franklin municipal securities trust semiannual report4 | semiannual report semiannual report for the...

Franklin Municipal Securities Trust

NOVEMBER 30, 2011

SEMIANNUAL REPORTAND SHAREHOLDER LETTER

Franklin California High Yield Municipal Fund

Franklin Tennessee Municipal Bond Fund

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Franklin Templeton InvestmentsGain From Our Perspective®

Franklin Templeton’s distinct multi-manager structure combines thespecialized expertise of three world-class investment management groups—Franklin, Templeton and Mutual Series.

Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success.

Franklin. Founded in 1947, Franklin is a recognized leader in fixed income investingand also brings expertise in growth- and value-style U.S. equity investing.

Templeton. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry’s oldest global fund. Today, withoffices in over 25 countries, Templeton offers investors a truly global perspective.

Mutual Series. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities.

Because our management groups work independently and adhere to differentinvestment approaches, Franklin, Templeton and Mutual Series funds typicallyhave distinct portfolios. That’s why our funds can be used to build trulydiversified allocation plans covering every major asset class.

At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable,accurate and personal service that has helped us become one of the most trustednames in financial services.

TRUE DIVERSIFICATION

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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

Not part of the semiannual report

Not part of the semiannual report | 1

Shareholder LetterDear Shareholder:

During the six-month period ended November 30, 2011, the municipal bondmarket strengthened after a period of underperformance from late 2010 into2011. As a result of that underperformance, municipal bond funds experiencednet redemptions industry-wide through April 2011.

U.S. economic data seemed to indicate a modest recovery albeit hindered by highunemployment and a still-struggling housing market. Gross domestic productannualized growth rates for the second and third quarters of 2011 were 1.3%and 1.8%. Early in the reporting period, the mild growth rate as well as otherrelatively weak data and declining consumer sentiment led many economists toreduce their growth expectations for the remainder of the year. Some econo-mists also thought it more likely the economy would slip into another recessionin the short term. Many observers speculated about the likelihood of a thirdround of quantitative easing (QE3) by the Federal Reserve Board (Fed), whoseQE2 program expired on June 30, 2011. On September 21, the Fed announceda program (dubbed Operation Twist by commentators) in which it intends to buy hundreds of billions of dollars of long-term Treasuries in an attempt tolower the yield on long-term debt. The Fed believed this action would help sup-port conditions in mortgage markets and contribute to a stronger recovery. TheFed also anticipated it would keep short-term rates near zero through mid-2013.

For the third consecutive summer, troubles in the eurozone helped undermineequity markets’ performance globally. In April 2011, Portugal officiallysought a bailout from the European Union and International Monetary Fund.Furthermore, as Greece appeared to be increasingly at risk of defaulting on itsdebt, various European countries devised another bailout package. Shortlyafter the package was adopted, many observers thought it was insufficient forGreece to avoid restructuring its debt. The crisis of confidence spread to the

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Semiannual Report

Municipal Bond Market Overview . . . . . . . . 4

Franklin California High Yield Municipal Fund . . . . . . . . . . . . . 6

Franklin Tennessee Municipal Bond Fund . . 15

Financial Highlights and Statements of Investments . . . . . . . . . . . . . 22

Financial Statements . . . . . . . . . . . . . . . . . 43

Notes to Financial Statements . . . . . . . . . . 47

Shareholder Information . . . . . . . . . . . . . . . 57

Shareholder Letter . . . . . . . . . . . . . . . . . . 1

Contents

2 | Not part of the semiannual report

economies of Italy and Spain, which are each significantly larger than thePortuguese and Greek economies. Many analysts believe a default or restruc-turing by Italy or Spain would have a more meaningful impact on the globaleconomy. Equity markets around the world experienced significantly increasedvolatility in reaction to reports regarding various European government pro-posals to address the eurozone financial crisis.

In the U.S., financial markets were further rattled by negotiations betweenDemocrats and Republicans over raising the U.S. debt ceiling, as well asreducing the budget deficit and how to accomplish that. The ultimate agree-ment, which narrowly averted the possibility of the U.S. defaulting on someobligations (but not on Treasury bond interest), called for expenditure reduc-tions of approximately $2 trillion over the next 10 years. On August 5, 2011,Standard & Poor’s downgraded its rating on U.S. Treasury bonds to AA+ fromAAA, citing not only the size of the U.S. deficits but also its concerns aboutU.S. leaders’ ability to make meaningful progress in reducing the federal deficits.

Throughout the six-month reporting period, the municipal bond market per-formed well as investors generally overcame fears of potentially widespreaddefaults prompted by extreme forecasts made toward the end of 2010. For thecalendar year through November 30, 2011, about $2.1 billion in defaults hadbeen reported, far below the possibility for “hundreds of billions of dollars”the press had reported and also below 2009 and 2010 levels.1 Furthermore, 49of the 50 states (Minnesota being the lone exception) signed balanced budgetsinto law by June 30, the end of the 2011 fiscal year, despite doubts expressedby some critics at the beginning of the year that they would be able to do so.States made many hard decisions and took difficult steps to balance thosebudgets but, as we have often pointed out, states are generally constitutionallyand legally bound to balance their budgets each year.

In this recent environment, the municipal bond market’s performance for thesix-month period was solid. The Barclays Capital Municipal Bond Index,which tracks investment-grade municipal securities, posted a +4.40% totalreturn, placing the municipal bond market as one of the best-performing of all U.S. asset classes for the period.2

Franklin Municipal Securities Trust’s semiannual report goes into greater detailabout municipal bond market conditions during the period under review. In

1. Source: Bloomberg LP.

2. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis information. Past performance is no guarantee of future results.

addition, you will find performance data, financial information and a discus-sion from the portfolio managers. We invite you to periodically check ourwebsite, franklintempleton.com, for updated commentary by our municipalbond experts. Please remember all securities markets fluctuate, as do mutualfund share prices. Municipal bonds can provide tax-free income and diversifi-cation from equities. Despite periods of volatility, municipal bonds historicallyhave had a solid long-term record of performance, driven mostly by theirincome component.

As always, we recommend investors seek the counsel and advice of qualifiedfinancial advisors to help them make the best decisions for the long term. In aconstantly changing market environment, we remain committed to our disci-plined strategy as we manage the Funds, keeping in mind the trust you haveplaced in us. We appreciate your confidence and encourage you to contact uswhen you have questions about your Franklin Templeton tax-free investment.

Sincerely,

Charles B. JohnsonChairmanFranklin Municipal Securities Trust

Sheila Amoroso

Rafael R. Costas Jr.

Senior Vice Presidents and Co-DirectorsFranklin Municipal Bond Department

This letter reflects our analysis and opinions as of November 30, 2011. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

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4 | Semiannual Report

Semiannual Report

For the six months ended November 30, 2011, the municipal bond marketposted solid gains as measured by various Barclays Capital (BC) MunicipalBond Indexes. The BC Municipal Bond Index, which tracks investment-gradesecurities, returned +4.40% for the reporting period, while the BC MunicipalNon-Investment Grade Index, which tracks below investment-grade securities,returned +4.15%.1 However, over the reporting period municipal bonds gener-ally underperformed Treasuries, which returned +6.04% according to the BCU.S. Treasury Index, which tracks various U.S. Treasury securities.1

During the reporting period, domestic and global events affected the municipalbond market. Domestically, the Federal Reserve Board’s commitment to main-tain an accommodative monetary policy stance with historically low interestrates supported the municipal market. The market was further supported byan extended period of low supply, thus reducing the availability of bonds tomeet investor demand. In Europe, several countries struggled with financialchallenges that resulted in a flight to quality benefiting the U.S Treasury market,as well as the municipal bond market.

From a credit perspective, on August 2, 2011, the U.S. raised its debt ceilingand avoided defaulting on its debt obligations. Independent credit rating agencyStandard & Poor’s (S&P) lowered the country’s long-term rating to AA+ fromAAA, citing political risks and a rising debt burden.2 All municipal bondsbacked by the U.S. government or government-sponsored enterprises (GSEs)were also downgraded along with the country’s rating and those of GSEs. S&P’sdowngrade of U.S. Treasury securities led to the review of more than 11,000municipal credits supported by federal programs and agency escrows. Primarily,prerefunded municipal bonds and housing bonds tied to federal subsidy pro-grams were affected by the downgrade, although they generally still carriedhigh-grade ratings. Furthermore, Moody’s Investors Service on July 19, 2011,placed five AAA-rated states on its watch list for potential rating cuts partlybased on their dependency on federal funding. After the debt ceiling was raised,Moody’s reconfirmed the AAA rating to states and public finance issuers previ-ously identified as directly or indirectly linked to the U.S. government.2 Thesame credits are currently assigned a negative outlook based on the identificationof certain shared characteristics.

Municipal Bond Market Overview

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis information. Past performance is no guarantee of future results.

2. This does not indicate a rating of the Funds.

Semiannual Report | 5

Congress enacted the Budget Control Act of 2011 with the potential to reducethe federal deficit by approximately $2 trillion by 2021. While the plan of actionis unknown, one can expect it to impact state and local programs dependent onfederal subsidies. State and local officials may need to reevaluate current budgetforecasts and the potential effects. One important element to recognize is thatmost states are constitutionally required to balance their budgets regardless ofany monetary changes in aid received from the federal government.

During this reporting period, state and local officials made unpopular and dif-ficult decisions to close budget gaps. Proactive states successfully balanced andpassed budgets on time using a variety of measures. For example, they raisedtuition and fees at higher education institutions, reduced government expendi-tures by eliminating and consolidating departments, and lowered aid to variousprograms. Despite the challenges, many states continued to show mild growthin state revenues, and the actual default rate for municipal bonds was very low.

At period-end, we maintained our positive view of the municipal bond market.Municipal bond yields were well above those of comparable Treasury securi-ties on a nominal basis and an after-tax basis. Therefore, we believe municipalbonds continue to be an attractive asset class among fixed income securities,and we intend to follow our solid discipline of investing to maximize incomewhile seeking value in the municipal bond market.

The foregoing information reflects our analysis and opinions as of November 30, 2011, the end of the reportingperiod. The information is not a complete analysis of every aspect of any market, country, industry, security orfund. Statements of fact are from sources considered reliable.


We are pleased to bring you Franklin California High Yield Municipal Fund’ssemiannual report for the period ended November 30, 2011.

Performance Overview

The Fund’s Class A share price, as measured by net asset value, increased from$9.07 on May 31, 2011, to $9.56 on November 30, 2011. The Fund’s Class Ashares paid dividends totaling 25.84 cents per share for the reporting period.2


Your Fund’s Goals and Main Investments: Franklin California High Yield Municipal 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, including higher yielding, lower rated securities, that pay

interest free from such taxes.1 Its secondary goal is capital appreciation.

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

2. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicativeof future trends.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’sStatement of Investments (SOI). The SOI begins on page 26.

NR

BIG

BBB

A

AA

AA 10.7%

A 20.0%

BBB 20.8%

Below Investment Grade 10.1%

Not Rated 38.4%

Credit Quality Breakdown*Franklin California High Yield Municipal FundBased on Total Long-Term Investments as of 11/30/11**

*Standard & Poor’s (S&P) is used as the primary independent rating agency source. Moody’s is secondary, and Fitch, ifavailable, is used for securities not rated by Moody’s or S&P. The ratings are an indication of an issuer’s creditworthiness,with long-term ratings typically ranging from AAA (highest) to Below Investment Grade (lowest; includes ratings BB toD). This methodology differs from that used in Fund marketing materials.

**Does not include short-term investments and other net assets.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.

Please visit franklintempleton.comor call (800) 342-5236 for most

recent month-end performance.

The Performance Summary beginning on page 10 shows that at the end of thisreporting period the Fund’s Class A shares’ distribution rate was 5.11% basedon an annualization of the current 4.25 cent per share monthly dividend andthe maximum offering price of $9.98 on November 30, 2011. An investor inthe 2011 maximum combined effective federal and California personal incometax bracket of 41.21% would need to earn a distribution rate of 8.69% froma taxable investment to match the Fund’s Class A tax-free distribution rate.For the Fund’s Class B, C and Advisor shares’ performance, please see thePerformance Summary. Dividend distributions during the period under reviewwere affected by decreasing interest rates. Additionally, investor demand wasstrong for municipal bonds in an environment of limited tax-exempt supply.These factors resulted in reduced income for the portfolio and caused dividendsto decline.

State Update

California’s diverse and wealthy economy, the largest contributor to U.S. grossdomestic product and the world’s eighth-largest if it were a country, continuedits post-recession recovery albeit at a slower pace than the nation as a whole.Persistently weak real estate markets, high foreclosure rates and low home-building activity hindered the state’s economic advance, reducing its citizens’higher-than-average household wealth levels. California’s 11.3% unemploy-ment rate in November was significantly higher than the 8.7% national rate.3

The state gained jobs in all sectors except construction and manufacturing. Themining and logging, government, and education and health services sectorsposted the strongest six-month growth rates. In the economic forecast included


3. Source: Bureau of Labor Statistics.

Dividend Distributions*Franklin California High Yield Municipal Fund

Dividend per ShareMonth Class A Class B Class C Advisor Class

June 4.37 cents 3.99 cents 3.98 cents 4.44 cents

July 4.37 cents 3.99 cents 3.98 cents 4.44 cents

August 4.37 cents 3.99 cents 3.98 cents 4.44 cents

September 4.32 cents 3.90 cents 3.88 cents 4.39 cents

October 4.32 cents 3.90 cents 3.88 cents 4.39 cents

November 4.32 cents 3.90 cents 3.88 cents 4.39 cents

*Assumes shares were purchased and held for the entire accrual period, which differs from the calendar month. Sincedividends accrue daily, your actual distributions will vary depending on the date you purchased your shares and anyaccount activity. All Fund distributions will vary depending upon current market conditions, and past distributions arenot indicative of future trends.


Portfolio BreakdownFranklin California High Yield Municipal Fund11/30/11

% of TotalLong-Term Investments*

Tax-Supported 43.7%

Hospital & Health Care 12.4%

General Obligation 9.6%

Transportation 9.5%

Utilities 5.7%

Higher Education 5.7%

Other Revenue 5.1%

Refunded 4.1%

Subject to Government Appropriations 2.6%

Housing 1.6%

*Does not include short-term investments and othernet assets.

with the governor’s fiscal year 2012 budget proposal, the state projected slimjob growth of 1.2% in 2011, a pace that would lag working-age populationgrowth.4 However, the state projected job growth to accelerate in 2012 and2013, with nonfarm jobs lost during the Great Recession to be recovered fullyby the third quarter of 2016.

California enacted an on-time fiscal year 2012 budget that addressed a $17 bil-lion budget shortfall with $14 billion of deep spending cuts across state servicesand employment.5 Resolving the budget gap relied on a recent, above-par rev-enue trend but had built-in spending-cut triggers if the additional revenues didnot materialize. Unlike recent years, the 2012 budget relied less on one-timerevenues and accounting gimmicks. However, it was not fully structurally bal-anced and depended on several billion dollars of cash deferrals and one-timerevenues, some of which were derived from uncertain or contentious sources.Fortunately, a combination of cash management tools and higher-than-projectedrevenue growth into the summer of 2011 materially improved the state’s cashposition. By mid-November, however, the governor’s office announced staterevenues for the first four months of the 2012 fiscal year (July-October) wererunning behind expectations. Without additional revenues lawmakers had opti-mistically relied on to help balance the budget in June, the state at period-endfaced a much greater-than-planned shortfall of $13 billion in fiscal 2012, havingchipped just $4 billion off of its initial estimate.6 If revenues fail to meet targets,deep and automatic mid-year cuts to health and education will be triggered.

The state’s net tax-supported debt was $2,542 per capita and 6.0% of personalincome, compared with the $1,066 and 2.8% national medians.7 AlthoughCalifornia’s debt levels ranked among the nation’s highest, they were moderategiven the state’s large budget. However, Californians’ debt ratios are likely toincrease in the next few years, with sizable outstanding tax-supported debt andunused voter authorizations for the future issuance of general fund-backedgeneral obligation (GO) bonds. The state’s recession-tarnished credit standingimproved slightly in mid-2011 as independent credit rating agency Standard & Poor’s in July affirmed California’s GO bond rating of A- (the nation’s lowest) while upgrading its outlook to stable from negative.8 The rating andnew outlook acknowledged the state’s economic depth and diversity, promi-nent higher-education institutions, innovative businesses and sectors, as well

4. Source: Edmund G. Brown, Jr., Governor, State of California, “2011-12 Governor’s Budget Summary,” 1/10/11.

5. Source: Moody’s Investors Service, “Special Comment: California Enacts Timely Budget from Strengthened Position,”7/5/11.

