SEMI
ANNUAL
REPORT
November 30, 1997
Franklin Municipal Securities Trust
Franklin Arkansas Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Hawaii Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Washington Municipal Bond Fund
Thank you for investing with Franklin Templeton. We encourage our investors
to maintain a long-term perspective, and to expect that mixed in with the
good years can be some bad years. It's important to remember that all
securities markets move both up and down, as do mutual fund share prices. We
appreciate your past support and look forward to serving your investment
needs in the years ahead.
Charles B. Johnson
Chairman
Franklin Municipal Securities Trust
Thomas J. Kenny
Director
Franklin Municipal
Bond Department
CONTENTS
Shareholder Letter............ 1
Fund Reports
Franklin Arkansas
Municipal Bond Fund........... 4
Franklin California High
Yield Municipal Fund.......... 9
Franklin Hawaii
Municipal Bond Fund........... 16
Franklin Tennessee
Municipal Bond Fund........... 21
Franklin Washington
Municipal Bond Fund........... 26
Glossary of
Investment Terms.............. 31
Bond Ratings.................. 33
Financial Highlights &
Statement of Investments...... 36
Financial Statements.......... 55
Notes to
Financial Statements.......... 60
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you the Franklin Municipal Securities Trust's
semi-annual report for the period ended November 30, 1997.
A GLIMPSE AT THE ECONOMY
During the six months under review, the U.S. economy continued its expansion.
Prior to the beginning of the period, in March, the Federal Reserve Board
(the Fed) raised short-term interest rates from 5.25% to 5.50%. This 25 basis
point increase was the Fed's response to tightening labor markets and an
overall concern that possible wage demands could lead to increased
inflationary pressures. The rate hike had its desired effect. Economic growth
slowed slightly and interest rates stabilized, reversing their general rising
trend and ending the period down from where they began. The 30-year U.S.
Treasury bond started the six-month period yielding 6.91%, and finished at
6.05% on November 30, 1997.1
1. Source: Federal Reserve H15 Report, 30-year Constant Maturity Index,
11/30/97.
The Fed raised rates only once during 1997. Even with continued strong
economic growth, there have been remarkably few signs of increased inflation.
This low inflation, combined with a balanced budget agreement between the
President and Congress, greatly contributed to a beneficial environment of
falling interest rates throughout the majority of the reporting period.
However, consumer spending strengthened toward the end of the period and the
stock market -- despite a stumble at the end of October -- remained near
all-time highs. Yet, with the recent slowdown in the economies of our Asian
trading partners, we expect a moderate U.S. growth rate.
"Much like the tortoise, successful investors historically have achieved
good results through setting goals, diversifying their assets, and having
patience."
The Tale of the Tortoise and the Hare
We can't promise that a positive economic environment will continue. It is
important to remember, then, that markets correct -- in our opinion, it is
desirable for them to do so. Consequently, investor concern about volatility
and the market's direction prompts us to comment on the importance of having
your own long-term investment strategy. And when you consider your investment
strategy, are you a tortoise or a hare?
We all know that familiar story: The tortoise won the race because he had a
plan and stuck to it, not allowing the hare's fast start to distract him.
Much like the tortoise, successful investors historically have achieved good
results through setting goals, diversifying their assets, and having
patience. Wise investors think like the tortoise. They know mutual fund
investments are long term, so daily market fluctuations and short-term
volatility have minimal impact on their overall investment goals. They
understand that patience and discipline are keys to successful investing.
Remember, it's time -- not timing -- that makes the difference.
We encourage you to discuss your financial goals with your investment
representative. He or she can address concerns about volatility and help you
diversify your investments and stay focused on the long term. Mutual funds
offer a level of diversification that is almost impossible for individual
investors to achieve on their own.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same. All of our portfolio managers are
dedicated to providing shareholders like you with careful selections and
constant professional supervision. As always, we appreciate your support,
welcome your questions and comments, and look forward to serving your
investment needs in the years ahead.
Sincerely,
Charles B. Johnson
Chairman
Franklin Municipal Securities Trust
Thomas J. Kenny
Director
Franklin Municipal Bond Department
FRANKLIN ARKANSAS
MUNICIPAL BOND FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Arkansas state personal income taxes while seeking
preservation of capital by investing primarily in a portfolio of Arkansas
municipal securities.1
State Update
Arkansas has enjoyed strong employment growth, surpassing the national
average since 1991. Although in 1997 job growth slowed and manufacturing jobs
actually declined, the state's overall economy continued to expand.
Offsetting the employment losses in manufacturing, a large number of jobs
were created in services and construction, helping Arkansas maintain an
unemployment rate below the national average. However, resource-related
industries still dominate the economy, with food products, lumber, paper
goods industries and agriculture generating large proportions of the state's
income.2
1. The fund may invest as much as 100% of its assets in bonds that pay
interest subject to the federal alternative minimum tax. All or a significant
portion of the income on these obligations may be subject to such tax.
Distributions of capital gains and of ordinary income from accrued market
discount, if any, are generally taxable.
2. Source: Moody's Investors Service, 11/23/97.
Arkansas' fiscal position is strong, and the state enjoys one of the nation's
lowest debt levels - only $156 per individual resident or 0.9% of personal
income, compared with national medians of $422 and 2.1%. Its low level of
debt is expected to continue, as only a relatively small amount of new state
debt has been authorized. The Arkansas Revenue Stabilization Act mandates
such conservative fiscal management. Under the Act, state expenditures are
limited to cash receipts and balances on hand, with a reduced revenue
forecast automatically dictating less spending. This Act effectively curtails
deficit spending, which is explicitly forbidden, and the state's accumulated
operating budget surplus is $1.46 billion or 21.8% of revenues.2
What is the Arkansas Revenue Stabilization Act?
The Arkansas Revenue Stabilization Act prohibits state spending from
exceeding revenues in any fiscal year. State expenditures are not allowed
until sufficient revenues to fund them have been collected. This Act also
requires that the state Assembly create three levels of spending priority.
Under this system, medium-, and then low-priority, spending items are funded,
only after all high-priority items have been fully supported by existing
state income. By prohibiting deficit spending, this Act ensures Arkansas will
have a balanced budget.
Franklin Arkansas
Municipal Bond Fund
Portfolio Breakdown on 11/30/97
% of Total
Long-Term
Sector Investments
Utilities 19.8%
General Obligation 15.7%
Hospitals 14.4%
Education 14.1%
Housing 12.9%
Other Revenue 12.3%
Transportation 4.1%
Sales Tax 3.9%
Industrial 2.1%
Prerefunded 0.7%
For a complete list of portfolio holdings, please see page 37.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
Arkansas has a very low debt level and issued little new debt, making
Arkansas municipal bond supplies relatively sparse. We concentrated on taking
advantage of almost every buying opportunity we could find, especially
AAA-rated, insured bonds, which are often attractively priced because many
Arkansas municipal issues are insured. Largely as a result of this strategy,
we were able to increase the fund's total net assets by 47%, while increasing
our holdings of AAA-rated bonds by 6.1%, from 45.1% on May 31, 1997, to 51.2%
on November 30, 1997. Among our purchases during the reporting period were:
Arkansas State College Savings; North Little Rock Hospital; University of
Arkansas - Fayetteville Campus and Texarkana, Public Facilities - Waterworks.
The relatively small supply of Arkansas bonds has caused retail and
institutional investors to bid their yields below the national average, as
they compete to buy these securities. The tight supply and strong demand are
expected to persist, and consequently, these bonds should remain good
investments. We continue to hold current, high coupon bonds, while seeking to
invest our cash in the most attractive income-producing opportunities in the
Arkansas municipal market.
Please remember, this discussion reflects our views and opinions as of
November 30, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
PERFORMANCE SUMMARY
The share price of Franklin Arkansas Municipal Bond Fund, as measured by net
asset value, increased 32 cents from $10.51 on May 31, 1997, to $10.83 on
November 30, 1997. During the six-month period ended November 30, 1997, the
fund paid income distributions totaling 29.4 cents ($0.294) per share.
Distributions will vary based on the earnings of the fund's portfolio, and
past distributions are not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 4.9
cents ($0.049) and the maximum offering price of $11.31 on November 30, 1997,
your fund's distribution rate was 5.20%. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable
investment. As the chart to the right illustrates, an investor in the maximum
combined federal and Arkansas state personal income tax bracket would need to
earn 9.26% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Arkansas
Municipal Bond Fund
Dividend Distributions
6/1/97 - 11/30/97*
Dividend
Month per share
June 4.9 cents
July 4.9 cents
August 4.9 cents
September 4.9 cents
October 4.9 cents
November 4.9 cents
Total 29.4 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
Franklin Arkansas Municipal Bond Fund
Periods ended 11/30/97
Since
Inception
1-Year 3-Year (5/10/94)
Cumulative Total Return1 7.96% 38.73% 30.03%
Average Annual Total Return2 3.38% 9.93% 6.36%
Distribution Rate3 5.20%
Taxable Equivalent Distribution Rate4 9.26%
30-Day Standardized Yield5 5.07%
Taxable Equivalent Yield4 9.02%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum 4.25%
initial sales charge.
3. Distribution rate is based on an annualization of the current 4.9 cents
per share monthly dividend and the maximum offering price of $11.31 on
November 30, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Arkansas state personal income tax bracket of 43.82%,
based on the federal income tax rate of 39.6%
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, 1997.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares.
The fund's manager agreed in advance to waive a portion of its 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 4.34%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
Past performance is not predictive of future results.
FRANKLIN CALIFORNIA
HIGH YIELD MUNICIPAL FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and California state personal income taxes while seeking
preservation of capital by investing primarily in a portfolio of
high-yielding, medium-, lower-, and non-rated California municipal
securities.1
1. The fund may invest as much as 100% of its assets in bonds that pay
interest subject to the federal alternative minimum tax. All or a significant
portion of the income on these obligations may be subject to such tax.
Distributions of capital gains and of ordinary income from accrued market
discount, if any, are generally taxable.
State Update
The California economy performed above expectations during the six-month
reporting period. Defense cutbacks, which negatively impacted the state and
were discussed in previous shareholder reports, have largely ended, while
other sources for economic growth strengthened. Propelled by these positive
fundamentals, employment steadily increased, and in June was nearly 5%
greater than the prerecession peak, and 3.2% above calendar year 1996.
California's large and growing economy is broad-based, with services
accounting for 30% of employment, trade 23%, manufacturing 14.1%, and
high-technology 3.8%. Because of the state's underlying economic strength,
Fitch (a national rating agency) in October raised its rating of California
general obligation debt from A+ to AA-; however, the other two major credit
rating agencies, Moody's and Standard & Poor's(R), left their ratings unchanged
over the period.2
California's state budget, with its heavy reliance on economically sensitive
sales and income taxes, has been one of the largest beneficiaries of the
state's growing economy. At the same time, California faces many obstacles in
crafting a balanced budget. Several ballot initiatives constrain the state's
fiscal flexibility. Increased spending pressures for education (largely to
reduce school class size), previous budget deficits, and failures to receive
budgeted increases in federal aid, all helped confer a $2.1 billion general
fund deficit. Despite this, California's operating budget has been in balance
for the past five years.3 An adverse court ruling, however, mandating a
one-time transfer of $1.2 billion to the state's retirement system this year,
will likely prevent California from achieving a sixth year of budget balance.
With the state's economy expected to continue growing, California's fiscal
position should remain healthy, despite its fiscal impediments.2
Franklin California
High Yield Municipal Fund
Portfolio Breakdown on 11/30/97
% of Total
Long-Term
Sector Investments
Transportation 16.2%
Tax Allocation Bonds 12.4%
Certificates of Participation 11.1%
Housing 9.8%
Mello-Roos Bonds 9.1%
Utilities 9.0%
Hospitals 7.9%
Special Assessment Bonds 6.8%
Education 4.2%
Marks-Roos Bonds 4.0%
Prerefunded 2.8%
Other Revenue 2.5%
Industrial Revenue Bonds 2.1%
Health Care 1.2%
General Obligation 0.9%
For a complete list of portfolio holdings, please see page 41.
2. Source: Fitch Research, 10/6/97. This does not indicate Fitch's rating of
the fund.
3. Moody's Investors Service, 10/3/97.
Portfolio Notes
Although the California municipal securities market ended the six-month
period near where it began, there was significant volatility along the way.
We sought to take advantage of the market's downturns by buying issues we
believed were attractively priced. As a result, the fund has performed well,
and assets increased over the period, from $224 million on May 31, 1997, to
$320 million on November 30, 1997. In addition to our disciplined investment
approach, our strength in municipal bond research also benefited the fund.
Over the course of the reporting period, our research analysts worked with
issuers and underwriters in structuring deals with attractive credit
qualities. Subsequently, we participated in 29 new issues.
Looking forward, we anticipate relatively stable interest rates, mild
inflation and continued economic growth. These factors should benefit the
state of California and its state government's fiscal position. We believe
the California High Yield Municipal Fund will continue its positive
performance, as these economic trends continue.
Please remember, this discussion reflects our views and opinions as of
November 30, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
Class I
The share price of Franklin California High Yield Municipal Fund - Class I,
as measured by net asset value, increased 43 cents from $10.10 on May 31,
1997, to $10.53 on November 30, 1997. During the six-month reporting period,
the fund paid income distributions totaling 31.2 cents ($0.312) per share.
Distributions will vary based on the earnings of the fund's portfolio, and
past distributions are not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 5.2
cents ($0.052) and the maximum offering price of $11.00 on November 30, 1997,
your fund's distribution rate was 5.67%. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable
investment. As the chart to the left illustrates, an investor in the maximum
combined federal and California state personal income tax bracket would need
to earn 10.35% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin California High Yield Municipal Fund
Class I
Periods ended 11/30/97
Since
Inception
1-Year 3-Year (5/3/93)
Cumulative Total Return1 9.82% 39.93% 39.34%
Average Annual Total Return2 5.17% 10.26% 6.51%
Distribution Rate3 5.67%
Taxable Equivalent Distribution Rate4 10.35%
30-Day Standardized Yield5 5.39%
Taxable Equivalent Yield4 9.84%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current, maximum
4.25% initial sales charge.
