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Form N-CSR FRANKLIN MUNICIPAL SECUR For: May 31

August 3, 2020 11:09 AM EDT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT

COMPANIES

Investment Company Act file number    811-06481

Franklin Municipal Securities Trust

(Exact name of registrant as specified in charter)

One Franklin Parkway, San Mateo, CA 94403-1906

(Address of principal executive offices) (Zip code)

 Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906

(Name and address of agent for service)

Registrant’s telephone number, including area code:      650 312-2000

Date of fiscal year end:    5/31

Date of reporting period:    5/31/20


Item 1.   Reports to Stockholders.


 

LOGO

 

              

Franklin California High Yield Municipal Fund        

    

     

Franklin Tennessee Municipal Bond Fund        

    

  

Sign up for electronic delivery at franklintempleton.com/edelivery


Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.

You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.


SHAREHOLDER LETTER

 

Dear Shareholder:

During the 12 months ended May 31, 2020, the U.S. economy showed mixed results, growing moderately through the end of 2019 amid concerns about trade, but contracting in 2020’s first quarter in response to the novel coronavirus (COVID-19) pandemic. The U.S. Federal Reserve (Fed), having lowered the federal funds rate by 0.25% at each of its July, September and October 2019 meetings, held the rate unchanged through February 2020. However, given larger economic risks posed by COVID-19, the Fed lowered its key rate again by 0.50% on March 3 and further by 1.00% on March 15, decreasing the rate during the period from 2.50% to 0.25%. In its efforts to support U.S. economic activity, the Fed also announced broad quantitative easing measures to support credit markets.

During the 12-month period, municipal bonds delivered moderately positive returns as investors were attracted to tax-free income in a declining interest-rate environment. Factors contributing to this positive investment environment for municipals included relatively low inflation, interest-rate declines and recent actions by the Fed to support the municipal bond market.

On July 1, 2020, we are proud to appoint Ben Barber, who rejoins Franklin to succeed Sheila Amoroso as senior vice president and director of our municipal bond department. Ben most recently served as co-head of municipal bonds at Goldman Sachs Asset Management. Ben started his career of over 28 years of municipal bond investing at Franklin in 1991, working with several current investment team members through 1999, when he joined Goldman Sachs.

Franklin Municipal Securities Trust’s annual report includes more detail about municipal bond market conditions and a discussion from the portfolio managers. In addition, on our website, franklintempleton.com, you can find updated commentary by our municipal bond experts. Municipal bonds provide tax-free income and diversification from equities. Despite periods of volatility, municipal bonds historically have had a solid long-term record of performance, driven mostly

by their compounding tax-free income component. As you know, all securities markets fluctuate, as do mutual fund share prices.

As always, we recommend investors consult their financial advisors to help them make the best decisions for the long term. In a constantly changing market environment, we remain committed to our disciplined strategy as we manage the Funds, keeping in mind the trust you have placed in us.

We appreciate your confidence in us and encourage you to contact us or your financial advisor when you have questions about your Franklin tax-free investment.

Sincerely,

 

LOGO

Rupert H. Johnson, Jr.

Chairman

Franklin Municipal Securities Trust

 

LOGO

Ben Barber

Senior Vice President

Director of Municipal Bonds

This letter reflects our analysis and opinions as of May 31, 2020, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, state, industry, security or fund. Statements of fact are from sources considered reliable.

 

 

 

Not FDIC Insured | May Lose Value | No Bank Guarantee

 

 

     
franklintempleton.com    Not part of the annual report            1


Contents

 

   

Annual Report

  

Municipal Bond Market Overview

     3  

Franklin California High Yield Municipal Fund

     4  

Franklin Tennessee Municipal Bond Fund

     11  

Financial Highlights and Statements of Investments

     17  

Financial Statements

     47  

Notes to Financial Statements

     51  
Report of Independent Registered Public Accounting Firm      62  

Tax Information

     63  

Board Members and Officers

     64  

Shareholder Information

     68  

 

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

    

 

 

     

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          Annual Report   franklintempleton.com


ANNUAL REPORT

Municipal Bond Market Overview

 

The 12-month period ended May 31, 2020, was defined by two distinct phases: before and during the global outbreak of the novel coronavirus (COVID-19). In terms of U.S.-domiciled assets, equities, corporate bonds, U.S. Treasuries and municipal bonds all posted positive returns for the period’s first eight and a half months. By the end of February, COVID-19 had spread globally and volatility in all asset types spiked. Municipal bonds experienced selling pressure, while U.S. Treasury prices rallied and drove yields, which move inversely to price, to reach historical lows.

As volatility due to the COVID-19 pandemic increased across financial markets in late February 2020 and into early March, the municipal bond market seemed relatively impervious. However, during the second week of March, the municipal bond market experienced one of its worst single-day price declines over the past decade.

Federal authorities quickly implemented monetary policy and fiscal stimulus packages to combat the economic and market impact of the global pandemic. Despite the federal responses, many investors expected an economic recession and fled to perceived safe-haven assets, most specifically U.S. Treasury securities. Although yields on U.S. Treasuries dropped to all-time lows as prices rose, municipal bonds sold off significantly as many investors priced in the potential effects of the economic slowdown on state and local governments, as well as related municipal bond sectors. Municipal bond yields moved abruptly and significantly higher in mid-March 2020, but the February–March selloff abated after the U.S. Federal Reserve (Fed) stepped in to help stabilize short-dated municipal securities. Similarly, the phase three federal stimulus package, which gives the Fed the ability to buy municipal bonds, served to calm the markets.

The Fed has acted aggressively to stem the tide of negative economic repercussions. After cutting the federal funds target rate three times in 2019, the Fed implemented two emergency rate cuts in March 2020, lowering the rate to a range of 0.00%–0.25%. The Fed also implemented additional tools, with several specifically intended to support stability in the municipal bond market.

In the U.S., the February–March 2020 selloff in municipal bonds appeared similar to the global financial crisis more than a decade ago, with many investors seemingly

 

believing U.S. Treasuries are the only safe-haven investments. We believe uncertainty related to the COVID-19 pandemic has been the main reason for municipal bond market volatility.

The Investment Company Institute (ICI) reported net inflows of approximately $4 billion from municipal bond mutual funds in May 2020. This modest gain contrasts with the record net outflows of approximately -$42 billion that the municipal bond market suffered in March 2020. For the 12-month period, municipal bond mutual funds had approximately $32 billion of net inflows, according to the ICI.1

For the 12-month period, investment-grade municipal bonds, as measured by the Bloomberg Barclays Municipal Bond Index, posted a +3.98% total return, while U.S. Treasuries, as measured by the Bloomberg Barclays U.S. Treasury Index, posted a +11.36% total return, and investment-grade corporate bonds, as measured by the Bloomberg Barclays U.S. Corporate Bond Index, posted a +10.83% total return.2 All three of these fixed income sectors underperformed U.S. stocks, as measured by the Standard & Poor’s® 500 Index, which posted a +12.84% total return for the period.2

At period-end, we maintained our positive view of the municipal bond market. We believe municipal bonds continue to be an attractive asset class among fixed income securities, and we intend to follow our disciplined approach of investing to maximize income, while seeking value in the municipal bond market.

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of May 31, 2020, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

1. Source: Investment Company Institute.

2. Source: Morningstar. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed.

See www.franklintempletondatasources.com for additional data provider information.

 

     
franklintempleton.com    Annual Report            3


Franklin California High Yield Municipal Fund

 

This annual report for Franklin California High Yield Municipal Fund covers the fiscal year ended May 31, 2020.

Your Fund’s Goal and Main Investments

The Fund seeks to provide a high level of income exempt from federal and California personal income taxes by investing at least 80% of its net assets in municipal securities in any rating category, including higher-yielding, lower-rated securities, that pay interest free from such taxes.1 Its secondary goal is capital appreciation to the extent possible and consistent with its principal goal.

Credit Quality Composition*

5/31/20

 

Ratings    % of Total
Investments
 

AAA

     1.75

AA

     16.80

A

     19.17

BBB

     20.06

Below Investment Grade

     8.22

Refunded

     3.98

Not Rated

     30.02

*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.

Performance Overview

The Fund’s Class A share price, as measured by net asset value, decreased from $11.10 on May 31, 2019, to $10.81 on May 31, 2020.2 The Fund’s Class A shares paid dividends totaling 34.3187 cents per share for the reporting period. The Performance Summary beginning on page 7 shows that at the end of this reporting period the Fund’s Class A shares’

Dividend Distributions*

6/1/19–5/31/20

 

     Dividend per Share (cents)  
Month   

Class

A

     Class A1      Class C      Class R6     

Advisor

Class

 

June

     2.7721        2.8947        2.4464        3.0225        2.9871  

July

     3.2137        3.3621        2.8323        3.5138        3.4705  

August

     2.8363        2.9697        2.4798        3.1099        3.0701  

September

     2.8971        3.0347        2.5291        3.1688        3.1381  

October

     2.8821        3.0235        2.5146        3.1588        3.1273  

November

     2.7178        2.8407        2.3697        2.9675        2.9383  

December

     2.8637        3.0066        2.4868        3.1303        3.1125  

January

     2.8017        2.9415        2.4320        3.0789        3.0436  

February

     2.5397        2.6678        2.1994        2.7963        2.7640  

March

     3.0971        3.2355        2.7297        3.3768        3.3396  

April

     2.8590        2.9831        2.5269        3.1115        3.0776  

May

     2.8384        2.9532        2.5098        3.1124        3.0459  

Total

     34.3187        35.9131        30.0565        37.5475        37.1146  

*The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.

distribution rate was 3.03% based on an annualization of May’s 2.8384 cents per share dividend and the maximum offering price of $11.23 on May 31, 2020. An investor in the 2020 maximum combined effective federal and California personal income tax bracket of 53.10% (including 3.80% Medicare tax) would need to earn a distribution rate of 6.46% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

 

 

1. The Fund may invest up to 100% of its assets in bonds whose interest payments are subject to federal alternative minimum tax. All or a significant portion of the income on these obligations may be subject to such tax. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.

2. The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

The SOI begins on page 22.

 

     

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          Annual Report   franklintempleton.com


FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

    

 

State Update

California’s large, diverse economy expanded for much of the 12-month period. In March 2020, the state implemented measures to control the spread of the COVID-19 virus that slowed the economy. California’s unemployment rate of 4.1% in May 2019 decreased during the period before jumping to an all-time high of 16.4% in April 2020.3 By period-end, the state’s unemployment rate reached 16.3%, which was higher than the 13.3% national rate.3 The state closed fiscal year 2019 (ended June 30) with a better-than-projected positive balance in its special fund for economic uncertainties and budget stabilization account, resulting from greater-than-projected tax revenues. Near period-end, the governor submitted a budget revision that reflected a slowdown in tax revenue collections and the shifting of its income tax filing deadline. The revised budget called for a pay cut to all state employees and less funding for the coming fiscal year for education. California’s net tax-supported debt was $2,147 per capita and 3.2% of personal income, compared with the $1,071 and 2.0% national medians, respectively.4 Independent credit rating agency Standard & Poor’s (S&P) affirmed California’s general obligations bonds rating of AA- with a stable outlook.5 The rating reflected S&P’s view of the state’s strong economy, commitment to balance revenues and expenses and pay down debts, solid reserve levels, strong overall liquidity, and declining but moderately high debt ratios. S&P noted challenges, including potential pandemic-related lost tax revenue and unreimbursed additional costs, high housing costs, difficult-to-forecast revenues and minimal prefunding of retiree health care benefits.

Investment Strategy

We use a consistent, disciplined strategy in an effort to maximize tax-exempt income for our shareholders, while balancing risk and return within the Fund’s range of allowable investments. We generally employ a buy-and-hold approach and invest in securities we believe should provide the most relative value in the market. We do not use leverage or derivatives, nor do we use hedging techniques that could add volatility and contribute to underperformance in adverse markets.

Portfolio Composition

5/31/20

 

      % of Total
Investments

Tax-Supported

   23.17%

Transportation

   17.49%

Hospital & Health Care

   10.97%

General Obligation

   10.94%

Other Revenue

   10.33%

Housing

   7.91%

Utilities

   6.12%

Refunded

   5.78%

Higher Education

   3.99%

Subject to Government Appropriations

   2.74%

Corporate-Backed

   0.56%

Manager’s Discussion

Consistent with our strategy, we sought to remain invested in bonds that have an average weighted maturity of 15 to 30 years with good call features. Based on the combination of our value-oriented philosophy of investing primarily for income and a positively sloping municipal yield curve, in which interest rates for longer-term bonds are higher than those for shorter-term bonds, we favored the use of longer-term bonds. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.

Thank you for your continued participation in Franklin California High Yield Municipal Fund. We look forward to serving your future investment needs.

 

 

3. Source: Bureau of Labor Statistics

4. Source: Moody’s Investors Service, State government – US Medians – State debt declined in 2019, but likely to grow in coming years, 5/12/20.

5. This does not indicate S&P’s rating of the Fund.

See www.franklintempletondatasources.com for additional data provider information.

 

     
franklintempleton.com    Annual Report           

5


FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

    

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of May 31, 2020, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

    

 

 

     

6

          Annual Report   franklintempleton.com


FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

    

 

Performance Summary as of May 31, 2020

The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 5/31/20

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 3.75% and the minimum is 0%. Class A: 3.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.

 

Share Class     
Cumulative
                    Total Return
 
1 
   

                Average Annual

Total Return

 

2  

A3,4

    

1-Year

     +0.43%       -3.33%  

5-Year

     +21.40%       +3.16%  

10-Year

     +74.42%       +5.32%  

Advisor

    

1-Year

     +0.68%       +0.68%  

5-Year

     +22.18%       +4.09%  

10-Year

     +76.23%       +5.83%  

 

Share Class     
Distribution
Rate
 
5  
   
            Taxable Equivalent
Distribution Rate
 
6  
   
30-Day
            Standardized Yield
 
7 
   
    Taxable Equivalent 30-Day
Standardized Yield
 
6  

A

     3.03%       6.46%       2.66%       5.67%  

Advisor

     3.38%       7.21%       3.01%       6.42%  

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

 

See page 9 for Performance Summary footnotes.

 

     
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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

PERFORMANCE SUMMARY

 

Total Return Index Comparison for a Hypothetical $10,000 Investment

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

Class A (6/1/10–5/31/20)

 

LOGO

Advisor Class (6/1/10–5/31/20)

 

LOGO

See page 9 for Performance Summary footnotes.

 

     

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FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

PERFORMANCE SUMMARY

 

Distributions (6/1/19–5/31/20)

 

Share Class   

Net Investment

Income

 

A

     $0.343187  

A1

     $0.359131  

C

     $0.300565  

R6

     $0.375475  

Advisor

     $0.371146  

Total Annual Operating Expenses9

 

Share Class      

A

     0.83

Advisor

     0.58
 

 

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

All investments involve risks, including loss of principal. Because municipal bonds are sensitive to interest-rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. Investments in lower-rated bonds include higher risk of default and loss of principal. Puerto Rico municipal bonds have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. Unexpected events and their aftermaths, such as the spread of deadly diseases; natural, environmental or man-made disasters; financial, political or social disruptions; terrorism and war; and other tragedies or catastrophes, can cause investor fear and panic, which can adversely affect the economies of many companies, sectors, nations, regions and the marketin general, in ways that cannot necessarily be foreseen. The Fund’s prospectus also includes a description of the main investment risk.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Effective 9/10/18, Class A shares closed to new investors, were renamed Class A1 shares, and a new Class A share with a different expense structure became available.

Class A performance shown has been calculated as follows: (a) for periods prior to 9/10/18, a restated figure is used based on the Fund’s Class A1 performance that includes any Rule 12b-1 rate differential that exists between Class A1 and Class A; and (b) for periods after 9/10/18, actual Class A performance is used, reflecting all charges and fees applicable to that class.

4. Prior to 3/1/19, these shares were offered at a higher initial sales charge of 4.25%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 3.75%.

5. Distribution rate is based on an annualization of the respective class’s May dividend and the maximum offering price (NAV for Advisor Class) per share on 5/31/20.

6. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/19 for the maximum combined effective federal and California state personal income

tax rate of 53.10%, based on the federal income tax rate of 37.00% plus 3.80% Medicare tax.

7. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

8. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.

9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

See www.franklintempletondatasources.com for additional data provider information.

 

     
franklintempleton.com    Annual Report           

9


FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

    

 

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

              

Actual

(actual return after expenses)

       

Hypothetical

(5% annual return before expenses)

         
     

 

     

 

     

Share

Class

   Beginning
Account
Value 12/1/19
        Ending
Account
Value 5/31/20
  

Expenses

Paid During
Period

12/1/19–5/31/201, 2

        Ending
Account
Value 5/31/20
  

Expenses

Paid During

Period

12/1/19–5/31/201, 2

        Net
Annualized
Expense
Ratio2

 

     

 

     

 

     

 

A

   $1,000       $977.50    $3.91       $1,021.05    $3.99       0.79%

A1

   $1,000       $978.20    $3.17       $1,021.80    $3.23       0.64%

C

   $1,000       $974.90    $5.88       $1,019.05    $6.01       1.19%

R6

   $1,000       $978.10    $2.47       $1,022.50    $2.53       0.50%

Advisor

   $1,000       $978.80    $2.67       $1,022.30    $2.73       0.54%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/366 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements, for Class R6.

 

     

10

          Annual Report   franklintempleton.com


    

    

 

Franklin Tennessee Municipal Bond Fund

 

This annual report for Franklin Tennessee Municipal Bond Fund covers the fiscal year ended May 31, 2020.

Your Fund’s Goal and Main Investments

The Fund seeks to maximize income exempt from federal and Tennessee personal income taxes, consistent with prudent investing and the preservation of capital, by investing at least 80% of its net assets in investment grade municipal securities that pay interest free from such taxes.1

Credit Quality Composition*

5/31/20

 

Ratings   

% of Total

Investments

AAA

   2.78%

AA

   59.42%

A

   21.90%

BBB

   3.41%

Below Investment Grade

   1.56%

Refunded

   9.42%

Not Rated

   1.51%

*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.

Performance Overview

The Fund’s Class A share price, as measured by net asset value, decreased from $10.97 on May 31, 2019, to $10.96 on May 31, 2020.2 The Fund’s Class A shares paid dividends totaling 28.6400 cents per share for the reporting period. The Performance Summary beginning on page 13 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 2.36% based on an annualization of May’s 2.2367 cent per share dividend and the maximum

Dividend Distributions*

6/1/19–5/31/20

 

     Dividend per Share (cents)  
Month   

Class

A

    

Class

A1

     Class R6     

Advisor

Class

 

June

     2.3921        2.5159        2.6273        2.6018  

July

     2.7762        2.9227        3.0549        3.0242  

August

     2.4940        2.6285        2.7500        2.7214  

September

     2.5834        2.7220        2.8469        2.8176  

October

     2.5326        2.6727        2.7979        2.7686  

November

     2.2245        2.3558        2.4727        2.4453  

December

     2.3255        2.4687        2.5970        2.5666  

January

     2.2744        2.4135        2.5388        2.5092  

February

     2.0987        2.2264        2.3409        2.3140  

March

     2.4292        2.5710        2.6974        2.6684  

April

     2.2727        2.4041        2.5220        2.4947  

May

     2.2367        2.3655        2.4780        2.4525  

Total

     28.6400        30.2668        31.7238        31.3843  

*The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period. Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.

offering price of $11.39 on May 31, 2020. An investor in the 2020 maximum combined effective federal and Tennessee personal income tax bracket of 41.80% (including 3.80% Medicare tax) would need to earn a distribution rate of 4.05% from a taxable investment to match the Fund’s Class A tax-free distribution rate. Dividend distributions were affected by low interest rates during the period. This and other factors resulted in reduced income for the portfolio and caused dividends to be lower at the end of the period.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

 

 

1. The Fund may invest up to 100% of its assets in bonds whose interest payments are subject to federal alternative minimum tax. All or a significant portion of the income on these obligations may be subject to such tax. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.

2. The distribution amount is the sum of all net investment income distributions for the period shown. Assumes shares were purchased and held for the entire accrual period.

Since dividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and any account activity. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).

The SOI begins on page 44.

 

     
franklintempleton.com    Annual Report           

11


FRANKLIN TENNESSEE MUNICIPAL BOND FUND

    

 

State Update

During the 12 months under review, Tennessee’s economy was negatively impacted by the novel coronavirus (COVID-19) pandemic. In April 2020, the state implemented measures to control the spread of COVID-19 that slowed the economy. The unemployment rate began the period at 3.5%, and experienced only slight fluctuations until April, when the unemployment rate jumped to an all-time high of 15.5%.3 By period-end, Tennessee’s unemployment rate reached 11.3%, which was lower than the 13.3% national rate.3 In response to the pandemic and the resulting slowdown in tax revenue collections, lawmakers revised the fiscal year 2021 budget. The revised budget called for bolstering the state’s rainy day fund and included a provision that increased spending on an infrastructure fund that will allow cities and counties to use funds to address COVID-19 needs. The revised budget will also reduce education and mental health funding. Tennessee’s net tax-supported debt was relatively low at $292 per capita and 0.6% of personal income, compared with the $1,071 and 2.0% national medians, respectively.4 During the period under review, independent credit rating agency Moody’s Investors Service assigned the state’s general obligations bonds an Aaa rating with a stable outlook.5 The rating reflected Moody’s view of the state’s conservative fiscal management, low debt levels, well-funded pension system, a growing and diversifying economy and flexibility to adjust retiree healthcare benefits.

Investment Strategy

We use a consistent, disciplined strategy in an effort to maximize tax-exempt income for our shareholders, while balancing risk and return within the Fund’s range of allowable investments. We generally employ a buy-and-hold approach and invest in securities we believe should provide the most relative value in the market. We do not use leverage or derivatives, nor do we use hedging techniques that could add volatility and contribute to underperformance in adverse markets.

Manager’s Discussion

Consistent with our strategy, we sought to remain invested in bonds that have an average weighted maturity of 15 to 30 years with good call features. Based on the combination of our value-oriented philosophy of investing primarily for income and a positively sloping municipal yield curve, in

Portfolio Composition

5/31/20

 

     

% of Total

Investments

Utilities

   27.75%

Hospital & Health Care

   14.49%

General Obligation

   13.92%

Higher Education

   11.65%

Transportation

   11.62%

Refunded

   9.42%

Housing

   7.66%

Other Revenue

   2.84%

Subject to Government Appropriations

   0.65%

which interest rates for longer-term bonds are higher than those for shorter-term bonds, we favored the use of longer-term bonds. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.

Thank you for your continued participation in Franklin Tennessee Municipal Bond Fund. We look forward to serving your future investment needs.

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of May 31, 2020, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

3. Source: Bureau of Labor Statistics

4. Source: Moody’s Investors Service, State government – US Medians – State debt declined in 2019, but likely to grow in coming years, 5/12/20.

