FRANKLIN MUNICIPAL SECURITIES TRUST, N-30D, 1996-08-01

FRANKLIN MUNICIPAL SECURITIES TRUST
N-30D, 1996-08-01

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MESSAGE FROM THE CHAIRMAN

Table of Contents
Page

Message from the Chairman 1

Fund Reports

Franklin Arkansas
Municipal Bond Fund 3

Franklin California
High Yield Municipal Fund 8

Franklin Hawaii
Municipal Bond Fund 14

Franklin Tennessee
Municipal Bond Fund 19

Franklin Washington
Municipal Bond Fund 24

Statement of Investments 29

Financial Statements 44

Notes to Financial Statements 48

Report of
Independent Auditors 55

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

To reduce the volume of mail shareholders receive and to reduce expenses, only
one copy of most Fund reports, such as the Fund's annual and semi-annual
reports, may be mailed to a household. Additional reports may be obtained,
without charge, by calling Fund Information at 1-800/DIAL BEN (1-800/342-5236).

July 15, 1996

Dear Shareholder:

It's a pleasure to bring you this annual report for the Franklin Municipal
Securities Trust, covering the period ended May 31, 1996.

Declining interest rates, moderate growth and mild inflation characterized much
of the period under review. Economic growth slowed significantly in the first
half of this fiscal year, prompting the Federal Reserve Board to lower its
federal funds rate (the rate banks charge each other for overnight loans) on
three separate occasions -- in July and December 1995, and in January 1996. Bond
markets in general anticipated the Federal Reserve's actions, as long-term bond
yields had been decreasing steadily since the beginning of 1995, and prices of
fixed-income securities appreciated.

Interest rates began to rise, however, following stronger-than-expected
employment reports released in March and April 1996, which caused some weakness
in the financial markets. Although inflation remained in check, hopes for
additional rate reductions dimmed as the economy showed signs of improvement,
and interest rates continued to rise.

We anticipate moderate growth and mild inflation in the coming year. Despite
recent fluctuations, we believe interest rates may stabilize or possibly decline
in the coming year, should inflation remain subdued. Such an environment should
benefit the municipal securities market through price appreciation and
competitive rates. On the pages that follow, you will find detailed information
about these conditions and their effects on the funds.

A rebound of the municipal securities market in 1995 and 1996, after being hard
hit in 1994, reinforced our philosophy that investors should maintain a
long-term investment perspective. While your fund may experience volatility from
time to time, the funds within the Franklin Municipal Securities Trust should
perform well over the long term.

As always, we appreciate your continued support, welcome your comments, and look
forward to serving you in the years to come.

Sincerely,

Charles B. Johnson
Chairman
Franklin Municipal Securities Trust

FRANKLIN ARKANSAS MUNICIPAL BOND FUND

Your Fund's Objective:
Seeks to provide high current income exempt from regular federal and Arkansas
state personal income taxes while seeking preservation of capital by investing
primarily in a portfolio of Arkansas municipal securities.*

*The fund may invest as much as 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax. All or a significant portion of
the income on these obligations may be subject to such tax. Distributions of
capital gains and of ordinary income from accrued market discount, if any, are
generally taxable.

State Update

During the fund's fiscal year, the state of Arkansas continued to report low
levels of debt, significant economic growth, and strong financial performance
with increasing reserve levels. State finances appear to be well-managed under
Arkansas' Revenue Stabilization Act, which requires that spending is funded only
after sufficient revenues have been collected. In addition, despite a recent
increase in borrowing, Arkansas' debt load is among the lowest in the nation.
The state has also experienced strong employment growth since 1991. In fact,
state employment growth for the 12 months ended January 1996 was 3.2%, while the
national rate was 2.1%.**

**Source: Moody's Municipal Credit Report, 5/7/96.

Franklin Arkansas Municipal Bond Fund
Portfolio Breakdown on 5/31/96
Based on total long-term investments
% of total
long-term
Sector investments

Utilities 34.1%

Education 18.1%

Hospitals 14.9%

Housing 13.5%

General Obligations 10.3%

Industria l4.7%

Transportation 4.4%

For a complete list of portfolio holdings, please see page 29 of this report.

Portfolio Notes

Over the reporting period, we continued to purchase current coupon bonds (bonds
paying interest at or near the current market rate) at face value, or at a
slight discount, seeking to maximize income while looking to enhance long-term
performance.

Scarcity of Arkansas bonds increased their value, as demand exceeded supply.
Consequently, as opportunity arose, we sold some of our Puerto Rico bonds,
specifically our highway and General Obligation bonds, and purchased several
Arkansas securities, including issues of Little Rock School District, Arkansas
State Water Resources Development, and Pope Power and Light.

The Franklin Arkansas Municipal Bond Fund has continued to grow in a relatively
stable economic and political environment. A continued, low supply of bonds,
coupled with a high level of demand, should help the fund perform well in the
coming year.

GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

The share price of the Franklin Arkansas Municipal Bond Fund, as measured by net
asset value, decreased 11 cents, from $10.32 on May 31, 1995, to $10.21 on May
31, 1996.

Franklin Arkansas Municipal Bond Fund
Dividend Distributions 6/01/95 -- 5/31/96**

Dividend
Month Per Share

June 4.8 cents

July 4.8 cents

August 4.8 cents

September 4.8 cents

October 4.8 cents

November 4.8 cents

December 4.8 cents

January 4.8 cents

February 4.9 cents

March 4.9 cents

April 4.9 cents

May 4.9 cents

Total 58.0 cents

We are pleased to report that the fund's income increased, which enabled us to
raise the dividend to 4.9 cents ($0.049) per share, from 4.8 cents ($0.048) per
share, effective with the February distribution. At the end of the reporting
period, your fund's distribution rate was 5.52%, based on an annualization of
the current monthly dividend of 4.9 cents per share and the maximum offering
price of $10.66 on May 31, 1996. This double tax-free rate is generally higher
than the after-tax return on a comparable taxable investment. As the chart on
page 5 illustrates, an investor in the maximum combined federal and Arkansas
state personal income tax bracket of 43.8% would have to earn 9.83% from a
taxable investment to match the fund's tax-free distribution rate.

GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT

**Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.

The chart to the right illustrates that the fund outperformed the Consumer Price
Index (CPI) over the reporting period. Although the fund underperformed the
unmanaged Lehman Brothers Municipal Bond Index, comparing any mutual fund with
an unmanaged index is never an apples-to-apples comparison. Performance figures
reported by a general market index do not include various fees, sales charges
and operating expenses included in the fund's performance figures. Also, unlike
indices, mutual funds are never fully invested because they must have cash on
hand to redeem shares. If the fund's costs had been applied to the index, the
index's performance would have been lower. The index also invests in municipal
bonds from across the country while your fund invests primarily in Arkansas
municipal bonds. Please remember that an index is simply a measure of
performance, and one cannot invest in an index directly. Past performance is not
predictive of future results.

GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin Arkansas Municipal Bond Fund
Periods ended May 31, 1996

Since
Inception
1-Year (5/10/94)

Cumulative Total Return1 4.65% 12.75%

Average Annual Total Return2 0.19% 3.80%

Distribution Rate3 5.52%

Taxable Equivalent Distribution Rate4 9.83%

30-Day Standardized Yield5 5.53%

Taxable Equivalent Yield4 9.85%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.25% initial
sales charge. See Note below.

3. Distribution rate is based on an annualization of the current 4.9 cent per
share monthly dividend and the maximum offering price of $10.66 on May 31, 1996.

4. Taxable equivalent distribution rate and yield assume the 1996 maximum
combined federal and Arkansas state personal income tax bracket of 43.8%, based
on the federal tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 1996.

Note: All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.

The fund's manager agreed in advance to waive a portion of its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
4.91%. The fee waiver may be discontinued at any time upon notice to the fund's
Board of Trustees.

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

Your Fund's Objective:
Seeks to provide high current income exempt from regular federal and California
state personal income taxes while seeking preservation of capital by investing
primarily in a portfolio of high yielding, medium-, lower-, and non-rated
California municipal securities.*

*For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable. In
general, an investor is paid a higher yield to assume a greater degree of risk.

State Update

After a prolonged recession, California's economy moved into its third year of
recovery. Several factors have contributed to the state's rebound, including the
implementation of the North American Free Trade Agreement, growth in Pacific
trade, expansion in high technology industries, increases in construction, and a
decrease in military cutbacks.**

**Source: Standard & Poor's Creditweek Municipal, 9/11/95.

The California legislature has taken significant steps to restructure the
state's budget and has held expenditures equal to, or below, revenues for the
fourth year in a row. The state also entered its third consecutive year of
surplus operations. As a result, California's 1995-96 Revenue Anticipation Notes
(short-term municipal bonds, which are paid off when anticipated revenues such
as sales taxes are collected) received the highest credit rating possible from
Moody's, a national rating agency.

Franklin California High Yield Municipal Fund
Portfolio Breakdown on 5/31/96
Based on total long-term investments
% of total
long-term
Sector investments

Transportation 20.1%

Utilities 15.1%

Mello-Roos Bonds 14.8%

Certificates of Participation 10.0%

Housing 9.6%

Special Assessment Bonds 8.0%

Tax Allocation Bonds 4.9%

Other Revenue 4.0%

Education 2.9%

Hospitals 2.9%

General Obligations 2.8%

Marks-Roos Bonds 2.3%

Health Care 1.7%

Industrial Revenue Bonds 0.9%

For a complete list of portfolio holdings, please see page 31 of this report.

Portfolio Notes

The low supply of quality, high-yield California municipal bonds led us to
increase the number of AAA-rated bonds in the fund's portfolio, to 9.4% of total
long-term investments on May 31, 1996, from 1.1% one year earlier. Decreased
yield spreads between higher quality and lower-rated municipal securities also
made AAA bonds attractive because they yielded only slightly less than the
lower-rated issues. The fund's concentration in high quality issues provided for
increased liquidity and decreased credit risk. Despite this, in August 1995, we
were able to increase the dividend to 5.5 cents ($0.055) per share, from 5.3
cents ($0.053) per share.

Our conservative "buy and hold" strategy proved successful during the fund's
fiscal year, given the recent municipal bond market volatility. California
municipal bonds continue to be scarce in the primary and secondary markets, as
more bonds are leaving than are entering. By being fully invested, however, we
anticipate the fund should perform well despite sporadic bond supply. In
addition, we believe the fund's assets will continue to grow, enabling us to
diversify our investments further, as we did during the past year.

GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

Class I
(Class II Performance Summary begins on page 12.)

The Class I share price of the Franklin California High Yield Municipal Fund, as
measured by net asset value, decreased 12 cents, from $9.93 on May 31, 1995, to
$9.81 on May 31, 1996.

