 1,151,955 | |
| | NorthBay Healthcare Group, Series A, 5.25%, 11/01/47 | | | 3,000,000 | | | | 3,350,070 | |
| | South Central Los Angeles Regional Center Project, 5.50%, 12/01/33 | | | 3,115,000 | | | | 3,559,355 | |
| | South Central Los Angeles Regional Center Project, 5.75%, 12/01/43 | | | 7,000,000 | | | | 8,031,940 | |
| | Southwest Community Health Center, California Mortgage Insured, Pre-Refunded, 6.125%, 2/01/40 | | | 4,000,000 | | | | 4,111,080 | |
| | University of La Verne, Refunding, Series A, 5.00%, 6/01/43 | | | 5,000,000 | | | | 5,767,100 | |
| | California State Municipal Finance Authority Student Housing Revenue, | | | | | | | | |
| | Bowles Hall Foundation, Series A, 5.00%, 6/01/35 | | | 600,000 | | | | 660,936 | |
| | Bowles Hall Foundation, Series A, 5.00%, 6/01/50 | | | 3,250,000 | | | | 3,539,770 | |
| | California State PCFA Solid Waste Disposal Revenue, | | | | | | | | |
| | CalPlant I Project, Green Bonds, 7.00%, 7/01/22 | | | 3,500,000 | | | | 3,729,355 | |
| | CalPlant I Project, Green Bonds, 7.50%, 7/01/32 | | | 13,000,000 | | | | 13,973,050 | |
| | CalPlant I Project, Green Bonds, 8.00%, 7/01/39 | | | 6,500,000 | | | | 7,329,855 | |
| | California State Public Works Board Lease Revenue, | | | | | | | | |
| | Department of Corrections and Rehabilitation, California State Prison Los Angeles, Various Buildings, Series C, 5.75%, 10/01/31 | | | 4,640,000 | | | | 5,277,536 | |
| | Various Capital Projects, Series A, 5.125%, 10/01/31 | | | 3,605,000 | | | | 3,998,089 | |
| | California State University Revenue, Systemwide, Refunding, Series A, 5.00%, 11/01/47 | | | 14,980,000 | | | | 17,074,953 | |
| | California Statewide CDA Insured Senior Living Health Facility Revenue, Los Angeles Jewish Home for the Aging, Fountainview at Gonda, Series A, California Mortgage Insured, 5.00%, 8/01/44 | | | 2,450,000 | | | | 2,761,322 | |
| | | | |
22 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | California Statewide CDA Revenue, | | | | | | | | |
| | Aldersly, Refunding, Series A, 5.00%, 5/15/32 | | $ | 750,000 | | | $ | 841,455 | |
| | Aldersly, Refunding, Series A, 5.00%, 5/15/40 | | | 1,010,000 | | | | 1,121,120 | |
| | American Baptist Homes of the West, Refunding, 6.25%, 10/01/39 | | | 5,000,000 | | | | 5,335,950 | |
| | Bentley School, Refunding, Series A, 7.00%, 7/01/40 | | | 8,675,000 | | | | 9,615,630 | |
| | California Baptist University, Pre-Refunded, 7.25%, 11/01/31 | | | 1,250,000 | | | | 1,511,750 | |
| | California Baptist University, Pre-Refunded, 7.50%, 11/01/41 | | | 2,750,000 | | | | 3,351,755 | |
| | California Baptist University, Refunding, Series A, 5.00%, 11/01/32 | | | 1,135,000 | | | | 1,266,410 | |
| | California Baptist University, Refunding, Series A, 5.00%, 11/01/41 | | | 1,875,000 | | | | 2,052,788 | |
| | California Baptist University, Series A, 5.125%, 11/01/23 | | | 715,000 | | | | 783,633 | |
| | California Baptist University, Series A, 6.125%, 11/01/33 | | | 1,565,000 | | | | 1,827,936 | |
| | California Baptist University, Series A, 6.375%, 11/01/43 | | | 4,035,000 | | | | 4,684,231 | |
| | Catholic Healthcare West, Series C, 5.625%, 7/01/35 | | | 5,000,000 | | | | 5,129,550 | |
| | Covenant Retirement Communities Inc., Series C, 5.625%, 12/01/36 | | | 8,000,000 | | | | 9,229,120 | |
| | Enloe Medical Center, Refunding, California Mortgage Insured, 5.00%, 8/15/38 | | | 6,000,000 | | | | 6,894,300 | |
| | Eskaton Properties Inc. Obligated Group, Refunding, 5.25%, 11/15/34 | | | 4,350,000 | | | | 4,752,853 | |
| | Front Porch Communities and Services, Refunding, Series A, 4.00%, 4/01/42 | | | 2,340,000 | | | | 2,421,011 | |
| | Front Porch Communities and Services, Refunding, Series A, 4.00%, 4/01/47 | | | 1,350,000 | | | | 1,391,324 | |
| | Front Porch Communities and Services, Refunding, Series A, 5.00%, 4/01/47 | | | 1,500,000 | | | | 1,698,030 | |
| | Henry Mayo Newhall Memorial Hospital, Series B, California Mortgage Insured, Pre-Refunded, 5.20%, 10/01/37 | | | 3,500,000 | | | | 3,613,645 | |
| | Huntington Memorial Hospital, Refunding, Series B, 5.00%, 7/01/44 | | | 4,450,000 | | | | 4,998,151 | |
| | Lancer Educational Student Housing Project, Refunding, Series A, 5.00%, 6/01/46 | | | 10,735,000 | | | | 11,272,609 | |
| | Loma Linda University Medical Center, Refunding, Series A, 5.25%, 12/01/44 | | | 8,550,000 | | | | 9,365,328 | |
| | Loma Linda University Medical Center, Series A, 5.00%, 12/01/41 | | | 5,500,000 | | | | 5,975,200 | |
| | Loma Linda University Medical Center, Series A, 5.00%, 12/01/46 | | | 5,000,000 | | | | 5,405,450 | |
| | Loma Linda University Medical Center, Series A, 5.25%, 12/01/56 | | | 6,500,000 | | | | 7,088,380 | |
| | Methodist Hospital of Southern California Project, FHA Insured, Pre-Refunded, 6.75%, 2/01/38 | | | 8,980,000 | | | | 9,742,851 | |
| | Monterey Institute International, 5.50%, 7/01/31 | | | 8,000,000 | | | | 8,275,440 | |
| | Statewide Community Infrastructure Program, Emerson Ranch Project, 5.00%, 9/02/35 | | | 2,000,000 | | | | 2,196,180 | |
| | Statewide Community Infrastructure Program, Emerson Ranch Project, 5.00%, 9/02/45 | | | 3,810,000 | | | | 4,146,004 | |
| | Statewide Community Infrastructure Program, Refunding, Series R1, 5.00%, 9/02/40 | | | 2,395,000 | | | | 2,541,550 | |
| | Statewide Community Infrastructure Program, Series A, 4.00%, 9/02/27 | | | 2,455,000 | | | | 2,509,108 | |
| | Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/36 | | | 1,035,000 | | | | 1,117,013 | |
| | Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/37 | | | 2,000,000 | | | | 2,161,640 | |
| | Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/45 | | | 2,255,000 | | | | 2,404,439 | |
| | Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/46 | | | 2,500,000 | | | | 2,672,875 | |
| | Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/37 | | | 3,480,000 | | | | 3,853,126 | |
| | Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/47 | | | 2,710,000 | | | | 2,975,174 | |
| | California Statewide CDA Special Tax Revenue, | | | | | | | | |
| | CFD No. 2015-01, Improvement Area No. 1, University District, Refunding, Series A, 5.00%, 9/01/36 | | | 1,000,000 | | | | 1,107,330 | |
| | CFD No. 2015-01, Improvement Area No. 1, University District, Refunding, Series A, 5.00%, 9/01/45 | | | 1,500,000 | | | | 1,648,155 | |
| | CFD No. 2015-01, Improvement Area No. 2, University District, 5.00%, 9/01/27 | | | 900,000 | | | | 1,019,610 | |
| | CFD No. 2015-01, Improvement Area No. 2, University District, 5.00%, 9/01/37 | | | 1,225,000 | | | | 1,351,028 | |
| | CFD No. 2015-01, Improvement Area No. 2, University District, 5.00%, 9/01/47 | | | 2,000,000 | | | | 2,190,360 | |
| | CFD No. 2016-02, Delta Coves, Series A, 5.00%, 9/01/46 | | | 11,155,000 | | | | 11,162,697 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 23 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | California Statewide CDA Student Housing Revenue, | | | | | | | | |
| | CHF-Irvine LLC, UCI East Campus Apartments, Phase II, Pre-Refunded, 5.75%, 5/15/32 | | $ | 10,000,000 | | | $ | 10,205,000 | |
| | University of California, Irvine East Campus Apartments, CHF-Irvine LLC, Refunding, 5.00%, 5/15/40 | | | 1,500,000 | | | | 1,713,945 | |
| | University of California, Irvine East Campus Apartments, Phase IV-A, CHF-Irvine LLC, 5.00%, 5/15/47 | | | 5,000,000 | | | | 5,755,100 | |
| | University of California, Irvine East Campus Apartments, Phase IV-A, CHF-Irvine LLC, 5.00%, 5/15/50 | | | 4,000,000 | | | | 4,604,080 | |
| | University of California, Irvine East Campus Apartments, Phase IV-A, CHF-Irvine LLC, Series A, 5.00%, 5/15/42 | | | 5,360,000 | | | | 6,193,158 | |
| | Capistrano USD, CFD No. 2005-1 Special Tax, 5.50%, 9/01/43 | | | 4,955,000 | | | | 5,479,734 | |
| | Carson RDA, Tax Allocation Housing, Series A, 5.25%, 10/01/36 | | | 1,965,000 | | | | 2,131,043 | |
| | Casitas Municipal Water District Special Tax, | | | | | | | | |
| | CFD No. 2013-1, Ojai, Series B, BAM Insured, 5.00%, 9/01/42 | | | 8,000,000 | | | | 9,313,120 | |
| | CFD No. 2013-1, Ojai, Series B, BAM Insured, 5.25%, 9/01/47 | | | 5,000,000 | | | | 5,972,000 | |
| | Centinela Valley UHSD, | | | | | | | | |
| | GO, Los Angeles County, Capital Appreciation, Election of 2010, Refunding, Series B, AGMC Insured, zero cpn., 8/01/45 | | | 42,000,000 | | | | 9,613,800 | |
| | GO, Los Angeles County, Election of 2008, Series C, 5.00%, 8/01/35 | | | 4,195,000 | | | | 4,870,731 | |
| | Ceres USD, | | | | | | | | |
| | GO, Capital Appreciation, Election of 2008, Series A, zero cpn., 8/01/39 | | | 6,450,000 | | | | 1,562,448 | |
| | GO, Capital Appreciation, Election of 2008, Series A, zero cpn., 8/01/40 | | | 6,730,000 | | | | 1,516,336 | |
| | Chatom USD, GO, Capital Appreciation, Election of 2006, Series C, XLCA Insured, zero cpn., 8/01/47 | | | 9,450,000 | | | | 1,735,115 | |
| | Chino CFD No. 2003-3 Special Tax, Improvement Area No. 6, 5.00%, 9/01/45 | | | 1,665,000 | | | | 1,817,664 | |
| | Chino CFD No. 2016-2 Special Tax, 5.00%, 9/01/42 | | | 1,535,000 | | | | 1,688,976 | |
| | City of Fullerton Special Assessment, | | | | | | | | |
| | CFD No. 2, Amerige Heights, 4.00%, 9/01/24 | | | 110,000 | | | | 115,580 | |
| | CFD No. 2, Amerige Heights, 5.00%, 9/01/34 | | | 1,075,000 | | | | 1,150,659 | |
| | CFD No. 2, Amerige Heights, 5.00%, 9/01/44 | | | 2,450,000 | | | | 2,600,234 | |
| | Clovis USD, | | | | | | | | |
| | GO, Capital Appreciation, Election of 2004, Series A, NATL Insured, zero cpn., 8/01/27 | | | 7,500,000 | | | | 5,782,950 | |
| | GO, Capital Appreciation, Election of 2004, Series A, NATL Insured, zero cpn., 8/01/28 | | | 3,000,000 | | | | 2,221,200 | |
| | Coachella Valley USD, | | | | | | | | |
| | GO, Riverside and Imperial Counties, Capital Appreciation, Election of 2005, Series D, AGMC Insured, zero cpn., 8/01/42 | | | 8,500,000 | | | | 3,279,385 | |
| | GO, Riverside and Imperial Counties, Capital Appreciation, Election of 2005, Series D, AGMC Insured, zero cpn., 8/01/43 | | | 3,000,000 | | | | 1,110,780 | |
| | Compton Community College District GO, | | | | | | | | |
| | Election of 2002, Series B, Pre-Refunded, 6.625%, 8/01/27 | | | 3,085,000 | | | | 3,343,461 | |
| | Election of 2002, Series B, Pre-Refunded, 6.75%, 8/01/34 | | | 4,000,000 | | | | 4,343,280 | |
| | Compton CRDA Tax Allocation, | | | | | | | | |
| | Redevelopment Project, second lien, Series B, 5.70%, 8/01/30 | | | 2,255,000 | | | | 2,420,111 | |
| | Redevelopment Project, second lien, Series B, 6.00%, 8/01/42 | | | 3,460,000 | | | | 3,726,835 | |
| | Corona CFD No. 2001-2 Special Tax, Improvement Areas Nos. 1 and 2, Series A, 6.25%, 9/01/32 | | | 1,825,000 | | | | 1,831,004 | |
| | Corona CFD No. 2003-2 Special Tax, Highlands Collection, 5.20%, 9/01/34 | | | 755,000 | | | | 752,010 | |