3. Distribution rate is based on an annualization of the current 5.2 cents
per share monthly dividend and the maximum offering price of $11.00 on
November 30, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and California state personal income tax bracket of 45.22%,
based on the federal income tax rate of 39.6%.
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, 1997.
Prior to July 1, 1994, fund shares were offered at a higher initial sales
charge with dividends reinvested at the offering price; thus, actual total
returns would be somewhat lower. All total return calculations assume
reinvestment of dividends and capital gains 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.
The fund's manager agreed in advance to waive a portion of its 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 5.06%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
Franklin California
High Yield Municipal Fund
Class I
Dividend Distributions
6/1/97 - 11/30/97*
Dividend
Month per share
June 5.2 cents
July 5.2 cents
August 5.2 cents
September 5.2 cents
October 5.2 cents
November 5.2 cents
Total 31.2 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
The share price of Franklin California High Yield Municipal Fund - Class II,
as measured by net asset value, increased 44 cents from $10.12 on May 31,
1997 to $10.56 on November 30, 1997. During the six-month reporting period,
the fund paid income distributions totaling 28.29 cents ($0.2829) per share.
Distributions vary based on the earnings of the fund's portfolio, and past
distributions are not necessarily predictive of future trends.
Based on an annualization of the current monthly dividend of 4.7 cents
($0.047) per share and the offering price of $10.67 on November 30, 1997,
your fund's distribution rate was 5.29%. This double tax-free rate is
generally higher than the after-tax return on
a comparable taxable investment. As the chart to the left illustrates, an
investor in the maximum combined federal and California state personal income
tax bracket would need to earn 9.66% from a taxable investment to match the
fund's tax-free distribution rate.
Franklin California High Yield Municipal Fund
Class II
Periods ended 11/30/97
Since
Inception
1-Year (5/1/96)
Cumulative Total Return1 9.45% 17.42%
Average Annual Total Return2 7.40% 9.98%
Distribution Rate3 5.29%
Taxable Equivalent Distribution Rate4 9.66%
30-Day Standardized Yield5 5.05%
Taxable Equivalent Yield4 9.22%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and include the 1.0% initial
sales charge and 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. Distribution rate is based on an annualization of the current 4.7 cents
per share monthly dividend and the maximum offering price of $10.67 on
November 30, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and California state personal income tax bracket of 45.22%,
based on the federal income tax rate of 39.6%.
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, 1997.
The fund's manager agreed in advance to waive a portion of its 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 4.70%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
Franklin California
High Yield Municipal Fund
Class II
Dividend Distributions
6/1/97 - 11/30/97*
Dividend
Month per share
June 4.73 cents
July 4.73 cents
August 4.73 cents
September 4.70 cents
October 4.70 cents
November 4.70 cents
Total 28.29 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
Past performance is not predictive of future results.
FRANKLIN HAWAII
MUNICIPAL BOND FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Hawaii state personal income taxes while seeking
preservation of income, by investing primarily in a portfolio consisting of
Hawaii municipal securities.1
State Update
Although Hawaii continues to enjoy income levels above the national average,
its economy is weak. Payroll employment declined about one percent at
mid-year. The state's economy is highly dependent on tourism, and although
the number of visitors to the Islands increased during the six-month
reporting period, their time of stay decreased, with a commensurate decline
in their spending. Furthermore, the recent turmoil in East Asia has damaged
the economies of countries, such as Japan, that are trading partners and a
source of tourism for the Hawaiian Islands.2
1. The fund may invest as much as 100% of its assets in bonds that pay
interest subject to the federal alternative minimum tax. All or a significant
portion of the income on these obligations may be subject to such tax.
Distributions of capital gains and of ordinary income from accrued market
discount, if any, are generally taxable.
2. Source: Standard and Poor's, 9/1/97. This does not indicate Standard and
Poor's rating of the fund.
In March, Standard and Poor's lowered its credit rating of Hawaii from AA to
A+. The state has the second highest level of debt after Alaska, and
servicing its debt will likely consume almost 12% of the state's general
resources in 1998. In addition, nearly $1 billion in new debt for 1998 and
1999 was authorized, which will boost debt ratios by 20%. As discussed in the
May annual report, part of Standard and Poor's concern over Hawaii's fiscal
position stems from the issue of ceded lands (areas of the state transferred
to the U.S. from the Republic of Hawaii, upon Hawaii's annexation). The
Office of Hawaiian Affairs that represents the interests of native Hawaiians
and is seeking monetary restitution for the state's use of those entrusted
lands, won a judgment at the circuit court level. The state currently is
appealing that judgment, and while estimates of the state's liability, should
it ultimately lose, are varied, it would likely be over $100 million.2
2. Source: Standard and Poor's, 9/1/97. This does not indicate Standard and
Poor's rating of the fund.
Franklin Hawaii
Municipal Bond Fund
Portfolio Breakdown on 11/30/97
% of Total
Long-Term
Sector Investments
Utilities 26.8%
Housing 22.9%
Transportation 19.4%
Hospitals 14.2%
Prerefunded 9.4%
General Obligation 6.2%
Industrial 1.1%
For a complete list of portfolio holdings, please see page 46.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
Although Hawaii's economic and fiscal positions are weak, we believe the
state's municipal bonds remain a strong source for tax-free income, and have
relatively low volatility with little risk to principal when compared with
other investments. The fund's net assets rose over the period, from $40.0
million on May 31, 1997, to $42.8 million on November 30, 1997. We added
State of Hawaii general obligation bonds during the six-month period. In
addition, we purchased Hawaii State Housing finance bonds, believing they
represent a good value. They are backed by the Federal National Mortgage
Association, and are rated AA1 by Moody's and AA by Standard and Poor's.3 As
always, we strive to keep the fund fully invested at all times to provide
shareholders with a relatively high level of tax-free income.
3. This does not indicate Standard and Poor's rating of the fund.
Please remember, this discussion reflects our views and opinions as of
November 30, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
PERFORMANCE SUMMARY
The share price of Franklin Hawaii Municipal Bond Fund, as measured by net
asset value, increased 31 cents from $10.79 on May 31, 1997, to $11.10 on
November 30, 1997. During the six-month reporting period, the fund paid
income distributions totaling
30 cents ($0.30) per share. Distributions will vary based on the earnings of
the fund's portfolio, and past distributions are not predictive of future
trends.
Based on an annualization of the current monthly per share dividend of 5.0
cents ($0.05) and the maximum offering price of $11.59 on November 30, 1997,
your fund's distribution rate was 5.18%. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable
investment. As the chart to the right illustrates, an investor in the maximum
combined federal and Hawaii state personal income tax bracket would need to
earn 9.53% from a taxable investment to match the fund's tax-free
distribution rate.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Hawaii
Municipal Bond Fund
Dividend Distributions
6/1/97 - 11/30/97*
Dividend
Month per share
June 5.0 cents
July 5.0 cents
August 5.0 cents
September 5.0 cents
October 5.0 cents
November 5.0 cents
Total 30.0 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
Franklin Hawaii Municipal Bond Fund
Periods ended 11/30/97
Since
Inception
1-Year 5-Year (2/26/92)
Cumulative Total Return1 7.19% 42.34% 52.77%
Average Annual Total Return2 2.59% 6.39% 6.83%
Distribution Rate3 5.18%
Taxable Equivalent Distribution Rate4 9.53%
30-Day Standardized Yield5 4.71%
Taxable Equivalent Yield4 8.66%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current, maximum
4.25% initial sales charge.
3. Distribution rate is based on an annualization of the current 5.0 cents
per share monthly dividend and the maximum offering price of $11.59 on
November 30, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Hawaii state personal income tax bracket of 45.64%,
based on the federal income tax rate of 39.6%.
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, 1997.
Prior to July 1, 1994, fund shares were offered at a higher initial sales
charge with dividends reinvested at the offering price; thus, actual total
returns would be somewhat lower. All total return calculations assume
reinvestment of dividends and capital gains 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.
The fund's manager agreed in advance to waive a portion of its 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 4.28%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
Past performance is not predictive of future results.
FRANKLIN TENNESSEE
MUNICIPAL BOND FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal and Tennessee state personal income taxes while seeking
preservation of capital by investing primarily in a portfolio of Tennessee
municipal securities.1
State Update
Tennessee's economy continued to develop and diversify. The state's service
sector has expanded and, along with still dominant manufacturing industries,
each sector individually accounts for about one-quarter of personal income
earnings. While manufacturing still plays a large role in the state's
economy, there has been diversification within this sector. Over the past ten
years, apparel, food, textiles, and chemicals have been declining in
importance, while transportation equipment, furniture, paper, printing and
publishing, and rubber and plastics have grown. The state's economic
indicators have continued to improve, but are still below national averages.2
1. The fund may invest as much as 100% of its assets in bonds that pay
interest subject to the federal alternative minimum tax. All or a significant
portion of the income on these obligations may be subject to such tax.
Distributions of capital gains and of ordinary income from accrued market
discount, if any, are generally taxable.
2. Source: Standard and Poor's, 5/12/97. Moody's, 5/6/97. Fitch Research,
5/6/97. These credit ratings are not ratings for the fund.
Franklin Tennessee
Municipal Bond Fund
Portfolio Breakdown on 11/30/97
% of Total
Long-Term
Sector Investments
Utilities 23.0%
General Obligation 20.9%
Housing 14.2%
Industrial 11.7%
Hospitals 10.6%
Transportation 6.1%
Other Revenue 5.4%
Education 5.1%
Prerefunded 2.4%
Certificates of Participation 0.6%
For a complete list of portfolio holdings, please see page 49.
Although Tennessee's economy lags behind the nation in some aspects, the
state's debt rating is among the nation's highest. Moody's and Fitch, two
national credit rating agencies, bestowed their highest ratings on
Tennessee's current general obligation debt, while Standard & Poor's gave the
state's debt a high, AA+ rating, reflecting the state's strong fiscal
position. Tennessee has long been a leader in the development of financial
standards, borrows money infrequently and has very low debt ratios. When the
state does borrow money it generally does so conservatively through general
obligation bonds with rapid amortizations, which are backed by a state
reserve fund that has been maintained at a $101 million dollar level.2
2. Source: Standard and Poor's, 5/12/97. Moody's 5/6/97. Fitch Research,
5/6/97. These credit ratings are not ratings for the fund.
Portfolio Notes
During the reporting period, insured issues continued to dominate the
Tennessee municipal bond market. The large number of high-rated insured
securities caused the difference in yield between high- and low-rated issues
to decrease. Consequently, we believe insured securities represented the best
values in the Tennessee municipal bond market, and concentrated on purchasing
these bonds. The fund's holdings of AAA securities increased from 51.7% of
long-term investments on May 31, 1997, to 63.4% on November 30, 1997.
Furthermore, with the difference in yields between low- and high-rated
securities decreasing, we purchased those insured securities that usually
sell at the greatest premium, high essential use bonds. We acquired high
essential use transportation, utility and general obligation bonds. These
types of securities are usually very easy to sell and often possess
significant potential to increase in value. We attempted to take advantage of
any downturns in the Tennessee municipal bond market, and during the
six-month period, we bought securities we believed to be attractively priced,
such as White House Utility bonds.
What is an essential use bond?
Essential use bonds, also known as public purpose bonds, are a specific type
of municipal bond created under the Tax Reform Act of 1986. Under the Act,
municipal securities issued by a state may benefit private parties and still
be exempt from federal, as well as state, taxes. However, the bonds must
provide no more than 10% of their benefits to private parties and no more
than 5% of their proceeds or $5 million may be used for loans to private
parties. States often issue these securities to fund purposes such as
schools, roads and libraries.
Please remember, this discussion reflects our views and opinions as of
November 30, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
The share price of Franklin Tennessee Municipal Bond Fund, as measured by net
asset value, increased 38 cents from $10.71 on May 31, 1997, to $11.09 on
November 30, 1997. During the six-month reporting period, the fund paid
income distributions totaling 29.1 cents ($0.291) per share. Distributions
will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 4.7
cents ($0.047) and the maximum offering price of $11.58 on November 30, 1997,
your fund's distribution rate was 4.87%. This double tax-free rate is
generally higher than the after-tax return on a comparable taxable
investment. As the chart to the left illustrates, an investor in the maximum
combined federal and Tennessee state personal income tax bracket would need
to earn 8.58% from a taxable investment to match the fund's tax-free
distribution rate.
Franklin Tennessee Municipal Bond Fund
Periods ended 11/30/97
Since
Inception
1-Year 3-Year (5/10/94)
Cumulative Total Return1 8.21% 39.43% 33.15%
Average Annual Total Return2 3.61% 10.10% 7.07%
Distribution Rate3 4.87%
Taxable Equivalent Distribution Rate4 8.58%
30-Day Standardized Yield5 4.83%
Taxable Equivalent Yield4 8.51%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum 4.25%
initial sales charge.
3. Distribution rate is based on an annualization of the current 4.7 cents
per share monthly dividend and the maximum offering price of $11.58 on
November 30, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
combined federal and Tennessee state personal income tax bracket of 43.22%,
based on the federal income tax rate of 39.6%.
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, 1997.
All total return calculations assume reinvestment of dividends and any
capital gains at net asset value. Your investment return and principal value
will fluctuate with market conditions and you may have a gain or loss when
you sell your shares.
The fund's manager agreed in advance to waive a portion of its 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 4.41%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
Franklin Tennessee
Municipal Bond Fund
Dividend Distributions
6/1/97 - 11/30/97*
Dividend
Month per share
June 5.0 cents
July 5.0 cents
August 5.0 cents
September 4.7 cents
October 4.7 cents
November 4.7 cents
Total 29.1 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
Past performance is not predictive of future results.
FRANKLIN WASHINGTON
MUNICIPAL BOND FUND
Your Fund's Objective: Seeks to provide high, current income exempt from
regular federal income tax while seeking preservation of capital, by
investing in a portfolio consisting primarily of Washington municipal
securities.1
1. The fund may invest as much as 100% of its assets in bonds that pay
interest subject to the federal alternative minimum tax. All or a significant
portion of the income on these obligations may be subject to such tax.