5. This does not indicate S&P’s rating of the Fund.

See www.franklintempletondatasources.com for additional data provider information.

 

     

12

          Annual Report   franklintempleton.com


FRANKLIN TENNESSEE MUNICIPAL BOND FUND

    

 

Performance Summary as of May 31, 2020

The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 5/31/20

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 3.75% and the minimum is 0%. Class A: 3.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.

 

Share Class   

Cumulative 

Total Return1

    

Average Annual 

Total Return2

A3,4

       

1-Year

     +2.54%          -1.31%  

5-Year

     +12.67%          +1.63%  

10-Year

     +35.97%          +2.73%  

Advisor5

       

1-Year

     +2.79%          +2.79%  

5-Year

     +13.40%          +2.55%  

10-Year

     +36.80%          +3.18%  

 

Share Class   

Distribution 

Rate6

     Taxable Equivalent 
Distribution Rate7
     30-Day 
Standardized Yield8
     Taxable Equivalent 30-Day 
Standardized Yield7
 

A

     2.36%         4.05%         1.32%         2.27%   

Advisor

     2.69%         4.62%        1.63%         2.80%   

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

See page 15 for Performance Summary footnotes.

 

     
franklintempleton.com    Annual Report           

13


FRANKLIN TENNESSEE MUNICIPAL BOND FUND

PERFORMANCE SUMMARY

 

Total Return Index Comparison for a Hypothetical $10,000 Investment

Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

Class A (6/1/10–5/31/20)

 

LOGO

Advisor Class (6/1/10–5/31/20)

 

LOGO

See page 15 for Performance Summary footnotes.

 

     

14

          Annual Report   franklintempleton.com


FRANKLIN TENNESSEE MUNICIPAL BOND FUND

PERFORMANCE SUMMARY

 

Distributions (6/1/19–5/31/20)

 

Share Class    Net Investment
Income
 

A

     $0.286400  

A1

     $0.302668  

R6

     $0.317238  

Advisor

     $0.313843  

Total Annual Operating Expenses10

 

Share Class        

A

     0.93%  

Advisor

     0.68%  

            

 

 

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

All investments involve risks, including loss of principal. Because municipal bonds are sensitive to interest-rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. Puerto Rico municipal bonds have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. Unexpected events and their aftermaths, such as the spread of deadly diseases; natural, environmental or man-made disasters; financial, political or social disruptions; terrorism and war; and other tragedies or catastrophes, can cause investor fear and panic, which can adversely affect the economies of many companies, sectors, nations, regions and the market in general, in ways that cannot necessarily be foreseen. The Fund’s prospectus also includes a description of the main investment risks.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Effective 9/10/18, Class A shares closed to new investors, were renamed Class A1 shares, and a new Class A share with a different expense structure became available.

Class A performance shown has been calculated as follows: (a) for periods prior to 9/10/18, a restated figure is used based on the Fund’s Class A1 performance that includes any Rule 12b-1 rate differential that exists between Class A1 and Class A; and (b) for periods after 9/10/18, actual Class A performance is used, reflecting all charges and fees applicable to that class.

4. Prior to 3/1/19, these shares were offered at a higher initial sales charge of 4.25%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 3.75%.

5. Effective 9/15/16, the Fund began offering Advisor class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 9/15/16, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 9/15/16, actual Advisor class performance is used reflecting all charges and fees applicable to that class.

6. Distribution rate is based on an annualization of the respective class’s May dividend and the maximum offering price (NAV for Advisor Class) per share on 5/31/20.

7. Taxable equivalent distribution rate and yield assume the published rates as of 5/31/20 for the maximum combined effective federal and Tennessee state personal income tax rate of 41.80%, based on the federal income tax rate of 37.00% plus 3.80% Medicare tax.

8. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

9. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.

10. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

See www.franklintempletondatasources.com for additional data provider information.

 

     
franklintempleton.com    Annual Report           

15


FRANKLIN TENNESSEE MUNICIPAL BOND FUND

    

 

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

              

Actual

(actual return after expenses)

       

Hypothetical

(5% annual return before expenses)

         

Share

Class

   Beginning
Account
Value 12/1/19
        Ending
Account
Value 5/31/20
  

Expenses

Paid During
Period

12/1/19–5/31/201, 2

        Ending
Account
Value 5/31/20
  

Expenses

Paid During
Period

12/1/19–5/31/201, 2

        Net
Annualized
Expense
Ratio2

A

       $1,000           $1,008.80        $4.67           $1,020.35        $4.70           0.93 %

A1

       $1,000           $1,009.50        $3.92           $1,021.10        $3.94           0.78 %

R6

       $1,000           $1,010.20        $3.27           $1,021.75        $3.29           0.65 %

Advisor

       $1,000           $1,010.00        $3.42           $1,021.60        $3.44           0.68 %

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/366 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements, for Class R6.

 

     

16

          Annual Report   franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Highlights

Franklin California High Yield Municipal Fund

 

             Year Ended May 31,          
          2020         2019a  

Class A

    

Per share operating performance

    

(for a share outstanding throughout the year)

    

Net asset value, beginning of year

     $11.10       $10.70  

Income from investment operationsb:

    

Net investment incomec

     0.34       0.27  

Net realized and unrealized gains (losses)

     (0.29     0.41  

Total from investment operations

     0.05       0.68  

Less distributions from:

    

Net investment income

     (0.34     (0.28

Net asset value, end of year

     $10.81       $11.10  

Total returnd

     0.43%       6.56%  

Ratios to average net assetse

    

Expensesf

     0.80%       0.83%  

Net investment income

     3.10%       3.55%  

Supplemental data

    

Net assets, end of year (000’s)

     $425,757       $244,196  

Portfolio turnover rate

     23.29%       13.91%  

aFor the period September 10, 2018 (effective date) to May 31, 2019.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.

eRatios are annualized for periods less than one year.

fBenefit of expense reduction rounds to less than 0.01%.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.  |  Annual Report            17


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin California High Yield Municipal Fund (continued)

 

     Year Ended May 31,  
      2020     2019     2018     2017     2016  

Class A1

          

Per share operating performance

          

(for a share outstanding throughout the year)

          

Net asset value, beginning of year

     $11.08       $10.70       $10.89       $11.10       $10.65  

Income from investment operationsa:

          

Net investment incomeb

     0.36       0.40       0.39       0.40       0.41  

Net realized and unrealized gains (losses)

     (0.29     0.39       (0.19     (0.22     0.46  

Total from investment operations

     0.07       0.79       0.20       0.18       0.87  

Less distributions from:

          

Net investment income

     (0.36     (0.41     (0.39     (0.39     (0.42

Net asset value, end of year

     $10.79       $11.08       $10.70       $10.89       $11.10  

Total returnc

     0.58%       7.56%       1.92%       1.71%       8.37%  

Ratios to average net assets

          

Expenses

     0.65% d       0.68% d       0.66%       0.63%       0.65%  

Net investment income

     3.25%       3.70%       3.63%       3.66%       3.83%  

Supplemental data

          

Net assets, end of year (000’s)

     $1,282,022       $1,386,291       $1,378,169       $1,377,514       $1,442,703  

Portfolio turnover rate

     23.29%       13.91%       11.08%       19.73%       12.23%  

 

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

dBenefit of expense reduction rounds to less than 0.01%.

 

     

18

          Annual Report  |  The accompanying notes are an integral part of these financial statements.    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin California High Yield Municipal Fund (continued)

 

     Year Ended May 31,  
      2020     2019     2018     2017     2016  

Class C

          

Per share operating performance

          

(for a share outstanding throughout the year)

          

Net asset value, beginning of year

     $11.17       $10.78       $10.97       $11.17       $10.72  

Income from investment operationsa:

          

Net investment incomeb

     0.30       0.34       0.33       0.34       0.36  

Net realized and unrealized gains (losses)

     (0.30     0.40       (0.19     (0.21     0.45  

Total from investment operations

           0.74       0.14       0.13       0.81  

Less distributions from:

          

Net investment income

     (0.30     (0.35     (0.33     (0.33     (0.36

Net asset value, end of year

     $10.87       $11.17       $10.78       $10.97       $11.17  

Total returnc

     (0.04 )%      7.01%       1.34%       1.22%       7.73%  

Ratios to average net assets

          

Expenses

     1.20% d       1.23% d       1.21%       1.18%       1.20%  

Net investment income

     2.70%       3.15%       3.08%       3.11%       3.28%  

Supplemental data

          

Net assets, end of year (000’s)

     $253,579       $272,186       $327,022       $358,308       $377,550  

Portfolio turnover rate

     23.29%       13.91%       11.08%       19.73%       12.23%  

 

 

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

dBenefit of expense reduction rounds to less than 0.01%.

 

     
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19


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin California High Yield Municipal Fund (continued)

 

     Year Ended May 31,  
      2020         2019         2018a  

Class R6

      

Per share operating performance

      

(for a share outstanding throughout the year)

      

Net asset value, beginning of year

     $11.12       $10.74       $10.88  

Income from investment operationsb:

      

Net investment incomec

     0.38       0.41       0.35  

Net realized and unrealized gains (losses)

     (0.30     0.39       (0.15

Total from investment operations

     0.08       0.80       0.20  

Less distributions from:

      

Net investment income

     (0.38     (0.42     (0.34

Net asset value, end of year

     $10.82       $11.12       $10.74  

Total returnd

     0.63%       7.66%       1.84%  

Ratios to average net assetse

      

Expenses before waiver and payments by affiliates and expense reduction

     0.52%       0.57%       0.55%  

Expenses net of waiver and payments by affiliates and expense reduction

     0.51% f       0.55% f       0.53%  

Net investment income

     3.39%       3.83%       3.76%  

Supplemental data

      

Net assets, end of year (000’s)

     $26,741       $21,214       $13,004  

Portfolio turnover rate

     23.29%       13.91%       11.08%  

 

aFor the period August 1, 2017 (effective date) to May 31, 2018.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dTotal return is not annualized for periods less than one year.

eRatios are annualized for periods less than one year.

fBenefit of expense reduction rounds to less than 0.01%.

 

     

20

          Annual Report  |  The accompanying notes are an integral part of these financial statements.    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin California High Yield Municipal Fund (continued)

 

     Year Ended May 31,  
      2020     2019     2018     2017     2016  

Advisor Class

          

Per share operating performance

          

(for a share outstanding throughout the year)

          

Net asset value, beginning of year

     $11.11       $10.73       $10.91       $11.12       $10.67  

Income from investment operationsa:

          

Net investment incomeb

     0.37       0.41       0.40       0.41       0.43  

Net realized and unrealized gains (losses)

     (0.29     0.39       (0.18     (0.22     0.45  

Total from investment operations

     0.08       0.80       0.22       0.19       0.88  

Less distributions from:

          

Net investment income

     (0.37     (0.42     (0.40     (0.40     (0.43

Net asset value, end of year

     $10.82       $11.11       $10.73       $10.91       $11.12  

Total return

     0.68%       7.64%       2.10%       1.80%       8.46%  

Ratios to average net assets

          

Expenses

     0.55% c       0.58% c       0.56%       0.53%       0.55%  

Net investment income

     3.35%       3.80%       3.73%       3.76%       3.93%  

Supplemental data

          

Net assets, end of year (000’s)

     $903,694       $889,990       $748,355       $720,890       $635,463  

Portfolio turnover rate

     23.29%       13.91%       11.08%       19.73%       12.23%  

 

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cBenefit of expense reduction rounds to less than 0.01%.

 

     
franklintempleton.com    The accompanying notes are an integral part of these financial statements.  |  Annual Report           

21


FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments, May 31, 2020

Franklin California High Yield Municipal Fund

 

     

Principal

Amount

     Value  

Municipal Bonds 93.2%

     

California 90.7%

     

ABAG Finance Authority for Nonprofit Corporations Revenue, Episcopal Senior Communities, Refunding, 6.125%, 7/01/41

   $ 7,500,000      $ 7,627,275  

Alameda Special Tax, CFD No. 13-1, Alameda Landing Public Improvements, 5.00%, 9/01/46

     1,400,000        1,527,204  

Artesia RDA Tax Allocation,

     

Artesia Redevelopment Project Area, 5.50%, 6/01/42

     6,355,000        6,361,609  

Artesia Redevelopment Project Area, 5.70%, 6/01/42

     2,755,000        2,758,609  

Housing Set-Aside, Artesia Redevelopment Project Area, 7.70%, 6/01/46

     3,115,000        3,126,619  

Azusa Special Tax,

     

Community Facilities District No. 2005-1, Rosedale, Improvement Area No. 2, Assured Guaranty Insured, 5.00%, 9/01/44

     1,500,000        1,825,290  

Community Facilities District No. 2005-1, Rosedale, Improvemnet Area No. 2, Assured Gauranty Insured, 5.00%, 9/01/49

     2,100,000        2,542,386  

Baldwin Park USD, GO, Los Angeles County, Capital Appreciation, Election of 2006, BAM Insured, zero cpn., Pre-Refunded, 8/01/42

     10,000,000        2,720,700  

Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Subordinate, Series S-4, Pre-Refunded, 5.25%, 4/01/53

     15,000,000        17,137,050  

Beaumont Special Tax,

     

CFD No. 2016-1, Fairway Canyon, 5.00%, 9/01/44

     300,000        331,803  

CFD No. 2016-1, Fairway Canyon, 5.00%, 9/01/49

     400,000        440,284  

Beaumont USD, GO, Riverside County, Election of 2008, Series C, AGMC Insured, Pre-Refunded, 6.00%, 8/01/41

     1,925,000        2,056,362  

California Community Housing Agency Essential Housing Revenue,

     

Serenity at Larkspur, Series A, 5.00%, 2/01/50

     46,525,000        48,551,629  

Verdant at Green Valley Project, Series A, 5.00%, 8/01/49

     18,000,000        18,751,140  

California Community Housing Agency Workforce Housing Revenue, Annadel Apartments, Series A, 5.00%, 4/01/49

     27,050,000        28,144,984  

California County Tobacco Securitization Agency Tobacco Settlement Revenue, Asset-Backed, Los Angeles County Securitization Corp., 5.70%, 6/01/46

     3,000,000        3,001,560  

California Health Facilities Financing Authority Revenue,

     

Adventist Health System/West, Refunding, Series A, 4.00%, 3/01/39

     9,000,000        9,571,770  

California-Nevada Methodist Homes, Refunding, California Mortgage Insured, 5.00%, 7/01/45

     4,500,000        5,150,880  

Children’s Hospital Los Angeles, Refunding, Series A, 4.00%, 8/15/49

     3,375,000        3,511,451  

El Camino Hospital, 4.00%, 2/01/42

     6,500,000        7,003,100  

El Camino Hospital, 5.00%, 2/01/42

     5,000,000        5,825,550  

Lucile Salter Packard Children’s Hospital at Stanford, Series A, 5.00%, 8/15/43

     7,160,000        7,943,304  

Sutter Health, Refunding, Series B, 5.00%, 11/15/46

     26,925,000        31,134,993  

California HFA Municipal Certificates Revenue, Class A, Series 2, 4.00%, 3/20/33

     55,652        56,874  

California Infrastructure and Economic Development Bank Revenue, Goodwill Industries of Sacramento Valley and Northern Nevada Project, Series A, 5.00%, 1/01/47

     10,360,000        8,112,294  

California Municipal Finance Authority Education Revenue,

     

American Heritage Education Foundation Project, Refunding, Series A, 5.00%, 6/01/36

     3,000,000        3,180,450  

Literacy First Charter Schools Project, Series A, 5.00%, 12/01/39

     1,145,000        1,220,078  

Literacy First Charter Schools Project, Series A, 5.00%, 12/01/49

     2,775,000        2,919,106  

California Municipal Finance Authority Mobile Home Park Revenue,

     

Caritas Affordable Housing Inc. Projects, Senior, Series A, 5.00%, 8/15/30

     1,000,000        1,103,320  

Caritas Affordable Housing Inc. Projects, Senior, Series A, 5.25%, 8/15/39

     1,200,000        1,307,304  

Caritas Affordable Housing Inc. Projects, Senior, Series A, 5.25%, 8/15/49

     3,500,000        3,781,295  

Royal York Estates, Series A, 4.00%, 2/15/55.

     2,375,000        1,948,521  

 

     

22

          Annual Report   franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

     

Principal

Amount

     Value  

Municipal Bonds (continued)

     

California (continued)

     

California Municipal Finance Authority Mobile Home Park Revenue, (continued)

     

Windsor Mobile Country Club, Series A, Pre-Refunded, 5.625%, 11/15/33

   $ 1,000,000      $ 1,180,880  

Windsor Mobile Country Club, Series A, Pre-Refunded, 6.00%, 11/15/48

     4,000,000        4,768,840  

California PFAR,

     

Henry Mayo Newhall Hospital, Refunding, 5.00%, 10/15/37

     1,100,000        1,209,296  

Henry Mayo Newhall Hospital, Refunding, 5.00%, 10/15/47

     5,000,000        5,400,350  

University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/27

     1,125,000        843,750  

University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/32

     3,305,000        2,478,750  

University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/37

     4,670,000        3,502,500  

University Housing, NCCD Claremont Properties LLC, Claremont Colleges Project, Series A, 5.00%, 7/01/47

     11,210,000        8,407,500  

California School Finance Authority Charter School Revenue,

     

Aspire Public Schools-Obligated Group, Refunding, Series B, 5.00%, 8/01/35

     1,000,000        1,058,330  

Aspire Public Schools-Obligated Group, Refunding, Series B, 5.00%, 8/01/45

     1,100,000        1,143,560  

Classical Academies Project, Refunding, Series A, 5.00%, 10/01/37

     1,485,000        1,503,993  

Classical Academies Project, Refunding, Series A, 5.00%, 10/01/44

     5,610,000        5,587,840  

Ednovate-Obligated Group, 5.00%, 6/01/48

     1,000,000        995,460  

Ednovate-Obligated Group, 5.00%, 6/01/56

     1,710,000        1,681,836  

Fenton Charter Public Schools Obligated Group, Series A, 5.00%, 7/01/40

     750,000        763,845  

Fenton Charter Public Schools Obligated Group, Series A, 5.00%, 7/01/50

     750,000        756,195  

Fenton Charter Public Schools Obligated Group, Series A, 5.00%, 7/01/58

     1,000,000        1,000,550  

Larchmont Charter School Project, Series A, 5.00%, 6/01/55

     2,050,000        1,958,836  

Rocketship Education-Obligated Group, Series A, 5.00%, 6/01/34

     750,000        751,140  

Rocketship Education-Obligated Group, Series A, 5.125%, 6/01/47

     845,000        832,241  

Rocketship Education-Obligated Group, Series A, 5.25%, 6/01/52

     980,000        968,024  

Rocketship Public Schools-Obligated Group, Series G, 5.00%, 6/01/30

     315,000        323,225  

Rocketship Public Schools-Obligated Group, Series G, 5.00%, 6/01/37

     360,000        355,536  

Rocketship Public Schools-Obligated Group, Series G, 5.00%, 6/01/47

     1,720,000        1,663,120  

Summit Public Schools-Obligated Group, 5.00%, 6/01/47

     1,500,000        1,549,500  

California School Finance Authority Educational Facility Revenue,

     

River Springs Charter School, Series A, 5.00%, 7/01/30

     2,000,000        2,083,720  

River Springs Charter School, Series A, 5.00%, 7/01/37

     2,000,000        1,986,300  

River Springs Charter School, Series A, 5.00%, 7/01/47

     1,975,000        1,882,057  

River Springs Charter School, Series A, 5.00%, 7/01/52

     1,340,000        1,262,535  

California School Finance Authority School Facility Revenue,

     

Alliance for College-Ready Public Schools Projects, Series C, 5.00%, 7/01/46

     10,000,000        10,523,900  

Granada Hills Charter High School, 5.00%, 7/01/43

     3,000,000        3,145,290  

Granada Hills Charter Obligated Group, 5.00%, 7/01/49

     5,750,000        5,987,935  

Green Dot Public Schools California Projects, Series A, 5.00%, 8/01/35

     2,525,000        2,674,707  

Green Dot Public Schools California Projects, Series A, 5.00%, 8/01/38

     1,000,000        1,078,960  

Green Dot Public Schools California Projects, Series A, 5.00%, 8/01/45

     3,500,000        3,645,215  

Green Dot Public Schools California Projects, Series A, 5.00%, 8/01/48

     1,750,000        1,855,088  

Kipp LA Projects, Series A, 5.00%, 7/01/35

     1,200,000        1,289,388  

Kipp LA Projects, Series A, 5.00%, 7/01/45

     1,675,000        1,767,963  

 

     
franklintempleton.com    Annual Report            23


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

     

Principal

Amount

     Value  

Municipal Bonds (continued)

     

California (continued)

     

California School Finance Authority School Facility Revenue, (continued)

     

Kipp LA Projects, Series A, 5.00%, 7/01/47

   $ 1,500,000      $ 1,608,150  

Kipp Social Projects, Series A, 5.00%, 7/01/39

     1,000,000        1,100,540  

Kipp Social Projects, Series A, 5.00%, 7/01/54

     3,300,000        3,563,076  

California State Community College Financing Authority College Housing Revenue, NCCD - Orange Coast Properties LLC - Orange Coast College Project, 5.25%, 5/01/53

     6,250,000        6,371,250  

California State Educational Facilities Authority Revenue,

     

Art Center College of Design, Refunding, Series A, 5.00%, 12/01/44

     1,610,000        1,690,033  

Art Center College of Design, Refunding, Series A, 5.00%, 12/01/48

     9,000,000        9,417,780  

Chapman University, 5.00%, 4/01/40

     5,000,000        5,513,650  

Loma Linda University, Refunding, Series A, 5.00%, 4/01/42

     8,500,000        9,291,690  

Refunding, Series A, 5.00%, 12/01/37

     1,265,000        1,353,057  

Refunding, Series A, 5.00%, 12/01/38

     1,125,000        1,199,914  

Stanford University, Series V-1, 5.00%, 5/01/49

     10,000,000        16,508,300  

University of the Pacific, Refunding, 5.00%, 11/01/36

     3,000,000        3,363,600  

University of San Francisco, Pre-Refunded, 6.125%, 10/01/36

     980,000        1,052,598  

University of San Francisco, Refunding, 6.125%, 10/01/36

     1,020,000        1,095,562  

California State GO,

     

Various Purpose, Refunding, 5.25%, 3/01/30

     5,000,000        5,018,000  

Various Purpose, Refunding, 5.00%, 3/01/45

     3,900,000        4,489,992  

California State Infrastructure and Economic Development Bank National Charter Revenue,

     