We are pleased to report that the fund's income increased, which enabled us to
raise the dividend to 5.5 cents ($0.055) per share, from 5.3 cents ($0.053) per
share, effective with the August 1995 distribution. At the end of the reporting
period, your fund's Class I share distribution rate was 6.44%, based on an
annualization of the current monthly dividend of 5.5 cents per share and the
maximum offering price of $10.25 on May 31, 1996.

Franklin California High Yield Municipal Fund
Dividend Distributions 6/01/95 -- 5/31/96**

Dividend
Month Per Share

June 5.3 cents

July 5.3 cents

August 5.5 cents

September 5.5 cents

October 5.5 cents

November 5.5 cents

December 5.5 cents

January 5.5 cents

February 5.5 cents

March 5.5 cents

April 5.5 cents

May 5.5 cents

Total 65.6 cents

GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart on page 10 illustrates, an investor
in the maximum combined federal and California state personal income tax bracket
of 45.2% would have to earn 11.76% from a taxable investment to match the fund's
tax-free distribution rate.

The chart to the right illustrates that since 1995, your fund's Class I shares
have outperformed the Consumer Price Index (CPI), keeping your purchasing power
well ahead of inflation -- a primary goal of any investment. Although the fund's
Class I shares underperformed the unmanaged Lehman Brothers Municipal Bond Index
since the fund's inception in 1993, comparing any mutual fund with an unmanaged
index is never an apples-to-apples comparison. Performance figures reported by a
general market index do not include various fees, sales charges and operating
expenses included in the fund's performance figures. Also, unlike indices,
mutual funds are never fully invested because they must have cash on hand to
redeem shares. If the fund's costs had been applied to this index, the index's
performance would have been lower. The index also invests in municipal bonds
from across the country, while your fund invests primarily in California
municipal bonds. Please remember that an index is simply a measure of
performance, and one cannot invest in an index directly. Past performance is not
predictive of future results.

GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Class II

On May 1, 1996, the Franklin California High Yield Municipal Fund began offering
Class II shares. The Class II share price, as measured by net asset value, was
$9.82 per share on May 31, 1996, unchanged from $9.82 per share on May 1, 1996.

At the end of the reporting period, the fund's Class II share distribution rate
was 4.61%, based on the current monthly dividend of 3.81 cents ($0.0381) per
share and the offering price of $9.92 on May 31, 1996.

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart above illustrates, an investor in
the maximum combined federal and California state personal income tax bracket of
45.2% would have to earn 8.42% from a taxable investment to match the fund's
tax-free distribution rate.

GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin California High Yield Municipal Fund

Periods ended May 31, 1996

Since
Inception
1-Year 3-Year (5/3/93)

Cumulative Total Return1
Class I 5.55% 18.64% 18.28%
Average Annual Total Return2
Class I 1.07% 4.35% 4.13%

Distribution Rate3 Taxable Equivalent Distribution Rate4
Class I 6.44% Class I 11.76%
Class II 4.61% Class II 8.42%
30-Day Standardized Yield5 Taxable Equivalent Yield4
Class I 6.12% Class I 11.17%
Class II 6.24% Class II 11.39%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the current maximum 4.25% initial
sales charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the current, maximum 4.25%
initial sales charge. See Note below.

3. Distribution rate for Class I shares is based on an annualization of the
current 5.5 cent per share monthly dividend and the maximum offering price of
$10.25 on May 31, 1996. Distribution rate for Class II shares is based on an
annualization of the current 3.81 cent per share monthly dividend and the
offering price of $9.92 on May 31, 1996.

4. Taxable equivalent distribution rates and yields assume the 1996 maximum
combined federal and California state personal income tax bracket of 45.2%,
based on the federal tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 1996.

Note: Prior to July 1, 1994, Class I shares were offered at a higher initial
sales charge. Thus, actual total returns for purchasers of shares during that
period would have been lower than noted above. All total return calculations
assume reinvestment of dividends and capital gains at net asset value.
Investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares. Past performance is not
predictive of future results. Since Class II shares have been in existence only
since May 1, 1996, total return figures are not yet available.

The fund's manager agreed in advance to waive a portion of its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
5.62% for Class I shares and 5.74% for Class II shares. The fee waiver may be
discontinued at any time upon notice to the fund's Board of Trustees.

FRANKLIN HAWAII MUNICIPAL BOND FUND

Your Fund's Objective:
Seeks to provide high current income exempt from regular federal and Hawaii
state personal income taxes while seeking preservation of capital by investing
primarily in a portfolio of Hawaii municipal securities.*

State Update

Hawaii's economy, which is largely dependent on income from tourism and
construction, was slow to rebound from the early '90s recession suffered by much
of the country. Hawaii's tourism industry, however, has begun to recover slowly
due in large part to a great number of tourists from Pacific Rim countries. As a
result, construction and foreign investment also recently increased, helping the
state's economy.

Hawaii has a history of sound financial operations. In response to recent budget
shortfalls, however, the state implemented several labor reductions in 1995,
including 600 layoffs, or 0.11% of the state's annual jobforce.** Hawaii's debt
levels remained relatively high during the past fiscal year. This is largely due
to the state's highly centralized government, which is responsible for many
operations normally undertaken by local government, such as education and health
care programs. However, disciplined financial management should help the state
address remaining budgetary challenges, as in the past.

**Source: Bureau of Labor Statistics.

Franklin Hawaii Municipal Bond Fund
Portfolio Breakdown on 5/31/96
Based on total long-term investments

% of total
long-term
Sector investments

Utilities 30.7%

Transportation 19.6%

Housing 18.6%

Hospitals 17.6%

General Obligations 9.8%

Pre-Refunded 2.5%

Industrial 1.2%

For a complete list of portfolio holdings, please see page 36 of this report.

Portfolio Notes

During the reporting period, we maintained our conservative management of the
fund, evaluating new issues based on their stability and income-producing
potential. The centralized nature of the state's government resulted in a high
level of debt issuance, allowing us to invest the fund's assets across several
sectors, as the chart on the previous page indicates. Such diversification can
help us protect the fund against downturns in any one sector. In addition, we
sought to reduce the fund's exposure to credit risk by investing largely in
bonds rated A or better. Our percentage of bond holdings improved significantly
during the year, moving upward to 96.8% of total long-term investments on May
31, 1996, from 83.9% one year earlier.

Hawaii's slowly rebounding tourism and construction sectors, coupled with its
disciplined fiscal management and concerted efforts to balance its budget,
should help the fund perform well in the coming year. We will continue to seek
issues offering high credit safety and steady income.

GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

The share price of the Franklin Hawaii Municipal Bond Fund, as measured by net
asset value, decreased 13 cents, from $10.67 on May 31, 1995, to $10.54 on May
31, 1996.

Franklin Hawaii Municipal Bond Fund
Dividend Distributions 6/01/95 -- 5/31/96++

Dividend
Month Per Share

June 5.0 cents

July 5.0 cents

August 5.0 cents

September 5.0 cents

October 5.0 cents

November 5.0 cents

December 5.0 cents

January 5.0 cents

February 5.0 cents

March 5.0 cents

April 5.0 cents

May 5.0 cents

Total 60.0 cents

++Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions and total return calculations include all accrued income earned by
the fund during the reporting period.

GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT

At the end of the reporting period, your fund's distribution rate was 5.45%,
based on an annualization of the current monthly dividend of 5.0 cents per share
and the maximum offering price of $11.01 on May 31, 1996.

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart on page 16 illustrates, an investor
in the maximum combined federal and Hawaii state personal income tax bracket of
45.6% would have to earn 10.03% from a taxable investment to match the fund's
tax-free distribution rate.

The chart to the right illustrates that since its inception in 1992, the fund
has outperformed the Consumer Price Index (CPI), keeping your purchasing power
well ahead of inflation -- a primary goal of any investment. Although the fund
underperformed the unmanaged Lehman Brothers Municipal Bond Index, comparing any
mutual fund with an unmanaged index is never an apples-to-apples comparison.
Performance figures reported by a general market index do not include various
fees, sales charges and operating expenses included in the fund's performance
figures. Also, unlike indices, mutual funds are never fully invested because
they must have cash on hand to redeem shares. If the fund's costs had been
applied to this index, the index's performance would have been lower. The index
also invests in municipal bonds from across the country, while your fund invests
primarily in Hawaii municipal bonds. Please remember that an index is simply a
measure of performance, and one cannot invest in an index directly. Past
performance is not predictive of future results.

GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin Hawaii Municipal Bond Fund

Periods ended May 31, 1996

Since
Inception
1-Year 3-Year (2/26/92)

Cumulative Total Return1 4.49% 15.66% 33.52%

Average Annual Total Return2 0.09% 3.46% 5.94%

Distribution Rate3 5.45%

Taxable Equivalent
Distribution Rate4 10.03%

30-Day Standardized Yield5 5.53%

Taxable Equivalent Yield4 10.17%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the current maximum 4.25% initial
sales charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the current, maximum 4.25%
initial sales charge. See Note below.

3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $11.01 on May 31, 1996.

4. Taxable equivalent distribution rate and yield assume the 1996 maximum
combined federal and Hawaii state personal income tax bracket of 45.6%, based on
the federal tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 1996.

Note: Prior to July 1, 1994, shares were offered at a higher initial sales
charge. Thus, actual total returns for purchasers of shares during that period
would have been lower than noted above. All total return calculations assume
reinvestment of dividends and capital gains at net asset value. Investment
return and principal value will fluctuate with market conditions, and you may
have a gain or loss when you sell your shares. Past performance is not
predictive of future results.

The fund's manager agreed in advance to waive a portion of its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
5.17%. The fee waiver may be discontinued at any time upon notice to the fund's
Board of Trustees.

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

Your Fund's Objective:
Seeks to provide high current income exempt from regular federal and Tennessee
state personal income taxes while seeking preservation of capital by investing
primarily in a portfolio of Tennessee municipal securities.*

State Update

Tennessee continued to boast conservative fiscal management, moderate debt
levels and sustained economic growth. The state had two major sources of
expenditure growth: the school equalization program, which began in 1992, and
TennCare, a statewide health program formed to address the needs of low-income
and uninsured residents. Despite these expenditures, overall positive economic
growth and financial stability resulted in continued revenue growth during the
fund's fiscal year.

Tennessee's economy experienced increased diversification, which contributed to
employment growth exceeding national levels.** As a result, personal income
levels in the state surpassed national averages. Increases in income and
employment are anticipated to remain above national levels over the next few
years.**

**Source: Moody's Municipal Credit Report, 1/30/96.

Franklin Tennessee Municipal Bond Fund
Portfolio Breakdown on 5/31/96
Based on total long-term investments

% of total
long-term
Sector investments

Industrial 23.5%

Housing 18.6%

General Obligations 15.0%

Transportation 14.7%

Hospitals 12.7%

Utilities 6.3%

Education 2.7%

Pre-Refunded 2.5%

Other Revenue 2.4%

Certificates of Participation 1.6%

For a complete list of portfolio holdings, please see page 38 of this report.