Distributions of capital gains and of ordinary income from accrued market
discount, if any, are generally taxable.
State Update
Increased production by Boeing, Washington's single largest employer, spurred
job growth in the state, and the unemployment rate was a low 4.7% in July.
Aircraft construction, coupled with computer hardware and software
production, continue to drive the state's economy, the fourth fastest growing
in the nation. In addition to the jobs created by these sectors, which
accounted for 54% of all new private sector jobs in June and July, local
governments hired about 11,000 new workers during the same period. Although
Washington's growth is largely a positive factor, there is a great deal of
uncertainty as to whether Boeing can meet its outstanding delivery agreements
and continue to produce aircraft at its current rate. Also, the state's high
economic growth rate has produced a shortage of skilled workers, as both
Boeing and the computer industry located in the Puget Sound area attempt to
hire new workers and meet demand for their products.2
Washington's high growth rate has produced stronger than expected revenue
income for the state. As a result, Washington's 1995-1997 fiscal biennium has
been revised upward by $63.7 million and is projected to end with reserves of
$478 million. The state's overall debt burden is moderate, and the state
government is subject to statutory and constitutional limits on the issuance
of general obligation debt. General fund expenditures are budgeted at $19.1
billion and are well within Initiative 601's spending limit of $19.2 billion.
Included in these expenditures is a $194.6 million reduction in property tax
revenue that is represented in the form of a November ballot initiative to
limit the growth of property tax rates.3
2. Source: Federal Reserve Bank of San Francisco, 9/97.
3. Source: Standard & Poor's, 8/25/97.
What is Proposition 601?
Proposition 601 is an initiative that seeks to contain Washington state
government spending. Approved by voters, it came into effect in 1995. Under
the proposition the state's operating budget can increase at a rate no
greater than the sum of population growth and inflation. If state revenues
exceed this expenditure limit, the surplus will be deposited in an emergency
reserve fund. The proposition also mandates a two-thirds majority vote in the
state Senate and House for the passage of any tax increase.
Franklin Washington
Municipal Bond Fund
Portfolio Breakdown on 11/30/97
% of Total
Long-Term
Sector Investments
Utilities 29.9%
General Obligation 21.6%
Housing 16.1%
Industrial 13.4%
Education 13.1%
Transportation 2.3%
Prerefunded 1.3%
Certificates of Participation 1.2%
Hospitals 1.1%
For a complete list of portfolio holdings, please see page 52.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Notes
Within the positive investment environment of Washington's growing economy
and the state's strong fiscal position the fund performed well. During the
six-month reporting period, we sold some relatively low coupon bonds and
purchased higher coupon issues. At the same time, we invested new cash that
came into the fund in quality issues that offered relatively high tax-free
returns, including: Pierce Co., Washington, Economic Development Corporation
for Occidental Petroleum; Tacoma, Washington, general obligation bonds;
Washington State Higher Education Facilities and Washington State Housing
Finance Commission. Over the course of the period, the fund's net assets grew
from $8.4 million on May 31, 1997, to $9.4 million on November 30, 1997.
Please remember, this discussion reflects our views and opinions as of
November 30, 1997, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
PERFORMANCE SUMMARY
The share price of Franklin Washington Municipal Bond Fund, as measured by
net asset value, increased 27 cents from $10.09 on May 31, 1997 to $10.36 on
November 30, 1997. During the six-month reporting period, the fund paid
income distributions totaling 29.3 cents ($0.293) per share. Distributions
will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
Based on an annualization of the current monthly per share dividend of 4.9
cents ($0.049) and the maximum offering price of $10.82 on November 30, 1997,
your fund's distribution rate was 5.43%. This tax-free rate is generally
higher than the after-tax return on a comparable taxable investment. As the
chart to the right illustrates, an investor in the maximum combined federal
and Washington state personal income tax bracket would need to earn 8.99%
from a taxable investment to match the fund's tax-free distribution rate.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Washington Municipal Bond Fund
Periods ended 11/30/97
Since
Inception
1-Year 3-Year (5/3/93)
Cumulative Total Return1 7.63% 40.88% 33.09%
Average Annual Total Return2 3.08% 10.49% 5.45%
Distribution Rate3 5.43%
Taxable Equivalent Distribution Rate4 8.99%
30-Day Standardized Yield5 5.06%
Taxable Equivalent Yield4 8.38%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current, maximum
4.25% initial sales charge.
3. Distribution rate is based on an annualization of the current 4.9 cents
per share monthly dividend and the maximum offering price of $10.82 on
November 30, 1997.
4. Taxable equivalent distribution rate and yield assume the 1997 maximum
federal income tax bracket of 39.6%.
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, 1997.
Prior to July 1, 1994, fund shares were offered at a higher initial sales
charge with dividends reinvested at the offering price; thus, actual total
returns would be somewhat lower. All total return calculations assume
reinvestment of dividends and capital gains 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.
The fund's manager agreed in advance to waive a portion of its 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 4.26%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
Franklin Washington
Municipal Bond Fund
Dividend Distributions
6/1/97 - 11/30/97*
Dividend
Month per share
June 4.8 cents
July 4.9 cents
August 4.9 cents
September 4.9 cents
October 4.9 cents
November 4.9 cents
Total 29.3 cents
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month.
Income distributions include all accrued income earned by the fund during the
reporting period.
Past performance is not predictive of future results.
GLOSSARY OF INVESTMENT TERMS
Average Annual Total Return: The average annual change in value of an
investment over the periods indicated. Unless otherwise stated, figures shown
in this report include sales charges.
Discount: Amount by which a bond sells below its face (par) value. For
instance, a bond with a $1,000 face value that sells for $900 would have a
$100 discount.
Call Protection: The length of time during which a bond cannot be redeemed by
its issuer.
Coupon: A bond's interest rate that the issuer promises to pay to the holder
until the bond matures.
Cumulative Total Return: Measures the change in value of an investment over
the periods indicated. Unless otherwise stated, figures shown in this report
exclude sales charges.
Current Coupon Bond: A bond with a coupon rate that is within half a
percentage point of current market interest rates. See also Full Coupon Bond.
Full Coupon Bond: A bond with a coupon rate that is near or above current
market interest rates. See also Current Coupon Bond.
High Grade Bond/High-Quality Bond: A bond rated AAA or AA by Standard &
Poor's or Aaa or Aa by Moody's Investors Service -- two national credit-rating
agencies.
Investment Grade Bond: A bond with a rating of AAA to BBB, usually within the
top four rating categories assigned to bonds.
Premium: Amount by which a bond sells above its face (par) value. For
instance, a bond with a $1,000 face value that sells for a $1,100 would have
a $100 premium.
Prerefunded Bond: A bond that will be paid off at its first call date with
proceeds of the sale of a second bond carrying a lower interest rate. The
proceeds are generally invested in U.S. Treasuries set to mature at the
original bond's first call date. When a bond is prerefunded its premium
rises, and then falls to par value as the refunding date approaches.
Par Value: The face value or amount at which a security will be redeemed at
maturity -- typically $1,000 for a bond.
Yield Spread: The relative yield differential between lower- and
higher-quality issues. Normally, lower-quality issues provide higher yields
to compensate investors for added credit risk.
MUNICIPAL BOND RATINGS
Moody's
Aaa: Best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa: High quality by all standards. Together with the Aaa group, they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than
Aaa because margins of protection may not be as large, fluctuation of
protective elements may be of greater amplitude, or there may be other
elements which make the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered upper
medium-grade obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Medium-grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba: Contain speculative elements. Often the protection of interest and
principal payments may be very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default
or have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation
and indicates the ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of
instances, differ from
AAA issues only in a small degree.
A: Generally regarded as upper medium-grade. They have considerable
investment strength but are not entirely free from adverse effects of changes
in economic and trade conditions. Interest and principal are regarded as safe.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Reserved for income bonds on which no interest is being paid.
D: Debt rated "D" is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Arkansas Municipal Bond Fund
Class I
------------------------------------------------------
Six months ended
November 30, 1997 Year ended May 31,
(unaudited) 1997 1996 1995 1994+
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.............. $10.51 $10.21 $10.32 $10.06 $10.00
------------------------------------------------------
Income from investment operations:
Net investment income ........................... .28 .58 .55 .51 .01
Net realized and unrealized gains (losses)....... .33 .31 (.08) .19 .05
------------------------------------------------------
Total from investment operations.................. .61 .89 .47 .70 .06
Less distributions from net investment income..... (.29) (.59) (.58) (.44) --
------------------------------------------------------
Net asset value, end of period.................... $10.83 $10.51 $10.21 $10.32 $10.06
======================================================
Total return**.................................... 5.86% 8.90% 4.65% 7.27% .60%
Ratios/supplemental data
Net assets, end of period (000's)................. $19,313 $13,140 $8,166 $4,134 $2,213
Ratios to average net assets:
Expenses......................................... .10%* .10% .10% .10% .03%*
Expenses excluding waiver and payments by affiliate .96%* .87% 1.04% 1.11%
1.20%*
Net investment income ........................... 5.44%* 5.71% 5.69% 5.64% 2.00%*
Portfolio turnover rate........................... -- 6.61% 19.22% 77.63% --
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized.
+For the period May 10, 1994 (effective date) to May 31, 1994.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 1997 (unaudited)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Arkansas Municipal Bond Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 100.7%
Arkansas GO, Refunding, Waste Disposal and Pollution, Series B, 6.25%, 7/01/20..............$ 130,000 $ 137,931
Arkansas State College Savings, Series B, 5.20%, 6/01/15.................................... 300,000 301,113
Arkansas State Development Finance Authority, Drivers License Revenue, Police Headquarters,
Wireless Data, FGIC Insured,
5.15%, 6/01/11............................................................................. 300,000 304,272
5.40%, 6/01/18............................................................................. 950,000 969,798
Arkansas State Development Finance Authority, HMR, Series B-1, 5.80%, 1/01/23............... 500,000 510,545
Arkansas State Development Finance Authority, SFMR, MBS Program,
Series B, 6.10%, 1/01/29...................................................................1,000,000 1,040,800
Series D, 6.85%, 1/01/27................................................................... 110,000 119,837
Arkansas State Development Finance Authority, Waste Water Systems Revenue, Revolving Loan Fund,
Series A, 5.85%, 12/01/19.....................................................................1,000,000 1,041,540
Arkansas State Student Loan Authority Revenue, Refunding,
Series B, 5.60%, 6/01/14................................................................... 325,000 330,090
Sub-Series B, 6.25%, 6/01/10............................................................... 500,000 532,165
Arkansas State Water Resources Development,
Series A, 5.70%, 7/01/26................................................................... 560,000 568,971
Series B, 5.75%, 7/01/25................................................................... 300,000 308,319
Series B, 5.25%, 7/01/26................................................................... 500,000 496,315
Blytheville Solid Waste Recycling and Sewage Treatment Revenue,
Nucor Corp. Project, 6.375%, 1/01/23....................................................... 100,000 107,324
Camden Environmental Improvement Revenue, International Paper Co. Project,
Series A, 7.625%, 11/01/18................................................................. 250,000 293,900
b Conway Sales & Use Tax Revenue, Capital Improvement, Series A,
FSA Insured, 5.35%, 12/01/17............................................................... 750,000 751,148
Conway Public Facilities Board, Capital Improvement Revenue,
Hendrix College Project, 6.00%, 10/01/26................................................... 500,000 518,310
Fort Smith Water and Sewer Revenue, Refunding and Construction,
MBIA Insured, 6.00%, 10/01/12 ............................................................. 130,000 139,968
Fouke School District No. 15, Refunding and Construction, MBIA Insured,
Pre-Refunded, 6.60%, 4/01/19 .............................................................. 130,000 145,257
Greenland School District No. 95, Washington County, Refunding and Construction,
MBIA Insured, 6.50%, 5/01/13............................................................... 115,000 119,927
Guam Airport Authority Revenue, Series B, 6.60%, 10/01/10 .................................. 125,000 136,534
Jefferson County PCR, Refunding, Arkansas Power & Light Co., 6.30%, 6/01/18 ................ 400,000 429,028
Jonesboro City Water and Light Plant, Public Utilities System Revenue,
MBIA Insured, 5.40%, 11/15/13.............................................................. 100,000 102,913
Refunding, AMBAC Insured, 5.25%, 12/01/13.................................................. 200,000 202,870
Jonesboro Residential Housing and Health Care Facilities Board, Hospital Revenue, Refunding,
St. Bernard's Regional Medical Center, Series B, AMBAC Insured, 5.90%, 7/01/16............ 450,000 470,511
Little Rock Capital Improvement, Refunding, 6.30%, 2/01/09 ................................. 140,000 144,396
Little Rock Municipal Airport Revenue, Refunding, MBIA Insured, 6.00%, 11/01/14 ............ 130,000 135,994
Little Rock School District GO, Refunding, 6.25%, 12/01/07 ................................. 120,000 121,108
Little Rock School District, Refunding, FSA Insured, 5.60%, 1/01/20......................... 100,000 101,006
Little Rock Waste Disposal Revenue, 5.80%, 5/01/16.......................................... 440,000 456,861
North Little Rock Health Facilities Board, Health Care Revenue,
Baptist Health Facility, Series A, MBIA Insured,
5.50%, 12/01/21........................................................................... 800,000 813,528
Paragould Hospital Revenue, 6.375%, 10/01/17................................................ 400,000 428,568
Pope County PCR, Refunding, Arkansas Power and Light Co. Project, 6.30%, 11/01/20........... 500,000 521,560
Puerto Rico Commonwealth GO,
6.50%, 7/01/23 ............................................................................ 250,000 276,313