| | Corona-Norco USD, Special Tax, Refunding, CFD No. 5-1, 5.00%, 9/01/36 | | | 500,000 | | | | 566,500 | |
| | Cotati South Sonoma Business Park AD Special Assessment, Limited Obligation Improvement, 6.50%, 9/02/33 | | | 4,390,000 | | | | 4,389,385 | |
| | Cotati-Rohnert Park USD, GO, Election of 2014, Series C, BAM Insured, 5.00%, 8/01/45 | | | 4,000,000 | | | | 4,511,520 | |
| | | | |
24 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | CSD San Bernardino County GO, | | | | | | | | |
| | Election of 2008, Series C, 5.00%, 8/01/44 | | $ | 3,615,000 | | | $ | 4,124,860 | |
| | Election of 2014, Series A, 5.00%, 8/01/44 | | | 7,375,000 | | | | 8,415,170 | |
| | Refunding, 5.00%, 8/01/47. | | | 3,500,000 | | | | 4,047,470 | |
| | Cudahy Community Development Commission Tax Allocation, City-Wide Redevelopment Project, Redevelopment Projects, Series B, 7.75%, 10/01/27 | | | 3,795,000 | | | | 4,414,723 | |
| | Daly City Housing Development Finance Agency Mobile Home Park Revenue, Franciscan Mobile Home Park Acquisition Project, sub. bond, Refunding, Series B, 5.85%, 12/15/47 | | | 4,780,000 | | | | 4,791,233 | |
| | Dana Point CFD Special Tax No. 2006-1, | | | | | | | | |
| | 5.00%, 9/01/38 | | | 1,000,000 | | | | 1,062,380 | |
| | 5.00%, 9/01/45 | | | 2,500,000 | | | | 2,648,025 | |
| | Del Mar Race Track Authority Revenue, Refunding, 5.00%, 10/01/35 | | | 2,000,000 | | | | 2,196,340 | |
| | Del Paso Manor Water District Revenue COP, Phase I Improvement Project, 5.50%, 7/01/41 | | | 3,050,000 | | | | 3,300,588 | |
| | Duarte RDA Tax Allocation, Capital Appreciation, Merged Redevelopment Project, ETM, zero cpn., 12/01/28 | | | 30,795,000 | | | | 17,864,795 | |
| | Dublin CFD No. 1 Special Tax, | | | | | | | | |
| | Improvement Area No. 1, Dublin Crossing, 5.00%, 9/01/27 | | | 1,000,000 | | | | 1,130,710 | |
| | Improvement Area No. 1, Dublin Crossing, 5.00%, 9/01/37 | | | 1,550,000 | | | | 1,747,269 | |
| | Improvement Area No. 1, Dublin Crossing, 5.00%, 9/01/47 | | | 4,500,000 | | | | 4,966,830 | |
| | El Rancho USD, GO, Los Angeles County, Capital Appreciaion, Election of 2003, NATL Insured, zero cpn., 8/01/29 | | | 2,400,000 | | | | 1,588,728 | |
| | Fairfield Special Tax, | | | | | | | | |
| | CFD No. 3, North Cordelia General Improvements, 6.00%, 9/01/32 | | | 1,200,000 | | | | 1,239,192 | |
| | CFD No. 3, North Cordelia General Improvements, 6.00%, 9/01/37 | | | 5,810,000 | | | | 5,999,755 | |
| | Fillmore Special Tax, | | | | | | | | |
| | CFD No. 5 Improvement Area A, Heritage Valley Parks, Series A, 5.00%, 9/01/40 | | | 1,500,000 | | | | 1,638,975 | |
| | CFD No. 5 Improvement Area A, Heritage Valley Parks, Series A, 5.00%, 9/01/45 | | | 2,630,000 | | | | 2,865,043 | |
| | Folsom Ranch Financing Authority Special Tax Revenue, 5.00%, 9/01/47 | | | 3,000,000 | | | | 3,227,340 | |
| | Fontana Special Tax Revenue, CFD No. 80, Bella Strada, 5.00%, 9/01/46 | | | 1,000,000 | | | | 1,103,740 | |
| | Foothill/Eastern Transportation Corridor Agency Toll Road Revenue, | | | | | | | | |
| | Capital Appreciation, Refunding, Series A, zero cpn., 1/15/42 | | | 75,000,000 | | | | 25,585,500 | |
| | Capital Appreciation, senior lien, Refunding, Series A, zero cpn., 1/15/33 | | | 19,000,000 | | | | 10,152,460 | |
| | junior lien, Refunding, Series C, 6.50%, 1/15/43 | | | 40,000,000 | | | | 48,262,000 | |
| | Refunding, Sub Series B-1, 3.95%, 1/15/53 | | | 25,000,000 | | | | 25,098,500 | |
| | Fremont CFD No. 1 Special Tax, | | | | | | | | |
| | Pacific Commons, Refunding, 5.00%, 9/01/40 | | | 4,655,000 | | | | 5,118,079 | |
| | Pacific Commons, Refunding, 5.00%, 9/01/45 | | | 3,255,000 | | | | 3,564,941 | |
| | Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, | | | | | | | | |
| | Asset-Backed, Refunding, Senior, Series A-1, 5.00%, 6/01/33 | | | 42,875,000 | | | | 42,874,142 | |
| | Asset-Backed, Second Subordinate, Capital Appreciation, Refunding, Series C, zero cpn., 6/01/47 | | | 50,000,000 | | | | 5,915,500 | |
| | Asset-Backed, Senior, Series A, 5.75%, 6/01/47 | | | 15,000,000 | | | | 15,112,500 | |
| | Asset-Backed, Series A, 5.00%, 6/01/45 | | | 42,630,000 | | | | 48,680,902 | |
| | Goleta RDA Tax Allocation, Goleta Old Town Redevelopment Project, 8.00%, 6/01/44 | | | 5,000,000 | | | | 5,020,400 | |
| | Hanford Joint UHSD, | | | | | | | | |
| | GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/32 | | | 3,635,000 | | | | 2,249,774 | |
| | GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/33 | | | 3,705,000 | | | | 2,181,986 | |
| | GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/35 | | | 4,120,000 | | | | 2,209,474 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 25 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | Hartnell Community College District GO, | | | | | | | | |
| | Monterey and San Benito Counties, Capital Appreciation, Election of 2002, Series D, Pre- Refunded, zero cpn., 8/01/44 | | $ | 30,000,000 | | | $ | 4,552,800 | |
| | Monterey and San Benito Counties, Capital Appreciation, Election of 2002, Series D, zero cpn., 8/01/49 | | | 10,000,000 | | | | 2,852,200 | |
| | Imperial Community College District GO, Imperial County, Capital Appreciation, Election of 2010, Series A, AGMC Insured, 6.75%, 8/01/40 | | | 3,500,000 | | | | 4,446,820 | |
| | Imperial County Special Tax, CFD No. 98-1, 6.50%, 9/01/31 | | | 5,705,000 | | | | 5,715,954 | |
| | Independent Cities Finance Authority Mobile Home Park Revenue, | | | | | | | | |
| | Lamplighter Salinas MobileHome Park, Series A, 6.25%, 7/15/45 | | | 2,465,000 | | | | 2,683,424 | |
| | Lamplighter Salinas MobileHome Park, Series A, 6.25%, 7/15/50 | | | 2,000,000 | | | | 2,158,200 | |
| | Pillar Ridge, Series A, 5.25%, 5/15/44 | | | 2,015,000 | | | | 2,212,994 | |
| | Pillar Ridge, Series A, 5.25%, 5/15/49 | | | 4,800,000 | | | | 5,257,152 | |
| | San Juan Mobile Estates, Refunding, 5.00%, 8/15/45 | | | 5,000,000 | | | | 5,506,200 | |
| | San Juan Mobile Estates, Refunding, 5.00%, 8/15/50 | | | 4,900,000 | | | | 5,326,986 | |
| | Indio CFD Special Tax, No. 2004-3, Terra Lago, Improvement Area No. 1, Refunding, 5.00%, 9/01/35 | | | 1,240,000 | | | | 1,337,191 | |
| | Inland Valley Development Agency Successor Agency Tax Allocation, | | | | | | | | |
| | Refunding, Series A, 5.25%, 9/01/37 | | | 7,500,000 | | | | 8,481,000 | |
| | Refunding, Series A, 5.00%, 9/01/44 | | | 9,000,000 | | | | 9,866,880 | |
| | Irvine Special Tax Revenue, | | | | | | | | |
| | CFD No. 2013-3, Great Park, Improvement Area No. 1, 5.00%, 9/01/39 | | | 1,000,000 | | | | 1,088,710 | |
| | CFD No. 2013-3, Great Park, Improvement Area No. 1, 5.00%, 9/01/44 | | | 1,500,000 | | | | 1,632,120 | |
| | CFD No. 2013-3, Great Park, Improvement Area No. 1, 5.00%, 9/01/49 | | | 2,750,000 | | | | 2,944,480 | |
| | Irvine USD Special Tax, | | | | | | | | |
| | CFD No. 06-1, Portola Springs, 6.70%, 9/01/35 | | | 2,565,000 | | | | 2,802,570 | |
| | CFD No. 09-1, Series A, 5.00%, 9/01/42 | | | 700,000 | | | | 785,393 | |
| | CFD No. 09-1, Series B, 5.00%, 9/01/42 | | | 1,000,000 | | | | 1,121,990 | |
| | CFD No. 09-1, Series B, 5.00%, 9/01/51 | | | 2,500,000 | | | | 2,787,475 | |
| | CFD No. 09-1, Series C, 5.00%, 9/01/47 | | | 1,000,000 | | | | 1,119,360 | |
| | CFD No. 09-1, Series C, 4.00%, 9/01/53 | | | 1,260,000 | | | | 1,271,088 | |
| | CFD No. 09-1, Series D, 5.00%, 9/01/49 | | | 1,000,000 | | | | 1,114,990 | |
| | Jurupa PFA Special Tax Revenue, | | | | | | | | |
| | Refunding, Series A, 5.00%, 9/01/42 | | | 2,220,000 | | | | 2,507,867 | |
| | Refunding, Series A, 5.00%, 9/01/43 | | | 4,000,000 | | | | 4,392,240 | |
| | sub. lien, Series B, 5.00%, 9/01/40 | | | 4,000,000 | | | | 4,335,840 | |
| | Kaweah Delta Health Care District Revenue, Series B, 5.00%, 6/01/40 | | | 3,250,000 | | | | 3,582,832 | |
| | La Verne COP, Brethren Hillcrest Homes, 5.00%, 5/15/36 | | | 1,430,000 | | | | 1,511,667 | |
| | La Verne Mobile Home Park Revenue, Copacabana Mobilehome Park, Refunding, 5.00%, 6/15/49 | | | 1,765,000 | | | | 1,892,786 | |
| | Lake Elsinore PFA Local Agency Revenue, | | | | | | | | |
| | AD No. 93-1, Refunding, Series B, 5.125%, 9/02/30 | | | 4,980,000 | | | | 5,577,799 | |
| | Canyon Hills Improvement Area Development, Series A, 5.75%, 9/01/44 | | | 3,240,000 | | | | 3,542,000 | |
| | CFD No. 98-1, Series C, 5.25%, 9/01/33 | | | 8,000,000 | | | | 8,726,400 | |
| | Lake Tahoe USD, GO, Election of 2008, Convertible Capital Appreciation, zero cpn. to 8/01/25, 5.30% thereafter, 8/01/40 | | | 1,140,000 | | | | 956,927 | |
| | Lammersville Joint USD Special Tax, CFD No. 2014-1, Improvement Area No. 1, Mountain House School Facilities, 5.00%, 9/01/47 | | | 4,000,000 | | | | 4,473,920 | |
| | Lancaster RDA Successor Agency Tax Allocation, Combined Redevelopment Project Areas, Housing Programs, Refunding, AGMC Insured, 4.00%, 8/01/39 | | | 3,500,000 | | | | 3,696,595 | |
| | Lancaster RDA Tax Allocation, | | | | | | | | |
| | Combined Redevelopment Project Areas, Housing Programs, Pre-Refunded, 6.875%, 8/01/34 | | | 2,000,000 | | | | 2,173,980 | |
| | Combined Redevelopment Project Areas, Housing Programs, Pre-Refunded, 6.875%, 8/01/39 | | | 2,000,000 | | | | 2,173,980 | |
| | | | |
26 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | Las Virgenes USD, GO, Election of 2006, Convertible Capital Appreciation, Series C, zero cpn. to 8/01/26, 6.75% thereafter, 8/01/33 | | $ | 8,050,000 | | | $ | 6,832,196 | |
| | Lathrop Financing Authority Revenue, | | | | | | | | |
| | Mossdale Village, Refunding, Series A, 6.00%, 9/02/28 | | | 1,010,000 | | | | 1,118,141 | |
| | Mossdale Village, Refunding, Series A, 6.00%, 9/02/29 | | | 1,070,000 | | | | 1,179,943 | |
| | Mossdale Village, Refunding, Series A, 6.00%, 9/02/30 | | | 1,075,000 | | | | 1,181,984 | |
| | Mossdale Village, Refunding, Series A, 5.50%, 9/02/35 | | | 3,670,000 | | | | 3,876,511 | |
| | LeeLake PFAR, | | | | | | | | |
| | Special Tax, junior lien, Refunding, Series B, 5.25%, 9/01/32 | | | 1,170,000 | | | | 1,274,013 | |
| | Special Tax, junior lien, Refunding, Series B, 5.375%, 9/01/35 | | | 805,000 | | | | 873,908 | |
| | Lemon Grove CDA Successor Agency Tax Allocation, Lemon Grove Redevelopment Project Area, Refunding, AGMC Insured, 4.00%, 8/01/34 | | | 1,000,000 | | | | 1,080,340 | |
| | Lemon Grove School District GO, Capital Appreciation, Election of 2008, Series B, AGMC Insured, zero cpn. to 8/01/28, 6.10% thereafter, 8/01/45 | | | 6,500,000 | | | | 5,321,225 | |
| | Local Public Schools Funding Authority School Facilities Improvement District No. 2016-1 GO, | | | | | | | | |
| | Election of 2016, Series A, 4.00%, 8/01/42 | | | 1,750,000 | | | | 1,847,580 | |
| | Election of 2016, Series A, 5.00%, 8/01/46 | | | 2,000,000 | | | | 2,320,440 | |
| | Election of 2016, Series A, 4.00%, 8/01/52 | | | 6,000,000 | | | | 6,273,900 | |
| | Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A, 5.00%, 11/15/29 | | | 4,630,000 | | | | 5,451,964 | |
| | Long Beach Marina Revenue, | | | | | | | | |
| | Los Angeles County, Alamitos Bay Marina Project, 5.00%, 5/15/34 | | | 1,300,000 | | | | 1,458,522 | |
| | Los Angeles County, Alamitos Bay Marina Project, 5.00%, 5/15/40 | | | 3,500,000 | | | | 3,880,205 | |
| | Los Angeles County, Alamitos Bay Marina Project, 5.00%, 5/15/45 | | | 2,500,000 | | | | 2,754,250 | |
| | Los Alamitos USD, | | | | | | | | |
| | COP, Capital Appreciation, Capital Projects, zero cpn. to 7/31/24, 5.95% thereafter, 8/01/34 | | | 1,500,000 | | | | 1,367,355 | |
| | COP, Capital Appreciation, Capital Projects, zero cpn. to 7/31/24, 5.95% thereafter, 8/01/42 | | | 4,500,000 | | | | 4,056,345 | |
| | Los Angeles County Schools Regionalized Business Services Corp. COP, Pooled Financing Program, Antelope Valley Community College District, Series C, Pre-Refunded, 5.00%, 6/01/30 | | | 2,200,000 | | | | 2,385,944 | |
| | Los Angeles Department of Airports Revenue, Los Angeles International Airport, Subordinate, Refunding, Series C, 5.00%, 5/15/34 | | | 2,135,000 | | | | 2,481,425 | |
| | Madera USD, GO, Madera County, Election of 2014, 4.00%, 8/01/46 | | | 6,000,000 | | | | 6,319,320 | |
| | Mendocino-Lake Community College District GO, | | | | | | | | |
| | Capital Appreciation, Election of 2006, Series B, AGMC Insured, zero cpn. to 8/01/21, 6.55% thereafter, 8/01/36 | | | 5,150,000 | | | | 5,785,510 | |
| | Capital Appreciation, Election of 2006, Series B, AGMC Insured, zero cpn. to 8/01/26, 6.85% thereafter, 8/01/40 | | | 7,500,000 | | | | 7,123,725 | |
| | Merced RDA Tax Allocation, Merced Gateways Redevelopment Project, Series A, Pre-Refunded, 6.50%, 9/01/39 | | | 6,250,000 | | | | 6,779,375 | |
| | Merced UHSD, GO, Capital Appreciation, Election of 2008, Series C, Pre-Refunded, zero cpn., 8/01/41 | | | 10,000,000 | | | | 2,324,400 | |
| | Monrovia Financing Authority Water and Sewer Revenue, AGMC Insured, 5.00%, 12/01/45 | | | 2,500,000 | | | | 2,835,850 | |
| | Moreland School District GO, Election of 2010, Series B, 5.00%, 8/01/41 | | | 4,045,000 | | | | 4,618,500 | |
| | M-S-R Energy Authority Gas Revenue, Series B, 6.50%, 11/01/39 | | | 32,300,000 | | | | 45,855,018 | |
| | North Natomas CFD Special Tax, No. 4, Refunding, Series E, 5.25%, 9/01/33 | | | 3,000,000 | | | | 3,383,820 | |
| | Oak Park USD, GO, Capital Appreciation, Series A, zero cpn. to 8/01/21, 7.10% thereafter, 8/01/38 | | | 6,600,000 | | | | 7,515,750 | |
| | Oakdale PFAR, Refunding, 5.00%, 9/01/35 | | | 1,270,000 | | | | 1,379,296 | |
| | Oakland USD Alameda County GO, Election of 2012, Pre-Refunded, 6.625%, 8/01/38 | | | 5,000,000 | | | | 5,897,000 | |
| | Oakley PFAR, | | | | | | | | |
| | Contra Costa County, Refunding, 5.30%, 9/02/34 | | | 995,000 | | | | 1,077,814 | |
| | Contra Costa County, Refunding, BAM Insured, 5.00%, 9/02/36 | | | 1,500,000 | | | | 1,716,345 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 27 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | Ontario CFD No. 28 Special Tax, | | | | | | | | |
| | New Haven Facilities, Area A, 5.00%, 9/01/42 | | $ | 1,000,000 | | | $ | 1,094,000 | |
| | New Haven Facilities, Area A, 5.00%, 9/01/47 | | | 500,000 | | | | 545,740 | |
| | Ontario CFD No. 31 Special Tax, Amberly Lane, Carriage House, 5.00%, 9/01/47 | | | 1,100,000 | | | | 1,201,893 | |
| | Orange County 1915 Act Special Assessment, Newport Coast Phase IV, AD No. 01-1, Limited Obligation, Group One, 5.10%, 9/02/33 | | | 1,745,000 | | | | 1,746,431 | |
| | Orange County CFD No. 1 Special Tax, | | | | | | | | |
| | Village of Esencia, Series A, 5.00%, 8/15/34 | | | 1,530,000 | | | | 1,703,257 | |
| | Village of Esencia, Series A, 5.25%, 8/15/45 | | | 5,000,000 | | | | 5,632,400 | |
| | Orchard School District GO, Election of 2001, Series B, AGMC Insured, 6.00%, 8/01/36 | | | 3,000,000 | | | | 3,339,630 | |
| | Oro Grande Elementary School District COP, | | | | | | | | |
| | 5.875%, 9/15/37 | | | 14,000,000 | | | | 15,264,900 | |
| | 6.125%, 9/15/40 | | | 1,500,000 | | | | 1,657,470 | |
| | Palomar Health Revenue, | | | | | | | | |
| | Refunding, 5.00%, 11/01/36 | | | 6,250,000 | | | | 6,946,812 | |
| | Refunding, 5.00%, 11/01/39 | | | 5,000,000 | | | | 5,528,500 | |
| | Palomar Pomerado Health COP, | | | | | | | | |
| | 6.00%, 11/01/30 | | | 10,000,000 | | | | 10,855,400 | |
| | Pre-Refunded, 6.75%, 11/01/39 | | | 15,550,000 | | | | 17,079,809 | |
| | Paramount USD, GO, Los Angeles County, Capital Appreciation, Election of 2006, BAM Insured, zero cpn., 8/01/51 | | | 25,000,000 | | | | 2,953,000 | |
| | Paso Robles Joint USD, GO, Capital Appreciation, Election of 2006, Series A, zero cpn., 9/01/45 | | | 15,000,000 | | | | 4,962,450 | |
| | Perris CFD No. 2001-2 Special Tax, Villages of Avalon, Refunding, Series A, 5.25%, 9/01/32 | | | 4,500,000 | | | | 4,992,570 | |
| | Perris Joint Powers Authority Local Agency Revenue, | | | | | | | | |
| | CFD No. 2001-1, Improvement Area Nos. 6 and 7, Refunding, Series E, 4.25%, 9/01/38 | | | 4,195,000 | | | | 4,323,786 | |
| | May Farms Improvement Area Nos. 1, 2 and 3, Refunding, Series A, 5.375%, 9/01/33 | | | 1,980,000 | | | | 2,204,136 | |
| | Willowbrook, Refunding, Series B, 5.25%, 9/01/33 | | | 3,830,000 | | | | 4,097,525 | |
| | Perris PFAR Tax Allocation, Housing Loan, Series A, 6.125%, 10/01/40 | | | 3,135,000 | | | | 3,493,863 | |
| | Pico Rivera Water Authority Revenue, Refunding, Series A, 6.25%, 12/01/32 | | | 6,025,000 | | | | 6,109,109 | |
| | Pittsburg USD, | | | | | | | | |
| | GO, Capital Appreciation, Election of 2010, Series C, zero cpn., 8/01/47 | | | 9,000,000 | | | | 1,855,800 | |
| | GO, Capital Appreciation, Election of 2010, Series C, zero cpn., 8/01/52 | | | 15,000,000 | | | | 2,217,600 | |
| | Pomona Revenue, Water Facilities Project, Refunding, Series BE, 5.00%, 5/01/47 | | | 7,500,000 | | | | 8,754,900 | |
| | Porterville PFA Sewer Revenue, Series A, 5.625%, 10/01/36 | | | 5,000,000 | | | | 5,699,750 | |
| | Poway RDA Successor Agency Tax Allocation, Paguay Redevelopment Project, Refunding, Series A, 5.00%, 12/15/30 | | | 3,500,000 | | | | 4,326,735 | |
| | Poway USD Special Tax, CFD No. 15, Del Sur East, Improvement Area C, 5.00%, 9/01/46 | | | 2,000,000 | | | | 2,214,620 | |
| | Rancho Cordova CFD No. 2005-1 Special Tax, | | | | | | | | |
| | Sunridge North Douglas, 5.00%, 9/01/40 | | | 1,200,000 | | | | 1,315,116 | |
| | Sunridge North Douglas, 5.00%, 9/01/45 | | | 1,250,000 | | | | 1,364,613 | |
| | Redondo Beach USD, GO, Election of 2008, Capital Appreciation, Series E, zero cpn. to 8/01/22, 6.20% thereafter, 8/01/31 | | | 2,750,000 | | | | 2,875,730 | |
| | Richland School District GO, Capital Appreciation, Election of 2008, Refunding, Series C, AGMC Insured, zero cpn., 8/01/49 | | | 22,000,000 | | | | 6,259,440 | |
| | Rio Elementary School District CFD No. 1 Special Tax, 5.50%, 9/01/39 | | | 6,915,000 | | | | 7,666,246 | |
| | Rio Hondo Community College District GO, Capital Appreciation, Election of 2004, Series C, zero cpn. to 8/01/24, 6.85% thereafter, 8/01/42 | | | 13,000,000 | | | | 13,709,800 | |
| | Riverbank USD, | | | | | | | | |
| | GO, Election of 2005, Series B, Assured Guaranty, zero cpn., 8/01/38 | | | 6,690,000 | | | | 3,028,697 | |
| | GO, Election of 2005, Series B, Assured Guaranty, zero cpn., 8/01/43 | | | 8,750,000 | | | | 3,160,238 | |
| | | | |
28 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | Riverside County PFA Tax Allocation Revenue, Desert Communities and Interstate 215 Corridor Projects, Series A, BAM Insured, 4.00%, 10/01/40. | | $ | 5,000,000 | | | $ | 5,287,150 | |
| | Riverside County RDA Tax Allocation, | | | | | | | | |
| | Desert Communities Redevelopment Project Area, second lien, Series D, 7.00%, 12/01/31 | | | 1,425,000 | | | | 1,703,089 | |
| | Desert Communities Redevelopment Project Area, second lien, Series D, 7.25%, 12/01/37 | | | 2,505,000 | | | | 3,017,824 | |
| | Housing, Series A, 7.125%, 10/01/42 | | | 1,750,000 | | | | 2,085,738 | |
| | Housing, Series A, Pre-Refunded, 6.00%, 10/01/39 | | | 3,000,000 | | | | 3,371,970 | |
| | Jurupa Valley Redevelopment Project Area, Series B, 6.75%, 10/01/30 | | | 1,200,000 | | | | 1,413,696 | |
| | Riverside County Redevelopment Successor Agency Tax Allocation, Housing, Refunding, Series A, 4.00%, 10/01/37 | | | 6,000,000 | | | | 6,247,140 | |
| | Riverside County Special Tax, CFD No. 03-1, Newport Road, Refunding, 5.00%, 9/01/30 | | | 1,500,000 | | | | 1,673,085 | |
| | Riverside County Transportation Commission Toll Revenue, | | | | | | | | |
| | Capital Appreciation, senior lien, Series B, zero cpn., 6/01/43 | | | 7,500,000 | | | | 2,352,675 | |
| | senior lien, Series A, 5.75%, 6/01/44 | | | 5,000,000 | | | | 5,613,350 | |
| | Riverside PFA Local Measure Sales Tax Revenue, Payment Rehabilitation Project, AGMC Insured, 5.00%, 6/01/33 | | | 4,280,000 | | | | 4,807,168 | |
| | RNR School Financing Authority Special Tax, CFD No. 92-1, Series A, BAM Insured, 5.00%, 9/01/41 | | | 3,000,000 | | | | 3,428,460 | |
| | Road 17 Levee Area PFA Assessment Revenue, Road 17 Levee Improvement Project, Pre-Refunded, 6.75%, 9/01/29 | | | 2,630,000 | | | | 2,864,017 | |
| | The Romoland School District Special Tax, | | | | | | | | |
| | CFD No. 2004-1, Heritage Lake, Improvement Area No. 3, Refunding, 5.00%, 9/01/36 | | | 1,500,000 | | | | 1,624,965 | |
| | CFD No. 2004-1, Heritage Lake, Improvement Area Nos. 1 and 2, Refunding, 5.00%, 9/01/35 | | | 4,690,000 | | | | 5,203,508 | |
| | CFD No. 2004-1, Heritage Lake, Improvement Area Nos. 1 and 2, Refunding, 5.00%, 9/01/38 | | | 3,000,000 | | | | 3,311,250 | |
| | CFD No. 2006-1, Brendle Mills, Refunding, 5.00%, 9/01/44 | | | 1,120,000 | | | | 1,239,090 | |
| | CFD No. 91-1, Refunding, 5.00%, 9/01/41 | | | 1,265,000 | | | | 1,417,091 | |
| | Roseville Special Tax, | | | | | | | | |
| | Fiddyment Ranch CFD No. 5, Public Facilities, Refunding, 5.00%, 9/01/32 | | | 1,265,000 | | | | 1,383,252 | |
| | Fiddyment Ranch CFD No. 5, Public Facilities, Refunding, 5.00%, 9/01/47 | | | 6,500,000 | | | | 6,965,530 | |
| | HP Campus Oaks CFD No. 1, Public Facilities, 5.00%, 9/01/36 | | | 1,550,000 | | | | 1,641,016 | |
| | HP Campus Oaks CFD No. 1, Public Facilities, 5.50%, 9/01/46 | | | 4,050,000 | | | | 4,403,808 | |
| | Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/29 | | | 500,000 | | | | 552,885 | |
| | Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/34 | | | 1,100,000 | | | | 1,191,740 | |
| | Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/39 | | | 1,885,000 | | | | 2,021,794 | |
| | Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/44 | | | 1,650,000 | | | | 1,761,639 | |
| | Westpark CFD No. 1, Public Facilities, Refunding, 5.00%, 9/01/32 | | | 1,120,000 | | | | 1,236,200 | |