6. Source: California Department of Finance (www.dof.ca.gov).

7. Source: Moody’s Investors Service, “Special Comment: 2011 State Debt Medians Report,” 5/25/11.

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


as improved liquidity and budgeting flexibility that maintains adequate cash forpriority payments. These positives were counterbalanced by California’s largedebt, retirement benefit and budgetary liabilities, as well as potentially onerousgovernance rules that have contributed to delayed fiscal decision making overthe years.

Investment Strategy

We use a consistent, disciplined strategy in an effort to maximize tax-exemptincome for our shareholders by seeking to maintain exposure to higher couponsecurities while balancing risk and return within the Fund’s range of allowableinvestments. We generally employ a buy-and-hold approach and invest in secu-rities we believe should provide the most relative value in the market. As weinvest during different interest rate environments, the Fund’s portfolio remainsdiversified with a broad range of securities. This broad diversification mayhelp mitigate interest rate risk. We do not use leverage or exotic derivatives,nor do we use hedging techniques that could add volatility and contribute tounderperformance in adverse markets. We generally stay fully invested to helpmaximize income distribution.

Manager’s Discussion

The combination of our value-oriented philosophy of investing primarily for income and a positive-sloping municipal yield curve favored the use oflonger-term bonds. Consistent with our strategy, we sought to purchase bonds that ranged from 15 to 30 years in maturity with good call features.Furthermore, by focusing on relative value and attractive credit spreads, especially in California, we were able to find attractive investment oppor-tunities in this volatile market. We believe our conservative, buy-and-holdinvestment strategy can help us achieve high, current, tax-free income forshareholders.

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

The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2011, the endof the reporting period. The way we implement our main investment strategies and the resulting portfolio holdingsmay change depending on factors such as market and economic conditions. These opinions may not be relied uponas investment advice or an offer for a particular security. The information is not a complete analysis of every aspectof 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. Althoughhistorical performance is no guarantee of future results, these insights may help you understand our investmentmanagement philosophy.


Performance Summary as of 11/30/11Franklin California High Yield Municipal Fund

Price and Distribution Information

Class A (Symbol: FCAMX) Change 11/30/11 5/31/11

Net Asset Value (NAV) +$0.49 $9.56 $9.07

Distributions (6/1/11–11/30/11)

Dividend Income $0.2584

Class B (Symbol: FBCAX) Change 11/30/11 5/31/11




Class C (Symbol: FCAHX) Change 11/30/11 5/31/11




Advisor Class (Symbol: FVCAX) Change 11/30/11 5/31/11




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

Performance Summary (continued)


Performance

Cumulative total return excludes sales charges. Average annual total returns include maximum sales charges. Class A: 4.25%maximum initial sales charge; Class B: contingent deferred sales charge (CDSC) declining from 4% to 1% over six years,and eliminated thereafter; Class C: 1% CDSC in first year only; Advisor Class: no sales charges.

Class A 6-Month 1-Year 5-Year 10-Year

Cumulative Total Return1 +8.32% +8.53% +18.10% +60.29%

Average Annual Total Return2 +3.75% +3.96% +2.49% +4.38%

Avg. Ann. Total Return (12/31/11)3 +9.68% +3.04% +4.77%

Distribution Rate4 5.11%

Taxable Equivalent Distribution Rate5 8.69%

30-Day Standardized Yield6 4.93%

Taxable Equivalent Yield5 8.39%

Total Annual Operating Expenses7 0.62%

Class B 6-Month 1-Year 5-Year 10-Year









Class C 6-Month 1-Year 5-Year 10-Year









Advisor Class8 6-Month 1-Year 5-Year 10-Year









Performance data represent past performance, which does not guarantee future results. Investment return and principalvalue 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.



Endnotes

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. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. TheFund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. Since the Fundconcentrates its investments in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than ageographically diversified fund. In general, an investor is paid a higher yield to assume a greater degree of credit risk. The Fund’s prospectusalso includes a description of the main investment risks.

Class B: These shares have higher annual fees and expenses than Class A shares.

Class C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shareshave higher annual fees and expenses than Class A shares.

Advisor Class: Shares are available to certain eligible investors as described in the prospectus.

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. Six-month return has notbeen annualized.

3. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

4. Distribution rate is based on an annualization of the respective class’s current monthly dividend and the maximum offering price (NAV for ClassesB, C and Advisor) per share on 11/30/11.

5. Taxable equivalent distribution rate and yield assume the published rates as of 6/29/11 for the maximum combined federal and California statepersonal income tax rate of 41.21%, based on the federal income tax rate of 35.00%.

6. The 30-day standardized yield for the 30 days ended 11/30/11 reflects an estimated yield to maturity (assuming all portfolio securities are held tomaturity). It should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distributionrate (which reflects the Fund’s past dividends paid to shareholders) or the income reported in the Fund’s financial statements.

7. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly,causing total annual Fund operating expenses to become higher than the figures shown.

8. Effective 11/15/06, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotationsfor this class reflect the following methods of calculation: (a) For periods prior to 11/15/06, a restated figure is used based upon the Fund’s Class Aperformance, 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 periodsafter 11/15/06, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 11/15/06 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +19.55% and +3.61%.


Your Fund’s ExpensesFranklin California High Yield Municipal Fund

As a Fund shareholder, you can incur two types of costs:

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and otherFund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help you understandthese costs and compare them with those of other mutual funds. The table assumes a $1,000investment held for the six months indicated.

Actual Fund Expenses

The first line (Actual) for each share class listed in the table provides actual account values andexpenses. The “Ending Account Value” is derived from the Fund’s actual return, which includesthe effect of Fund expenses.

You can estimate the expenses you paid during the period by following these steps. Of course,your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Information in the second line (Hypothetical) for each class in the table can help you compareongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period.The hypothetical “Ending Account Value” is based on the actual expense ratio for each class andan assumed 5% annual rate of return before expenses, which does not represent the Fund’s actualreturn. The figure under the heading “Expenses Paid During Period” shows the hypotheticalexpenses your account would have incurred under this scenario. You can compare this figure withthe 5% hypothetical examples that appear in shareholder reports of other funds.

Your Fund’s Expenses (continued)


Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflectany transaction costs, such as sales charges. Therefore, the second line for each class is useful incomparing ongoing costs only, and will not help you compare total costs of owning different funds.In addition, if transaction costs were included, your total costs would have been higher. Please referto the Fund prospectus for additional information on operating expenses.

Beginning Account Ending Account Expenses Paid DuringClass A Value 6/1/11 Value 11/30/11 Period* 6/1/11–11/30/11

Actual $1,000 $1,083.20 $3.23

Hypothetical (5% return before expenses) $1,000 $1,021.90 $3.13

Class B

Actual $1,000 $1,078.90 $5.98


Class C

Actual $1,000 $1,078.80 $6.08


Advisor Class

Actual $1,000 $1,082.40 $2.71


*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.62%; B: 1.15%; C: 1.17%; and Advisor: 0.52%), multiplied by the average account value over the period, multiplied by 183/366 to reflect the one-half year period.

Credit Quality Breakdown*Franklin Tennessee Municipal Bond Fund11/30/11

% of TotalRatings Long-Term Investments**

AAA 3.0%

AA 70.2%

A 12.8%

BBB 11.7%

Below Investment Grade 0.6%

Not Rated 1.7%

*Standard & Poor’s (S&P) is used as the primary independent rating agency source. Moody’s is secondary, and Fitch, ifavailable, is used for securities not rated by Moody’s or S&P. The ratings are an indication of an issuer’s creditworthiness,with long-term ratings typically ranging from AAA (highest) to Below Investment Grade (lowest; includes ratings BB toD). This methodology differs from that used in Fund marketing materials.

**Does not include short-term investments and other net assets.


We are pleased to bring you Franklin Tennessee Municipal Bond Fund’s semi-annual report for the period ended November 30, 2011.

Performance Overview

The Fund’s Class A share price, as measured by net asset value, increased from $11.19 on May 31, 2011, to $11.45 on November 30, 2011. The Fund’sClass A shares paid dividends totaling 22.46 cents per share for the reportingperiod.2 The Performance Summary beginning on page 18 shows that at theend of this reporting period the Fund’s Class A shares’ distribution rate was


Your Fund’s Goal and Main Investments: Franklin Tennessee Municipal Bond 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

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

2. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicativeof future trends.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’sStatement of Investments (SOI). The SOI begins on page 40.

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.

Please visit franklintempleton.comor call (800) 342-5236 for most

recent month-end performance.


3.71%. An investor in the 2011 maximum combined effective federal andTennessee personal income tax bracket of 38.90% would need to earn a distri-bution rate of 6.07% from a taxable investment to match the Fund’s Class Atax-free distribution rate. Dividend distributions during the period under reviewwere affected by decreasing interest rates. Additionally, investor demand wasstrong for municipal bonds in an environment of limited tax-exempt supply.These factors resulted in reduced income for the portfolio and caused dividendsto decline.

State Update

During the six months under review, Tennessee’s economy continued toimprove as key revenues exceeded official estimates and the state’s economicdevelopment initiatives attracted private sector investment. The state made thelargest bond issuance in its history and intended to use the proceeds to fundongoing economic development efforts and to retire existing obligations.Indicative of high demand for Tennessee bonds, the offering was nearly fourtimes oversubscribed.

State officials estimated development grants to Volkswagen, chemical companyWacker Chemie, Hemlock Semiconductor and appliance maker Electroluxcould create nearly 4,650 permanent jobs and thousands more in relatedindustries.3 In the automotive industry, General Motors announced it expectedto add nearly 1,900 jobs over the next two years at the formerly idle SpringHill plant after it begins producing the Chevrolet Equinox in 2012. The state’sunemployment rate was 9.1% in November compared to 8.7% for the nation.4

The government; professional and business services; and mining, logging andconstruction sectors had the greatest six-month gains, while the informationsector and trade, transportation and utilities sector, one of the state’s largestareas of employment, lost jobs. Tennessee’s net tax-supported debt was 1.0%of personal income and $345 per capita, both very low compared with thenational medians of 2.8% and $1,066.5

Fiscal year 2011 revenues were up year-over-year as building consumer confi-dence drove sales tax collections higher. The General Assembly unanimouslyapproved the fiscal year 2012 budget and the governor signed it into law inJune. The state expected the rainy day fund to grow 9.5% from fiscal year 2011despite a drop in nonrecurring federal revenue.6 This reduction affected the gen-eral fund only slightly, as the 2012 fiscal year budget relied less on federal funds

3. Source: Tennessee Comptroller of the Treasury.

4. Source: Bureau of Labor Statistics.

5. Source: Moody’s Investors Service, “Special Comment: 2011 State Debt Medians Report,” 5/25/11.

6. Source: Moody’s Investors Service, “New Issue: Moody’s Assigns Aaa Rating to Tennessee’s $586 Million of GeneralObligation Bonds; Negative Outlook Tied to U.S. Rating,” 10/3/11.

Dividend Distributions*Franklin Tennessee Municipal Bond FundClass A

Month Dividend per Share

June 3.80 cents

July 3.80 cents

August 3.80 cents

September 3.70 cents

October 3.70 cents

November 3.70 cents

*Assumes shares were purchased and held for theentire accrual period, which differs from the calendarmonth. Since dividends accrue daily, your actual distri-butions will vary depending on the date you purchasedyour shares and any account activity. All Fund dis-tributions will vary depending upon current marketconditions, and past distributions are not indicative of future trends.

than it had in fiscal year 2011. Sales tax revenues, which constituted a substan-tial amount of overall collections in fiscal year 2011, rose in the first quarter offiscal year 2012 at the highest first quarter growth rate in five years.

Independent credit rating agency Standard & Poor’s affirmed its AA+ ratingand positive outlook on Tennessee’s general obligation bonds, citing the state’sadequate reserves, positive job announcements and long history of conservativefiscal policy.7

Investment Strategy

We use a consistent, disciplined strategy in an effort to maximize tax-exemptincome for our shareholders by seeking to maintain exposure to higher couponsecurities while balancing risk and return within the Fund’s range of allowableinvestments. We generally employ a buy-and-hold approach and invest in secu-rities we believe should provide the most relative value in the market. As weinvest during different interest rate environments, the Fund’s portfolio remainsdiversified with a broad range of securities. This broad diversification mayhelp mitigate interest rate risk. We do not use leverage or exotic derivatives,nor do we use hedging techniques that could add volatility and contribute tounderperformance in adverse markets. We generally stay fully invested to helpmaximize income distribution.

Manager’s Discussion

The combination of our value-oriented philosophy of investing primarily forincome and a positive-sloping municipal yield curve favored the use of longer-term bonds. Consistent with our strategy, we sought to purchase bonds thatranged from 15 to 30 years in maturity with good call features. 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 MunicipalBond Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2011, the endof the reporting period. The way we implement our main investment strategies and the resulting portfolio holdingsmay change depending on factors such as market and economic conditions. These opinions may not be relied uponas investment advice or an offer for a particular security. The information is not a complete analysis of every aspectof any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, butthe 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 investmentmanagement philosophy.

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

Portfolio BreakdownFranklin Tennessee Municipal Bond Fund11/30/11

% of TotalLong-Term Investments*

Utilities 33.1%**

Hospital & Health Care 15.2%

General Obligation 14.2%

Higher Education 13.2%

Refunded 6.7%

Tax-Supported 5.5%

Transportation 4.9%

Other Revenue 3.8%

Housing 3.4%

*Does not include short-term investments and othernet assets.

**The Fund may invest more than 25% in municipalsecurities that finance similar types of projects such asutilities. A change that affects one project may affectall similar projects, thereby increasing market risk.



Performance Summary as of 11/30/11Franklin Tennessee Municipal Bond Fund

Performance1

Cumulative total return excludes the sales charge. Average annual total returns include the maximum sales charge. Class A: 4.25% maximum initial sales charge.

Class A 6-Month 1-Year 5-Year 10-Year


Average Annual Total Return3 -0.11% +2.48% +3.33% +4.25%






Total Annual Operating Expenses8

Without Waiver 0.71%

With Waiver 0.70%

Performance data represent past performance, which does not guarantee future results. Investment return and principalvalue 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.

The investment manager and administrator have contractually agreed to waive or assume certain expenses so that commonexpenses (excluding Rule 12b-1 fees) do not exceed 0.60% (other than certain nonroutine expenses) until 9/30/12.

Price and Distribution Information

Class A (Symbol: FRTIX) Change 11/30/11 5/31/11




Your dividend income will vary depending on dividends or interest paid by securities in the Fund’sportfolio, adjusted for operating expenses. Capital gain distributions are net profits realized fromthe sale of portfolio securities. The performance table does not reflect any taxes that a shareholderwould pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale ofFund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions,if any, and any unrealized gains or losses.



Endnotes

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. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. TheFund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. Since the Fundconcentrates its investments in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than ageographically diversified fund. The Fund’s prospectus also includes a description of the main investment risks.

1. If the manager and administrator had not waived fees, the Fund’s distribution rate and total return would have been lower, and yield for the periodwould have been 3.01%.

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

3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has notbeen annualized.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

5. Distribution rate is based on an annualization of the current 3.70 cent per share monthly dividend and the maximum offering price of $11.96 pershare on 11/30/11.

6. Taxable equivalent distribution rate and yield assume the published rates as of 6/29/11 for the maximum combined effective federal andTennessee state personal income tax rate of 38.90%, based on the federal income tax rate of 35.00%.

7. The 30-day standardized yield for the 30 days ended 11/30/11 reflects an estimated yield to maturity (assuming all portfolio securities are held tomaturity). It should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distributionrate (which reflects the Fund’s past dividends paid to shareholders) or the income reported in the Fund’s financial statements.

8. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly,causing total annual Fund operating expenses to become higher than the figures shown.


Your Fund’s ExpensesFranklin Tennessee Municipal Bond Fund

As a Fund shareholder, you can incur two types of costs:

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and otherFund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help you understandthese costs and compare them with those of other mutual funds. The table assumes a $1,000investment held for the six months indicated.