Equitable School Revolving Fund, Series B, 5.00%, 11/01/39

     300,000        352,725  

Equitable School Revolving Fund, Series B, 5.00%, 11/01/44

     350,000        406,970  

Equitable School Revolving Fund, Series B, 5.00%, 11/01/49

     350,000        404,915  

California State Muni Finance Authority Senior Living Revenue, MT San Antonio Gardens Project, Refunding, 5.00%, 11/15/39

     2,300,000        2,331,073  

California State Municipal Finance Authority Charter School Lease Revenue,

     

Santa Rosa Academy Project, 5.125%, 7/01/35

     450,000        459,351  

Santa Rosa Academy Project, 5.375%, 7/01/45

     1,400,000        1,423,240  

California State Municipal Finance Authority Charter School Revenue,

     

King/Chavez Academy of Excellence Project, Refunding and Improvement, Series A, 5.00%, 5/01/36

     2,480,000        2,512,810  

King/Chavez Academy of Excellence Project, Refunding and Improvement, Series A, 5.00%, 5/01/46

     2,775,000        2,758,905  

The Palmdale Aerospace Academy Project, Series A, 3.875%, 7/01/28

     1,400,000        1,374,702  

The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/31

     1,000,000        1,032,750  

The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/36

     2,750,000        2,791,635  

The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/38

     1,100,000        1,114,553  

The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/41

     1,750,000        1,757,210  

The Palmdale Aerospace Academy Project, Series A, 5.00%, 7/01/49

     3,600,000        3,550,968  

California State Municipal Finance Authority Revenue,

     

Biola University, Refunding, 5.00%, 10/01/36

     1,100,000        1,190,134  

Biola University, Refunding, 5.00%, 10/01/39

     1,000,000        1,073,250  

California Baptist University, Series A, 5.00%, 11/01/36

     2,500,000        2,554,900  

California Baptist University, Series A, 5.375%, 11/01/40

     5,000,000        5,161,850  

California Baptist University, Series A, 5.50%, 11/01/45

     10,000,000        10,315,400  

Clinicals del Camino Real Inc., 4.00%, 3/01/40

     2,750,000        3,004,292  

 

     

24

          Annual Report    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

     

Principal

Amount

     Value  

Municipal Bonds (continued)

     

California (continued)

     

California State Municipal Finance Authority Revenue, (continued)

     

Clinicas del Camino Real Inc., 4.00%, 3/01/50

   $ 5,000,000      $ 5,370,850  

Community Medical Centers, Refunding, Series A, 5.00%, 2/01/40

     5,000,000        5,491,050  

Community Medical Centers, Refunding, Series A, 4.00%, 2/01/42

     10,000,000        10,499,800  

The Creative Center of Los Altos Project Pinewood and Oakwood School, Refunding, Series B, 4.00%, 11/01/36

     1,395,000        1,279,606  

The Creative Center of Los Altos Project Pinewood and Oakwood School, Refunding, Series B, 4.50%, 11/01/46

     1,600,000        1,465,808  

Eisenhower Medical Center, Refunding, Series A, 5.00%, 7/01/37

     2,625,000        2,985,071  

Harbor Regional Center Project, Refunding, 5.00%, 11/01/32

     3,020,000        3,596,246  

Harbor Regional Center Project, Refunding, 5.00%, 11/01/39

     6,525,000        7,669,289  

Humangood Obligated Group, Refunding, Series A, 5.00%, 10/01/44

     12,885,000        13,250,032  

Inland Regional Center Project, Refunding, 5.00%, 6/15/37

     9,965,000        11,822,576  

Kern Regional Center Project, Refunding, Series A, 5.00%, 5/01/49

     3,895,000        4,597,775  

LINXS APM Project, senior lien, Series A, 5.00%, 12/31/43

     20,665,000        22,436,404  

LINXS APM Project, senior lien, Series A, 4.00%, 12/31/47

     6,085,000        6,086,643  

LINXS APM Project, senior lien, Series A, 5.00%, 12/31/47

     15,500,000        16,765,265  

NorthBay Healthcare Group, 5.00%, 11/01/35

     1,100,000        1,180,344  

NorthBay Healthcare Group, 5.00%, 11/01/44

     1,050,000        1,107,551  

NorthBay Healthcare Group, Series A, 5.25%, 11/01/47

     3,000,000        3,257,370  

South Central Los Angeles Regional Center Project, 5.50%, 12/01/33

     3,115,000        3,452,386  

South Central Los Angeles Regional Center Project, 5.75%, 12/01/43

     7,000,000        7,743,330  

Town and Country Manor, Refunding, California Mortgage Insured, 5.00%, 7/01/39

     1,000,000        1,231,470  

Town and Country Manor, Refunding, California Mortgage Insured, 5.00%, 7/01/49

     2,650,000        3,206,579  

University of La Verne, Refunding, Series A, 5.00%, 6/01/43

     5,000,000        5,620,650  

California State Municipal Finance Authority Senior Living Revenue, MT San Antonio Gardens Project, Refunding, 5.00%, 11/15/49

     850,000        842,214  

California State Municipal Finance Authority Special Facility Revenue, United Airlines Inc. Los Angeles International Airport Project, 4.00%, 7/15/29

     8,500,000        8,179,720  

California State Municipal Finance Authority Special Tax Revenue,

     

Series A, 4.00%, 9/01/35

     1,135,000        1,206,108  

Series A, 4.00%, 9/01/40

     1,450,000        1,496,313  

California State Municipal Finance Authority Student Housing Revenue,

     

Bowles Hall Foundation, Series A, 5.00%, 6/01/35

     600,000        631,554  

Bowles Hall Foundation, Series A, 5.00%, 6/01/50

     3,250,000        3,366,545  

CHF-Davis I, LLC-West Village Student Housing Project, 5.00%, 5/15/51

     5,000,000        5,364,800  

CHF-Riverside I LLC - UCR Dundee-Glasgow Student Housing Project, 5.00%, 5/15/43

     1,500,000        1,621,980  

CHF-Riverside II LLC-UCR North District Phase 1 Student Housing Project, 5.00%, 5/15/41

     1,450,000        1,586,416  

CHF-Riverside II LLC-UCR North District Phase 1 Student Housing Project, 5.00%, 5/15/49

     9,575,000        10,352,777  

CHF-Riverside II LLC-UCR North District Phase 1 Student Housing Project, 5.00%, 5/15/52

     775,000        836,434  

California State PCFA Solid Waste Disposal Revenue,

     

CalPlant I Project, Green Bonds, 7.00%, 7/01/22

     3,500,000        1,890,000  

CalPlant I Project, Green Bonds, 7.50%, 7/01/32

     13,000,000        7,020,000  

CalPlant I Project, Green Bonds, 8.00%, 7/01/39

     11,500,000        6,210,000  

California State PCFA Water Furnishing Revenue, 5.00%, 11/21/45

     19,965,000        20,479,498  

 

     
franklintempleton.com    Annual Report            25


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

California State Public Works Board Lease Revenue,

     

Department of Corrections and Rehabilitation, California State Prison Los Angeles, Various Buildings, Series C, 5.75%, 10/01/31

   $ 4,640,000      $ 4,952,226  

Various Capital Projects, Series A, 5.125%, 10/01/31

     3,605,000        3,815,820  

California State School Financial Authority Charted School Revenue, Aspire Public Schools, Refunding, 5.00%, 8/01/41

     2,200,000        2,298,780  

California State University Revenue, Systemwide, Refunding, Series A, 5.00%, 11/01/47

     14,980,000        17,769,426  

California Statewide CDA Hospital Revenue, Methodist Hospital of Southern California, Refunding, 5.00%, 1/01/48

     5,000,000        5,588,700  

California Statewide CDA College Housing Revenue,

     

NCCD-Hooper Street LLC-California College of the Arts Project, 5.25%, 7/01/39

     2,550,000        2,571,879  

NCCD-Hooper Street LLC-California College of the Arts Project, 5.25%, 7/01/49

     3,375,000        3,335,141  

NCCD-Hooper Street LLC-California College of the Arts Project, 5.25%, 7/01/52

     1,535,000        1,509,197  

California Statewide CDA Revenue,

     

Aldersly, Refunding, Series A, 5.00%, 5/15/32

     750,000        781,328  

Aldersly, Refunding, Series A, 5.00%, 5/15/40

     1,010,000        1,038,947  

Bentley School, Refunding, Series A, 7.00%, 7/01/40

     8,675,000        8,784,825  

California Baptist University, Refunding, Series A, 5.00%, 11/01/32

     1,135,000        1,180,559  

California Baptist University, Refunding, Series A, 5.00%, 11/01/41

     1,875,000        1,896,919  

California Baptist University, Series A, 5.125%, 11/01/23

     515,000        531,073  

California Baptist University, Series A, 6.125%, 11/01/33

     1,565,000        1,692,391  

California Baptist University, Series A, 6.375%, 11/01/43

     4,035,000        4,340,490  

California Baptist University, Series A, Pre-Refunded, 7.25%, 11/01/31

     1,250,000        1,372,100  

California Baptist University, Series A, Pre-Refunded, 7.50%, 11/01/41

     2,750,000        3,028,300  

Community Infrastructure Program, Series C, 5.00%, 9/02/34

     1,500,000        1,691,730  

Covenant Retirement Communities Inc., Series C, 5.625%, 12/01/36

     8,000,000        8,519,760  

Enloe Medical Center, Refunding, California Mortgage Insured, 5.00%, 8/15/38

     6,000,000        7,138,500  

Eskaton Properties Inc. Obligated Group, Refunding, 5.25%, 11/15/34

     4,350,000        4,463,448  

Huntington Memorial Hospital, 5.00%, 7/01/43

     1,000,000        1,123,340  

Huntington Memorial Hospital, 4.00%, 7/01/48

     6,000,000        6,520,080  

Huntington Memorial Hospital, Refunding, Series B, 5.00%, 7/01/44

     4,450,000        4,827,493  

Insured Senior Living Health Facility, Los Angeles Jewish Home for the Aging, Fountainview at Gonda, Series A, California Mortgage Insured, 5.00%, 8/01/44

     2,450,000        2,671,382  

Lancer Educational Student Housing Project, Refunding, Series A, 5.00%, 6/01/34

     375,000        377,974  

Lancer Educational Student Housing Project, Refunding, Series A, 5.00%, 6/01/46

     12,735,000        12,356,516  

Lancer Educational Student Housing Project, Series A, 5.00%, 6/01/39

     475,000        468,697  

Loma Linda University Medical Center, Series A, 5.00%, 12/01/41

     1,245,000        1,278,266  

Loma Linda University Medical Center, Series A, 5.25%, 12/01/56

     52,005,000        52,845,401  

Marin General Hospital, Green Bonds, Series A, 4.00%, 8/01/45

     1,500,000        1,555,980  

Statewide Community Infrastructure Program, Emerson Ranch Project, 5.00%, 9/02/35

     2,000,000        2,196,800  

Statewide Community Infrastructure Program, Emerson Ranch Project, 5.00%, 9/02/45

     3,810,000        4,113,924  

Statewide Community Infrastructure Program, Refunding, Series R1, 5.00%, 9/02/40

     2,230,000        2,333,360  

Statewide Community Infrastructure Program, Series A, 4.00%, 9/02/27

     1,995,000        2,070,152  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/36

     1,035,000        1,123,327  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/37

     1,975,000        2,120,715  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/38

     2,150,000        2,439,261  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/39

     1,700,000        1,932,883  

 

     

26

          Annual Report    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

California Statewide CDA Revenue, (continued)

     

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/44

   $ 1,000,000      $ 1,126,890  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/45

     2,250,000        2,433,915  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/46

     2,460,000        2,603,713  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/47

     3,750,000        4,169,700  

Statewide Community Infrastructure Program, Series A, 5.00%, 9/02/48

     1,000,000        1,122,910  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/34

     2,000,000        2,255,640  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/37

     3,260,000        3,615,894  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/38

     3,000,000        3,396,630  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/39

     1,060,000        1,167,834  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/43

     5,095,000        5,705,024  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/47

     2,540,000        2,787,040  

Statewide Community Infrastructure Program, Series B, 5.00%, 9/02/48

     5,000,000        5,553,250  

Statewide Community Infrastructure Program, Series C, 5.00%, 9/02/37

     4,970,000        5,522,714  

Statewide Community Infrastructure Program, Series C, 5.00%, 9/02/38

     6,000,000        6,807,240  

Statewide Community Infrastructure Program, Series C, 5.00%, 9/02/39

     850,000        936,471  

Statewide Community Infrastructure Program, Series C, 5.00%, 9/02/47

     1,785,000        1,944,293  

Statewide Community Infrastructure Program, Series C, 5.00%, 9/02/48

     6,605,000        7,335,843  

California Statewide CDA Special Tax Revenue,

     

CFD No. 2015-01, Improvement Area No. 1, University District, Refunding, Series A, 5.00%, 9/01/36

     1,000,000        1,096,480  

CFD No. 2015-01, Improvement Area No. 1, University District, Refunding, Series A, 5.00%, 9/01/45

     1,500,000        1,622,610  

CFD No. 2015-01, Improvement Area No. 2, University District, 5.00%, 9/01/27

     900,000        1,007,658  

CFD No. 2015-01, Improvement Area No. 2, University District, 5.00%, 9/01/37

     1,225,000        1,379,730  

CFD No. 2015-01, Improvement Area No. 2, University District, 5.00%, 9/01/47

     2,000,000        2,213,380  

CFD No. 2016-02, Delta Coves, 5.00%, 9/01/39

     1,230,000        1,328,080  

CFD No. 2016-02, Delta Coves, 5.00%, 9/01/49

     3,000,000        3,160,200  

CFD No. 2016-02, Delta Coves, Series A, 5.00%, 9/01/46

     11,080,000        11,426,361  

CFD No. 2018-03, Uptown Newport, 5.00%, 9/01/39

     1,750,000        1,964,410  

CFD No. 2018-03, Uptown Newport, 5.00%, 9/01/48

     2,000,000        2,198,640  

California Statewide CDA Student Housing Revenue,

     

University of California, Irvine East Campus Apartments, CHF-Irvine LLC, Refunding, 5.00%, 5/15/40

     1,500,000        1,579,545  

University of California, Irvine East Campus Apartments, Phase IV-A, CHF-Irvine LLC, Series A, 5.00%, 5/15/42

     710,000        749,625  

Capistrano USD, CFD No. 2005-1 Special Tax, 5.50%, 9/01/43

     4,955,000        5,311,859  

Carson RDA, Tax Allocation Housing, Series A, 5.25%, 10/01/36

     1,965,000        1,984,002  

Casitas Municipal Water District Special Tax,

     

CFD No. 2013-1, Ojai, Series B, BAM Insured, 5.00%, 9/01/42

     8,000,000        9,660,400  

CFD No. 2013-1, Ojai, Series B, BAM Insured, 5.25%, 9/01/47

     5,000,000        6,083,500  

Centinela Valley UHSD,

     

GO, Los Angeles County, Capital Appreciation, Election of 2010, Refunding, Series B, AGMC Insured, zero cpn., 8/01/45

     42,000,000        10,627,260  

GO, Los Angeles County, Election of 2008, Series C, 5.00%, 8/01/35

     4,195,000        4,719,249  

Chino CFD No. 2003-3 Special Tax, Improvement Area No. 6, 5.00%, 9/01/45

     1,665,000        1,797,767  

Chino CFD No. 2016-2 Special Tax, 5.00%, 9/01/42

     1,535,000        1,682,897  

 

     
franklintempleton.com    Annual Report            27


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

     

Principal

Amount

     Value  

Municipal Bonds (continued)

     

California (continued)

     

Chula Vista CFD Special Tax No. 16-I,

     

Improvement Area No. 1, 5.00%, 9/01/43

   $ 1,000,000      $ 1,107,660  

Improvement Area No. 1, 5.00%, 9/01/48

     1,185,000        1,305,337  

City of Fullerton Special Assessment,

     

CFD No. 2, Amerige Heights, 5.00%, 9/01/34

     1,075,000        1,146,208  

CFD No. 2, Amerige Heights, 5.00%, 9/01/44

     2,450,000        2,583,353  

Clovis USD,

     

GO, Capital Appreciation, Election of 2004, Series A, NATL Insured, zero cpn., 8/01/27

     6,295,000        5,725,240  

GO, Capital Appreciation, Election of 2004, Series A, NATL Insured, zero cpn., 8/01/28

     3,000,000        2,668,770  

GO, Capital Appreciation, Election of 2004, Series A, Pre-Refunded, zero cpn., 8/01/27

     1,205,000        1,133,965  

Coachella Valley USD,

     

GO, Riverside and Imperial Counties, Capital Appreciation, Election of 2005, Series D, AGMC Insured, zero cpn., 8/01/42

     8,500,000        5,013,640  

GO, Riverside and Imperial Counties, Capital Appreciation, Election of 2005, Series D, AGMC Insured, zero cpn., 8/01/43

     3,000,000        1,712,700  

Compton CRDA Tax Allocation,

     

Redevelopment Project, second lien, Series B, 5.70%, 8/01/30

     2,255,000        2,267,493  

Redevelopment Project, second lien, Series B, 6.00%, 8/01/42

     3,460,000        3,477,646  

Corona CFD No. 2018-1 Special Tax,

     

Improvement Area No. 1, Bedford, Series A, 5.00%, 9/01/38

     1,200,000        1,283,376  

Improvement Area No. 1, Bedford, Series A, 5.00%, 9/01/48

     1,000,000        1,053,520  

Corona-Norco USD Special Tax, CFD No. 2005-1, Refunding, 5.00%, 9/01/36

     500,000        560,240  

Cotati-Rohnert Park USD, GO, Election of 2014, Series C, BAM Insured, 5.00%, 8/01/45

     4,000,000        4,709,880  

CSD San Bernardino County GO,

     

Election of 2008, Series C, 5.00%, 8/01/44

     3,615,000        4,270,399  

Election of 2014, Series A, 5.00%, 8/01/44

     7,375,000        8,712,087  

Cudahy Community Development Commission Tax Allocation, City-Wide Redevelopment Project, Redevelopment Projects, Series B, Pre-Refunded, 7.75%, 10/01/27

     3,795,000        4,169,035  

Daly City Housing Development Finance Agency Mobile Home Park Revenue, Franciscan Mobile Home Park Acquisition Project, sub. bond, Refunding, Series B, 5.85%, 12/15/47

     4,595,000        4,600,744  

Dana Point CFD Special Tax No. 2006-1,

     

5.00%, 9/01/38

     1,000,000        1,062,490  

5.00%, 9/01/45

     2,500,000        2,654,275  

Del Mar Race Track Authority Revenue, Refunding, 5.00%, 10/01/35

     2,000,000        1,915,140  

Del Mar USD, CFD No. 99-1 Special Tax, Facilities Financing, Refunding, BAM Insured, 4.00%, 9/01/49

     2,000,000        2,302,700  

Dixon CFD No. 2013-1 Special Tax, Parklane, 5.00%, 9/01/44

     2,645,000        2,917,065  

Duarte RDA Tax Allocation, Capital Appreciation, Merged Redevelopment Project, ETM, zero cpn., 12/01/28

     21,990,000        14,977,169  

Dublin CFD No. 1 Special Tax,

     

Improvement Area No. 1, Dublin Crossing, 5.00%, 9/01/37

     1,550,000        1,752,229  

Improvement Area No. 1, Dublin Crossing, 5.00%, 9/01/47

     4,500,000        5,010,750  

Improvement Area No. 2, Dublin Crossing, 4.00%, 9/01/21

     110,000        113,150  

Improvement Area No. 2, Dublin Crossing, 4.00%, 9/01/23

     200,000        213,858  

Improvement Area No. 2, Dublin Crossing, 4.00%, 9/01/24

     250,000        272,373  

Improvement Area No. 2, Dublin Crossing, 5.00%, 9/01/25

     305,000        351,448  

Improvement Area No. 2, Dublin Crossing, 5.00%, 9/01/26

     360,000        420,379  

Improvement Area No. 2, Dublin Crossing, 5.00%, 9/01/29

     660,000        775,520  

 

     

28

          Annual Report    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Dublin CFD No. 1 Special Tax, (continued)

     

Improvement Area No. 2, Dublin Crossing, 5.00%, 9/01/39

   $ 3,665,000      $ 4,112,277  

Improvement Area No. 2, Dublin Crossing, 5.00%, 9/01/44

     6,625,000        7,310,422  

Improvement Area No.2, Dublin Crossing, 4.00%, 9/01/22

     155,000        162,972  

Dublin CFD No. 2015-1 Special Tax, Improvement Area No. 2, Dublin Crossing, 5.00%, 9/01/49

     2,300,000        2,529,241  

El Dorado County Special Tax, CFD No. 2014-1, Carson Creek, 5.00%, 9/01/48

     2,850,000        3,109,207  

El Rancho USD, GO, Los Angeles County, Capital Appreciation, Election of 2003, NATL Insured, zero cpn., 8/01/29

     2,400,000        2,099,568  

Fairfield CFD No. 2016-1 Special Tax Revenue, Villages at Fairfield, Improvement Area, Series A, 5.00%, 9/01/44

     2,000,000        2,192,140  

Fillmore Special Tax,

     

CFD No. 5 Improvement Area A, Heritage Valley Parks, Series A, 5.00%, 9/01/40

     1,500,000        1,601,910  

CFD No. 5 Improvement Area A, Heritage Valley Parks, Series A, 5.00%, 9/01/45

     2,630,000        2,800,292  

Folsom Ranch Financing Authority Special Tax Revenue,

     

CCFD No. 21, White Rock Springs Ranch, 5.00%, 9/01/49

     2,000,000        2,189,880  

CFD No. 19, Mangini Ranch, 5.00%, 9/01/47

     3,280,000        3,574,806  

CFD No. 19, Mangini Ranch, 5.00%, 9/01/49

     1,825,000        1,981,110  

CFD No. 20, Russell Ranch, 5.00%, 9/01/28

     600,000        695,448  

CFD No. 20, Russell Ranch, 5.00%, 9/01/33

     530,000        596,330  

CFD No. 20, Russell Ranch, 5.00%, 9/01/38

     850,000        938,978  

CFD No. 20, Russell Ranch, 5.00%, 9/01/48

     1,675,000        1,832,316  

Fontana Special Tax,

     

CFD No. 80, Bella Strada, 5.00%, 9/01/46

     1,000,000        1,095,860  

CFD No. 81, Gabriella, 4.00%, 9/01/43

     1,000,000        1,032,060  

Foothill/Eastern Transportation Corridor Agency Toll Road Revenue,

     

Capital Appreciation, Refunding, Series A, zero cpn., 1/15/42

     75,000,000        32,844,000  

Capital Appreciation, senior lien, Refunding, Series A, zero cpn., 1/15/33

     19,000,000        12,322,450  

junior lien, Refunding, Series C, 6.50%, 1/15/43

     40,000,000        45,176,400  

Refunding, Sub Series B-1, 3.95%, 1/15/53

     25,000,000        26,604,500  

Subseries B-2, Refunding, Series B, 3.50%, 1/15/53

     17,500,000        17,795,750  

Freddie Mac MFH Revenue, Pass - Through ML06Class XCA, 1.106%, 7/25/35

     140,459,721        13,105,496  

Fremont CFD No. 1 Special Tax,

     