| | Westpark CFD No. 1, Public Facilities, Refunding, 5.00%, 9/01/33 | | | 1,000,000 | | | | 1,098,770 | |
| | Westpark CFD No. 1, Public Facilities, Refunding, 5.00%, 9/01/37 | | | 1,250,000 | | | | 1,359,325 | |
| | Rowland USD, | | | | | | | | |
| | GO, Capital Appreciation, Election of 2006, Series B, zero cpn., 8/01/34 | | | 5,000,000 | | | | 2,717,000 | |
| | GO, Capital Appreciation, Election of 2006, Series B, zero cpn., 8/01/39 | | | 15,000,000 | | | | 6,424,350 | |
| | GO, Capital Appreciation, Election of 2006, Series B, zero cpn., 8/01/42 | | | 10,750,000 | | | | 4,321,607 | |
| | Sacramento Area Flood Control Agency Special Assessment, Natomas Basin Local Assessment, Refunding, BAM Insured, 5.00%, 10/01/44 | | | 2,000,000 | | | | 2,242,500 | |
| | Sacramento County Airport System Revenue, Senior, Series B, AGMC Insured, 5.25%, 7/01/39 | | | 7,000,000 | | | | 7,145,600 | |
| | Sacramento Special Tax, | | | | | | | | |
| | Natomas Central CFD No. 2, 5.00%, 9/01/46 | | | 1,815,000 | | | | 1,989,748 | |
| | Natomas Meadows CFD No. 1, Improvement Area No. 1, 5.00%, 9/01/32 | | | 300,000 | | | | 324,492 | |
| | Natomas Meadows CFD No. 1, Improvement Area No. 1, 5.00%, 9/01/37 | | | 710,000 | | | | 754,986 | |
| | Natomas Meadows CFD No. 1, Improvement Area No. 1, 5.00%, 9/01/47 | | | 1,900,000 | | | | 2,012,575 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 29 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | San Bernardino Community College District GO, | | | | | | | | |
| | Capital Appreciation, Election of 2008, Series A, zero cpn., 8/01/44 | | $ | 12,495,000 | | | $ | 4,328,268 | |
| | Election of 2008, Series D, 5.00%, 8/01/45 | | | 2,755,000 | | | | 3,141,554 | |
| | Election of 2008, Series D, 5.00%, 8/01/48 | | | 3,760,000 | | | | 4,287,566 | |
| | San Bernardino County Special Tax, | | | | | | | | |
| | CFD No. 2006-1, Improvement Area No. 1, Lytle Creek North, 5.00%, 9/01/40 | | | 1,000,000 | | | | 1,095,930 | |
| | CFD No. 2006-1, Improvement Area No. 2, Lytle Creek North, Refunding, 5.00%, 9/01/45 | | | 1,000,000 | | | | 1,091,690 | |
| | San Buenaventura Revenue, | | | | | | | | |
| | Community Memorial Health System, 8.00%, 12/01/31 | | | 10,000,000 | | | | 11,963,500 | |
| | Community Memorial Health System, 7.50%, 12/01/41 | | | 5,000,000 | | | | 5,828,200 | |
| | San Clemente Special Tax, | | | | | | | | |
| | CFD No. 2006-1, 5.00%, 9/01/40 | | | 1,785,000 | | | | 1,949,916 | |
| | CFD No. 2006-1, 5.00%, 9/01/46 | | | 2,485,000 | | | | 2,702,338 | |
| | San Diego County Regional Airport Authority Revenue, | | | | | | | | |
| | Subordinate, Refunding, Series A, 5.00%, 7/01/47 | | | 5,000,000 | | | | 5,872,250 | |
| | Subordinate, Series B, 5.00%, 7/01/42 | | | 2,500,000 | | | | 2,915,650 | |
| | Subordinate, Series B, 5.00%, 7/01/47 | | | 2,750,000 | | | | 3,194,785 | |
| | San Diego RDA Tax Allocation Revenue, | | | | | | | | |
| | City Heights Redevelopment Project, Series A, Pre-Refunded, 5.625%, 9/01/40 | | | 2,315,000 | | | | 2,570,507 | |
| | Naval Training Center Redevelopment Project, Series A, Pre-Refunded, 5.75%, 9/01/40 | | | 3,000,000 | | | | 3,341,130 | |
| | San Diego USD, | | | | | | | | |
| | GO, Capital Appreciation, Election of 2008, Series A, Pre-Refunded, zero cpn. to 7/01/19, 6.00% thereafter, 7/01/33 | | | 10,000,000 | | | | 11,534,100 | |
| | GO, Capital Appreciation, Election of 2008, Series C, zero cpn. to 7/01/30, 6.625% thereafter, 7/01/47 | | | 26,025,000 | | | | 21,268,931 | |
| | GO, Dedicated Unlimited Ad Valorem Property Tax, Capital Appreciation, Election of 2008, Series E, zero cpn. to 7/01/32, 5.25% thereafter, 7/01/42 | | | 6,940,000 | | | | 4,667,705 | |
| | GO, Dedicated Unlimited Ad Valorem Property Tax, Capital Appreciation, Election of 2008, Series E, zero cpn. to 7/01/32, 5.375% thereafter, 7/01/47 | | | 13,500,000 | | | | 9,336,870 | |
| | San Francisco City and County RDA Successor Agency CFD No. 6 Special Tax, Mission Bay South Public Improvements, Capital Appreciation, Refunding, Series C, zero cpn., 8/01/43 | | | 10,000,000 | | | | 2,480,000 | |
| | San Francisco City and County RDA Successor Agency Tax Allocation, | | | | | | | | |
| | Mission Bay South Redevelopment Project, Series A, 5.00%, 8/01/43 | | | 2,500,000 | | | | 2,838,400 | |
| | Mission Bay South Redevelopment Project, Subordinate, Series D, zero cpn., 8/01/23 | | | 2,000,000 | | | | 1,516,600 | |
| | Mission Bay South Redevelopment Project, Subordinate, Series D, zero cpn., 8/01/26 | | | 3,000,000 | | | | 1,944,690 | |
| | Mission Bay South Redevelopment Project, Subordinate, Series D, zero cpn., 8/01/31 | | | 6,000,000 | | | | 2,901,780 | |
| | Mission Bay South Redevelopment Project, Subordinate, Series D, zero cpn., 8/01/43 | | | 16,500,000 | | | | 4,236,210 | |
| | San Francisco City and County Redevelopment Financing Authority Tax Allocation Revenue, | | | | | | | | |
| | Mission Bay North Redevelopment Project, Series C, Pre-Refunded, 6.75%, 8/01/41 | | | 1,000,000 | | | | 1,160,990 | |
| | Mission Bay South Redevelopment Project, Series D, Pre-Refunded, 7.00%, 8/01/33 | | | 1,000,000 | | | | 1,168,670 | |
| | Mission Bay South Redevelopment Project, Series D, Pre-Refunded, 6.625%, 8/01/39 | | | 2,265,000 | | | | 2,456,710 | |
| | Mission Bay South Redevelopment Project, Series D, Pre-Refunded, 7.00%, 8/01/41 | | | 1,500,000 | | | | 1,753,005 | |
| | San Francisco Redevelopment Projects, Series B, Pre-Refunded, 6.625%, 8/01/41 | | | 2,500,000 | | | | 2,888,675 | |
| | San Gorgonio Memorial Healthcare District GO, Riverside County, Refunding, 5.00%, 8/01/39 | | | 15,000,000 | | | | 16,503,000 | |
| | San Joaquin County Public Facilities FICO Revenue COP, Wastewater Conveyance Project, 6.00%, 8/01/37 | | | 1,000,000 | | | | 1,000,190 | |
| | San Joaquin Delta Community College District GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/30 | | | 3,900,000 | | | | 1,936,155 | |
| | | | |
30 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, | | | | | | | | |
| | Capital Appreciation, junior lien, ETM, zero cpn., 1/01/28 | | $ | 19,150,000 | | | $ | 15,392,195 | |
| | Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/26 | | | 19,475,000 | | | | 15,221,855 | |
| | Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/32 | | | 50,225,000 | | | | 29,977,796 | |
| | junior lien, Refunding, Series B, 5.25%, 1/15/44 | | | 35,000,000 | | | | 39,271,050 | |
| | junior lien, Refunding, Series B, 5.25%, 1/15/49 | | | 75,000,000 | | | | 83,900,250 | |
| | San Jose Airport Revenue, | | | | | | | | |
| | Refunding, Series A, 5.00%, 3/01/36 | | | 2,250,000 | | | | 2,618,640 | |
| | Refunding, Series A, 5.00%, 3/01/37 | | | 2,500,000 | | | | 2,903,025 | |
| | Refunding, Series A, BAM Insured, 4.00%, 3/01/42 | | | 5,000,000 | | | | 5,179,750 | |
| | Refunding, Series B, 5.00%, 3/01/42 | | �� | 2,550,000 | | | | 2,985,795 | |
| | San Jose RDA Tax Allocation, | | | | | | | | |
| | Merged Area Redevelopment Project, Series B, XLCA Insured, 5.00%, 8/01/28 | | | 13,245,000 | | | | 13,280,761 | |
| | Merged Area Redevelopment Project, Series B, XLCA Insured, 4.25%, 8/01/36 | | | 5,000,000 | | | | 5,012,950 | |
| | San Mateo Special Tax, | | | | | | | | |
| | CFD No. 2008-1, Bay Meadows, 5.875%, 9/01/32 | | | 1,500,000 | | | | 1,681,455 | |
| | CFD No. 2008-1, Bay Meadows, 5.375%, 9/01/38 | | | 2,500,000 | | | | 2,710,975 | |
| | CFD No. 2008-1, Bay Meadows, 6.00%, 9/01/42 | | | 5,000,000 | | | | 5,566,900 | |
| | CFD No. 2008-1, Bay Meadows, 5.50%, 9/01/44 | | | 3,300,000 | | | | 3,599,409 | |
| | Santa Barbara Elementary School District GO, Capital Appreciation, Election of 2010, Series A, zero cpn. to 8/01/23, 7.00% thereafter, 8/01/36 | | | 8,000,000 | | | | 8,797,280 | |
| | Santa Cruz County RDA Tax Allocation, Live Oak/Soquel Community Improvement Project Area, Series A, Pre-Refunded, 6.625%, 9/01/29 | | | 2,650,000 | | | | 2,880,126 | |
| | Santa Margarita Water District Special Tax, | | | | | | | | |
| | CFD No. 2013-1, Village of Sendero, 5.625%, 9/01/36 | | | 3,000,000 | | | | 3,303,420 | |
| | CFD No. 2013-1, Village of Sendero, 5.625%, 9/01/43 | | | 10,000,000 | | | | 11,003,200 | |
| | Santa Paula Utility Authority Wastewater Enterprise Revenue, Series A, 5.00%, 2/01/40 | | | 7,105,000 | | | | 7,989,644 | |
| | Santee Community Development Commission Tax Allocation, | | | | | | | | |
| | Santee Community Redevelopment Project, Series A, Pre-Refunded, 7.00%, 8/01/31 | | | 1,800,000 | | | | 2,100,582 | |
| | Santee Community Redevelopment Project, Series A, Pre-Refunded, 7.00%, 8/01/41 | | | 2,820,000 | | | | 3,290,912 | |
| | Saugus Castaic School Facilities Financing Authority Special Tax, | | | | | | | | |
| | CFD No. 2006-1C, 5.875%, 9/01/33 | | | 1,370,000 | | | | 1,555,375 | |
| | CFD No. 2006-1C, 6.00%, 9/01/43 | | | 3,450,000 | | | | 3,912,162 | |
| | Saugus USD Special Tax, Senior CFD No. 2006-1, 4.25%, 9/01/44 | | | 2,500,000 | | | | 2,546,850 | |
| | Saugus/Hart School Facilities Financing Authority Special Tax, | | | | | | | | |
| | CFD No. 2006-1 Saugus USD, Refunding, 5.00%, 9/01/41 | | | 1,250,000 | | | | 1,387,900 | |
| | CFD No. 2006-1 Saugus USD, Refunding, 5.00%, 9/01/46 | | | 1,250,000 | | | | 1,383,175 | |
| | Silicon Valley Clean Water Wastewater Revenue, | | | | | | | | |
| | 5.00%, 8/01/40 | | | 2,500,000 | | | | 2,899,075 | |
| | 5.00%, 8/01/45 | | | 1,500,000 | | | | 1,734,945 | |
| | Simi Valley AD No. 98-1 Special Assessment, Madera/Royal Public Improvements, Limited Obligation Improvements, 7.30%, 9/02/24 | | | 1,330,000 | | | | 1,335,998 | |
| | Siskiyou UHSD, GO, Capital Appreciation, Election of 2008, Series B, AGMC Insured, zero cpn., 8/01/49. | | | 15,015,000 | | | | 4,298,794 | |
| | Sonoma CDA Tax Allocation, Redevelopment Project, 7.00%, 12/01/30 | | | 2,115,000 | | | | 2,527,742 | |
| | St. Helena USD, GO, Capital Appreciation, zero cpn. to 8/01/25, 6.45% thereafter, 6/01/36 | | | 10,000,000 | | | | 10,030,900 | |
| | Susanville PFAR, | | | | | | | | |
| | Utility Enterprises Project, Refunding, Sub Series B, 5.50%, 6/01/30 | | | 1,185,000 | | | | 1,226,866 | |
| | Utility Enterprises Project, Refunding, Sub Series B, 5.875%, 6/01/35 | | | 1,660,000 | | | | 1,725,952 | |
| | Utility Enterprises Project, Refunding, Sub Series B, 6.00%, 6/01/45 | | | 6,180,000 | | | | 6,456,740 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 31 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | Susanville School District GO, Capital Appreciation, Election of 2008, AGMC Insured, zero cpn., 8/01/49 | | $ | 17,505,000 | | | $ | 4,447,845 | |
| | Temecula RDA Tax Allocation Revenue, | | | | | | | | |
| | Housing, Redevelopment Project No. 1, Series A, 7.00%, 8/01/39 | | | 2,100,000 | | | | 2,474,682 | |
| | sub. lien, Escrow, Redevelopment Project No. 1, 5.625%, 12/15/38 | | | 1,785,000 | | | | 1,799,673 | |