Actual Fund Expenses

The first line (Actual) for each share class listed in the table provides actual account values andexpenses. The “Ending Account Value” is derived from the Fund’s actual return, which includesthe effect of Fund expenses.

You can estimate the expenses you paid during the period by following these steps. Of course,your account value and expenses will differ from those in this illustration:

1. Divide your account value by $1,000.If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Information in the second line (Hypothetical) for each class in the table can help you compareongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period.The hypothetical “Ending Account Value” is based on the actual expense ratio for each class andan assumed 5% annual rate of return before expenses, which does not represent the Fund’s actualreturn. The figure under the heading “Expenses Paid During Period” shows the hypotheticalexpenses your account would have incurred under this scenario. You can compare this figure withthe 5% hypothetical examples that appear in shareholder reports of other funds.

Your Fund’s Expenses (continued)


Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflectany transaction costs, such as sales charges. Therefore, the second line for each class is useful incomparing ongoing costs only, and will not help you compare total costs of owning different funds.In addition, if transaction costs were included, your total costs would have been higher. Please referto the Fund prospectus for additional information on operating expenses.

Beginning Account Ending Account Expenses Paid DuringClass A Value 6/1/11 Value 11/30/11 Period* 6/1/11–11/30/11

Actual $1,000 $1,043.60 $3.58


*Expenses are calculated using the most recent six-month annualized expense ratio, net of expense waivers, of 0.70%, multiplied by the averageaccount value over the period, multiplied by 183/366 to reflect the one-half year period.

Franklin Municipal Securities TrustFinancial Highlights

22 | The accompanying notes are an integral part of these financial statements. | Semiannual Report


Six Months EndedNovember 30, 2011 Year Ended May 31,

Class A (unaudited) 2011 2010 2009 2008 2007

Per share operating performance(for a share outstanding throughout

the period)

Net asset value, beginning of period . . . $9.07 $9.40 $8.42 $9.70 $10.44 $10.31

Income from investment operationsa:

Net investment incomeb . . . . . . . . . . 0.26 0.50 0.51 0.51 0.49 0.48

Net realized and unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . 0.49 (0.33) 0.98 (1.29) (0.76) 0.13

Total from investment operations . . . . . 0.75 0.17 1.49 (0.78) (0.27) 0.61

Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . . (0.26) (0.50) (0.51) (0.50) (0.47) (0.48)

Redemption feesc . . . . . . . . . . . . . . . — — — —d —d —

Net asset value, end of period . . . . . . . $9.56 $9.07 $9.40 $8.42 $ 9.70 $10.44

Total returne . . . . . . . . . . . . . . . . . . . 8.32% 1.93% 18.11% (7.91)% (2.58)% 6.03%

Ratios to average net assetsf

Expenses . . . . . . . . . . . . . . . . . . . . . 0.62% 0.62% 0.63% 0.63% 0.62% 0.62%

Net investment income . . . . . . . . . . . 5.43% 5.47% 5.70% 5.91% 4.87% 4.58%

Supplemental data

Net assets, end of period (000’s) . . . . $1,073,655 $979,093 $1,090,015 $945,110 $1,204,191 $1,329,255

Portfolio turnover rate . . . . . . . . . . . . 3.89% 17.86% 13.84% 9.85% 26.43% 3.34%

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 ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.bBased on average daily shares outstanding.cEffective September 1, 2008, the redemption fee was eliminated.dAmount rounds to less than $0.01 per share.eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.fRatios are annualized for periods less than one year.

Franklin Municipal Securities TrustFinancial Highlights (continued)

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 23



Class B (unaudited) 2011 2010 2009 2008 2007

Per share operating performance(for a share outstanding throughout the period)

Net asset value, beginning of period . . . . . . . . . . $9.13 $9.46 $8.46 $9.75 $10.49 $10.36


Net investment incomeb . . . . . . . . . . . . . . . . . 0.23 0.46 0.46 0.46 0.43 0.42

Net realized and unrealized gains (losses) . . . . . 0.48 (0.33) 1.00 (1.30) (0.75) 0.14

Total from investment operations . . . . . . . . . . . . 0.71 0.13 1.46 (0.84) (0.32) 0.56

Less distributions from net investment income . . . (0.23) (0.46) (0.46) (0.45) (0.42) (0.43)

Redemption feesc . . . . . . . . . . . . . . . . . . . . . . . — — — —d —d —

Net asset value, end of period . . . . . . . . . . . . . . $9.61 $9.13 $9.46 $8.46 $ 9.75 $10.49

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.89% 1.38% 17.64% (8.47)% (3.10)% 5.43%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15% 1.16% 1.17% 1.17% 1.17% 1.17%

Net investment income . . . . . . . . . . . . . . . . . . . 4.90% 4.93% 5.16% 5.37% 4.32% 4.03%

Supplemental data

Net assets, end of period (000’s) . . . . . . . . . . . . $2,689 $4,156 $7,591 $12,743 $22,308 $27,246

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . 3.89% 17.86% 13.84% 9.85% 26.43% 3.34%






Class C (unaudited) 2011 2010 2009 2008 2007





Net realized and unrealized gains (losses) . . . . . 0.48 (0.33) 0.98 (1.30) (0.74) 0.14



Redemption feesc . . . . . . . . . . . . . . . . . . . . . . . — — — —d —d —


Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.88% 1.46% 17.51% (8.47)% (3.01)% 5.43%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17% 1.17% 1.18% 1.17% 1.17% 1.17%


Supplemental data








Advisor Class (unaudited) 2011 2010 2009 2008 2007a



Income from investment operationsb:

Net investment incomec . . . . . . . . . . . . . . . . . 0.26 0.52 0.52 0.51 0.50 0.26

Net realized and unrealized gains (losses) . . . . . 0.48 (0.34) 1.00 (1.29) (0.76) (0.08)



Redemption feesd . . . . . . . . . . . . . . . . . . . . . . . — — — —e —e —


Total returnf . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.24% 2.03% 18.47% (7.93)% (2.48)% 1.76%

Ratios to average net assetsg

Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.52% 0.52% 0.53% 0.53% 0.52% 0.52%


Supplemental data



aFor the period November 15, 2006 (effective date) to May 31, 2007.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 ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.cBased on average daily shares outstanding.dEffective September 1, 2008, the redemption fee was eliminated.eAmount rounds to less than $0.01 per share.fTotal return is not annualized for periods less than one year.gRatios are annualized for periods less than one year.

Franklin Municipal Securities TrustStatement of Investments, November 30, 2011 (unaudited)

Franklin California High Yield Municipal Fund Principal Amount Value

Municipal Bonds 94.3%California 92.4%


ABAG Finance Authority for Nonprofit Corps. Revenue,Elder Care Alliance, California Mortgage Insured, 5.60%, 8/15/34 . . . . . . . . . . . . . . . . . $ 4,260,000 $ 4,311,590Episcopal Senior Communities, Refunding, 6.125%, 7/01/41 . . . . . . . . . . . . . . . . . . . . 7,500,000 7,513,050Windemere Ranch Financing Program, Sub Series B, 5.00%, 9/02/27 . . . . . . . . . . . . . . 2,205,000 2,050,143Windemere Ranch Financing Program, Sub Series B, 5.00%, 9/02/34 . . . . . . . . . . . . . . 5,260,000 4,581,986

Alameda CFD No. 2 Special Tax, Refunding, 6.125%, 9/01/16 . . . . . . . . . . . . . . . . . . . . . . 770,000 774,050Aliso Viejo CFD No. 2005-01 Special Tax, Glenwood at Aliso Viejo, 5.875%, 9/01/27 . . . . . . 5,115,000 4,963,852American Canyon Financing Authority Infrastructure Revenue Special Assessment, American Canyon Road East,

5.00%, 9/02/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,020,000 1,825,9185.10%, 9/02/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,695,000 1,487,532

Artesia RDA Tax Allocation,Artesia Redevelopment Project Area, 5.50%, 6/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . 6,355,000 5,561,642Artesia Redevelopment Project Area, 5.70%, 6/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,050,000 2,750,246Housing Set-Aside, Artesia Redevelopment Project Area, 7.70%, 6/01/46 . . . . . . . . . . . . 3,335,000 3,614,473

Azusa Special Tax,CFD No. 2005-1, Improvement Area 1, 5.00%, 9/01/27 . . . . . . . . . . . . . . . . . . . . . . . . 2,570,000 2,182,110Escrow, CFD No. 2005-1, Improvement Area 1, 5.00%, 9/01/37 . . . . . . . . . . . . . . . . . . 9,040,000 7,019,831

Baldwin Park USD, GO, Capital Appreciation, Election of 2006, AGMC Insured, zero cpn., 8/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,735,000 1,746,996

Beaumont Financing Authority Local Agency Revenue,Series B, 5.35%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,000 884,482Series B, 5.40%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,390,000 1,286,681Series C, 5.45%, 9/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,435,000 5,893,173Series C, 5.50%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855,000 804,187Series C, 5.50%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,995,000 3,501,498Series C, 5.50%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035,000 941,881

Beaumont USD, GO, Election of 2008, Series C, AGMC Insured, 6.00%, 8/01/41 . . . . . . . . 1,925,000 2,060,212Brentwood Infrastructure Financing Authority Infrastructure Revenue, CIFP, Series 1,

5.00%, 9/02/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,195,000 2,727,1565.125%, 9/02/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,400,000 3,629,2525.15%, 9/02/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,450,000 2,654,051

Buena Park Community RDA Tax Allocation, Consolidated Redevelopment Project, 6.25%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,056,850

California City RDA Tax Allocation Revenue, Refunding, Series A-1, 7.75%, 9/01/34 . . . . . . 8,965,000 9,050,974California County Tobacco Securitization Agency Tobacco Revenue,

Asset-Backed, Gold Country Funding Corp., Refunding, 5.25%, 6/01/46 . . . . . . . . . . . . . 4,900,000 2,900,359Tobacco Settlement Asset-Backed, Los Angeles County Securitization Corp., 5.70%, 6/01/46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,107,050

California Educational Facilities Authority Revenue,College and University Financing Program, 5.00%, 2/01/30 . . . . . . . . . . . . . . . . . . . . . . 4,845,000 4,140,973College and University Financing Program, 5.00%, 2/01/37 . . . . . . . . . . . . . . . . . . . . . . 470,000 377,777College and University Financing Program, Refunding, 5.00%, 2/01/26 . . . . . . . . . . . . . 1,000,000 900,130San Francisco University, 6.125%, 10/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,161,340University of Redlands, Series A, 5.125%, 8/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745,000 701,157

California Health Facilities Financing Authority Revenue,Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,502,075Providence Health and Services, Refunding, Series C, 6.50%, 10/01/33 . . . . . . . . . . . . . 4,000,000 4,540,520

Franklin Municipal Securities TrustStatement of Investments, November 30, 2011 (unaudited) (continued)



Municipal Bonds (continued)California (continued)California Municipal Finance Authority COP,

5.25%, 2/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000,000 $ 4,977,4505.375%, 2/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 6,678,8405.50%, 2/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,600,000 9,540,742Community Hospitals of Central California, 5.25%, 2/01/46 . . . . . . . . . . . . . . . . . . . . . . 19,450,000 16,548,449

California Municipal Finance Authority Revenue,Biola University, Refunding, 5.625%, 10/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 6,504,660Biola University, Refunding, 5.80%, 10/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500,000 7,875,075Biola University, Refunding, 5.875%, 10/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 6,205,560Harbor Regional Center Project, 8.50%, 11/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,493,500Kern Regional Center Project, Series A, 7.50%, 5/01/39 . . . . . . . . . . . . . . . . . . . . . . . . 9,000,000 9,652,590Loma Linda University, 5.00%, 4/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,995,000 1,909,275Southwest Community Health Center, California Mortgage Insured, 6.125%, 2/01/40 . . . . 4,000,000 4,172,840

California State GO,FGIC Insured, 6.00%, 8/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 30,232Various Purpose, 6.00%, 11/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000,000 14,504,230

California State Public Works Board Lease Revenue,California State Prison, Los Angeles, Various Buildings, Series C, 5.75%, 10/01/31 . . . . . 4,640,000 4,837,571Department of Mental Health, Coalinga, Series A, 5.125%, 6/01/29 . . . . . . . . . . . . . . . . 4,500,000 4,558,095Various Capital Projects, Series A, 5.00%, 10/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,770,000 1,761,911Various Capital Projects, Series A, 5.125%, 10/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,605,000 3,523,563

California Statewide CDA Assisted Living Facilities Revenue, Hollenbeck Palms/Magnolia, Series A, Radian Insured, 4.50%, 2/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,825,000 1,609,668

California Statewide CDA Revenue,American Baptist Home West, Refunding, 6.25%, 10/01/39 . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,020,900Bentley School, Refunding, Series A, 7.00%, 7/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . 8,675,000 7,289,255California Baptist University, Refunding, 7.25%, 11/01/31 . . . . . . . . . . . . . . . . . . . . . . 1,250,000 1,348,850California Baptist University, Refunding, 7.50%, 11/01/41 . . . . . . . . . . . . . . . . . . . . . . 2,750,000 2,964,968California Baptist University, Refunding, Series A, 5.40%, 11/01/27 . . . . . . . . . . . . . . . 7,440,000 7,110,780California Baptist University, Refunding, Series A, 5.50%, 11/01/38 . . . . . . . . . . . . . . . 4,500,000 3,993,570Capital Appreciation Bonds, Bentley School, Refunding, zero cpn., 7/01/50 . . . . . . . . . . 25,810,000 738,682Catholic Healthcare West, Series C, 5.625%, 7/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,147,650CHF-Irvine LLC, UCI East Campus Apartments, Phase II, 5.75%, 5/15/32 . . . . . . . . . . . . 10,000,000 10,074,500Drew School, Refunding, 5.30%, 10/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,275,000 4,095,022Elder Care Alliance, Series A, Pre-Refunded, 8.00%, 11/15/22 . . . . . . . . . . . . . . . . . . . 2,992,000 3,261,460Elder Care Alliance, Series A, Pre-Refunded, 8.25%, 11/15/32 . . . . . . . . . . . . . . . . . . . 4,000,000 4,375,400Henry Mayo Newhall Memorial Hospital, Series B, California Mortgage Insured, 5.20%, 10/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 3,519,705

Kaiser Permanente, Series B, 5.25%, 3/01/45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,825,000 37,703,582Lancer Educational Student Housing Project, 5.625%, 6/01/33 . . . . . . . . . . . . . . . . . . . 3,000,000 2,688,720Methodist Hospital of Southern California Project, FHA Insured, 6.75%, 2/01/38 . . . . . . 10,000,000 11,533,700Monterey Institute International, 5.50%, 7/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,285,000 8,375,721Thomas Jefferson School of Law, Refunding, Series A, 7.25%, 10/01/38 . . . . . . . . . . . . 10,000,000 10,148,600ValleyCare Health System, Refunding, Series A, 5.00%, 7/15/22 . . . . . . . . . . . . . . . . . . 1,000,000 909,090ValleyCare Health System, Refunding, Series A, 5.125%, 7/15/31 . . . . . . . . . . . . . . . . . 5,850,000 4,742,536

California Statewide CDA Special Tax Revenue, CFD 2007-1, Orinda, 6.00%, 9/01/29 . . . . . 5,000,000 4,861,350Capistrano USD, CFD Special Tax, No. 05-1, Rancho Madrina, 5.25%, 9/01/34 . . . . . . . . . . 1,120,000 1,025,472




Municipal Bonds (continued)California (continued)Carson RDA, Tax Allocation Housing, Series A, 5.25%, 10/01/36 . . . . . . . . . . . . . . . . . . . . $ 2,465,000 $ 2,398,149Cathedral City 1915 Act Special Assessment, Limited Obligation, Cove ID No. 04-02, 5.05%, 9/02/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,305,000 1,134,189

Ceres USD, GO, Capital Appreciation, Election of 2008, Series A, zero cpn.,8/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,450,000 902,0338/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,730,000 872,410

Chatom USD, GO, Election of 2006, Capital Appreciation, Series C, XLCA Insured, zero cpn., 8/01/47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,450,000 996,408

Chino CFD Special Tax,No. 03-1, 5.875%, 9/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 1,217,713No. 03-3, Improvement Area 1, 5.70%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,215,000 1,179,279No. 03-3, Improvement Area 1, 5.75%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,420,000 1,327,757

Chula Vista CFD Special Tax, No. 01-1, Improvement Area, San Miguel Ranch, Series B, 5.45%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,170,000 1,844,196