Custodial Receipts, AMBAC Insured, 5.40%, 7/01/25.......................................... 250,000 250,988
Puerto Rico Commonwealth GO, Public Improvement, 5.75%, 7/01/17 ............................ 250,000 259,190
Puerto Rico Commonwealth Highway Authority Revenue, Series Q, 6.00%, 7/01/20................ 165,000 168,736
Puerto Rico Commonwealth Highway & Transportation Authority Revenue,
Series Y, 5.50%, 7/01/26 .................................................................. 350,000 351,376
Puerto Rico Electric Power Authority Revenue,
Series R, 6.25%, 7/01/17 ..................................................................$ 175,000 $ 186,232
Series T, 5.50%, 7/01/20................................................................... 400,000 398,952
Series X, 5.50%, 7/01/25 .................................................................. 200,000 200,480
Puerto Rico Industrial, Tourist, Educational, Medical & Environmental
Control Facilities Financing Authority,
Industrial Revenue, Teacher's Retirement System, Series B, 5.50%, 7/01/21................. 250,000 256,235
Puerto Rico SFMR, Bank and Financial Agency, Affordable Housing Mortgage,
Portfolio I, 6.25%, 4/01/29................................................................ 175,000 185,115
Pulaski County Health Facilities Board Revenue, Refunding,
Nazareth Sisters of Charity, St. Vincent's Infirmary,
MBIA Insured, 6.05%, 11/01/09 ............................................................ 125,000 139,525
Pulaski County Public Facilities Board, MFR, Refunding,
South Oaks Apartments, Series A, 6.50%, 10/20/29 .......................................... 600,000 638,628
Saline County Hospital Revenue, Refunding, Connie Lee Insured, 6.00%, 9/01/19............... 700,000 733,593
Saline County Retirement Housing and Healthcare Facilities Board Revenue,
Refunding, AMBAC Insured, 5.80%, 6/01/11.................................................. 195,000 208,808
Sebastian County Community Junior College District, Refunding & Improvement,
AMBAC Insured, 5.60%, 4/01/17.............................................................. 600,000 617,190
Texarkana Public Facilities Board, Waterworks Facilities Revenue, Refunding,
FGIC Insured, 5.40%, 9/01/15 .............................................................. 200,000 203,316
University of Arkansas Revenues,
Student Fee, Phillips College, 5.00%, 9/01/17.............................................. 300,000 290,502
Various Facilities, Fayetteville Campus, 5.25%, 11/01/17................................... 300,000 301,089
Various Facilities, Fayetteville Campus, 5.00%, 11/01/22................................... 165,000 160,366
University of Central Arkansas Revenue, Athletic Facilities,
Series C, AMBAC Insured, 6.125%, 4/01/26................................................... 375,000 399,022
University of Puerto Rico Revenues, Series M, MBIA Insured, 5.25%, 6/01/25.................. 285,000 284,996
University of Southern Arkansas, Student Fees, MBIA Insured, 6.00%, 10/01/13 ............... 125,000 129,212
-------------
Total Long Term Investments (Cost $18,661,024).............................................. 19,442,271
-------------
aShort Term Investments 1.0%
Arkansas State Development Finance Authority, Higher Education,
Capital Asset, Series A, FGIC Insured, Weekly VRDN and Put, 3.90%, 12/01/15............... 100,000 100,000
Puerto Rico Commonwealth Government Development Bank,
Refunding, Weekly VRDN and Put, 3.80%, 12/01/15............................................ 100,000 100,000
-------------
Total Short Term Investments (Cost $200,000)................................................ 200,000
-------------
Total Investments (Cost $18,861,024) 101.7% ................................................ 19,642,271
Other Assets, less Liabilities (1.7)% ...................................................... (328,933)
-------------
Net Assets 100.0%........................................................................... $19,313,338
=============
</TABLE>
See glossary of terms on page 54.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin California High Yield Municipal Fund
Class I
--------------------------------------------------------------------
Six months ended
November 30, 1997 Year ended May 31,
(unaudited) 1997 1996 1995 1994 1993+
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $10.10 $9.81 $9.93 $9.73 $9.97 $10.00
--------------------------------------------------------------------
Income from investment operations:
Net investment income..................... .32 .63 .64 .66 .53 .03
Net realized and unrealized gains (losses) .42 .29 (.10) .18 (.20) (.06)
Total from investment operations........... .74 .92 .54 .84 .33 (.03)
Less distributions from:
Net investment income..................... (.31) (.63)++ (.66) (.64) (.56) --
Net realized gains........................ -- -- -- -- (.01) --
--------------------------------------------------------------------
Total distributions........................ (.31) (.63) (.66) (.64) (.57) --
--------------------------------------------------------------------
Net asset value, end of period............. $10.53 $10.10 $9.81 $9.93 $9.73 $9.97
====================================================================
Total return**............................. 7.39% 9.64% 5.55% 9.08% 3.22% (3.60)%*
Ratios/supplemental data
Net assets, end of period (000's).......... $297,904 $213,396 $118,313 $51,102 $31,938 $2,245
Ratios to average net assets:
Expenses.................................. .42%* .34% .35% .20% .07% --
Expenses excluding waiver and payments
by affiliate............................. .78%* .75% .81% .88% .87% 1.42%*
Net investment income..................... 5.98%* 6.24% 6.49% 6.89% 6.14% 3.85%*
Portfolio turnover rate.................... 20.93% 33.79% 28.02% 57.06% 40.74% 8.89%
</TABLE>
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
+For the period May 3, 1993 (effective date) to May 31, 1993.
++Includes distributions in excess of net investment income in the amount of
$.002.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
Franklin California High Yield Municipal Fund (cont.)
Class II
------------------------------------
Six months ended
November 30, 1997 Year ended May 31,
(unaudited) 1997 1996++
------------------------------------
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period................................... $10.12 $9.82 $9.82
------------------------------------
Income from investment operations:
Net investment income................................................. .29 .58 .05
Net realized and unrealized gains..................................... .43 .29 --
------------------------------------
Total from investment operations....................................... .72 .87 .05
Less distributions from net investment income.......................... (.28) (.57) (.05)
------------------------------------
Net asset value, end of period ........................................ $10.56 $10.12 $9.82
====================================
Total return**......................................................... 7.18% 9.08% .54%
Ratios/supplemental data
Net assets, end of period (000's) ..................................... $22,354 $10,624 $212
Ratios to average net assets:
Expenses.............................................................. .90%* .90% .91%*
Expenses excluding waiver and payments by affiliate................... 1.26%* 1.31% 1.81%*
Net investment income ................................................ 5.50%* 5.68% 5.73%*
Portfolio turnover rate................................................ 20.93% 33.79% 28.02%
</TABLE>
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized.
++For the period May 1, 1996 (effective date) to May 31, 1996.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin California High Yield Municipal Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 95.6%
ABAG Finance Authority For Nonprofit Corporations, COP, 6.15%, 1/01/22 .................. $ 1,515,000 $ 1,599,658
Adelanto Water Authority Revenue, Water Systems Acquisition Project,
Series A, 7.50%, 9/01/28 ................................................................ 2,000,000 2,097,280
Alameda CFD No.2, Special Tax, 6.125%, 9/01/16........................................... 1,240,000 1,244,687
Alameda Public Financing Authority, Local Agency Revenue,
Refunding, Special Tax, Community Facility No. 1-A,
6.70%, 8/01/12.......................................................................... 3,400,000 3,593,324
7.00%, 8/01/19.......................................................................... 4,015,000 4,337,244
American Canyon Joint Powers Financing Authority, Lease Revenue,
Civic/Recreation Facilities, 6.40%, 6/01/22............................................. 1,000,000 1,051,090
Antioch 1915 Act, AD No. 27, Series D, 7.30%, 9/02/13 ................................... 470,000 484,594
Avenal Public Financing Authority Revenue, Refunding,....................................
7.00%, 9/02/10.......................................................................... 1,745,000 1,753,184
7.25%, 9/02/27.......................................................................... 3,665,000 3,684,828
Beaumont Financing Authority, Local Agency Revenue, Refunding,
Sewer Enterprise Project, Series A, 6.75%, 9/01/25.................................... 5,000,000 5,128,400
Belmont RDA, Tax Allocation, Los Costanos Community Development,
Series A, 6.80%, 8/01/24................................................................ 1,510,000 1,647,093
Benicia 1915 Act, Refunding, Fleetside Industrial Park Assessment, 7.00%, 9/02/14 ....... 455,000 469,196
Blythe RDA, Project No.1, Tax Allocation, Refunding, 5.80%, 5/01/28...................... 1,000,000 1,008,080
b Brentwood 1915 Act, Capital Improvement Finance Program, No. 9, Infrastructure Financing,
5.875%, 9/02/17......................................................................... 675,000 667,697
6.00%, 9/02/27.......................................................................... 1,000,000 990,300
Calexico Special Financing Authority, Sales Tax Revenue,
7.40%, 1/01/99.......................................................................... 10,000 10,159
7.40%, 1/01/00.......................................................................... 125,000 128,118
7.40%, 1/01/01.......................................................................... 165,000 170,226
7.40%, 1/01/02.......................................................................... 175,000 181,498
7.40%, 1/01/03.......................................................................... 220,000 228,910
7.40%, 1/01/04.......................................................................... 235,000 244,865
7.40%, 1/01/05.......................................................................... 285,000 296,887
7.40%, 1/01/06.......................................................................... 340,000 353,559
7.40%, 1/01/18.......................................................................... 7,680,000 7,923,686
California Educational Facilities Authority Revenue,
Pooled College and University Projects, Series B, 6.30%, 4/01/21........................ 1,000,000 1,062,350
Student Loan Program, Series A, MBIA Insured, 6.00%, 3/01/16............................ 4,000,000 4,186,160
California Educational Facilities Authority Revenue, Refunding,
Los Angeles College of Chiropractic, 5.60%, 11/01/17.................................. 1,500,000 1,494,555
California Health Facilities Financing Authority Revenue,
Cedarknoll, Series B, CHFCLP Insured, 7.50%, 8/01/20.................................... 1,800,000 1,953,036
Thessalonika Family, Series A, MBIA Insured, 6.20%, 12/01/15............................ 990,000 1,056,855
California HFA Revenue, Home Mortgage,
MFHR, Series B, AMBAC Insured, 6.15%, 8/01/22........................................... 5,000,000 5,263,200
Series B, 7.125%, 2/01/26 .............................................................. 975,000 1,051,343
Series F-1, 7.00%, 8/01/26 ............................................................. 1,795,000 1,923,809
Series H, 6.25%, 8/01/27................................................................ 2,490,000 2,626,552
Series R, MBIA Insured, 6.15%, 8/01/27.................................................. 3,285,000 3,463,803
California PCFA Revenue, Series B,.......................................................
Pacific Gas & Electric Co., 5.85%, 12/01/23............................................ 5,000,000 5,157,550
Southern California Edison Co., 6.40%, 12/01/24........................................ 2,000,000 2,171,240
California PCFA, Solid Waste Disposal Revenue,
Browning-Ferris Industries, Inc., 6.75%, 9/01/19........................................ 1,000,000 1,123,710
California Special District Association Finance Corp., COP, Series V, 7.50%, 5/01/13 .... 75,000 79,748
California State GO,
FGIC Insured, 6.00%, 8/01/19............................................................ $ 1,500,000 $ 1,592,370
Veterans Bonds, Series BD, BE, and BF, 6.40%, 2/01/22................................... 1,250,000 1,279,238
California State HFA, Mortgage Revenue, Series L, MBIA Insured, 6.40%, 8/01/27........... 3,000,000 3,212,820
California Statewide CDA Revenue, COP, CHFCLP Insured, 7.25%, 12/01/22 .................. 1,800,000 2,065,500
Capistrano USD, CFD, Special Tax No. 9, 7.00%, 9/01/18 .................................. 1,000,000 1,040,380
Duarte RDA, Tax Allocation,
Rancho Duarte Phase I Project Area, 6.80%, 9/01/16...................................... 825,000 858,066
Refunding, Davis Addition Project Area, 6.70%, 9/01/14.................................. 2,615,000 2,720,385
Refunding, Davis Addition Project Area, 6.90%, 9/01/18.................................. 4,120,000 4,284,594
Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue, Senior Lien, Series A,
6.50%, 1/01/32.......................................................................... 5,500,000 5,927,075
6.00%, 1/01/34.......................................................................... 8,235,000 8,555,506
Garden Grove Housing Authority, MFHR, Set-Aside Tax Increment, Series C, 6.70%, 7/01/24.. 6,375,000 6,679,598
Gateway Improvement Authority Revenue, Marin City CFD, Series A, 7.75%, 9/01/25.......... 2,500,000 2,769,525
Granada Sanitation District, 1915 Act, Sewage Treatment Facilities, Financing District, Series A,
7.125%, 9/02/16......................................................................... 985,000 1,015,476
7.25%, 9/02/22.......................................................................... 990,000 1,020,641
Hawaiian Gardens RDA Project No. 1, Tax Allocation, Refunding, 6.35%, 12/01/33........... 4,000,000 4,179,240
Hesperia Public Financing Authority, Improvement Revenue, Series B, 7.375%, 10/01/23 .... 1,930,000 2,007,663
Huntington Beach Public Financing Authority Revenue, Huntington Beach Redevelopment Projects,
Refunding, 7.00%, 8/01/24.............................................................. 1,000,000 1,033,640
Irvine 1915 Act, AD No. 95, 6.70%, 9/02/20............................................... 2,500,000 2,563,600
Irvine Ranch Water District, Joint Powers Agency, Local Pool Revenue,
Issue I, 7.875%, 2/15/23 ............................................................... 1,000,000 1,007,620
Issue II, 8.25%, 8/15/23 ............................................................... 2,000,000 2,058,740
John C. Fremont Hospital District Revenue, California Health Facilities,
Insured, 6.75%, 6/01/13 ................................................................. 1,500,000 1,642,155
Lake Elsinore 1915 Act, AD No. 9, Series A, 7.90%, 9/02/24 .............................. 1,265,000 1,338,003
Lake Elsinore School Financing Authority Revenue, Refunding, 6.125%, 9/01/19............. 1,000,000 1,029,640
Lancaster RDA, Tax Allocation, Refunding, Sub-Residential Redevelopment Project, Subordinated Lien,
6.65%, 9/01/27......................................................................... 2,500,000 2,521,025
Lemon Grove School District COP, Vista La Mesa
Elementary School Construction, 6.40%, 9/01/26.......................................... 2,000,000 2,065,960
Long Beach Special Tax, CFD No. 2, 7.50%, 9/01/11 ....................................... 140,000 141,593
Los Angeles Harbor Development Revenue, Series B,........................................