| | Tobacco Securitization Authority Northern California Tobacco Settlement Revenue, | | | | | | | | |
| | Asset-Backed, Series A-1, 5.375%, 6/01/38 | | | 5,000,000 | | | | 5,008,200 | |
| | Asset-Backed, Series A-1, 5.50%, 6/01/45 | | | 800,000 | | | | 799,976 | |
| | Capital Appreciation, Asset-Backed, Series A-2, 5.40%, 6/01/27 | | | 1,250,000 | | | | 1,250,200 | |
| | Tobacco Securitization Authority Southern California Tobacco Settlement Revenue, | | | | | | | | |
| | First Subordinate Capital Appreciation, Series B, zero cpn., 6/01/46 | | | 10,000,000 | | | | 1,381,300 | |
| | Second Subordinate Capital Appreciation, Refunding, Series C, zero cpn., 6/01/46 | | | 25,000,000 | | | | 3,368,750 | |
| | Torrance USD, GO, Capital Appreciation, Election of 2008, Measure Z, Series B-1, zero cpn., 8/01/34 | | | 5,640,000 | | | | 2,828,122 | |
| | Truckee-Donner PUD Special Tax, | | | | | | | | |
| | CFD No. 04-1, 5.20%, 9/01/25 | | | 3,000,000 | | | | 2,975,280 | |
| | CFD No. 04-1, 5.75%, 9/01/29 | | | 2,975,000 | | | | 2,986,811 | |
| | CFD No. 04-1, 5.25%, 9/01/30 | | | 5,050,000 | | | | 4,966,725 | |
| | CFD No. 04-1, 5.80%, 9/01/35 | | | 4,515,000 | | | | 4,532,383 | |
| | Tulare RDA Tax Allocation, Merged Tulare Redevelopment Projects, Series A, Pre-Refunded, 6.25%, 8/01/40 | | | 3,540,000 | | | | 3,962,711 | |
| | Tulare Sewer Revenue, Pre-Refunded, 6.50%, 11/15/45 | | | 10,000,000 | | | | 11,032,600 | |
| | Turlock PFA Tax Allocation Revenue, Pre-Refunded, 7.50%, 9/01/39 | | | 3,750,000 | | | | 4,451,325 | |
| | Tustin CFD No. 06-1 Special Tax, Legacy/Columbus Villages, Series A, 5.00%, 9/01/37 | | | 1,000,000 | | | | 1,138,690 | |
| | Tustin CFD No. 07-1 Special Tax, Tustin Legacy/Retail Center, Refunding, Series A, 5.00%, 9/01/37 | | | 2,330,000 | | | | 2,561,788 | |
| | Tustin CFD No. 14-1 Special Tax, | | | | | | | | |
| | Legacy/Standard Pacific, Series A, 5.00%, 9/01/40 | | | 750,000 | | | | 832,118 | |
| | Legacy/Standard Pacific, Series A, 5.00%, 9/01/45 | | | 1,000,000 | | | | 1,105,190 | |
| | Tustin USD, | | | | | | | | |
| | CFD No. 06-1 Special Tax, Pre-Refunded, 5.75%, 9/01/30 | | | 1,000,000 | | | | 1,110,860 | |
| | CFD No. 06-1 Special Tax, Pre-Refunded, 6.00%, 9/01/40 | | | 3,000,000 | | | | 3,352,620 | |
| | Union City CRDA Successor Agency Tax Allocation Revenue, | | | | | | | | |
| | Community Redevelopment Project, Refunding, Series A, 5.00%, 10/01/35 | | | 1,365,000 | | | | 1,581,939 | |
| | Community Redevelopment Project, Refunding, Series A, 5.00%, 10/01/36 | | | 1,000,000 | | | | 1,155,120 | |
| | University of California Revenue, Refunding, Series AO, 5.00%, 5/15/40 | | | 5,000,000 | | | | 5,749,200 | |
| | Val Verde USD Special Tax Revenue, | | | | | | | | |
| | Refunding, 5.00%, 9/01/29 | | | 3,200,000 | | | | 3,539,040 | |
| | Refunding, 5.00%, 9/01/37 | | | 2,000,000 | | | | 2,189,000 | |
| | Vallejo RDA Tax Allocation, Housing Set-Aside, Refunding, Series A, 7.00%, 10/01/31 | | | 3,255,000 | | | | 3,264,993 | |
| | Vernon Electric System Revenue, Series A, 5.50%, 8/01/41 | | | 7,500,000 | | | | 8,322,975 | |
| | Victor Elementary School District GO, Election of 2008, Refunding, Series B, 5.00%, 8/01/42 | | | 5,455,000 | | | | 6,182,970 | |
| | Victor Valley Community College District GO, Capital Appreciation, Election of 2002, Series C, zero cpn., 6/01/49 | | | 11,940,000 | | | | 3,425,108 | |
| | Washington Township Health Care District Revenue, | | | | | | | | |
| | Refunding, Series B, 4.00%, 7/01/35 | | | 2,000,000 | | | | 2,015,800 | |
| | Refunding, Series B, 4.00%, 7/01/36 | | | 1,900,000 | | | | 1,911,989 | |
| | Refunding, Series B, 4.00%, 7/01/37 | | | 1,200,000 | | | | 1,205,664 | |
| | Series A, 5.50%, 7/01/38 | | | 2,890,000 | | | | 3,100,363 | |
| | West Hollywood Community Development Commission Tax Allocation, | | | | | | | | |
| | East Side Redevelopment Project, Series A, 7.25%, 9/01/31 | | | 1,000,000 | | | | 1,195,510 | |
| | East Side Redevelopment Project, Series A, 7.50%, 9/01/42 | | | 5,000,000 | | | | 5,992,450 | |
| | Western Placer USD, GO, Placer County, Election of 2016, Series A, BAM Insured, 4.00%, 8/01/47 | | | 5,000,000 | | | | 5,249,250 | |
| | | | |
32 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | California (continued) | | | | | | | | |
| | Woodland Davis Clean Water Agency Water Revenue, Subordinate, Refunding, Series A, AGMC Insured, 5.00%, 3/01/39 | | $ | 1,600,000 | | | $ | 1,825,776 | |
| | Woodland Finance Authority Water Revenue, | | | | | | | | |
| | 6.00%, 3/01/36 | | | 1,000,000 | | | | 1,127,600 | |
| | 6.00%, 3/01/41 | | | 1,500,000 | | | | 1,688,880 | |
| | Yorba Linda RDA Tax Allocation, sub. lien, Redevelopment Project, Series A, Pre-Refunded, 6.50%, 9/01/32 | | | 2,750,000 | | | | 3,235,210 | |
| | Yucaipa Special Tax, | | | | | | | | |
| | CFD No. 98-1 Chapman Heights, Refunding, 5.00%, 9/01/26 | | | 1,000,000 | | | | 1,076,860 | |
| | CFD No. 98-1 Chapman Heights, Refunding, 5.375%, 9/01/30 | | | 1,800,000 | | | | 1,957,464 | |
| | Yucca Valley RDA Tax Allocation, | | | | | | | | |
| | Yucca Valley Redevelopment Project No. 1, 5.50%, 6/01/28 | | | 2,110,000 | | | | 2,154,036 | |
| | Yucca Valley Redevelopment Project No. 1, 5.75%, 6/01/38 | | | 5,485,000 | | | | 5,543,525 | |
| | | | | | | | | | |
| | | | | | | | | 2,303,841,044 | |
| | | | | | | | | | |
| | | |
| | U.S. Territories 2.5% | | | | | | | | |
| | Guam 1.1% | | | | | | | | |
| | Govern ment of Guam GO, Series A, Pre-Refunded, 7.00%, 11/15/39 | | | 5,000,000 | | | | 5,510,450 | |
| | Guam Government Waterworks Authority Water and Wastewater System Revenue, | | | | | | | | |
| | 5.625%, 7/01/40 | | | 4,000,000 | | | | 4,378,560 | |
| | 5.00%, 1/01/46 | | | 10,000,000 | | | | 10,982,200 | |
| | e Refunding, 5.00%, 7/01/36 | | | 1,755,000 | | | | 1,963,582 | |
| | e Refunding, 5.00%, 7/01/37 | | | 1,500,000 | | | | 1,676,985 | |
| | e Refunding, 5.00%, 7/01/40 | | | 3,000,000 | | | | 3,351,360 | |
| | | | | | | | | | |
| | | | | | | | | 27,863,137 | |
| | | | | | | | | | |
| | Northern Mariana Islands 0.0%† | | | | | | | | |
| | Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Senior Series A, 6.60%, 3/15/28 | | | 1,185,000 | | | | 1,199,386 | |
| | | | | | | | | | |
| | Puerto Rico 1.4% | | | | | | | | |
| | f Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series A, 5.50%, 7/01/39 | | | 10,000,000 | | | | 2,300,000 | |
| | f Puerto Rico Electric Power Authority Power Revenue, | | | | | | | | |
| | Refunding, Series A, 5.00%, 7/01/29 | | | 10,000,000 | | | | 3,375,000 | |
| | Refunding, Series A, 5.00%, 7/01/42 | | | 6,000,000 | | | | 2,025,000 | |
| | Series A, 7.00%, 7/01/33 | | | 25,000,000 | | | | 8,437,500 | |
| | Series A, 6.75%, 7/01/36 | | | 11,735,000 | | | | 3,960,563 | |
| | Series A, 7.00%, 7/01/43 | | | 5,000,000 | | | | 1,687,500 | |
| | Series A-4, zero cpn., 7/01/19 | | | 1,601,766 | | | | 537,232 | |
| | Series B, zero cpn., 7/01/19 | | | 1,601,765 | | | | 537,232 | |
| | Series E-1, zero cpn., 1/01/21 | | | 1,768,493 | | | | 593,559 | |
| | Series E-2, zero cpn., 7/01/21 | | | 1,768,493 | | | | 593,701 | |
| | Series E-3, zero cpn., 1/01/22 | | | 600,000 | | | | 202,500 | |
| | Series E-4, zero cpn., 7/01/22 | | | 600,000 | | | | 202,500 | |
| | Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Financing Authority Revenue, Cogeneration Facility, AES Puerto Rico Project, 6.625%, 6/01/26 | | | 5,500,000 | | | | 4,734,125 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 33 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin California High Yield Municipal Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | U.S. Territories (continued) | | | | | | | | |
| | Puerto Rico (continued) | | | | | | | | |
| | fPuerto Rico PBA Guaranteed Revenue, Government Facilities, Refunding, Series U, 5.25%, 7/01/42 | | $ | 20,000,000 | | | $ | 4,950,000 | |
| | | | | | | | | | |
| | | | | | | | | 34,136,412 | |
| | | | | | | | | | |
| | Total U.S. Territories | | | | | | | 63,198,935 | |
| | | | | | | | | | |
| | Total Municipal Bonds (Cost $2,180,290,621) | | | | | | | 2,367,039,979 | |
| | | | | | | | | | |
| | Total Investments before Short Term Investments (Cost $2,184,795,276) | | | | | | | 2,371,544,630 | |
| | | | | | | | | | |
| | Short Term Investments 4.5% | | | | | | | | |
| | Municipal Bonds 4.5% | | | | | | | | |
| | California 4.5% | | | | | | | | |
| | g California State GO, | | | | | | | | |
| | Kindergarten, Refunding, Series B3, LOC Citibank, Daily VRDN and Put, 0.84%, 5/01/34 | | | 13,400,000 | | | | 13,400,000 | |
| | Series A-1, LOC JPMorgan Chase Bank, Daily VRDN and Put, 0.82%, 5/01/33 | | | 6,100,000 | | | | 6,100,000 | |
| | g Irvine 1915 Act Special Assessment, Limited Obligation Improvement, AD No. 94-13, LOC State Street Bank & Trust Co., Daily VRDN and Put, 0.89%, 9/02/22 | | | 100,000 | | | | 100,000 | |
| | g Irvine Ranch Water District GO, ID, Consolidated, Series B, LOC Bank of America, Daily VRDN and Put, 0.82%, 10/01/41 | | | 11,655,000 | | | | 11,655,000 | |
| | g Los Angeles Department of Water and Power Revenue, | | | | | | | | |
| | Power System, Refunding, Series B, Subseries B-6, SPA Bank of Montreal, Daily VRDN and Put, 0.85%, 7/01/34 | | | 23,700,000 | | | | 23,700,000 | |
| | Water System, Refunding, Series B, Subseries B-2, SPA Royal Bank of Canada, Daily VRDN and Put, 0.82%, 7/01/35. | | | 20,900,000 | | | | 20,900,000 | |
| | g The Metropolitan Water District of Southern California Water Revenue, Refunding, Series B-3, SPA Citibank, Daily VRDN and Put, 0.85%, 7/01/35 | | | 31,300,000 | | | | 31,300,000 | |
| | g University of California Regents Medical Center Pooled Revenue, Refunding, Series B-2, Daily VRDN and Put, 0.80%, 5/15/32 | | | 3,500,000 | | | | 3,500,000 | |
| | | | | | | | | | |
| | Total Short Term Investments (Cost $110,655,000) | | | | | | | 110,655,000 | |
| | | | | | | | | | |
| | Total Investments (Cost $2,295,450,276) 99.4% | | | | | | | 2,482,199,630 | |
| | Other Assets, less Liabilities 0.6% | | | | | | | 16,041,230 | |
| | | | | | | | | | |
| | Net Assets 100.0% | | | | | | $ | 2,498,240,860 | |
| | | | | | | | | | |
See Abbreviations on page 54.
†Rounds to less than 0.1% of net assets.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 10 regarding fair value measurements.
cSee Note 8 regarding restricted securities.
dIncome may be received in additional securities and/or cash.
eSecurity purchased on a when-issued basis. See Note 1(b).
fSee Note 6 regarding defaulted securities.
gVariable rate demand notes (VRDNs) are 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. Unless otherwise noted, the coupon rate is determined based on factors including supply and demand, underlying credit, tax treatment, and current short term rates. The coupon rate shown represents the rate at period end.