Pacific Commons, Refunding, 5.00%, 9/01/40

     4,655,000        5,030,752  

Pacific Commons, Refunding, 5.00%, 9/01/45

     3,255,000        3,493,461  

Golden State Tobacco Securitization Corp. Enhanced Tobacco Settlement Revenue, Asset-Backed, Series A, 5.00%, 6/01/45

     37,630,000        42,882,772  

Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,

     

Asset-Backed, Capital Appreciation, Second Subordinate, Refunding, Series C, zero cpn., 6/01/47

     50,000,000        9,247,500  

Asset-Backed, Refunding, Series A-1, 5.25%, 6/01/47

     63,500,000        63,910,210  

Asset-Backed, Refunding, Series A-2, 5.00%, 6/01/47

     12,750,000        12,760,327  

Asset-Backed, Senior, Refunding, Series A-2, 5.30%, 6/01/37

     5,000,000        5,062,350  

Hanford Joint UHSD,

     

GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/32

     3,635,000        2,973,903  

GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/33

     3,705,000        2,942,844  

GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn., 8/01/35

     4,120,000        3,090,082  

Hartnell Community College District GO, Monterey and San Benito Counties, Capital Appreciation, Election of 2002, Series D, zero cpn., 8/01/49

     10,000,000        4,558,500  

 

     
franklintempleton.com    Annual Report            29


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

     

Principal

Amount

     Value  

Municipal Bonds (continued)

     

California (continued)

     

Imperial Community College District GO, Imperial County, Capital Appreciation, Election of 2010, Series A, AGMC Insured, Pre-Refunded, 6.75%, 8/01/40

   $     3,500,000      $     4,615,835  

Imperial County Special Tax, CFD No. 98-1, LOC BNP Paribas, 6.50%, 9/01/31

     5,405,000        5,422,999  

Independent Cities Finance Authority Mobile Home Park Revenue,

     

Lamplighter Salinas Mobilehome Park, Series A, Pre-Refunded, 6.25%, 7/15/45

     2,465,000        2,482,625  

Lamplighter Salinas Mobilehome Park, Series A, Pre-Refunded, 6.25%, 7/15/50

     2,000,000        2,014,300  

Pillar Ridge, Series A, 5.25%, 5/15/44

     2,015,000        2,161,773  

Pillar Ridge, Series A, 5.25%, 5/15/49

     4,800,000        5,138,592  

San Juan Mobile Estates, Refunding, 5.00%, 8/15/45

     5,000,000        5,448,100  

San Juan Mobile Estates, Refunding, 5.00%, 8/15/50

     4,900,000        5,327,329  

Union City Tropics, Refunding, 5.00%, 5/15/48

     3,000,000        3,480,270  

Indio CFD Special Tax, No. 2004-3, Terra Lago, Improvement Area No. 1, Refunding, 5.00%, 9/01/35

     1,210,000        1,338,950  

Inland Valley Development Agency Successor Agency Tax Allocation,

     

Refunding, Series A, 5.25%, 9/01/37

     7,500,000        8,282,925  

Refunding, Series A, 5.00%, 9/01/44

     9,000,000        9,779,670  

Irvine Special Tax Revenue,

     

CFD No. 2013-3, Great Park, Improvement Area No. 1, 5.00%, 9/01/39

     1,000,000        1,086,600  

CFD No. 2013-3, Great Park, Improvement Area No. 1, 5.00%, 9/01/44

     1,500,000        1,616,265  

CFD No. 2013-3, Great Park, Improvement Area No. 1, 5.00%, 9/01/49

     2,750,000        2,953,665  

CFD No. 2013-3, Great Park, Improvement Area No. 8, 5.00%, 9/01/43

     2,500,000        2,804,150  

CFD No. 2013-3, Great Park, Improvement Area No. 8, 5.00%, 9/01/48

     3,250,000        3,616,795  

CFD No. 2013-3, Great Park, Improvement Area No. 8, AGMC Insured, 5.00%, 9/01/51

     1,250,000        1,465,300  

Irvine USD Special Tax,

     

CFD No. 06-1, Portola Springs, 6.70%, 9/01/35

     2,565,000        2,590,214  

CFD No. 09-1, Refunding, Series A, 5.00%, 9/01/45

     2,000,000        2,268,460  

CFD No. 09-1, Refunding, Series A, 5.00%, 9/01/49

     2,000,000        2,256,860  

CFD No. 09-1, Series A, 5.00%, 9/01/42

     700,000        798,952  

CFD No. 09-1, Series B, 5.00%, 9/01/42

     1,000,000        1,141,360  

CFD No. 09-1, Series B, 5.00%, 9/01/51

     2,500,000        2,815,075  

CFD No. 09-1, Series C, 5.00%, 9/01/47

     1,000,000        1,132,130  

CFD No. 09-1, Series D, 5.00%, 9/01/49

     1,000,000        1,128,430  

Jurupa PFA Special Tax Revenue,

     

Refunding, Series A, 5.00%, 9/01/42

     2,220,000        2,551,224  

Refunding, Series A, 5.00%, 9/01/43

     4,000,000        4,736,360  

sub. lien, Series B, 5.00%, 9/01/40

     4,000,000        4,369,200  

Kaweah Delta Health Care District Revenue, Series B, 5.00%, 6/01/40

     3,250,000        3,637,562  

La Verne COP, Brethren Hillcrest Homes, 5.00%, 5/15/36

     1,430,000        1,429,914  

La Verne Mobile Home Park Revenue, Copacabana Mobilehome Park, Refunding, 5.00%, 6/15/49

     1,765,000        2,018,578  

Lake Elsinore PFA Local Agency Revenue,

     

AD No. 93-1, Refunding, Series B, 5.125%, 9/02/30

     4,980,000        5,320,433  

Canyon Hills Improvement Area Development, Series A, 5.75%, 9/01/44

     3,240,000        3,483,421  

CFD No. 98-1, Series C, 5.25%, 9/01/33

     8,000,000        8,575,520  

Lake Tahoe USD, GO, Election of 2008, Convertible Capital Appreciation, zero cpn. to 8/01/25, 5.30% thereafter, 8/01/40

     1,140,000        1,172,821  

 

     

30

          Annual Report    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Lammersville Joint USD Special Tax,

     

CFD No. 2014-1, Improvement Area No. 1, Mountain House School Facilities, 5.00%, 9/01/43

   $ 775,000      $ 852,089  

CFD No. 2014-1, Improvement Area No. 1, Mountain House School Facilities, 5.00%, 9/01/47

     4,000,000        4,375,560  

CFD No. 2014-1, Improvement Area No. 1, Mountain House School Facilities, 5.00%, 9/01/48

     2,500,000        2,737,325  

Las Virgenes USD, GO, Election of 2006, Convertible Capital Appreciation, Series C, zero cpn. to 8/01/26, 6.75% thereafter, 8/01/33

     8,050,000        9,420,593  

Lathrop Financing Authority Revenue,

     

Mossdale Village, Refunding, Series A, 6.00%, 9/02/28

     1,010,000        1,092,850  

Mossdale Village, Refunding, Series A, 6.00%, 9/02/29

     1,070,000        1,154,423  

Mossdale Village, Refunding, Series A, 6.00%, 9/02/30

     1,075,000        1,155,743  

Mossdale Village, Refunding, Series A, 5.50%, 9/02/35

     3,670,000        3,822,158  

LeeLakePFAR,

     

Special Tax, junior lien, Refunding, Series B, 5.25%, 9/01/32

     1,155,000        1,239,061  

Special Tax, junior lien, Refunding, Series B, 5.375%, 9/01/35

     805,000        859,040  

Lemon Grove CDA Successor Agency Tax Allocation, Lemon Grove Redevelopment Project Area, Refunding, AGMC Insured, 4.00%, 8/01/34

     1,000,000        1,194,100  

Lemon Grove School District GO, Capital Appreciation, Election of 2008, Series B, AGMC Insured, zero cpn. to 8/01/28, 6.10% thereafter, 8/01/45

     6,500,000        7,123,870  

Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A, 5.00%, 11/15/29

     4,630,000        5,829,679  

Long Beach Marina Revenue,

     

Los Angeles County, Alamitos Bay Marina Project, 5.00%, 5/15/34

     1,300,000        1,339,559  

Los Angeles County, Alamitos Bay Marina Project, 5.00%, 5/15/40

     3,500,000        3,558,380  

Los Angeles County, Alamitos Bay Marina Project, 5.00%, 5/15/45

     2,500,000        2,522,175  

Los Alamitos USD,

     

COP, Capital Appreciation, Capital Projects, zero cpn. to 7/31/24, 5.95% thereafter, 8/01/34

     1,500,000        1,689,735  

COP, Capital Appreciation, Capital Projects, zero cpn. to 7/31/24, 5.95% thereafter, 8/01/42

     4,500,000        4,921,425  

Los Angeles Department of Airports Revenue,

     

Los Angeles International Airport, Subordinate, Refunding, Series F, 5.00%, 5/15/39

     4,330,000        5,119,922  

Los Angeles International Airport, Subordinate, Series D, 4.00%, 5/15/44

     5,525,000        5,882,744  

Mendocino-Lake Community College District GO,

     

Capital Appreciation, Election of 2006, Series B, AGMC Insured, zero cpn. to 8/01/21, 6.55% thereafter, 8/01/36

     5,150,000        7,088,769  

Capital Appreciation, Election of 2006, Series B, AGMC Insured, zero cpn. to 8/01/26, 6.85% thereafter, 8/01/40

     7,500,000        9,266,925  

Menifee USD Special Tax,

     

CFD No. 2011-1, Improvement Area No. 3, 5.00%, 9/01/43

     1,000,000        1,103,560  

CFD No. 2011-1, Improvement Area No. 3, 5.00%, 9/01/48

     1,500,000        1,647,735  

CFD No. 2011-1, Improvement Area No. 4, 5.00%, 9/01/48

     2,900,000        3,155,954  

Merced UHSD, GO, Capital Appreciation, Election of 2008, Series C, Pre-Refunded, zero cpn., 8/01/41

     10,000,000        2,480,500  

Middle Fork Project Finance Authority Revenue,

     

Refunding, 5.00%, 4/01/34

     1,100,000        1,208,328  

Refunding, 5.00%, 4/01/35

     1,150,000        1,258,319  

Moreland School District GO, Election of 2010, Series B, 5.00%, 8/01/41

     4,045,000        4,798,341  

Moreno Valley USD,

     

CFD No. 2015-2 Special Tax, 5.00%, 9/01/44

     870,000        962,681  

CFD No. 2015-3 Special Tax, 4.125%, 9/01/48

     1,160,000        1,210,077  

M-S-R Energy Authority Gas Revenue, Series B, 6.50%, 11/01/39

     32,300,000        48,441,602  

 

     
franklintempleton.com    Annual Report            31


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Murrieta CFD No. 2005-5 Special Tax, Golden City, Improvement Area B, 5.00%, 9/01/48

   $ 3,740,000      $ 4,125,519  

North Natomas CFD Special Tax, No. 4, Refunding, Series E, 5.25%, 9/01/33

     3,000,000        3,328,890  

Oak Park USD, GO, Capital Appreciation, Series A, zero cpn. to 8/01/21, 7.10% thereafter, 8/01/38

     6,600,000        9,297,750  

Oakdale PFAR, Refunding, 5.00%, 9/01/35

     1,270,000        1,395,578  

Oakland USD Alameda County GO, Election of 2012, Pre-Refunded, 6.625%, 8/01/38

     5,000,000        5,371,400  

Oakley PFAR,

     

Contra Costa County, Refunding, 5.30%, 9/02/34

     995,000        1,089,744  

Contra Costa County, Refunding, BAM Insured, 5.00%, 9/02/36

     1,500,000        1,748,220  

Ontario CFD No. 28 Special Tax,

     

New Haven Facilities, Area A, 5.00%, 9/01/42

     1,000,000        1,092,560  

New Haven Facilities, Area A, 5.00%, 9/01/47

     500,000        545,405  

Ontario CFD No. 31 Special Tax, Amberly Lane, Carriage House, 5.00%, 9/01/47

     1,100,000        1,219,603  

Orange County CFD No. 2015-1 Special Tax,

     

Village of Esencia, Series A, 5.00%, 8/15/34

     1,495,000        1,655,010  

Village of Esencia, Series A, 5.25%, 8/15/45

     4,880,000        5,348,480  

Orange County CFD No. 2017-1 Special Tax,

     

Village of Esencia, Improvement Area No. 1, Series A, 5.00%, 8/15/42

     6,230,000        7,024,886  

Village of Esencia, Improvement Area No. 1, Series A, 5.00%, 8/15/47

     10,000,000        11,174,900  

Oro Grande Elementary School District COP,

     

5.875%, 9/15/37

     14,000,000        14,193,340  

6.125%, 9/15/40

     1,500,000        1,521,300  

Oroville Revenue,

     

Oroville Hospital, 5.25%, 4/01/49

     4,000,000        4,196,600  

Oroville Hospital, 5.25%, 4/01/54

     3,500,000        3,657,185  

Palomar Health COP,

     

Palomar Health and Arch Health Partners Inc., 4.00%, 11/01/38

     5,000,000        5,047,150  

Palomar Health and Arch Health Partners Inc., 4.00%, 11/01/47

     6,000,000        5,918,220  

Palomar Health Revenue,

     

Refunding, 5.00%, 11/01/36

     6,250,000        7,045,750  

Refunding, 5.00%, 11/01/42

     5,000,000        5,578,200  

Paramount USD, GO, Los Angeles County, Capital Appreciation, Election of 2006, BAM Insured, zero cpn., 8/01/51

     25,000,000        3,353,250  

Paso Robles Joint USD, GO, Capital Appreciation, Election of 2006, Series A, zero cpn., 9/01/45

     15,000,000        6,863,400  

Perris CFD No. 2001-2 Special Tax, Villages of Avalon, Refunding, Series A, 5.25%, 9/01/32

     4,500,000        4,847,805  

Perris Joint Powers Authority Local Agency Revenue,

     

CFD No. 2001-1, Improvement Area Nos. 6 and 7, Refunding, Series E, 4.25%, 9/01/38

     4,170,000        4,316,325  

CFD No. 2014-1, Improvement Area No. 2, Avelina, Series A, 4.00%, 9/01/48

     2,530,000        2,608,152  

May Farms, Improvement Area Nos. 1, 2 and 3, Refunding, Series A, 5.375%, 9/01/33

     1,965,000        2,121,512  

Willowbrook, Refunding, Series B, 5.25%, 9/01/33

     3,780,000        4,034,961  

Pico Rivera Water Authority Revenue, Refunding, Series A, 6.25%, 12/01/32

     4,895,000        4,944,293  

Pittsburg USD,

     

GO, Capital Appreciation, Election of 2010, Series C, zero cpn., Pre-Refunded, 8/01/47

     9,000,000        2,093,130  

GO, Capital Appreciation, Election of 2010, Series C, zero cpn., Pre-Refunded, 8/01/52

     15,000,000        2,512,650  

Porterville PFA Sewer Revenue, Series A, Pre-Refunded, 5.625%, 10/01/36

     5,000,000        5,366,500  

Poway RDA Successor Agency Tax Allocation, Paguay Redevelopment Project, Refunding, Series A, 5.00%, 12/15/30

     3,500,000        4,618,215  

Poway USD Special Tax, CFD No. 15, Del Sur East, Improvement Area C, 5.00%, 9/01/46

     2,000,000        2,206,980  

 

     

32

          Annual Report    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Rancho Cordova CFD No. 2005-1 Special Tax,

     

Sunridge North Douglas, 5.00%, 9/01/40

   $ 1,200,000      $ 1,305,900  

Sunridge North Douglas, 5.00%, 9/01/45

     1,250,000        1,347,175  

Rancho Cordova CFD No. 2018-1 Special Tax, Grantline 208, 5.00%, 9/01/44

     415,000        449,374  

Redondo Beach USD, GO, Election of 2008, Capital Appreciation, Series E, zero cpn. to 8/01/22, 6.20% thereafter, 8/01/31

     2,750,000        3,592,077  

Richland School District GO, Capital Appreciation, Election of 2008, Refunding, Series C, AGMC Insured, zero cpn., 8/01/49

     22,000,000        8,729,380  

Rio Elementary School District CFD No. 1 Special Tax, Pre-Refunded, 5.50%, 9/01/39

     6,915,000        8,063,789  

Rio Hondo Community College District GO, Capital Appreciation, Election of 2004, Series C, zero cpn. to 8/01/24, 6.85% thereafter, 8/01/42

     13,000,000        16,905,720  

Rio Vista CFD No. 2018-1 Special Tax,

     

Liberty Community, Refunding, 5.00%, 9/01/33

     1,625,000        1,842,051  

Liberty Community, Refunding, 5.00%, 9/01/38

     1,000,000        1,117,590  

Liberty Community, Refunding, 5.00%, 9/01/48

     1,190,000        1,313,891  

Riverbank USD,

     

GO, Election of 2005, Series B, Assured Guaranty, zero cpn., 8/01/38

     6,690,000        4,159,842  

GO, Election of 2005, Series B, Assured Guaranty, zero cpn., 8/01/43

     8,750,000        4,558,225  

Riverside County RDA Tax Allocation,

     

Desert Communities Redevelopment Project Area, second lien, Series D, Pre-Refunded, 7.00%, 12/01/31

     1,425,000        1,565,933  

Desert Communities Redevelopment Project Area, second lien, Series D, Pre-Refunded, 7.25%, 12/01/37

     2,505,000        2,762,088  

Housing, Series A, Pre-Refunded, 7.125%, 10/01/42

     1,750,000        1,906,748  

Jurupa Valley Redevelopment Project Area, Series B, 6.75%, 10/01/30

     1,200,000        1,302,192  

Riverside County Special Tax, CFD No. 03-1, Newport Road, Refunding, 5.00%, 9/01/30

     1,500,000        1,663,515  

Riverside County Transportation Commission Toll Revenue,

     

Capital Appreciation, senior lien, Series B, zero cpn., 6/01/43

     7,500,000        3,080,175  

senior lien, Series A, 5.75%, 6/01/44

     5,000,000        5,355,700  

Riverside PFA Local Measure Sales Tax Revenue, Payment Rehabilitation Project, AGMC Insured, 5.00%, 6/01/33

     4,280,000        4,810,634  

RNR School Financing Authority Special Tax, CFD No. 92-1, Series A, BAM Insured, 5.00%, 9/01/41

     3,000,000        3,549,300  

Rocklin Special Tax, CFD No. 10, Whitney Ranch, 5.00%, 9/01/40

     2,000,000        2,179,540  

The Romoland School District Special Tax,

     

CFD No. 2004-1, Heritage Lake, Improvement Area No. 3, Refunding, 5.00%, 9/01/36

     1,500,000        1,597,920  

CFD No. 2004-1, Heritage Lake, Improvement Area Nos. 1 and 2, Refunding, 5.00%, 9/01/35

     4,690,000        5,170,537  

CFD No. 2004-1, Heritage Lake, Improvement Area Nos. 1 and 2, Refunding, 5.00%, 9/01/38

     3,000,000        3,286,770  

CFD No. 2006-1, Brendle Mills, Refunding, 5.00%, 9/01/44

     1,120,000        1,244,858  

CFD No. 91-1, Refunding, 5.00%, 9/01/41

     1,265,000        1,412,094  

Roseville Special Tax,

     

Fiddyment Ranch CFD No. 5, Public Facilities, Refunding, 5.00%, 9/01/32

     1,265,000        1,440,620  

Fiddyment Ranch CFD No. 5, Public Facilities, Refunding, 5.00%, 9/01/47

     6,500,000        7,167,095  

HP Campus Oaks CFD No. 1, Public Facilities, 5.00%, 9/01/36

     2,300,000        2,539,729  

HP Campus Oaks CFD No. 1, Public Facilities, 5.50%, 9/01/46

     7,550,000        8,398,922  

SVSP Westpark-Federico CFD No. 1, Public Facilities, 5.00%, 9/01/39

     440,000        467,377  

Villages at Sierra Vista CFD No. 1, Public Facilities, 5.00%, 9/01/36

     685,000        742,595  

Villages at Sierra Vista CFD No. 1, Public Facilities, 5.00%, 9/01/44

     3,230,000        3,444,052  

 

     
franklintempleton.com    Annual Report            33


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Roseville Special Tax, (continued)

     

Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/29

   $ 500,000      $ 558,780  

Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/34

     1,100,000        1,200,914  

Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/39

     1,885,000        2,034,914  

Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/44

     1,650,000        1,767,018  

Westbrook CFD No. 1, Public Facilities, 5.00%, 9/01/49

     3,800,000        4,183,268  

Westpark CFD No. 1, Public Facilities, Refunding, 5.00%, 9/01/32

     1,120,000        1,257,771  

Westpark CFD No. 1, Public Facilities, Refunding, 5.00%, 9/01/33

     1,000,000        1,116,940  

Westpark CFD No. 1, Public Facilities, Refunding, 5.00%, 9/01/37

     1,250,000        1,381,100  

Westpark-Federico Community Facilities District No.1, 5.00%, 9/01/44

     500,000        529,195  

Westpark-Federico Community Facilities District No.1, 5.00%, 9/01/49

     575,000        606,608  

Rowland USD,

     

GO, Capital Appreciation, Election of 2006, Series B, zero cpn., 8/01/34

     5,000,000        3,514,500  

GO, Capital Appreciation, Election of 2006, Series B, zero cpn., 8/01/39

     15,000,000        8,920,800  

GO, Capital Appreciation, Election of 2006, Series B, zero cpn., 8/01/42

     10,750,000        6,203,395  

Sacramento Area Flood Control Agency Special Assessment, Natomas Basin Local Assessment, Refunding, BAM Insured, 5.00%, 10/01/44

     2,000,000        2,325,340  

Sacramento Special Tax,

     

Natomas Central CFD No. 2, 5.00%, 9/01/46

     1,815,000        2,006,083  

Natomas Meadows, CFD No. 2007-01, Improvement Area No. 2, 5.00%, 9/01/44

     500,000        555,580  

Natomas Meadows, CFD No. 2007-01, Improvement Area No. 2, 5.00%, 9/01/49

     1,000,000        1,104,800  

Natomas Meadows CFD No. 1, Improvement Area No. 1, 5.00%, 9/01/32

     300,000        334,572  

Natomas Meadows CFD No. 1, Improvement Area No. 1, 5.00%, 9/01/37

     710,000        784,245  

Natomas Meadows CFD No. 1, Improvement Area No. 1, 5.00%, 9/01/47

     1,900,000        2,070,962  

San Bernardino Community College District GO,

     

