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TABLE OF CONTENTS
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Franklin Arkansas
Municipal Bond Fund.............................. 3
Franklin California
High Yield Municipal Fund........................ 7
Franklin Hawaii
Municipal Bond Fund.............................. 11
Franklin Tennessee
Municipal Bond Fund.............................. 15
Franklin Washington
Municipal Bond Fund.............................. 19
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January 20, 1995
Dear Shareholder:
It's a pleasure to bring you the sixth semi-annual report of the Franklin
Municipal Securities Trust for the period ended November 30, 1994.
A sharp and persistent increase in interest rates was the primary factor
affecting fixed-income securities during the Trust's fiscal year. Attempting to
maintain moderate economic growth while keeping potential inflationary
pressures under control, the Federal Reserve Board raised the federal funds
rate -- the interest rate banks charge each other for overnight loans -- six
times during 1994, from 3.00% to 5.50%. Although the Federal Reserve Board
raised only short-term rates, long-term rates rose as well. For example, the
30-year Treasury bond began the reporting period yielding 7.39%; by November
30, 1994, its yield had risen to 7.99%.* While we
*Source: Micropal
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view these actions as positive on a long-term basis, higher interest rates
caused significant short-term price volatility among all fixed-income
investments, including the municipal bonds in which your fund invests.
The recent volatility in the securities markets has proved to be unsettling to
some investors. Although this is understandable, in times like these it is
important to remember that financial markets always have been -- and always
will be -- subject to fluctuation. As a matter of fact, down-market cycles can
often provide the wise investor with outstanding buying opportunities. We
therefore urge you to exercise patience, consult with your investment
representative, and concentrate not on short-term market cycles, but on your
long-term investment goals.
The following pages contain detailed discussions about each of the funds in the
Trust. While each fund has a distinct investment objective, all of our managers
are dedicated to providing shareholders with careful selection and constant
professional supervision.
We appreciate your continued support, welcome your comments and look forward to
serving your investment needs in the years to come.
Sincerely,
CHARLES B. JOHNSON
- - --------------------------
Charles B. Johnson
President
Franklin Municipal Securities Trust
ABOUT DERIVATIVES
There has been a great deal of negative media attention lately on derivatives
and their use in the marketplace. Various investment vehicles have been derived
from municipal securities in an attempt to increase yield to investors. Exotic
derivative issues such as inverse floaters and other customized contracts are
structured to the specifications of the issuer, and may exhibit extreme
interest rate sensitivity and/or market illiquidity. Many of these derivative
securities are fairly new to the marketplace and have no long-term performance
record.
The managers of our municipal bond funds do not purchase and have never
purchased these types of derivatives or similar potentially volatile
securities. We will continue to manage our bond funds as "plain vanilla"
investments that do not take any undue risks to increase yield.
2
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FRANKLIN MUNICIPAL SECURITIES TRUST
FRANKLIN ARKANSAS MUNICIPAL BOND FUND
The Franklin Arkansas Municipal Bond Fund is managed to provide shareholders
with a high level of current income exempt from regular federal and Arkansas
state personal income taxes while seeking preservation of capital by investing
primarily in Arkansas municipal securities.*
Arkansas' economy has improved since 1992, with steady growth expected to
slightly outpace that of the nation over the next few years. Over the last four
years, the state's economy has become more diversified, with less emphasis on
agriculture and a stronger emphasis on manufacturing, a leading component of
the state's economy. Employment distribution is fairly balanced between the
state's largest non-agricultural industries: manufacturing (24.6%), trade
(22.1%) and services (21.9%). In addition, Arkansas is home to four of the
largest poultry producers in the nation. Among these is Tyson Foods, Inc.,
which employs over 21,000 statewide and is currently preparing to expand its
processing center in Pine Bluff. Other significant private sector employers
include Wal-Mart Stores, Inc. (26,047 employees), Baptist Medical Systems, Inc.
(5,360), ConAgra, Inc. (5,043), and Georgia Pacific Corp. (4,856).**
Arkansas municipal bonds tend to bring higher prices as the state has a
relatively low level of debt issuance. Additionally, retail interest in
Arkansas municipal bonds remains strong, keeping prices attractive. New
municipal bond issuance totaled just over $392 million for the third quarter
of 1994, with the largest percentage of issues in the utilities (27%) and
educational (25%) sectors.
The state maintains a stable economic outlook, characterized by slow but steady
economic growth, continued timely budgetary actions,
[GRAPHIC MATERIAL (1) OMITTED - SEE APPENDIX]
*The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the fund's prospectus.
**Source: Standard & Poor's Creditweek Municipal, June 27, 1994.
3
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and conservative financial management. This action should bode well for
Arkansas municipal securities.
Franklin takes a conservative approach in the management of your fund. National
ratings services such as Standard & Poor's, Moody's, and our own in-house
rating system, provide the fund's analysts with an evaluation of each bond
issuer's credit quality. As of November 30, 1994, over 77% of the fund's
assets were invested in municipal securities rated A or better, or in securities
we judge to be of comparable quality. Over 48% were rated AAA or equivalent,
the highest rating available. These ratings, while not guaranteeing the fund's
market value or signifying approval of the shares by national ratings agencies,
reflect the quality of the bonds as described in the fund's prospectus and are
subject to change.
Franklin's professional management team draws from its extensive experience
to thoroughly analyze the municipal market. This allows the fund's managers to
choose municipal issues they feel offer shareholders the strongest potential
for income. On November 30, 1994, your fund held 17 positions, spread across the
state and among various municipal bond sectors such as housing, education,
transportation and hospitals. Spreading the fund's investments over a variety
of issues and industries can lower the risks associated with investing in
municipal bonds.
The fund's managers adhere to the investment strategy of generally purchasing
current coupon bonds at face value or at a slight discount, with average
weighted maturities between 20 and 25 years. These securities historically have
been less volatile than bonds bought at a deeper discount. At the same time,
the fund is responsive to opportunities presented by undervalued municipal
securities.
As a Franklin shareholder, you receive the benefits of professional management
and dedicated service. We appreciate your participation in the Franklin
Arkansas Municipal Bond Fund and look forward to serving your investment needs
in the future.
4
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PERFORMANCE SUMMARY
The Franklin Arkansas Municipal Bond Fund's share price, as measured by net
asset value, declined from $10.06 on May 31, 1994, to $9.24 on November 30,
1994. As noted in the shareholder letter, this decline was largely due to
rising interest rates.
The fund began distributing monthly income in September 1994. During the
reporting period, shareholders received 13.8 cents ($0.138) per share in
dividend income.* We are pleased to inform you that your fund's initial
dividend rate of 4.6 cents ($0.046) per share was increased to 4.8 cents
($0.048) per share, effective with the December 1994 distribution. Future
distributions may vary, depending on the income earned by the fund and any
profits realized from the sale of securities in the portfolio.
At the end of the reporting period, your fund's distribution rate was
5.97%, based on an annualization of the current monthly dividend of 4.8 cents
($0.048) per share and the maximum offering price of $9.65 on November 30,
1994. This tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. The chart above illustrates that if you are in
the 43.8% maximum combined federal and Arkansas state personal income tax
bracket, you would have to earn 10.62% from a taxable investment to match your
fund's tax-free distribution rate.
[GRAPHIC MATERIAL (2) OMITTED - SEE APPENDIX]
Based on this dividend income and change in net asset value per share, the fund
posted a cumulative total return of -6.68% for the six-month period ended
November 30, 1994, and a total return of -6.27% since inception. Total return
measures the change in value of an investment over the periods indicated,
assuming reinvestment of dividends and capital gains at net asset value. This
calculation does not include the initial sales charge, and past performance is
not predictive of future results.
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions may vary depending on the
date you purchased your shares and any account activity during the month.
5
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FRANKLIN ARKANSAS MUNICIPAL BOND FUND
Period ended November 30, 1994
<TABLE>
<CAPTION>
SINCE INCEPTION
(05/09/94)
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<S> <C> <C>
Aggregate Total Return1.............................................. -10.22%
Cumulative Total Return2............................................. -6.27%
Distribution Rate3 5.97%
Taxable Equivalent Distribution Rate4 10.62%
30-day Standardized Yield5 6.39%
Taxable Equivalent Yield4 11.37%
</TABLE>
1. Aggregate total return reflects the change in value of an investment
over the periods indicated and includes the maximum 4.25% initial sales charge.
This calculation assumes reinvestment of dividends and capital gains, if any,
at net asset value.
2. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge stated in the prospectus. This calculation assumes reinvestment of
dividends and capital gains, if any, at net asset value.
3. Distribution rate is based on an annualization of the fund's current
4.8 cent per share monthly dividend and the maximum offering price of $9.65 on
November 30, 1994.
4. Taxable equivalent distribution rate and yield assume the 1994 maximum
combined 43.8% federal and Arkansas state personal income tax bracket, based on
the 39.6% federal income tax rate.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1994.
The fund's manager has agreed in advance to waive a portion of the
management fees, which reduces operating expenses and increases distribution
rate, yield and total return to shareholders. Without this waiver, the fund's
distribution rate and total return would have been lower, and yield for the
period would have been 5.26%. The fee waiver may be discontinued at any time.
The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the prospectus. Past performance is
not predictive of future results.
6
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FRANKLIN MUNICIPAL SECURITIES TRUST
FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
The Franklin California High Yield Municipal Fund seeks to provide shareholders
with high current income exempt from regular and California state personal
income taxes while seeking preservation of capital by investing in high
yielding, medium-, lower- and non-rated California municipal securities.*+
Although it has shown improvement, California's economy remains weak. Economic,
fiscal and structural pressures continue to inhibit the state's attempts to
maintain financial stability, and the continued downsizing of the aerospace
industry has further hampered economic recovery within the state. California's
public finance was largely unaffected by the 1994 legislative session and the
November elections. In fact, the economic weakness of the state contributed to
the significant drop in legislative activity.
Issuance of high yield bonds in California has been relatively slow in
the last six months, which has led to very tight yield spreads between high
yield and investment grade bonds. Additionally, high yield bond issuance in
California has diminished over the reporting period; however, issuance should
pick up as the California housing market improves. Due to these factors,
Franklin California High Yield Municipal Fund has tended to invest in
investment grade issues. With a high percentage of investment grade bonds held
in the fund, we should be well-positioned to take advantage of the market and
improve the portfolio's yield and income levels.
Although investment grade bonds tend to offer lower yields, the fund
has lived up to its name. For the 30 days ended November 30, 1994, the fund's
yield was 7.09%, which was significantly higher than the yield of the average
California municipal bond fund. The fund's yield earned it a #2 ranking for
yield out of 84 California municipal bond funds, as measured by Lipper
Analytical Services, Inc. According to Lipper, the average California municipal
bond fund yielded 5.78% on November 30, 1994.**
*The fund will seek to comply with all federal and state regulations
regarding the payment of tax-exempt income dividends. Investors subject to the
federal alternative minimum tax may find up to 100% of the income dividends
subject to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable. The risks of investing
in a non-diversified fund, such as increased susceptibility to adverse economic
or regulatory developments, are described in the fund's prospectus.
+In general, an investor is paid a higher yield to assume a greater degree
of risk.
**The fund was ranked #8 out of 79 California municipal bond funds in
total return for the one-year period ended November 30, 1994, as measured by
Lipper Analytical Services, Inc., a nationally recognized mutual fund ratings
organization. Lipper rankings do not include sales charges. Management fees
have been voluntarily waived by the investment advisor, which reduces expenses
and increases yield, distribution rate, and total return. Rankings may have
been different if these factors had been considered. Past performance is not
predictive of future results.
7
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Investing in municipal bonds is more complex today than in the past,
but Franklin's professional management team draws from its extensive experience
to perform a thorough analysis of the municipal market. The issue of credit
quality is particularly important in a fund that seeks higher current income
through investments in medium-, lower- and non-rated bonds.* National ratings
services such as Standard & Poor's, Moody's, and our own in-house rating
system, provide the fund's analysts with an evaluation of each bond issuer's
credit quality. While the fund is permitted to purchase non-investment grade
bonds, over 80% of the fund's assets were invested in securities rated BBB or
higher by the end of the reporting period. Of course, even bonds rated BBB may
be considered somewhat speculative. These ratings, while not guaranteeing the
fund's market value or signifying approval of the shares by national ratings
agencies, reflect the quality of the bonds as described in the fund's
prospectus and are subject to change.