| | | | |
34 | | Semiannual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
Franklin Tennessee Municipal Bond Fund
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended
November 30, 2017 | | | Year Ended May 31, | |
| | | | | | |
| | | (unaudited) | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.11 | | | | $11.44 | | | | $11.38 | | | | $11.47 | | | | $11.88 | | | | $11.94 | |
| | | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment incomeb | | | 0.17 | | | | 0.37 | | | | 0.40 | | | | 0.41 | | | | 0.43 | | | | 0.41 | |
Net realized and unrealized gains (losses) | | | (0.20 | ) | | | (0.32 | ) | | | 0.06 | | | | (0.08 | ) | | | (0.42 | ) | | | (0.06 | ) |
Total from investment operations | | | (0.03 | ) | | | 0.05 | | | | 0.46 | | | | 0.33 | | | | 0.01 | | | | 0.35 | |
Less distributions from net investment income | | | (0.17 | ) | | | (0.38 | ) | | | (0.40 | ) | | | (0.42 | ) | | | (0.42 | ) | | | (0.41 | ) |
Net asset value, end of period | | | $10.91 | | | | $11.11 | | | | $11.44 | | | | $11.38 | | | | $11.47 | | | | $11.88 | |
| | | | | | |
Total returnc | | | (0.24)% | | | | 0.40% | | | | 4.12% | | | | 2.86% | | | | 0.20% | | | | 2.93% | |
| | | | | | |
| Ratios to average net assetsd | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before waiver and payments by affiliates | | | 0.75% | | | | 0.72% | | | | 0.72% | | | | 0.72% | | | | 0.72% | | | | 0.70% | |
Expenses net of waiver and payments by affiliates | | | 0.75% | | | | 0.72% | | | | 0.72% | | | | 0.71% | | | | 0.70% | | | | 0.70% | |
Net investment income | | | 3.06% | | | | 3.27% | | | | 3.55% | | | | 3.60% | | | | 3.82% | | | | 3.40% | |
| | | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s) | | | $250,048 | | | | $267,442 | | | | $307,294 | | | | $293,580 | | | | $273,142 | | | | $344,157 | |
Portfolio turnover rate | | | 6.04% | | | | 18.95% | | | | 4.50% | | | | 11.64% | | | | 7.86% | | | | 7.89% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 35 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Tennessee Municipal Bond Fund (continued)
| | | | |
| | | Period Ended
November 30, 2017
(unaudited)a | |
Class R6 | | | | |
Per share operating performance | | | | |
(for a share outstanding throughout the period) | | | | |
Net asset value, beginning of period | | | $11.06 | |
| | | | |
Income from investment operationsb: | | | | |
Net investment incomec | | | 0.12 | |
Net realized and unrealized gains (losses) | | | (0.16 | ) |
| | | | |
Total from investment operations | | | (0.04 | ) |
| | | | |
Less distributions from net investment income | | | (0.12 | ) |
| | | | |
Net asset value, end of period | | | $10.90 | |
| | | | |
| |
Total returnd | | | (0.28)% | |
| |
| Ratios to average net assetse | | | | |
Expenses before waiver and payments by affiliates | | | 0.63% | |
Expenses net of waiver and payments by affiliates | | | 0.62% | |
Net investment income | | | 3.19% | |
| |
| Supplemental data | | | | |
Net assets, end of period (000’s) | | | $3,554 | |
Portfolio turnover rate | | | 6.04% | |
aFor the period August 1, 2017 (effective date) to November 30, 2017.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
| | | | |
36 | | Semiannual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Franklin Tennessee Municipal Bond Fund (continued)
| | | | | | | | |
| | | Six Months Ended
November 30, 2017
(unaudited) | | | Year Ended
May 31, 2017a | |
| Advisor Class | | | | | | | | |
Per share operating performance | | | | | | | | |
(for a share outstanding throughout the period) | | | | | | | | |
Net asset value, beginning of period | | | $11.12 | | | | $11.50 | |
Income from investment operationsb: | | | | | | | | |
Net investment incomec | | | 0.17 | | | | 0.27 | |
Net realized and unrealized gains (losses) | | | (0.20 | ) | | | (0.38 | ) |
Total from investment operations | | | (0.03 | ) | | | (0.11 | ) |
Less distributions from net investment income | | | (0.18 | ) | | | (0.27 | ) |
Net asset value, end of period | | | $10.91 | | | | $11.12 | |
| | |
Total returnd | | | (0.28)% | | | | (0.91)% | |
| | |
| Ratios to average net assetse | | | | | | | | |
Expenses | | | 0.65% | | | | 0.62% | |
Net investment income | | | 3.16% | | | | 3.37% | |
| | |
| Supplemental data | | | | | | | | |
Net assets, end of period (000’s) | | | $22,616 | | | | $23,916 | |
Portfolio turnover rate. | | | 6.04% | | | | 18.95% | |
aFor the period September 15, 2016 (effective date) to May 31, 2017.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 37 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 2017 (unaudited)
Franklin Tennessee Municipal Bond Fund
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds 98.1% | | | | | | | | |
| | Tennessee 95.8% | | | | | | | | |
| | Anderson County Water Authority Water and Sewer Revenue, Pre-Refunded, 5.00%, 6/01/36 | | $ | 1,000,000 | | | $ | 1,082,470 | |
| | Blount County GO, Refunding, Series B, 5.00%, 6/01/37 | | | 2,305,000 | | | | 2,682,098 | |
| | Blount County PBA Revenue, Local Government Public Improvement, Refunding, Series B-15-A, Assured Guaranty, 5.00%, 6/01/32 | | | 1,590,000 | | | | 1,616,998 | |
| | Chattanooga Electric System Revenue, | | | | | | | | |
| | The Electric Power Board of Chattanooga, Refunding, Series C, 5.00%, 9/01/40 | | | 2,750,000 | | | | 3,174,545 | |
| | The Electric Power Board of Chattanooga, Series A, Pre-Refunded, 5.00%, 9/01/33 | | | 5,000,000 | | | | 5,045,600 | |
| | Chattanooga Health Educational and Housing Facility Board Revenue, | | | | | | | | |
| | Catholic Health Initiatives, Series D, 6.25%, 10/01/33 | | | 500,000 | | | | 518,210 | |
| | Student Housing, CDFI Phase I LLC, University of Tennessee at Chattanooga Project, Refunding, 5.00%, 10/01/35 | | | 1,000,000 | | | | 1,102,570 | |
| | Chattanooga-Hamilton County Hospital Authority Hospital Revenue, | | | | | | | | |
| | Erlanger Health System, AGMC Insured, Pre-Refunded, 5.00%, 10/01/22 | | | 775,000 | | | | 819,594 | |
| | Erlanger Health System, Refunding, AGMC Insured, 5.00%, 10/01/22 | | | 2,475,000 | | | | 2,630,826 | |
| | Clarksville Electric System Revenue, | | | | | | | | |
| | Refunding, 4.00%, 9/01/33 | | | 2,000,000 | | | | 2,192,600 | |
| | Series A, Pre-Refunded, 5.00%, 9/01/34 | | | 2,000,000 | | | | 2,179,960 | |
| | Series A, Pre-Refunded, 5.00%, 9/01/35 | | | 3,185,000 | | | | 3,471,586 | |
| | Clarksville Water Sewer and Gas Revenue, | | | | | | | | |
| | Refunding, 5.00%, 2/01/38 | | | 3,000,000 | | | | 3,330,060 | |
| | Refunding, 5.00%, 2/01/41 | | | 2,500,000 | | | | 2,886,750 | |
| | Columbia Waterworks System Revenue, 5.00%, 12/01/32 | | | 3,000,000 | | | | 3,324,150 | |
| | Gallatin Water and Sewer Revenue, Refunding and Improvement, 5.00%, 1/01/32 | | | 1,500,000 | | | | 1,735,440 | |
| | Germantown GO, | | | | | | | | |
| | 4.00%, 8/01/43 | | | 2,330,000 | | | | 2,507,826 | |
| | 4.00%, 8/01/45 | | | 2,525,000 | | | | 2,713,340 | |
| | 4.00%, 8/01/47 | | | 2,000,000 | | | | 2,145,720 | |
| | Hallsdale-Powell Utility District of Knox County Waterworks and Sewer Revenue, Improvement, NATL Insured, 5.00%, 4/01/31 | | | 1,000,000 | | | | 1,002,670 | |
| | Harpeth Valley Utilities District of Davidson and Williamson Counties Revenue, | | | | | | | | |
| | Utilities, 5.00%, 9/01/44 | | | 4,400,000 | | | | 5,060,748 | |
| | Utilities, Refunding, 5.00%, 9/01/42 | | | 3,000,000 | | | | 3,460,890 | |
| | Hawkins County First Utility District Waterworks Revenue, Series B, Assured Guaranty, Pre-Refunded, 5.00%, 6/01/42 | | | 1,250,000 | | | | 1,272,712 | |
| | Jackson Hospital Revenue, | | | | | | | | |
| | Jackson-Madison County General Hospital, Improvement, Pre-Refunded, 5.50%, 4/01/33 | | | 2,125,000 | | | | 2,153,730 | |
| | Jackson-Madison County General Hospital, Refunding, 5.00%, 4/01/36 | | | 7,000,000 | | | | 7,881,370 | |
| | Jackson-Madison County General Hospital, Refunding and Improvement, 5.50%, 4/01/33 | | | 875,000 | | | | 886,253 | |
| | Johnson City Electric System Revenue, Improvement, AGMC Insured, Pre-Refunded, 5.00%, 5/01/29 | | | 1,000,000 | | | | 1,015,130 | |
| | Johnson City Health and Educational Facilities Board Hospital Revenue, Johnson City Medical Center Hospital, Improvement, Series C, NATL Insured, Pre-Refunded, 5.125%, 7/01/25 | | | 75,000 | | | | 75,206 | |
| | Kingsport GO, Series B, Assured Guaranty, Pre-Refunded, 5.00%, 3/01/29 | | | 1,030,000 | | | | 1,073,384 | |
| | Kingsport IDB, MFHR, Model City Apartments Project, GNMA Secured, 5.50%, 7/20/39 | | | 2,995,000 | | | | 3,018,990 | |
| | Knox County First Utility District Water and Sewer Revenue, | | | | | | | | |
| | 5.00%, 12/01/32 | | | 1,000,000 | | | | 1,128,650 | |
| | Refunding and Improvement, 5.00%, 12/01/26 | | | 1,390,000 | | | | 1,480,586 | |
| | Knox County Health Educational and Housing Facility Board Hospital Revenue, Covenant Health, Refunding, Series A, 5.00%, 1/01/42 | | | 5,000,000 | | | | 5,636,700 | |
| | Knox County Health Educational and Housing Facility Board Revenue, | | | | | | | | |
| | University Health System Inc., Refunding, 5.00%, 4/01/36 | | | 2,250,000 | | | | 2,522,137 | |
| | University Health System Inc., Refunding, 5.00%, 9/01/47 | | | 5,000,000 | | | | 5,508,900 | |
| | | | |
38 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Tennessee Municipal Bond Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| | Municipal Bonds (continued) | | | | | | | | |
| | Tennessee (continued) | | | | | | | | |
| | Knox-Chapman Utility District of Knox County Water and Sewer Revenue, | | | | | | | | |
| | Pre-Refunded, 5.25%, 1/01/36 | | $ | 1,500,000 | | | $ | 1,664,580 | |
| | Refunding and Improvement, 5.00%, 1/01/33 | | | 1,470,000 | | | | 1,694,572 | |
| | Refunding and Improvement, 4.00%, 1/01/40 | | | 4,000,000 | | | | 4,173,520 | |
| | Knoxville Wastewater System Revenue, Refunding, Series A, 4.00%, 4/01/42 | | | 5,000,000 | | | | 5,194,250 | |
| | Lawrenceburg PBA, GO, Electric System, Refunding, AMBAC Insured, 5.00%, 7/01/22 | | | 2,410,000 | | | | 2,583,665 | |
| | Loudon Water and Sewer Revenue, | | | | | | | | |
| | Exempt Facility, Series A, 4.00%, 3/01/28 | | | 1,000,000 | | | | 1,045,200 | |
| | Exempt Facility, Series A, 5.00%, 3/01/32 | | | 1,300,000 | | | | 1,408,706 | |
| | Manchester GO, | | | | | | | | |
| | AGMC Insured, Pre-Refunded, 5.00%, 6/01/38 | | | 620,000 | | | | 671,131 | |
| | Refunding, AGMC Insured, 5.00%, 6/01/38 | | | 2,045,000 | | | | 2,189,254 | |
| | Maryville Water and Sewer Revenue, Series A, Assured Guaranty, Pre-Refunded, 5.00%, 6/01/38 | | | 5,500,000 | | | | 5,596,965 | |
| | Maury County GO, Public Improvement, Refunding, 4.00%, 4/01/34 | | | 1,775,000 | | | | 1,920,017 | |
| | Memphis Electric System Revenue, 5.00%, 12/01/34 | | | 1,000,000 | | | | 1,160,850 | |
| | Memphis Gas System Revenue, 4.00%, 12/01/36 | | | 1,000,000 | | | | 1,082,190 | |
| | Memphis GO, | | | | | | | | |
| | General Improvement, Assured Guaranty, Pre-Refunded, 5.00%, 4/01/27 | | | 1,975,000 | | | | 2,063,717 | |
| | General Improvement, Refunding, 5.00%, 5/01/36 | | | 4,135,000 | | | | 4,524,517 | |
| | Memphis-Shelby County Airport Authority Airport Revenue, | | | | | | | | |
| | Refunding, Series B, 5.75%, 7/01/25 | | | 2,500,000 | | | | 2,730,150 | |
| | Refunding, Series D, 5.00%, 7/01/25 | | | 3,000,000 | | | | 3,280,740 | |
| | Series A, AGMC Insured, 5.00%, 7/01/35 | | | 5,000,000 | | | | 5,336,850 | |
| | Series A, AGMC Insured, 5.00%, 7/01/39 | | | 2,565,000 | | | | 2,737,804 | |
| | Memphis-Shelby County Sports Authority Inc. Revenue, Memphis Arena Project, Refunding, Series B, 5.375%, 11/01/29 | | | 5,000,000 | | | | 5,337,650 | |
| | Metropolitan Government of Nashville and Davidson County Electric System Revenue, | | | | | | | | |
| | Series A, 5.00%, 5/15/36 | | | 3,500,000 | | | | 3,824,800 | |
| | Series A, 5.00%, 5/15/39 | | | 4,000,000 | | | | 4,602,280 | |
| | Series A, 5.00%, 5/15/42 | | | 3,000,000 | | | | 3,536,310 | |
| | Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board Revenue, | | | | | | | | |
| | Vanderbilt University, Series A, Pre-Refunded, 5.50%, 10/01/29 | | | 2,670,000 | | | | 2,857,487 | |
| | Vanderbilt University, Series A, Pre-Refunded, 5.50%, 10/01/29 | | | 830,000 | | | | 887,502 | |
| | Vanderbilt University, Series B, Pre-Refunded, 5.00%, 10/01/39 | | | 9,000,000 | | | | 9,551,340 | |
| | Vanderbilt University Medical Center, Series A, 5.00%, 7/01/40 | | | 5,000,000 | | | | 5,626,250 | |
| | Metropolitan Government of Nashville and Davidson County Sports Authority Revenue, | | | | | | | | |
| | Public Improvement, Ballpark Project, Series A, 5.00%, 8/01/38 | | | 3,000,000 | | | | 3,359,700 | |
| | Public Improvement, Ballpark Project, Series A, 5.00%, 8/01/43 | | | 2,075,000 | | | | 2,301,963 | |
| | Metropolitan Government of Nashville and Davidson County Water and Sewer Revenue, Subordinate, Green Bond, Series A, 5.00%, 7/01/46 | | | 3,855,000 | | | | 4,523,997 | |
| | Metropolitan Nashville Airport Authority Revenue, Improvement, Series A, 5.00%, 7/01/45 | | | 4,000,000 | | | | 4,605,680 | |
| | Pigeon Forge IDB Revenue, Public Facility, 5.00%, 6/01/34 | | | 1,250,000 | | | | 1,370,100 | |
| | Rutherford County Health and Educational Facilities Board Revenue, Ascension Health Senior Credit Group, Series C, 5.00%, 11/15/40 | | | 10,000,000 | | | | 10,617,600 | |
| | Shelby County Health Educational and Housing Facility Board Revenue, | | | | | | | | |
| | Baptist Memorial Health Care, Series A, 5.00%, 9/01/19 | | | 3,015,000 | | | | 3,169,489 | |
| | Educational Facilities, Rhodes College, 5.00%, 8/01/40 | | | 750,000 | | | | 857,993 | |
| | Educational Facilities, Rhodes College, 5.50%, 8/01/40 | | | 5,000,000 | | | | 5,584,250 | |
| | Educational Facilities, Rhodes College, 5.00%, 8/01/45 | | | 1,700,000 | | | | 1,938,527 | |
| | Methodist Le Bonheur Healthcare, Series A, 5.00%, 5/01/36 | | | 4,000,000 | | | | 4,645,200 | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 39 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Tennessee Municipal Bond Fund (continued)
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Municipal Bonds (continued) | | | | | | | | |
| Tennessee (continued) | | | | | | | | |
South Blount County Utility District Waterworks Revenue, | | | | | | | | |
Improvement, AGMC Insured, Pre-Refunded, 5.00%, 12/01/33 | | $ | 315,000 | | | $ | 335,721 | |
Improvement, AGMC Insured, Pre-Refunded, 5.25%, 12/01/39 | | | 1,040,000 | | | | 1,113,486 | |
Refunding and Improvement, AGMC Insured, 5.00%, 12/01/33 | | | 685,000 | | | | 725,340 | |
Refunding and Improvement, AGMC Insured, 5.25%, 12/01/39 | | | 2,270,000 | | | | 2,420,229 | |
Tennessee HDA Residential Finance Program Revenue, | | | | | | | | |
Issue 1C, 4.00%, 7/01/43 | | | 2,005,000 | | | | 2,035,135 | |
Issue 3, 3.65%, 7/01/47 | | | 1,000,000 | | | | 1,007,530 | |
Tennessee HDA Revenue, | | | | | | | | |
Homeownership Program, Series 1, 5.00%, 7/01/29 | | | 730,000 | | | | 738,264 | |
Homeownership Program, Series 2C, 3.80%, 7/01/43 | | | 1,320,000 | | | | 1,321,940 | |
Tennessee State School Bond Authority Revenue, | | | | | | | | |
Higher Educational Facilities, Second Program, Refunding, Series B, 5.00%, 11/01/40 | | | 10,000,000 | | | | 11,674,300 | |
Higher Educational Facilities, Second Program, Refunding, Series B, 5.00%, 11/01/45 | | | 5,000,000 | | | | 5,817,750 | |
Higher Educational Facilities, Second Program, Series A, Pre-Refunded, 5.00%, 5/01/39 | | | 3,000,000 | | | | 3,143,160 | |
Higher Educational Facilities, Second Program, Series B, Pre-Refunded, 5.50%, 5/01/38 | | | 4,000,000 | | | | 4,068,640 | |
West Knox Utility District Knox County Water and Sewer Revenue, Refunding and Improvement, 5.00%, 6/01/41 | | | 1,000,000 | | | | 1,142,510 | |
West Wilson Utility District of Wilson County Water Revenue, | | | | | | | | |
Pre-Refunded, 5.00%, 6/01/33 | | | 3,000,000 | | | | 3,332,070 | |
Refunding and Improvement, 5.00%, 6/01/40 | | | 1,545,000 | | | | 1,756,495 | |
Wilson County GO, School, Series A, 4.00%, 4/01/42 | | | 5,000,000 | | | | 5,342,950 | |
| | | | | | | | |
| | | | | | 264,570,715 | |
| | | | | | | | |
| | |
| U.S. Territories 2.3% | | | | | | | | |
| Guam 1.7% | | | | | | | | |
Guam Economic Development and Commerce Authority Revenue, Tobacco Settlement, Asset-Backed, Refunding, 5.25%, 6/01/32 | | | 1,180,000 | | | | 1,179,976 | |
Guam Government Limited Obligation Revenue, Section 30, Series A, Pre-Refunded, 5.625%, 12/01/29 | | | 3,205,000 | | | | 3,456,881 | |
| | | | | | | | |
| | | | | | 4,636,857 | |
| | | | | | | | |
| Puerto Rico 0.6% | | | | | | | | |
a Puerto Rico Electric Power Authority Power Revenue, Series XX, 5.25%, 7/01/40 | | | 5,000,000 | | | | 1,687,500 | |
| | | | | | | | |
| Total U.S. Territories | | | | | | | 6,324,357 | |
| | | | | | | | |
| Total Municipal Bonds before Short Term Investments (Cost $262,627,548) | | | | | | | 270,895,072 | |
| | | | | | | | |
| | | | |
40 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Tennessee Municipal Bond Fund (continued)
| | | | | | | | | | |
| | | | | Principal
Amount | | | Value | |
| |
| | | |
| | Short Term Investments (Cost $2,900,000) 1.0% | | | | | | | | |
| | Municipal Bonds 1.0% | | | | | | | | |
| | Tennessee 1.0% | | | | | | | | |
| | b Shelby County Health Educational and Housing Facility Board Revenue, Methodist Le Bonheur Healthcare, Refunding, Series A, AGMC Insured, SPA US Bank National Association, Daily VRDN and Put, 0.95%, 6/01/42 | | $ | 2,900,000 | | | $ | 2,900,000 | |
| | | | | | | | | | |
| | | |
| | Total Investments (Cost $265,527,548) 99.1% | | | | | | | 273,795,072 | |
| | Other Assets, less Liabilities 0.9% | | | | | | | 2,422,927 | |
| | | | | | | | | | |
| | | |
| | Net Assets 100.0%. | | | | | | $ | 276,217,999 | |
| | | | | | | | | | |
See Abbreviations on page 54.