Chula Vista Special Tax, CFD No. 12-I, McMillin Otay Ranch, 5.25%,9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010,000 1,739,8369/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,510,000 2,917,161

Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, NATL RE, FGIC Insured, zero cpn.,

8/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500,000 3,306,7508/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 2,058,500

Compton Community College District GO, Election of 2002, Series B,6.625%, 8/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,085,000 3,410,6836.75%, 8/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 4,334,600

Compton CRDA Tax Allocation, Redevelopment Project, second lien, Series B,5.70%, 8/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,255,000 2,194,2506.00%, 8/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,460,000 3,369,832

Compton USD, GO, Election of 2002, Series C, AMBAC Insured, 5.00%, 6/01/31 . . . . . . . . 5,000,000 5,064,100Corona CFD No. 2001-2 Special Tax, Improvement Areas Nos. 1 and 2, Series A, 6.25%, 9/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,890,000 1,891,985

Corona CFD No. 2003-2 Special Tax, Highlands Collection,5.15%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,165,000 1,894,3755.20%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 709,304

Corona-Norco USD, PFA Special Tax Revenue, Series B, 5.00%,9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760,000 1,636,4489/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 869,300

Corona-Norco USD Special Tax,CFD No. 04-1, 5.20%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,719,180Series A, 5.35%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,000 873,104Series A, 5.40%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,530,000 2,097,977

Cotati South Sonoma Business Park AD Special Assessment, Improvement, 6.50%, 9/02/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,190,000 5,203,390

Cudahy Community Development Commission Tax Allocation, City-Wide Redevelopment, Redevelopment Project, Series B, 7.75%, 10/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,795,000 4,445,349

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,065,000 4,469,761




Municipal Bonds (continued)California (continued)Del Mar Race Track Authority Revenue, 5.00%, 8/15/25 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,030,000 $ 1,982,376Del Paso Manor Water District Revenue COP, Phase I Improvement Project, 5.50%, 7/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,050,000 2,946,239

Duarte RDA Tax Allocation, Capital Appreciation, Merged Redevelopment Project, ETM, zero cpn., 12/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,795,000 14,430,537

Eastern California Municipal Water District CFD No. 2003-15, Special Tax, Morgan Valley, Series A, 5.20%, 9/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,758,180

El Dorado County Special Tax,CFD No. 1992-1, 6.125%, 9/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,580,000 3,581,539CFD No. 2001-1, 5.35%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 1,560,166CFD No. 2005-1, 5.00%, 9/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 926,960CFD No. 2005-1, 5.15%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,075,000 1,857,561CFD No. 2005-1, 5.25%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,705,000 5,361,854

El Monte Water Authority Revenue, Refunding, AMBAC Insured, 5.00%, 9/01/31 . . . . . . . . . 410,000 376,671El Rancho USD, GO, Capital Appreciation, Election of 2003, NATL RE, FGIC Insured, zero cpn., 8/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400,000 867,144

Escondido Revenue COP, Series A, NATL RE, FGIC Insured, 6.00%, 9/01/31 . . . . . . . . . . . . 735,000 735,588Escondido Special Tax, CFD No. 01, Eureka, 5.15%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . 1,400,000 1,152,508Fairfield CFD Special Tax, No. 3, North Cordelia General Improvements, 6.00%,

9/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 1,224,4929/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,810,000 5,854,098

Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, zero cpn.,

1/15/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,720,000 15,445,7951/15/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 1,197,7601/15/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,780,000 23,810,812

Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,Asset-Backed, Senior Series A-1, Refunding, 5.00%, 6/01/33 . . . . . . . . . . . . . . . . . . . . 24,500,000 16,731,785Asset-Backed, Series A-2, Pre-Refunded, 7.90%, 6/01/42 . . . . . . . . . . . . . . . . . . . . . . . 750,000 831,510Asset-Backed, Series A-3, Pre-Refunded, 7.875%, 6/01/42 . . . . . . . . . . . . . . . . . . . . . . 6,400,000 7,093,184Capital Appreciation, Asset-Backed, Refunding, Series C, second sub., zero cpn., 6/01/47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000,000 437,500

Enhanced, Asset-Backed, Refunding, Series A, 5.00%, 6/01/45 . . . . . . . . . . . . . . . . . . . 4,890,000 4,408,482Goleta RDA Tax Allocation, Goleta Old Town Redevelopment Project, 8.00%, 6/01/44 . . . . . . 5,000,000 5,116,950Hanford Joint UHSD, GO, Capital Appreciation, Election of 2004, Series B, AGMC Insured, zero cpn.,

8/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,635,000 1,080,6138/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,705,000 1,016,9858/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,120,000 956,417

Hartnell Community College District GO, Capital Appreciation, Election of 2002, Series D, zero cpn.,

8/01/44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000,000 2,851,8008/01/49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 821,000

Huntington Beach CFD Special Tax Revenue, Grand Coast Resort, 6.45%, 9/01/31 . . . . . . . 5,000,000 5,024,600Imperial Community College District GO, Capital Appreciation, Election of 2010, Series A, AGMC Insured, zero cpn. to 8/01/15, 6.75% thereafter, 8/01/40 . . . . . . . . . . . . . . . . . . . 3,500,000 3,140,130

a Imperial County Special Tax, CFD No. 98-1,6.45%, 9/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,370,000 1,360,1366.50%, 9/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,705,000 5,419,008




Municipal Bonds (continued)California (continued)Independent Cities Finance Authority Mobile Home Park Revenue, Lamplighter Salinas, Series A, 6.25%,

7/15/45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,465,000 $ 2,371,2817/15/50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,902,400

Indio 1915 Act, GO,AD No. 2001-1, 6.50%, 9/02/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,690,000 3,722,066AD No. 1999-1, 7.125%, 9/02/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,502,550

Indio CFD Special Tax,5.00%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 3,663,9605.10%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,275,000 1,101,677No. 04-3, Terra Lago, Improvement Area 1, 5.15%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . 1,275,000 1,077,554

Irvine 1915 Act Special Assessment, Limited Obligation,AD No. 00-18, Group Five, Refunding, 5.00%, 9/02/29 . . . . . . . . . . . . . . . . . . . . . . . . 1,885,000 1,567,057AD No. 03-19, Group Five, Refunding, 5.00%, 9/02/25 . . . . . . . . . . . . . . . . . . . . . . . . 1,410,000 1,237,064AD No. 03-19, Group Four, 5.00%, 9/02/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,410,000 1,271,453AD No. 04-20, Group One, 5.00%, 9/02/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,740,000 2,702,298AD No. 04-20, Group One, 5.00%, 9/02/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,975,000 10,410,995

Irvine Special Tax, CFD No. 2005-2, 5.25%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,843,940Irvine USD Special Tax, CFD, 6.70%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,304,500Jurupa Community Services District Special Tax,

CFD No. 7, Series A, 5.10%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,695,000 2,432,857CFD No. 7, Series A, 5.15%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,690,000 3,211,370CFD No. 11, Series A, 5.05%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,495,000 2,301,413CFD No. 11, Series A, 5.10%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065,000 1,831,180CFD No. 12, Series A, 5.10%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,794,860CFD No. 12, Series A, 5.15%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,631,090CFD No. 17, Series A, 5.20%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,825,000 2,515,352CFD No. 18, Eastvale, Series A, 5.00%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 1,222,214CFD No. 19, Eastvale, Series A, 5.00%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,288,830CFD No. 30, Series A, 5.60%, 9/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 910,110

Lafayette RDA Tax Allocation, 5.75%, 8/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 984,480Lake Elsinore 1915 Act Special Assessment, AD No. 93-1, Limited Obligation, Refunding, 7.00%, 9/02/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,680,000 7,746,662

Lake Elsinore Special Tax,CFD No. 2003-2, Canyon Hills, Improvement Area A, Series A, 5.85%, 9/01/24 . . . . . . . 1,035,000 1,037,991CFD No. 2003-2, Canyon Hills, Improvement Area A, Series A, 5.95%, 9/01/34 . . . . . . . 2,200,000 2,109,910CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.10%, 9/01/22 . . . . . . . . . 750,000 723,495CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.15%, 9/01/25 . . . . . . . . . 635,000 601,402CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.25%, 9/01/30 . . . . . . . . . 1,195,000 1,081,140CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.25%, 9/01/35 . . . . . . . . . 1,225,000 1,064,831CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 2, Series A, 5.20%, 9/01/26 . . . 915,000 856,705CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 2, Series A, 5.25%, 9/01/37 . . . 2,800,000 2,472,876CFD No. 2005-2, Aberhill Ranch, Improvement Area A, Series A, 5.45%, 9/01/36 . . . . . . 5,695,000 5,238,432CFD No. 2006-2, Viscaya, Series A, 5.40%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,020,000 1,845,209

Lancaster Financing Authority Tax Allocation Revenue, Redevelopment Project Nos. 5 and 6, Refunding, 5.40%, 2/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 455,755

Lancaster RDA Tax Allocation, Combined Redevelopment Project Areas, 6.875%,8/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,061,4408/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,034,800




Municipal Bonds (continued)California (continued)Las Virgenes USD, GO, zero cpn. to 8/01/26, 6.75% thereafter, 8/01/33 . . . . . . . . . . . . . . . $ 8,050,000 $ 3,384,622Lee Lake Water District CFD No. 1 Special Tax, Sycamore Creek,

6.50%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,032,5905.25%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750,000 1,626,3635.30%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300,000 2,933,073

Lee Lake Water District CFD No. 3 Special Tax, The Retreat, 5.875%, 9/01/27 . . . . . . . . . . 3,000,000 2,816,580Lemon 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 2,338,895

Lincoln CFD No. 2003-1 Special Tax, Pre-Refunded,5.90%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780,000 1,977,8295.95%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,450,000 4,948,4006.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,520,000 3,917,302

Lincoln PFA Special Tax Revenue, Sub Series B, 5.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . 3,410,000 2,970,485Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A, 5.00%, 11/15/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,630,000 4,065,186

Los Angeles County Schools Regionalized Business Services Corp. COP, Pooled Financing Program, Series C, 5.00%, 6/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000 2,198,680

aLos Angeles MFR, Refunding, Series J-2C, 8.50%, 1/01/24 . . . . . . . . . . . . . . . . . . . . . . . . 600,000 556,560Lynwood PFA Tax Allocation, Alameda Project Area, 6.30%, 9/01/24 . . . . . . . . . . . . . . . . . . 915,000 915,723M-S-R Energy Authority Gas Revenue, Series B, 6.50%, 11/01/39 . . . . . . . . . . . . . . . . . . . 32,300,000 35,789,369Mendocino-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 3,064,765zero cpn. to 8/01/26, 6.85% thereafter, 8/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500,000 3,184,425

Menifee USD Special Tax, CFD No. 2002-2,6.05%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990,000 990,6636.10%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,675,000 3,625,681

Merced CFD No. 2005-1 Special Tax, Improvement Area No. 1, 5.30%, 9/01/36 . . . . . . . . . 2,400,000 1,424,496Merced RDA Tax Allocation, Merced Gateways Redevelopment Project, Series A, 6.50%, 9/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,250,000 6,321,062

bMerced UHSD, GO, Capital Appreciation Bonds, Election of 2008, Series C, zero cpn., 8/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 1,289,500

Moorpark CFD No. 2004-1 Special Tax, Moorpark Highlands,5.25%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,260,000 1,176,4495.30%, 9/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,820,000 2,558,445

Moreland School District GO, Election of 2002, Series D,FGIC Insured, zero cpn., 8/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,405,000 1,359,868FGIC Insured, zero cpn., 8/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,700,000 1,485,306NATL RE, FGIC Insured, zero cpn., 8/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,400,000 1,180,820NATL RE, FGIC Insured, zero cpn., 8/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 660,260NATL RE, FGIC Insured, zero cpn., 8/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,405,000 1,357,665

Moreno Valley USD Special Tax,CFD No. 2004-6, 5.10%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,843,080CFD No. 2004-6, 5.20%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 4,359,750CFD No. 2005-2, 5.00%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815,000 690,191

Murrieta 1915 Act Special Tax, CFD No. 2000-1, 6.375%, 9/01/30 . . . . . . . . . . . . . . . . . . 4,065,000 4,084,024




Municipal Bonds (continued)California (continued)Murrieta CFD No. 2000-2 Special Tax, The Oaks,

Improvement Area A, 5.90%, 9/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000,000 $ 1,953,740Improvement Area A, 6.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,570,000 3,339,021Improvement Area B, 6.00%, 9/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,285,000 1,288,392Improvement Area B, 6.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,690,000 3,582,732

Murrieta CFD No. 2001-1 Special Tax, Bluestone, Improvement Area A, 6.20%, 9/01/25 . . . 2,105,000 2,128,892Murrieta CFD No. 2003-2 Special Tax, Blackmore Ranch, 6.10%, 9/01/34 . . . . . . . . . . . . . 2,000,000 1,982,780Murrieta CFD No. 2004-1 Special Tax, Bremerton, 5.625%, 9/01/34 . . . . . . . . . . . . . . . . . 700,000 643,223Norco Special Tax, CFD No. 02-1, 6.50%, 3/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145,000 1,160,824North Natomas CFD Special Tax, No. 4, Series B, 6.375%, 9/01/31 . . . . . . . . . . . . . . . . . . 4,220,000 4,224,262Oak Park USD, GO, Capital Appreciation, Series A, zero cpn. to 8/01/21, 7.10% thereafter, 8/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,600,000 3,838,890

Oceanside CFD No. 2001-1 Special Tax, Morro Hills Development, 5.50%, 9/01/34 . . . . . . . 2,935,000 2,630,142Orange County 1915 Act Special Assessment, Limited Obligation, AD No. 01-1-GP1, 5.10%, 9/02/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,745,000 1,648,502

Orchard School District GO, Election of 2001, Series B, AGMC Insured, 6.00%, 8/01/36 . . . 3,000,000 3,241,290Oro Grande Elementary School District COP, 5.875%, 9/15/37 . . . . . . . . . . . . . . . . . . . . . . 14,000,000 14,060,480Oxnard Financing Authority Lease Revenue, Refunding, 5.75%, 6/01/36 . . . . . . . . . . . . . . . 5,870,000 5,972,960Oxnard Harbor District Revenue,

Series A, 5.75%, 8/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,110,000 1,133,243Series B, 6.00%, 8/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 6,128,460

Oxnard Special Tax, CFD No. 3, Seabridge, 5.00%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . 3,995,000 3,639,525Palomar Pomerado Health Care District COP,

6.00%, 11/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 10,130,0006.75%, 11/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 10,332,600

Paso Robles Joint USD, GO, Capital Appreciation, Election of 2006, Series A, zero cpn., 9/01/45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000,000 1,571,400

Perris CFD No. 05-2 Special Tax, Harmony Grove, Series A,5.00%, 9/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,130,000 1,066,5625.20%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,505,000 1,391,1025.25%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,585,000 3,161,5405.30%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200,000 3,558,240

Perris CFD No. 2001-1 Special Tax,Improvement Area No. 4, May Farms, Series A, 5.00%, 9/01/25 . . . . . . . . . . . . . . . . . . 1,415,000 1,214,693Improvement Area No. 4, May Farms, Series A, 5.10%, 9/01/30 . . . . . . . . . . . . . . . . . . 865,000 724,913Improvement Area No. 4, May Farms, Series A, 5.15%, 9/01/35 . . . . . . . . . . . . . . . . . . 1,075,000 892,626Improvement Area No. 5, May Ranch, Series A, 5.00%, 9/01/26 . . . . . . . . . . . . . . . . . . 565,000 486,793Improvement Area No. 5, May Ranch, Series A, 5.00%, 9/01/37 . . . . . . . . . . . . . . . . . . 1,540,000 1,225,501

Perris CFD No. 2002-1 Special Tax, Series A,6.375%, 9/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,415,000 1,435,6736.50%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,970,000 1,989,8586.50%, 9/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,035,000 2,053,498

Perris CFD No. 2004-3 Special Tax, Improvement Area No. 2, Series A, 5.30%, 9/01/35 . . . 1,370,000 1,254,167Perris PFA Local Agency Revenue, Series A, 6.25%, 9/01/33 . . . . . . . . . . . . . . . . . . . . . . . 2,955,000 2,955,621Perris PFAR Tax Allocation,