6.00%, 8/01/14.......................................................................... 3,500,000 3,690,330
5.375%, 11/01/23........................................................................ 2,465,000 2,439,364
Los Angeles MFR, Refunding, Series J-2, 8.50%, 1/01/24................................... 1,150,000 1,173,828
Los Angeles USD, COP, Multiple Properties Project,
Refunding, FSA Insured, 5.625%, 11/01/13................................................ 2,500,000 2,502,175
Lynwood Public Financing Authority Revenue,
Water System Improvement Project, 6.50%, 6/01/21........................................ 1,175,000 1,246,722
Millbrae Elementary School District, COP, Financing Project, 6.90%, 3/01/22.............. 1,480,000 1,575,031
Modesto Public Financing Authority, Lease Revenue, John Thurman
Field Renovation Project, 6.125%, 11/01/16.............................................. 1,750,000 1,815,450
National City Community Development Commission, MFHR,
Park Villas Apartments, Series A, GNMA Secured, 5.85%, 7/20/19........................ 1,545,000 1,594,904
Newport Mesa USD, Special Tax, CFD No. 90-1, 6.75%, 9/01/21.............................. 2,000,000 2,061,680
Oakland Revenue, Refunding, YMCA of the East Bay Project, 7.10%, 6/01/10................. 2,815,000 3,060,637
Orinda 1915 Act, AD No. 9, Oak Springs, 8.25%, 9/02/19 .................................. 1,545,000 1,594,270
Oroville Hospital Revenue, Oroville Hospital, Series A,
CHFCLP Insured, 5.40%, 12/10/17......................................................... 1,140,000 1,135,850
Palmdale Special Tax, CFD No. 9, Ritter Ranch Project, Series A, 8.50%, 9/01/17 ......... 10,000,000 9,671,900
Perris Public Financing Authority, Local Agency Revenue, Series B, 7.25%, 8/15/23 ....... $ 500,000 $ 518,505
Richmond Revenue, Refunding, YMCA of the East Bay Project, 7.25%, 6/01/17................ 3,100,000 3,308,909
Riverside County CFD, Refunding, Special Tax,
Senior Lien, No. 87-5, Series A, 7.00%, 9/01/13......................................... 7,335,000 7,720,088
b Riverside County Public Financing Authority, Lease Revenue,
AMBAC Insured, 5.375%, 10/01/22......................................................... 1,590,000 1,588,776
Sacramento County 1915 Act, Refunding, Sunrise/U.S. Corridor Assessment,
7.00%, 9/02/09.......................................................................... 85,000 87,680
Sacramento County Special Tax, Refunding, CFD No.1, 6.30%, 9/01/21....................... 1,575,000 1,606,248
Salinas COP, Capital Improvement Projects, Series A, 5.70%, 10/01/28..................... 2,665,000 2,687,573
Salinas Valley Solid Waste Authority Revenue,
5.75%, 8/01/18.......................................................................... 500,000 499,955
5.80%, 8/01/27.......................................................................... 1,100,000 1,098,350
San Bernardino Associated Communities Financing Authority,
Health Care, COP, Refunding and Improvement,
Granada Hills, Series A, 6.90%, 5/01/27................................................ 10,000,000 10,565,700
San Bernardino County MFHR, Series A,
Meadowland Apartments Project, 6.50%, 3/01/10........................................... 7,250,000 7,197,003
Park Heights Apartments, 6.50%, 8/01/05................................................. 2,520,000 2,501,579
San Bernardino Joint Powers Financing Authority, Lease Revenue,
Department of Transportation Lease,
Series A, 5.50%, 12/01/20.............................................................. 4,000,000 3,989,600
San Diego County Educational Facilities Authority No. 1, Lease Revenue, 6.50%, 8/15/15... 850,000 904,434
San Diego Special Tax, CFD No. 1, Series B, 7.10%, 9/01/20............................... 3,500,000 3,761,800
San Francisco City and County Airports Commission, International Airport Revenue,
Second Series, Issue 8A, FGIC Insured, 6.25%, 5/01/20................................. 1,570,000 1,671,862
San Francisco City and County Redevelopment Financing Authority, Tax Allocation Revenue,
Redevelopment Projects, Series A, 5.50%, 8/01/22........................................... 1,180,000 1,180,106
San Francisco City and County Revenue, Irwin Memorial Blood Centers,
Series A, 6.80%, 12/01/21............................................................... 800,000 861,064
San Joaquin Area Flood Control Agency, 1915 Act, Flood Protection &
Restoration Assessment, FSA Insured, 6.00%, 9/02/14.................................... 970,000 1,001,098
San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue,
Junior Lien, ETM, 0.00%, 1/01/28........................................................ 19,150,000 3,856,044
Senior Lien, Pre-Refunded, 7.00%, 1/01/30............................................... 675,000 766,530
Senior Lien, Pre-Refunded, 6.75%, 1/01/32............................................... 3,450,000 3,878,904
Refunding, Series A, 5.50%, 1/15/28..................................................... 18,210,000 18,076,157
San Jose Financing Authority Revenue, Convention Center Project, Series C,
6.40%, 9/01/17.......................................................................... 5,000,000 5,310,150
San Luis Obispo COP, Vista Hospital System, Inc., 8.375%, 7/01/29........................ 6,660,000 6,999,660
San Mateo RDA, Tax Allocation, Merged Area, Series A,
5.50%, 8/01/17.......................................................................... 1,330,000 1,321,980
5.50%, 8/01/22.......................................................................... 4,820,000 4,761,918
San Ramon Public Financing Authority, Refunding, Tax Allocation, 6.90%, 2/01/24 ......... 1,500,000 1,617,343
Sand City RDA, Tax Allocation Revenue, Sand City Redevelopment Project, 6.00%, 11/01/26.. 3,900,000 4,013,841
Santa Rosa 1915 Act, Fountain/Grove Parkway Extension Assessment, 7.625%, 9/02/19........ 1,500,000 1,547,130
Southern California Public Power Authority, Southern Transmission Project Revenue,
Sub-Crossover Refunding, 6.125%, 7/01/18............................................... 1,140,000 1,209,540
Stockton Health Facilities Revenue, Refunding,
Dameron Hospital Association, Series A, 5.70%, 12/01/14................................. 2,000,000 2,034,780
Taft Public Financing Authority, Lease Revenue, Community Correctional Facility Project,
Series A, 6.05%, 1/01/17................................................................ 3,235,000 3,413,636
Tracy COP, I-205 Corridor Improvement Project, 7.00%, 10/01/27 .......................... 1,200,000 1,272,611
Upland COP, Refunding, Mortgage Insured, 5.50%, 6/01/21.................................. 2,000,000 2,004,720
Vallejo COP, Refunding, Marine World Foundation Project, 7.40%, 2/01/28.................. 9,345,000 10,112,131
Victor Valley Union High School District COP, Instructional Academy Project,
MBIA Insured, 5.80%, 11/15/21........................................................... 1,000,000 1,047,420
Western Placer Waste Management Authority Revenue, 6.75%, 7/01/14........................ $ 7,400,000 $ 7,931,320
Westminster COP, Public Improvements Project, 6.00%, 6/01/22............................. 2,060,000 2,133,376
-------------
Total Long Term Investments (Cost $290,919,988).......................................... 306,140,189
-------------
a Short Term Investments 3.1%
California Health Facilities Finance Authority Revenue, Refunding, Series B,
Daily VRDN and Put, 3.70%
Sutter/CHS, AMBAC Insured, 7/01/12...................................................... 2,100,000 2,100,000
St. Joseph Systems, 7/01/13............................................................. 500,000 500,000
California PCFA Revenue, Refunding, Shell Oil Co. Project, Series A,
Daily VRDN and Put, 3.70%, 10/01/07..................................................... 900,000 900,000
California Statewide Community Development Authority Revenue,
COP, St. Joseph Health Systems Group,
Daily VRDN and Put, 3.70%, 7/01/24..................................................... 800,000 800,000
Irvine 1915 Act, AD No.93, Oak Creek Project, Daily VRDN and Put, 3.75%, 9/02/22......... 1,200,000 1,200,000
Irvine Ranch Consolidated Water District, Daily VRDN and Put,
3.70%, 6/01/15.......................................................................... 800,000 800,000
Nos.105, 250 and 290, 3.75%, 8/01/16.................................................... 500,000 500,000
Nos.105, 140, 240 and 250, 3.75%, 1/01/21............................................... 700,000 700,000
Nos.105, 140, 240 and 250, 3.75%, 4/01/33............................................... 1,100,000 1,100,000
Orange County Various Sanitation Districts, COP, FGIC Insured,
Daily VRDN and Put, 3.60%, 8/01/17...................................................... 1,400,000 1,400,000
-------------
Total Short Term Investments (Cost $10,000,000).......................................... 10,000,000
-------------
Total Investments (Cost $300,919,988) 98.7% ............................................. 316,140,189
Other Assets, less Liabilities 1.3% ..................................................... 4,117,861
-------------
Net Assets 100.0%........................................................................ $320,258,050
=============
</TABLE>
See Glossary of terms on page 54.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Hawaii Municipal Bond Fund
Class I
--------------------------------------------------------------------
Six months ended
November 30, 1997 Year ended May 31,
(unaudited) 1997 1996 1995 1994 1993
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...... $10.79 $10.54 $10.67 $10.36 $10.80 $10.18
--------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .30 .60 .60 .60 .62 .63
Net realized and unrealized gains (losses) .31 .25 (.13) .31 (.46) .63
--------------------------------------------------------------------
Total from investment operations.......... .61 .85 .47 .91 .16 1.26
Less distributions from net investment income (.30) (.60) (.60) (.60) (.60) (.64)
--------------------------------------------------------------------
Net asset value, end of period............ $11.10 $10.79 $10.54 $10.67 $10.36 $10.80
====================================================================
Total return**............................ 5.67% 8.23% 4.49% 9.26% 1.35% 12.77%
Ratios/supplemental data
Net assets, end of period (000's)......... $42,823 $40,003 $38,805 $36,827 $26,904 $18,657
Ratios to average net assets:
Expenses................................. .40%* .39% .35% .20% .05% --
Expenses excluding waiver and payments
by affiliate............................ .82%* .83% .84% .87% .92% 1.06%
Net investment income.................... 5.38%* 5.59% 5.63% 6.02% 5.76% 5.95%
Portfolio turnover rate................... 3.88% 13.40% 16.01% 22.88% 31.35% 48.70%
</TABLE>
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Hawaii Municipal Bond Fund AMOUNT VALUE
<S> <C> <C>
Long Term Investments 97.7%
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ............................................................................ $ 200,000 $ 218,454
6.70%, 10/01/23 ............................................................................ 1,000,000 1,098,330
Guam Government, Limited Obligation Highway, Refunding,
Series A, FSA Insured, 6.30%, 5/01/12 ...................................................... 280,000 301,277
Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 ..................................... 300,000 314,520
Hawaii State Airport System Revenue,
Refunding, Third Series 1994, AMBAC Insured, 5.75%, 7/01/09 ................................ 300,000 316,167
Second Series 1990, FGIC Insured, 7.50%, 7/01/20 ........................................... 60,000 65,586
Second Series 1991, 7.00%, 7/01/18 ......................................................... 1,520,000 1,648,030
Second Series 1991, MBIA Insured, 6.75%, 7/01/21 ........................................... 200,000 216,528
Second Series 1992, MBIA Insured, 6.90%, 7/01/12 ........................................... 400,000 467,524
Hawaii State Department of Budget and Finance, Special Purpose Revenue,
Hawaii Electric Light Co. Project, Mortgage, 7.20%, 12/01/14 ............................... 100,000 106,656
Hawaiian Electric Co., Mortgage, Series A, MBIA Insured, 6.60%, 1/01/25 .................... 1,950,000 2,145,254
Hawaiian Electric Co. Project, Series B, MBIA Insured, 5.875%, 12/01/26..................... 500,000 516,560
Hawaiian Electric Co. and Subsidiaries, Mortgage, MBIA Insured, 6.55%, 12/01/22 ............ 3,425,000 3,724,859
Kapiolani Health Obligation, 6.25%, 7/01/21................................................. 1,100,000 1,162,722
Pali Momi Medical Center Project, Pre-Refunded, 7.65%, 7/01/19.............................. 105,000 118,909
Queens Medical Center Project, FGIC Insured, Pre-Refunded, 6.20%, 7/01/22 .................. 500,000 548,400
Refunding, Hawaii Electric Co., 6.875%, 4/01/12 ............................................ 25,000 25,550
Refunding, Kaiser Permanente, Series A, 6.25%, 3/01/21 ..................................... 100,000 105,303
Refunding, Kapiolani Health Care System, 6.40%, 7/01/13 .................................... 600,000 639,540
Refunding, Kapiolani Health Care System, 6.00%, 7/01/19..................................... 125,000 129,606
Refunding, Queens Health System, Series A, 6.05%, 7/01/16................................... 1,000,000 1,065,920
Refunding, Queens Health System, Series A, 6.00%, 7/01/20................................... 120,000 126,928
Refunding, Queens Health System, Series A, 5.75%, 7/01/26................................... 1,500,000 1,535,730
Refunding, Queens Medical Center Project, FGIC Insured, Pre-Refunded, 6.50%, 7/01/12 ....... 725,000 736,680
St. Francis Medical Centers, FSA Insured, 6.50%, 7/01/22 ................................... 1,100,000 1,188,957
Hawaii State Department of Transportation, Special Facilities Revenue,
Refunding, Matson Terminals, Inc., 5.75%, 3/01/13 ......................................... 75,000 77,548
Hawaii State GO,
Series BT, Pre-Refunded, 6.125%, 2/01/11 ................................................... 100,000 106,513
Series BW, 6.375%, 3/01/11 ................................................................. 100,000 113,088
Series CA, 6.00%, 1/01/09 .................................................................. 100,000 109,672
Series CP, FGIC Insured, 5.00%, 10/01/17.................................................... 100,000 96,935
Hawaii State Harbor Capital Improvement Revenue,
Refunding, Series 1994, FGIC Insured, 6.25%, 7/01/15 ....................................... 1,000,000 1,073,820
Refunding, Series 1994, FGIC Insured, 6.375%, 7/01/24 ...................................... 500,000 536,280
Series 1990, MBIA Insured, 7.25%, 7/01/10 .................................................. 70,000 76,113
Series 1990, MBIA Insured, 7.00%, 7/01/17 .................................................. 80,000 86,259
Series 1992, FGIC Insured, 6.50%, 7/01/19 .................................................. 200,000 214,978
Hawaii State Housing Finance and Development Corp. Revenue,
Affordable Rental Housing Program, Series A,
6.00%, 7/01/15.............................................................................. 1,000,000 1,043,590
6.05%, 7/01/22.............................................................................. 750,000 782,625
6.10%, 7/01/30.............................................................................. 250,000 260,850
Hawaii State Housing Finance and Development Corp., SFM Purchase Revenue,
Series A, FNMA Secured, 7.10%, 7/01/24 ..................................................... 465,000 494,309
Series A, 6.00%, 7/01/26.................................................................... 290,000 297,998
Hawaii State Housing Finance and Development Corp., SFM Purchase Revenue, (cont.)