[GRAPHIC MATERIAL (3) OMITTED - SEE APPENDIX]
On November 30, 1994, your fund held 50 positions, spread across the state and
among various municipal bond sectors such as housing, education, transportation
and hospitals. Spreading the fund's investments over a variety of issues and
industries can lower the risks associated with investing in municipal bonds.
There has been a great deal of negative press lately regarding Orange
County obligations. Your fund has no direct exposure to securities issued by
Orange County. The fund does hold a small portion of its total net assets
(2.18%) in obligations of municipalities that had invested in Orange County's
investment pool. Franklin's Municipal Bond Department continues to closely
monitor the situation, and they have contacted many of the municipalities
involved. To date, most municipalities contacted do not anticipate any trouble
in meeting their obligations as they come due.
As a Franklin shareholder, you receive the benefits of professional
management and dedicated service. We appreciate your participation in the
Franklin California High Yield Municipal Fund and look forward to serving your
investment needs in the future.
*In general, an investor is paid a higher yield to assume a greater degree of
credit risk.
8
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PERFORMANCE SUMMARY
The Franklin California High Yield Municipal Fund's share price, as measured by
net asset value, declined from $9.73 on May 31, 1994, to $9.11 on November 30,
1994. As noted in the shareholder letter, this decline was largely due to
rising interest rates.
The fund continued to meet its investment objective of providing high current
income to its shareholders. For the six-month period ended November 30, 1994,
your fund paid monthly income distributions totaling 31.8 cents ($0.318) per
share.* Dividends will vary based on the earnings of the portfolio and past
distributions are not necessarily predictive of future results.
At the end of the reporting period, your fund's distribution rate was 6.69%,
based on an annualization of the fund's current monthly dividend of 5.3 cents
($0.053) per share and the maximum offering price of $9.51 on November 30,
1994. This tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, if you are in the 46.2% maximum
combined federal and California state personal income tax bracket, you would
have to earn 12.43% from a taxable investment to match your fund's tax-free
distribution rate.
[GRAPHIC MATERIAL (4) OMITTED - SEE APPENDIX]
Based on this dividend income and change in share price, the fund posted a
cumulative total return of -3.19% for the six-month period ended November 30,
1994, and a one-year total return of -5.06%. Total return measures the change
in value of an investment over the periods indicated, assuming reinvestment of
dividends and capital gains, if any, at net asset value. This calculation does
not include the initial sales charge, and past performance is not predictive of
future results.
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions may vary depending on the
date you purchased your shares and any account activity during the month.
9
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
Period ended November 30, 1994
<TABLE>
<CAPTION>
ONE- SINCE INCEPTION
YEAR (05/03/93)
------- ----------
<S> <C> <C> <C>
Cumulative Total Return1.................................. -5.06% -0.42%
Average Annual Total Return2.............................. -9.14% -2.95%
Distribution Rate3 6.68%
Taxable Equivalent Distribution Rate4 12.43%
30-Day Standardized Yield5 7.09%
Taxable Equivalent Yield4 13.19%
</TABLE>
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge stated in the prospectus. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the current maximum 4.25% initial sales charge stated in the
prospectus. See note below.
3. Distribution rate is based on an annualization of the fund's current 5.3
cent per share monthly dividend and the maximum offering price of $9.51 on
November 30, 1994.
4. Taxable equivalent distribution rate and yield assume the 1994 maximum
combined 46.2% federal and California state personal income tax bracket, based
on the 39.6% federal income tax rate. In general, an investor is paid a higher
yield to assume a greater degree of risk.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1994.
Note: Prior to July 1, 1994, the fund's shares were offered at a higher initial
sales charge. Thus, actual total returns for purchasers of shares during that
period would have been somewhat different than noted above. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value. Investment return and principal value will fluctuate with market
conditions and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases distribution rate, yield
and total return to shareholders. Without this waiver, the fund's distribution
rate and total return would have been lower and yield for the period would have
been 6.36% The fee waiver may be discontinued at any time.
The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the prospectus.
10
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FRANKLIN MUNICIPAL SECURITIES TRUST
FRANKLIN HAWAII MUNICIPAL BOND FUND
The Franklin Hawaii Municipal Bond Fund is managed to provide shareholders with
a high level of current income exempt from regular federal and Hawaii state
personal income taxes while seeking preservation of capital by investing
primarily in Hawaii municipal securities.*
Tourism dominates the Hawaiian economy. Two years after hurricane Iniki
decimated an industry already hurt by the recession, tourism in Hawaii has
begun to recover. Through July 1994, the number of tourists was up 3.8% from
the same period in 1993, though this remains well below the state's tourist
peak of 1990. The continental U.S. and Canada make up the largest portion of
travelers to Hawaii, but travel from Japan and other parts of Asia is on the
rise.
Federal military presence helps to diversify the Hawaiian economy, with about
53,000 military personnel and 57,000 dependents inhabiting the state.
Additionally, construction has become a strong economic sector, with
reconstruction projects on Kauai providing employment. Hawaii's income levels
are well above the national average, and the state's strong financial position
has enabled it to withstand negative economic conditions.
Franklin takes a conservative approach in the management of your fund. National
ratings services such as Standard & Poor's, Moody's, and our own in-house
rating system, provide the fund's analysts with an evaluation of each bond
issuer's credit quality. As of November 30, 1994, over 90% of the fund's
assets were invested in municipal securities rated A or better, or in
securities judged to be of comparable quality. Over 43% were rated AAA or
equivalent, the highest rating available. These ratings, while not
guaranteeing the fund's market value or signifying approval of the shares by
national ratings agencies, reflect the quality of the bonds as described in
the fund's prospectus and are subject to change.
Franklin's professional management team draws from its extensive experience to
thoroughly analyze the municipal bond market. This allows the fund's managers
to choose municipal issues they feel offer shareholders the strongest potential
for income. In fact,
*The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the fund's prospectus.
11
<PAGE>
your fund's yield of 6.49% earned it a #1 ranking for yield out of 9 Hawaii
municipal bond funds for the 30-day period ended November 30, 1994, as measured
by Lipper Analytical Services, Inc. According to Lipper, the average Hawaii
municipal bond fund yielded 5.51% on November 30,1994.*
On November 30, 1994, your fund held 57 positions, spread across the state and
among various municipal bond sectors such as housing, education, transportation
and hospitals. Spreading the fund's investments over a variety of issues and
industries can lower the risks associated with investing in municipal bonds.
The Franklin Hawaii Municipal Bond Fund adheres to the investment strategy of
generally purchasing current coupon bonds at face value or at a slight
discount, with average weighted maturities between 20 and 25 years. These
securities have historically been less volatile than bonds bought at a deeper
discount. At the same time, the fund is responsive to opportunities presented
by undervalued municipal securities.
[GRAPHIC MATERIAL (5) OMITTED - SEE APPENDIX]
As a Franklin shareholder, you receive the benefits of professional management
and dedicated service. We appreciate your participation in the Franklin Hawaii
Municipal Bond Fund and look forward to serving your investment needs in the
future.
*The fund was ranked #4 out of 5 Hawaii municipal bond funds in total return
for the one-year period ended November 30, 1994, as measured by Lipper
Analytical Services, Inc., a nationally recognized mutual fund ratings
organization. Lipper rankings do not include sales charges. Management fees
have been voluntarily waived by the investment advisor, which reduces expenses
and increases yield, distribution rate, and total return. Rankings may have
been different if these factors had been considered. Past performance is not
predictive of future results.
12
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PERFORMANCE SUMMARY
The Franklin Hawaii Municipal Bond Fund's share price, as measured by net asset
value, declined from $10.36 on May 31, 1994, to $9.54 on November 30, 1994. As
noted in the shareholder letter, this decline was largely due to rising
interest rates.
The fund continued to meet its objective of providing high current income to
its shareholders. For the six-month period ended November 30, 1994, your fund
paid monthly income distributions totaling 30 cents ($0.30) per share.*
Dividends will vary based on the earnings of the fund's portfolio, and past
distributions are not necessarily predictive of future results.
At the end of the reporting period, your fund's distribution rate was 6.02%,
based on an annualization of the current monthly dividend of 5.0 cents ($0.050)
per share and the maximum offering price of $9.96 on November 30, 1994. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. The chart to the right illustrates that if you are in the
45.6% maximum combined federal and Hawaii state personal income tax bracket,
you would have to earn 11.07% from a taxable investment to match your fund's
tax-free distribution rate.
Based on this dividend income and change in share price, the fund posted a
cumulative total return of -5.13% for the six-month period ended November 30,
1994, and a one-year total return of -8.36%. Total return measures the change
in value of an investment over the periods indicated, assuming reinvestment of
dividends and capital gains at net asset value. This calculation does not
include the initial sales charge, and past performance is not predictive of
future results.
[GRAPHIC MATERIAL (6) OMITTED - SEE APPENDIX]
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions may vary depending on the
date you purchased your shares and any account activity during the month.
13
<PAGE>
FRANKLIN HAWAII MUNICIPAL BOND FUND
Period ended November 30, 1994
<TABLE>
<CAPTION>
ONE- SINCE INCEPTION
YEAR (02/26/92)
-------- ----------
<S> <C> <C> <C>
Cumulative Total Return1................................ -8.36% 10.96%
Average Annual Total Return2............................ -12.26% 2.23%
Distribution Rate3 6.02%
Taxable Equivalent Distribution Rate4 11.07%
30-Day Standardized Yield5 6.49%
Taxable Equivalent Yield4 11.93%
</TABLE>
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the current maximum 4.25% initial sales charge stated in the
prospectus. See note below.
3. Distribution rate is based on an annualization of the fund's current 5.0
cent per share monthly dividend and the maximum offering price of $9.96 on
November 30, 1994.
4. Taxable equivalent distribution rate and yield assume the 1994 maximum
combined 45.6% federal and Hawaii state personal income tax bracket, based on
the 39.6% federal income tax rate.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1994.
Note: Prior to July 1, 1994, the fund's shares were offered at a higher initial
sales charge. Thus, actual total returns for purchasers of shares during that
period would have been somewhat different than noted above. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value. Investment return and principal value will fluctuate with market
conditions and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases distribution rate, yield
and total return to shareholders. Without this waiver, the fund's distribution
rate and total return would have been lower and yield for the period would have
been 5.62%. The fee waiver may be discontinued at any time.
The fund will seek to comply with all federal and state regulations
regarding the payment of tax-exempt income dividends. Investors subject to the
federal alternative minimum tax may find up to 100% of the income dividends
subject to such tax. Distributions of capital gains and of ordinary income from
accrued market discount, if any, are generally taxable. The risks of investing
in a non-diversified fund, such as increased susceptibility to economic or
regulatory developments, are described in the prospectus.
14
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
The Franklin Tennessee Municipal Bond Fund is managed to provide shareholders
with a high level of current income exempt from regular federal and Tennessee
state personal income taxes while seeking preservation of capital by investing
primarily in Tennessee municipal securities.*
Education and healthcare have been subjects of reform within the state of
Tennessee. The January 1994 implementation of TennCare, the state's
comprehensive healthcare program created to restructure its healthcare delivery
system, is designed to extend medical benefits to the uninsured. Through this
program, the state should be able to offer greater efficiency in service
delivery, realize sizable savings, and limit the amount of Medicaid spending.
The resolution of current litigation will determine whether or not mandated
elementary and secondary school education is constitutional. It is hoped that
reform in these areas will further reduce the state's debt burden.
Tennessee boasts a robust economy that has demonstrated improved financial
operations and low debt ratios. The state's economy is based largely on
manufacturing, with the expansion of Saturn and Nissan automobile facilities
and suppliers contributing to increased business investments in the area.
However, the economy has also diversified into the services sector, with
healthcare services and product distribution taking leading roles. Overall,
Tennessee's economy has outpaced the nation for the last four years, resulting
in improved wealth and income levels. The outlook for Tennessee remains
positive, reflecting further economic diversification and improved financial
management practices.