5.30%, 10/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,826,9405.35%, 10/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,985,000 3,304,721Housing Loan, Series A, 6.125%, 10/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,135,000 3,054,023




Municipal Bonds (continued)California (continued)Pico Rivera Water Authority Revenue, Refunding, Series A, 6.25%, 12/01/32 . . . . . . . . . . . $ 7,250,000 $ 7,183,082Porterville PFA Sewer Revenue, 5.625%, 10/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,492,250Poway USD Special Tax,

CFD No. 6, 4S Ranch, 5.125%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 5,459,340CFD No. 6, Improvement Area B, 5.125%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,035,000 4,572,586CFD No. 14, Area A, 5.125%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,770,000 1,659,198CFD No. 14, Area A, 5.25%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,225,000 4,529,030CFD No. 14, Del Sur, 5.125%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000 2,047,804

Rancho Cordova CFD No. 2003-1 Special Tax, Sunridge Anatolia,5.25%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,235,000 2,117,4395.375%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650,000 1,529,4845.375%, 9/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,130,000 6,229,1245.50%, 9/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,635,000 2,383,384

Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center, Series A, 5.00%, 7/01/47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,505,000 3,880,742

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 1,528,918

Redwood City Special Tax, One Marina, 7.75%, 9/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,090,560Richland School District GO, Capital Appreciation, Election of 2008, Refunding, Series C, AGMC Insured, zero cpn., 8/01/49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000,000 1,224,340

Rio Elementary School District Special Tax, CFD No. 1, 5.20%, 9/01/35 . . . . . . . . . . . . . . . 5,000,000 4,223,850Rio 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 6,502,730

Riverbank USD, GO, Election of 2005, Series B, Assured Guaranty, zero cpn.,8/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,690,000 1,157,8388/01/43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,750,000 1,073,188

Riverside County RDA Tax Allocation,Desert Communities Redevelopment Project Area, second lien, Series D, 7.00%, 12/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,000 1,452,645

Desert Communities Redevelopment Project Area, second lien, Series D, 7.25%, 12/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,505,000 2,576,593

Housing, Series A, 6.00%, 10/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,071,460Housing, Series A, 7.125%, 10/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750,000 1,882,213Jurupa Valley Redevelopment Project Area, Series B, 6.75%, 10/01/30 . . . . . . . . . . . . . . 1,200,000 1,231,896

Riverside County Special Tax, CFD No. 87-5, senior lien, Refunding, Series A, 7.00%, 9/01/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,225,000 2,237,126

Riverside USD Special Tax,CFD No. 13, Improvement Area 1, 5.375%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,320,000 2,057,144CFD No. 14, Series A, 5.45%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,060,000 1,914,914CFD No. 15, Improvement Area 1, 5.45%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,970,000 2,975,702CFD No. 15, Improvement Area 1, 5.55%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,390,000 2,378,767CFD No. 15, Improvement Area 1, 5.60%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,939,800CFD No. 15, Series A, 5.15%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,730,000 1,652,721CFD No. 15, Series A, 5.25%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,230,000 1,139,952CFD No. 15, Series A, 5.25%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,351,440CFD No. 17, Aldea, 5.125%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,000 1,234,193CFD No. 18, 5.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125,000 1,008,090CFD No. 22, 5.25%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,535,000 1,314,190




Municipal Bonds (continued)California (continued)Road 17 Levee Area PFA Assessment Revenue, Road 17 Levee Improvement Project, 6.75%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,630,000 $ 2,712,635

Romoland School District Special Tax, CFD No. 1,Improvement Area 1, 5.45%, 9/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,215,000 2,968,602Improvement Area 2, 5.375%, 9/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,060,000 2,615,443

Roseville Special Tax, CFD No. 1,Fiddyment Ranch, 5.00%, 9/01/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495,000 1,490,470Fiddyment Ranch, 5.00%, 9/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,000 960,841Fiddyment Ranch, 5.125%, 9/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,000 951,766Fiddyment Ranch, 5.00%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,010,000 925,059Fiddyment Ranch, 5.00%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,000 936,105Fiddyment Ranch, 5.125%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,945,000 4,411,138Fiddyment Ranch, 5.25%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,880,000 6,761,276Longmeadow, 5.00%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,370,000 1,952,833Stone Point, 6.375%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750,000 1,767,990Stone Point, 6.375%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,504,200Westpark, 5.15%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,500,000 4,960,505Westpark, 5.20%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500,000 3,908,475

Roseville Westpark CFD No. 1 Special Tax, Public Facilities,5.20%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 928,8305.25%, 9/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000 1,392,688

Rowland USD, GO, Capital Appreciation, Election of 2006, Series B, zero cpn.,8/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 1,213,1008/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000,000 2,662,3508/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,750,000 1,563,050

Sacramento County Airport System Revenue, senior bond, Series B, AGMC Insured, 5.25%, 7/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000 7,970,720

Sacramento Special Tax, North Natomas CFD No. 97-01, Refunding, 5.10%, 9/01/35 . . . . . 1,515,000 1,331,306San Bernardino Community College District GO, Election of 2008, Series A, zero cpn., 8/01/44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,495,000 1,562,000

San Buenaventura Revenue, Community Memorial Health System,8.00%, 12/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 11,019,9007.50%, 12/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,243,350

San Diego RDA Tax Allocation, Capital Appreciation, Refunding, Series B, zero cpn.,9/01/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,590,000 4,787,1649/01/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,231,8159/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 1,205,1729/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 1,128,8529/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 1,055,9349/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 1,040,5929/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 973,6179/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 911,9439/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 850,0609/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 794,9799/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 732,5649/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 685,140

San Diego RDA Tax Allocation Revenue,City Heights Redevelopment, Series A, 5.625%, 9/01/40 . . . . . . . . . . . . . . . . . . . . . . . . 2,315,000 2,154,733Naval Training Center, Series A, 5.75%, 9/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,982,990




Municipal Bonds (continued)California (continued)San Diego USD, GO,

Election of 2008, Series A, zero cpn. to 7/01/19, 6.00% thereafter, 7/01/33 . . . . . . . . . $10,000,000 $ 6,556,800Series C, zero cpn. to 7/01/30, 6.625% thereafter, 7/01/47 . . . . . . . . . . . . . . . . . . . . . . 26,025,000 8,210,107

San Francisco City and County Redevelopment Financing Authority Tax Allocation,Mission Bay North Redevelopment, Series C, 6.75%, 8/01/41 . . . . . . . . . . . . . . . . . . . . 1,000,000 1,084,390Mission Bay South Redevelopment, Series D, 7.00%, 8/01/33 . . . . . . . . . . . . . . . . . . . . 1,000,000 1,058,000Mission Bay South Redevelopment, Series D, 6.625%, 8/01/39 . . . . . . . . . . . . . . . . . . . 2,265,000 2,356,280Mission Bay South Redevelopment, Series D, 7.00%, 8/01/41 . . . . . . . . . . . . . . . . . . . . 1,500,000 1,574,160San Francisco Redevelopment Projects, Series B, 6.625%, 8/01/41 . . . . . . . . . . . . . . . . 2,500,000 2,735,725

San Joaquin County Public Facilities FICO Revenue COP, Wastewater Conveyance Project, 6.00%, 8/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 862,440

San Joaquin Delta Community College District GO, Election of 2004, Capital Appreciation, Series B, AGMC Insured, zero cpn., 8/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,900,000 1,336,842

San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,Capital Appreciation, Refunding, Series A, 5.60%, 1/15/16 . . . . . . . . . . . . . . . . . . . . . . 4,500,000 4,463,955Capital Appreciation, Refunding, Series A, 5.70%, 1/15/19 . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,886,240Capital Appreciation, Refunding, Series A, 5.75%, 1/15/21 . . . . . . . . . . . . . . . . . . . . . . 24,750,000 23,373,157Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/26 . . . . . . . . . . 19,475,000 6,215,057Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/32 . . . . . . . . . . 50,225,000 9,434,264junior lien, ETM, zero cpn., 1/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,150,000 10,809,600Refunding, Series A, 5.50%, 1/15/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,645,000 3,108,893senior lien, 5.00%, 1/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,865,000 26,227,256

San Jose RDA Tax Allocation, Merged Area Redevelopment Project, Series B, XLCA Insured, 5.00%, 8/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,245,000 11,520,501

San Marcos Public Facilities Authority Special Tax Revenue,Refunding, Series A, 5.65%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,180,000 4,909,034Series A, 5.05%, 9/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,250,000 2,694,933

San Marcos RDA Tax Allocation, Affordable Housing Project, Series A, 5.65%, 10/01/28 . . . 1,870,000 1,870,486Santa Barbara Elementary School District GO, Election of 2010, Capital Appreciation, Series A, zero cpn. to 8/01/23, 7.00% thereafter, 8/01/36 . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000 4,355,440

Santa Cruz County RDA Tax Allocation, 6.625%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,000 2,903,711Santee Community Development Commission Tax Allocation, Santee Community Redevelopment Project, Series A, 7.00%,

8/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 1,914,7688/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,820,000 2,971,462

Saugus USD, CFD No. 2005-4 Special Tax, 5.30%, 9/01/36 . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,594,700Selma PFA Lease Revenue, Refunding, 7.00%, 2/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,265,000 3,049,053Sierra View Local Health Care District Revenue, 5.25%, 7/01/32 . . . . . . . . . . . . . . . . . . . . 3,000,000 2,996,130Simi Valley 1915 Act Special Assessment, AD No. 98-1, Madera, 7.30%, 9/02/24 . . . . . . . 2,040,000 2,046,712Siskiyou Union High School District GO, Capital Appreciation, Election of 2008, Series B, AGMC Insured, zero cpn., 8/01/49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,015,000 1,162,912

Sonoma CDA Tax Allocation, Redevelopment Project, 7.00%, 12/01/30 . . . . . . . . . . . . . . . . 2,115,000 2,226,714Southern California Public Power Authority Transmission Project Revenue, Southern Transmission Project, 6.125%, 7/01/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,199

St. Helena USD, GO, Capital Appreciation, zero cpn. to 8/01/25, 6.45% thereafter, 6/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 4,667,300




Municipal Bonds (continued)California (continued)Stockton 1915 Act Special Assessment, Limited Obligation, Mosher AD No. 2003-2,

6.20%, 9/02/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,955,000 $ 3,025,0936.30%, 9/02/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,390,000 3,446,477

Stockton PFA Lease Revenue, Capital Improvement Projects, Series A, 7.00%, 9/01/38 . . . . 7,000,000 7,343,560Stockton Special Tax, Spanos Park West CFD No. 2001-1, Pre-Refunded, 6.25%, 9/01/25 . . . 3,500,000 3,720,675Susanville PFAR, Utility Enterprises Project, Refunding, Sub Series B,

5.50%, 6/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185,000 1,096,9195.875%, 6/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,660,000 1,558,6406.00%, 6/01/45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,180,000 5,832,437

Susanville School District GO, Capital Appreciation, Election of 2008, Assured Guaranty, zero cpn., 8/01/49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,505,000 1,431,909

Temecula RDA Tax Allocation Revenue,Housing, Redevelopment Project No. 1, Series A, 7.00%, 8/01/39 . . . . . . . . . . . . . . . . . 2,100,000 2,217,327sub. lien, Escrow, Redevelopment Project No. 1, 5.625%, 12/15/38 . . . . . . . . . . . . . . . . 2,000,000 1,737,560

Temecula Valley USD, CFD No. 2005-1 Special Tax, 5.00%, 9/01/36 . . . . . . . . . . . . . . . . . 1,000,000 864,930Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,

Capital Appreciation, Asset-Backed, Series A-2, 5.40%, 6/01/27 . . . . . . . . . . . . . . . . . . 1,250,000 1,023,775Series A-1, 5.375%, 6/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 3,391,300Series A-1, 5.50%, 6/01/45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,535,000 988,156

Tobacco Securitization Authority Southern California Tobacco Settlement Revenue, Second Sub. Capital Appreciation Bonds, Refunding, Series C, zero cpn., 6/01/46 . . . . . . . 25,000,000 666,500

Torrance USD, GO, Capital Appreciation, Election of 2008, Measure Z, Series B-1, zero cpn., 8/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,640,000 1,338,654

Truckee-Donner PUD Special Tax,CFD No. 04-1, 5.75%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,975,000 2,438,280CFD No. 04-1, 5.80%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,630,000 3,668,534Special Tax Bonds, 5.20%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,409,780Special Tax Bonds, 5.25%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,050,000 3,857,240Special Tax Bonds, 5.30%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,395,000 5,459,876

Tulare RDA Tax Allocation, Merged Tulare Redevelopment, Series A, 6.25%, 8/01/40 . . . . . . 3,540,000 3,416,348Tulare Sewer Revenue, 6.50%, 11/15/45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 10,882,900Turlock PFA Tax Allocation Revenue, 7.50%, 9/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750,000 3,924,712Tustin CFD No. 07-01 Special Tax, Tustin Legacy, 6.00%, 9/01/37 . . . . . . . . . . . . . . . . . . . 2,100,000 2,094,309Tustin USD Special Tax,

5.75%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 997,6306.00%, 9/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,955,240

Upland CFD No. 2003-2 Special Tax, San Antonio, Improvement Area 1, Series A,5.90%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,380,000 2,413,0586.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,005,660

Vallejo RDA Tax Allocation, Housing Set-Aside, Refunding, Series A, 7.00%, 10/01/31 . . . . . 4,265,000 4,295,452Valley Sanitary District 1915 Act Special Assessment, AD No. 04, Valley Sanitary District, Limited Obligation,

5.00%, 9/02/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,000 901,3415.20%, 9/02/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,355,000 1,149,961

Victor Valley Community College District GO, Capital Appreciation, Election of 2002, Series C,zero cpn., 6/01/49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,940,000 1,085,346

Washington Township Health Care District Revenue, Series A, 5.50%, 7/01/38 . . . . . . . . . . 2,890,000 2,873,874




Municipal Bonds (continued)California (continued)West Hollywood Community Development Commission Tax Allocation, East Side Redevelopment Project, Series A,

7.25%, 9/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 1,070,4907.50%, 9/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,329,900

West Kern Community College District GO, Capital Appreciation, Election of 2004, Series B, XLCA Insured, zero cpn.,

11/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,435,000 1,041,74211/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,480,000 980,98911/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 510,04811/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445,000 487,63011/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445,000 449,424

West Sacramento Special Tax, CFD No. 20,5.125%, 9/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 468,2905.30%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,740,000 1,560,415

Westside USD, CFD No. 2005-3 Special Tax, 5.00%,9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000 624,5199/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,045,000 1,674,160

William S. Hart UHSD, CFD No. 2005-1 Special Tax, 5.30%, 9/01/36 . . . . . . . . . . . . . . . . 2,500,000 1,933,350Woodland Finance Authority Water Revenue, 6.00%,

3/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,112,2903/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,661,250

Woodland Special Tax, CFD No. 1,6.00%, 9/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 4,617,7506.25%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,615,000 6,152,810

Yorba Linda RDA, Tax Allocation Revenue, sub. lien, Redevelopment Project, Series A, 6.50%,9/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,750,000 2,856,150

bYucaipa Special Tax, CFD No.98-1 Chapman Heights, Refunding,5.00%, 9/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 978,5405.375%, 9/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 1,784,124

Yucca Valley RDA Tax Allocation, Yucca Valley Redevelopment Project No. 1,5.50%, 6/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110,000 1,992,0515.75%, 6/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,485,000 5,078,836

1,380,105,847

U.S. Territories 1.9%Guam 1.4%Guam Government GO,

Refunding, Series A, 5.00%, 11/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,245,000 6,833,701Refunding, Series A, 5.25%, 11/15/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500,000 5,501,795Series A, 7.00%, 11/15/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,149,850

Guam Government Waterworks Authority Water and Wastewater System Revenue, 5.625%, 7/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 3,764,800

21,250,146

Northern Mariana Islands 0.1%Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.60%, 3/15/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555,000 1,490,219



Puerto Rico 0.4%Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A, 6.00%, 7/01/44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000,000 $ 5,141,650

Total U.S. Territories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,882,015

Total Municipal Bonds before Short Term Investments(Cost $1,438,695,491) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,407,987,862

Short Term Investments 4.6%Municipal Bonds 4.6%California 4.6%

cCalifornia PCFA, PCR, Pacific Gas and Electric Co., Refunding,Series C, Daily VRDN and Put, 0.11%, 11/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,700,000 6,700,000Series F, Daily VRDN and Put, 0.07%, 11/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100,000 2,100,000

cCalifornia State Economic Recovery GO, Series C-3, Daily VRDN and Put, 0.09%, 7/01/23 . . . 23,550,000 23,550,000cCalifornia State GO, Kindergarten, Series B3, Daily VRDN and Put, 0.08%, 5/01/34 . . . . . . 5,300,000 5,300,000c Irvine 1915 Act Special Assessment, Limited Obligation, AD No. 93-14, Daily VRDN and Put,

0.09%, 9/02/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,400,000 12,400,000cLos Angeles Department of Water and Power Revenue, Refunding, Series B, Sub Series B-3,

Daily VRDN and Put, 0.14%, 7/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,800,000 7,800,000cSacramento County Sanitation District Financing Authority Revenue, sub. lien, Sanitation

District, Refunding, Series C, Daily VRDN and Put, 0.09%, 12/01/38 . . . . . . . . . . . . . . . . 4,250,000 4,250,000cSouthern California Public Power Authority Revenue,

Mead-Adelanto Project, Refunding, Series A, Daily VRDN and Put, 0.07%, 7/01/20 . . . . . 5,000,000 5,000,000Mead-Phoenix Project, Refunding, Series A, Daily VRDN and Put, 0.07%, 7/01/20 . . . . . 2,000,000 2,000,000

Total Short Term Investments (Cost $69,100,000) . . . . . . . . . . . . . . . . . . . . . . . 69,100,000

Total Investments (Cost $1,507,795,491) 98.9% . . . . . . . . . . . . . . . . . . . . . . . . 1,477,087,862

Other Assets, less Liabilities 1.1% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,080,399

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,493,168,261

See Abbreviations on page 56.

aSecurity has been deemed illiquid because it may not be able to be sold within seven days. At November 30, 2011, the aggregate value of these securities was $7,335,704, representing 0.49% of net assets.bSecurity purchased on a when-issued basis. See Note 1(b).cVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand toreceive payment of the principal balance plus accrued interest at specified dates. The coupon rate shown represents the rate at period end.