Portfolio Notes

The Franklin Tennessee Municipal Bond Fund experienced significant growth over
the fiscal year, enabling us to diversify the fund's portfolio further. In fact,
the number of issues held in the fund increased to 51 on May 31, 1996, from 34
one year ago, and as the chart on the previous page illustrates, these
securities span many sectors. Also, the percentage of highly rated, AAA bonds
increased, to 40% of total long-term investments on May 31, 1996, from 34% on
May 31, 1995. This increase offered a great deal of liquidity and credit
security during the period, but it did not have a negative impact on the fund's
income. In fact, we were able to increase the dividend to 5 cents ($0.05) per
share, from 4.9 cents ($0.049) per share, effective in November 1995.

Our conservative "buy and hold" strategy proved successful during the fund's
fiscal year, given the recent volatility of the municipal bond market. We
anticipate Tennessee municipal bonds may continue to be scarce, as more bonds
are leaving the market than are entering it. By being fully invested, however,
we believe the fund should perform well despite sporadic bond supply in the
primary and secondary markets. In addition, the fund should continue to grow,
enabling us to further diversify our investments, as we did during the past
year.

GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

The share price of the Franklin Tennessee Municipal Bond Fund, as measured by
net asset value, decreased 13 cents, from $10.53 on May 31, 1995 to $10.40 on
May 31, 1996.

We are pleased to report that the fund's increased income allowed us to raise
the dividend to 5.0 cents ($0.05) per share, from 4.9 cents ($0.049) per share,
effective with the November 1995 distribution. At the end of the reporting
period, your fund's distribution rate was 5.52%, based on an annualization of
the current monthly dividend of 5.0 cents per share and the maximum offering
price of $10.86 on May 31, 1996.

Franklin Tennessee Municipal Bond Fund
Dividend Distributions 6/01/95 -- 5/31/96++

Dividend
Month Per Share

June 4.9 cents

July 4.9 cents

August 4.9 cents

September 4.9 cents

October 4.9 cents

November 5.0 cents

December 5.0 cents

January 5.0 cents

February 5.0 cents

March 5.0 cents

April 5.0 cents

May 5.0 cents

Total 59.5 cents

GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart on page 21 illustrates, an investor
in the maximum combined federal and Tennessee state personal income tax bracket
of 43.2% would need to earn 9.72% from a taxable investment to match the fund's
tax-free distribution rate.

The chart to the right illustrates that since 1995, the fund has outperformed
the Consumer Price Index (CPI), keeping your purchasing power well ahead of
inflation -- a primary goal of any investment. Although, the fund underperformed
the unmanaged Lehman Brothers Municipal Bond Index since the fund's inception in
1994, comparing any mutual fund with an unmanaged index is never an
apples-to-apples comparison. Performance figures reported by a general market
index do not include various fees, sales charges and operating expenses included
in the fund's performance figures. Also, unlike indices, mutual funds are never
fully invested because they must have cash on hand to redeem shares. If the
fund's costs had been applied to this index, the index's performance would have
been lower.

GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT

The index also invests in municipal bonds from across the country, while your
fund invests primarily in Tennessee municipal bonds. Please remember that an
index is simply a measure of performance, and one cannot invest in an index
directly. Past performance is not predictive of future results.

Franklin Tennessee Municipal Bond Fund
Periods ended May 31, 1996

Since
Inception
1-Year (5/10/94)

Cumulative Total Return1 4.50% 14.94%

Average Annual Total Return2 0.04% 4.77%

Distribution Rate3 5.52%

Taxable Equivalent Distribution Rate4 9.72%

30-Day Standardized Yield5 5.41%

Taxable Equivalent Yield4 9.53%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.25% initial
sales charge. See Note below.

3. Distribution rate is based on an annualization of the current 5.0 cent per
share monthly dividend and the maximum offering price of $10.86 on May 31, 1996.

4. Taxable equivalent distribution rate and yield assume the 1996 maximum
combined federal and Tennessee state personal income tax bracket of 43.2%, based
on the federal tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 1996.

The fund's manager agreed in advance to waive a portion of its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
4.74%. The fee waiver may be discontinued at any time upon notice to the fund's
Board of Trustees.

FRANKLIN WASHINGTON MUNICIPAL BOND FUND

Your Fund's Objective:
Seeks to provide high current income exempt from regular federal income tax
while seeking preservation of capital by investing primarily in a portfolio of
Washington municipal securities.*

State Update

Washington's economy continued to diversify away from traditional aerospace and
timber industries, into the trade, service and high tech industries. Despite the
recent Boeing strike and 7,500-job reduction by that company, Washington's
economy continued to grow. In fact, the state added 92,000 new jobs in 1995, a
3.63% increase over 1994.+

+Source: Bureau of Labor Statistics.

Employment expansion is expected to continue over the next few years, as
Washington's relatively low cost of doing business makes it an attractive
location. Low energy costs, coupled with tax incentives to companies that
relocate to the state, have continued to attract new businesses and benefit the
local economy. In fact, Intel's new manufacturing and research and development
campus may employ up to 6,000 people within four years.++

++Source: Moody's Municipal Credit Report, 2/21/96.

Franklin Washington Municipal Bond Fund
Portfolio Breakdown on 5/31/96
Based on total long-term investments

% of total
long-term
Sector investments

Utilities 32.5%

General Obligations 24.1%

Housing 15.2%

Industrial 10.6%

Education 8.5%

Hospitals 5.0%

Transportation 2.7%

Certificates of Participation 1.4%

For a complete list of portfolio holdings, please see page 41 of this report.

Portfolio Notes

During the reporting period, we maintained our conservative management of the
fund, evaluating new issues based on their stability and income-producing
potential. The fund's assets were well-diversified across several sectors, as
the chart on page 24 indicates, which should help protect against downturns in
any one sector. In addition, we maintained the relatively high quality of bonds
in the fund's portfolio, with AAA-rated bonds representing 46.6% of the fund's
total long-term investments, down very slightly from 48.4% one year ago. The
high quality of these bonds helped protect your fund against credit risk during
its fiscal year.

As more Washington municipal issues come to market, we will continue to seek
diversification, high quality, and high income. We anticipate that a relatively
stable interest-rate environment, coupled with Washington's moderate debt
burden, should position your fund to perform well in the coming year.

GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

The share price of the Franklin Washington Municipal Bond Fund, as measured by
net asset value, decreased 10 cents, from $9.90 on May 31, 1995, to $9.80 on May
31, 1996.

Franklin Washington Municipal Bond Fund
Dividend Distributions 6/01/95 -- 5/31/96**

Dividend
Month Per Share

June 4.8 cents

July 4.8 cents

August 4.8 cents

September 4.8 cents

October 4.8 cents

November 4.8 cents

December 4.8 cents

January 4.8 cents

February 4.8 cents

March 4.8 cents

April 4.8 cents

May 4.8 cents

Total 57.6 cents

GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT

At the end of the reporting period, your fund's distribution rate was 5.63%,
based on an annualization of the current monthly dividend of 4.8 cents per share
and the maximum offering price of $10.23 on May 31, 1996.

This tax-free rate is generally higher than the after-tax return on a comparable
taxable investment. As the chart on page 26 illustrates, an investor in the
maximum federal income tax bracket of 39.6% would need to earn 9.32% from a
taxable investment to match the fund's tax-free distribution rate.

The chart to the right illustrates that, since 1995, the fund has outperformed
the Consumer Price Index (CPI), keeping your purchasing power well ahead of
inflation -- a primary goal of any investment. Although the fund underperformed
the unmanaged Lehman Brothers Municipal Bond Index since the fund's inception in
1993, comparing any mutual fund with an unmanaged index is never an
apples-to-apples comparison. Performance figures reported by a general market
index do not include various fees, sales charges and operating expenses included
in the fund's performance figures. Also, unlike indices, mutual funds are never
fully invested because they must have cash on hand to redeem shares. If the
fund's costs had been applied to this index, the index's performance would have
been lower. The index also invests in municipal bonds from across the country,
while your fund invests primarily in Washington municipal bonds. Please remember
that an index is simply a measure of performance, and one cannot invest in an
index directly. Past performance is not predictive of future results.

GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin Washington Municipal Bond Fund

Periods ended May 31, 1996

Since
Inception
1-Year 3-Year (5/3/93)

Cumulative Total Return1 4.91% 15.66% 15.54%

Average Annual Total Return2 0.44% 3.47% 3.35%

Distribution Rate3 5.63%

Taxable Equivalent
Distribution Rate4 9.32%

30-Day Standardized Yield5 5.27%

Taxable Equivalent Yield4 8.73%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the current maximum 4.25% initial
sales charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and include the current, maximum 4.25%
initial sales charge. See Note below.

3. Distribution rate is based on an annualization of the current 4.8 cent per
share monthly dividend and the maximum offering price of $10.23 on May 31, 1996.

4. Taxable equivalent distribution rate and yield assume the 1996 maximum
federal income tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 1996.

The fund's manager agreed in advance to waive a portion of its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
4.17%. The fee waiver may be discontinued at any time upon notice to the fund's
Board of Trustees.

FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, May 31, 1996
<TABLE>
<CAPTION>

Face Value
Amount Franklin Arkansas Municipal Bond Fund (Note 1)
Bonds 99.2%

<C> <S> <C>
$ 110,000 Arkansas Development Financing Authority, SFMR, MBS
Program, Series D, 6.85%, 01/01/27 ............................................... $ 114,496
130,000 Arkansas GO, Refunding, Waste Disposal and Pollution, Series B, 6.25%, 07/01/20 ... 134,022
Arkansas State Development Finance Authority,
200,000 SFMR, MBS Program, Series A, 5.45%, 07/01/16 ..................................... 194,290
1,000,000 Wastewater Systems Revenue, Revolving Loan Fund, Series A, 5.85%, 12/01/19 ....... 983,690
500,000 Arkansas State Student Loan Authority Revenue,
Refunding, Sub-Series B, 6.25%, 06/01/10 ......................................... 495,860
300,000 Arkansas State Water Reserve Development, Series B, 5.75%, 07/01/25 ............... 290,124
100,000 Blytheville Solid Waste Recycling and Sewage
Treatment Revenue, Nucor Corp. Project, 6.375%, 01/01/23 ......................... 100,747
250,000 Camden Environmental Improvement Revenue,
International Paper Co. Project, Series A, 7.625%, 11/01/18 ...................... 276,383
130,000 Fort Smith Water and Sewer Revenue, Refunding and
Construction, MBIA Insured, 6.00%, 10/01/12 ...................................... 133,579
130,000 Fouke School District No. 15, Refunding and Construction,
MBIA Insured, 6.60%, 04/01/19 .................................................... 134,716
115,000 Greenland School District No. 95, Washington County,
Refunding and Construction, MBIA Insured, 6.50%, 05/01/13 ........................ 118,903
125,000 Guam Airport Authority Revenue, Series B, 6.60%, 10/01/10 ......................... 125,329
200,000 Independence County Public Health, Education and Housing
Facilities Board Revenue, Refunding, White River Medical
Center Project, FSA Insured, 5.50%, 06/01/09 ..................................... 195,824
400,000 Jefferson County PCR, Refunding, Arkansas Power & Light Co., 6.30%, 06/01/18 ...... 401,464
375,000 Jonesboro City Water and Light Plant, Public Utilities System Revenue, Refunding,
AMBAC Insured, 5.25%, 12/01/13 ................................................... 356,869
140,000 Little Rock Capital Improvement, Refunding, 6.30%, 02/01/09 ....................... 143,279
130,000 Little Rock Municipal Airport Revenue, Refunding, MBIA Insured, 6.00%, 11/01/14 ... 131,990
120,000 Little Rock School District GO, Refunding, 6.25%, 12/01/07 ........................ 121,094
100,000 Little Rock School District, Refunding, FSA Insured, 5.60%, 01/01/20 .............. 94,982
240,000 Little Rock Waste Disposal Revenue, 5.80%, 05/01/16 ............................... 233,093
500,000 Pope County PCR, Refunding, Arkansas Power and Light Co. Project, 6.30%, 11/01/20.. 493,220
250,000 Puerto Rico Commonwealth GO, 6.50%, 07/01/23 ...................................... 260,675
100,000 Puerto Rico Commonwealth Highway and Transportation Authority, Highway Revenue,
Refunding, Series V, 5.75%, 07/01/18 ............................................. 95,663
175,000 Puerto Rico Electric Power Authority Revenue, Series R, 6.25%, 07/01/17 ........... 176,311
175,000 Puerto Rico SFMR, Bank and Financial Agency, Affordable Housing Mortgage,
Portfolio I, 6.25%, 04/01/29 ..................................................... 176,075
125,000 Pulaski County Health Facilities, Board Revenue, Refunding, Nazareth Sisters of Charity,
St. Vincent's Infirmary, MBIA Insured, 6.05%, 11/01/09 ........................... 129,410
600,000 Pulaski County Public Facilities Board, MFR, Refunding, South Oaks Apartments,
Series A, 6.50%, 10/20/29 ........................................................ 608,526
$ 700,000 Saline County Hospital Revenue, Refunding, Connie Lee Insured, 6.00%, 09/01/19 .... $ 687,022
195,000 Saline County, Retirement Housing and Healthcare Facilities Board Revenue, Refunding,
AMBAC Insured, 5.80%, 06/01/11 ................................................... 192,122
375,000 b University of Central Arkansas Revenue, Athletic Facilities, Series C, AMBAC Insured,
6.125%, 04/01/26 ................................................................. 375,738
125,000 University of Southern Arkansas, Student Fees, MBIA Insured, 6.00%, 10/01/13 ...... 126,978
-------------
Total Investments (Cost $8,061,338)99.2%........................................... 8,102,474
Other Assets and Liabilities, Net.8%............................................... 63,073
-------------
Net Assets100.0%................................................................... $8,165,547
=============
At May 31, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $8,061,338 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost..................................................... $ 93,289
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value..................................................... (52,153)
-------------
Net unrealized appreciation........................................................ $ 41,136
=============
</TABLE>

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FSA - Financial Security Assistance
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
MFR - Multi-Family Revenue
PCR - Pollution Control Revenue
SFMR - Single Family Mortgage Revenue

bSee Note 1(e) regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, May 31, 1996
<TABLE>
<CAPTION>

Face Value
Amount Franklin California High Yield Municipal Fund (Note 1)
Long Term Investments96.0%

Bonds
<C> <S> <C>
$ 2,000,000 Adelanto Water Authority Revenue, Water Systems, Acquisition Project, Series A,
7.50%, 09/01/28 ............................................................... $ 1,895,580
480,000 Antioch Improvement Bond 1915 Act, AD No. 27, Series D, 7.30%, 09/02/13 ........ 479,918
1,510,000 Belmont RDA, Tax Allocation, Los Costanos Community Development, Series A,
6.80%, 08/01/24 ............................................................... 1,562,397
575,000 Benicia 1915 Act, Refunding, Fleetside Industrial Park Assessment, 7.00%, 09/02/14 567,922
1,000,000 California Educational Facilities Authority Revenue, Pooled College and University
Projects, Series B, 6.00%, 12/01/12 ........................................... 958,620
California Health Facilities Financing Authority Revenue, Insured,
1,800,000 Cedarknoll, Series B, 7.50%, 08/01/20 ......................................... 1,917,738
990,000 Thessalonika Family, Series A, 6.20%, 12/01/15 ................................ 965,963
California HFAR, Home Mortgage,
1,150,000 Series B, 7.125%, 02/01/26 .................................................... 1,184,006
1,800,000 Series F-1, 7.00%, 08/01/26 ................................................... 1,839,060
2,500,000 bSeries H, 6.25%, 08/01/27 .................................................. 2,465,975
2,000,000 California PCFA, PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 1,999,960
1,000,000 California PCFA, Solid Waste Disposal Revenue, Browning-Ferris Industry,
6.75%, 09/01/19 ............................................................... 1,036,540
80,000 California Special District Association Finance Corp., COP, Series V, 7.50%, 05/01/13 81,120
1,990,000 California State Department of Water Resources, Central Valley Project Revenue,
Refunding, Series L, MBIA Insured, 5.50%, 12/01/23 ............................ 1,851,735
California State GO,
2,000,000 Various Purposes, AMBAC Insured, 5.90%, 03/01/25 .............................. 1,959,120
1,250,000 Veterans, Series BD, BE, BF, 6.40%, 02/01/22 .................................. 1,257,125
1,800,000 California Statewide Communities Development Authority Revenue, COP,
7.25%, 12/01/22 ............................................................... 1,919,826
1,000,000 Capistrano USD, CFD, Special Tax No. 92-1, 7.00%, 09/01/18 ..................... 953,390
Coast Community College District COP, Garden Grove Project,
640,000 6.00%, 02/01/15 ............................................................... 606,291
675,000 6.00%, 02/01/16 ............................................................... 638,489
Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue, Senior Lien,
Series A,
3,525,000 6.50%, 01/01/32 ............................................................... 3,471,878
4,575,000 6.00%, 01/01/34 ............................................................... 4,230,594
4,375,000 Garden Grove Housing Authority, MFHR, Set-Aside Tax Increment, Series C,
6.70%, 07/01/24 ............................................................... 4,309,419
2,500,000 Gateway Improvement Authority Revenue, Marin City Community Facilities District,
Series A, 7.75%, 09/01/25 ..................................................... 2,552,150
2,600,000 Hesperia Public Financing Authority, Improvement Revenue, Series B,
7.375%, 10/01/23 .............................................................. 2,573,974
Bonds (cont.)
$ 2,500,000 Irvine 1915 Act, AD No. 94-15, 6.70%, 09/02/20 ................................. $ 2,354,550
Irvine Ranch Water District Joint Powers Agency, Local Pool Revenue,
1,000,000 Issue I, 7.875%, 02/15/23 ..................................................... 1,046,370
2,000,000 Issue II, 8.25%, 08/15/23 ..................................................... 2,134,120
1,500,000 John C. Fremont Hospital District Revenue, California Health Facilities Insured,
6.75%, 06/01/13 ............................................................... 1,547,220
1,265,000 Lake Elsinore 1915 Act, AD No. 93-1, Series A, 7.90%, 09/02/24 ................. 1,260,497
140,000 Long Beach Special Tax, CFD No. 2, 7.50%, 09/01/11 ............................. 140,015
2,000,000 Los Angeles County Public Works Financing Authority Revenue, Regional Park
and Open Space District, Series A, 6.00%, 10/01/15 ............................ 1,968,360
1,350,000 Los Angeles County Transportation Commission, Sales Tax Revenue, Series A,
6.25%, 07/01/16 ............................................................... 1,350,027
3,500,000 Los Angeles Harbor Development Revenue, Series B, 6.00%, 08/01/14 .............. 3,453,975
1,150,000 Los Angeles MFR, Refunding, Series J-2, 8.50%, 01/01/24 ........................ 1,121,273
1,000,000 Los Angeles Wastewater System Revenue, Refunding, Series A, MBIA Insured,
5.70%, 06/01/20 ............................................................... 959,640
1,175,000 Lynwood Public Financing Authority Revenue, Water System Improvement Project,
6.50%, 06/01/21 ............................................................... 1,122,055
1,480,000 Millbrae Elementary School District, COP, Financing Project, 6.90%, 03/01/22 ... 1,536,077
2,000,000 b Newport Mesa USD, Special Tax, Community Facilities District No. 90-1,
6.75%, 09/01/21 ............................................................... 1,959,400
1,619,000 Orinda 1915 Act, AD No. 94-1, Oak Springs, 8.25%, 09/02/19 ..................... 1,649,356
10,000,000 Palmdale Special Tax, CFD No. 93-1, Ritter Ranch Project, Series A, 8.50%, 09/01/17 9,853,000
500,000 Perris Public Financing Authority, Local Agency Revenue, Series B, 7.25%, 08/15/23 488,900
1,115,000 Richmond Joint Powers Financing Authority 1915 Act, ID Nos. 851 and 853,
Series B, 8.50%, 09/02/19 ..................................................... 1,148,662
85,000 Sacramento County 1915 Act, Refunding, Sunrise/U.S. Corridor Assessment,
7.00%, 09/02/09 ............................................................... 84,553
1,750,000 San Buenaventura COP, Capital Improvement Projects, 6.85%, 08/01/16 ............ 1,782,393
850,000 San Diego County Educational Facilities Authority No. 1, Lease Revenue,
6.50%, 08/15/15 ............................................................... 844,365
3,500,000 San Diego Special Tax, CFD No. 1, Series B, 7.10%, 09/01/20..................... 3,447,745
3,500,000 San Francisco City and County Airports Commission, International Airport Revenue,
Second Series, Issue 9A, FGIC Insured, 5.90%, 05/01/25 ........................ 3,373,020
800,000 San Francisco City and County Revenue, Irwin Memorial Blood Centers, Series A,
6.80%, 12/01/21 ............................................................... 817,840
San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue,
1,975,000 Junior Lien, (original accretion rate 7.30%), 0.00%, 01/01/28 ................. 188,553
750,000 Senior Lien, 7.00%, 01/01/30 .................................................. 774,795
3,450,000 Senior Lien, 6.75%, 01/01/32 .................................................. 3,508,029
Bonds (cont.)
$ 2,615,000 San Jose Airport Revenue, Refunding, MBIA Insured, 5.75%, 03/01/16 ............. $ 2,548,527
1,500,000 San Ramon Public Financing Authority, Refunding, Tax Allocation, 6.90%, 02/01/24 1,526,070
2,545,000 Santa Barbara RDA, Tax Allocation, Refunding, Central City Redevelopment,
Series B, 6.00%, 03/01/07 ..................................................... 2,489,621
1,500,000 Santa Rosa 1915 Act, Fountain/Grove Parkway Extension Assessment,
7.625%, 09/02/19 .............................................................. 1,518,555
1,140,000 Southern California Public Power Authority, Southern Transmission Project Revenue,
Sub-Crossover Refunding, 6.125%, 07/01/18 ..................................... 1,133,786
1,200,000 Tracy COP, I-205 Corridor Improvement Project, 7.00%, 10/01/27 ................. 1,217,640
2,250,000 West Covina COP, Refunding, Civic Center, 6.875%, 09/01/14 ..................... 2,279,857
5,000,000 Western Placer Waste Management Authority Revenue, 6.75%, 07/01/14 ............. 4,963,600
3,060,000 Westminster COP, Public Improvements Project, 6.00%, 06/01/22 .................. 2,902,195
-------------
Total Long Term Investments (Cost $113,731,608)................................. 113,773,431
-------------
a Short Term Investments4.1%
800,000 California Health Facilities Financing Authority Revenue, Refunding, St. Joseph
Health System, Series A, Daily VRDN and Put, 3.40%, 07/01/13 .................. 800,000
1,100,000 California Statewide Communities Development Authority Revenue, COP, Sutter
Health Obligation Group, Daily VRDN and Put, 3.50%, 07/01/15 .................. 1,100,000
800,000 Irvine 1915 Act, AD No. 94-15, Daily VRDN and Put, 3.55%, 09/02/20 ............. 800,000
2,200,000 Orange County Various Sanitation Districts, COP, Nos. 1-3, 5-7, 11, 13 and 14, Capital
Improvement Program 1990-92, Series A, Daily VRDN and Put, 3.50%, 08/01/15 .... 2,200,000
-------------
Total Short Term Investments (Cost $4,900,000).................................. 4,900,000
-------------
Total Investments (Cost $118,631,608)100.1%..................................... 118,673,431
Liabilities in Excess of Other Assets(.1)%...................................... (148,048)
-------------
Net Assets100.0%................................................................ $118,525,383
=============
At May 31, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $118,631,608 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................. $ 1,236,910
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.................................................. (1,195,087)
-------------
Net unrealized appreciation..................................................... $ 41,823
=============
</TABLE>