aSee Note 6 regarding defaulted securities.
bVariable rate demand notes (VRDNs) are 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. Unless otherwise noted, the coupon rate is determined based on factors including supply and demand, underlying credit, tax treatment, and current short term rates. The coupon rate shown represents the rate at period end.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 41 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Statements
Statements of Assets and Liabilities
November 30, 2017 (unaudited)
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal Bond Fund | |
| |
Assets: | |
Investments in securities: | |
Cost - Unaffiliated issuers | | $ | 2,295,450,276 | | | $ | 265,527,548 | |
| | | | |
Value - Unaffiliated issuers | | $ | 2,482,199,630 | | | $ | 273,795,072 | |
Cash | | | 9,643 | | | | 82,815 | |
Receivables: | | | | | | | | |
Investment securities sold | | | 7,793,271 | | | | — | |
Capital shares sold | | | 3,450,408 | | | | 18,808 | |
Interest | | | 27,932,403 | | | | 3,142,287 | |
Other assets | | | 73,387 | | | | 60 | |
| | | | |
Total assets | | | 2,521,458,742 | | | | 277,039,042 | |
| | | | |
Liabilities: | |
Payables: | |
Investment securities purchased | | | 14,857,223 | | | | — | |
Capital shares redeemed | | | 5,391,776 | | | | 581,200 | |
Management fees | | | 949,316 | | | | 123,606 | |
Distribution fees | | | 301,957 | | | | 20,848 | |
Transfer agent fees | | | 199,163 | | | | 20,101 | |
Trustees’ fees and expenses | | | 387 | | | | 221 | |
Distributions to shareholders | | | 1,459,429 | | | | 57,232 | |
Accrued expenses and other liabilities. | | | 58,631 | | | | 17,835 | |
| | | | |
Total liabilities | | | 23,217,882 | | | | 821,043 | |
| | | | |
| | |
Net assets, at value | | $ | 2,498,240,860 | | | $ | 276,217,999 | |
| | | | |
|
Net assets consist of: | |
Paid-in capital | | $ | 2,417,634,809 | | | $ | 283,059,696 | |
Undistributed net investment income | | | 3,330,569 | | | | 240,204 | |
Net unrealized appreciation (depreciation) | | | 186,749,354 | | | | 8,267,524 | |
Accumulated net realized gain (loss) | | | (109,473,872 | ) | | | (15,349,425 | ) |
| | | | |
Net assets, at value | | $ | 2,498,240,860 | | | $ | 276,217,999 | |
| | | | |
| | | | |
42 | | Semiannual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (continued)
November 30, 2017 (unaudited)
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
Class A: | | | | | | | | |
Net assets, at value | | | $1,388,811,110 | | | | $250,048,303 | |
| | | | |
Shares outstanding. | | | 128,868,992 | | | | 22,928,794 | |
| | | | |
Net asset value per sharea | | | $10.78 | | | | $10.91 | |
| | | | |
Maximum offering price per share (net asset value per share ÷ 95.75%) | | | $11.26 | | | | $11.39 | |
| | | | |
Class C: | | | | | | | | |
Net assets, at value | | | $ 347,762,328 | | | | | |
| | | | | | | | |
Shares outstanding. | | | 32,034,379 | | | | | |
| | | | | | | | |
Net asset value and maximum offering price per sharea | | | $10.86 | | | | | |
| | | | | | | | |
Class R6: | | | | | | | | |
Net assets, at value | | | $ 8,412,769 | | | | $ 3,553,958 | |
| | | | |
Shares outstanding. | | | 778,473 | | | | 325,905 | |
| | | | |
Net asset value and maximum offering price per share | | | $10.81 | | | | $10.90 | |
| | | | |
Advisor Class: | | | | | | | | |
Net assets, at value | | | $ 753,254,653 | | | | $ 22,615,738 | |
| | | | |
Shares outstanding. | | | 69,736,677 | | | | 2,072,725 | |
| | | | |
Net asset value and maximum offering price per share | | | $10.80 | | | | $10.91 | |
| | | | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 43 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Operations
for the six months ended November 30, 2017 (unaudited)
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
Investment income: | | | | | |
Interest: | | | | | | | | |
Unaffiliated issuers | | | $ 51,983,741 | | | | $ 5,454,806 | |
| | | | |
| |
Expenses: | | | | | |
Management fees (Note 3a) | | | 5,739,353 | | | | 770,535 | |
Distribution fees: (Note 3c) | | | | | | | | |
Class A | | | 699,012 | | | | 131,232 | |
Class C | | | 1,151,665 | | | | — | |
Transfer agent fees: (Note 3e) | | | | | |
Class A | | | 298,176 | | | | 58,204 | |
Class C | | | 75,545 | | | | — | |
Class R6 | | | 180 | | | | 82 | |
Advisor Class | | | 158,350 | | | | 5,240 | |
Custodian fees | | | 10,718 | | | | 1,229 | |
Reports to shareholders | | | 34,529 | | | | 9,365 | |
Registration and filing fees | | | 42,595 | | | | 5,077 | |
Professional fees | | | 100,277 | | | | 31,436 | |
Trustees’ fees and expenses | | | 27,946 | | | | 3,453 | |
Other | | | 112,544 | | | | 62,374 | |
| | | | |
Total expenses | | | 8,450,890 | | | | 1,078,227 | |
Expenses waived/paid by affiliates (Note 3f) | | | (54 | ) | | | (54 | ) |
| | | | |
| | |
Net expenses | | | 8,450,836 | | | | 1,078,173 | |
| | | | |
| | |
Net investment income | | | 43,532,905 | | | | 4,376,633 | |
| | | | |
| | |
Realized and unrealized gains (losses): | | | | | | | | |
Net realized gain (loss) from: | | | | | | | | |
Investments: | | | | | | | | |
Unaffiliated issuers | | | 3,214,862 | | | | (7,944,496 | ) |
| | | | |
Net change in unrealized appreciation (depreciation) on: | | | | | |
Investments: | | | | | | | | |
Unaffiliated issuers | | | (27,411,901 | ) | | | 2,737,374 | |
| | | | |
Net realized and unrealized gain (loss) | | | (24,197,039 | ) | | | (5,207,122 | ) |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | $ 19,335,866 | | | | $ (830,489 | ) |
| | | | |
| | | | |
44 | | Semiannual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
| | | | | | | | | | | | | | | | |
| | | Franklin California | | | Franklin Tennessee | |
| | | High Yield Municipal Fund | | | Municipal Bond Fund | |
| | | | |
| | | Six Months Ended
November 30, 2017
(unaudited) | | | Year Ended
May 31, 2017 | | | Six Months Ended
November 30, 2017
(unaudited) | | | Year Ended
May 31, 2017 | |
| |
Increase (decrease) in net assets: | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | |
Net investment income | | | $ 43,532,905 | | | | $ 88,550,351 | | | | $ 4,376,633 | | | | $ 10,050,821 | |
Net realized gain (loss) | | | 3,214,862 | | | | (18,352,854 | ) | | | (7,944,496 | ) | | | (818,022 | ) |
Net change in unrealized appreciation (depreciation) | | | (27,411,901 | ) | | | (34,323,790 | ) | | | 2,737,374 | | | | (8,256,443 | ) |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 19,335,866 | | | | 35,873,707 | | | | (830,489 | ) | | | 976,356 | |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | |
Net investment income: | | | | | | | | | | | | | | | | |
Class A | | | (25,385,567 | ) | | | (51,026,975 | ) | | | (4,133,635 | ) | | | (9,757,030 | ) |
Class C | | | (5,410,378 | ) | | | (11,517,585 | ) | | | — | | | | — | |
Class R6 | | | (31,087 | ) | | | — | | | | (11,663 | ) | | | — | |
Advisor Class. | | | (13,792,040 | ) | | | (24,364,295 | ) | | | (382,645 | ) | | | (334,234 | ) |
| | | | |
Total distributions to shareholders | | | (44,619,072 | ) | | | (86,908,855 | ) | | | (4,527,943 | ) | | | (10,091,264 | ) |
| | | | |
Capital share transactions: (Note 2) | | | | | | | | | | | | | | | | |
Class A | | | 25,469,355 | | | | (34,287,887 | ) | | | (12,497,463 | ) | | | (30,909,215 | ) |
Class C | | | (7,047,217 | ) | | | (10,735,616 | ) | | | — | | | | — | |
Class R6 | | | 8,425,282 | | | | — | | | | 3,568,578 | | | | — | |
Advisor Class. | | | 39,965,034 | | | | 97,054,533 | | | | (852,388 | ) | | | 24,088,272 | |
| | | | | | | | | | | | | | | | |
Total capital share transactions | | | 66,812,454 | | | | 52,031,030 | | | | (9,781,273 | ) | | | (6,820,943 | ) |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in net assets | | | 41,529,248 | | | | 995,882 | | | | (15,139,705 | ) | | | (15,935,851 | ) |
Net assets: | | | | | | | | | | | | | | | | |
Beginning of period | | | 2,456,711,612 | | | | 2,455,715,730 | | | | 291,357,704 | | | | 307,293,555 | |
| | | | | | | | | | | | | | | | |
End of period | | | $2,498,240,860 | | | | $2,456,711,612 | | | | $276,217,999 | | | | $291,357,704 | |
| | | | | | | | | | | | | | | | |
Undistributed net investment income included in net assets: | | | | | | | | | | | | | | | | |
End of period | | | $ 3,330,569 | | | | $ 4,416,736 | | | | $ 240,204 | | | | $ 391,514 | |
| | | | | | | | | | | | | | | | |
| | | | | | |
franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Semiannual Report | | | 45 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
Notes to Financial Statements (unaudited)
1. Organization and Significant Accounting Policies
Franklin Municipal Securities Trust (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of two separate funds (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The classes of shares offered within each of the Funds are indicated below. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees. Effective August 1, 2017, the Funds began offering a new class of shares, Class R6.
Class A, Class R6 & Advisor Class
Franklin Tennessee Municipal Bond Fund
Class A, Class C, Class R6 & Advisor Class
Franklin California High Yield Municipal Fund
The following summarizes the Funds’ significant accounting policies.
a. Financial Instrument Valuation
The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through
which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.
The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
b. Securities Purchased on a When-Issued Basis
Certain or all Funds purchase securities on a when-issued basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of holding the securities, they may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
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46 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
c. Income Taxes
It is each Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each Fund intends to distribute to shareholders substantially all of its income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
Each Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of November 30, 2017, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
d. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividends from net investment income are normally declared daily; these dividends may be reinvested or paid monthly to shareholders. Distributions from realized capital gains and other distributions, if any, are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
Common expenses incurred by the Trust are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
e. Insurance
The scheduled payments of interest and principal for each insured municipal security in the Trust are insured by either a new issue insurance policy or a secondary insurance policy. Some municipal securities in the Funds are secured by collateral guaranteed by an agency of the U.S. government. Depending on the type of coverage, premiums for insurance are either added to the cost basis of the security or paid by a third party.