Municipal Bonds (continued)U.S. Territories (continued)

Franklin Municipal Securities TrustFinancial Highlights




Class A (unaudited) 2011 2010 2009 2008 2007





Net realized and unrealized gains (losses) . . . . . 0.26 (0.16) 0.35 (0.04) (0.14) —c

Total from investment operations . . . . . . . . . . . . 0.48 0.28 0.80 0.41 0.31 0.46


Redemption feesd . . . . . . . . . . . . . . . . . . . . . . . — — — — —c —c

Net asset value, end of period . . . . . . . . . . . . . . $11.45 $11.19 $11.35 $10.99 $11.04 $11.18

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.36% 2.59% 7.44% 3.90% 2.80% 4.15%


Expenses before waiver and payments by affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.71% 0.71% 0.72% 0.74% 0.75% 0.75%

Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%


Supplemental data



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 ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.bBased on average daily shares outstanding.cAmount rounds to less than $0.01 per share.dEffective September 1, 2008, the redemption fee was eliminated.eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.fRatios are annualized for periods less than one year.

Franklin Municipal Securities TrustStatement of Investments, November 30, 2011 (unaudited)


Franklin Tennessee Municipal Bond Fund Principal Amount Value

Municipal Bonds 98.1%Tennessee 85.1%Anderson County Water Authority Water and Sewer Revenue, 5.00%, 6/01/36 . . . . . . . . . . . . . $ 1,000,000 $ 1,083,350Blount County PBA, GO, Local Government Public Improvement, Series B-15-A, Assured Guaranty, 5.00%,

6/01/28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100,000 1,181,1596/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,565,000 2,702,817

Bristol Electric Revenue, System, AMBAC Insured, 5.00%, 9/01/29 . . . . . . . . . . . . . . . . . . . 1,075,000 1,145,359Chattanooga Electric Revenue, Series A, 5.00%, 9/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500,000 7,991,025Chattanooga Health Educational and Housing Facility Board Revenue, Catholic Health Initiatives,Series D, 6.25%, 10/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 565,280

Chattanooga-Hamilton County Hospital Authority Hospital Revenue, Erlanger Medical Center, Refunding, AGMC Insured, 5.00%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,250,000 3,488,842

Clarksville Electric System Revenue,Series A, 5.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,132,480Series A, 5.00%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,185,000 3,386,356XLCA Insured, 5.00%, 9/01/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325,000 2,529,995XLCA Insured, 5.00%, 9/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 4,224,080

Franklin County Health and Educational Facilities Board Revenue, University South Project, AMBAC Insured, 5.00%, 9/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,132,360

Gallatin Water and Sewer Revenue, Assured Guaranty, 5.00%, 1/01/33 . . . . . . . . . . . . . . . . . 2,215,000 2,318,706Greene County GO, Refunding, Series B, NATL Insured, 5.00%, 6/01/24 . . . . . . . . . . . . . . . . 1,000,000 1,065,660Hallsdale-Powell Utility District Knox County Water and Sewer Revenue,

NATL RE, FGIC Insured, 5.00%, 4/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,049,900Refunding and Improvement, Series A, NATL RE, FGIC Insured, 5.00%, 4/01/27 . . . . . . . . 2,500,000 2,539,925

Harpeth Valley Utilities District Davidson and Williamson Counties Revenue, Utilities, Improvement,

NATL Insured, 5.00%, 9/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,031,670NATL Insured, 5.00%, 9/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,310,000 2,367,403NATL RE, FGIC Insured, 5.00%, 9/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,700,000 3,849,332

Hawkins County First Utility District Waterworks Revenue, Series B, Assured Guaranty, 5.00%, 6/01/42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 1,290,513

Jackson Hospital Revenue, Jackson-Madison Project, Refunding and Improvement, 5.50%, 4/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,148,140

Johnson City Electric Revenue, Improvement, AGMC Insured, 5.00%, 5/01/29 . . . . . . . . . . . . 1,000,000 1,065,280Johnson City Health and Educational Facilities Board Hospital Revenue, Series A, NATL Insured,Pre-Refunded, 5.125%, 7/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,005,730

Johnson City Health and Educational Facilities Board Revenue, Pine Oaks Assisted Project, Series A, GNMA Secured, 5.90%, 6/20/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,310,000 1,313,747

Kingsport GO, Series B, Assured Guaranty, 5.00%, 3/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . 1,030,000 1,121,114Kingsport IDB, MFHR, Model City Airport Project, GNMA Secured, 5.50%, 7/20/39 . . . . . . . . 2,995,000 2,842,614Knox Chapman Tennessee Utility District Knox County Water and Sewer Revenue, 5.25%, 1/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,628,355

Knox County First Utility District Water and Sewer Revenue,NATL Insured, 5.00%, 12/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,790,000 1,944,352NATL Insured, 5.00%, 12/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,078,080Refunding and Improvement, 5.00%, 12/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,390,000 1,604,324

Knox County Health Educational and Housing Facilities Board Hospital Facilities Revenue,Covenant Health System, Refunding and Improvement, Series A, zero cpn., 1/01/36 . . . . . . 5,000,000 1,233,350Fort Sanders Alliance, Refunding, NATL Insured, 5.75%, 1/01/14 . . . . . . . . . . . . . . . . . . . 1,250,000 1,327,087




Municipal Bonds (continued)Tennessee (continued)Knox County Health Educational and Housing Facilities Board Revenue, University Health System Inc., Refunding, 5.25%,

4/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,500,000 $ 2,435,6504/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 4,661,950

Knoxville Wastewater System Revenue, Improvement, Series A, NATL Insured, 5.00%, 4/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,092,310

Knoxville Water Revenue, System Improvement, Series R, AGMC Insured, 5.00%, 3/01/30 . . . 2,370,000 2,467,502Lawrenceburg PBA, GO, Electric System, Public Works, Refunding, AMBAC Insured, 5.00%, 7/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,880,125

Lenoir City Electric System Revenue, Refunding and Improvement, AGMC Insured, 5.00%, 6/01/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,003,400

Manchester GO, Refunding, AGMC Insured, 5.00%, 6/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . 2,665,000 2,970,889Maryville Revenue, Series A, Assured Guaranty, 5.00%, 6/01/38 . . . . . . . . . . . . . . . . . . . . . . 5,500,000 5,834,180Memphis GO, General Improvement,

Assured Guaranty, Pre-Refunded, 5.00%, 4/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,975,000 2,423,424NATL Insured, 5.00%, 10/01/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,412,350Refunding, 5.00%, 5/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,135,000 4,442,892

Memphis-Shelby County Airport Authority Airport Revenue,Refunding, Series B, 5.75%, 7/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,692,500Refunding, Series D, 5.00%, 7/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,211,890Series A, AGMC Insured, 5.00%, 7/01/35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,176,000Series A, AGMC Insured, 5.00%, 7/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,565,000 2,642,412

Memphis-Shelby County Sports Authority Inc. Revenue, Memphis Arena Project,Refunding, Series B, 5.375%, 11/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,402,000Series A, AMBAC Insured, Pre-Refunded, 5.25%, 11/01/23 . . . . . . . . . . . . . . . . . . . . . . . 7,145,000 7,467,954

Metropolitan Government of Nashville and Davidson County Electric Revenue, Series A,5.00%, 5/15/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,186,3905.00%, 5/15/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 3,772,965AMBAC Insured, 5.00%, 5/15/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,368,450

Metropolitan Government of Nashville and Davidson County GO,Refunding, Series B, 5.00%, 8/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,429,050Series C, 5.00%, 2/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,192,300

Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board Revenue, Vanderbilt University,

Refunding, Series B, 5.00%, 10/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000,000 9,586,440Series A, 5.50%, 10/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 3,975,195

Pigeon Forge IDB Revenue, Public Facility, 5.00%, 6/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 1,314,600Rutherford County Consolidated Utility District Waterworks Revenue,

AGMC Insured, 5.00%, 2/01/36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,060,000 3,161,714Refunding, NATL Insured, 5.00%, 2/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,064,510

Rutherford County Health and Educational Facilities Board Revenue, Ascension Health Senior Credit Group, Series C, 5.00%, 11/15/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 10,487,200

Shelby County Health Educational and Housing Facilities Board Revenue,Baptist Memorial Health, Series A, 5.00%, 9/01/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,015,000 3,410,749Educational Facilities, Rhodes College, 5.50%, 8/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,375,600Methodist, Series B, AGMC Insured, 5.25%, 9/01/27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,259,950St. Jude Children’s Research Hospital, Refunding, 5.00%, 7/01/36 . . . . . . . . . . . . . . . . . . 5,000,000 5,194,200



Municipal Bonds (continued)Tennessee (continued)


South Blount County Utility District Waterworks Revenue, AGMC Insured,5.00%, 12/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 1,072,0405.25%, 12/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,310,000 3,583,472

Tennessee HDA Revenue, Homeownership Program,2006-3, 4.90%, 7/01/37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,480,000 4,402,899Series 1, 5.00%, 7/01/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,390,000 1,423,555Series 4B, 6.00%, 7/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000 757,822

Tennessee State GO, Refunding, Series A, 5.00%, 10/01/31 . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,117,550Tennessee State School Bond Authority Revenue, Higher Educational Facilities, Second Program,

Refunding, Series A, 5.00%, 5/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,172,800Refunding, Series A, NATL Insured, 5.00%, 5/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 1,323,263Refunding, Series A, NATL Insured, 5.00%, 5/01/30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,126,540Series A, 5.00%, 5/01/34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,555,000 3,694,249Series B, 5.50%, 5/01/38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 4,340,640

West Wilson Utility District Waterworks Revenue,5.00%, 6/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,302,130Improvement, NATL Insured, Pre-Refunded, 5.00%, 6/01/26 . . . . . . . . . . . . . . . . . . . . . . 1,805,000 1,999,001

Williamson County GO, Public Improvement,Pre-Refunded, 5.00%, 4/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,030,900Refunding, 5.00%, 3/01/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,123,020

241,855,007

U.S. Territories 13.0%Guam 1.8%Guam Economic Development and Commerce Authority Revenue, Tobacco Settlement, Asset-Backed, Refunding, 5.25%, 6/01/32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,040,000 1,803,931

Guam Government Limited Obligation Revenue, Section 30, Series A, 5.625%, 12/01/29 . . . . 3,205,000 3,261,665

5,065,596

Puerto Rico 11.2%Puerto Rico Electric Power Authority Power Revenue,

Refunding, Series SS, NATL Insured, 5.00%, 7/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,103,000Series XX, 5.25%, 7/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,023,750

Puerto Rico PBA Guaranteed Revenue, Government Facilities,Refunding, Series D, 5.375%, 7/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655,000 655,936Series D, Pre-Refunded, 5.375%, 7/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,845,000 1,896,863Series S, 6.00%, 7/01/41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,248,400

Puerto Rico Sales Tax FICO Sales Tax Revenue, first sub.,Series B, 6.375%, 8/01/39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000 8,793,280Series C, 5.50%, 8/01/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,237,950

31,959,179

Total U.S. Territories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,024,775

Total Municipal Bonds (Cost $266,401,495) 98.1% . . . . . . . . . . . . . . . . . . . . . . 278,879,782

Other Assets, less Liabilities 1.9% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,534,507

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $284,414,289

See Abbreviations on page 56.

Franklin Municipal Securities TrustFinancial Statements


Statements of Assets and LiabilitiesNovember 30, 2011 (unaudited)

Franklin California Franklin TennesseeHigh Yield Municipal

Municipal Fund Bond FundAssets:

Investments in securities:Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,507,795,491 $266,401,495

Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,477,087,862 $278,879,782Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,696 1,775,475Receivables:

Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,324,504 —Capital shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,999,367 830,355Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,856,195 3,742,712

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 17

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,501,286,713 285,228,341

Liabilities:Payables:

Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,038,764 —Capital shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,174,133 281,683Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809,326 149,586Distributions to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,952,967 343,844

Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,262 38,939

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,118,452 814,052

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,493,168,261 $284,414,289

Net assets consist of:Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,614,172,260 $275,167,237Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,656,782 54,831Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,707,629) 12,478,287Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (93,953,152) (3,286,066)

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,493,168,261 $284,414,289

Franklin Municipal Securities TrustFinancial Statements (continued)


Statements of Assets and Liabilities (continued)November 30, 2011 (unaudited)


Municipal Fund Bond FundClass A:

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,073,654,793 $284,414,289

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,303,665 24,849,120

Net asset value per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.56 $11.45

Maximum offering price per share (net asset value per share ÷ 95.75%) . . . . . . . . . . . . . . $9.98 $11.96

Class B:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,688,644

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,685

Net asset value and maximum offering price per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . $9.61

Class C:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,974,917

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,792,301

Net asset value and maximum offering price per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . $9.61

Advisor Class:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,849,907

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,635,927

Net asset value and maximum offering price per share . . . . . . . . . . . . . . . . . . . . . . . . . . $9.57

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



Statements of Operationsfor the six months ended November 30, 2011 (unaudited)

Franklin FranklinCalifornia TennesseeHigh Yield Municipal

Municipal Fund Bond FundInvestment income:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,085,525 $ 6,455,566

Expenses:Management fees (Note 3a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,326,028 750,853Distribution fees: (Note 3c)

Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516,058 139,475Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,929 —Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 784,133 —

Transfer agent fees (Note 3e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,934 50,980Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,336 1,982Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,730 8,004Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,546 5,335Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,680 13,041Trustees’ fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,809 4,744Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,850 13,398

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,020,033 987,812Expenses waived/paid by affiliates (Note 3f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (13,865)

Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,020,033 973,947

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,065,492 5,481,619

Realized and unrealized gains (losses):Net realized gain (loss) from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,603,834) (17,871)Net change in unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . . . . . . . . 75,916,052 6,118,049

Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,312,218 6,100,178

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $111,377,710 $11,581,797



Statements of Changes in Net Assets

Franklin California Franklin TennesseeHigh Yield Municipal Fund Municipal Bond Fund

Six Months Ended Six Months EndedNovember 30, 2011 Year Ended November 30, 2011 Year Ended

(unaudited) May 31, 2011 (unaudited) May 31, 2011

Increase (decrease) in net assets:Operations:

Net investment income . . . . . . . . . . . . . . . $ 38,065,492 $ 76,577,115 $ 5,481,619 $ 11,192,845Net realized gain (loss) from investments . . . (2,603,834) (18,577,287) (17,871) (974,976)Net change in unrealized appreciation