Series B, FNMA Secured, 5.45%, 7/01/17 ..................................................... $3,470,000 $ 3,590,340
Series B, FNMA Secured, 5.85%, 7/01/17...................................................... 1,800,000 1,824,606
Honolulu City and County,
Refunding, Series 1992, 6.00%, 12/01/14 .................................................... 150,000 163,608
Series A, Pre-Refunded, 6.30%, 3/01/08 ..................................................... 85,000 92,943
Series A, Pre-Refunded, 6.30%, 3/01/11 ..................................................... 100,000 109,345
Series A, Pre-Refunded, 6.70%, 8/01/07 ..................................................... 75,000 82,073
Series A, Pre-Refunded, 6.70%, 8/01/11 ..................................................... 100,000 109,431
Series B, Pre-Refunded, 6.125%, 6/01/14 .................................................... 1,000,000 1,101,080
Water Supply Board, Water System Revenue, 5.80%, 7/01/21.................................... 1,785,000 1,862,201
Honolulu City and County MFHR, Waipahu Towers Project, Series A, 6.90%, 6/20/35.............. 1,205,000 1,311,510
Kauai County GO, Refunding, Series C, AMBAC Insured, 5.95%, 8/01/10 ......................... 220,000 241,149
Maui County Board, Water Supply Revenue, Series A,
FGIC Insured, Pre-Refunded, 6.70%, 12/01/11................................................. 100,000 110,146
Maui County GO,
Refunding, Series 1992, 6.05%, 9/01/07 ..................................................... 50,000 52,432
Refunding, Series 1992, 6.10%, 9/01/08 ..................................................... 300,000 315,051
Refunding, Series A, FGIC Insured, 5.75%, 1/01/11 .......................................... 385,000 396,207
Series A, FGIC Insured, 5.75%, 1/01/13...................................................... 150,000 153,936
Northern Mariana Islands Commonwealth Ports Authority,
Seaport Revenue, Port Saipan Harbor Improvement,
Series A, 6.85%, 10/01/25................................................................... 1,000,000 1,044,190
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, Pre-Refunded, 7.00%, 7/01/19...................................................... 145,000 150,585
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, 7/01/18,
Series T, Pre-Refunded, 6.625%.............................................................. 315,000 350,403
Series Y, 5.50%............................................................................. 800,000 803,144
Puerto Rico Electric Power Authority Revenue,
Series O, 7.125%, 7/01/14 .................................................................. 60,000 63,454
Series O, Pre-Refunded, 7.125%, 7/01/14 .................................................... 55,000 58,462
Series T, 6.375%, 7/01/24................................................................... 1,000,000 1,091,850
Puerto Rico Industrial, Medical and Environmental Facilities Revenue PCFA,
PepsiCo, Inc. Project, 6.25%, 11/15/13 ..................................................... 350,000 382,697
Puerto Rico PBA, Guaranteed, Public Education and Health Facilities,
Refunding, Series M, 5.75%, 7/01/15....................................................... 900,000 921,014
Series L, Pre-Refunded, 6.875%, 07/01/21 ................................................. 215,000 241,381
Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 1/01/22 ............... 1,230,000 1,300,257
-------------
Total Investments (Cost $39,458,697) 97.7%................................................... 41,818,063
Other Assets, less Liabilities 2.3% ......................................................... 1,004,464
-------------
Net Assets 100.0%............................................................................ $42,822,527
=============
</TABLE>
See glossary of terms on page 54.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Tennessee Municipal Bond Fund
Class I
-----------------------------------------------------------
Six months ended
November 30, 1997 Year ended May 31,
(unaudited) 1997 1996 1995 1994+
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.............. $10.71 $10.40 $10.53 $10.11 $10.00
-----------------------------------------------------------
Income from investment operations:
Net investment income ........................... .29 .58 .56 .52 .01
Net realized and unrealized gains (losses)....... .38 .33 (.09) .35 .10
-----------------------------------------------------------
Total from investment operations.................. .67 .91 .47 .87 .11
Less distributions from net investment income..... (.29) (.60) (.60) (.45) --
-----------------------------------------------------------
Net asset value, end of period.................... $11.09 $10.71 $10.40 $10.53 $10.11
===========================================================
Total return**.................................... 6.28% 8.95% 4.50% 8.97% 1.10%
Ratios/supplemental data
Net assets, end of period (000's)................. $36,024 $26,708 $13,956 $5,986 $2,224
Ratios to average net assets:
Expenses......................................... .40%* .40% .33% .10% .03%*
Expenses excluding waiver and payments by affiliate .92%* .84% .91% .92% 1.05%*
Net investment income ........................... 5.24%* 5.51% 5.67% 6.02% 1.89%*
Portfolio turnover rate........................... 17.31% 27.60% 27.23% 24.71% 22.64%
</TABLE>
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized.
+For the period May 10, 1994 (effective date) to May 31, 1994.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Tennessee Municipal Bond Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 101.0%
Carroll County IDBR, Refunding, Henry I. Siegel Co., Inc. Project, 7.20%, 4/01/05 ......... $ 500,000 $ 520,035
Cleveland Water and Sewer, FGIC Insured, 5.375%, 9/01/28................................... 1,000,000 1,001,790
Collierville Water and Sewer Systems, MBIA Insured, 5.625%, 11/01/21....................... 500,000 506,785
Dickson Electric System Revenue, MBIA Insured, 5.50%, 9/01/16.............................. 1,220,000 1,244,559
Eastside Utility District, Hamilton County Waterworks Revenue,
Refunding, MBIA Insured, 5.25%, 11/01/17.................................................. 1,020,000 1,022,632
Franklin IDB, MFHR, Refunding, Landings Apartment Project,
Series A, FSA Insured, 6.00%, 10/01/26.................................................... 1,000,000 1,042,780
Hamilton County IDB, MFHR, Patten Towers Apartments, Series B, 7.125%, 2/01/09............. 500,000 517,385
Hardeman County, FGIC Insured, 5.625%, 4/01/24............................................. 880,000 900,284
Hollow Rock-Bruceton Special School District, FSA Insured, 5.75%, 4/01/24.................. 500,000 518,075
Humphreys County IDB, Solid Waste Disposal Revenue,
Du Pont (E.I.) De Nemours & Co. Project, 6.70%, 5/01/24 .................................. 800,000 882,176
Jackson GO, Refunding & Improvement, MBIA Insured, 5.125%, 3/01/16......................... 1,000,000 991,140
Johnson City Health and Educational Facilities Board, Mortgage Revenue,
Pine Oaks Assisted Project, Series A, GNMA Secured, 5.90%, 6/20/37...................... 1,400,000 1,430,408
Johnson City Public Improvement, FSA Insured, 5.90%, 6/01/12............................... 500,000 527,180
Johnson City Public Improvement, GO, Series B, AMBAC Insured,
Pre-Refunded, 6.70%, 5/01/20 ............................................................. 100,000 114,881
Johnson City Solid Waste, AMBAC Insured, 5.80%, 5/01/09 ................................... 100,000 106,421
Knox-Chapman Utility District, Knox County Water and Sewer Revenue,
FSA Insured, 5.40%, 1/01/23............................................................... 660,000 664,673
Refunding, MBIA Insured, 6.10%, 1/01/19................................................... 100,000 106,005
Knox County First Utility District, Water and Sewer Revenue, Refunding & Improvement,
Series A, MBIA Insured, 5.625%, 12/01/19................................................ 1,000,000 1,030,360
Knox County Health, Educational and Housing Facilities Board, Hospital Revenue, Refunding,
Ft. Sanders Alliance, MBIA Insured, 5.75%, 1/01/14........................................ 1,250,000 1,345,488
Mercy Health Systems, Series B, AMBAC Insured, 5.875%, 9/01/15 ........................... 345,000 357,875
Knox County IDB, MFMR, Refunding, Waterford Apartments, Series A, 5.95%, 3/01/28........... 250,000 261,250
Loudon County IDB, Solid Waste Disposal Revenue,
Kimberly-Clark Corp. Project, 6.20%, 2/01/23 .............................................. 1,305,000 1,371,738
Macon County GO, FGIC Insured, 5.90%, 9/01/13 ............................................. 150,000 156,752
Maury County IDB, PCR, Multi-Modal, Refunding, Saturn Corp. Project, 6.50%, 9/01/24 ....... 620,000 680,388
McKenzie High School District, FSA Insured, 5.75%, 4/01/22................................. 500,000 516,870
Memphis GO, 5.75%, 8/01/15................................................................. 500,000 515,565
Memphis Health, Educational and Housing Facilities Board, Mortgage Revenue, Refunding,
Edgewater Territory, FHA/GNMA Secured, 7.375%, 1/20/27 ................................... 150,000 161,990
MF, River Trace II, Series A, 6.45%, 4/01/26.............................................. 100,000 105,775
Memphis-Shelby County Airport Authority Revenue, Refunding, MBIA Insured, 5.65%, 9/01/15... 500,000 513,185
Memphis-Shelby County Airport Authority, Special Facilities and Project Revenues,
Refunding, Federal Express Corp., 6.75%, 9/01/12 ........................................ 100,000 109,371
Metropolitan Government of Nashville and Davidson County,
Electric Revenue, Refunding, Series A, 6.00%, 5/15/17..................................... 200,000 208,888
Metropolitan Government of Nashville and Davidson County,
Health and Educational Facilities Board,
Refunding, Dandridge Towers, Series 8-A, 6.375%, 1/01/11................................. 500,000 524,400
Metropolitan Government of Nashville and Davidson County,
Health and Educational Facilities Board Revenue,
Meharry Medical College Project, AMBAC Insured, Pre-Refunded, 6.875%, 12/01/24 .......... 150,000 173,862
Metropolitan Government of Nashville and Davidson County,
Health and Educational Facilities Board Revenue,
Refunding, The Vanderbilt University, Series A, 5.375%, 7/01/18.......................... 1,000,000 1,008,960
Metropolitan Government of Nashville and Davidson County,
Public Improvement, 5.875%, 5/15/26....................................................... 1,000,000 1,049,330
Metropolitan Government of Nashville and Davidson County,
Sports Authority Revenue, Stadium Public
Improvement Project, AMBAC Insured, 5.875%, 7/01/21...................................... 1,775,000 1,868,401
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%, 7/01/15 .. 205,000 222,638
Milan Special School District, AMBAC Insured, 6.625%, 04/01/11 ............................ 180,000 198,524
Northern Mariana Islands Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%, 10/01/25 .............................. $ 300,000 $ 313,257
Pigeon Forge Public Improvement, MBIA Insured, 5.90%, 6/01/09 ............................. 100,000 105,393
Puerto Rico Commonwealth GO, 6.50%, 7/01/23 ............................................... 100,000 110,525
Puerto Rico Commonwealth Highway and Transportation
Authority Revenue, Series Y, 6.00%, 7/01/22............................................... 500,000 525,140
Puerto Rico Commonwealth Public Improvement, 5.75%, 7/01/17................................ 750,000 777,570
Puerto Rico Electric Power Authority Revenue,
Series R, 6.25%, 7/01/17.................................................................. 100,000 106,418
Series X, 5.50%, 7/01/25.................................................................. 500,000 501,200
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities, Financing Authority,
Hospital Revenue, Auxilio Mutuo Obligation Group,
Series A, MBIA Insured, 6.25%, 7/01/24 ................................................... 200,000 216,684
Puerto Rico Ports Authority Revenue, Special Facilities,
American Airlines, Series A, 6.25%, 6/01/26............................................... 600,000 647,934
Shelby County GO, Series B, 6.00%, 3/01/16................................................. 530,000 567,932
Shelby County Health, Educational and Housing Facilities Board,
Hospital Revenue, MBIA Insured, 5.30%, 8/01/15............................................ 500,000 504,290
Shelby County Schools, Series A, 5.80%, 4/01/19............................................ 250,000 259,735
South Fulton IDBR, Tyson Foods, Inc. Project, 6.40%, 10/01/20 ............................. 300,000 327,909
Sullivan County IDBR, Refunding, Brandymill, Series I-A, GNMA Secured, 6.35%, 7/20/27 ..... 350,000 377,843
Tennessee HDA, Home Ownership Program,