Franklin takes a conservative approach in the management of your fund. National
ratings services such as Standard & Poor's, Moody's, and our own in-house
rating system, provide the fund's analysts with an evaluation of each bond
issuer's credit quality. As of November 30, 1994, over 86% of the fund's
assets were invested in municipal securities rated A or better, or in
securities we judge to be of comparable quality. Over 24% were rated AAA or
equivalent, the highest rating available. These ratings, while not guaran-
*The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the fund's prospectus.
15
<PAGE>
teeing the fund's market value or signifying approval of the shares by
national ratings agencies, reflect the quality of the bonds as described in the
fund's prospectus and are subject to change.
Franklin's professional management team draws from its extensive experience to
thoroughly analyze the municipal bond market. This allows the fund's managers
to choose municipal issues that they feel offer shareholders the strongest
potential for income. On November 30, 1994, your fund held 24 positions, spread
across the state and among various municipal bond sectors such as housing,
education, transportation and hospitals. Spreading the fund's investments over
a variety of issues and industries can lower the risks associated with investing
in municipal bonds.
The Franklin Tennessee Municipal Bond Fund adheres to the investment strategy
of generally purchasing current coupon bonds at face value or at a slight
discount, with average weighted maturities between 20 and 25 years. These
securities have historically been less volatile than bonds bought at a deeper
discount. At the same time, the fund is responsive to opportunities presented
by undervalued municipal securities.
[GRAPHIC MATERIAL (7) OMITTED - SEE APPENDIX]
As a Franklin shareholder, you receive the benefits of professional management
and dedicated service. We appreciate your participation in the Franklin
Tennessee Municipal Bond Fund and look forward to serving your investment needs
in the future.
16
<PAGE>
PERFORMANCE SUMMARY
The Franklin Tennessee Municipal Bond Fund's share price, as measured by net
asset value, declined from $10.11 on May 31, 1994, to $9.41 on November 30,
1994. As noted in the shareholder letter, this decline was largely due to
rising interest rates.
The fund began distributing monthly income in September 1994. During the
reporting period, your fund distributed 14.4 cents ($0.144) per share in
dividend income.* We are pleased to inform you that your fund's initial
dividend rate was increased from 4.8 cents ($0.048) per share to 4.9 cents
($0.049) per share, effective with the December 1994 distribution. Future
distributions may vary, depending on the income earned by the fund and any
profits realized from the sale of securities in the portfolio.
At the end of the reporting period, your fund's distribution rate was 5.98%,
based on an annualization of the current monthly dividend of 4.9 cents ($0.049)
per share and the maximum offering price of $9.83 on November 30, 1994. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. The chart to the right illustrates that if you are in the
43.2% maximum combined federal and Tennessee state personal income tax bracket,
you would have to earn 10.53% from a taxable investment to match your fund's
tax-free distribution rate.
[GRAPHIC MATERIAL (8) OMITTED - SEE APPENDIX]
Based on this dividend income and change in share price, the fund posted a
cumulative total return of -5.48% for the six-month period ended November 30,
1994, and a total return of -4.52% since inception on May 9, 1994. Total return
measures the change in value of an investment over the periods indicated,
assuming reinvestment of dividends and capital gains at net asset value. This
calculation does not include the initial sales charge, and past performance is
not predictive of future results.
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions may vary depending on the
date you purchased your shares and any account activity during the month.
17
<PAGE>
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
Period ended November 30, 1994
<TABLE>
<CAPTION>
SINCE INCEPTION
(05/09/94)
----------
<S> <C> <C>
Aggregate Total Return1.............................................. -8.54%
Cumulative Total Return2............................................. -4.52%
Distribution Rate3 5.98%
Taxable Equivalent Distribution Rate4 10.53%
30-day Standardized Yield5 6.32%
Taxable Equivalent Yield4 11.13%
</TABLE>
1. Aggregate total return reflects the change in value of an investment over
the periods indicated and includes the maximum 4.25% initial sales charge. This
figure assumes reinvestment of dividends and capital gains, if any, at net
asset value.
2. Cumulative total return measures the change in value of an investment over
the periods indicated. This figure does not include the maximum 4.25% initial
sales charge stated in the prospectus and assumes reinvestment of dividends and
capital gains, if any, at net asset value.
3. Distribution rate is based on an annualization of the fund's current 4.9
cent per share monthly dividend and the maximum offering price of $9.83 on
November 30, 1994.
4. Taxable equivalent distribution rate and yield assume the 1994 maximum
combined 43.2% federal and Tennessee state personal income tax bracket, based
on the 39.6% federal income tax rate.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1994.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases distribution rate, yield
and total return to shareholders. Without this waiver, the fund's distribution
rate and total return would have been lower and yield for the period would have
been 5.19%. The fee waiver may be discontinued at any time.
The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the prospectus. Past performance is
not predictive of future results.
18
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
FRANKLIN WASHINGTON MUNICIPAL BOND FUND
The Franklin Washington Municipal Bond Fund seeks to provide shareholders with
high current income exempt from regular federal income tax while seeking
preservation of capital by investing primarily in Washington municipal
securities.*
Washington's economy is diversifying, moving away from forest products and the
aerospace industry and into manufacturing, services and trade. Manufacturing
currently accounts for 16% of the state's non-agricultural employment, while
the services and trade industries employ 25% and 24%, respectively, of
Washington's workforce. At this time, the aerospace industry employs only 6%
of the state's workforce, down from 10% in 1968.
This diversification helped Washington to weather the recent recession better
than the rest of the nation, and recent economic performance has exceeded
expectations. Diversification should also help to offset any negative economic
impact as Boeing Co., one of the state's leading employers, begins actions to
further reduce expenses and workforce.
Franklin takes a conservative approach in the management of your fund. National
ratings services such as Standard & Poor's, Moody's, and our own in-house
rating system, provide the fund's analysts with an evaluation of each bond
issuer's credit quality. As of November 30, 1994, over 79% of the fund's
assets were invested in municipal securities rated A or better, or in
securities judged to be of comparable quality. Over 50% were rated AAA or
equivalent, the highest rating available. These ratings, while not
guaranteeing the fund's market value or signifying approval of the shares by
national ratings agencies, reflect the quality of the bonds as described in
the fund's prospectus and are subject to change.
Franklin's professional management team draws from its extensive experience to
thoroughly analyze the municipal bond market. This allows the fund's managers
to choose municipal issues they feel offer shareholders the strongest potential
for income. In fact, your fund's yield of 6.56% earned it a #2 ranking for yield
out of 7 Washington municipal bond funds for the 30-day period ended
November 30, 1994, as measured by Lipper
*The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distributions of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the fund's prospectus.
19
<PAGE>
Analytical Services, Inc. According to Lipper, the average Washington bond fund
yielded 6.14% on November 30, 1994.*
On November 30, 1994, your fund held 27 positions, spread across the state and
among various municipal bond sectors such as housing, education, transportation
and hospitals. Spreading the fund's investments over a variety of issues and
industries can lower the risks associated with investing in municipal bonds.
The Franklin Washington Municipal Bond Fund adheres to the investment strategy
of generally purchasing current coupon bonds at face value or at a slight
discount, with average weighted maturities between 20 and 25 years. These
securities have historically been less volatile than bonds bought at a deeper
discount. At the same time, the fund is responsive to opportunities presented
by undervalued municipal securities.
[GRAPHIC MATERIAL (9) OMITTED - SEE APPENDIX]
As a Franklin shareholder, you receive the benefits of professional management
and dedicated service. We appreciate your participation in the Franklin
Washington Municipal Bond Fund and look forward to serving your investment
needs in the future.
*The fund was ranked #6 out of 7 Washington municipal bond funds in total
return for the one-year period ended November 30, 1994, as measured by Lipper
Analytical Services, Inc., a nationally recognized mutual fund ratings
organization. Lipper rankings do not include sales charges. Management fees
have been voluntarily waived by the investment advisor, which reduces expenses
and increases yield, distribution rate, and total return. Rankings may have been
different if these factors had been considered. Past performance is not
predictive of future results.
20
<PAGE>
PERFORMANCE SUMMARY
The Franklin Washington Municipal Bond Fund's share price, as measured by net
asset value, declined from $9.55 on May 31, 1994, to $8.75 on November 30,
1994. As noted in the shareholder letter, this decline was largely due to
rising interest rates.
The fund continued to meet its objective of providing high current income to
its shareholders. For the six-month period ended November 30, 1994, your fund
paid monthly income distributions totaling 27.9 cents ($0.279) per share.*
Due to increased income in the fund's portfolio, we were able to adjust the
monthly dividend amount from 4.6 cents ($0.046) per share to 4.7 cents
($0.047) per share, effective with the September 1994 distribution. Dividends
will vary based on the earnings of the fund's portfolio, and past
distributions are not necessarily predictive of future results.
At the end of the reporting period, your fund's distribution rate was 6.17%,
based on an annualization of the current monthly dividend of 4.7 cents ($0.047)
per share and the maximum offering price of $9.14 on November 30, 1994. This
tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. For example, if you are in the maximum 39.6% federal income
tax bracket, you would have to earn 10.22% from a taxable investment to match
your fund's tax-free distribution rate.
[GRAPHIC MATERIAL (10) OMITTED - SEE APPENDIX]
Based on this dividend income and change in share price, the fund posted a
cumulative total return of -5.57% for the six-month period ended November 30,
1994, and a one-year total return of -9.24%. Total return measures the change
in value of an investment over the periods indicated, assuming reinvestment of
dividends and capital gains at net asset value. This calculation does not
include the initial sales charge, and past performance is not predictive of
future results.
Management maintains a long-term investment perspective and encourages
shareholders to do the same. While the fund may experience volatility from time
to time, the fund's managers believe that its performance will be satisfactory
over the long term.
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions may vary depending on the
date you purchased your shares and any account activity during the month.
21
<PAGE>
FRANKLIN WASHINGTON MUNICIPAL BOND FUND
Period ended November 30, 1994
<TABLE>
<CAPTION>
ONE- SINCE INCEPTION
YEAR (02/26/92)
-------- ----------
<S> <C> <C> <C>
Cumulative Total Return1................................. -9.24% -5.53%
Average Annual Total Return2............................. -13.06% -6.13%
Distribution Rate3 6.17%
Taxable Equivalent Distribution Rate4 10.22%
30-Day Standardized Yield5 6.56%
Taxable Equivalent Yield4 10.86%
</TABLE>
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the current maximum 4.25% initial sales charge stated in the
prospectus. See note below.
3. Distribution rate is based on an annualization of the fund's current 4.7
cent per share monthly dividend and the maximum offering price of $9.14 on
November 30, 1994.
4. Taxable equivalent distribution rate and yield assume the 1994 maximum 39.6%
federal income tax rate.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1994.
Note: Prior to July 1, 1994, the fund's shares were offered at a higher initial
sales charge. Thus, actual total returns for purchasers of shares during that
period would have been somewhat different than noted above. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value. Investment return and principal value will fluctuate with market
conditions and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases distribution rate, yield
and total return to shareholders. Without this waiver, the fund's distribution
rate and total return would have been lower and yield for the period would have
been 5.59%. The fee waiver may be discontinued at any time.
The fund will seek to comply with all federal and state regulations regarding
the payment of tax-exempt income dividends. Investors subject to the federal
alternative minimum tax may find up to 100% of the income dividends subject to
such tax. Distribution of capital gains and of ordinary income from accrued
market discount, if any, are generally taxable. The risks of investing in a
non-diversified fund, such as increased susceptibility to adverse economic or
regulatory developments, are described in the prospectus.