Capital Appreciation, Election of 2008, Series A, zero cpn., 8/01/44

     12,495,000        6,417,432  

Election of 2008, Series D, Pre-Refunded, 5.00%, 8/01/45

     2,755,000        3,402,039  

Election of 2008, Series D, Pre-Refunded, 5.00%, 8/01/48

     3,760,000        4,643,074  

San Bernardino County Special Tax,

     

CFD No. 2006-1, Improvement Area No. 1, Lytle Creek North, 5.00%, 9/01/40

     1,000,000        1,085,740  

CFD No. 2006-1, Improvement Area No. 2, Lytle Creek North, Refunding, 5.00%, 9/01/45

     1,000,000        1,073,760  

San Buenaventura Revenue,

     

Community Memorial Health System, 8.00%, 12/01/31

     10,000,000        10,363,300  

Community Memorial Health System, 7.50%, 12/01/41

     5,000,000        5,086,800  

San Clemente Special Tax,

     

CFD No. 2006-1, 5.00%, 9/01/40

     1,780,000        1,947,000  

CFD No. 2006-1, 5.00%, 9/01/46

     2,475,000        2,678,470  

San Diego Tobacco Settlement Revenue, Funding Corp., Subordinate, Refunding, Series C, 4.00%, 6/01/32

     900,000        867,348  

San Diego USD,

     

GO, Capital Appreciation, Election of 2008, Series A, Pre-Refunded, 6.00%, 7/01/33

     10,000,000        12,314,600  

GO, Capital Appreciation, Election of 2008, Series C, zero cpn. to 7/01/30, 6.625% thereafter, 7/01/47

     26,025,000        28,321,186  

GO, Dedicated Unlimited Ad Valorem Property Tax, Capital Appreciation, Election of 2008, Series E, zero cpn. to 7/01/32, 5.25% thereafter, 7/01/42

     6,940,000        6,367,450  

GO, Dedicated Unlimited Ad Valorem Property Tax, Capital Appreciation, Election of 2008, Series E, zero cpn. to 7/01/32, 5.375% thereafter, 7/01/47

     13,500,000        12,636,675  

 

     

34

          Annual Report    franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

San Francisco Calif City and County Airports Community International Airport Revenue,

     

Refunding, Series A, 5.00%, 5/01/37

   $ 5,535,000      $ 6,576,300  

Refunding, Series A, 5.00%, 5/01/44

     35,000,000        40,853,050  

San Francisco City and County Airport Commission International Airport Revenue,

     

Refunding, Second Series, Series A, 5.00%, 5/01/49

     10,000,000        11,606,700  

Refunding, Second Series, Series D, 5.00%, 5/01/48

     10,000,000        11,459,100  

San Francisco City and County RDA Successor Agency CFD No. 6 Special Tax, Mission Bay South Public Improvements, Capital Appreciation, Refunding, Series C, zero cpn., 8/01/43

     10,000,000        2,753,800  

San Francisco City and County RDA Successor Agency Tax Allocation,

     

Mission Bay South Redevelopment Project, Capital Appreciation, Subordinate, Series D, zero cpn., 8/01/23

     2,000,000        1,772,700  

Mission Bay South Redevelopment Project, Capital Appreciation, Subordinate, Series D, zero cpn., 8/01/26

     3,000,000        2,288,340  

Mission Bay South Redevelopment Project, Capital Appreciation, Subordinate, Series D, zero cpn., 8/01/31

     6,000,000        3,550,320  

Mission Bay South Redevelopment Project, Capital Appreciation, Subordinate, Series D, zero cpn., 8/01/43

     16,500,000        5,302,110  

Mission Bay South Redevelopment Project, Series A, 5.00%, 8/01/43

     2,500,000        2,732,700  

San Francisco City and County Redevelopment Financing Authority Tax Allocation Revenue,

     

Mission Bay North Redevelopment Project, Series C, Pre-Refunded, 6.75%, 8/01/41

     1,000,000        1,042,880  

Mission Bay South Redevelopment Project, Series D, Pre-Refunded, 7.00%, 8/01/33

     1,000,000        1,043,220  

Mission Bay South Redevelopment Project, Series D, Pre-Refunded, 7.00%, 8/01/41

     1,500,000        1,564,830  

San Francisco Redevelopment Projects, Series B, Pre-Refunded, 6.625%, 8/01/41

     2,500,000        2,605,125  

San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,

     

Capital Appreciation, junior lien, ETM, zero cpn., 1/01/28

     19,150,000        17,970,934  

Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/26

     19,475,000        16,492,598  

Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/32

     50,225,000        33,752,707  

junior lien, Refunding, Series B, 5.25%, 1/15/44

     35,000,000        37,343,950  

junior lien, Refunding, Series B, 5.25%, 1/15/49

     75,000,000        79,793,250  

San Jose Airport Revenue,

     

Refunding, Series A, 5.00%, 3/01/36

     2,250,000        2,589,412  

Refunding, Series A, 5.00%, 3/01/37

     2,500,000        2,868,750  

Refunding, Series A, BAM Insured, 4.00%, 3/01/42

     5,000,000        5,323,900  

Refunding, Series B, 5.00%, 3/01/42

     2,550,000        3,013,896  

San Mateo Special Tax,

     

CFD No. 2008-1, Bay Meadows, 5.875%, 9/01/32

     1,500,000        1,600,920  

CFD No. 2008-1, Bay Meadows, 5.375%, 9/01/38

     2,500,000        2,628,775  

CFD No. 2008-1, Bay Meadows, 6.00%, 9/01/42

     5,000,000        5,292,200  

CFD No. 2008-1, Bay Meadows, 5.50%, 9/01/44

     3,300,000        3,469,026  

San Rafael Elementary School District GO, Marin County, Election of 2015, Series C, 5.00%, 8/01/43

     1,565,000        1,900,786  

Santa Barbara Elementary School District GO, Capital Appreciation, Election of 2010, Series A, zero cpn. to 8/01/23, 7.00% thereafter, 8/01/36

     8,000,000        11,075,600  

Santa Margarita Water District Special Tax,

     

CFD No. 2013-1, Village of Sendero, 5.625%, 9/01/36

     2,875,000        3,102,240  

CFD No. 2013-1, Village of Sendero, 5.625%, 9/01/43

     9,600,000        10,288,320  

Santa Paula Utility Authority Wastewater Enterprise Revenue, Series A, 5.00%, 2/01/40

     5,105,000        5,842,315  

 

     
franklintempleton.com    Annual Report            35


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Santee Community Development Commission Tax Allocation,

     

Santee Community Redevelopment Project, Series A, Pre-Refunded, 7.00%, 8/01/31

   $ 1,800,000      $ 1,880,280  

Santee Community Redevelopment Project, Series A, Pre-Refunded, 7.00%, 8/01/41

     2,820,000        2,945,772  

Saugus Castaic School Facilities Financing Authority Special Tax,

     

CFD No. 2006-1C, 5.875%, 9/01/33

     1,370,000        1,506,507  

CFD No. 2006-1C, 6.00%, 9/01/43

     3,395,000        3,682,760  

Saugus USD Special Tax, Senior CFD No. 2006-1, 4.25%, 9/01/44

     2,500,000        2,593,325  

Saugus/Hart School Facilities Financing Authority Special Tax,

     

CFD No. 2006-1 Saugus USD, Refunding, 5.00%, 9/01/41

     1,250,000        1,374,125  

CFD No. 2006-1 Saugus USD, Refunding, 5.00%, 9/01/46

     1,250,000        1,365,788  

Simi Valley AD No. 98-1 Special Assessment, Madera/Royal Public Improvements, Limited Obligation Improvements, 7.30%, 9/02/24

     1,010,000        1,017,605  

Siskiyou UHSD, GO, Capital Appreciation, Election of 2008, Series B, AGMC Insured, zero cpn., 8/01/49

     15,015,000        5,465,460  

Sonoma CDA Tax Allocation, Redevelopment Project, 7.00%, 12/01/30

     2,115,000        2,274,682  

St. Helena USD, GO, Capital Appreciation, zero cpn. to 8/01/25, 6.45% thereafter, 6/01/36

     10,000,000        12,773,300  

Sulphur Springs USD Special Tax Revenue,

     

CFD No. 2006-1, 5.00%, 9/01/43

     1,410,000        1,544,119  

CFD No. 2006-1, 5.00%, 9/01/47

     1,820,000        1,985,274  

Susanville School District GO, Capital Appreciation, Election of 2008, AGMC Insured, zero cpn., 8/01/49

     17,505,000        6,848,481  

Temecula RDA Tax Allocation Revenue, Housing, Redevelopment Project No. 1, Series A, Pre-Refunded, 7.00%, 8/01/39

     2,100,000        2,255,106  

Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,

     

Asset-Backed, Series A-1, 5.375%, 6/01/38

     5,000,000        5,000,250  

Asset-Backed, Series A-1, 5.50%, 6/01/45

     800,000        800,032  

Sacramento County Tobacco Securitization Corp., Asset Backed, Series A-2, 5.40%, 6/01/27

     1,250,000        1,250,088  

Tobacco Securitization Authority Southern California Tobacco Settlement Asset-Backed Revenue,

     

San Diego County Tobacco Asset Securitization Corp., First Subordinate, Capital Appreciation, Series B, zero cpn., 6/01/46

     10,000,000        1,868,100  

San Diego County Tobacco Asset Securitization Corp., Second Subordinate Capital Appreciation, Refunding, Series C, zero cpn., 6/01/46

     25,000,000        4,020,750  

San Diego County Tobacco Assset Securitization Corp., Class 2, Refunding, Series B-1, 5.00%, 6/01/48

     11,750,000        12,357,710  

Torrance USD, GO, Capital Appreciation, Election of 2008, Measure Z, Series B-1, zero cpn., 8/01/34

     5,640,000        3,502,158  

Tracy CFD No. 2016-1 Special Tax,

     

Improvement Area No. 1, Tracy Hills, 5.00%, 9/01/33

     1,610,000        1,794,715  

Improvement Area No. 1, Tracy Hills, 5.00%, 9/01/38

     2,385,000        2,616,393  

Improvement Area No. 1, Tracy Hills, 5.00%, 9/01/43

     5,750,000        6,237,600  

Improvement Area No. 1, Tracy Hills, 5.00%, 9/01/44

     2,600,000        2,805,894  

Improvement Area No. 1, Tracy Hills, 5.00%, 9/01/48

     6,240,000        6,741,259  

Tracy CFD No. 2016-2 Special Tax, Improvement Area No. 1, 5.00%, 9/01/44

     1,500,000        1,624,245  

Truckee-Donner PUD Special Tax,

     

CFD No. 04-1, 5.20%, 9/01/25

     2,975,000        2,682,855  

CFD No. 04-1, 5.75%, 9/01/29

     2,945,000        2,563,652  

CFD No. 04-1, 5.25%, 9/01/30

     4,990,000        4,128,327  

CFD No. 04-1, 5.80%, 9/01/35

     4,475,000        3,611,862  

Turlock PFA Tax Allocation Revenue, Pre-Refunded, 7.50%, 9/01/39

     3,750,000        3,952,237  

Tustin CFD No. 06-1 Special Tax, Legacy/Columbus Villages, Series A, 5.00%, 9/01/37

     1,000,000        1,157,670  

 

     

36

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FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

California (continued)

     

Tustin CFD No. 07-1 Special Tax, Tustin Legacy/Retail Center, Refunding, Series A, 5.00%, 9/01/37

   $ 2,330,000      $ 2,566,006  

Tustin CFD No. 14-1 Special Tax,

     

Legacy/Standard Pacific, Series A, 5.00%, 9/01/40

     750,000        819,983  

Legacy/Standard Pacific, Series A, 5.00%, 9/01/45

     1,000,000        1,076,240  

University of California Revenue, Refunding, Series AO, 5.00%, 5/15/40

     5,000,000        5,919,550  

Upland CFD No. 2015-1 Special Tax, Sycamore Hills, Series A, 4.00%, 9/01/49

     550,000        569,195  

Val Verde USD Special Tax Revenue,

     

Refunding, 5.00%, 9/01/29

     3,200,000        3,621,408  

Refunding, 5.00%, 9/01/37

     2,000,000        2,184,560  

Vallejo RDA Tax Allocation, Housing Set-Aside, Refunding, Series A, 7.00%, 10/01/31

     2,850,000        2,859,490  

Vernon Electric System Revenue,

     

Series A, 5.00%, 8/01/35

     1,440,000        1,713,802  

Series A, 5.00%, 8/01/37

     800,000        944,344  

Series A, 5.50%, 8/01/41

     7,500,000        7,890,150  

Victor Elementary School District CFD No. 2005-1 Special Tax, 5.00%, 9/01/46

     1,385,000        1,613,885  

Victor Elementary School District GO, Election of 2008, Refunding, Series B, 5.00%, 8/01/42

     5,455,000        6,378,804  

Victor Valley Community College District GO, Capital Appreciation, Election of 2002, Series C, zero cpn., 6/01/49

     11,940,000        4,946,145  

Washington Township Health Care District Revenue,

     

Refunding, Series B, 4.00%, 7/01/35

     2,000,000        2,161,020  

Refunding, Series B, 4.00%, 7/01/36

     1,900,000        2,045,426  

Series A, 5.50%, 7/01/38

     2,890,000        2,899,710  

West Hollywood Community Development Commission Tax Allocation,

     

East Side Redevelopment Project, Series A, 7.25%, 9/01/31

     1,000,000        1,083,360  

East Side Redevelopment Project, Series A, 7.50%, 9/01/42

     5,000,000        5,408,350  

Woodland Finance Authority Water Revenue,

     

6.00%, 3/01/36

     1,000,000        1,041,350  

6.00%, 3/01/41

     1,500,000        1,559,820  

Woodland Special Tax,

     

CFD No. 2004-1, Capital Projects, Spring Lake, 5.00%, 9/01/44

     1,575,000        1,743,588  

CFD No. 2004-1, Capital Projects, Spring Lake, 5.00%, 9/01/48

     1,750,000        1,929,497  

Yorba Linda RDA Tax Allocation, Redevelopment Project, sub. lien, Series A, Pre-Refunded, 6.50%, 9/01/32

     2,750,000        2,962,795  

Yucaipa Special Tax,

     

CFD No. 98-1 Chapman Heights, Refunding, 5.00%, 9/01/26

     1,000,000        1,046,640  

CFD No. 98-1 Chapman Heights, Refunding, 5.375%, 9/01/30

     1,800,000        1,888,092  
     

 

 

 
        2,621,760,079  
     

 

 

 

U.S. Territories 2.5%

     

Guam 0.8%

     

Guam Government Waterworks Authority Water and Wastewater System Revenue,

     

5.00%, 7/01/36

     3,550,000        3,813,055  

5.00%, 1/01/46

     5,250,000        5,614,298  

Refunding, 5.00%, 7/01/36

     3,455,000        3,750,264  

Refunding, 5.00%, 7/01/37

     3,000,000        3,249,270  

Refunding, Series A, 5.00%, 7/01/35

     1,000,000        1,053,790  

 

     
franklintempleton.com    Annual Report            37


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

U.S. Territories (continued)

     

Guam (continued)

     

Guam Power Authority Revenue, Refunding, Series A, 5.00%, 10/01/40

   $ 4,750,000      $ 5,053,905  
     

 

 

 
        22,534,582  
     

 

 

 

Northern Mariana Islands 0.1%

     

Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Senior Series A, 6.60%, 3/15/28

     4,890,000        4,702,028  
     

 

 

 

Puerto Rico 1.6%

     

a Puerto Rico Electric Power Authority Power Revenue,

     

Series A-4-RSA-1, zero cpn., 7/01/19

     1,601,766        1,105,219  

Series A-RSA-1, 5.00%, 7/01/29

     10,000,000        6,175,000  

Series A-RSA-1, 7.00%, 7/01/33

     25,000,000        15,718,750  

Series A-RSA-1, 6.75%, 7/01/36

     11,735,000        7,363,713  

Series A-RSA-1, 5.00%, 7/01/42

     6,000,000        3,705,000  

Series A-RSA-1, 7.00%, 7/01/43

     5,000,000        3,143,750  

Series B-4-RSA-1, zero cpn., 7/01/19

     1,601,765        1,105,218  

Series E-1-RSA-1, zero cpn., 1/01/21

     1,768,493        1,242,366  

Series E-2-RSA-1, zero cpn., 7/01/21

     1,768,493        1,242,366  

Series E-3-RSA-1, zero cpn., 1/01/22

     600,000        421,500  

Series E-4-RSA-1, zero cpn., 7/01/22

     600,000        421,500  

Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Financing Authority Revenue, Cogeneration Facility, AES Puerto Rico Project, 6.625%, 6/01/26

     4,500,000        4,657,500  
     

 

 

 
        46,301,882  
     

 

 

 

Total U.S. Territories

        73,538,492  
     

 

 

 

Total Municipal Bonds (Cost $2,474,485,728)

        2,695,298,571  
     

 

 

 

Total Municipal Bonds before Short Term Investments (Cost $2,474,485,728)

        2,695,298,571  
     

 

 

 

Short Term Investments 5.4%

     

Municipal Bonds 5.4%

     

California 5.4%

     

b California State GO,

     

Floating, Series A-2, LOC Bank of Montreal, Daily VRDN and Put, 0.02%, 5/01/33

     11,975,000        11,975,000  

Kindergarten, Refunding, Series B3, LOC Citibank, Daily VRDN and Put, 0.04%, 5/01/34

     3,000,000        3,000,000  

Kindergarten - University Public Education Facilities, Refunding, Series A1, LOC Citibank, Daily VRDN and Put, 0.03%, 5/01/34

     30,090,000        30,090,000  

Series A-3, LOC Bank of Montreal, Daily VRDN and Put, 0.02%, 5/01/33

     14,200,000        14,200,000  

b California Statewide CDA Revenue, Rady Children’s Hospital-San Diego, Series B, LOC Wells Fargo Bank, Daily VRDN and Put, 0.04%, 8/15/47

     2,400,000        2,400,000  

b Irvine 1915 Act Special Assessment, Limited Obligation Improvement, AD No. 94-13, LOC State Street Bank & Trust Co., Daily VRDN and Put, 0.03%, 9/02/22

     1,000,000        1,000,000  

b Irvine Ranch Water District GO, ID, Consolidated, Series B, LOC Bank of America, Daily VRDN and Put, 0.04%, 10/01/41

     11,965,000        11,965,000  

 

     

38

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FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin California High Yield Municipal Fund (continued)

 

      Principal
Amount
     Value  

Short Term Investments (continued)

     

Municipal Bonds (continued)

     

California (continued)

     

b Santa Clara Valley Transportation Authority Sales Tax Revenue,

     

2000 Measure A, Refunding, Series C, SPA TD Bank National Association, Daily VRDN and Put, 0.03%, 4/01/36

   $   12,380,000      $ 12,380,000  

2000 Measure A, Refunding, Series D, SPA TD Bank National Association, Daily VRDN and Put, 0.02%, 4/01/36

     13,300,000        13,300,000  

b Southern California Public Power Authority Revenue, Magnolia Power Project, Refunding, Series A, LOC US Bank National Association, 0.04%, Daily VRDN and Put, 7/01/36

     3,600,000        3,600,000  

b University of California Revenue,

     

General, Refunding, Series AL-1, Daily VRDN and Put, 0.03%, 5/15/48

     14,565,000        14,565,000  

General, Refunding, Series AL-2, Daily VRDN and Put, 0.03%, 5/15/48

     8,450,000        8,450,000  

General, Refunding, Series AL-3, Daily VRDN and Put, 0.03%, 5/15/48

     29,800,000        29,800,000  
     

 

 

 

Total Short Term Investments (Cost $156,725,000)

        156,725,000  
     

 

 

 

Total Investments (Cost $2,631,210,728) 98.6%

        2,852,023,571  

Other Assets, less Liabilities 1.4%

        39,769,440  
     

 

 

 

Net Assets 100.0%

      $ 2,891,793,011  
     

 

 

 

 

See Abbreviations on page 61.

aSee Note 7 regarding defaulted securities.

bVariable rate demand notes (VRDNs) are obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates. Unless otherwise noted, the coupon rate is determined based on factors including supply and demand, underlying credit, tax treatment, and current short term rates. The coupon rate shown represents the rate at period end.

 

     
franklintempleton.com    The accompanying notes are an integral part of these financial statements.  |  Annual Report            39


FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Highlights

Franklin Tennessee Municipal Bond Fund

 

                 Year Ended May 31,               
      2020      2019a  

Class A

     

Per share operating performance

     

(for a share outstanding throughout the year)

     

Net asset value, beginning of year

     $10.97        $10.74  

Income from investment operationsb:

     

Net investment incomec

     0.29        0.23  

Net realized and unrealized gains (losses)

     (0.01      0.25  

Total from investment operations

     0.28        0.48  

Less distributions from:

     

Net investment income

     (0.29      (0.25

Net asset value, end of year

     $10.96        $10.97  

Total returnd

     2.54%        4.53%  

Ratios to average net assetse

     

Expensesf

     0.93%        0.93%  

Net investment income

     2.63%        2.94%  

Supplemental data

     

Net assets, end of year (000’s)

     $8,350        $4,971  

Portfolio turnover rate

     11.83%        3.46%  

 

aFor the period September 10, 2018 (effective date) to May 31, 2019.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.

eRatios are annualized for periods less than one year.

fBenefit of expense reduction rounds to less than 0.01%.

 

     

40

          Annual Report  |  The accompanying notes are an integral part of these financial statements.   franklintempleton.com


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin Tennessee Municipal Bond Fund (continued)

 

     Year Ended May 31,  
      2020     2019     2018     2017     2016  

Class A1

          

Per share operating performance

          

(for a share outstanding throughout the year)

          

Net asset value, beginning of year

     $10.96       $10.79       $11.11       $11.44       $11.38  

Income from investment operationsa:

          

Net investment incomeb

     0.31       0.33       0.34       0.37       0.40  

Net realized and unrealized gains (losses)

     (0.02     0.19       (0.32     (0.32     0.06  

Total from investment operations

     0.29       0.52       0.02       0.05       0.46  

Less distributions from:

          

Net investment income

     (0.30     (0.35     (0.34     (0.38     (0.40

Net asset value, end of year

     $10.95       $10.96       $10.79       $11.11       $11.44  

Total returnc

     2.69%       4.92%       0.23%       0.40%       4.12%  

Ratios to average net assets

          

Expenses

     0.78% d       0.78% d       0.77%       0.72%       0.72%  

Net investment income

     2.78%       3.09%       3.08%       3.27%       3.55%  

Supplemental data

          

Net assets, end of year (000’s)

     $164,616       $190,548       $226,189       $267,442       $307,294  

Portfolio turnover rate

     11.83%       3.46%       9.19%       18.95%       4.50%  

 

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

dBenefit of expense reduction rounds to less than 0.01%.