Issue 4A, 6.375%, 7/01/22................................................................. 800,000 848,936
Series 3, 5.85%, 7/01/23.................................................................. 500,000 510,515
Tennessee HDA, Mortgage Finance,
Series A, 6.90%, 7/01/25 ................................................................. 200,000 217,372
Series B, 6.60%, 7/01/25 ................................................................. 280,000 299,636
Series B, MBIA Insured, 6.20%, 7/01/18 ................................................... 630,000 666,301
Tennessee State Local Development Authority Revenue,
Community Provider Pooled Loan Program, 6.55%, 10/01/23................................... 100,000 106,178
b Refunding, State Loan Program, Series A, MBIA Insured, 5.125%, 3/01/22..................... 1,710,000 1,676,124
Tennessee State School Board Authority, Higher Educational Facilities,
Series A, 6.25%, 5/01/22.................................................................. 100,000 105,971
White House Utility District, Robertson and Sumner Counties Waterworks System Revenue,
Refunding, Series B, FGIC Insured, 5.375%, 1/01/19....................................... 1,890,000 1,891,927
Wilson County COP, Educational Facilities, 6.125%, 6/30/10 ................................ 220,000 235,021
-------------
Total Long Term Investments (Cost $34,717,388)............................................. 36,378,630
-------------
a Short Term Investments .5%
Metropolitan Nashville Airport Authority Revenue, Refunding & Improvement,
FGIC Insured, Weekly VRDN and Put, 3.90%, 7/01/19........................................ 100,000 100,000
Metropolitan Nashville Airport Authority, Special Facilities Revenue,
Refunding, American Airlines Project, Series A,
Daily VRDN and Put, 3.85%, 10/01/12 ......................................................... 100,000 100,000
-------------
Total Short Term Investments (Cost $200,000)............................................... 200,000
-------------
Total Investments (Cost $34,917,388) 101.5%................................................ 36,578,630
Other Assets, less Liabilities (1.5)%...................................................... (554,891)
-------------
Net Assets 100.0%.......................................................................... $36,023,739
=============
</TABLE>
See glossary of terms on page 54.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
bSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Franklin Washington Municipal Bond Fund
Class I
--------------------------------------------------------------------
Six months ended
November 30, 1997 Year ended May 31,
(unaudited) 1997 1996 1995 1994 1993+
--------------------------------------------------------------------
Per share operating performance
<S> <C> <C> <C> <C> <C> <C>
(for a share outstanding throughout the period)
Net asset value, beginning of period..... $10.09 $9.80 $9.90 $9.55 $9.99 $10.00
--------------------------------------------------------------------
Income from investment operations:
Net investment income................... .29 .58 .56 .56 .51 .03
Net realized and unrealized gains (losses) .27 .29 (.08) .36 (.46) (.04)
--------------------------------------------------------------------
Total from investment operations......... .56 .87 .48 .92 .05 (.01)
Less distributions from:
Net investment income................... (.29) (.58) (.58) (.57) (.47) --
Net realized gains...................... -- -- -- -- (.02) --
--------------------------------------------------------------------
Total distributions...................... (.29) (.58) (.58) (.57) (.49) --
--------------------------------------------------------------------
Net asset value, end of period........... $10.36 $10.09 $9.80 $9.90 $9.55 $9.99
====================================================================
Total return**........................... 5.60% 9.04% 4.91% 10.10% 2.88% (1.20)%*
Ratios/supplemental data
Net assets, end of period (000's)........ $9,363 $8,361 $7,718 $5,741 $4,272 $2,198
Ratios to average net assets:
Expenses................................ .10%* .10% .10% .10% .05% --
Expenses excluding waiver and payments
by affiliate........................... 1.02%* .90% .92% 1.05% .71% 1.44%*
Net investment income................... 5.60% 5.81% 5.81% 6.13% 5.59% 3.44%*
Portfolio turnover rate.................. 6.19% 7.73% 19.13% 18.46% 39.52% --
</TABLE>
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charges, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
+For the period May 3, 1993 (effective date) to May 31, 1993.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Statement of Investments, November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
Franklin Washington Municipal Bond Fund AMOUNT VALUE
<S> <C> <C>
a Long Term Investments 95.2%
Aberdeen GO, Series A, MBIA Insured, 5.80%, 12/01/12 ..................................... $100,000 $ 103,523
Bellevue Water and Sewer Revenue, Refunding, 5.875%, 7/01/10 ............................. 100,000 105,020
Bellingham Housing Authority Revenue, Cascade Meadows Project, 7.10%, 11/01/23 ........... 200,000 214,734
Clark County School District No. 114, Evergreen School,
Refunding, AMBAC Insured, 5.95%, 12/01/12................................................ 100,000 106,400
Clark County Sewer Revenue, MBIA Insured, 5.70%, 12/01/16................................. 200,000 205,520
Conservation and Renewable Energy System Revenue,
Washington Conservation Project, 6.50%, 10/01/14......................................... 400,000 430,132
Douglas County PUD No. 1, Electric Systems Revenue, MBIA Insured, 6.00%, 1/01/15 ......... 100,000 106,919
Federal Way GO, Refunding, 5.85%, 12/01/21 ............................................... 100,000 101,511
Grant County PUD No. 002, Wanapum Hydroelectric Revenue,
Second Series A, 6.375%, 1/01/23......................................................... 250,000 264,143
Grant County PUD No. 2, Priest Rapids Hydroelectric Revenue,
Second Series B, MBIA Insured, 5.875%, 1/01/26........................................... 100,000 102,710
King County GO, Sewer District, 5.875%, 1/01/15 .......................................... 100,000 105,615
King County Housing Authority Revenue, Woodridge Park Project, 6.25%, 5/01/15 ............ 175,000 183,757
King County School District No. 400, Mercer Island, 5.90%, 12/01/15....................... 100,000 105,107
King County School District No. 412, Shoreline, 6.10%, 6/01/13 ........................... 100,000 106,612
King County School District No. 415, Kent, FSA Insured, 5.875%, 6/01/16................... 200,000 208,616
Lewis County PUD No. 001, Cowlitz Falls Hydroelectric Project Revenue, 6.00%, 10/01/24 ... 200,000 204,984
Pierce County EDC Revenue, Solid Waste, Occidental Petroleum Corp., 5.80%, 9/01/29 ....... 375,000 378,450
Pierce County Sewer Revenue, 5.70%, 2/01/17............................................... 100,000 102,674
Pilchuck Development Public Corp., Special Facilities Airport Revenue,
Tramco, Inc. Project, B.F. Goodrich, 6.00%, 8/01/23 .................................... 800,000 820,136
Port of Seattle Revenue, Series B, 6.00%, 11/01/17 ....................................... 200,000 204,758
SeaTac GO, MBIA Insured, 6.50%, 12/01/13 ................................................. 450,000 492,755
Seattle Housing Authority, Low Income Housing Assistance Revenue,
Kin On Project, GNMA Secured, 7.40%, 11/20/36............................................ 99,000 112,669
Seattle Municipality Metropolitan Sewer Revenue, Refunding, Series V, 6.20%, 1/01/32 ..... 200,000 207,660
Snohomish County GO, MBIA Insured, 5.90%, 12/01/15 ....................................... 100,000 104,179
Snohomish County Housing Authority Revenue, Pooled, 6.30%, 4/01/16........................ 200,000 210,282
Snohomish County PUD No. 1, Electric and Generation Systems Revenue,
Refunding, FGIC Insured, 6.00%, 1/01/18 ................................................. 200,000 209,242
Snohomish County PUD No. 1, Water Revenue, 5.85%, 11/01/17 ............................... 100,000 100,756
Spokane County GO, Refunding, 6.00%, 12/01/14............................................. 130,000 138,645
Spokane County Water District No. 3 Revenue, Refunding, 5.90%, 1/01/14 ................... 100,000 101,536
Stevens County Public Corp., PCR, Refunding, Water Power Co. Project, 6.00%, 12/01/23 .... 300,000 310,380
Sunnyside GO, MBIA Insured, 6.10%, 12/01/14 .............................................. 100,000 106,789
Tacoma Electric Systems Revenue, Refunding, FGIC Insured, 6.25%, 1/01/15 ................. 200,000 214,498
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22....................................... 300,000 306,321
Tacoma Refuse Utility Revenue, AMBAC Insured, Pre-Refunded, 7.00%, 12/01/19 .............. 100,000 116,324
University of Washington, Alumni Association, Lease Revenue,
Roosevelt University Medical Center, FSA Insured, 6.30%, 8/15/14 ....................... 500,000 545,230
Washington State COP, Office Building Project, Series A,
MBIA Insured, 6.00%, 4/01/12 ............................................................ 100,000 104,428
Washington State Health Care Facilities Authority Revenue, Multicare Medical Center,
FGIC Insured, 5.75%, 8/15/22............................................................. 100,000 101,880
Washington State Higher Education Facilities Authority Revenue, Refunding,
Pacific Lutheran University Project,
Connie Lee Insured, 5.70%, 11/01/26..................................................... 200,000 203,730
Washington State Housing Finance Commission, GNMA/FNMA Secured,
Series 1A-1, 6.25%, 6/01/16.............................................................. 100,000 106,576
SF Program, Series 1A-3, 6.15%, 12/01/15................................................. 200,000 211,568
SF Program, Series 2N, 6.05%, 12/01/16................................................... 100,000 104,726
SF Program, Series 3A, 5.75%, 12/01/28................................................... 200,000 203,024
Washington State Housing Finance, SFMR, MBS Program, Series A, 7.05%, 7/01/22 ............ 75,000 81,564
Washington State Motor Vehicle Fuel Tax, Series D, 6.00%, 9/01/20......................... $240,000 $ 252,089
Whatcom County School District No. 501, Bellingham, 6.05%, 12/01/13 ...................... 100,000 105,367
-------------
Total Long Term Investments (Cost $8,464,607) ............................................ 8,913,539
-------------
aShort Term Investments 2.1%
Washington State Health Care Facilities Authority Revenue,
Sisters of Providence, Daily VRDN and Put,
Series B, 3.90%, 10/01/05................................................................ 100,000 100,000
Series E, 3.90%, 10/01/05................................................................ 100,000 100,000
-------------
Total Short Term Investments (Cost $200,000) ............................................. 200,000
-------------
Total Investments (Cost $8,664,607) 97.3%................................................. 9,113,539
Other Assets, less Liabilities 2.7%....................................................... 249,250
-------------
Net Assets 100.0%......................................................................... $9,362,789
=============
</TABLE>
See glossary of terms on page 54.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest at
specified dates.
See notes to financial statements.
GLOSSARY OF TERMS:
1915 Act - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CDA - Community Development Authority/Agency
CFD - Community Facilities District
CHFCLP - California Health Facilities Construction Loan Program
COP - Certificate of Participation
EDC - Economic Development Corp.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Corp.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (Some of the securities shown as FSA
Insured were originally insured by Capital Guaranty Insurance Co. (CGIC)
which was acquired by FSA in 1995 and no longer does business under this name.)
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Agency
HMR - Home Mortgage Revenue
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Agency
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
USD - Unified School District
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1997 (unaudited)
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
-------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C>
Investments in securities:
Cost................................. $18,861,024 $300,919,988 $39,458,697 $34,917,388 $8,664,607
==================================================================
Value................................ 19,642,271 316,140,189 41,818,063 36,578,630 9,113,539
Cash.................................. 39,929 965,716 38,821 9,003 77,466
Receivables:..........................