22
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND
NET ASSETS, NOVEMBER 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ARKANSAS MUNICIPAL BOND FUND (NOTE 1)
- - --------- ------------------------------------- -----------
<S> <C> <C>
BONDS 94.3%
$130,000 Arkansas Development Financing Authority, SFMR, MBS Program, Series D, 6.85%,
01/01/27............................................................................ $ 121,118
130,000 Arkansas GO, Refunding, Waste Disposal and Pollution, Series B, 6.25%, 07/01/20 ..... 119,616
100,000 Blytheville Solid Waste Recycling and Sewage Treatment Revenue, Nucor Corp. Project,
6.375%, 01/01/23 ................................................................... 89,559
250,000 Camden Environmental Improvement Revenue, International Paper Co. Project, Series A,
7.625%, 11/01/18 ................................................................... 252,753
130,000 Fort Smith Water and Sewer Revenue, Refunding and Construction, MBIA Insured, 6.00%,
10/01/12............................................................................ 121,111
130,000 bFouke School District No. 15, Refunding and Construction, MBIA Insured, 6.60%,
04/01/19............................................................................ 125,268
125,000 Guam Airport Authority Revenue, Series B, 6.60%, 10/01/10 ........................... 115,860
400,000 Jefferson County PCR, Refunding, Arkansas Power & Light Co., 6.30%, 06/01/18 ........ 357,832
130,000 Little Rock Municipal Airport Revenue, Refunding, MBIA Insured, 6.00%, 11/01/14 ..... 118,869
120,000 Little Rock School District, Refunding, 6.25%, 12/01/07 ............................. 113,477
100,000 Puerto Rico Commonwealth GO, 6.50%, 07/01/23 ........................................ 93,501
100,000 Puerto Rico Commonwealth, Highway & Transportation Authority, Highway Revenue,
Refunding, Series V, 5.75%, 07/01/18 ............................................... 83,657
125,000 Puerto Rico Electric Power Authority Revenue, Series R, 6.25%, 07/01/17 ............. 112,739
125,000 Pulaski County Health Facilities Board Revenue, Refunding, Nazareth Sisters of
Charity, St. Vincent's Infirmary, MBIA Insured, 6.05%, 11/01/09 .................... 119,558
600,000 Pulaski County Public Facilities Board, MFR, Refunding, South Oaks Apartments,
Series A, 6.50%, 10/20/29 .......................................................... 536,825
125,000 University of Southern Arkansas, Student Fees, MBIA Insured, 6.00%, 10/01/13 ........ 116,208
----------
TOTAL BONDS (COST $2,805,354) ................................................. 2,597,951
----------
SHORT TERM INVESTMENTS 3.6%
100,000 aFayetteville IDR, Refunding, Amcast Industrial Corp., Weekly VRDN and Put, 3.80%,
12/01/04 (COST $100,000)............................................................. 100,000
----------
TOTAL INVESTMENTS (COST $2,905,354) 97.9% ................................ 2,697,951
OTHER ASSETS AND LIABILITIES, NET 2.1% ................................... 58,867
----------
NET ASSETS 100.0% ........................................................ $2,756,818
==========
At November 30, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $2,905,354 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .................................................... $ 2,752
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .................................................... (210,155)
-----------
Net unrealized depreciation ....................................................... $ (207,403)
===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
23
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
FRANKLIN ARKANSAS MUNICIPAL BOND FUND
PORTFOLIO ABBREVIATIONS:
GO - General Obligation
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MFR - Multi-Family Revenue
PCR - Pollution Control Revenue
SFMR - Single Family Mortgage Revenue
a Variable rate demand notes (VRDN's) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
b See Note 1(e) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND (NOTE 1)
- - ---------- --------------------------------------------- -----------
<S> <C> <C>
BONDS 93.6%
$1,160,000 Adelanto Improvement Agency, Tax Allocation, Refunding & Improvement Project,
Series C, 7.75%, 12/01/29 ....................................................... $ 1,070,390
500,000 Antioch Improvement Board, 1915 Act, AD No. 27, Series D, 7.30%, 09/02/13 ........ 461,680
1,400,000 Azusa RDA, Refunding, Tax Allocation, Merged Project Area, Series A, 6.75%,
08/01/23......................................................................... 1,251,320
425,000 Beaumont Public Financing Authority Revenue, Sewer Enterprise Project, Series A,
6.90%, 09/01/23 ................................................................. 372,623
1,510,000 Belmont RDA, Tax Allocation, Los Costanos Community Development, Series A, 6.80%,
08/01/24......................................................................... 1,404,964
Benicia 1915 Act, Refunding,
200,000 Fleetside Industrial Park Assessment, 6.80%, 09/02/12 .......................... 178,294
540,000 Fleetside Industrial Park Assessment, 6.90%, 09/02/13 .......................... 480,346
575,000 Fleetside Industrial Park Assessment, 7.00%, 09/02/14 .......................... 510,531
1,800,000 California Health Facilities Financing Authority Revenue, Cedarknoll Insured,
Series B, 7.50%, 08/01/20 ....................................................... 1,809,072
1,800,000 California HFAR, Home Mortgage, Series F-1, 7.00%, 08/01/26 ...................... 1,708,020
90,000 California Special District Association Finance Corp., COP, Series V, 7.50%,
05/01/13......................................................................... 85,444
1,800,000 California Statewide Communities Development Authority Revenue, COP, 7.25%,
12/01/22......................................................................... 1,745,550
1,000,000 Capistrano USD, CFD, Special Tax No. 92-1, 7.00%, 09/01/18 ....................... 889,430
100,000 Contra Costa County Public Financing Authority Revenue, Refunding, 6.875%,
09/02/16......................................................................... 88,476
Daly City 1915 Act,
145,000 Carter-Martin Reassessment District No. 1, 6.00%, 09/02/03 ..................... 134,283
415,000 Carter-Martin Reassessment District No. 1, 6.05%, 09/02/04 ..................... 381,949
440,000 Carter-Martin Reassessment District No. 1, 6.10%, 09/02/05 ..................... 402,635
1,000,000 Fontana Public Financing Authority Revenue, Tax Allocation, North Fontana,
Series B, 6.30%, 01/15/24 ...................................................... 837,240
100,000 Fort Bragg RDAR, Tax Allocation, Fort Bragg Redevelopment Project, Series A,
6.875%, 05/01/18................................................................ 91,104
1,000,000 Gardena COP, Refunding, Civic Center Improvement Projects, 6.30%, 08/01/23 ....... 854,120
2,600,000 Hesperia Public Financing Authority, Improvement Revenue, Series B, 7.375%,
10/01/23........................................................................ 2,350,608
1,500,000 John C. Fremont Hospital District Revenue, California Health Facilities Insured,
6.75%, 06/01/13................................................................. 1,370,310
1,265,000 Lake Elsinore 1915 Act, AD No. 93-1, Series A, 7.90%, 09/02/24 ................... 1,207,873
Long Beach Special Tax,
140,000 CFD No. 2, Long Beach, 7.50%, 09/01/11 ......................................... 140,361
550,000 CFD No. 3, Pine Avenue, 6.25%, 09/01/07 ........................................ 507,738
100,000 Los Angeles County COP, Marina del Rey, Series A, 6.50%, 07/01/08 ................ 92,772
1,150,000 Los Angeles MFR, Refunding, Series J-2, 8.50%, 01/01/24 .......................... 1,044,235
100,000 Merced Irrigation District, COP, Water Facilities Project, 6.40%, 11/01/10 ....... 89,616
1,480,000 Millbrae Elementary School District, COP, Financing Project, 6.90%, 03/01/22 ..... 1,395,226
1,000,000 Novato 1915 Act, Golden Gate Plaza Project No. 93-1, 6.50%, 09/02/19 ............. 843,960
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND (NOTE 1)
- - ------------ --------------------------------------------- -----------
<S> <C> <C>
BONDS (CONT.)
$1,630,000 Orinda 1915 Act, AD No. 94-1, Oak Springs, 8.25%, 09/02/19 ....................... $ 1,584,539
500,000 Perris Public Financing Authority, Local Agency Revenue, Series B, 7.25%, 08/15/23 450,280
500,000 Rialto RDA, Tax Allocation, Agua Mansa Redevelopment Project, 6.75%, 03/01/24 .... 442,910
1,125,000 Richmond Joint Powers Financing Authority, 1915 Act, ID Nos. 851 & 853, Series B,
8.50%, 09/02/19 ................................................................ 1,147,500
100,000 Sacramento County 1915 Act, Refunding, Sunrise/U.S. Corridor Assessment, 7.00%,
09/02/09........................................................................ 93,462
1,000,000 San Bernardino County Financing Authority Revenue, Refunding, Public Improvement,
AD, Series A, 7.00%, 09/02/17 .................................................. 905,470
1,750,000 San Buenaventura COP, Capital Improvement Projects, 6.85%, 08/01/16 .............. 1,652,053
1,000,000 San Francisco City & County Airports Commission, International Airport Revenue,
Second Series, Issue 6, AMBAC Insured, 6.60%, 05/01/24 ......................... 945,580
800,000 San Francisco City & County Revenue, Irwin Memorial Blood Centers, Series A, 6.80%,
12/01/21........................................................................ 708,072
San Joaquin Hills, Transportation Corridor Agency, Toll Road Revenue,
400,000 Senior Lien, 7.00%, 01/01/30 ................................................... 365,728
1,450,000 Senior Lien, 6.75%, 01/01/32 ................................................... 1,288,253
325,000 San Ramon 1915 Act, Fostoria Parkway Reassessment District 93-1, 6.80%, 09/02/15 . 297,391
1,500,000 San Ramon Public Financing Authority, Refunding, Tax Allocation, 6.90%, 02/01/24 . 1,375,710
1,500,000 Santa Rosa 1915 Act, Fountain Grove Parkway Extension Assessment, 7.625%,
09/02/19........................................................................ 1,427,910
1,200,000 Tracy COP, I-205 Corridor Improvement Project, 7.00%, 10/01/27 ................... 1,114,620
-----------
TOTAL BONDS (COST $40,436,363) ............................................. 37,599,648
-----------
aSHORT TERM INVESTMENTS 5.2%
200,000 Irvine 1915 Act, AD No. 89-10, Daily VRDN and Put, 3.35%, 09/02/15 ............... 200,000
Irvine Ranch Water District,
400,000 COP, Capital Improvement Project, Daily VRDN and Put, 3.35%, 08/01/16 .......... 400,000
800,000 Consolidated Bonds, Refunding, Series B, Daily VRDN and Put, 3.40%, 10/01/09 ... 800,000
200,000 ID No. 282, Series A, Daily VRDN and Put, 3.40%, 11/15/13 ...................... 200,000
500,000 Orange County, Various Sanitation Districts, COP Nos. 1, 2, 3, 6, 7 & 11, Series C,
FGIC Insured, Daily VRDN and Put, 3.35%, 08/01/17 .............................. 500,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $2,100,000) ............................. 2,100,000
-----------
TOTAL INVESTMENTS (COST $42,536,363) 98.8% ............................ 39,699,648
OTHER ASSETS AND LIABILITIES, NET 1.2% ................................ 474,381
-----------
NET ASSETS 100.0% ..................................................... $40,174,029
===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
26
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND (NOTE 1)
--------------------------------------------- ---------
<S> <C>
At November 30, 1994, the net unrealized depreciation based on the cost of investments
for income tax purposes of $42,536,363 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost .......................................... $ 39,820
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .......................................... (2,876,535)
------------
Net unrealized depreciation .................................................... $(2,836,715)
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
1915 ACT - Improvement Bond Act of 1915
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CFD - Community Facilities District
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
HFAR - Housing Finance Agency Revenue
ID - Improvement District
MFR - Multi Family Revenue
RDA - Redevelopment Agency
RDAR - Redevelopment Agency Revenue
USD - Unified School District
aVariable rate demand notes (VRDN's) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HAWAII MUNICIPAL BOND FUND (NOTE 1)
- - ------------ ----------------------------------- --------
<S> <C>
BONDS 97.1%
Guam Airport Authority Revenue,
$ 200,000 Series B, 6.60%, 10/01/10 ...................................................... $ 185,376
1,000,000 Series B, 6.70%, 10/01/23 ...................................................... 901,650
280,000 Guam Government Limited Obligation Highway, Refunding, Series A, CGIC Insured,
6.30%, 5/01/12 ................................................................. 265,272
300,000 Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 .......................... 263,814
Hawaii County GO, Refunding & Improvement,
250,000 Series A, FGIC Insured, 5.60%, 05/01/12 ........................................ 220,107
500,000 Series A, FGIC Insured, 5.60%, 05/01/13 ........................................ 436,085
Hawaii State Airport System Revenue,
300,000 Refunding, Third Series 1994, AMBAC Insured, 5.75%, 07/01/09 ................... 269,868
60,000 Second Series 1990, FGIC Insured, 7.50%, 07/01/20 .............................. 61,558
1,520,000 Second Series 1991, 7.00%, 07/01/18 ............................................ 1,470,600
200,000 Second Series 1991, MBIA Insured, 6.75%, 07/01/21 .............................. 192,826
400,000 Second Series 1992, MBIA Insured, 6.90%, 07/01/12 .............................. 399,972
Hawaii State Department Budget & Finance, Special Purpose Mortgage Revenue,
100,000 Hawaii Electric Co., Series A, FGIC Insured, 7.20%, 12/01/14 ................... 98,234
3,200,000 Hawaii Electric Light Co. & Subsidiaries, MBIA Insured, 6.55%, 12/01/22 ........ 3,005,632
1,600,000 Hawaii Electric Light Co. & Subsidiaries, MBIA Insured, 5.45%, 11/01/23 ........ 1,261,328
105,000 Pali Momi Medical Center Project, Pre-Refunded, 7.65%, 07/01/19 ................ 116,008
500,000 Queens Medical Center Project, FGIC Insured, 6.20%, 07/01/22 ................... 451,400
25,000 Refunding, Hawaii Electric Co., 6.875%, 04/01/12 ............................... 24,247
100,000 Refunding, Kaiser Permanente, Series A, 6.25%, 03/01/21 ........................ 88,748
600,000 Refunding, Kapiolani Health Care System, 6.40%, 07/01/13 ....................... 541,590
1,075,000 Refunding, Kapiolani Health Care System, 6.00%, 07/01/19 ....................... 898,292
725,000 Refunding, Queens Medical Center Project, FGIC Insured, 6.50%, 07/01/12 ........ 702,844
1,100,000 Refunding, Wahiawa General Hospital Project, 7.50%, 07/01/12 ................... 1,056,473
1,100,000 St. Francis Medical Centers, CGIC Insured, 6.50%, 07/01/22 ..................... 1,026,817
875,000 Hawaii State Department Transport, Special Facilities Revenue, Refunding, Matson
Terminals, Inc., 5.75%, 03/01/13 ............................................... 744,826
Hawaii State GO,
100,000 Series BT, Pre-Refunded, 6.125%, 02/01/11 ...................................... 100,807
100,000 Series BW, 6.375%, 03/01/11 .................................................... 97,378
100,000 Series CA, 6.00%, 01/01/09 ..................................................... 94,637
Hawaii State Harbor Capital Improvement Revenue,
350,000 Refunding, Series 1992, 6.20%, 07/01/08 ........................................ 334,240
500,000 Refunding, Series 1994, FGIC Insured, 6.375%, 07/01/24 ......................... 458,265
70,000 Series 1990, MBIA Insured, 7.25%, 07/01/10 ..................................... 71,627
80,000 Series 1990, MBIA Insured, 7.00%, 07/01/17 ..................................... 79,994
200,000 Series 1992, FGIC Insured, 6.50%, 07/01/19 ..................................... 189,454
1,100,000 Hawaii State Highway Revenue, 5.00%, 07/01/12 .................................... 889,042
</TABLE>
The accompanying notes are an integral part of these
financial statements.