PORTFOLIO ABBREVIATIONS:
1915 Act - Improvement Bond Act of 1915
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CFD - Community Facilities District
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
GO - General Obligation
HFAR - Housing Finance Agency Revenue
ID - Improvement District
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
RDA - Redevelopment Agency
USD - Unified School District

aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional right
of demand to receive payment of the principal balance plus accrued interest upon
short notice prior to specified dates. The interest rate may change on specified
dates in relationship with changes in a designated rate (such as the prime
interest rate or U.S. Treasury bills rate).

bSee Note 1(e) regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, May 31, 1996
<TABLE>
<CAPTION>

Face Value
Amount Franklin Hawaii Municipal Bond Fund (Note 1)
Bonds96.8%
<C> <C> <C>
Guam Airport Authority Revenue, Series B,
$ 200,000 6.60%, 10/01/10 ................................................................. $ 200,526
1,000,000 6.70%, 10/01/23 ................................................................. 1,006,060
280,000 Guam Government Limited Obligation Highway, Refunding, Series A, CGIC Insured,
6.30%, 05/01/12 ................................................................. 292,726
300,000 Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 .......................... 290,247
Hawaii State Airport System Revenue,
300,000 Refunding, Third Series 1994, AMBAC Insured, 5.75%, 07/01/09 .................... 298,350
60,000 Second Series 1990, FGIC Insured, 7.50%, 07/01/20 ............................... 65,490
1,520,000 Second Series 1991, 7.00%, 07/01/18 ............................................. 1,624,576
200,000 Second Series 1991, MBIA Insured, 6.75%, 07/01/21 ............................... 208,998
400,000 Second Series 1992, MBIA Insured, 6.90%, 07/01/12 ............................... 442,908
Hawaii State Department Budget and Finance, Special Purpose Mortgage Revenue,
100,000 Hawaii Electric Co., 7.20%, 12/01/14 ............................................ 105,676
1,950,000 Hawaii Electric Co., Series A, MBIA Insured, 6.60%, 01/01/25 .................... 2,018,348
3,425,000 Hawaii Electric Co. and Subsidiaries, MBIA Insured, 6.55%, 12/01/22 ............. 3,523,606
1,100,000 Kapiolani Health Care, 6.25%, 07/01/21 .......................................... 1,088,945
105,000 Pali Momi Medical Center Project, Pre-Refunded, 7.65%, 07/01/19 ................. 120,489
500,000 Queens Medical Center Project, FGIC Insured, 6.20%, 07/01/22 .................... 505,975
25,000 Refunding, Hawaii Electric Co., 6.875%, 04/01/12 ................................ 25,750
100,000 Refunding, Kaiser Permanente, Series A, 6.25%, 03/01/21 ......................... 101,578
600,000 Refunding, Kapiolani Health Care System, 6.40%, 07/01/13 ........................ 606,948
1,325,000 Refunding, Kapiolani Health Care System, 6.00%, 07/01/19 ........................ 1,272,239
725,000 Refunding, Queens Medical Center Project, FGIC Insured, 6.50%, 07/01/12 ......... 740,254
1,100,000 Refunding, Wahiawa General Hospital Project, 7.50%, 07/01/12 .................... 1,146,453
1,100,000 St. Francis Medical Centers, CGIC Insured, 6.50%, 07/01/22 ...................... 1,141,118
75,000 Hawaii State Department of Transportation, Special Facilities Revenue, Refunding,
Matson Terminals, Inc., 5.75%, 03/01/13 ......................................... 71,582
Hawaii State GO,
100,000 Series BT, Pre-Refunded, 6.125%, 02/01/11 ....................................... 106,478
100,000 Series BW, 6.375%, 03/01/11 ..................................................... 107,176
100,000 Series CA, 6.00%, 01/01/09 ...................................................... 103,570
Hawaii State Harbor Capital Improvement Revenue,
1,000,000 Refunding, Series 1994, FGIC Insured, 6.25%, 07/01/15 ........................... 1,006,620
500,000 Refunding, Series 1994, FGIC Insured, 6.375%, 07/01/24 .......................... 506,075
70,000 Series 1990, MBIA Insured, 7.25%, 07/01/10 ...................................... 75,774
80,000 Series 1990, MBIA Insured, 7.00%, 07/01/17 ...................................... 85,573
200,000 Series 1992, FGIC Insured, 6.50%, 07/01/19 ...................................... 204,900

Hawaii State Housing Finance and Development Corp. Revenue, Affordable Rental
Housing Program, Series A,
$ 1,000,000 6.00%, 07/01/15 ................................................................. $ 983,230
750,000 6.05%, 07/01/22 ................................................................. 735,503
250,000 6.10%, 07/01/30 ................................................................. 244,720
Hawaii State Housing Finance and Development Corp., SFM Purchase Revenue,
465,000 Series A, 7.10%, 07/01/24 ....................................................... 478,727
290,000 Series A, 6.00%, 07/01/26 ....................................................... 282,118
3,050,000 Series B, 5.85%, 07/01/17 ....................................................... 2,995,497
Honolulu City and County,
150,000 Refunding, Series 1992, 6.00%, 12/01/14 ......................................... 154,752
85,000 Series A, 6.30%, 03/01/08 ....................................................... 89,175
100,000 Series A, 6.30%, 03/01/11 ....................................................... 103,638
75,000 Series A, Pre-Refunded, 6.70%, 08/01/07 ......................................... 82,381
100,000 Series A, Pre-Refunded, 6.70%, 08/01/11 ......................................... 109,841
1,000,000 Series B, 6.125%, 06/01/14 ...................................................... 1,019,050
1,785,000 Water Supply Board, Water System Revenue, 5.80%, 07/01/21 ....................... 1,727,684
1,205,000 Honolulu City and County, MFHR, Waipahu Towers Project, Series A, 6.90%, 06/20/35. 1,257,948
220,000 Kauai County GO, Refunding, Series C, AMBAC Insured, 5.95%, 08/01/10 ............. 224,629
100,000 Maui County Board, Water Supply Revenue, Series A, FGIC Insured, Pre-Refunded,
6.70%, 12/01/11 ................................................................. 110,351
Maui County GO,
50,000 Refunding, Series 1992, 6.05%, 09/01/07 ......................................... 51,706
300,000 Refunding, Series 1992, 6.10%, 09/01/08 ......................................... 309,305
385,000 Refunding, Series A, FGIC Insured, 5.75%, 01/01/11 .............................. 386,020
150,000 Series A, FGIC Insured, 5.75%, 01/01/13 ......................................... 149,201
1,000,000 Northern Mariana Islands, Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%, 10/01/25 ....................... 994,850
145,000 Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue, Series A,
Pre-Refunded, 7.00%, 07/01/19 ................................................... 155,781
1,000,000 Puerto Rico Commonwealth GO, Series A, MBIA Insured, 5.75%, 07/01/24 ............. 974,140
315,000 Puerto Rico Commonwealth, Highway and Transportation Authority Revenue,
Series T, Pre-Refunded, 6.625%, 07/01/18 ........................................ 346,748
Puerto Rico Electric Power Authority Revenue,
500,000 Refunding, Series U, 6.00%, 07/01/14 ............................................ 498,330
60,000 Series O, 7.125%, 07/01/14 ...................................................... 64,216
55,000 Series O, Pre-Refunded, 7.125%, 07/01/14 ........................................ 59,981
1,000,000 Series R, 6.25%, 07/01/17 ....................................................... 1,007,490
1,000,000 Series T, 6.375%, 07/01/24 ...................................................... 1,018,150
350,000 Puerto Rico Industrial, Medical and Environmental Facilities Revenue PCFA,
PepsiCo., Inc. Project, 6.25%, 11/15/13 ......................................... 366,020
$ 215,000 Puerto Rico PBA, Guaranteed, Public Education and Health Facilities, Series L,
Pre-Refunded, 6.875%, 07/01/21 .................................................. $ 240,664
1,230,000 Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 01/01/22 ... 1,224,415
-------------
Total Long Term Investments (Cost $37,124,560).................................... 37,541,269
-------------
a Short Term Investments.5%
200,000 Hawaii State Housing Finance and Development Corp. Revenue, Rental Housing
System, Series B, Weekly VRDN and Put, 3.80%, 07/01/25 (Cost $200,000)........... 200,000
-------------
Total Investments (Cost $37,324,560)97.3%......................................... 37,741,269
Other Assets and Liabilities, Net2.7%............................................. 1,063,480
-------------
Net Assets100.0%.................................................................. $38,804,749
=============
At May 31, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $37,324,560 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................... $ 657,661
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.................................................... (240,952)
-------------
Net unrealized appreciation....................................................... $ 416,709
=============
</TABLE>