 

     
franklintempleton.com    The accompanying notes are an integral part of these financial statements.  |  Annual Report           

41


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin Tennessee Municipal Bond Fund (continued)

 

             Year Ended May 31,          
          2020         2019         2018a  

Class R6

      

Per share operating performance

      

(for a share outstanding throughout the year)

      

Net asset value, beginning of year

     $10.97       $10.79       $11.06  

Income from investment operationsb:

      

Net investment incomec

     0.32       0.35       0.29  

Net realized and unrealized gains (losses)

     (0.01     0.19       (0.26

Total from investment operations

     0.31       0.54       0.03  

Less distributions from:

      

Net investment income

     (0.32     (0.36     (0.30

Net asset value, end of year

     $10.96       $10.97       $10.79  

Total returnd

     2.83%       5.15%       0.25%  

Ratios to average net assetse

      

Expenses before waiver and payments by affiliates

     0.66%       0.66%       0.66%  

Expenses net of waiver and payments by affiliates

     0.65% f      0.65% f      0.64%  

Net investment income

     2.91%       3.22%       3.21%  

Supplemental data

      

Net assets, end of year (000’s)

     $2,803       $3,253       $3,547  

Portfolio turnover rate

     11.83%       3.46%       9.19%  

 

aFor the period August 1, 2017 (effective date) to May 31, 2018.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dTotal return is not annualized for periods less than one year.

eRatios are annualized for periods less than one year.

fBenefit of expense reduction rounds to less than 0.01%.

 

     

42

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FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

Franklin Tennessee Municipal Bond Fund (continued)

 

     Year Ended May 31,  
      2020         2019         2018         2017a  

Advisor Class

        

Per share operating performance

        

(for a share outstanding throughout the year)

        

Net asset value, beginning of year

     $10.97       $10.79       $11.12       $11.50  

Income from investment operationsb:

        

Net investment incomec

     0.32       0.34       0.35       0.27  

Net realized and unrealized gains (losses)

     (0.02     0.20       (0.32     (0.38

Total from investment operations

     0.30       0.54       0.03       (0.11

Less distributions from:

        

Net investment income

     (0.31     (0.36     (0.36     (0.27

Net asset value, end of year

     $10.96       $10.97       $10.79       $11.12  

Total returnd

     2.79%       5.12%       0.24%       (0.91)%  

Ratios to average net assetse

        

Expenses

     0.68% f       0.68% f       0.67%       0.62%  

Net investment income

     2.88%       3.19%       3.18%       3.37%  

Supplemental data

        

Net assets, end of year (000’s)

     $24,675       $23,252       $23,573       $23,916  

Portfolio turnover rate

     11.83%       3.46%       9.19%       18.95%  

 

aFor the period September 15, 2016 (effective date) to May 31, 2017.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dTotal return is not annualized for periods less than one year.

eRatios are annualized for periods less than one year.

fBenefit of expense reduction rounds to less than 0.01%.

 

     
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43


FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments, May 31, 2020

Franklin Tennessee Municipal Bond Fund

 

      Principal
Amount
     Value  

Municipal Bonds 98.3%

     

Tennessee 96.8%

     

Chattanooga Electric System Revenue, The Electric Power Board of Chattanooga, Refunding, Series C, 5.00%, 9/01/40

   $   2,750,000      $   3,266,972  

Chattanooga Health Educational and Housing Facility Board Revenue, Student Housing, CDFI Phase I LLC, University of Tennessee at Chattanooga Project, Refunding, 5.00%, 10/01/35

     1,000,000        1,004,110  

Clarksville Electric System Revenue,

     

Series A, Pre-Refunded, 5.00%, 9/01/34

     2,000,000        2,022,040  

Series A, Pre-Refunded, 5.00%, 9/01/35

     3,185,000        3,220,099  

Clarksville Water Sewer and Gas Revenue, Pre-Refunded, 5.00%, 2/01/38

     3,000,000        3,376,380  

Coffee County GO, Rural School, Refunding, 4.00%, 6/01/44

     2,760,000        3,138,451  

Columbia Waterworks System Revenue, 5.00%, 12/01/32

     3,000,000        3,185,940  

Gallatin Water and Sewer Revenue, Refunding and Improvement, 5.00%, 1/01/32

     1,500,000        1,755,570  

Germantown GO,

     

4.00%, 8/01/43

     2,330,000        2,652,099  

4.00%, 8/01/45

     2,525,000        2,864,208  

The Hallsdale-Powell Utility District Water and Sewer Revenue, Knox County, Improvement, Refunding, 4.00%, 4/01/39

     1,380,000        1,619,665  

Harpeth Valley Utilities District of Davidson and Williamson Counties Revenue,

     

Utilities, 5.00%, 9/01/44

     4,400,000        5,066,292  

Utilities, 4.00%, 9/01/50

     500,000        575,010  

Jackson Hospital Revenue,

     

Jackson-Madison County General Hospital, Refunding, 5.00%, 4/01/36

     4,000,000        4,395,520  

Jackson-Madison County General Hospital, Refunding, Series A, 5.00%, 4/01/41

     2,370,000        2,689,879  

Johnson City Health and Educational Facilities Board Hospital Revenue, Johnson City Medical Center Hospital, Improvement, Series C, NATL Insured, Pre-Refunded, 5.125%, 7/01/25

     55,000        55,897  

Kingsport IDB, MFHR, Model City Apartments Project, GNMA Secured, 5.50%, 7/20/39

     2,995,000        2,997,606  

Knox County Health Educational and Housing Facility Board Hospital Revenue, Covenant Health, Refunding, Series A, 5.00%, 1/01/42

     5,000,000        5,574,300  

Knox County Health Educational and Housing Facility Board Revenue,

     

University Health System Inc., Refunding, 5.00%, 4/01/36

     2,250,000        2,510,303  

University Health System Inc., Refunding, 5.00%, 9/01/47

     3,000,000        3,234,660  

Knox-Chapman Utility District of Knox County Water and Sewer Revenue,

     

Pre-Refunded, 5.25%, 1/01/36

     1,500,000        1,544,370  

Refunding and Improvement, 4.00%, 1/01/40

     4,000,000        4,209,560  

Knoxville Wastewater System Revenue, Refunding, Series A, 4.00%, 4/01/42

     5,000,000        5,261,500  

Lawrenceburg PBA, GO, Electric System, Refunding, AMBAC Insured, 5.00%, 7/01/22

     1,835,000        1,921,172  

Loudon Water and Sewer Revenue,

     

Exempt Facility, Series A, 4.00%, 3/01/28

     1,000,000        1,048,050  

Exempt Facility, Series A, 5.00%, 3/01/32

     1,300,000        1,397,968  

Manchester GO, Refunding, AGMC Insured, 5.00%, 6/01/38

     2,045,000        2,049,356  

Maury County GO, Public Improvement, Refunding, 4.00%, 4/01/34

     1,775,000        1,991,089  

Memphis Electric System Revenue, 5.00%, 12/01/34

     1,000,000        1,175,730  

Memphis Gas System Revenue, 4.00%, 12/01/36

     1,000,000        1,162,030  

Memphis GO, General Improvement, Refunding, 5.00%, 5/01/36

     4,135,000        4,293,949  

Memphis-Shelby County Airport Authority Airport Revenue,

     

Refunding, Series B, 5.75%, 7/01/25

     2,500,000        2,509,150  

Refunding, Series D, 5.00%, 7/01/25

     3,000,000        3,125,550  

Series A, AGMC Insured, 5.00%, 7/01/35

     5,000,000        5,015,750  

 

     

44

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FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin Tennessee Municipal Bond Fund (continued)

 

      Principal
Amount
     Value  

Municipal Bonds (continued)

     

Tennessee (continued)

     

Memphis-Shelby County Airport Authority Airport Revenue, (continued)

     

Series A, AGMC Insured, 5.00%, 7/01/39

   $ 2,565,000      $ 2,572,977  

Metropolitan Government of Nashville and Davidson County Electric System Revenue,

     

Series A, 5.00%, 5/15/36

     3,500,000        3,629,675  

Series A, 5.00%, 5/15/39

     4,000,000        4,528,240  

Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board Revenue, Vanderbilt University Medical Center, Series A, 5.00%, 7/01/40

     5,000,000        5,639,750  

Metropolitan Government of Nashville and Davidson County Sports Authority Revenue,

     

Public Improvement, Ballpark Project, Series A, 5.00%, 8/01/38

     3,000,000        3,330,390  

Public Improvement, Ballpark Project, Series A, 5.00%, 8/01/43

     2,075,000        2,303,520  

Metropolitan Government of Nashville and Davidson County Water and Sewer Revenue, Green Bonds, Subordinate, Series A, 5.00%, 7/01/46

     6,855,000        8,287,009  

Metropolitan Nashville Airport Authority Revenue,

     

Improvement, Series A, 5.00%, 7/01/45

     4,000,000        4,455,640  

Subordinate, Series B, 4.00%, 7/01/49

     5,000,000        5,337,550  

Pigeon Forge IDB Revenue, Public Facility, 5.00%, 6/01/34

     1,250,000        1,294,375  

Shelby County Health Educational and Housing Facility Board Revenue,

     

Educational Facilities, Rhodes College, 5.00%, 8/01/45

     1,700,000        1,915,254  

Educational Facilities, Rhodes College, Pre-Refunded, 5.50%, 8/01/40

     5,000,000        5,301,850  

Methodist Le Bonheur Healthcare, Series A, 5.00%, 5/01/36

     4,000,000        4,666,720  

Rhodes College, Refunding, 4.00%, 8/01/40

     3,000,000        3,384,060  

South Blount County Utility District Waterworks Revenue, Refunding, 3.00%, 12/01/39

     2,015,000        2,169,107  

Tennessee HDA Residential Finance Program Revenue,

     

Issue 1C, 4.00%, 7/01/43

     1,245,000        1,311,682  

Issue 2, 3.85%, 7/01/42

     1,980,000        2,187,108  

Issue 3, 3.65%, 7/01/47

     990,000        1,055,736  

Issue 4, Refunding, 4.00%, 7/01/43

     4,500,000        4,989,105  

Tennessee HDA Revenue, Homeownership Program, Series 2C, 3.80%, 7/01/43

     1,105,000        1,135,984  

Tennessee State School Bond Authority Revenue,

     

Higher Educational Facilities Second Program, Refunding, Series B, 5.00%, 11/01/40

     10,000,000        11,885,100  

Higher Educational Facilities Second Program, Refunding, Series B, 5.00%, 11/01/45

     5,000,000        5,902,450  

West Knox Utility District Knox County Water and Sewer Revenue, Refunding and Improvement, 5.00%, 6/01/41

     1,000,000        1,130,640  

West Wilson Utility District of Wilson County Water Revenue,

     

Pre-Refunded, 5.00%, 6/01/33

     3,000,000        3,140,280  

Refunding and Improvement, 5.00%, 6/01/40

     1,545,000        1,829,635  

Wilson County GO, School, Series A, 4.00%, 4/01/42

     5,000,000        5,537,000  

Wilson County Tenth Special School District Limited Obligation, 5.00%, 4/01/44

     2,500,000        3,139,250  
     

 

 

 
        193,970,312  
     

 

 

 

U.S. Territories 1.5%

     

Puerto Rico 1.5%

     

a Puerto Rico Electric Power Authority Power Revenue, Series XX-RSA-1, 5.25%, 7/01/40

     5,000,000        3,100,000  
     

 

 

 

Total Municipal Bonds before Short Term Investments (Cost $188,767,744)

        197,070,312  
     

 

 

 

 

     
franklintempleton.com    Annual Report            45


FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS

Franklin Tennessee Municipal Bond Fund (continued)

 

      Principal
Amount
     Value  

Short Term Investments (Cost $200,000) 0.1%

     

Municipal Bonds 0.1%

     

Tennessee 0.1%

     

b Shelby County Health Educational and Housing Facility Board Revenue, Methodist Le Bonheur Healthcare, Refunding, Series A, AGMC Insured, SPA US Bank National Association, Daily VRDN and Put, 0.06%, 6/01/42

   $ 200,000      $ 200,000  
     

 

 

 

Total Investments (Cost $188,967,744) 98.4%

        197,270,312  

Other Assets, less Liabilities 1.6%

        3,173,860  
     

 

 

 

Net Assets 100.0%

      $ 200,444,172  
     

 

 

 

 

 

See Abbreviations on page 61.

aSee Note 7 regarding defaulted securities.

bVariable rate demand notes (VRDNs) are obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates. Unless otherwise noted, the coupon rate is determined based on factors including supply and demand, underlying credit, tax treatment, and current short term rates. The coupon rate shown represents the rate at period end.

 

     

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FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL STATEMENTS

Statements of Assets and Liabilities

May 31, 2020

 

     

Franklin
California

High Yield
Municipal Fund

    

Franklin
Tennessee
Municipal

Bond Fund

 

Assets:

     

Investments in securities:

     

Cost - Unaffiliated issuers

     $2,631,210,728        $188,967,744  
  

 

 

 

Value - Unaffiliated issuers

     $2,852,023,571        $197,270,312  

Cash

     206,732        260,288  

Receivables:

     

Investment securities sold

     6,002,754        507,838  

Capital shares sold

     7,858,225        174,602  

Interest

     32,459,336        2,488,181  

Other assets

     3,005        198  
  

 

 

 

Total assets

     2,898,553,623        200,701,419  
  

 

 

 

Liabilities:

     

Payables:

     

Capital shares redeemed

     3,359,204        28,642  

Management fees

     1,103,428        95,177  

Distribution fees

     332,559        15,673  

Transfer agent fees

     415,590        27,047  

Professional fees

     68,717        44,415  

Distributions to shareholders

     1,341,610        29,821  

Accrued expenses and other liabilities

     139,504        16,472  
  

 

 

 

Total liabilities

     6,760,612        257,247  
  

 

 

 

Net assets, at value

     $2,891,793,011        $200,444,172  
  

 

 

 

Net assets consist of:

     

Paid-in capital

     $2,783,389,017        $207,163,189  

Total distributable earnings (losses)

     108,403,994        (6,719,017
  

 

 

 

Net assets, at value

     $2,891,793,011        $200,444,172  
  

 

 

 

 

     
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47


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL STATEMENTS

Statements of Assets and Liabilities (continued)

May 31, 2020

 

     

Franklin    
California    

High Yield    

Municipal Fund    

 

Franklin
Tennessee
Municipal

Bond Fund

 

Class A:

    

Net assets, at value

   $ 425,756,928     $ 8,350,471  
  

 

 

 

Shares outstanding

     39,390,770       761,950  
  

 

 

 

Net asset value per sharea

     $10.81       $10.96  
  

 

 

 

Maximum offering price per share (net asset value per share ÷ 96.25%)

     $11.23       $11.39  
  

 

 

 

Class A1:

    

Net assets, at value

   $ 1,282,021,585     $ 164,615,923  
  

 

 

 

Shares outstanding

     118,844,057       15,029,307  
  

 

 

 

Net asset value per sharea

     $10.79       $10.95  
  

 

 

 

Maximum offering price per share (net asset value per share ÷ 96.25%)

     $11.21       $11.38  
  

 

 

 

Class C:

    

Net assets, at value

   $ 253,579,090    
  

 

 

 

 

Shares outstanding

     23,325,460        
  

 

 

 

 

Net asset value and maximum offering price per sharea

     $10.87    
  

 

 

 

 

Class R6:

    

Net assets, at value

   $ 26,741,017     $ 2,803,162  
  

 

 

 

Shares outstanding

     2,470,405       255,865  
  

 

 

 

Net asset value and maximum offering price per share

     $10.82       $10.96  
  

 

 

 

Advisor Class:

    

Net assets, at value

   $ 903,694,391     $ 24,674,616  
  

 

 

 

Shares outstanding

     83,557,955       2,251,081  
  

 

 

 

Net asset value and maximum offering price per share

     $10.82       $10.96  
  

 

 

 

 

aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

 

     

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FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL STATEMENTS

Statements of Operations

for the year ended May 31, 2020

 

     

Franklin
California

High Yield
Municipal Fund

    Franklin
Tennessee
Municipal
Bond Fund
 

Investment income:

    

Interest:

    

Unaffiliated issuers

       $ 118,695,507     $ 7,667,095  
  

 

 

 

Expenses:

    

Management fees (Note 3a)

     13,956,841       1,204,558  

Distribution fees: (Note 3c)

    

Class A

     1,020,239       17,820  

Class A1

     1,374,900       181,479  

Class C

     1,781,753        

Transfer agent fees: (Note 3e)

    

Class A

     268,369       4,452  

Class A1

     903,909       113,328  

Class C

     180,225        

Class R6

     11,184       1,424  

Advisor Class

     637,472       15,337  

Custodian fees (Note 4)

     21,818       1,513  

Reports to shareholders

     73,988       13,585  

Registration and filing fees

     99,654       12,080  

Professional fees

     197,324       69,724  

Trustees’ fees and expenses

     74,750       5,364  

Other

     211,778       24,560  
  

 

 

 

Total expenses

     20,814,204       1,665,224  

Expense reductions (Note 4)

     (15,956     (1,035

Expenses waived/paid by affiliates (Note 3f)

     (3,246     (464
  

 

 

 

Net expenses

     20,795,002       1,663,725  
  

 

 

 

Net investment income

     97,900,505       6,003,370  
  

 

 

 

Realized and unrealized gains (losses):

    

Net realized gain (loss) from:

    

Investments:

    

  Unaffiliated issuers

     (41,775,849     465,088  
  

 

 

 

Net change in unrealized appreciation (depreciation) on:

    

Investments:

    

  Unaffiliated issuers

     (59,782,094     (704,713
  

 

 

 

Net realized and unrealized gain (loss)

     (101,557,943     (239,625
  

 

 

 

Net increase (decrease) in net assets resulting from operations

       $ (3,657,438   $ 5,763,745  
  

 

 

 

 

     
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49


FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL STATEMENTS

Statements of Changes in Net Assets

    

 

    

Franklin California

High Yield Municipal Fund

   

Franklin Tennessee

Municipal Bond Fund

 
     Year Ended May 31,     Year Ended May 31,  
      2020     2019     2020     2019  

Increase (decrease) in net assets:

        

Operations:

        

Net investment income

       $ 97,900,505     $ 92,823,527     $ 6,003,370     $ 7,252,910  

Net realized gain (loss)

     (41,775,849     6,194,069       465,088       (10,168

Net change in unrealized appreciation (depreciation)

     (59,782,094     89,825,327       (704,713     3,715,864  
  

 

 

 

Net increase (decrease) in net assets resulting from operations

     (3,657,438     188,842,923       5,763,745       10,958,606  
  

 

 

 

Distributions to shareholders:

        

Class A

     (12,490,587     (3,188,725     (183,564     (63,310

Class A1

     (44,347,479     (52,065,730     (4,998,244     (6,647,714

Class C

     (7,340,097     (9,134,274            

Class R6

     (889,558     (670,331     (92,627     (114,742

Advisor Class

     (32,207,561     (30,399,177     (698,518     (785,947
  

 

 

 

Total distributions to shareholders

     (97,275,282     (95,458,237     (5,972,953     (7,611,713
  

 

 

 

Capital share transactions: (Note 2)

        

Class A

     201,861,524       235,411,225       3,392,035       4,860,314  

Class A1

     (65,993,268     (38,267,367     (25,773,020     (38,480,111

Class C

     (10,484,112     (62,677,849            

Class R6

     6,463,302       7,429,963       (441,753     (340,291

Advisor Class

     47,001,789       112,045,938       1,451,989       (671,740
  

 

 

 

Total capital share transactions

     178,849,235       253,941,910       (21,370,749     (34,631,828
  

 

 

 

Net increase (decrease) in net assets

     77,916,515       347,326,596       (21,579,957     (31,284,935

Net assets:

        

Beginning of year

     2,813,876,496       2,466,549,900       222,024,129       253,309,064  
  

 

 

 

End of year

       $ 2,891,793,011     $ 2,813,876,496     $ 200,444,172     $ 222,024,129  
  

 

 

 

 

     

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FRANKLIN MUNICIPAL SECURITIES TRUST

    

 

Notes to Financial Statements

 

1.   Organization and Significant Accounting Policies

Franklin Municipal Securities Trust (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of two separate funds (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The classes of shares offered within each of the Funds are indicated below. Class C shares automatically convert to Class A shares after they have been held for 10 years. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.

Class A, Class A1, Class R6 & Advisor Class

 

Franklin Tennessee Municipal Bond Fund

Class A, Class A1, Class C, Class R6 & Advisor Class

 

Franklin California High Yield Municipal Fund

The following summarizes the Funds’ significant accounting policies.

a.  Financial Instrument Valuation

The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The Funds may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not

exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.

The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the Funds primarily employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

b.  Income Taxes

It is each Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each Fund intends to distribute to shareholders substantially all of its income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

Each Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of May 31, 2020, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.

 

 

     
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NOTES TO FINANCIAL STATEMENTS

 

1. Organization and Significant Accounting Policies (continued)

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. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividends from net investment income are normally declared daily; these dividends may be reinvested or paid monthly to shareholders. Distributions from realized capital gains and other distributions, if any, are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

Common expenses incurred by the Trust are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets of the Trust or based on the ratio of number of shareholders of each Fund to the combined number of shareholders of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.

d.   Insurance

The scheduled payments of interest and principal for each insured municipal security in the Trust are insured by either a new issue insurance policy or a secondary insurance policy.

Some municipal securities in the Funds are secured by collateral guaranteed by an agency of the U.S. government. Depending on the type of coverage, premiums for insurance are either added to the cost basis of the security or paid by a third party.