28
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HAWAII MUNICIPAL BOND FUND (NOTE 1)
- - ----------- ----------------------------------- --------
<S> <C> <C>
BONDS (CONT.)
$2,000,000 Hawaii State Housing Finance & Development Corp., Rental Housing System Revenue,
Refunding, Series A, 5.60%, 07/01/12 ........................................... $ 1,713,920
Hawaii State Housing Finance & Development Corp., SFM Purchase Revenue,
465,000 Series A, 7.10%, 07/01/24 ...................................................... 445,577
2,000,000 Series B, 5.85%, 07/01/17 ...................................................... 1,704,800
Honolulu, Hawaii, City & County,
150,000 Refunding, Series 1992, 6.00%, 12/01/14 ........................................ 137,752
85,000 Series A, 6.30%, 03/01/08 ...................................................... 82,397
100,000 Series A, 6.30%, 03/01/11 ...................................................... 96,065
75,000 Series A, Pre-Refunded, 6.70%, 08/01/07 ........................................ 78,552
100,000 Series A, Pre-Refunded, 6.70%, 08/01/11 ........................................ 104,736
1,000,000 Series B, 6.125%, 06/01/14 ..................................................... 922,630
150,000 Honolulu, Hawaii, City & County, MFHR, Hale Pauahi Project, Series A,
FHA Mortgage Insured, MBIA Insured, 8.70%, 12/01/28 ............................ 157,702
220,000 Kauai County, GO, Refunding, Series C, AMBAC Insured, 5.95%, 08/01/10 ............ 204,532
100,000 Maui County Board, Water Supply Revenue, Series A, FGIC Insured, Pre-Refunded,
6.70%, 12/01/11 ................................................................ 104,897
Maui County GO, Refunding,
50,000 Series 1992, 6.05%, 09/01/07 ................................................... 48,065
300,000 Series 1992, 6.10%, 09/01/08 ................................................... 287,856
350,000 Series B, C, D & E, FGIC Insured, 5.25%, 09/01/06 .............................. 314,962
425,000 Series B, C, D & E, FGIC Insured, 5.00%, 09/01/08 .............................. 359,724
145,000 Puerto Rico Commonwealth, Aqueduct & Sewer Authority Revenue, Series A, 7.00%,
07/01/19........................................................................ 141,020
Puerto Rico Commonwealth, Electric Power Authority Revenue, Refunding,
Water Resources,
60,000 Series O, 7.125%, 07/01/14 ..................................................... 60,430
55,000 Series O, Pre-Refunded, 7.125%, 07/01/14 ....................................... 58,977
500,000 Series U, 6.00%, 07/01/14 ...................................................... 444,695
315,000 Puerto Rico Commonwealth, Highway & Transportation Authority Revenue, Series T,
6.625%, 07/01/18 ............................................................... 299,697
350,000 Puerto Rico Industrial Medical & Environmental Facilities Revenue PCFA, PepsiCo., Inc.
Project, 6.25%, 11/15/13 ....................................................... 329,648
215,000 Puerto Rico PBA, Guaranteed, Public Education & Health Facilities, Series L,
Pre-Refunded, 6.875%, 07/01/21 ................................................. 229,033
325,000 University of Hawaii System Revenue, Series G, AMBAC Insured, 5.70%, 10/01/17 .... 278,805
----------
TOTAL BONDS (COST $28,317,509) ............................................. 25,605,483
----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
29
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN HAWAII MUNICIPAL BOND FUND (NOTE 1)
- - ----------- ----------------------------------- -------------
<S> <C> <C>
aSHORT TERM INVESTMENTS .4%
$ 100,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN
and Put, 3.45%, 12/01/15 (COST $100,000) ....................................... $ 100,000
-----------
TOTAL INVESTMENTS (COST $28,417,509) 97.5% ............................ 25,705,483
OTHER ASSETS AND LIABILITIES, NET 2.5% ................................ 668,785
-----------
NET ASSETS 100.0% ..................................................... $26,374,268
===========
At November 30, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $28,417,509 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost ........................................... $ 43,477
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value ........................................... (2,755,503)
-----------
Net unrealized depreciation .................................................. $(2,712,026)
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
CGIC - Capital Guaranty Insurance Co.
FGIC - Financial Guaranty Insurance Corp.
FHA - Federal Housing Agency/Authority
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
SFM - Single Family Mortgage
aVariable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance plus
accrued interest upon short notice prior to specified dates. The interest rate
may change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these
financial statements.
30
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TENNESSEE MUNICIPAL BOND FUND (NOTE 1)
- - ---------- -------------------------------------- -----------
<S> <C> <C>
BONDS 95.8%
$600,000 Humphreys County IDB, Solid Waste Disposal Revenue, Du Pont (E.I.) De Nemours & Co.
Project, 6.70%, 05/01/24 .......................................................... $ 546,570
100,000 Johnson City Solid Waste, AMBAC Insured, 5.80%, 05/01/09 ............................ 92,193
100,000 Knox-Chapman Utility District, Knox County Water & Sewer Revenue, Refunding,
MBIA Insured, 6.10%, 01/01/19 ..................................................... 89,485
145,000 Knox County Public Improvement, 6.875%, 04/01/14 .................................... 144,443
135,000 Maury County IDB, PCR, Multi-Model, Refunding, Saturn Corp. Project, 6.50%, 09/01/24 120,896
Memphis Health Educational & Housing Facilities Board Mortgage Revenue, Refunding,
150,000 Edgewater Territory, FHA/GNMA Insured, 7.375%, 01/20/27 ........................... 149,523
100,000 MF, River Trace II, Series A, 6.45%, 04/01/26 ..................................... 89,240
100,000 Memphis Sanitary Sewer System Revenue, 5.95%, 10/01/09 .............................. 93,813
100,000 Memphis-Shelby County Airport Authority, Special Facilities & Project Revenues,
Refunding, Federal Express Corp., 6.75%, 09/01/12 ................................. 93,156
100,000 Metropolitan Government of Nashville & Davidson County, Electric Revenue, Refunding,
Series A, 6.00%, 05/15/17 ......................................................... 90,535
145,000 Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured,
6.60%, 07/01/15 ................................................................... 140,402
150,000 bMetropolitan Nashville & Davidson County, Health & Educational Facilities Board
Revenue, Meharry Medical College Project, AMBAC Insured, 6.875%, 12/01/24 ......... 148,400
100,000 Pigeon Forge Public Improvement, MBIA Insured, 5.90%, 06/01/09 ...................... 93,799
100,000 Puerto Rico Commonwealth, Electric Power Authority Revenue, Water Resources, Series R,
6.25%, 07/01/17 ................................................................... 90,191
100,000 Puerto Rico Commonwealth, GO, 6.50%, 07/01/23 ....................................... 93,501
100,000 Shelby County GO, Series A, 5.90%, 03/01/15 ......................................... 89,467
100,000 Sullivan County Health Educational & Housing Facilities Board Revenue, Holston Valley
Health, MBIA Insured, 5.75%, 02/15/13 ............................................. 88,080
Tennessee HDA, Mortgage Finance,
200,000 Series A, 6.90%, 07/01/25 ......................................................... 185,670
300,000 Series B, 6.60%, 07/01/25 ......................................................... 267,771
100,000 Tennessee State Local Development Authority Revenue, Community Provider Pooled Loan
Program, 6.55%, 10/01/23 .......................................................... 88,306
100,000 Tennessee State School Board Authority, Higher Education Facilities, Series A,
6.25%, 05/01/22 ................................................................... 90,343
200,000 Tullahoma IDBR, Refunding, First Mortgage, 6.875%, 06/15/06 ......................... 191,648
100,000 Wilson County COP, Educational Facilities, 6.125%, 06/30/10 ......................... 90,897
----------
TOTAL BONDS (COST $3,391,961) ................................................. 3,168,329
==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
31
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TENNESSEE MUNICIPAL BOND FUND (NOTE 1)
- - ---------- -------------------------------------- ------------
<S> <C> <C>
aSHORT TERM INVESTMENTS 6.0%
$100,000 Bradley County IDBR, Refunding, Olin Corp. Project, Series C, Daily VRDN and Put,
3.55%, 11/01/17.................................................................... $ 100,000
100,000 Tennessee State BAN, Series A, Weekly VRDN and Put, 3.50%, 05/01/96 ................. 100,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $200,000) .................................. 200,000
-----------
TOTAL INVESTMENTS (COST $3,591,961) 101.8% ............................... 3,368,329
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (1.8)% ........................ (60,596)
----------
NET ASSETS 100.0% ........................................................ $3,307,733
==========
</TABLE>
<TABLE>
<S> <C>
At November 30, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $3,591,961 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost .......................................... $ 6,209
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .......................................... (229,841)
-----------
Net unrealized depreciation ..................................................... $ (223,632)
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipation Notes
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Corp.
FHA - Federal Housing Authority/Agency
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
PCR - Pollution Control Revenue
aVariable rate demand notes (VRDN's) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest upon short notice prior to specified dates. The interest rate may
change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
bSee Note 1(e) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these
financial statements.