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
CGIC - Capital Guaranty Insurance Co.
FGIC - Financial Guaranty Insurance Corp.
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
SFM - Single Family Mortgage

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, May 31, 1996
<TABLE>
<CAPTION>

Face Value
Amount Franklin Tennessee Municipal Bond Fund (Note 1)
Long Term Investments 101.5%
Bonds
<C> <S> <C>
$ 500,000 Carroll County, IDB, IDR, Refunding, Henry I. Siegel Co., Inc. Project, 7.20%, 04/01/05 $ 506,360
500,000 Chattanooga-Hamilton County Hospital Authority Revenue, Refunding, Erlanger
Medical Center, FSA Insured, 5.50%, 10/01/23 ...................................... 460,295
500,000 Hamilton County IDB, MFHR, Patten Towers Apartments, Series B, 7.125%, 02/01/09 .... 489,960
600,000 Humphreys County IDB, Solid Waste Disposal Revenue, Du Pont (E.I.) De Nemours
& Co. Project, 6.70%, 05/01/24 .................................................... 629,604
300,000 Jackson Hospital Revenue, Refunding & Improvement, AMBAC Insured,
5.625%, 04/01/15 .................................................................. 288,036
100,000 Johnson City Public Improvement, GO, Series B, AMBAC Insured, 6.70%, 05/01/20 ...... 106,315
100,000 Johnson City Solid Waste, AMBAC Insured, 5.80%, 05/01/09 ........................... 100,818
100,000 Knox-Chapman Utility District, Knox County Water and Sewer Revenue, Refunding,
MBIA Insured, 6.10%, 01/01/19 ..................................................... 101,222
250,000 Knox County Health, Educational and Housing Facilities Board Hospital Revenue,
Refunding, Mercy Health Systems, Series B, AMBAC Insured, 5.875%, 09/01/15 ........ 248,975
250,000 Knox County IDB, MFMR, Refunding, Waterford Apartments, Series A, 5.95%, 03/01/28 .. 245,080
145,000 Knox County Public Improvement, Pre-Refunded, 6.875%, 04/01/14 ..................... 160,047
805,000 Loudon County IDB, Solid Waste Disposal Revenue, Kimberly-Clark Corp. Project,
6.20%, 02/01/23 ................................................................... 797,658
150,000 Macon County GO, FGIC Insured, 5.90%, 09/01/13 ..................................... 148,862
620,000 b Maury County IDB, PCR, Multi-Modal, Refunding, Saturn Corp. Project, 6.50%, 09/01/24 633,392
500,000 Memphis GO, 5.75%, 08/01/15 ........................................................ 488,055
Memphis Health, Educational and Housing Facilities Board Mortgage Revenue, Refunding,
150,000 Edgewater Territory, FHA/GNMA Insured, 7.375%, 01/20/27 ........................... 158,141
100,000 MF, River Trace II, Series A, 6.45%, 04/01/26 ..................................... 100,737
500,000 Memphis-Shelby County Airport Authority Revenue, Refunding, MBIA Insured,
5.65%, 09/01/15 ................................................................... 487,365
100,000 Memphis-Shelby County Airport Authority, Special Facilities and Project Revenues,
Refunding, Federal Express Corp., 6.75%, 09/01/12 ................................. 103,039
Metropolitan Government of Nashville and Davidson County, GO,
350,000 6.125%, 05/15/19 .................................................................. 355,586
200,000 Multi-Purpose Improvement, 5.625%, 05/15/21 ....................................... 187,652
200,000 Metropolitan Government of Nashville and Davidson County, Electric Revenue,
Refunding, Series A, 6.00%, 05/15/17 .............................................. 201,876
500,000 b Metropolitan Government of Nashville and Davidson County, Health and Educational
Facilities Board, Refunding, Dandridge Towers, Series 8-A, 6.375%, 01/01/11 ....... 495,525
205,000 Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured,
6.60%, 07/01/15 ................................................................... 217,191

Bonds (cont.)
Metropolitan Nashville and Davidson County, Health and Educational Facilities
Board Revenue,
$ 200,000 Adventist Health Systems, MBIA Insured, 5.75%, 11/15/25 ........................... $ 193,656
150,000 Meharry Medical College Project, AMBAC Insured, 6.875%, 12/01/24 .................. 166,055
180,000 Milan Special School District, AMBAC Insured, 6.625%, 04/01/11 ..................... 189,603
400,000 North Anderson County Utility District, Waterworks Revenue, MBIA Insured,
5.60%, 01/01/19 ................................................................... 379,388
300,000 Northern Mariana Islands Commonwealth Ports Authority, Seaport Revenue, Port Saipan
Harbor Improvement, Series A, 6.85%, 10/01/25 ..................................... 298,455
100,000 Pigeon Forge Public Improvement, MBIA Insured, 5.90%, 06/01/09 ..................... 101,888
185,000 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
Pre-Refunded, 7.00%, 07/01/19 ..................................................... 198,755
100,000 Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resources,
Series R, 6.25%, 07/01/17 ......................................................... 100,749
100,000 Puerto Rico Commonwealth GO, 6.50%, 07/01/23 ....................................... 104,270
500,000 Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y,
6.00%, 07/01/22 ................................................................... 492,200
200,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities,
Financing Authority Hospital Revenue, Auxilio Mutuo Obligation Group, Series A,
MBIA Insured, 6.25%, 07/01/24 ..................................................... 204,646
600,000 Puerto Rico Ports Authority Revenue, Special Facilities, American Airlines, Series A,
6.25%, 06/01/26 ................................................................... 582,612
250,000 Sevier County PBA, Solid Waste Facility, AMBAC Insured, 5.60%, 09/01/15 ............ 238,650
Shelby County GO,
100,000 Series A, 5.90%, 03/01/15 ......................................................... 101,245
530,000 Series B, 6.00%, 03/01/16 ......................................................... 538,533
250,000 Shelby County Health, Educational and Housing Facilities Board, Hospital Revenue,
Methodist Health Systems, Inc., MBIA Insured, 5.50%, 08/01/12 ..................... 241,165
300,000 South Fulton IDBR, Tyson Foods, Inc. Project, 6.40%, 10/01/20 ...................... 295,962
350,000 Sullivan County IDBR, Refunding, Brandymill, Series I-A, GNMA Insured,
6.35%, 07/20/27 ................................................................... 359,279
Tennessee HDA, Mortgage Finance,
200,000 Series A, 6.90%, 07/01/25 ......................................................... 208,836
300,000 Series B, 6.60%, 07/01/25 ......................................................... 306,618
630,000 Series B, MBIA Insured, 6.20%, 07/01/18 ........................................... 632,463
100,000 Tennessee State Local Development Authority Revenue, Community Provider Pooled
Loan Program, 6.55%, 10/01/23 ..................................................... 101,788
100,000 Tennessee State School Board Authority, Higher Education Facilities, Series A,
6.25%, 05/01/22 ................................................................... 100,805

Bonds (cont.)
$ 100,000 Trenton Special School District, Series 1995, AMBAC Insured, 5.75%, 11/01/20 ....... $ 96,811
220,000 Wilson County COP, Educational Facilities, 6.125%, 06/30/10 ........................ 223,537
-------------
Total Long Term Investments (Cost $14,047,026)...................................... 14,169,760
-------------
a Short Term Investments2.2%
200,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly
VRDN and Put, 3.25%, 12/01/15 ..................................................... 200,000
100,000 Tennessee State School Board Authority, Higher Education, BAN, Series A, Weekly
VRDN and Put, 3.55%, 03/01/98 ..................................................... 100,000
-------------
Total Short Term Investments (Cost $300,000)........................................ 300,000
-------------
Total Investments (Cost $14,347,026)103.7%.......................................... 14,469,760
Liabilities in Excess of Other Assets(3.7)%......................................... (513,481)
-------------
Net Assets100.0%.................................................................... $13,956,279
=============
At May 31, 1996, the net unrealized appreciation based on the cost
of investments for income tax purposes of $14,347,026 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost...................................................... $ 243,517
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value...................................................... (120,783)
-------------
Net unrealized appreciation......................................................... $ 122,734
=============
</TABLE>

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipation Notes
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
PBA - Public Building Authority
PCR - Pollution Control Revenue

bSee Note 1(e) regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, May 31, 1996
<TABLE>
<CAPTION>

Face Value
Amount Franklin Washington Municipal Bond Fund (Note 1)
Long Term Investments 93.5%
Bonds