(depreciation) on investments . . . . . . . . . . 75,916,052 (37,824,553) 6,118,049 (4,177,124)

Net increase (decrease) in net assets resulting from operations . . . . . . . . . 111,377,710 20,175,275 11,581,797 6,040,745

Distributions to shareholders from:Net investment income:

Class A . . . . . . . . . . . . . . . . . . . . . . . . . . (28,275,376) (57,840,794) (5,492,158) (11,195,681)Class B . . . . . . . . . . . . . . . . . . . . . . . . . . (85,946) (274,813) — —Class C . . . . . . . . . . . . . . . . . . . . . . . . . . (5,946,805) (12,062,165) — —Advisor Class . . . . . . . . . . . . . . . . . . . . . . (4,199,092) (6,411,806) — —

Total distributions to shareholders . . . . . . . . . (38,507,219) (76,589,578) (5,492,158) (11,195,681)

Capital share transactions: (Note 2)Class A . . . . . . . . . . . . . . . . . . . . . . . . . . 41,892,014 (68,876,205) 8,283,625 (11,811,514)Class B . . . . . . . . . . . . . . . . . . . . . . . . . . (1,658,948) (3,259,593) — —Class C . . . . . . . . . . . . . . . . . . . . . . . . . . 5,938,094 (15,903,122) — —Advisor Class . . . . . . . . . . . . . . . . . . . . . . 24,020,233 40,229,802 — —

Total capital share transactions . . . . . . . . . . . 70,191,393 (47,809,118) 8,283,625 (11,811,514)

Net increase (decrease) in net assets . . . 143,061,884 (104,223,421) 14,373,264 (16,966,450)Net assets:Beginning of period . . . . . . . . . . . . . . . . . . . 1,350,106,377 1,454,329,798 270,041,025 287,007,475

End of period . . . . . . . . . . . . . . . . . . . . . . . $1,493,168,261 $1,350,106,377 $284,414,289 $270,041,025

Undistributed net investment income included in net assets:

End of period . . . . . . . . . . . . . . . . . . . . . . $ 3,656,782 $ 4,098,509 $ 54,831 $ 65,370

Franklin Municipal Securities TrustNotes to Financial Statements (unaudited)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Municipal Securities Trust (Trust) is registered under the Investment Company Act of1940, as amended, (1940 Act) as an open-end investment company, consisting of two funds(Funds). The classes of shares offered within each of the Funds are indicated below. Each classof shares differs by its initial sales load, contingent deferred sales charges, distribution fees, votingrights on matters affecting a single class and its exchange privilege.

Class A Class A, Class B, Class C & Advisor Class

Franklin Tennessee Municipal Bond Fund Franklin California High Yield Municipal Fund

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

The Funds’ investments in securities and other 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 anorderly transaction between market participants on the measurement date. Under proceduresapproved by the Trust’s Board of Trustees, the Funds may utilize independent pricing services,quotations from securities and financial instrument dealers, and other market sources to deter-mine 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 instanceswhere sufficient market activity exists, the pricing services may utilize a market-based approachthrough which quotes from market makers are used to determine fair value. In instances wheresufficient market activity may not exist or is limited, the pricing services also utilize proprietaryvaluation models which may consider market characteristics such as benchmark yield curves,option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timingof principal repayments, underlying collateral, and other unique security features in order toestimate the relevant cash flows, which are then discounted to calculate the fair value.

The Funds have procedures to determine the fair value of securities and other financial instrumentsfor which market prices are not readily available or which may not be reliably priced. Underthese procedures, the Funds primarily employ a market-based approach which may use relatedor comparable assets or liabilities, recent transactions, market multiples, book values, and otherrelevant information for the investment to determine the fair value of the investment. The Fundsmay also use an income-based valuation approach in which the anticipated future cash flows ofthe investment are discounted to calculate fair value. Discounts may also be applied due to thenature or duration of any restrictions on the disposition of the investments. Due to the inherentuncertainty of valuations of such investments, the fair values may differ significantly from thevalues that would have been used had an active market existed.

Franklin Municipal Securities TrustNotes to Financial Statements (unaudited) (continued)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

b. Securities Purchased on a When-Issued Basis

The Funds purchase securities on a when-issued basis, with payment and delivery scheduled for afuture date. These transactions are subject to market fluctuations and are subject to the risk thatthe value at delivery may be more or less than the trade date purchase price. Although the Fundswill generally purchase these securities with the intention of holding the securities, they may sellthe securities before the settlement date. Sufficient assets have been segregated for these securities.

c. Income Taxes

It is each fund’s policy to qualify as a regulated investment company under the Internal RevenueCode. Each fund intends to distribute to shareholders substantially all of its income and net real-ized 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 files U.S. income tax returns as well as tax returns incertain other jurisdictions. Each fund records a provision for taxes in its financial statementsincluding penalties and interest, if any, for a tax position taken on a tax return (or expected to betaken) when it fails to meet the more likely than not (a greater than 50% probability) thresholdand based on the technical merits, the tax position may not be sustained upon examination bythe tax authorities. As of November 30, 2011, and for all open tax years, each fund has deter-mined that no provision for income tax is required in each fund’s financial statements. Open taxyears are those that remain subject to examination and are based on each tax jurisdiction statuteof limitation.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security trans-actions are determined on a specific identification basis. Interest income and estimated expensesare accrued daily. Amortization of premium and accretion of discount on debt securities areincluded in interest income. Dividends from net investment income are normally declared daily;these dividends may be reinvested or paid monthly to shareholders. Distributions to shareholdersare determined according to income tax regulations (tax basis). Distributable earnings determinedon a tax basis may differ from earnings recorded in accordance with accounting principles gener-ally accepted in the United States of America. These differences may be permanent or temporary.Permanent differences are reclassified among capital accounts to reflect their tax character. Thesereclassifications have no impact on net assets or the results of operations. Temporary differencesare not reclassified, as they may reverse in subsequent periods.

Common expenses incurred by the Trust are allocated among the Funds based on the ratio ofnet assets of each fund to the combined net assets of the Trust. Fund specific expenses arecharged directly to the fund that incurred the expense.



1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Security Transactions, Investment Income, Expenses and Distributions (continued)

Realized and unrealized gains and losses and net investment income, not including class specificexpenses, are allocated daily to each class of shares based upon the relative proportion of netassets of each class. Differences in per share distributions, by class, are generally due to differ-ences in class specific expenses.

e. Insurance

The scheduled payments of interest and principal for each insured municipal security in theTrust are insured by either a new issue insurance policy or a secondary insurance policy. Somemunicipal 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 thecost basis of the security or paid by a third party.

Insurance companies typically insure municipal bonds that tend to be of very high quality, withthe majority of underlying municipal bonds rated A or better. However, an event involving aninsurer could have an adverse effect on the value of the securities insured by that insurance com-pany. There is no guarantee the insurer will be able to fulfill its obligations under the terms ofthe policy.

f. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of the financial statements andthe amounts of income and expenses during the reporting period. Actual results could differ fromthose estimates.

g. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trustagainst 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 serv-ice providers that contain general indemnification clauses. The Trust’s maximum exposure underthese arrangements is unknown as this would involve future claims that may be made against theTrust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.



2. SHARES OF BENEFICIAL INTEREST

At November 30, 2011, there were an unlimited number of shares authorized (without par value).Transactions in the Funds’ shares were as follows:

Franklin California Franklin TennesseeHigh Yield Municipal Fund Municipal Bond FundShares Amount Shares Amount

Class A Shares:Six Months ended November 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . 11,096,690 $ 104,529,317 2,322,274 $ 26,382,583Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . 2,238,083 21,070,030 371,282 4,228,137Shares redeemed . . . . . . . . . . . . . . . (8,929,829) (83,707,333) (1,967,451) (22,327,095)

Net increase (decrease) . . . . . . . . . . 4,404,944 $ 41,892,014 726,105 $ 8,283,625

Year ended May 31, 2011Shares sold . . . . . . . . . . . . . . . . . . . 22,586,462 $ 209,897,649 4,108,352 $ 46,256,679Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . 3,892,165 35,752,302 700,080 7,803,103Shares redeemed . . . . . . . . . . . . . . . (34,483,645) (314,526,156) (5,973,830) (65,871,296)

Net increase (decrease) . . . . . . . . . . (8,005,018) $ (68,876,205) (1,165,398) $(11,811,514)

Class B Shares:Six Months ended November 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . 1,698 $ 16,139Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . 7,285 68,765Shares redeemed . . . . . . . . . . . . . . . (184,671) (1,743,852)

Net increase (decrease) . . . . . . . . . . (175,688) $ (1,658,948)

Year ended May 31, 2011Shares sold . . . . . . . . . . . . . . . . . . . 12,699 $ 122,597Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . 18,972 175,764Shares redeemed . . . . . . . . . . . . . . . (379,050) (3,557,954)

Net increase (decrease) . . . . . . . . . . (347,379) $ (3,259,593)

Class C Shares:Six Months ended November 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . 2,121,297 $ 20,065,330Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . 446,275 4,223,463Shares redeemed . . . . . . . . . . . . . . . (1,943,233) (18,350,699)

Net increase (decrease) . . . . . . . . . . 624,339 $ 5,938,094

Year ended May 31, 2011Shares sold . . . . . . . . . . . . . . . . . . . 4,637,040 $ 43,228,184Shares issued in reinvestment of


Net increase (decrease) . . . . . . . . . . (1,846,153) $ (15,903,122)



2. SHARES OF BENEFICIAL INTEREST (continued)

Franklin CaliforniaHigh Yield Municipal FundShares Amount

Advisor Class Shares:Six Months ended November 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . 3,668,381 $ 34,655,811Shares issued in reinvestment of


Net increase (decrease) . . . . . . . . . . 2,537,864 $ 24,020,233

Year ended May 31, 2011Shares sold . . . . . . . . . . . . . . . . . . . 7,885,977 $ 72,697,529Shares issued in reinvestment of


Net increase (decrease) . . . . . . . . . . 4,335,946 $ 40,229,802

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together arereferred to as Franklin Templeton Investments. Certain officers and trustees of the Funds arealso officers and/or directors of the following subsidiaries:

Subsidiary Affiliation

Franklin Advisers, Inc. (Advisers) Investment managerFranklin Templeton Services, LLC (FT Services) Administrative managerFranklin Templeton Distributors, Inc. (Distributors) Principal underwriterFranklin Templeton Investor Services, LLC (Investor Services) Transfer agent

a. Management Fees

The Funds pay an investment management fee to Advisers based on the average daily net assetsof each of the Funds as follows:

Annualized Fee Rate Net Assets

0.625% Up to and including $100 million0.500% Over $100 million, up to and including $250 million0.450% Over $250 million, up to and including $7.5 billion0.440% Over $7.5 billion, up to and including $10 billion0.430% Over $10 billion, up to and including $12.5 billion0.420% Over $12.5 billion, up to and including $15 billion0.400% Over $15 billion, up to and including $17.5 billion0.380% Over $17.5 billion, up to and including $20 billion0.360% In excess of $20 billion



3. TRANSACTIONS WITH AFFILIATES (continued)

b. Administrative Fees

Under an agreement with Advisers, FT Services provides administrative services to the Funds.The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Funds.

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with theexception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each fund’s shares up to the maximumannual plan rate. Under the Class A reimbursement distribution plans, costs exceeding the maxi-mum for the current plan year cannot be reimbursed in subsequent periods.

In addition, under the Franklin California High Yield Municipal Fund’s Class B and C com-pensation distribution plans, the fund pays Distributors for costs incurred in connection withthe servicing, sale and distribution of each fund’s shares up to the maximum annual plan rate for each class.

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:


Municipal Fund Bond Fund

Reimbursement Plans:Class A . . . . . . . . . . . . . . . . . . . 0.15% 0.15%

Distributors has agreed to limit the current rate to 0.10% per year for each of the Funds.

Compensation Plans:Class B . . . . . . . . . . . . . . . . . . . 0.65% —Class C . . . . . . . . . . . . . . . . . . . 0.65% —

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expensesof the Funds. These charges are deducted from the proceeds of sales of fund shares prior to invest-ment or from redemption proceeds prior to remittance, as applicable. Distributors has advisedthe Funds of the following commission transactions related to the sales and redemptions of theFunds’ shares for the period:



Sales charges retained net of commissions paid to unaffiliated broker/dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,203 $57,759

CDSC retained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,106 $ —



3. TRANSACTIONS WITH AFFILIATES (continued)

e. Transfer Agent Fees

For the period ended November 30, 2011, the Funds paid transfer agent fees as noted in theStatements of Operations of which the following amounts were retained by Investor Services:



Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $98,658 $17,949

f. Waiver and Expense Reimbursements

Advisers has contractually agreed in advance to waive or limit its fees and to assume as its ownexpense certain expenses otherwise payable by the Franklin Tennessee Municipal Bond Fund so that the common expenses (i.e. a combination of management fees, administrative fees, andother expenses, but excluding distribution fees and acquired fund fees and expenses) do notexceed 0.60% (other than certain non-routine expenses or costs, including those relating to liti-gation, indemnification, reorganizations, and liquidations) until September 30, 2012.

4. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2011, the capital loss carryforwards were as follows:


Municipal Fund Bond FundCapital loss carryforwards expiring in:

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,294,061 $ 984,1012013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,186 422,6432015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684,955 11,3102016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,572,273 —2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,767,799 810,1292018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,781,484 —2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,604,912 —

$72,355,670 $2,228,183

Under the Regulated Investment Company Modernization Act of 2010, the Funds will be per-mitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010for an unlimited period. Post-enactment capital loss carryforwards will retain their character aseither short-term or long-term capital losses rather than being considered short-term as underprevious law. Any post-enactment capital losses generated will be required to be utilized prior tothe losses incurred in pre-enactment tax years.



4. INCOME TAXES (continued)

For tax purposes, realized capital losses occurring subsequent to October 31 may be deferredand treated as occurring on the first day of the following fiscal year. At May 31, 2011, theFranklin California High Yield Municipal Fund and the Franklin Tennessee Municipal BondFund deferred realized capital losses of $18,568,483 and $1,040,012, respectively.

At November 30, 2011, the cost of investments and net unrealized appreciation (depreciation)for income tax purposes were as follows:



Cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,504,187,938 $266,322,888

Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,743,939 $ 13,340,335Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81,844,015) (783,441)

Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . $ (27,100,076) $ 12,556,894

Differences between income and/or capital gains as determined on a book basis and a tax basis areprimarily due to differing treatments of wash sales, bond discounts and non-deductible expenses.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period endedNovember 30, 2011, were as follows:



Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $77,240,048 $18,594,679Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,930,136 $11,293,601

6. CREDIT RISK

At November 30, 2011, the Franklin California High Yield Municipal Fund had 30.30% of itsportfolio invested in high yield securities rated below investment grade. These securities may bemore sensitive to economic conditions causing greater price volatility and are potentially subjectto a greater risk of loss due to default than higher rated securities.

7. CONCENTRATION OF RISK

Each of the Funds invests a large percentage of its total assets in obligations of issuers within itsrespective state and U.S. territories. Such concentration may subject the Funds to risks associatedwith industrial or regional matters, and economic, political or legal developments occurring within



7. CONCENTRATION OF RISK (continued)

those states and U.S. territories. In addition, investments in these securities are sensitive to interestrate changes and credit risk of the issuer and may subject the Funds to increased market volatility.The market for these investments may be limited, which may make them difficult to buy or sell.

8. CREDIT FACILITY

The Funds, together with other U.S. registered and foreign investment funds (collectively,Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicatedsenior unsecured credit facility totaling $750 million (Global Credit Facility) which matures onJanuary 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers fortemporary and emergency purposes, including the ability to meet future unanticipated or unusu-ally large redemption requests.

Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged onany borrowings made by the Funds and other costs incurred by the Funds, pay their share of feesand expenses incurred in connection with the implementation and maintenance of the GlobalCredit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers,including an annual commitment fee of 0.08% based upon the unused portion of the GlobalCredit Facility, which is reflected in other expenses on the Statements of Operations. During theperiod ended November 30, 2011, the Funds did not use the Global Credit Facility.

9. FAIR VALUE MEASUREMENTS

The Funds follow a fair value hierarchy that distinguishes between market data obtained fromindependent sources (observable inputs) and the Funds’ own market assumptions (unobservableinputs). These inputs are used in determining the value of the Funds’ investments and are sum-marized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associatedwith investing in those securities.