32
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN WASHINGTON MUNICIPAL BOND FUND (NOTE 1)
- - ---------- --------------------------------------- ---------
<S> <C> <C>
BONDS 96.6%
$100,000 Aberdeen GO, Series A, MBIA Insured, 5.80%, 12/01/12 ................................ $ 88,481
200,000 Bellevue Water & Sewer Revenue, Refunding, 5.875%, 07/01/10 ......................... 181,676
400,000 Conservation & Renewable Energy System Revenue, Washington Conservation Project,
6.50%, 10/01/14 ................................................................... 376,240
100,000 Federal Way Washington GO, Refunding, 5.85%, 12/01/21 ............................... 84,757
100,000 Kent GO, Refunding, AMBAC Insured, 5.60%, 12/01/09................................... 89,089
150,000 Kirkland GO, 5.70%, 12/01/14 ........................................................ 128,040
125,000 Kitsap County School District No. 400, North Kitsap, FGIC Insured, 5.50%, 06/01/13 .. 105,950
175,000 Pierce County EDC Revenue, Solid Waste, Occidental Petroleum Corp., 5.80%, 09/01/29 . 132,753
650,000 Pilchuck Development Public Corp., Special Facilities Revenue, Airport Tramco,
Inc. Project, 6.00%, 08/01/23 ..................................................... 513,604
200,000 Port of Seattle Revenue, Series B, 6.00%, 11/01/17................................... 172,648
100,000 Richland Water & Sewer Improvement Revenue, MBIA Insured, 5.625%, 04/01/12 .......... 84,949
450,000 Seatac GO, MBIA Insured, 6.50%, 12/01/13 ............................................ 429,728
100,000 Seattle Municipal Light & Power Revenue, Series A, 5.75%, 08/01/17................... 84,692
100,000 Seattle Municipality Metropolitan Sewer Revenue, Refunding, Series Y, FGIC Insured,
5.70%, 01/01/15 ................................................................... 86,945
100,000 Spokane County Water District No. 3 Revenue, Refunding, 5.90%, 01/01/14 ............. 89,070
300,000 Stevens County Public Corp., PCR, Refunding, Water Power Co. Project, 6.00%, 12/01/23 243,810
100,000 Tacoma Refuse Utility Revenue, AMBAC Insured, 7.00%, 12/01/19 ....................... 99,647
500,000 University of Washington, Aluminum Association, Lease Revenue, Roosevelt University
Medical Center, CGIC Insured, 6.30%, 08/15/14 ....................................... 463,840
100,000 Washington State COP, Office Building Project, Series A, MBIA Insured, 6.00%, 04/01/12 89,489
100,000 Washington State GO, Series 1993-A, 5.75%, 10/01/17.................................. 85,847
Washington State Health Care Facilities Authority Revenue,
110,000 Children's Hospital & Medical Center, FGIC Insured, 6.125%, 10/01/13 .............. 100,539
100,000 Harrison Memorial Hospital, AMBAC Insured, 5.40%, 08/15/23 ........................ 78,774
100,000 Multicare Medical Center, FGIC Insured, 5.75%, 08/15/22 ........................... 83,206
150,000 Refunding, Dominican Health Services, Connie Lee Insured, 5.75%, 06/01/13 ......... 128,097
125,000 Refunding, Franciscan Health, St. Joseph Hospital, MBIA Insured, 5.625%, 01/01/13 . 106,725
150,000 Refunding, Northwest Hospital, AMBAC Insured, 5.75%, 11/15/23 ..................... 124,467
---------
TOTAL BONDS (COST $4,849,676) ................................................. 4,253,063
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, NOVEMBER 30, 1994
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN WASHINGTON MUNICIPAL BOND FUND (NOTE 1)
---------
<S> <C>
aSHORT TERM INVESTMENTS 2.3%
$100,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly VRDN and
Put, 3.45%, 12/01/15 (COST $100,000) .............................................. $ 100,000
----------
TOTAL INVESTMENTS (COST $4,949,676) 98.9% ................................ 4,353,063
OTHER ASSETS AND LIABILITIES, NET 1.1% ................................... 48,735
----------
NET ASSETS 100.0% ........................................................ $4,401,798
==========
</TABLE>
<TABLE>
<S> <C>
At November 30, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $4,949,676 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ........................................... $ 2,516
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ............................................ (599,129)
----------
Net unrealized depreciation ..................................................... $ (596,613)
==========
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDC - Economic Development Corp.
FGIC - Financial Guaranty Insurance Corp.
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
aVariable rate demand notes (VRDN's) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance plus
accrued interest upon short notice prior to specified dates. The interest rate
may change on specified dates in relationship with changes in a designated rate
(such as the prime interest rate or U.S. Treasury bills rate).
The accompanying notes are an integral part of these
financial statements.
34
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARKANSAS CALIFORNIA HAWAII TENNESSEE WASHINGTON
MUNICIPAL HIGH YIELD MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND MUNICIPAL FUND BOND FUND BOND FUND BOND FUND
----------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost........................... $2,905,354 $42,536,363 $28,417,509 $3,591,961 $4,949,676
========== =========== =========== ========== ==========
At value..................................... 2,697,951 39,699,648 25,705,483 3,368,329 4,353,063
Cash.......................................... 72,643 144,679 76,837 158,385 21,271
Receivables:
Interest..................................... 53,453 809,817 639,751 64,704 103,042
Capital shares sold.......................... 67,036 171,716 32,393 19,156 --
Prepaid expenses.............................. 304 -- 11 403 --
Unamortized organization cost (Note 2)........ -- -- 3,271 -- --
---------- ----------- ----------- ---------- ----------
Total assets............................. 2,891,387 40,825,860 26,457,746 3,610,977 4,477,376
---------- ----------- ----------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular Delivery............................ -- -- -- 153,733 --
When-issued basis (Note 1).................. 129,010 -- -- 143,202 --
Capital shares repurchased................... -- 560,062 18,500 -- 65,205
Distributions payable to shareholders........ 4,217 63,408 36,936 4,952 6,404
Distribution fees............................ 1,342 28,361 24,771 1,357 3,969
Payable to advisor for organization costs.... -- -- 3,271 -- --
---------- ----------- ----------- ---------- ----------
Total liabilities........................ 134,569 651,831 83,478 303,244 75,578
---------- ----------- ----------- ---------- ----------
Net assets, at value........................... $2,756,818 $40,174,029 $26,374,268 $3,307,733 $4,401,798
========== =========== =========== ========== ==========
Net assets consist of:
Undistributed net investment income........... $ 27,659 $ 45,202 $ 106,927 $ 33,501 $ 35,254
Unrealized depreciation on investments........ (207,403) (2,836,715) (2,712,026) (223,632) (596,613)
Accumulated net realized loss................. (41,301) (1,446,516) (404,802) (239) (77,273)
Capital shares................................ 2,977,863 44,412,058 29,384,169 3,498,103 5,040,430
---------- ----------- ----------- ---------- ----------
Net assets, at value........................... $2,756,818 $40,174,029 $26,374,268 $3,307,733 $4,401,798
========== =========== =========== ========== ==========
Shares outstanding............................. 298,492 4,408,604 2,765,302 351,603 503,317
========== =========== =========== ========== ==========
Net asset value per share...................... $9.24 $9.11 $9.54 $9.41 $8.75
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARKANSAS CALIFORNIA HAWAII TENNESSEE WASHINGTON
MUNICIPAL HIGH YIELD MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND MUNICIPAL FUND BOND FUND BOND FUND BOND FUND
---------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest (Note 1)................................ $ 68,903 $ 1,257,155 $ 842,897 $ 79,410 $ 139,173
---------- ----------- ---------- --------- ---------
Expenses:
Distribution fees (Note 6)....................... 1,306 16,332 13,571 1,320 2,235
---------- ----------- ---------- --------- ---------
Net investment income....................... 67,597 1,240,823 829,326 78,090 136,938
---------- ----------- ---------- --------- ---------
Realized and unrealized loss on investments:
Net realized loss................................ (41,301) (1,079,923) (234,187) (238) (46,200)
Net unrealized depreciation during the period.... (218,061) (1,474,898) (2,032,038) (245,289) (346,688)
---------- ----------- ---------- --------- ---------
Net realized and unrealized loss on investments... (259,362) (2,554,821) (2,266,225) (245,527) (392,888)
---------- ----------- ---------- --------- ---------
Net decrease in net assets resulting from
operations.................................... $(191,765) $(1,313,998) $(1,436,899) $(167,437) $(255,950)
---------- ----------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1994
(UNAUDITED) AND THE PERIODS ENDED MAY 31, 1994
(AS DESCRIBED IN THE COLUMN HEADINGS)
<TABLE>
<CAPTION>
FRANKLIN ARKANSAS FRANKLIN CALIFORNIA HIGH FRANKLIN HAWAII
MUNICIPAL BOND FUND YIELD MUNICIPAL FUND MUNICIPAL BOND FUND
------------------------ ----------------------- ----------------------
SIX MONTHS 5/10/94 SIX MONTHS SIX MONTHS
ENDED (EFFECTIVE DATE) ENDED YEAR ENDED ENDED YEAR ENDED
11/30/94 TO 5/31/94 11/30/94 5/31/94 11/30/94 5/31/94
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........ $ 67,597 $ 2,543 $ 1,240,823 $ 1,094,853 $ 829,326 $ 1,401,468
Net realized loss from
security transactions........ (41,301) -- (1,079,923) (339,852) (234,187) (159,863)
Net unrealized appreciation
(depreciation) during
the period................... (218,061) 10,658 (1,474,898) (1,350,386) (2,032,038) (1,254,988)
---------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations........ (191,765) 13,201 (1,313,998) (595,385) (1,436,899) (13,383)
Distributions to shareholders
from Undistributed net
investment income............. (42,481) -- (1,195,284) (1,102,059) (800,918) (1,334,899)
Net realized capital gains..... -- -- -- (25,621) -- --
Increase in net assets from
capital share transactions
(Note 3)...................... 777,863 2,200,000 10,745,008 31,416,649 1,708,025 9,595,395
---------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets.......... 543,617 2,213,201 8,235,726 29,693,584 (529,792) 8,247,113
Net assets:
Beginning of period........... 2,213,201 -- 31,938,303 2,244,719 26,904,060 18,656,947
---------- ---------- ----------- ----------- ----------- -----------
End of period................ $2,756,818 $2,213,201 $40,174,029 $31,938,303 $26,374,268 $26,904,060
========== ========== =========== =========== =========== ===========
Undistributed net investment
income included in net assets:
Beginning of period.......... $ 2,543 -- $ (337) $ 6,869 $ 78,519 $ 11,950
========== ========== =========== =========== =========== ===========
End of period................ $ 27,659 $ 2,543 $ 45,202 $ (337) $ 106,927 $ 78,519
========== ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
37
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1994 (UNAUDITED)
AND THE PERIODS ENDED MAY 31, 1994
(AS DESCRIBED IN THE COLUMN HEADINGS)
<TABLE>
<CAPTION>
FRANKLIN TENNESSEE FRANKLIN WASHINGTON
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------ -----------------------
SIX MONTHS 5/10/94 SIX MONTHS
ENDED (EFFECTIVE DATE) ENDED YEAR ENDED
11/30/94 TO 5/31/94 11/30/94 5/31/94
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income...................................... $ 78,090 $ 2,413 $ 136,938 $ 202,419
Net realized loss from security transactions............... (238) (1) (46,200) (26,074)
Net unrealized appreciation (depreciation) during the
period .................................................. (245,289) 21,657 (346,688) (241,899)
---------- ---------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations........................................... (167,437) 24,069 (255,950) (65,554)
Distributions to shareholders from
Undistributed net investment income......................... (47,002) -- (132,793) (177,395)
Net realized capital gains.................................. -- -- -- (4,999)
Increase in net assets from capital share transactions
(Note 3) .................................................. 1,298,103 2,200,000 518,273 2,322,157
---------- ---------- ---------- ----------
Net increase in net assets............................. 1,083,664 2,224,069 129,530 2,074,209
Net assets:
Beginning of period......................................... 2,224,069 -- 4,272,268 2,198,059
---------- ---------- ---------- ----------
End of period............................................... $3,307,733 $2,224,069 $4,401,798 $4,272,268
========== ========== ========== ==========
Undistributed net investment income included in net assets:
Beginning of period......................................... $ 2,413 -- $ 31,109 $ 6,085
========== ========== ========== ==========
End of period............................................... $ 33,501 $ 2,413 $ 35,254 $ 31,109
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
38
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Municipal Securities Trust (the Trust) is an open-end management
investment company (mutual fund) registered under the Investment Company Act of
1940 as amended. The Trust currently operates five separate non-diversified
funds (the Funds), consisting of the Franklin Arkansas Municipal Bond Fund (the
Arkansas Fund), Franklin California High Yield Municipal Fund (the California
High Yield Fund), Franklin Hawaii Municipal Bond Fund (the Hawaii Fund),
Franklin Tennessee Municipal Bond Fund (the Tennessee Fund), and Franklin
Washington Municipal Bond Fund (the Washington Fund). Each of the Funds issues
a separate series of the Trust's shares and maintains a totally separate
investment portfolio.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATION:
Tax-free bonds generally trade in the over-the-counter market rather than on a
national securities exchange. Often there are no transactions in a particular
security on any given day. In the absence of a recorded sale or reported bid
and asked prices, information with respect to bond and note transactions,
quotations from bond dealers, market transactions in comparable securities,
and various relationships between securities are used to determine the value
of the security. The Trust may also utilize a pricing service, bank or
broker/dealer experienced in such matters to perform any of the pricing
functions, under procedures approved by the Board of Trustees. Short-term
securities and similar investments with remaining maturities of 60 days or
less are valued at amortized cost, which approximates value.