<C> <S> <C>
$ 100,000 Aberdeen GO, Series A, MBIA Insured, 5.80%, 12/01/12 ................................ $ 98,539
100,000 Bellevue Water and Sewer Revenue, Refunding, 5.875%, 07/01/10 ....................... 101,243
200,000 Bellingham Housing Authority Revenue, Cascade Meadows Project, 7.10%, 11/01/23 ...... 207,268
100,000 Clark County School District No. 114, Evergreen School, Refunding, AMBAC Insured,
5.95%, 12/01/12 .................................................................... 101,885
200,000 b Clark County Sewer Revenue, MBIA Insured, 5.70%, 12/01/16 ........................... 192,520
400,000 Conservation and Renewable Energy System Revenue, Washington Conservation Project,
6.50%, 10/01/14 .................................................................... 411,152
100,000 Douglas County PUD No. 1, Electric District Systems Revenue, MBIA Insured,
6.00%, 01/01/15 .................................................................... 100,929
100,000 Federal Way GO, Refunding, 5.85%, 12/01/21 .......................................... 95,667
250,000 Grant County PUD No. 002, Wanapum Hydroelectric Revenue, Second Series A,
6.375%, 01/01/23 ................................................................... 253,650
100,000 King County GO, Sewer District, 5.875%, 01/01/15 .................................... 99,269
175,000 King County Housing Authority Revenue, Woodridge Park Project, 6.25%, 05/01/15 ...... 176,054
100,000 King County School District No. 412, Shoreline, 6.10%, 06/01/13 ..................... 101,657
200,000 Lewis County PUD No. 001, Cowlitz Falls Hydroelectric Project Revenue, 6.00%, 10/01/24 196,768
175,000 Pierce County EDC Revenue, Solid Waste, Occidental Petroleum Corp., 5.80%, 09/01/29 . 153,892
650,000 Pilchuck Development Public Corp., Special Facilities Airport Revenue, Tramco, Inc.
Project, B.F. Goodrich, 6.00%, 08/01/23 ............................................ 607,952
200,000 Port Chelan County GO, MBIA Insured, 6.25%, 12/01/15 ................................ 202,566
200,000 Port of Seattle Revenue, Series B, 6.00%, 11/01/17 .................................. 194,358
450,000 SeaTac GO, MBIA Insured, 6.50%, 12/01/13 ............................................ 472,401
100,000 Seattle Housing Authority, Low Income Housing Assistance Revenue, Kin On Project,
7.40%, 11/20/36 .................................................................... 106,154
200,000 Seattle Municipality Metropolitan Sewer Revenue, Refunding, Series V, 6.20%, 01/01/32 197,162
100,000 Snohomish County GO, MBIA Insured, 5.90%, 12/01/15 .................................. 97,514
200,000 Snohomish County Housing Authority Revenue, Pooled, 6.30%, 04/01/16 ................. 200,558
200,000 Snohomish County PUD No. 1, Electric and Generation Systems Revenue, Refunding,
FGIC Insured, 6.00%, 01/01/18 ...................................................... 198,080
130,000 b Spokane County GO, Refunding, 6.00%, 12/01/14 ....................................... 130,701
100,000 Spokane County Water District No. 3 Revenue, Refunding, 5.90%, 01/01/14 ............. 98,385
300,000 Stevens County Public Corp., PCR, Refunding, Water Power Co. Project, 6.00%, 12/01/23 284,565
100,000 Sunnyside GO, MBIA Insured, 6.10%, 12/01/14 ......................................... 101,653
200,000 Tacoma Electric Systems Revenue, Refunding, FGIC Insured, 6.25%, 01/01/15 ........... 205,346
100,000 Tacoma Refuse Utility Revenue, AMBAC Insured, 7.00%, 12/01/19 ....................... 108,267
500,000 University of Washington, Alumuni Association, Lease Revenue, Roosevelt University
Medical Center, CGIC Insured, 6.30%, 08/15/14 ...................................... 514,695
100,000 Washington State COP, Office Building Project, Series A, MBIA Insured, 6.00%, 04/01/12 100,211
Washington State Health Care Facilities Authority Revenue,
$ 100,000 Multicare Medical Center, FGIC Insured, 5.75%, 08/15/22 ............................ $ 95,692
280,000 Refunding, Peace Health Facility, MBIA Insured, 5.625%, 11/15/15 ................... 266,185
Washington State Housing Finance Commission,
100,000 Series 1A-1, 6.25%, 06/01/16 ....................................................... 99,098
200,000 SF Program, Series 1A-3, 6.15%, 12/01/15 ........................................... 199,772
100,000 Washington State Housing Finance, SFMR, MBS Program, Series A, 7.05%, 07/01/22 ...... 104,957
240,000 Washington State Motor Vehicle Fuel Tax, Series D, 6.00%, 09/01/20 .................. 237,553
100,000 Whatcom County School District No. 501, Bellingham, 6.05%, 12/01/13 ................. 99,571
-------------
Total Long Term Investments (Cost $7,214,611)........................................ 7,213,889
-------------

a Short Term Investments9.0%
Washington State Health Care Facilities Authority Revenue, Sisters of Providence,
Daily VRDN and Put,
200,000 Series B, 3.70%, 10/01/05 .......................................................... 200,000
200,000 Series C, 3.70%, 10/01/05 .......................................................... 200,000
100,000 Series E, 3.70%, 10/01/05 .......................................................... 100,000
200,000 Washington State Housing Finance Commission, Nonprofit Housing Revenue,
YMCA of Greater Seattle, Daily VRDN and Put, 3.85%, 07/01/11 ....................... 200,000
-------------
Total Short Term Investments (Cost $700,000)......................................... 700,000
-------------
Total Investments (Cost $7,914,611)102.5%............................................ 7,913,889
Liabilities in Excess of Other Assets(2.5)%.......................................... (195,927)
-------------
Net Assets100.0%..................................................................... $7,717,962
=============
At May 31, 1996, the net unrealized depreciation based on the cost
of investments for income tax purposes of $7,914,611 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost....................................................... $ 109,283
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value....................................................... (110,005)
-------------
Net unrealized depreciation.......................................................... $ (722)
=============
</TABLE>

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
CGIC - Capital Guaranty Insurance Co.
COP - Certificate of Participation
EDC - Economic Development Corp.
FGIC - Financial Guaranty Insurance Co.
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage-Backed Securities
PCR - Pollution Control Revenue
PUD - Public Utility District
SF - Single Family
SFMR - Single Family Mortgage Revenue

bSee Note 1(e) regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements

Statements of Assets and Liabilities
May 31, 1996
<TABLE>
<CAPTION>

Franklin Franklin Franklin Franklin Franklin
Arkansas California Hawaii Tennessee Washington
Municipal High Yield Municipal Municipal Municipal
Bond Fund Municipal Fund Bond Fund Bond Fund Bond Fund
------- --------- ------- ------- --------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost............................... $8,061,338 $118,631,608 $37,324,560 $14,347,026 $7,914,611
======= ========= ======= ======= ========
At value....................................... 8,102,474 118,673,431 37,741,269 14,469,760 7,913,889
Cash............................................ 331,001 327,673 72,262 81,968 92,526
Receivables:
Interest....................................... 118,989 2,417,443 913,447 231,619 142,395
Investment securities sold....................... -- -- 154,500 -- --
Capital shares sold............................ 2,871 1,849,510 -- 128,195 4,919
From affiliates................................ 509 -- -- -- 3,600
Other assets.................................... -- -- 1,090 -- --
------- --------- ------- ------- --------
Total assets..................................... 8,555,844 123,268,057 38,882,568 14,911,542 8,157,329
------- --------- ------- ------- --------
Liabilities:
Payables:
Investment securities purchased:
Regular Delivery.............................. -- -- -- 608 102,402
When-issued basis (Note 1).................... 377,105 4,498,311 -- 918,124 325,242
Distributions to shareholders.................. 13,085 199,294 57,018 22,433 11,723
Capital shares repurchased..................... 107 2,222 -- -- --
Management fees................................ -- 17,485 8,034 8,131 --
Distribution fees.............................. -- 8,516 2,300 905 --
Shareholder servicing costs.................... -- 2,280 950 247 --
Accrued expenses and other liabilities.......... -- 14,566 9,517 4,815 --
------- --------- ------- ------- --------
Total liabilities......................... 390,297 4,742,674 77,819 955,263 439,367
------- --------- ------- ------- --------
Net assets, at value............................. $8,165,547 $118,525,383 $38,804,749 $13,956,279 $7,717,962
======= ========= ======= ======= ========
Net assets consist of:
Undistributed net investment income............. $36,889 $18,541 $124,725 $45,525 $36,979
Net unrealized appreciation (depreciation)
on investments.................................. 41,136 41,823 416,709 122,734 (722)
Net realized loss............................... (39,161) (2,044,758) (844,116) (65,280) (124,542)
Class I capital shares.......................... 8,126,683 120,297,580 39,107,431 13,853,300 7,806,247
Class II capital shares......................... -- 212,197 -- -- --
------- --------- ------- ------- --------
Net assets, at value............................. $8,165,547 $118,525,383 $38,804,749 $13,956,279 $7,717,962
======= ========= ======= ======= ========
Class I shares:
Net assets, at value............................ $8,165,547 $118,313,207 $38,804,749 $13,956,279 $7,717,962
======= ========= ======= ======= ========
Shares outstanding.............................. 799,979 12,059,037 3,682,205 1,341,652 787,397
======= ========= ======= ======= ========
Net asset value per share*...................... $10.21 $ 9.81 $10.54 $10.40 $ 9.80
======= ========= ======= ======= ========
Maximum offering price per share
(100/95.75 of net asset value per share)........ $10.66 $10.25 $11.01 $10.86 $10.23
======= ========= ======= ======= ========
Class II shares:
Net assets, at value............................ -- $ 212,176 -- -- --
======= ========= ======= ======= ========
Shares outstanding.............................. -- 21,617 -- -- --
======= ========= ======= ======= ========
Net asset value per share*...................... -- $ 9.82 -- -- --
======= ========= ======= ======= ========
Maximum offering price per share
(100/99 of net asset value per share)........... -- $ 9.92 -- -- --
======= ========= ======= ======= ========
</TABLE>

*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements (cont.)

Statements of Operations
for the year ended May 31, 1996
<TABLE>
<CAPTION>

</TABLE>

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements (cont.)

Statements of Changes in Net Assets
for the years ended May 31, 1996 and 1995
<TABLE>
<CAPTION>

Franklin Arkansas Franklin California High Franklin Hawaii
Municipal Bond Fund Yield Municipal Fund Municipal Bond Fund
---------------- ------------------ ------------------
1996 1995 1996 1995 1996 1995
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........ $ 340,476 $ 168,208 $ 4,922,744 $ 2,824,163 $ 2,156,740 $ 1,692,708
Net realized loss from
security transactions......... (2,503) (36,658) (275,621) (1,402,544) (122,116) (551,385)
Net unrealized appreciation
(depreciation) on
investments................... (96,898) 127,376 (1,356,026) 2,759,666 (371,355) 1,468,052
-------- -------- --------- -------- -------- --------
Net increase in net
assets resulting
from operations............... 241,075 258,926 3,291,097 4,181,285 1,663,269 2,609,375
Distributions to shareholders
from undistributed net
investment income:
Class I (Note 7)............ (335,368) (138,970) (5,000,226) (2,727,267) (2,147,284) (1,655,958)
Class II (Note 7)........... -- -- (536) -- -- --
Increase in net assets from
capital share transactions
(Note 2)...................... 4,126,099 1,800,584 69,133,506 17,709,221 2,461,396 8,969,891
-------- -------- --------- -------- -------- --------
Net increase in
net assets.................... 4,031,806 1,920,540 67,423,841 19,163,239 1,977,381 9,923,308
Net assets:
Beginning of period........... 4,133,741 2,213,201 51,101,542 31,938,303 36,827,368 26,904,060
-------- -------- --------- -------- -------- --------
End of period................. $8,165,547 $4,133,741 $118,525,383 $51,101,542 $38,804,749 $36,827,368
======== ======== ========= ======== ======== ========
Undistributed net investment income included in net assets:
Beginning of period........... $ 31,781 $ 2,543 $ 96,559 $ (337) $ 115,269 $ 78,519
-------- -------- --------- -------- -------- --------
End of period................. $ 36,889 $ 31,781 $ 18,541 $ 96,559 $ 124,725 $ 115,269
======== ======== ========= ======== ======== ========

</TABLE>

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements (cont.)