For movements between the levels within the fair value hierarchy, the Funds have adopted a pol-icy of recognizing the transfers as of the date of the underlying event which caused the movement.



9. FAIR VALUE MEASUREMENTS (continued)

At November 30, 2011, all of the Funds’ investments in securities carried at fair value were inLevel 2 inputs.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting StandardsUpdate (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to AchieveCommon Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Theamendments in the ASU will improve the comparability of fair value measurements presentedand disclosed in financial statements prepared in accordance with U.S. GAAP (Generally AcceptedAccounting Principles) and IFRS (International Financial Reporting Standards) and include newguidance for certain fair value measurement principles and disclosure requirements. The ASU iseffective for interim and annual periods beginning after December 15, 2011. The Funds are cur-rently reviewing the requirements and believe the adoption of this ASU will not have a materialimpact on the financial statements.

11. SUBSEQUENT EVENTS

The Funds have evaluated subsequent events through the issuance of the financial statementsand determined that no events have occurred that require disclosure.

ABBREVIATIONS

Selected Portfolio

1915 Act - Improvement Bond Act of 1915ABAG - The Association of Bay Area GovernmentsAD - Assessment DistrictAGMC - Assured Guaranty Municipal Corp.AMBAC - American Municipal Bond Assurance

Corp.CDA - Community Development Authority/AgencyCFD - Community Facilities DistrictCIFP - Capital Improvement Financing ProgramCOP - Certificate of ParticipationCRDA - Community Redevelopment

Authority/AgencyETM - Escrow to MaturityFGIC - Financial Guaranty Insurance Co.FHA - Federal Housing Authority/AgencyFICO - Financing Corp.GNMA - Government National Mortgage

AssociationGO - General Obligation

HDA - Housing Development Authority/AgencyID - Improvement DistrictIDB - Industrial Development Bond/BoardMFHR - Multi-Family Housing RevenueMFR - Multi-Family RevenueNATL - National Public Financial Guarantee Corp.NATL RE - National Public Financial Guarantee Corp.

ReinsuredPBA - Public Building AuthorityPCFA - Pollution Control Financing AuthorityPCR - Pollution Control RevenuePFA - Public Financing AuthorityPFAR - Public Financing Authority RevenuePUD - Public Utility DistrictRDA - Redevelopment Agency/AuthorityUHSD - Unified/Union High School DistrictUSD - Unified/Union School DistrictXLCA - XL Capital Assurance

Franklin Municipal Securities TrustShareholder Information


Proxy Voting Policies and Procedures

The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) thatthe Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders mayview the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders mayrequest copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, FortLauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are alsomade available online at franklintempleton.com and posted on the U.S. Securities and ExchangeCommission’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 Commissionfor the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filedForm N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed andcopied at the Commission’s Public Reference Room in Washington, DC. Information regarding theoperations of the Public Reference Room may be obtained by calling (800) SEC-0330.


GOF P-1 01/12

SUPPLEMENT DATED JANUARY 3, 2012TO THE CURRENTLY EFFECTIVE PROSPECTUS

OF EACH OF THE LISTED FUNDS

Franklin California Tax-Free Income FundFranklin California Tax-Free TrustFranklin California Insured Tax-FreeIncome FundFranklin California Intermediate-TermTax-Free Income FundFranklin California Tax-Exempt Money FundFranklin Custodian FundsFranklin DynaTech FundFranklin Growth FundFranklin Income FundFranklin U.S. Government Securities FundFranklin Utilities FundFranklin Federal Tax-Free Income FundFranklin Global TrustFranklin Global Real Estate FundFranklin International Growth FundFranklin International Small CapGrowth FundFranklin Large Cap Equity FundFranklin Templeton Emerging Market DebtOpportunities FundFranklin Gold and Precious Metals FundFranklin High Income TrustFranklin High Income FundFranklin Investors Securities TrustFranklin Adjustable U.S. GovernmentSecurities FundFranklin Balanced FundFranklin Convertible Securities FundFranklin Equity Income FundFranklin Floating Rate Daily Access FundFranklin Limited Maturity U.S. GovernmentSecurities FundFranklin Low Duration Total Return FundFranklin Real Return FundFranklin Total Return FundFranklin Managed TrustFranklin Rising Dividends FundFranklin Money FundFranklin Municipal Securities TrustFranklin California High Yield Municipal FundFranklin Tennessee Municipal Bond FundFranklin Mutual Recovery FundFranklin Mutual Series FundsMutual Beacon FundMutual Discovery FundMutual European FundMutual Financial Services FundMutual International FundMutual Quest FundMutual Shares Fund

Franklin New York Tax-Free Income FundFranklin New York Tax-Free TrustFranklin New York Intermediate-TermTax-Free IncomeFranklin Real Estate Securities TrustFranklin Real Estate Securities FundFranklin Strategic Mortgage PortfolioFranklin Strategic SeriesFranklin Biotechnology Discovery FundFranklin Flex Cap Growth FundFranklin Focused Core Equity FundFranklin Growth Opportunities FundFranklin Natural Resources FundFranklin Small-Mid Cap Growth FundFranklin Small Cap Growth FundFranklin Strategic Income FundFranklin Tax-Exempt Money FundFranklin Tax-Free TrustFranklin Alabama Tax-Free Income FundFranklin Arizona Tax-Free Income FundFranklin Colorado Tax-Free Income FundFranklin Connecticut Tax-FreeIncome FundFranklin Double Tax-Free Income FundFranklin Federal Intermediate-TermTax-Free Income FundFranklin Federal Limited-Term Tax-FreeIncome FundFranklin Florida Tax-Free Income FundFranklin Georgia Tax-Free Income FundFranklin High Yield Tax-Free Income FundFranklin Insured Tax-Free Income FundFranklin Kentucky Tax-Free Income FundFranklin Louisiana Tax-Free Income FundFranklin Maryland Tax-Free Income FundFranklin Massachusetts Tax-FreeIncome FundFranklin Michigan Tax-Free Income FundFranklin Minnesota Tax-Free Income FundFranklin Missouri Tax-Free Income FundFranklin New Jersey Tax-Free Income FundFranklin North Carolina Tax-FreeIncome FundFranklin Ohio Tax-Free Income FundFranklin Oregon Tax-Free Income FundFranklin Pennsylvania Tax-FreeIncome FundFranklin Virginia Tax-Free Income Fund

Franklin Templeton Fund Allocator SeriesFranklin Templeton 2015 RetirementTarget FundFranklin Templeton 2025 RetirementTarget FundFranklin Templeton 2035 RetirementTarget FundFranklin Templeton 2045 RetirementTarget FundFranklin Templeton ConservativeAllocation FundFranklin Templeton CorefolioAllocation FundFranklin Templeton Founding FundsAllocation FundFranklin Templeton GrowthAllocation FundFranklin Templeton ModerateAllocation FundFranklin Templeton Global TrustFranklin Templeton Hard Currency FundFranklin Templeton International TrustFranklin India Growth FundFranklin Templeton Global Allocation FundFranklin World Perspectives FundTempleton Foreign Smaller Companies FundFranklin Value Investors TrustFranklin All Cap Value FundFranklin Balance Sheet Investment FundFranklin Large Cap Value FundFranklin MicroCap Value FundFranklin MidCap Value FundFranklin Small Cap Value FundInstitutional Fiduciary TrustMoney Market PortfolioTempleton Developing Markets TrustTempleton Global Investment TrustTempleton Asian Growth FundTempleton BRIC FundTempleton Emerging MarketsBalanced FundTempleton Emerging MarketsSmall Cap FundTempleton Frontier Markets FundTempleton Global Balanced FundTempleton Global Opportunities TrustTempleton Institutional FundsEmerging Markets SeriesForeign Equity SeriesForeign Smaller Companies SeriesGlobal Equity Series

The Prospectus is amended as follows:

I. The paragraph beginning “In considering an investor’s trading patterns…” in the “Exchanging Shares – FrequentTrading Policy” section of the Fund Details is revised as follows:

In considering an investor’s trading patterns, the Fund may consider, among other factors, the investor’s trading historyboth directly and, if known, through financial intermediaries, in the Fund, in other Franklin Templeton funds, in


non-Franklin Templeton mutual funds, or in accounts under common control or ownership (see, for example, “Investmentby asset allocators” in the SAI). The transfer agent may also reject any purchase or redemption request, whether or not itrepresents part of any ongoing trading pattern, if the Fund investment manager or transfer agent reasonably concludesthat the amount of the requested transaction may disrupt or otherwise interfere with the efficient management of theFund’s portfolio. In determining what actions should be taken, the Fund’s transfer agent may consider a variety offactors, including the potential impact of such remedial actions on the Fund and its shareholders. If the Fund is a “fundof funds,” the Fund’s transfer agent may take into account the impact of the trading activity and of any proposed remedialaction on both the Fund and the underlying funds in which the Fund invests.

II. The following replaces the second paragraph of the “Selling Shares – Selling Shares in Writing” section of the Fund Details:

We also may require a signature guarantee when we receive instructions from an agent, not the registered owners; whenyou want to send your proceeds to a bank account that was added or changed on your account within the last 15 days andthe bank and fund accounts have at least one common owner; or when we believe it would protect the Fund againstpotential claims based on the instructions received.

III. The following is added to the “SELLING SHARES” table of the “Selling Shares” section as a third paragraph under “ByElectronic Funds Transfer (ACH)” in the “Selling Shares” table of the Fund Details:

If the bank and Fund accounts have at least one common owner and the bank account was added or changed within thelast 15 days, you may be required to provide written instructions signed by all fund account owners, with a signatureguarantee for each fund account owner.

IV. The paragraph beginning “If you believe there are cumulative quantity discount…” in the “Choosing a Share Class –Sales Charge Reductions and Waivers” section of the Fund Details is replaced with the following:

If you believe there are cumulative quantity discount eligible shares that can be combined with your current purchase toachieve a sales charge breakpoint (for example, shares held in a different broker-dealer’s brokerage account or with a bank or an investment advisor), it is your responsibility to specifically identify those shares to your financial advisor atthe time of your purchase (including at the time of any future purchase). It may be necessary for you to provide yourfinancial advisor with information and records (including account statements) of all relevant accounts invested in theFranklin Templeton Funds. If you have not designated a financial advisor associated with your Franklin Templeton fundshares, it is your responsibility to specifically identify any cumulative quantity discount eligible shares to the Fund’stransfer agent at the time of any purchase.

Please keep this supplement for future reference.

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Franklin Templeton FundsLiterature Request. To receive a summary prospectus and/or prospectus, please call us at (800) DIAL BEN/342-5236 or

visit franklintempleton.com. Investors should carefully consider a fund’s investment goals, risks, charges and expenses

before investing. The prospectus contains this and other information. Please carefully read a prospectus before investing.

To ensure the highest quality of service, we may monitor, record and access telephone calls to or from our service

departments. These calls can be identified by the presence of a regular beeping tone.

VALUEFranklin All Cap Value FundFranklin Balance Sheet Investment FundFranklin Large Cap Value FundFranklin MicroCap Value Fund1

Franklin MidCap Value FundFranklin Small Cap Value FundMutual Beacon FundMutual Quest FundMutual Recovery Fund2

Mutual Shares Fund

BLENDFranklin Focused Core Equity FundFranklin Large Cap Equity FundFranklin Rising Dividends Fund

GROWTHFranklin DynaTech FundFranklin Flex Cap Growth FundFranklin Growth FundFranklin Growth Opportunities FundFranklin Small Cap Growth FundFranklin Small-Mid Cap Growth Fund

SECTORFranklin Biotechnology Discovery FundFranklin Global Real Estate FundFranklin Gold & Precious Metals FundFranklin Natural Resources FundFranklin Real Estate Securities FundFranklin Utilities FundMutual Financial Services Fund

GLOBALFranklin World Perspectives FundMutual Global Discovery FundTempleton Global Opportunities TrustTempleton Global Smaller Companies FundTempleton Growth FundTempleton World Fund

1. The fund is closed to new investors. Existing shareholders and select retirement plans cancontinue adding to their accounts.2. The fund is a continuously offered, closed-end fund. Shares may be purchased daily; thereis no daily redemption. However, each quarter, pending board approval, the fund will authorizethe repurchase of 5%–25% of the outstanding number of shares. Investors may tender all ora portion of their shares during the tender period.3. Effective 7/1/11, Templeton Income Fund changed its name to Templeton Global BalancedFund. Additionally, the fund changed its goal and pricing structure. Under normalcircumstances, the fund will invest: at least 25% of its assets in fixed income senior securities

and at least 25% of its assets in equity securities; at least 40% of its assets in non-U.S.investments; and in issuers located in at least three different countries (including the U.S.).4. An investment in the fund is neither insured nor guaranteed by the U.S. government or byany other entity or institution.5. For investors subject to the alternative minimum tax, a small portion of fund dividends maybe taxable. Distributions of capital gains are generally taxable.6. The fund invests primarily in insured municipal securities.7. The funds of the Franklin Templeton Variable Insurance Products Trust are generally availableonly through insurance company variable contracts.

AlabamaArizonaCalifornia (4 funds)ColoradoConnecticutFloridaGeorgiaKentuckyLouisianaMarylandMassachusettsMichigan

MinnesotaMissouriNew JerseyNew York (2 funds)North CarolinaOhioOregonPennsylvaniaTennesseeVirginia

INSURANCE FUNDSFranklin Templeton Variable Insurance Products Trust7

12/11 Not part of the semiannual report

INTERNATIONALFranklin India Growth FundFranklin International Growth FundFranklin International Small Cap Growth FundMutual European FundMutual International FundTempleton Asian Growth FundTempleton BRIC FundTempleton China World FundTempleton Developing Markets TrustTempleton Emerging Markets Small Cap FundTempleton Foreign FundTempleton Foreign Smaller Companies FundTempleton Frontier Markets Fund

HYBRIDFranklin Balanced FundFranklin Convertible Securities FundFranklin Equity Income FundFranklin Income FundTempleton Emerging Markets Balanced FundTempleton Global Balanced Fund3

ASSET ALLOCATIONFranklin Templeton Corefolio® Allocation FundFranklin Templeton Founding Funds Allocation FundFranklin Templeton Conservative Allocation FundFranklin Templeton Growth Allocation FundFranklin Templeton Moderate Allocation FundFranklin Templeton 2015 Retirement Target FundFranklin Templeton 2025 Retirement Target FundFranklin Templeton 2035 Retirement Target FundFranklin Templeton 2045 Retirement Target FundFranklin Templeton Global Allocation FundFranklin Templeton Multi-Asset Real Return Fund

FIXED INCOMEFranklin Adjustable U.S. Government Securities Fund4

Franklin Floating Rate Daily Access FundFranklin High Income Fund

Franklin Limited Maturity U.S. GovernmentSecurities Fund4

Franklin Low Duration Total Return FundFranklin Real Return FundFranklin Strategic Income FundFranklin Strategic Mortgage PortfolioFranklin Templeton Hard Currency FundFranklin Total Return FundFranklin U.S. Government Securities Fund4

Templeton Global Bond FundTempleton Global Total Return FundTempleton International Bond Fund

TAX-FREE INCOME5

NationalDouble Tax-Free Income FundFederal Tax-Free Income FundHigh Yield Tax-Free Income FundInsured Tax-Free Income Fund6

Limited-/ Intermediate-TermCalifornia Intermediate-Term Tax-Free Income FundFederal Intermediate-Term Tax-Free Income FundFederal Limited-Term Tax-Free Income FundNew York Intermediate-Term Tax-Free Income Fund

State-Specific

< GAIN FROM OUR PERSPECTIVE® >

VALUE BLEND GROWTH SECTOR GLOBAL INTERNAT IONAL HYBRID ASSET ALLOCAT ION F IXED INCOME TAX-FREE INCOME

© 2012 Franklin Templeton Investments. All rights reserved. MUN S 01/12

Semiannual Report and Shareholder Letter

Franklin Municipal Securities Trust

Investment ManagerFranklin Advisers, Inc.

DistributorFranklin Templeton Distributors, Inc.(800) DIAL BEN®/342-5236franklintempleton.com

Shareholder Services(800) 632-2301

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus.Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded andaccessed. These calls can be identified by the presence of a regular beeping tone.

franklin municipal securities trust semiannual report4 | semiannual report semiannual report for the...

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