Insurance companies typically insure municipal bonds that tend to be of very high quality, with the majority of underlying municipal bonds rated A or better. However, an event involving an insurer could have an adverse effect on the value of the securities insured by that insurance company. There can be no assurance the insurer will be able to fulfill its obligations under the terms of the policy.

e.   Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

f. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

 

 

     

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2. Shares of Beneficial Interest

At May 31, 2020, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:

 

    

Franklin California

High Yield Municipal Fund

  

Franklin Tennessee

Municipal Bond Fund

      Shares   Amount    Shares   Amount

Class A Shares:

         

Year ended May 31, 2020

         

Shares solda

     31,096,565     $ 347,089,109        422,392     $ 4,640,650  

Shares issued in reinvestment of distributions

     1,004,920       11,168,678        15,918       175,312  

Shares redeemed

     (14,706,484     (156,396,263      (129,472     (1,423,927
  

 

 

 

Net increase (decrease)

     17,395,001     $ 201,861,524        308,838     $ 3,392,035  
  

 

 

 

Year ended May 31, 2019b

         

Shares solda

     29,417,854     $ 314,485,980        466,737     $ 5,006,589  

Shares issued in reinvestment of distributions

     280,016       3,023,252        5,832       63,234  

Shares redeemed

     (7,702,101     (82,098,007      (19,457     (209,509
  

 

 

 

Net increase (decrease)

     21,995,769     $ 235,411,225        453,112     $ 4,860,314  
  

 

 

 

Class A1 Shares:

         

Year ended May 31, 2020

         

Shares sold

     9,480,324     $ 104,735,142        519,815     $ 5,705,758  

Shares issued in reinvestment of distributions

     3,389,451       37,671,175        425,353       4,681,959  

Shares redeemed

     (19,138,207     (208,399,585      (3,296,729     (36,160,737
  

 

 

 

Net increase (decrease)

     (6,268,432   $ (65,993,268      (2,351,561   $ (25,773,020
  

 

 

 

Year ended May 31, 2019

         

Shares sold

     16,558,804     $ 176,930,518        540,106     $ 5,816,998  

Shares issued in reinvestment of distributions

     4,123,926       44,141,197        575,127       6,190,781  

Shares redeemed

     (24,345,818     (259,339,082      (4,706,541     (50,487,890
  

 

 

 

Net increase (decrease)

     (3,663,088   $ (38,267,367      (3,591,308   $ (38,480,111
  

 

 

 

Class C Shares:

         

Year ended May 31, 2020

         

Shares sold

     5,632,486     $ 63,514,850       

Shares issued in reinvestment of distributions

     550,824       6,167,625       

Shares redeemeda

     (7,232,118     (80,166,587     

Net increase (decrease)

     (1,048,808   $ (10,484,112     

Year ended May 31, 2019

         

Shares sold

     4,690,276     $ 50,662,807       

Shares issued in reinvestment of distributions

     714,904       7,709,480       

Shares redeemeda

     (11,360,194     (121,050,136     

Net increase (decrease)

     (5,955,014   $ (62,677,849     

 

     
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NOTES TO FINANCIAL STATEMENTS

2. Shares of Beneficial Interest (continued)

 

    

Franklin California

High Yield Municipal Fund

     Franklin Tennessee
Municipal Bond Fund
      Shares   Amount      Shares   Amount

Class R6 Shares:

           

Year ended May 31, 2020

           

Shares sold

     1,431,024     $ 16,034,824          68,971     $ 755,785  

Shares issued in reinvestment of distributions

     67,313       749,737          8,414       92,627  

Shares redeemed

     (935,907     (10,321,259        (118,152     (1,290,165
  

 

 

 

Net increase (decrease)

     562,430     $ 6,463,302          (40,767   $ (441,753
  

 

 

 

Year ended May 31, 2019

           

Shares sold

     1,067,116     $ 11,383,693          63,398     $ 680,463  

Shares issued in reinvestment of distributions

     55,815       599,865          10,657       114,741  

Shares redeemed

     (426,215     (4,553,595        (106,228     (1,135,495
  

 

 

 

Net increase (decrease)

     696,716     $ 7,429,963          (32,173   $ (340,291
  

 

 

 

Advisor Class Shares:

           

Year ended May 31, 2020

           

Shares sold

     29,033,470     $ 323,384,128          495,722     $ 5,462,282  

Shares issued in reinvestment of distributions

     2,198,640       24,498,557          56,097       617,946  

Shares redeemed

     (27,789,030     (300,880,896        (420,104     (4,628,239
  

 

 

 

Net increase (decrease)

     3,443,080     $ 47,001,789          131,715     $ 1,451,989  
  

 

 

 

Year ended May 31, 2019

           

Shares sold

     27,870,236     $ 298,680,447          683,998     $ 7,361,521  

Shares issued in reinvestment of distributions

     2,061,371       22,137,099          65,070       700,827  

Shares redeemed

     (19,578,620     (208,771,608        (814,132     (8,734,088
  

 

 

 

Net increase (decrease)

     10,352,987     $ 112,045,938          (65,064   $ (671,740
  

 

 

 

aMay include a portion of Class C shares that were automatically converted to Class A.

bFor the period September 10, 2018 (effective date) to May 31, 2019.

3. Transactions with Affiliates

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:

 

Subsidiary   Affiliation     

Franklin Advisers, Inc. (Advisers)

  Investment manager   

Franklin Templeton Services, LLC (FT Services)

  Administrative manager   

Franklin Templeton Distributors, Inc. (Distributors)

  Principal underwriter   

Franklin Templeton Investor Services, LLC (Investor Services)

  Transfer agent   

 

     

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a. Management Fees

The Funds pay an investment management fee to Advisers based on the average daily net assets of each of the Funds as follows:

 

Annualized Fee Rate    Net Assets

0.625%

   Up to and including $100 million

0.500%

   Over $100 million, up to and including $250 million

0.450%

   Over $250 million, up to and including $7.5 billion

0.440%

   Over $7.5 billion, up to and including $10 billion

0.430%

   Over $10 billion, up to and including $12.5 billion

0.420%

   Over $12.5 billion, up to and including $15 billion

0.400%

   Over $15 billion, up to and including $17.5 billion

0.380%

   Over $17.5 billion, up to and including $20 billion

0.360%

   In excess of $20 billion

For the year ended May 31, 2020, each Fund’s gross effective investment management fee rate based on average daily net assets was as follows:

 

Franklin

California

High Yield

Municipal Fund

     Franklin
Tennessee
Municipal
Bond Fund

0.458%

       0.558

b. Administrative Fees

Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on each of the Funds’ average daily net assets, and is not an additional expense of the Funds.

c. Distribution Fees

The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A and A1 reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate. Under the Class A and A1 reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class C compensation distribution plans, Franklin California High Yield Municipal Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.

 

     
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NOTES TO FINANCIAL STATEMENTS

2. Shares of Beneficial Interest (continued)

c. Distribution Fees (continued)

 

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:

 

      Franklin
California
High Yield
Municipal Fund
     Franklin
Tennessee
Municipal
Bond Fund
 

Reimbursement Plans:

     

Class A

     0.25%        0.25%  

Class A1

     0.15%        0.15%  

Compensation Plans:

     

Class C

     0.65%         

Distributors has agreed to limit the current rate to 0.10% per year for Class A1.

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the year:

 

      Franklin
California
High Yield
Municipal Fund
     Franklin
Tennessee
Municipal
Bond Fund
 

Sales charges retained net of commissions paid to unaffiliated brokers/dealers

          $ 53,793             $ 6,164  

CDSC retained

                   $ 132,676                    $ 38  

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.

For the year ended May 31, 2020, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:

 

      Franklin
California
High Yield
Municipal Fund
     Franklin
Tennessee
Municipal
Bond Fund
 

Transfer agent fees

     $809,380                    $58,388  

 

     

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f. Waiver and Expense Reimbursements

Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until September 30, 2020.

g. Interfund Transactions

Certain or all Funds engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. These purchases and sales for the year ended May 31, 2020, were as follows:

 

     

Franklin
California

High Yield

Municipal Fund

       Franklin
Tennessee
Municipal
Bond Fund
 

Purchases

   $ 88,486,000        $ 7,315,000  

Sales

   $ 211,171,000        $ 14,145,000  

4. Expense Offset Arrangement

The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the year ended May 31, 2020, the custodian fees were reduced as noted in the Statements of Operations.

5. Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains.

At May 31, 2020, the capital loss carryforwards were as follows:

 

     

Franklin
California

High Yield
Municipal Fund

       Franklin
Tennessee
Municipal
Bond Fund
 

Capital loss carryforwards not subject to expiration:

       

Short term

       $ 83,223,344        $ 4,845,143  

Long term

     27,539,844          10,232,093  
  

 

 

 

Total capital loss carryforwards

       $ 110,763,188        $ 15,077,236  
  

 

 

 

During the year ended May 31, 2020, the Franklin Tennessee Municipal Bond Fund utilized $37,583 of capital loss carryforwards.

The tax character of distributions paid during the years ended May 31, 2020 and 2019, was as follows:

 

    

Franklin California

High Yield Municipal Fund

     Franklin Tennessee
Municipal Bond Fund
 
      2020      2019      2020      2019  

Distributions paid from tax exempt income

   $ 97,275,282      $ 95,458,237      $ 5,972,953      $ 7,611,713  

 

     
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NOTES TO FINANCIAL STATEMENTS

5. Income Taxes (continued)

 

At May 31, 2020, the cost of investments, net unrealized appreciation (depreciation) and undistributed tax exempt income for income tax purposes were as follows:

 

     

Franklin
California

High Yield
Municipal Fund

      

Franklin
Tennessee
Municipal

Bond Fund

 

Cost of investments

    $ 2,636,625,066        $ 189,133,379  

Unrealized appreciation

    $ 280,741,180        $ 10,225,623  

Unrealized depreciation

     (65,342,675        (2,088,690

Net unrealized appreciation (depreciation)

    $ 215,398,505        $ 8,136,933  

Distributable earnings:

       

Undistributed tax exempt income

    $ 5,235,168        $ 251,112  

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of wash sales and bond workout expenditures.

6. Investment Transactions

Purchases and sales of investments (excluding short term securities) for the year ended May 31, 2020, were as follows:

 

     

Franklin
California

High Yield
Municipal Fund

       Franklin
Tennessee
Municipal
Bond Fund
 

Purchases

     $805,349,692          $25,116,856  

Sales

     $657,485,130          $46,112,136  

7. Credit Risk and Defaulted Securities

At May 31, 2020, Franklin California High Yield Municipal Fund had 26.5% of its portfolio rated below investment grade as determined by Nationally Recognized Statistical Credit Ratings Organizations and/or internally, by investment management. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

Certain or all Funds held defaulted securities and/or other securities for which the income has been deemed uncollectible. At May 31, 2020, the aggregate value of these securities for Franklin California High Yield Municipal Fund and Franklin Tennessee Municipal Bond Fund was $41,644,382 and $3,100,000, representing 1.4% and 1.5%, respectively, of each Fund’s net assets. The Funds discontinue accruing income on securities for which income has been deemed uncollectible and provide an estimate for losses on interest receivable. The securities have been identified in the accompanying Statements of Investments.

 

     

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NOTES TO FINANCIAL STATEMENTS

 

8. Concentration of Risk

Certain or all Funds invest a large percentage of their total assets in obligations of issuers within their respective state and U.S. territories. Such concentration may subject the Funds to risks associated with industrial or regional matters, and economic, political or legal developments occurring within those states and U.S. territories. Investing in Puerto Rico securities may expose the Funds to heightened risks due to recent adverse economic and market changes, credit downgrades and ongoing restructuring discussions. In addition, investments in these securities are sensitive to interest rate changes and credit risk of the issuer and may subject the Funds to increased market volatility. The market for these investments may be limited, which may make them difficult to buy or sell.

9. Novel Coronavirus Pandemic

The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Funds, their ability to buy and sell fund investments at appropriate valuations and their ability to achieve their investment objectives.

10. Credit Facility

The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 5, 2021. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended May 31, 2020, the Funds did not use the Global Credit Facility.

11. Fair Value Measurements

The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:

 

   

Level 1 – quoted prices in active markets for identical financial instruments

 

   

Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)

 

   

Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

At May 31, 2020, all of the Funds’ investments in financial instruments carried at fair value were valued using Level 2 inputs.

 

     
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FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS

 

12. New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provides optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact, if any, of applying this ASU.

13. Subsequent Events

The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.

 

     

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Abbreviations

Selected Portfolio

 

 

1915 Act

   Improvement Bond Act of 1915

ABAG

   The Association of Bay Area Governments

AD

   Assessment District

AGMC

   Assured Guaranty Municipal Corp.

AMBAC

   American Municipal Bond Assurance Corp.

BAM

   Build America Mutual Assurance Co.

CDA

   Community Development Authority/Agency

CFD

   Community Facilities District

COP

   Certificate of Participation

CRDA

   Community Redevelopment Authority/Agency

CSD

   Central School District

ETM

   Escrow to Maturity

GNMA

   Government National Mortgage Association

GO

   General Obligation

HDA

   Housing Development Authority/Agency

HFA

   Housing Finance Authority/Agency

ID

   Improvement District

IDB

   Industrial Development Bond/Board

LOC

   Letter of Credit

MFH

   Multi-Family Housing

MFHR

   Multi-Family Housing Revenue

NATL

   National Public Financial Guarantee Corp.

PBA

   Public Building Authority

PCFA

   Pollution Control Financing Authority

PFA

   Public Financing Authority

PFAR

   Public Financing Authority Revenue

PUD

   Public Utility District

RDA

   Redevelopment Agency/Authority

SPA

   Standby Purchase Agreement

UHSD

   Unified/Union High School District

USD

   Unified/Union School District
 

 

     
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FRANKLIN MUNICIPAL SECURITIES TRUST

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Municipal Securities Trust and Shareholders of Franklin Tennessee Municipal Bond Fund and Franklin California High Yield Municipal Fund

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities, including the statements of investments, of Franklin Tennessee Municipal Bond Fund and Franklin California High Yield Municipal Fund (constituting Franklin Municipal Securities Trust, hereafter collectively referred to as the “Funds”) as of May 31, 2020, the related statements of operations for the year ended May 31, 2020, the statements of changes in net assets for each of the two years in the period ended May 31, 2020, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial positions of each of the Funds as of May 31, 2020, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period ended May 31, 2020 and each of the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinions

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of May 31, 2020 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinions.

PricewaterhouseCoopers LLP

San Francisco, California

July 17, 2020

We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.

 

     

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Tax Information (unaudited)

Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds hereby report 100% of the distributions paid from net investment income as exempt-interest dividends for the fiscal year ended May 31, 2020. A portion of the Funds’ exempt-interest dividends may be subject to the federal alternative minimum tax. By mid-February 2021, shareholders will be notified of amounts for use in preparing their 2020 income tax returns.

 

     
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Board Members and Officers

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.

Independent Board Members

 

Name, Year of Birth

and Address

   Position   

Length of

Time Served

   Number of Portfolios in
Fund Complex Overseen
by Board Member*
  

Other Directorships Held

During at Least the Past 5 Years    

         

Harris J. Ashton (1932)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee    Since 1991    129    Bar-S Foods (meat packing company) (1981-2010).

 

Principal Occupation During at Least the Past 5 Years:

Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).

 

         

Terrence J. Checki (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee    Since 2017    110    Hess Corporation (exploration of oil and gas) (2014-present).

 

Principal Occupation During at Least the Past 5 Years:

Member of the Council on Foreign Relations (1996-present); Member of the National Committee on U.S.-China Relations (1999-present); member of the Board of Trustees of the Economic Club of New York (2013-present); member of the Board of Trustees of the Foreign Policy Association (2005-present) and member of various other boards of trustees and advisory boards; and formerly, Executive Vice President of the Federal Reserve Bank of New York and Head of its Emerging Markets and Internal Affairs Group and Member of Management Committee (1995-2014); and Visiting Fellow at the Council on Foreign Relations (2014).

 

         

Mary C. Choksi (1950)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee    Since 2014    129    Avis Budget Group Inc. (car rental) (2007-present), Omnicom Group Inc. (advertising and marketing communications services) (2011-present) and White Mountains Insurance Group, Ltd. (holding company) (2017-present).

 

Principal Occupation During at Least the Past 5 Years:

Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); Founding Partner and Senior Managing Director, Strategic Investment Group (1987-2015); Founding Partner and Managing Director, Emerging Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment Officer, World Bank Group (international financial institution) (1977-1987).

 

         

Edith E. Holiday (1952)

One Franklin Parkway

San Mateo, CA 94403-1906

   Lead Independent Trustee    Trustee since 1998 and Lead Independent Trustee since 2019    129    Hess Corporation (exploration of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-present); formerly, RTI International Metals, Inc. (manufacture and distribution of titanium) (1999-2015) and H.J. Heinz Company (processed foods and allied products) (1994-2013).

Principal Occupation During at Least the Past 5 Years:

Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison–United States Treasury Department (1988-1989).

 

 

 

     

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Independent Board Members (continued)

 

Name, Year of Birth

and Address

   Position    Length of
Time Served
   Number of Portfolios in
Fund Complex Overseen
by Board Member*
  

Other Directorships Held

During at Least the Past 5 Years    

         

J. Michael Luttig (1954)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee    Since 2009    129    Boeing Capital Corporation (aircraft financing) (2006-2010).

 

Principal Occupation During at Least the Past 5 Years:

Private investor; and formerly, Counselor and Senior Advisor to the Chairman, CEO, and Board of Directors, of The Boeing Company (aerospace company), and member of the Executive Council (May 2019-January 1, 2020); Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (2006-2019); and Federal Appeals Court Judge, United States Court of Appeals for the Fourth Circuit (1991-2006).

 

         

Larry D. Thompson (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee    Since 2007    129    The Southern Company (energy company) (2014-present; previously 2010-2012), Graham Holdings Company (education and media organization) (2011-present) and Cbeyond, Inc. (business communications provider) (2010-2012).

 

Principal Occupation During at Least the Past 5 Years:

Director of various companies; Counsel, Finch McCranie, LLP (law firm) (2015-present); Independent Compliance Monitor and Auditor, Volkswagen AG (manufacturer of automobiles and commercial vehicles) (2017-present); John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2015-present; previously 2011-2012); and formerly, Executive Vice President – Government Affairs, General Counsel and Corporate Secretary, PepsiCo, Inc. (consumer products) (2012-2014); Senior Vice President – Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003).

    

 

Interested Board Members and Officers

 

Name, Year of Birth

and Address

   Position    Length of
Time Served
   Number of Portfolios in
Fund Complex Overseen
by Board Member*
  

Other Directorships Held

During at Least the Past 5 Years

         

**Gregory E. Johnson (1961)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee    Since 2007    140    None

 

Principal Occupation During at Least the Past 5 Years:

Executive Chairman, Chairman of the Board and Director, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 39 of the investment companies in Franklin Templeton; Vice Chairman, Investment Company Institute; and formerly, Chief Executive Officer (2013-2020) and President (1994-2015), Franklin Resources, Inc.

 

         

**Rupert H. Johnson, Jr. (1940)

One Franklin Parkway

San Mateo, CA 94403-1906

   Chairman of the Board and Trustee    Since 2013    129    None

 

Principal Occupation During at Least the Past 5 Years:

Director (Vice Chairman), Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 37 of the investment companies in Franklin Templeton.

 

         

Sheila Amoroso (1959)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President    Since 1999    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

Senior Vice President, Franklin Advisers, Inc.; and officer of seven of the investment companies in Franklin Templeton.

 

 

 

     
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Interested Board Members and Officers (continued)

 

Name, Year of Birth

and Address

   Position    Length of
Time Served
   Number of Portfolios in
Fund Complex Overseen
by Board Member*
  

Other Directorships Held

During at Least the Past 5 Years    

         

Alison E. Baur (1964)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President    Since 2012    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Deputy General Counsel, Franklin Templeton; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton.

 

         

Breda M. Beckerle (1958)

280 Park Avenue

New York, NY 10017

   Interim Chief Compliance Officer    Since January 2020    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Chief Compliance Officer, Fiduciary Investment Management International, Inc., Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC; and officer of 41 of the investment companies in Franklin Templeton.

 

         

Sonal Desai, Ph.D. (1963)

One Franklin Parkway

San Mateo, CA 94403-1906

   President and Chief Executive Officer – Investment Management    Since 2018    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Director and Executive Vice President, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer of 17 of the investment companies in Franklin Templeton.

 

         

Gaston Gardey (1967)

One Franklin Parkway

San Mateo, CA 94403-1906

   Treasurer, Chief Financial Officer and Chief Accounting Officer    Since 2009    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Treasurer, U.S. Fund Administration & Reporting and officer of 24 of the investment companies in Franklin Templeton.

 

         

Steven J. Gray (1955)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President and Co- Secretary    Vice President since 2009 and Co- Secretary since 2019    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Senior Associate General Counsel, Franklin Templeton; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 41 of the investment companies in Franklin Templeton.

 

         

Matthew T. Hinkle (1971)

One Franklin Parkway

San Mateo, CA 94403-1906

   Chief Executive Officer – Finance and Administration    Since 2017    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

Senior Vice President, Franklin Templeton Services, LLC; officer of 41 of the investment companies in Franklin Templeton; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton (2009-2017).

 

 

 

     

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Interested Board Members and Officers (continued)

 

Name, Year of Birth

and Address

   Position    Length of
Time Served
   Number of Portfolios in
Fund Complex Overseen
by Board Member*
  

Other Directorships Held

During at Least the Past 5 Years    

         

Robert Lim (1948)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President – AML Compliance    Since 2016    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 41 of the investment companies in Franklin Templeton.

 

         

Navid J. Tofigh (1972)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President    Since 2015    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Associate General Counsel and officer of 41 of the investment companies in Franklin Templeton.

 

         

Craig S. Tyle (1960)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President    Since 2005    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton.

 

         

Thomas Walsh (1961)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice President    Since 1999    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Senior Vice President, Franklin Advisers, Inc.; and officer of seven of the investment companies in Franklin Templeton.

 

         

Lori A. Weber (1964)

300 S.E. 2nd Street

Fort Lauderdale, FL 33301-1923

   Vice President and Co-Secretary    Vice President since 2011 and Co- Secretary since 2019    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

Senior Associate General Counsel, Franklin Templeton; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 41 of the investment companies in Franklin Templeton.

 

 

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton fund complex. These portfolios have a common investment manager or affiliated investment managers.

**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director and major shareholder of Resources.

Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.

Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.

The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated Mary C. Choksi as its audit committee financial expert. The Board believes that Ms. Choksi qualifies as such an expert in view of her extensive business background and experience. She currently serves as a director of Avis Budget Group, Inc. (2007-present) and formerly, Founder and Senior Advisor, Strategic Investment Group (1987 to 2017). Ms. Choksi has been a Member of the Fund’s Audit Committee since 2014. As a result of such background and experience, the Board believes that Ms. Choksi has acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Ms. Choksi is an independent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.

 

     
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Shareholder Information

 

Board Approval of Investment

Management Agreements

FRANKLIN MUNICIPAL SECURITIES TRUST

Franklin California High Yield Municipal Fund Franklin Tennessee Municipal Bond Fund

(each a Fund)

At an in-person meeting held on February 25, 2020 (Meeting), the Board of Trustees (Board) of Franklin Municipal Securities Trust (Trust), including a majority of the trustees who are not “interested persons” as defined in the Investment Company Act of 1940 (Independent Trustees), reviewed and approved the continuance of the investment management agreement between Franklin Advisers, Inc. (Manager) and the Trust, on behalf of each Fund (each a Management Agreement) for an additional one-year period. The Independent Trustees received advice from and met separately with Independent Trustee counsel in considering whether to approve the continuation of each Management Agreement. Although the Management Agreements for the Funds were considered at the same Board meeting, the Board considered the information provided to it about the Funds together and with respect to each Fund separately as the Board deemed appropriate.