B. INCOME TAXES:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is
required.
Each Fund is treated as a separate entity in the determination of compliance
with the Internal Revenue Code.
C. SECURITY TRANSACTIONS:
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses on security
transactions are determined on the basis of specific identification for both
financial statement and income tax purposes.
D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount and premium, if
any, are amortized as required by the Internal Revenue Code. The Fund normally
declares dividends from its net investment income daily and distributes
monthly. Daily allocations of net investment income will commence on the date
of receipt of an investor's funds. Dividends are normally declared each day
the New York Stock Exchange is open for business equal to an amount per day
set from time to time by the Board of Trustees, and are payable to
shareholders of record at the beginning of business on the ex-date. Once each
month, dividends are reinvested in additional shares of the Funds, or paid in
cash as requested by the shareholders.
E. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS:
The Trust may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Trust will generally purchase these securities with the intention of acquiring
such securities, they may sell such securities before the settlement date. These
securities are identified on the accompanying statement of investments in
securities and net assets. The Trust has set aside sufficient investment
securities as collateral for these purchase commitments.
39
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. EXPENSE ALLOCATION:
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. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Hawaii Fund are amortized on a straight-line
basis over a period of five years from February 26, 1992 (the effective date
of registration under the Securities Act of 1933). In the event Franklin
Resources, Inc. (which was the sole shareholder prior to February 26, 1992)
redeems its shares within the five-year period, the pro rata share of the then-
unamortized deferred organization costs will be deducted from the redemption
price paid to Franklin Resources, Inc. New investors purchasing shares of the
Hawaii Fund subsequent to that date bear such costs during the amortization
period only as such charges are accrued daily against investment income.
Franklin Advisers, Inc. had advanced all of the organization costs of the
Hawaii Fund, which approximated $7,269. In an effort to reduce the Fund's
expenses, Franklin Advisers, Inc. waived repayment of the amount of the
current period's amortization of $727. The remaining unamortized balance of
such costs at November 30, 1994 was $3,271.
3. TRUST SHARES
At November 30, 1994, there were an unlimited number of no par value shares of
beneficial interest authorized. Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN ARKANSAS FRANKLIN CALIFORNIA FRANKLIN HAWAII
MUNICIPAL BOND FUND HIGH YIELD MUNICIPAL FUND MUNICIPAL BOND FUND
------------------- ------------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended November 30, 1994
Shares sold............................. 65,010 $ 641,887 797,090 $ 7,629,320 240,279 $ 2,434,166
Shares issued in reinvestment of
distributions.......................... 3,693 35,503 45,594 433,566 45,562 459,060
Shares redeemed......................... (1,984) (18,212) (145,549) (1,367,077) (176,499) (1,794,118)
Changes from exercise of exchange
privilege:
Shares sold........................... 12,268 123,629 723,584 6,813,634 86,263 878,922
Shares redeemed....................... (495) (4,944) (295,482) (2,764,435) (27,902) (270,005)
------- ---------- --------- ----------- ------- -----------
Net increase....................... 78,492 $ 777,863 1,125,237 $10,745,008 167,703 $ 1,708,025
======= ========== ========= =========== ======= ===========
Year Ended May 31, 1994+
Shares sold............................. 220,000 $2,200,000 2,507,494 $25,732,228 943,538 $10,385,467
Shares issued in reinvestment of
distributions.......................... -- -- 51,770 523,496 70,151 764,282
Shares redeemed......................... -- -- (181,366) (1,829,597) (218,807) (2,362,214)
Changes from exercise of exchange
privilege:
Shares sold........................... -- -- 897,709 9,167,457 127,875 1,386,820
Shares redeemed....................... -- -- (217,294) (2,176,935) (53,402) (578,960)
------- ---------- --------- ----------- ------- -----------
Net increase....................... 220,000 $2,200,000 3,058,313 $31,416,649 869,355 $ 9,595,395
======= ========== ========= =========== ======= ===========
</TABLE>
+For the Arkansas Fund and the Tennessee Fund, period May 10, 1994 (effective
date of registration) to May 31, 1994.
40
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
3. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN TENNESSEE FRANKLIN WASHINGTON
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Six months ended November 30, 1994
Shares sold.............................................. 84,673 $ 843,139 38,191 $ 347,836
Shares issued in reinvestment of distributions........... 3,834 37,236 10,770 99,759
Shares redeemed......................................... -- -- (13,983) (122,441)
Changes from exercise of exchange privilege:
Shares sold............................................ 43,096 417,728 22,217 204,831
Shares redeemed......................................... -- -- (1,240) (11,712)
------- ---------- ------- ----------
Net increase....................................... 131,603 $1,298,103 55,955 $ 518,273
======= ========== ======= ==========
Year Ended May 31, 1994+
Shares sold............................................. 220,000 $2,200,000 183,326 $1,875,000
Shares issued in reinvestment of distributions.......... -- -- 13,870 140,305
Shares redeemed......................................... -- -- (1,102) (10,931)
Changes from exercise of exchange privilege:
Shares sold............................................ -- -- 32,417 329,194
Shares redeemed........................................ -- -- (1,149) (11,411)
------- ---------- ------- ----------
Net increase....................................... 220,000 $2,200,000 227,362 $2,322,157
======= ========== ======= ==========
</TABLE>
+For the Arkansas Fund and the Tennessee Fund, period May 10, 1994 (effective
date of registration) to May 31, 1994.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At May 31, 1994, for tax purposes, the Trust had capital loss carryovers as
follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARKANSAS CALIFORNIA HAWAII TENNESSEE WASHINGTON
MUNICIPAL HIGH YIELD MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND MUNICIPAL FUND* BOND FUND BOND FUND BOND FUND**
---------- --------------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Capital loss carryover expiring:
2001..................................... $ -- $ -- $ 10,752 $ -- $ --
2002..................................... -- -- 159,863 1 --
----- ----- -------- ----- -----
$ -- $ -- $170,615 $ 1 $ --
===== ===== ======== ===== =====
</TABLE>
*The California High Yield Fund has a deferred capital loss of $366,593, deemed
to be incurred on the first day of the following fiscal year.
**The Washington
Fund has a deferred capital loss of $31,073, deemed to be incurred on the
first day of the following fiscal year.
For income tax purposes, the aggregate cost of securities and unrealized
depreciation of the Trust are the same as for financial reporting purposes at
November 30, 1994.
41
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the period ended November 30, 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARKANSAS CALIFORNIA HAWAII TENNESSEE WASHINGTON
MUNICIPAL HIGH YIELD MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND MUNICIPAL FUND BOND FUND BOND FUND BOND FUND
----------- -------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Purchases......................................... $3,708,623 $19,829,747 $4,281,161 $2,294,746 $1,049,155
========== =========== ========== ========== ==========
Sales............................................. $1,988,794 $10,672,088 $2,972,331 $ 571,756 $ 562,569
========== =========== ========== ========== ==========
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc. ("Manager"), under the terms of a management agreement,
provides investment advice, office space and facilities to each Fund, and
receives fees computed monthly based on the average daily net assets of each
Fund at an annual rate of 5/8 of 1% of the first $100 million of net assets;
1/2 of 1% on net assets in excess of $100 million up to and including $250
million; and 45/100 of 1% of net assets in excess of $250 million. The terms
of the management agreement provide that annual aggregate expenses of the
Funds be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations, and administrative interpretations of the
states in which the Funds' shares are registered. The Funds' expenses did not
exceed these limitations; however, for the period ended November 30, 1994,
Franklin Advisers, Inc. agreed in advance to waive management fees and made
payments for other expenses which are not reflected in the Statements of
Operations as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARKANSAS CALIFORNIA HAWAII TENNESSEE WASHINGTON
MUNICIPAL HIGH YIELD MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND MUNICIPAL FUND BOND FUND BOND FUND BOND FUND
--------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Management fees........................................ $8,195 $113,066 $84,983 $8,372 $13,899
====== ======== ======= ====== =======
Other expenses......................................... $7,164 $ 41,778 $39,036 $7,443 $ 9,762
====== ======== ======= ====== =======
</TABLE>
In its capacity as underwriter for the shares of the Funds, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Trust's shares.
Commissions received by Franklin/Templeton Distributors, Inc. and the amounts
which were subsequently paid to other dealers for the period ended November 30,
1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARKANSAS CALIFORNIA HAWAII TENNESSEE WASHINGTON
MUNICIPAL HIGH YIELD MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND MUNICIPAL FUND BOND FUND BOND FUND BOND FUND
--------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total commissions received............................. $27,785 $255,822 $95,091 $35,971 $12,165
======= ======== ======= ======= =======
Paid to other dealers.................................. $27,456 $235,843 $88,120 $35,636 $11,379
======= ======== ======= ======= =======
</TABLE>
Commissions are deducted from the gross proceeds received from the sale of the
Trust's shares, and as such are not expenses of the Funds.
Under the terms of a Distribution Agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Hawaii Fund will reimburse Franklin/
Templeton Distributors, Inc., in an amount up to 0.10% per annum of its
average daily net assets while the Arkansas Fund, California High Yield Fund,
Tennessee Fund and Washington Fund will reimburse up to 0.15% per annum of the
Funds' average daily net assets for costs incurred in the promotion, offering
and marketing of the Funds' shares.
42
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Distribution fees incurred by the Arkansas Fund, California High Yield Fund,
Hawaii Fund, Tennessee Fund and Washington Fund under the agreements aggregated
$1,306, $16,332, $13,571, $1,320 and $2,235, respectively, for the period ended
November 30, 1994.
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc., the Trust pays costs on a per shareholder account
basis. Shareholder servicing costs incurred by the Funds for the period ended
November 30, 1994 aggregated $7,072, all of which was paid by Franklin
Advisers, Inc.
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
At November 30, 1994, Franklin Resources, Inc. owned 75%, 64% and 47% of the
Arkansas Fund, Tennessee Fund and Washington Fund, respectively.
7. CREDIT RISKS
Although each of the Funds has a diversified investment portfolio, all of its
investments are in the securities of issuers within its respective state, Guam
and Puerto Rico. Such concentration may subject the Funds more significantly to
economic changes occurring within those states, Guam and Puerto Rico.
8. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods, by fund, are as follows:
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------
DISTRI- DISTRI-
NET ASSET NET REALIZED BUTIONS BUTIONS NET ASSET
PERIOD VALUE AT NET & UNREALIZED TOTAL FROM FROM NET FROM TOTAL VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT CAPITAL DISTRI- AT END TOTAL
MAY 31 OF PERIOD INCOME ON SECURITIES OPERATIONS INCOME GAINS BUTIONS OF PERIOD RETURN++
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FRANKLIN ARKANSAS MUNICIPAL BOND FUND
1994(1) $10.00 $.01 $ .050 $.060 -- -- -- $10.06 .60%
1994(4) 10.06 .23 (.898) (.668) (.152) -- (.152) 9.24 (6.68)
FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
1993(2) 10.00 .03 (.060) (.030) -- -- -- 9.97 (3.60)*
1994 9.97 .53 (.199) .331 (.558) (.013) (.571) 9.73 3.22
1994(4) 9.73 .33 (.632) (.302) (.318) -- (.318) 9.11 (3.19)
FRANKLIN HAWAII MUNICIPAL BOND FUND
1992(3) 10.00 .09 .158 .248 (.068) -- (.068) 10.18 8.96*
1993 10.18 .63 .634 1.264 (.644) -- (.644) 10.80 12.77
1994 10.80 .62 (.459) .161 (.601) -- (.601) 10.36 1.35
1994(4) 10.36 .31 (.830) (.520) (.300) -- (.300) 9.54 (5.13)
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
1994(1) 10.00 .01 .100 .110 -- -- -- 10.11 1.10
1994(4) 10.11 .24 (.781) (.541) (.159) -- (.159) 9.41 (5.39)
FRANKLIN WASHINGTON MUNICIPAL BOND FUND
1993(2) 10.00 .03 (.040) (.010) -- -- -- 9.99 (1.20)*
1994 9.99 .51 (.464) .046 (.472) (.014) (.486) 9.55 2.88
1994(4) 9.55 .28 (.801) (.521) (.279) -- (.279) 8.75 (5.57)
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------
RATIO OF RATIO OF
EXPENSES NET
NET ASSETS TO AVERAGE INVESTMENT
AT END NET ASSETS INCOME PORTFOLIO
OF PERIOD (SEE TO AVERAGE TURNOVER
(IN 000'S) NOTE 6)** NET ASSETS RATES
-------------------------------------------------------
<C> <C> <C> <C>
FRANKLIN ARKANSAS MUNICIPAL BOND FUND
1994(1) $ 2,213 .03%* 2.00%* --%
1994(4) 2,757 .10* 5.17* 91.29
FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
1993(2) 2,245 -- 3.85* 8.89
1994 31,938 .07 6.14 40.74
1994(4) 40,174 .09* 6.88* 33.94
FRANKLIN HAWAII MUNICIPAL BOND FUND
1992(3) 2,978 -- 4.55* --
1993 18,657 -- 5.95 48.70
1994 26,904 .05 5.76 31.35
19944 26,374 .10* 6.12* 12.12
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
1994(1) 2,224 .03* 1.89* 22.64
1994(4) 3,308 .10* 5.82* 23.13
FRANKLIN WASHINGTON MUNICIPAL BOND FUND
1993(2) 2,198 -- 3.44* --
1994 4,272 .05 5.59 39.52
1994(4) 4,402 .10* 6.18* 13.94
</TABLE>
43
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.)
8. FINANCIAL HIGHLIGHTS (CONT.)
*Annualized
1For the period May 10, 1994 (effective date of registration) to May 31, 1994.
2For the period May 3,1993 (effective date of registration) to May 31, 1993.
3For the period February 26, 1992 (effective date of registration) to May 31,
1992.
4For the six months ended November 30, 1994.
++Total return measures the change in value of an investment over the period
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.
**During the periods indicated, the investment manager agreed to waive in
advance a portion of its management fees and made payments of other expenses
incurred by the Funds in the Trust. Had such action not been taken, the ratios
of operating expenses to average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
<S> <C>
FRANKLIN ARKANSAS MUNICIPAL BOND FUND
1994(1)......................................... 1.20%*
1994(4)......................................... 1.28*
FRANKLIN CALIFORNIA
HIGH YIELD MUNICIPAL FUND
1993(2)......................................... 1.42*
1994............................................ .87
1994(4)......................................... .96*
FRANKLIN HAWAII MUNICIPAL BOND FUND
1992(3)......................................... 1.57*
1993............................................ 1.06
1994............................................ .92
1994(4)......................................... 1.01*
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
FRANKLIN TENNESSEE MUNICIPAL BOND FUND
1994(1)......................................... 1.05*
1994(4)......................................... 1.28*
FRANKLIN WASHINGTON
MUNICIPAL BOND FUND
1993(2)......................................... 1.44*
1994............................................ .71
1994(4)......................................... 1.17*
</TABLE>
44
<PAGE>
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<PAGE>
[This page intentionally left blank.]
<PAGE>
THE FRANKLIN/TEMPLETON GROUP
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before
you invest or send money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be determined by the presence of a regular beeping
tone.
TEMPLETON
GROUP OF FUNDS
Americas Government
Securities Fund
Developing Markets Trust
Foreign Fund
Global Infrastructure Fund
Global Opportunities Trust
Global Rising
Dividends Fund
Growth Fund
Income Fund
Real Estate
Securities Fund
Smaller Companies
Growth Fund
World Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Tax-Free
Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free
Income Fund***
Puerto Rico Tax-Free
Income Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
FRANKLIN FUNDS SEEKING
CAPITAL GROWTH
California Growth Fund
DynaTech Fund
Equity Fund
Global Health Care Fund
Gold Fund
Growth Fund
International Equity Fund
Japan Fund
Pacific Growth Fund
Real Estate
Securities Fund
Small Cap Growth Fund
FRANKLIN FUNDS SEEKING
GROWTH AND INCOME
Balance Sheet
Investment Fund
Convertible
Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Premier Return Fund
Rising Dividends Fund
Utilities Fund
FRANKLIN FUNDS SEEKING
HIGH CURRENT INCOME
AGE High Income Fund
German Government
Bond Fund
Global Government
Income Fund
Investment Grade
Income Fund
U.S. Government
Securities Fund
FRANKLIN FUNDS SEEKING
HIGH CURRENT INCOME
AND STABILITY OF PRINCIPAL
Adjustable Rate
Securities Fund
Adjustable U.S.
Government
Securities Fund
Short-Intermediate
U.S. Government
Securities Fund
FRANKLIN FUNDS FOR
NON-U.S. INVESTORS
Tax-Advantaged
High Yield Securities Fund
Tax-Advantaged
International Bond Fund
Tax-Advantaged
U.S. Government
Securities Fund
FRANKLIN/TEMPLETON
GLOBAL CURRENCY FUNDS
Global Currency Fund
High Income
Currency Fund
Hard Currency Fund
FRANKLIN MONEY
MARKET FUNDS
Money Fund
Federal Money fund
Tax-Exempt Money Fund
California Tax-Exempt
Money Fund
IFT U.S. Treasury Money
Market Portfolio
FRANKLIN FUND
FOR CORPORATIONS
Corporate Qualified
Dividend Fund
FRANKLIN TAX-DEFERRED
ANNUITY
Valuemark
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
<PAGE>
FRANKLIN MUNICIPAL SECURITIES TRUST
Semi-Annual Report
November 30, 1994
Franklin Arkansas Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Hawaii Municipal Bond Fund
Frnaklin Tennessee Municipal Bond Fund
Franklin Washington Municipal Bond Fund
---------------------
Franklin Municipal Securities Trust Bulk Rate
777 Mariners Island Blvd., P.O. Box 7777 U.S. Postage
San Mateo, CA 94403-7777 PAID
- - ---------------------------------------- So. San Francisco, CA
Permit No. 655
Address Correction Requested ---------------------
Semi-Annual Report
Investment Manager
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404-1585
Distributor
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404-1585
Shareholder Services Agent
Frnaklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94403-7777
1-800/632-2301
This report is intended for distribution to existing shareholders of the Trust
who previously received a prospectus.
MST S94 1/95
Franklin Templeton
APPENDIX
- - ----------
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
THIS CHART SHOWS IN PIE CHART FORMAT THE FUND'S SECURITIES BREAKDOWN BY BOND
TYPE AS A PERCENTAGE OF THE FUND'S TOTAL NET ASSETS.
<TABLE>
<CAPTION>
SECTOR BREAKDOWN ON 11/30/94
<S> <C>
HOUSING 25.4%
UTILITIES 26.2%
EDUCATION 13.7%
HOSPITALS 4.6%
TRANSPORTATION 12.2%
GENERAL OBLIGATIONS 8.2%
INDUSTRIAL 9.7%
TOTAL 100.0%
</TABLE>
GRAPHIC MATERIAL (2)
THIS BAR CHART SHOWS THE COMPARISON BETWEEN THE FUND'S DISTRIBUTION RATE OF
5.97% AND THE TAXABLE EQUIVALENT RATE OF 10.62%.
GRAPHIC MATERIAL (3)
THIS CHART SHOWS IN PIE CHART FORMAT THE FUND'S SECURITIES BREAKDOWN BY BOND
TYPE AS A PERCENTAGE OF THE FUND'S TOTAL NET ASSETS.
<TABLE>
<CAPTION>
SECTOR BREAKDOWN ON 11/30/94
<S> <C>
HOUSING 7.0%
EDUCATION 3.6%
HOSPITALS 5.3%
TRANSPORTATION 6.6%
UTILITIES 0.8%
TAX ALLOCATION BOND 20.8%
MELLO-ROOS BONDS 5.1%
MARKS-ROOS BONDS 6.2%
SPECIAL ASSESSMENT BONDS (1915 ACT) 25.6%
OTHER REVENUE 0.5%
CERTIFICATES OF PARTICIPATION 13.9%
HEALTHCARE 4.6%
TOTAL 100.0%
</TABLE>
GRAPHIC MATERIAL (4)
THIS BAR CHART SHOWS THE COMPARISON BETWEEN THE FUND'S DISTRIBUTION RATE OF
6.69% AND THE TAXABLE EQUIVALENT RATE OF 12.43%.
GRAPHIC MATERIAL (5)
THIS CHART SHOWS IN PIE CHART FORMAT THE FUND'S SECURITIES BREAKDOWN BY BOND
TYPE AS A PERCENTAGE OF THE FUND'S TOTAL NET ASSETS.
<TABLE>
<CAPTION>
SECTOR BREAKDOWN ON 11/30/94
<S> <C>
HOUSING 15.7%
EDUCATION 1.1%
UTILITIES 21.0%
HOSPITALS 18.6%
INDUSTRIAL 4.2%
TRANSPORTATION 23.7%
GENERAL OBLIGATIONS 12.8%
PRE-REFUNDED 2.9%
</TABLE>
GRAPHIC MATERIAL (6)
THIS BAR CHART SHOWS THE COMPARISONBETWEEN THE FUND'S DISTRIBUTION RATE OF
6.02% AND THE TAXABLE EQUIVALENT RATE OF 11.07%.
GRAPHIC MATERIAL (7)
THIS CHART SHOWS IN PIE CHART FORMAT THE FUND'S SECURITIES BREAKDOWN BY BOND
TYPE AS A PERCENTAGE OF THE FUND'S TOTAL NET ASSETS.
<TABLE>
<CAPTION>
SECTOR BREAKDOWN ON 11/30/94
<S> <C>
HOUSING 17.9%
OTHER REVENUE 2.9%
EDUCATION 5.9%
UTILITIES 33.4%
HOSPITALS 7.8%
INDUSTRIAL 10.4%
GENERAL OBLIGATIONS 11.0%
CERTIFICATES OF PARTICIPATION 3.0%
TRANSPORTATION 7.7%
TOTAL 100.0%
</TABLE>
GRAPHIC MATERIAL (8)
THIS BAR CHART SHOWS THE COMPARISON BETWEEN THE FUND'S DISTRIBUTION RATE OF
5.98% AND THE TAXABLE EQUIVALENT RATE OF 10.53%.
GRAPHIC MATERIAL (9)
THIS CHART SHOWS IN PIE CHART FORMAT THE FUND'S SECURITIES BREAKDOWN BY BOND
TYPE AS A PERCENTAGE OF THE FUND'S TOTAL NET ASSETS.
<TABLE>
<CAPTION>
SECTOR BREAKDOWN ON 11/30/94
<S> <C>
EDUCATION 13.4%
TRANSPORTATION 4.1%
UTILITIES 29.3%
HOSPITALS 14.6%
INDUSTRIAL 15.2%
CERTIFICATES OF PARTICIPATION 2.1%
GENERAL OBLIGATIONS 21.3%
TOTAL 100.0%
</TABLE>
GRAPHIC MATERIAL (10)
THIS BAR CHART SHOWS THE COMPARISON BETWEEN THE FUND;S DISTRIBUTION RATE OF
6.17% AND THE TAXABLE EQUIVALENT RATE OF 10.22%.
<PAGE>