Insurance companies typically insure municipal bonds that tend to be of very high quality, with the majority of underlying municipal bonds rated A or better. However, an event involving an insurer could have an adverse effect on the value of the securities insured by that insurance company. There can be no assurance the insurer will be able to fulfill its obligations under the terms of the policy.
f. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP 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. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 47 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. Shares of Beneficial Interest
At November 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Franklin California | | | Franklin Tennessee | |
| | | High Yield Municipal Fund | | | Municipal Bond Fund | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| |
| | | | |
| Class A Shares: | | | | | | | | | | | | | | | | |
Six Months ended November 30, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 12,216,0834 | | | $ | 132,640,872 | | | | 677,925 | | | $ | 7,485,529 | |
Shares issued in reinvestment of distributions | | | 1,984,213 | | | | 21,497,714 | | | | 342,247 | | | | 3,766,637 | |
Shares redeemed | | | (11,862,320) | | | | (128,669,231) | | | | (2,156,032) | | | | (23,749,629) | |
| | | | |
Net increase (decrease) | | | 2,337,976 | | | $ | 25,469,355 | | | | (1,135,860) | | | $ | (12,497,463) | |
| | | | |
Year ended May 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 31,697,553 | | | $ | 345,600,673 | | | | 2,948,487 | | | $ | 33,501,178 | |
Shares issued in reinvestment of distributions | | | 4,015,363 | | | | 43,789,074 | | | | 793,864 | | | | 8,950,558 | |
Shares redeemed | | | (39,209,150) | | | | (423,677,634) | | | | (6,536,070) | | | | (73,360,951) | |
| | | | |
Net increase (decrease) | | | (3,496,234) | | | $ | (34,287,887) | | | | (2,793,719) | | | $ | (30,909,215) | |
| | | | |
| | | | |
| Class C Shares: | | | | | | | | | | | | | | | | |
Six Months ended November 30, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 1,979,273 | | | $ | 21,657,495 | | | | | | | | | |
Shares issued in reinvestment of distributions | | | 416,954 | | | | 4,550,998 | | | | | | | | | |
Shares redeemed | | | (3,039,118) | | | | (33,255,710) | | | | | | | | | |
| | | | | | | | | | | | |
Net increase (decrease) | | | (642,891) | | | $ | (7,047,217) | | | | | | | | | |
| | | | | | | | | | | | |
Year ended May 31, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 6,119,658 | | | $ | 67,989,851 | | | | | | | | | |
Shares issued in reinvestment of distributions | | | 833,005 | | | | 9,144,337 | | | | | | | | | |
Shares redeemed | | | (8,072,631) | | | | (87,869,804) | | | | | | | | | |
| | | | | | | | | | | | |
Net increase (decrease) | | | (1,119,968) | | | $ | (10,735,616) | | | | | | | | | |
| | | | | | | | | | | | |
| | | | |
| Class R6 Shares: | | | | | | | | | | | | | | | | |
Six Months ended November 30, 2017a | | | | | | | | | | | | | | | | |
Shares sold | | | 803,539 | | | $ | 8,696,686 | | | | 330,922 | | | $ | 3,623,644 | |
Shares issued in reinvestment of distributions | | | 2,870 | | | | 31,025 | | | | 1,063 | | | | 11,609 | |
Shares redeemed | | | (27,936) | | | | (302,429) | | | | (6,080) | | | | (66,675) | |
| | | | |
Net increase (decrease) | | | 778,473 | | | $ | 8,425,282 | | | | 325,905 | | | $ | 3,568,578 | |
| | | | |
| | | | |
| Advisor Class Shares: | | | | | | | | | | | | | | | | |
Six Months ended November 30, 2017 | | | | | | | | | | | | | | | | |
Shares sold | | | 9,202,822 | | | $ | 100,216,316 | | | | 535,322 | | | $ | 5,898,524 | |
Shares issued in reinvestment of distributions | | | 895,344 | | | | 9,725,624 | | | | 34,754 | | | | 382,645 | |
Shares redeemed | | | (6,434,752) | | | | (69,976,906) | | | | (648,184) | | | | (7,133,557) | |
| | | | |
Net increase (decrease) | | | 3,663,414 | | | $ | 39,965,034 | | | | (78,108) | | | $ | (852,388) | |
| | | | |
Year ended May 31, 2017b | | | | | | | | | | | | | | | | |
Shares sold | | | 29,267,976 | | | $ | 317,060,971 | | | | 2,530,972 | | | $ | 28,323,128 | |
Shares issued in reinvestment of distributions | | | 1,526,824 | | | | 16,667,915 | | | | 30,102 | | | | 334,104 | |
Shares redeemed | | | (21,879,971) | | | | (236,674,353) | | | | (410,241) | | | | (4,568,960) | |
| | | | |
Net increase (decrease) | | | 8,914,829 | | | $ | 97,054,533 | | | | 2,150,833 | | | $ | 24,088,272 | |
| | | | |
aFor the period August 1, 2017 (effective date) to November 30, 2017.
bFor the period September 15, 2016 (effective date) to May 31, 2017 for Franklin Tennessee Muncipal Bond Fund.
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48 | | Semiannual Report | | franklintempleton.com |
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
| | |
Subsidiary | | Affiliation |
| |
Franklin Advisers, Inc. (Advisers) | | Investment manager |
| |
Franklin Templeton Services, LLC (FT Services) | | Administrative manager |
| |
Franklin Templeton Distributors, Inc. (Distributors) | | Principal underwriter |
| |
Franklin Templeton Investor Services, LLC (Investor Services) | | Transfer agent |
a. Management Fees
The Funds pay an investment management fee to Advisers based on the average daily net assets of each of the Funds as follows:
| | |
| Annualized Fee Rate | | Net Assets |
| |
0.625% | | Up to and including $100 million |
| |
0.500% | | Over $100 million, up to and including $250 million |
| |
0.450% | | Over $250 million, up to and including $7.5 billion |
| |
0.440% | | Over $7.5 billion, up to and including $10 billion |
| |
0.430% | | Over $10 billion, up to and including $12.5 billion |
| |
0.420% | | Over $12.5 billion, up to and including $15 billion |
| |
0.400% | | Over $15 billion, up to and including $17.5 billion |
| |
0.380% | | Over $17.5 billion, up to and including $20 billion |
| |
0.360% | | In excess of $20 billion |
For the period ended November 30, 2017, each Fund’s annualized effective investment management fee rate based on average daily net assets was as follows:
| | |
Franklin California High Yield Municipal Fund | | Franklin Tennessee Municipal Bond Fund |
0.460% | | 0.538% |
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on each of the Funds’ average daily net assets, and is not an additional expense of the Funds.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class C compensation distribution plans, Franklin California High Yield Municipal Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 49 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
c. Distribution Fees (continued)
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | | | | | | | |
| | | Franklin
California
High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
| | |
Reimbursement Plans: | | | | | | | | |
| | |
Class A | | | 0.15% | | | | 0.15% | |
| | |
Compensation Plans: | | | | | | | | |
| | |
Class C | | | 0.65% | | | | — | |
Distributors has agreed to limit the current rate to 0.10% per year for Class A.
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the period:
| | | | | | | | |
| | | Franklin
California
High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
| | |
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | | | $146,850 | | | | $11,984 | |
| | |
CDSC retained | | | $ 17,275 | | | | $ 273 | |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a per transaction fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended November 30, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
| | | | | | | | |
| | | Franklin
California
High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
| | |
Transfer agent fees | | | $131,614 | | | | $14,598 | |
f. Waiver and Expense Reimbursements
Investor Services has voluntarily agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03%. Investor Services may discontinue this waiver in the future.
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FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
g. Interfund Transactions
Certain or all Funds engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. These purchases and sales for the period ended November 30, 2017, were as follows:
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
| | |
Purchases | | | $13,600,000 | | | | $14,900,000 | |
Sales | | | $56,053,000 | | | | $ 3,500,000 | |
4. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.
At May 31, 2017, the capital loss carryforwards were as follows:
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin Tennessee
Municipal
Bond Fund | |
| | |
Capital loss carryforwards subject to expiration: | | | | | | | | |
2018 | | | $ 32,781,484 | | | | $ – | |
2019 | | | 21,604,912 | | | | – | |
| Capital loss carryforwards not subject to expiration: | | | | | | | | |
Short term | | | 44,227,219 | | | | 4,714,607 | |
Long term | | | 13,599,648 | | | | 2,363,545 | |
| | | | |
Total capital loss carryforwards | | | $112,213,263 | | | | $7,078,152 | |
| | | | |
At November 30, 2017, the cost of investments and net unrealized appreciation (depreciation), for income tax purposes were as follows:
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal Bond Fund | |
| | |
Cost of investments | | | $2,294,049,099 | | | | $265,980,366 | |
| | | | |
| | |
| Unrealized appreciation | | | $ 256,867,239 | | | | $ 11,586,271 | |
| Unrealized depreciation | | | (68,716,708) | | | | (3,771,565) | |
| | | | |
| Net unrealized appreciation (depreciation) | | | $ 188,150,531 | | | | $ 7,814,706 | |
| | | | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts and premiums.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Certain provisions of the Act were effective upon enactment with the remainder becoming effective for tax years beginning after December 31, 2017. Management is currently evaluating the impact, if any, on the financial statements and the accompanying notes to financial statements.
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 51 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
5. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended November 30, 2017, were as follows:
| | | | | | | | |
| | | Franklin
California High Yield
Municipal Fund | | | Franklin
Tennessee
Municipal
Bond Fund | |
| | |
Purchases | | | $228,973,339 | | | | $16,998,197 | |
Sales | | | $129,339,254 | | | | $29,894,547 | |
6. Credit Risk and Defaulted Securities
At November 30, 2017, Franklin California High Yield Municipal Fund had 21.7% of its portfolio invested in high yield securities, rated below investment grade and unrated securities, if any. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.
Certain or all Funds held defaulted securities and/or other securities for which the income has been deemed uncollectible. At November 30, 2017, the aggregate value of these securities for Franklin California High Yield Municipal Fund and Franklin Tennessee Municipal Bond Fund was $29,402,287 and $1,687,500, representing 1.2% and 0.6%, respectively, of each Fund’s net assets. The Funds discontinue accruing income on securities for which income has been deemed uncollectible and provide an estimate for losses on interest receivable. The securities have been identified in the accompanying Statements of Investments.
7. Concentration of Risk
Certain or all Funds invest a large percentage of their total assets in obligations of issuers within their respective state and U.S. territories. Such concentration may subject the Funds to risks associated with industrial or regional matters, and economic, political or legal developments occurring within those states and U.S. territories. Investing in Puerto Rico securities may expose the Funds to heightened risks due to recent adverse economic and market changes, credit downgrades and ongoing restructuring discussions. In addition, investments in these securities are sensitive to interest rate changes and credit risk of the issuer and may subject the Funds to increased market volatility. The market for these investments may be limited, which may make them difficult to buy or sell.
8. Restricted Securities
Certain or all Funds invest in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Funds may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At November 30, 2017, investments in restricted securities, excluding securities exempt from registration under the 1933 Act deemed to be liquid, were as follows:
| | | | | | | | | | | | | | |
| Units | | Issuer | | Acquisition
Date | | | Cost | | | Value | |
| Franklin | | California High Yield Municipal Fund | | | | | | | | | | | | |
7,830,849 | | a 1155 Island Avenue LLC, LP (Value is 0.0%† of Net Assets) | | | 12/04/14 | | | | $611,327 | | | | $611,323 | |
| | | | | | | | | | |
†Rounds to less than 0.1% of net assets.
aThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $3,893,328 as of November 30, 2017.
| | | | |
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FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
9. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the period ended November 30, 2017, the Funds did not use the Global Credit Facility.
10. Fair Value Measurements
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2017, in valuing the Funds’ assets carried at fair value, is as follows:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Franklin California High Yield Municipal Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Common Stocks and Other Equity Interests | | $ | — | | | $ | — | | | $ | 611,323 | | | $ | 611,323 | |
Corporate Bonds | | | — | | | | 3,893,328 | | | | — | | | | 3,893,328 | |
Municipal Bonds | | | — | | | | 2,367,039,979 | | | | — | | | | 2,367,039,979 | |
Short Term Investments | | | — | | | | 110,655,000 | | | | — | | | | 110,655,000 | |
| | | | |
Total Investments in Securities | | $ | — | | | $ | 2,481,588,307 | | | $ | 611,323 | | | $ | 2,482,199,630 | |
| | | | |
| | | | |
| Franklin Tennessee Municipal Bond Fund | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Municipal Bonds | | $ | — | | | $ | 270,895,072 | | | $ | — | | | $ | 270,895,072 | |
Short Term Investments | | | — | | | | 2,900,000 | | | | — | | | | 2,900,000 | |
| | | | |
Total Investments in Securities | | $ | — | | | $ | 273,795,072 | | | $ | — | | | $ | 273,795,072 | |
| | | | |
| | | | | | |
franklintempleton.com | | Semiannual Report | | | 53 | |
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
10. Fair Value Measurements (continued)
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the period.
11. New Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities acquired at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities acquired at a discount, which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Management is currently evaluating the impact, if any, of applying this provision.
12. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
Abbreviations
| | | | | | |
Selected Portfolio | | | | |
| | | |
1915 Act | | Improvement Bond Act of 1915 | | HDA | | Housing Development Authority/Agency |
| ABAG | | The Association of Bay Area Governments | | ID | | Improvement District |
| AD | | Assessment District | | IDB | | Industrial Development Bond/Board |
| AGMC | | Assured Guaranty Municipal Corp. | | LOC | | Letter of Credit |
| AMBAC | | American Municipal Bond Assurance Corp. | | MFHR | | Multi-Family Housing Revenue |
| BAM | | Build America Mutual Assurance Co. | | NATL | | National Public Financial Guarantee Corp. |
| CDA | | Community Development Authority/Agency | | PBA | | Public Building Authority |
| CFD | | Community Facilities District | | PCFA | | Pollution Control Financing Authority |
| COP | | Certificate of Participation | | PFA | | Public Financing Authority |
| CRDA | | Community Redevelopment Authority/Agency | | PFAR | | Public Financing Authority Revenue |
| CSD | | Central School District | | PIK | | Payment-In-Kind |
| ETM | | Escrow to Maturity | | PUD | | Public Utility District |
| FGIC | | Financial Guaranty Insurance Co. | | RDA | | Redevelopment Agency/Authority |
| FHA | | Federal Housing Authority/Agency | | SPA | | Standby Purchase Agreement |
| FICO | | Financing Corp. | | UHSD | | Unified/Union High School District |
| GNMA | | Government National Mortgage Association | | USD | | Unified/Union School District |
| GO | | General Obligation | | XLCA | | XL Capital Assurance |
| | | | |
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FRANKLIN MUNICIPAL SECURITIES TRUST
Shareholder Information
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the US Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust files a complete statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
| | | | | | |
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| | | | |
 | | | | Semiannual Report and Shareholder Letter Franklin Municipal Securities Trust |
| | | | Investment Manager Franklin Advisers, Inc. |
| | | | Distributor |
| | | | Franklin Templeton Distributors, Inc. (800) DIAL BEN® / 342-5236 franklintempleton.com |
| | | | Shareholder Services (800) 632-2301 |
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
| | |
| © 2017-2018 Franklin Templeton Investments. All rights reserved. | | MUN S 01/18 |
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
Item 3. Audit Committee Financial Expert.
(a) (1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is John B. Wilson and he is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
Item 4. Principal Accountant Fees and Services. N/A
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal controls or in other factors that could
materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.
Item 12. Exhibits.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN MUNICIPAL SECURITIES TRUST
| | |
| By | | /s/ MATTHEW T. HINKLE |
| | Matthew T. Hinkle |
| | Chief Executive Officer - Finance and Administration |
| Date | | January 25, 2018 |
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/ MATTHEW T. HINKLE |
| | Matthew T. Hinkle |
| | Chief Executive Officer - Finance and Administration |
| Date | | January 25, 2018 |
| | |
| By | | /s/ GASTON GARDEY |
| | Gaston Gardey |
| | Chief��Financial Officer and Chief Accounting Officer |
| Date | | January 25, 2018 |