In considering the continuation of each Management Agreement, the Board reviewed and considered information provided by the Manager at the Meeting and throughout the year at meetings of the Board and its committees. The Board also reviewed and considered information provided in response to a detailed set of requests for information submitted to the Manager by Independent Trustee counsel on behalf of the Independent Trustees in connection with the annual contract renewal process. In addition, prior to the Meeting, the Independent Trustees held a telephonic contract renewal meeting at which the Independent Trustees conferred amongst themselves and Independent Trustee counsel about contract renewal matters and, in some cases, requested additional information from the Manager relating to the contract. The Board reviewed and considered all of the factors it deemed relevant in approving the continuance of each Management Agreement, including, but not limited to: (i) the nature, extent and quality of the services provided by the Manager; (ii) the investment performance of each Fund; (iii) the costs of the services provided and profits realized by the Manager and its affiliates from the relationship with each Fund; (iv) the extent to which economies of scale are realized as each Fund grows; and

(v) whether fee levels reflect these economies of scale for the benefit of Fund investors.

In approving the continuance of each Management Agreement, the Board, including a majority of the Independent Trustees, determined that the terms of the Management Agreement are fair and reasonable and that the continuance of such Management Agreement is in the interests of the applicable Fund and its shareholders. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s determination.

Nature, Extent and Quality of Services

The Board reviewed and considered information regarding the nature, extent and quality of investment management services provided by the Manager and its affiliates to the Funds and their shareholders. This information included, among other things, the qualifications, background and experience of the senior management and investment personnel of the Manager, as well as information on succession planning where appropriate; the structure of investment personnel compensation; oversight of third-party service providers; investment performance reports and related financial information for each Fund; reports on expenses and shareholder services; legal and compliance matters; risk controls; pricing and other services provided by the Manager and its affiliates; and management fees charged by the Manager and its affiliates to US funds and other accounts, including management’s explanation of differences among accounts where relevant. The Board also reviewed and considered an annual report on payments made by Franklin Templeton (FT) or the Funds to financial intermediaries, as well as a memorandum relating to third-party servicing arrangements, which included discussion of the changing distribution landscape for the Funds. The Board noted management’s continuing efforts and expenditures in establishing effective business continuity plans and developing strategies to address areas of heightened concern in the mutual fund industry, such as cybersecurity and liquidity risk management.

The Board also reviewed and considered the benefits provided to Fund shareholders of investing in a fund that is part of the FT family of funds. The Board noted the financial position of Franklin Resources, Inc. (FRI), the Manager’s parent, and its commitment to the mutual fund business as evidenced by its continued introduction of new funds, reassessment of the fund offerings in response to the market environment and project initiatives and capital

 

 

     

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investments relating to the services provided to the Funds by the FT organization. The Board specifically noted FT’s commitment to enhancing services and controlling costs, as reflected in its plan to outsource certain administrative functions, and growth opportunities, as evidenced by its upcoming acquisition of the Legg Mason companies. The Board acknowledged the change in leadership at FRI and the opportunity to hear from Jennifer Johnson, President and Chief Executive Officer of FRI, about goals she has for the company that will benefit the Funds.

Following consideration of such information, the Board was satisfied with the nature, extent and quality of services provided by the Manager and its affiliates to the Funds and their shareholders.

Fund Performance

The Board reviewed and considered the performance results of each Fund over various time periods ended December 31, 2019. The Board considered the performance returns for each Fund in comparison to the performance returns of mutual funds deemed comparable to the Fund included in a universe (Performance Universe) selected by Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds included in a Performance Universe. The Board also reviewed and considered Fund performance reports provided and discussions that occurred with portfolio managers at Board meetings throughout the year. A summary of each Fund’s performance results is below.

Franklin California High Yield Municipal Fund - The Performance Universe for the Fund included the Fund and all retail and institutional California municipal debt funds. The Board noted that the Fund’s annualized income return and annualized total return for the one-, three-, five- and 10-year periods were above the medians and in the first quintile (best) of its Performance Universe. The Board concluded that the Fund’s performance was satisfactory.

Franklin Tennessee Municipal Bond Fund - The Performance Universe for the Fund included the Fund and all retail and institutional “other states” municipal debt funds. The Board noted that the Fund’s annualized income return for the one-, three-, five- and 10-year periods was above the median of its Performance Universe. The Board also noted that the Fund’s annualized total return for the one-, three-, five- and 10-year periods was below the median of its Performance Universe. Given the Fund’s income-oriented investment objective, the

Board concluded that the Fund’s performance was satisfactory.

Comparative Fees and Expenses

The Board reviewed and considered information regarding each Fund’s actual total expense ratio and its various components, including, as applicable, management fees; transfer agent expenses; underlying fund expenses; Rule 12b-1 and non-Rule 12b-1 service fees; and other non-management fees. The Board also noted the quarterly and annual reports it receives on all marketing support payments made by FT to financial intermediaries. The Board considered the actual total expense ratio and, separately, the contractual management fee rate, without the effect of fee waivers, if any (Management Rate) of each Fund in comparison to the median expense ratio and median Management Rate, respectively, of other mutual funds deemed comparable to and with a similar expense structure to the Fund selected by Broadridge (Expense Group). Broadridge fee and expense data is based upon information taken from each fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios and Management Rates generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Broadridge to be an appropriate measure of comparative fees and expenses. The Broadridge Management Rate includes administrative charges, and the actual total expense ratio, for comparative consistency, was shown for Class A1 shares for the Funds and for Class A shares and Class M shares for the other funds in the Franklin California High Yield Municipal Fund’s Expense Group and for Class A shares for the other funds in the Franklin Tennessee Municipal Bond Fund’s Expense Group. The Board received a description of the methodology used by Broadridge to select the mutual funds included in an Expense Group.

The Expense Group for the Franklin California High Yield Municipal Fund included the Fund and eight other California municipal debt funds. The Expense Group for the Franklin Tennessee Municipal Bond Fund included the Fund and nine other “other states” municipal debt funds. The Board noted that the Management Rate for each Fund was above the median of its respective Expense Group. The Board also noted that the actual total expense ratio for each Fund was below the median of its respective Expense Group. The Board concluded that the Management Rate charged to

 

 

     
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each Fund is reasonable. In doing so, the Board noted that the Management Rate for the Franklin California High Yield Municipal Fund was only 3.2 basis points higher than the median Management Rate of the Fund’s Expense Group and the Management Rate for the Franklin Tennessee Municipal Bond Fund was less than one basis point higher than the median Management Rate of the Fund’s Expense Group.

Profitability

The Board reviewed and considered information regarding the profits realized by the Manager and its affiliates in connection with the operation of each Fund. In this respect, the Board considered the Fund profitability analysis provided by the Manager that addresses the overall profitability of FT’s US fund business, as well as its profits in providing investment management and other services to each of the individual funds during the 12-month period ended September 30, 2019, being the most recent fiscal year-end for FRI. The Board noted that although management continually makes refinements to its methodologies used in calculating profitability in response to organizational and product-related changes, the overall methodology has remained consistent with that used in the Funds’ profitability report presentations from prior years. Additionally, PricewaterhouseCoopers LLP, auditor to FRI and certain FT funds, was engaged by the Manager to review and assess the allocation methodologies to be used solely by the Funds’ Board with respect to the profitability analysis.

The Board noted management’s belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to each Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. As part of this evaluation, the Board considered the initiative currently underway to outsource certain operations, which effort would require considerable up front expenditures by the Manager but, over the long run is expected to result in greater efficiencies. The Board also noted management’s expenditures in improving shareholder services provided to the Funds, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from recent US Securities and Exchange Commission and other regulatory requirements, notably in the area of cybersecurity protections.

The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services, potential benefits resulting from personnel and systems enhancements necessitated by fund growth, as well as increased leverage with service providers and counterparties. Based upon its consideration of all these factors, the Board concluded that the level of profits realized by the Manager and its affiliates from providing services to each Fund was not excessive in view of the nature, extent and quality of services provided to each Fund.

Economies of Scale

The Board reviewed and considered the extent to which the Manager may realize economies of scale, if any, as each Fund grows larger and whether each Fund’s management fee structure reflects any economies of scale for the benefit of shareholders. With respect to possible economies of scale, the Board noted the existence of management fee breakpoints, which operate generally to share any economies of scale with a Fund’s shareholders by reducing the Fund’s effective management fees as the Fund grows in size. The Board considered the Manager’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments the Manager incurs across the FT family of funds as a whole. The Board noted that the Franklin Tennessee Municipal Bond Fund does not have an asset size that would likely enable the Fund to achieve economies of scale, but concluded that to the extent economies of scale may be realized by the Manager and its affiliates, each Fund’s management fee structure provided a sharing of benefits with the Fund and its shareholders as the Fund grows.

Conclusion

Based on its review, consideration and evaluation of all factors it believed relevant, including the above-described factors and conclusions, the Board unanimously approved the continuation of each Management Agreement for an additional one-year period.

Liquidity Risk Management Program

The Funds have adopted and implemented a written Liquidity Risk Management Program (the “LRMP”) as required by Rule 22e-4 under the Investment Company Act of 1940. The program is designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio

 

 

     

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investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of the Director of Liquidity Risk within the Investment Risk Management Group (the “IRMG”) as the Administrator of the LRMP. The IRMG maintains the Investment Liquidity Committee (the “ILC”) to provide oversight and administration of policies and procedures governing liquidity risk management for FT products and portfolios. The ILC includes representatives from Franklin Templeton’s Risk, Trading, Global Compliance, Investment Compliance, Investment Operations, Valuation Committee and Product Management groups.

The LRMP Administrator Annual Report was presented to the Fund(s) Board of Trustees at their meetings in May 2020. The report covered the adequacy and effectiveness of the program during the period December 1, 2018 to December 31, 2019 (the “covered period”). The report concluded that (i.) the LRMP, as adopted and implemented, remains reasonably designed to assess and manage each Fund’s liquidity risk; (ii.) the LRMP, including the Highly Liquid Investment Minimum (“HLIM”) where applicable, was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk; and (iii.) each fund was able to meet requests for redemption without significant dilution of remaining investors’ interests in the Fund. In addition, the LRMP Administrator presented the Fund Board of Trustees an update on liquidity during the first quarter of 2020 in relation to the COVID-19 pandemic.

During the reporting period, the Fund maintained a high level of liquid assets that are defined under the Liquidity Rule as “Highly Liquid Investments”. As a result, the Fund was designated a “Primarily Highly Liquid Fund” as defined under the Liquidity Rule and has not adopted a “Highly Liquid Investment Minimum.” A Highly Liquid Investment is defined as cash and any investment reasonably expected to be convertible to cash in current market conditions in three business days or less without the conversion to cash significantly changing the market value of the investment.

There can be no assurance that the program will achieve its objectives in the future. Please refer to your Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.

Proxy Voting Policies and Procedures

The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year as an exhibit to its report on Form N-PORT. Shareholders may view the filed Form N-PORT by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Householding of Reports and Prospectuses

You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.

 

 

     
franklintempleton.com    Annual Report           

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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

 

 

LOGO     

Annual Report and Shareholder Letter

Franklin Municipal Securities Trust

      
     Investment Manager    Distributor      Shareholder Services
     Franklin Advisers, Inc.    Franklin Templeton Distributors, Inc.      (800) 632-2301
        (800) DIAL BEN® / 342-5236     
        franklintempleton.com     

 

© 2020 Franklin Templeton Investments. All rights reserved.    MUN A 07/20


Item 2. Code of Ethics.

(a)     The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.

(c)     N/A

(d)     N/A

(f)     Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a)  (1)    The Registrant has an audit committee financial expert serving on its audit committee.

(2)   The audit committee financial expert is Mary C. Choksi and she is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.

Item 4. Principal Accountant Fees and Services.

(a)                Audit Fees

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $85,359 for the fiscal year ended May 31, 2020 and $78,628 for the fiscal year ended May 31, 2019.

(b)                Audit-Related Fees

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of Item 4.

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.

(c)                Tax Fees

There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s


investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $0 for the fiscal year ended May 31, 2020 and $25,000 for the fiscal year ended May 31, 2019. The services for which these fees were paid included professional fees in connection with tax treatment of equipment lease transactions, professional fees in connection with an Indonesia withholding tax refund claim and tax consulting services related to the operating agreement and term sheet for the launch of a new fund.

(d)                All Other Fees

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $1,329 for the fiscal year ended May 31, 2020 and $0 for the fiscal year ended May 31, 2019. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4 were $197,944 for the fiscal year ended May 31, 2020 and $16,500 for the fiscal year ended May 31, 2019. The services for which these fees were paid included the issuance of an Auditor’s Certificate for South Korean regulatory shareholders disclosures, valuation services related to a fair value engagement, professional fees in connection with determining the feasibility of a U.S. direct lending structure, benchmarking services in connection with the ICI TA survey, and assets under management certification.

(e)    (1)    The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:

(i)    pre-approval of all audit and audit related services;

(ii)    pre-approval of all non-audit related services to be provided to the Fund by the auditors;

(iii)    pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and

(iv)    establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the


particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.

(e)    (2)    None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(f)    No disclosures are required by this Item 4(f).

(g)    The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $199,273 for the fiscal year ended May 31, 2020 and $41,500 for the fiscal year ended May 31, 2019.

(h)    The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5.     Audit Committee of Listed Registrants.                                            N/A

Item 6. Schedule of Investments.                                                                          N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.                                                                                                               N/A

Item 8. Portfolio Managers of Closed-End Management Investment Companies.                                                                                                                                    N/A

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.                                                                                                              N/A

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.

Item 11. Controls and Procedures.


 (a)     Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.

 (b)    Changes in Internal Controls. There have been no changes in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the internal control over financial reporting.

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Company.                                                                                                  N/A

Item 13. Exhibits.

(a)(1) Code of Ethics

(a)(2) Certifications pursuant to Section  302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer – Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer – Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN MUNICIPAL SECURITIES TRUST

 

By  

        /S/ MATTHEW T. HINKLE

          Matthew T. Hinkle
          Chief Executive Officer – Finance and Administration
Date           July 31, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By  

        /S/ MATTHEW T. HINKLE

          Matthew T. Hinkle
          Chief Executive Officer – Finance and Administration
Date           July 31, 2020
By  

        /S/ GASTON GARDEY

          Gaston Gardey
          Chief Financial Officer and Chief Accounting Officer
Date           July 31, 2020

Code of Ethics for Principal Executives & Senior Financial Officers

 

 
Procedures  

Revised December 10, 2018

 

FRANKLIN TEMPLETON FUNDS

CODE OF ETHICS FOR PRINCIPAL EXECUTIVES AND

SENIOR FINANCIAL OFFICERS

 

I.

Covered Officers and Purpose of the Code

This code of ethics (the “Code”) applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the “Covered Officers,” each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission (“SEC”) (collectively, “FT Funds”) for the purpose of promoting:

 

   

Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships;

 

   

Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds;

 

   

Compliance with applicable laws and governmental rules and regulations;

 

   

The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and

 

   

Accountability for adherence to the Code.

Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.

 

*

Rule 38a-1 under the Investment Company Act of 1940 (“1940 Act”) and Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Advisers Act”) (together the “Compliance Rule”) require registered investment companies and registered investment advisers to, among other things, adopt and implement written policies and procedures reasonably designed to prevent violations of the federal securities laws (“Compliance Rule Policies and Procedures”).

CONFIDENTIAL INFORMATION. This document is the proprietary product of Franklin Templeton Investments. It may NOT be distributed outside the company unless it is made subject to a non-disclosure agreement and/or such release receives authorization by an FTI Chief Compliance Officer. Any unauthorized use, reproduction or transfer of this document is strictly prohibited. Franklin Templeton Investments © 2014. All Rights Reserved.

 


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

II.

Other Policies and Procedures

This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder.

Franklin Resources, Inc. has separately adopted the Code of Ethics and Business Conduct (“Business Conduct”), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee’s business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies.

Additionally, the Franklin Templeton Funds have separately adopted the FTI Personal Investments and Insider Trading Policy governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code.

Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds’ adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you.

 

III.

Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest

Overview. A “conflict of interest” occurs when a Covered Officer’s private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds.

Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as “affiliated persons” of the FT Funds. The FT Funds’ and the investment advisers’ compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.

Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or

 

2


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds’ Boards of Directors (“Boards”) that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.

Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds.

Each Covered Officer must:

 

   

Not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds;

 

   

Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds;

 

   

Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith;

 

   

Report at least annually the following affiliations or other relationships:1

 

   

all directorships for public companies and all companies that are required to file reports with the SEC;

 

   

any direct or indirect business relationship with any independent directors of the FT Funds;

 

   

any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm’s service as the Covered Persons accountant); and

 

   

any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources).

These reports will be reviewed by the Legal Department for compliance with the Code.

There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include2:

 

   

Service as a director on the board of any public or private Company.

 

 

1 

Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel.

2 

Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer’s immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT’s General Counsel in such situations.

 

3


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

   

The receipt of any gifts in excess of $100 from any person, from any corporation or association.

 

   

The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000.

 

   

Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund’s service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof.

 

   

A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership.

 

   

Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting.

 

IV.

Disclosure and Compliance

 

   

Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds;

 

   

Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds’ directors and auditors, and to governmental regulators and self-regulatory organizations;

 

   

Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund’s adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and

 

   

It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.

 

V.

Reporting and Accountability

Each Covered Officer must:

 

   

Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B);

 

   

Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and

 

   

Notify Franklin Resources’ General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code.

 

4


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

Franklin Resources’ General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation.3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers4 sought by any Chief Executive Officers of the Funds.

The FT Funds will follow these procedures in investigating and enforcing this Code:

 

   

Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department;

 

   

If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action;

 

   

Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund;

 

   

If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer;

 

   

The Independent Directors will be responsible for granting waivers, as appropriate; and

 

   

Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules.5

 

VI.

Other Policies and Procedures

This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds’ advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FTI Personal Investments and Insider Trading Policy, adopted by the FT Funds, FT investment advisers and FT Fund’s principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT’s Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code.

 

 

3 

Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so.

4 

Item 2 of Form N-CSR defines “waiver” as “the approval by the registrant of a material departure from a provision of the code of ethics” and “implicit waiver,” which must also be disclosed, as “the registrant’s failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer” of the registrant. See Part X.

5

See Part X.

 

5


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

VII.

Amendments

Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds’ Board including a majority of independent directors.

VIII. Confidentiality

All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds’ Board and their counsel.

 

IX.

Internal Use

The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion.

 

X.

Disclosure on Form N-CSR

Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so.

The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant’s annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention.

The Legal Department shall be responsible for ensuring that:

 

   

a copy of the Code is filed with the SEC as an exhibit to each Fund’s annual report; and

 

   

any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant’s annual report on Form N-CSR.

In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR.

In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences.

 

6


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

EXHIBIT A

Persons Covered by the Franklin Templeton Funds

Code of Ethics

December 2018

FRANKLIN GROUP OF FUNDS

 

Edward Perks    President and Chief Executive Officer – Investment Management
Rupert H. Johnson, Jr.    Chairman of the Board and Vice President – Investment Management
Don Taylor    President and Chief Executive Officer – Investment Management
Sonal Desai)    President and Chief Executive Officer – Investment Management
Matthew Hinkle    Chief Executive Officer – Finance and Administration
Gaston R. Gardey    Chief Financial Officer and Chief Accounting Officer and Treasurer

FRANKLIN MUTUAL SERIES FUNDS

 

Peter Langerman

  

Chief Executive Officer – Investment Management

Matthew Hinkle

  

Chief Executive Officer – Finance and Administration

Robert G. Kubilis

  

Chief Financial Officer and Chief Accounting Officer

FRANKLIN ALTERNATIVE STRATEGIES FUNDS

 

Mat S. Gulley

  

Chief Executive Officer – Investment Management

Matthew Hinkle

  

Chief Executive Officer – Finance and Administration

Robert G. Kubilis

  

Chief Financial Officer and Chief Accounting Officer

TEMPLETON GROUP OF FUNDS

 

Manraj S. Sekhon

  

President and Chief Executive Officer – Investment Management

Michael Hasenstab, Ph.D.

  

President and Chief Executive Officer – Investment Management

Norman Boersma

  

President and Chief Executive Officer – Investment Management

Matthew Hinkle

  

Chief Executive Officer – Finance and Administration

Robert G. Kubilis

  

Chief Financial Officer, Chief Accounting Officer and Treasurer

 

7


FTI Compliance Procedures    Standards of Business Conduct

 

 

 

Exhibit B

ACKNOWLEDGMENT FORM

Franklin Templeton Funds Code of Ethics

For Principal Executives and Senior Financial Officers

 

Instructions:

 

1.

Complete all sections of this form.

 

2.

Print the completed form, sign, and date.

 

3.

Submit completed form to FT’s General Counsel c/o Code of Ethics Administration within 10 days of becoming a Covered Officer and by February 15th of each subsequent year.

 

Inter-office mail:    Code of Ethics Administration, Global Compliance SM-920/2
Fax:    (650) 312-5646
E-mail:    Code of Ethics Inquiries & Requests (internal address);
   [email protected] (external address)

 

   

Covered Officer’s Name:

 

    
   

Title:

 

    
   

Department:

 

    
   

Location:

 

    
Certification for Year Ending:     

 

To:

Franklin Resources General Counsel, Legal Department

I acknowledge receiving, reading and understanding the Franklin Templeton Fund’s Code of Ethics for Principal Executive Officers and Senior Financial Officers (the “Code”). I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment.

 

 

 

    

 

 

Signature

   

Date signed

 

 

8

Exhibit 13 (a) (2)

I, Matthew T. Hinkle, certify that:

1. I have reviewed this report on Form N-CSR of Franklin Municipal Securities Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

7/31/2020

 

/S/ MATTHEW T. HINKLE
Matthew T. Hinkle
Chief Executive Officer - Finance and Administration


Exhibit 13 (a) (2)

I, Gaston Gardey, certify that:

1. I have reviewed this report on Form N-CSR of Franklin Municipal Securities Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

7/31/2020

 

/S/ GASTON GARDEY
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer

Exhibit 13 (b)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Matthew T. Hinkle, Chief Executive Officer of the Franklin Municipal Securities Trust (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

  1.

The periodic report on Form N-CSR of the Registrant for the period ended 5/31/2020 (the “Form N-CSR”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2.

The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: 7/31/2020

 

/S/ MATTHEW T. HINKLE
Matthew T. Hinkle
Chief Executive Officer - Finance and Administration


Exhibit 13 (b)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Gaston Gardey, Chief Financial Officer of the Franklin Municipal Securities Trust (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

  1.

The periodic report on Form N-CSR of the Registrant for the period ended 5/31/2020 (the “Form N-CSR”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2.

The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: 7/31/2020

 

/S/ GASTON GARDEY
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer


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