Investment securities sold............. -- -- 100,000 1,636,384 --
Capital shares sold.................... 67,142 1,835,315 -- -- 5,027
Interest............................... 343,880 5,677,812 984,748 645,535 177,615
Affiliates............................. 11,605 -- -- 3,624 5,725
-------------------------------------------------------------------
Total assets........................... 20,104,827 324,619,032 42,941,632 38,873,176 9,379,372
-------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased........ 751,672 3,221,721 -- 2,770,719 --
Capital shares redeemed................ -- 138,821 -- -- --
Affiliates............................. 5,801 186,588 20,645 17,552 3,808
Shareholders........................... 10,336 351,921 48,486 19,516 2,051
Distributions to shareholders......... 23,680 374,788 46,807 41,650 10,724
Other liabilities..................... -- 87,143 3,167 -- --
-------------------------------------------------------------------
Total liabilities...................... 791,489 4,360,982 119,105 2,849,437 16,583
-------------------------------------------------------------------
Net assets, at value.................. $19,313,338 $320,258,050 $42,822,527 $36,023,739 $9,362,789
==================================================================
Net assets consist of:
Undistributed net investment income... $ 48,735 $ 73,192 $ 127,174 $ 28,181 $ 40,681
Net unrealized appreciation........... 781,247 15,220,201 2,359,366 1,661,242 448,932
Accumulated net realized gain (loss).. (35,067) (1,776,879) (714,255) 32,414 (122,391)
Capital shares........................ 18,518,423 306,741,536 41,050,242 34,301,902 8,995,567
-------------------------------------------------------------------
Net assets, at value................... $19,313,338 $320,258,050 $42,822,527 $36,023,739 $9,362,789
==================================================================
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>
Class I:
Net assets, at value.................. $19,313,338 $297,903,599 $42,822,527 $36,023,739 $9,362,789
==================================================================
Shares outstanding.................... 1,783,191 28,278,400 3,857,442 3,248,283 903,808
==================================================================
Net asset value per share*............ $10.83 $10.53 $11.10 $11.09 $10.36
==================================================================
Maximum offering price per share
(Net asset value / 95.75%)............. $11.31 $11.00 $11.59 $11.58 $10.82
==================================================================
Class II:
Net assets, at value.................. -- $ 22,354,451 -- -- --
==================================================================
Shares Outstanding.................... -- $ 2,116,773 -- -- --
==================================================================
Net asset value per share*............ -- $10.56 -- -- --
==================================================================
Maximum offering price per share
(Net asset value / 99.00%)............. -- $10.67 -- -- --
==================================================================
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Statements (continued)
Statements of Operations
for the six months ended November 30, 1997 (unaudited)
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..................................... $462,707 $ 8,651,317 $1,212,495 $ 935,911 $254,526
-------------------------------------------------------------------
Expenses:
Management fees (Note 3)..................... 52,383 733,546 131,302 104,150 27,950
Distribution fees (Note 3)
Class I....................................... 15,177 222,437 19,787 28,284 8,338
Class II...................................... -- 52,679 -- -- --
Transfer agent fees (Note 3)................. 2,071 33,892 7,346 4,026 1,047
Registration and filing fees................. 4,233 10,843 2,531 6,555 1,202
Other........................................ 6,182 49,634 12,537 9,461 6,567
-------------------------------------------------------------------
Total expenses................................ 80,046 1,103,031 173,503 152,476 45,104
Expenses waived/paid by affiliate (Note 3).... (71,702) (489,164) (89,501) (85,922) (40,634)
-------------------------------------------------------------------
Net expenses................................. 8,344 613,867 84,002 66,554 4,470
-------------------------------------------------------------------
Net investment income ........................ 454,363 8,037,450 1,128,493 869,357 250,056
-------------------------------------------------------------------
Realized and unrealized gains:
Net realized gain from investments........... -- 387,166 78,427 97,971 6,555
-------------------------------------------------------------------
Net unrealized appreciation on investments... 467,419 10,486,585 1,085,176 976,750 221,044
-------------------------------------------------------------------
Net realized and unrealized gain.............. 467,419 10,873,751 1,163,603 1,074,721 227,599
-------------------------------------------------------------------
Net increase in net assets resulting
from operations.............................. $921,782 $18,911,201 $2,292,096 $1,944,078 $477,655
==================================================================
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended November 30, 1997 (unaudited)
and the year ended May 31, 1997
Franklin Arkansas Franklin California Franklin Hawaii
Municipal Bond Fund High Yield Municipal Fund Municipal Bond Fund
Six months Year Six months Year Six months Year
ended 11/30/97ended 5/31/97 ended 11/30/97ended 5/31/97 ended 11/30/97ended 5/31/97
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.... $ 454,363 $ 588,356 $ 8,037,450 $ 10,701,441 $ 1,128,493 $ 2,197,925
Net realized gain (loss)
from investments........ -- 4,094 387,166 (119,287) 78,427 51,434
Net unrealized appreciation
on investments.......... 467,419 272,692 10,486,585 4,691,793 1,085,176 857,481
-------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations......... 921,782 865,142 18,911,201 15,273,947 2,292,096 3,106,840
Distributions to shareholders from:
Net investment income:
Class I.................. (450,816) (580,057) (7,510,494) (10,363,742) (1,129,312) (2,194,657)
Class II................. -- -- (428,674) (348,303) -- --
In excess of net investment
income:
Class I................. -- -- -- (33,027) -- --
-------------------------------------------------------------------------------------
Total distributions to
shareholders............ (450,816) (580,057) (7,939,168) (10,745,072) (1,129,312) (2,194,657)
Capital share transactions
(Note 2):
Class I.................. 5,702,022 4,689,718 74,184,620 90,671,188 1,657,069 285,742
Class II................. -- -- 11,080,583 10,295,368 -- --
-------------------------------------------------------------------------------------
Total capital share
transactions............ 5,702,022 4,689,718 85,265,203 100,966,556 1,657,069 285,742
-------------------------------------------------------------------------------------
Net increase in
net assets.............. 6,172,988 4,974,803 96,237,236 105,495,431 2,819,853 1,197,925
Net assets:
Beginning of period..... 13,140,350 8,165,547 224,020,814 118,525,383 40,002,674 38,804,749
-------------------------------------------------------------------------------------
End of period........... $19,313,338 $13,140,350 $320,258,050 $224,020,814 $42,822,527 $40,002,674
=====================================================================================
Undistributed net investment
income (accumulated
distributions in excess of net
investment income) included
in net assets:
End of period............ $ 48,735 $ 45,188 $ 73,192 $ (25,090) $ 127,174 $ 127,993
=====================================================================================
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended November 30, 1997 (unaudited)
and the year ended May 31, 1997
Franklin Tennessee Franklin Washington
Municipal Bond Fund Municipal Bond Fund
------------------------------------------------------------
Six months Year Six months Year
ended 11/30/97 ended 5/31/97 ended 11/30/97ended 5/31/97
------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 869,357 $ 1,061,715 $ 250,056 $ 464,255
Net realized gain (loss) from investments..... 97,971 (277) 6,555 (4,404)
Net unrealized appreciation on investments...... 976,750 561,758 221,044 228,610
------------------------------------------------------------
Net increase in net assets
resulting from operations...................... 1,944,078 1,623,196 477,655 688,461
Distributions to shareholders
from net investment income..................... (864,298) (1,084,118) (250,089) (460,520)
Capital share transactions (Note 2)........... 8,235,498 12,213,104 774,534 414,786
------------------------------------------------------------
Net increase in net assets...................... 9,315,278 12,752,182 1,002,100 642,727
Net assets:
Beginning of period............................ 26,708,461 13,956,279 8,360,689 7,717,962
------------------------------------------------------------
End of period.................................. $36,023,739 $26,708,461 $9,362,789 $8,360,689
============================================================
Undistributed net investment
income included in net assets:
End of period.................................. $ 28,181 $ 23,122 $ 40,681 $ 40,714
============================================================
</TABLE>
See notes to financial statements.
FRANKLIN MUNICIPAL SECURITIES TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Municipal Securities Trust (the Trust) is registered under the
Investment Company Act of 1940 as an open-end, non-diversified investment
company, consisting of five series (the Funds). The funds and their investment
policies are to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. Security Valuation
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
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 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. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. Income Taxes
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount and
premium are amortized on an income tax basis. Dividends from net investment
income are normally declared daily and distributed monthly to shareholders.
Other distributions are recorded on the ex-dividend date.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. Other expenses are
charged to each Fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
d. Accounting Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. TRUST SHARES
The Franklin California High Yield Municipal Fund offers two classes of shares:
Class I and Class II. The shares have the same rights except for their initial
sales load, distribution fees, voting rights on matters affecting a single class
and the exchange privilege of each class.
At November 30, 1997, there were an unlimited number of shares authorized (no
par value). Transactions in the Fund's 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>
Class I Shares:
Six months ended November 30, 1997
Shares sold.................. 546,816 $5,849,021 8,841,347 $ 91,676,375 343,452 $3,774,018
Shares issued in reinvestment
of distributions............ 26,593 285,478 289,387 3,003,689 37,718 415,272
Shares redeemed.............. (40,332) (432,477) (1,975,511) (20,495,444) (229,845) (2,532,221)
---------------------------------------------------------------------------
Net increase................. 533,077 $5,702,022 7,155,223 $ 74,184,620 151,325 $1,657,069
===========================================================================
Year ended May 31, 1997
Shares sold.................. 470,751 $4,901,027 11,958,887 $119,678,964 790,934 $8,525,981
Shares issued in reinvestment
of distributions............. 36,550 380,970 372,489 3,734,093 80,695 866,517
Shares redeemed.............. (57,166) (592,279) (3,267,236) (32,741,869) (847,717) (9,106,756)
---------------------------------------------------------------------------
Net increase................. 450,135 $4,689,718 9,064,140 $ 90,671,188 23,912 $ 285,742
===========================================================================
<S> <C> <C>
Class II Shares:
Six months ended November 30, 1997
Shares sold........................................... 1,113,016 $ 11,562,208
Shares issued in reinvestment of distributions........ 18,611 193,643
Shares redeemed....................................... (64,738) (675,268)
-------------------------
Net increase.......................................... 1,066,889 $ 11,080,583
=========================
Year ended May 31, 1997
Shares sold........................................... 1,204,172 $ 12,057,953
Shares issued in reinvestment of distributions........ 19,594 197,069
Shares redeemed....................................... (195,499) (1,959,654)
-------------------------
Net increase.......................................... 1,028,267 $ 10,295,368
=========================
Franklin Tennessee Franklin Washington
Municipal Bond Fund Municipal Bond Fund
---------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------
<S> <C> <C> <C> <C>
Class I Shares:
Six months ended November 30, 1997
Shares sold........................................... 1,115,652 $12,187,968 88,616 $ 911,389
Shares issued in reinvestment of distributions........ 50,499 553,726 17,147 176,447
Shares redeemed....................................... (411,428) (4,506,196) (30,542) (313,302)
---------------------------------------------------
Net increase.......................................... 754,723 $ 8,235,498 75,221 $ 774,534
===================================================
Year ended May 31, 1997
Shares sold........................................... 1,355,345 $14,372,546 103,811 $1,037,350
Shares issued in reinvestment of distributions........ 64,058 680,991 32,188 322,025
Shares redeemed....................................... (267,495) (2,840,433) (94,809) (944,589)
---------------------------------------------------
Net increase.......................................... 1,151,908 $12,213,104 41,190 $ 414,786
===================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Funds are also officers or trustees of
Franklin/Templeton Distributors, Inc. (Distributors), Franklin Advisers, Inc.
(Advisers), Franklin/Templeton Investor Services, Inc. (Investor Services), and
Franklin Templeton Services, Inc. (FT Services), the Funds' principal
underwriter, investment manager, transfer agent, and administrative manager,
respectively.
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds as follows:
Annualized
Fee Rate Average Daily Net Assets
-----------------------------------------
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the funds.
Advisers agreed in advance to waive management fees and assume payment of other
expenses for the Funds, through 11/30/97, as noted in the Statement of
Operations.
The Franklin Hawaii Municipal Bond Fund reimburses Distributors up to 0.10% per
year of its average daily net assets, the Franklin Arkansas Municipal Bond,
Franklin Tennessee Municipal Bond and Franklin Washington Municipal Bond Funds
reimburse Distributors up to 0.15% per year of the Funds' average daily net
assets, and the Franklin California High Yield Municipal Fund reimburses
Distributors up to 0.15% and 0.65% per year of the average daily net assets of
class I and class II, respectively, for costs in marketing the Funds' shares.
Distributors received/paid net commissions from/on sales of the Funds' shares,
and received contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin
Arkansas California Hawaii Tennessee Washington
Municipal High Yield Municipal Municipal Municipal
Bond FundMunicipal FundBond Fund Bond Fund Bond Fund
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions received (paid).................... $1,203 $(145,732) $8,502 $15,685 $(238)
Contingent deferred sales charges.................. $-- $ 4,210 $-- $-- $--
</TABLE>
4. INCOME TAXES
At May 31, 1997, the Funds had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin
Arkansas California Hawaii Tennessee Washington
Municipal High Yield Municipal Municipal Municipal
Bond FundMunicipal FundBond Fund Bond Fund Bond Fund
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Loss carryovers expiring in:2001........... $-- $-- $ 4,736 $-- $--
2002........... -- -- 159,863 -- --
2003........... 35,067 1,769,137 551,385 4,395 84,798
2004........... -- 4,508 64,421 -- 39,744
2005........... -- 390,400 -- 61,162 --
------------------------------------------------------
$35,067 $2,164,045 $780,405 $65,557 $124,542
======================================================
</TABLE>
At May 31, 1997, the Franklin Hawaii Municipal Bond Fund and the Franklin
Washington Municipal Bond Fund have deferred capital losses occurring subsequent
to October 31, 1996 of $5,364 and $4,404, respectively. For tax purposes, such
losses will be reflected in the year ending May 31, 1998.
At November 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes was 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>
Investment at cost............................ $18,861,024$300,919,988 $39,465,610 $34,917,388 $8,664,607
===========================================================
Unrealized appreciation....................... $ 781,247$ 15,548,790 $ 2,352,457 $ 1,661,242 $ 448,932
Unrealized depreciation....................... -- (328,589) (4) -- --
-----------------------------------------------------------
Net unrealized appreciation................... $ 781,247$ 15,220,201 $ 2,352,453 $ 1,661,242 $ 448,932
===========================================================
</TABLE>
Net realized capital losses differ for financial statements and tax purposes
primarily due to differing treatment of wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended November 30, 1997 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin Franklin
Arkansas California Hawaii Tennessee Washington
Municipal High Yield Municipal Municipal Municipal
Bond FundMunicipal Fund Bond Fund Bond Fund Bond Fund
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases .................................... $6,230,120$131,432,987 $3,098,178 $15,492,653 $1,251,806
Sales......................................... $--$ 55,714,138 $1,586,302 $ 5,712,328 $ 529,270
</TABLE>
6. CREDIT RISK
The Funds have investments in excess of 10% of their total net assets in their
respective states. Such concentration may subject the Funds more significantly
to economic changes occurring within those states.
FRANKLIN MUNICIPAL SECURITIES TRUST SEMI-ANNUAL REPORT NOVEMBER 30, 1997
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 format the credit quality breakdown of the fund's
portfolio on 11/30/97, based on total long-term investments.
AAA 51.2%
AA 16.0%
A 20.3%
BBB 12.5%
GRAPHIC MATERIAL (2)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.20%, and the taxable equivalent rate of 9.26%.
GRAPHIC MATERIAL (3)
This chart shows in pie format the credit quality breakdown of the fund's
portfolio on 11/30/97, based on total long-term investments.
AAA 11.7%
AA 5.9%
A 17.7%
BBB 47.8%
Below Investment Grade 16.9%
GRAPHIC MATERIAL (4)
This chart shows in bar format the comparison between the fund's Class I
shares distribution rate of 5.67%, and the taxable equivalent rate of 10.35%.
GRAPHIC MATERIAL (5)
This chart shows in bar format the comparison between the fund's Class II
shares distribution rate of 5.29 and the taxable equivalent rate of 9.66%.
GRAPHIC MATERIAL (6)
This chart shows in pie format the credit quality breakdown of the fund's
portfolio on 11/30/97, based on total long-term investments.
AAA 40.8%
AA 27.0%
A 22.9%
BBB 9.3%
GRAPHIC MATERIAL (7)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.18%, and the taxable equivalent rate of 9.53%.
GRAPHIC MATERIAL (8)
This chart shows in pie format the credit quality breakdown of the fund's
portfolio on 11/30/97, based on total long-term investments.
AAA 63.4%
AA 18.6%
A 10.5%
BBB 7.5%
GRAPHIC MATERIAL (9)
This chart shows in bar format the comparison between the fund's distribution
rate of 4.87%, and the taxable equivalent rate of 8.58%.
GRAPHIC MATERIAL (10)
This chart shows in pie format the credit quality breakdown of the fund's
portfolio on 11/30/97, based on total long-term investments.
AAA 46.6%
AA 28.3%
A 8.2%
BBB 16.9%
GRAPHIC MATERIAL (11)
This chart shows in bar format the comparison between the fund's distribution
rate of 5.43%, and the taxable equivalent rate of 8.99%.