Statements of Changes in Net Assets (cont.)
for the years ended May 31, 1996 and 1995
<TABLE>
<CAPTION>

Franklin Tennessee Franklin Washington
Municipal Bond Fund Municipal Bond Fund
------------------ ------------------
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................................ $ 531,567 $ 217,345 $ 360,705 $ 292,735
Net realized loss from security transactions......... (60,537) (4,742) (39,744) (53,725)
Net unrealized appreciation (depreciation)
on investments........................................ (131,830) 232,907 (33,367) 282,570
--------- -------- -------- --------
Net increase in net assets resulting
from operations....................................... 339,200 445,510 287,594 521,580
Distributions to shareholders from undistributed net
investment income:
Class I (Note 7)..................................... (528,162) (177,638) (360,198) (287,372)
Increase in net assets from capital share transactions
(Note 2).............................................. 8,159,263 3,494,037 2,049,769 1,234,321
--------- -------- -------- --------
Net increase in net assets....................... 7,970,301 3,761,909 1,977,165 1,468,529
Net assets:
Beginning of period................................... 5,985,978 2,224,069 5,740,797 4,272,268
--------- -------- -------- --------
End of period......................................... $13,956,279 $5,985,978 $7,717,962 $5,740,797
========= ======== ======== ========
Undistributed net investment income included in net assets:
Beginning of period................................... $ 42,120 $ 2,413 $ 36,472 $ 31,109
--------- -------- -------- --------
End of period......................................... $ 45,525 $ 42,120 $ 36,979 $ 36,472
========= ======== ======== ========

</TABLE>

The accompanying notes are an integral part of these financial statements.

FRANKLIN MUNICIPAL SECURITIES TRUST

Notes to Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin Municipal Securities Trust (the Trust) is an open-end, non-diversified
management investment company (mutual fund), registered under the Investment
Company Act of 1940, as amended. The Trust's shares are offered in five
different series (the Funds), consisting of the Franklin Arkansas Municipal Bond
Fund (the Arkansas Fund), Franklin California High Yield Municipal Fund (the
California Fund), Franklin Hawaii Municipal Bond Fund (the Hawaii Fund),
Franklin Tennessee Municipal Bond Fund (the Tennessee Fund), and Franklin
Washington Municipal Bond Fund (the Washington Fund). Each of the Funds
represents a separate series of the Trust and maintains a totally separate
investment portfolio. Each Fund seeks to provide as high a level of income
exempt from federal income taxes as is consistent with prudent investment, while
seeking preservation of shareholders' capital.

The California Fund offers two classes of shares, Class I and Class II. Class I
shares are sold with a higher front-end sales charge than Class II shares. Each
class of shares may be subject to a contingent deferred sales charge and has the
same rights, except with respect to the effect of the respective sales charges,
the distribution fees borne by each class, voting rights on matters affecting a
single class and the exchange privilege of each class. The offering of Class II
shares began May 1, 1996, at which time all previously outstanding shares became
Class I shares. Realized and unrealized gains or losses and net investment
income, other than class specific expenses, are allocated daily to each class of
shares based upon the relative proportion of net assets of each class.

The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

a. Security Valuations:

Tax-free bonds generally trade in the over-the-counter market rather than on a
national securities exchange. In the absence of a sale or reported bid and asked
prices, information with respect to bond and note transactions, quotations from
bond dealers, market transactions in comparable securities, and various
relationships between securities are used to determine the value of the
security. The Trust may utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions under
procedures approved by the Board of Trustees (the Board). Securities for which
market quotations are not available are valued in accordance with procedures
established by the Board.

b. Income Taxes:

The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income and excise taxes. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.

c. Security Transactions:

Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.

d. Investment Income, Expenses and Distributions:

Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount and premium are
amortized as required by the Internal Revenue Code. The Funds normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the day following the
receipt of an investor's funds. Dividends are normally declared each day the New
York Stock Exchange is open for business and are equal to an amount per day set
from time to time by the Board, and are payable to shareholders of record at the
beginning of business on the ex-date. Monthly dividends are reinvested in
additional shares of the Funds, or paid in cash as requested by the
shareholders.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

e. Securities Purchased on a When-Issued Basis or Delayed Delivery Basis:

The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.

f. Expense Allocation:

Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.

g. Accounting Estimates:

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.

2. TRUST SHARES

At May 31, 1996, there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in the Funds' shares for the years
ended May 31, 1996 and May 31,1995 were as follows:
<TABLE>
<CAPTION>

Arkansas Fund California Fund Hawaii Fund
---------------- ------------------- ------------------
Shares Amount Shares Amount Shares Amount
------ -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class I shares:
1996
Shares sold....................... 405,209 $4,184,101 8,327,567 $82,955,751 593,700 $ 6,341,723
Shares issued in reinvestment
of distributions.................. 24,410 252,441 188,536 1,872,314 89,821 959,122
Shares redeemed................... (30,209) (310,443) (1,602,938) (15,906,756) (454,099) (4,839,449)
------ -------- -------- ---------- -------- ---------
Net increase....................... 399,410 $4,126,099 6,913,165 $68,921,309 229,422 $ 2,461,396
====== ======== ======== ========== ======== =========
1995
Shares sold ...................... 177,525 $1,771,497 2,877,255 $27,270,644 1,298,192 $13,388,129
Shares issued in reinvestment
of distributions.................. 12,161 119,791 105,767 1,008,368 90,526 918,020
Shares redeemed................... (9,117) (90,704) (1,120,517) (10,569,791) (533,534) (5,336,258)
------ -------- -------- ---------- -------- ---------
Net increase....................... 180,569 $1,800,584 1,862,505 $17,709,221 855,184 $ 8,969,891
====== ======== ======== ========== ======== =========

2. TRUST SHARES (cont.)

Tennessee Fund Washington Fund
---------------- -----------------
Shares Amount Shares Amount
------ -------- ------ --------
1996
<S> <C> <C> <C> <C>
Shares sold..................................................... 800,118 $8,440,943 230,239 $2,275,967
Shares issued in reinvestment
of distributions................................................ 32,775 345,901 26,993 268,155
Shares redeemed................................................. (59,708) (627,581) (49,709) (494,353)
------ -------- ------ --------
Net increase..................................................... 773,185 $8,159,263 207,523 $2,049,769
====== ======== ====== ========
1995
Shares sold..................................................... 378,401 $3,796,043 193,017 $1,787,746
Shares issued in reinvestment
of distributions................................................ 13,285 133,124 23,137 216,457
Shares redeemed................................................. (43,219) (435,130) (83,642) (769,882)
------ -------- ------ --------
Net increase..................................................... 348,467 $3,494,037 132,512 $1,234,321
====== ======== ====== ========

California Fund
-------------
Shares Amount
----- -------
Class II shares:
1996*
<S> <C> <C>
Shares sold..................................................... 21,567 $211,700
Shares issued in reinvestment of distributions.................. 50 497
----- -------
Net increase..................................................... 21,617 $212,197
===== =======
*For the period May 1, 1996 (effective date) to May 31, 1996.

3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At May 31, 1996, for tax purposes, the Funds had capital loss carryovers as
follows:

Arkansas California Hawaii Tennessee Washington
Fund Fund Fund Fund Fund
------ ------- ------- ------- -------
Capital loss carryovers expiring:
<S> <C> <C> <C> <C> <C>
2001............................................... $-- $-- $ 10,752 $-- $--
2002............................................... -- -- 159,863 -- --
2003............................................... 36,658 1,769,137 551,385 4,395 84,798
2004............................................... 2,503 4,508 64,421 -- 39,744
------ ------- ------- ------- -------
$39,161 $1,773,645 $786,421 $4,395 $124,542
====== ======= ======= ======= =======

</TABLE>

From November 1, 1995 through May 31, 1996, the California Fund, Hawaii Fund and
Tennessee Fund incurred $271,113, $57,695 and $60,885, respectively, of net
realized capital losses. As permitted by tax regulations, the Funds intend to
elect to defer these losses and treat them as having arisen in the year ended
May 31, 1997.

For income tax purposes, the aggregate cost of securities and unrealized
appreciation (depreciation) of the Funds are the same as for financial reporting
purposes at May 31, 1996.

4. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>

Arkansas California Hawaii Tennessee Washington
Fund Fund Fund Fund Fund
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Purchases................................. $5,453,799 $86,901,499 $13,080,611 $10,950,939 $2,567,483
Sales..................................... $1,101,624 $20,867,376 $ 5,915,444 $ 2,557,162 $1,147,132

</TABLE>

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

a. Management Agreement:

Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers)
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the average daily net
assets of each Fund as follows:

Annualized Fee Rate Average Daily Net Assets
- ------------- ----------------------------------
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% In excess of $250 million

The terms of the management agreement provide that annual aggregate expenses of
each Fund be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations, and administrative interpretations of the states
in which each Fund's shares are registered. For the year ended May 31, 1996, the
Funds' expenses did not exceed these limitations. However, Advisers agreed in
advance to waive management fees and assume payment of other expenses for the
Funds, aggregating $698,400.

b. Shareholder Services Agreement:

Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the year ended May 31, 1996, aggregated $35,471, of which $28,176 was paid to
Investor Services.

c. Distribution Plans and Underwriting Agreement:

Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Hawaii Fund reimburses Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to 0.10% per annum of the
Fund's average daily net assets, the Arkansas Fund, Tennessee Fund and
Washington Fund reimburse Distributors up to 0.15% per annum of the Funds'
average daily net assets, and the California Fund reimburses Distributors up to
a maximum of 0.15% per annum for Class I and 0.65% per annum for Class II, of
the average daily net assets of such class of the Fund, for costs incurred in
the promotion, offering and marketing of the Funds' shares. The Plans do not
permit nor require payments of excess costs after termination. Fees incurred by
the Funds under the Plans aggregated $109,350 for the year ended May 31, 1996.

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)

c. Distribution Plans and Underwriting Agreement: (cont.)

In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' shares of beneficial interest.
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Funds, and as such are not expenses of the Funds. Distributors may
also make payments, out of its own resources, to the dealers for certain sales
of the Funds' shares. Commissions received by Distributors and the amounts paid
to other dealers for the year ended May 31, 1996, were as follows:
<TABLE>
<CAPTION>

Arkansas California Hawaii Tennessee Washington
Fund Fund Fund Fund Fund
------ ------- ------ ------ -------
Class I
<S> <C> <C> <C> <C> <C>
Total commissions received.......................... $132,475 $2,162,760 $191,062 $257,628 $63,035
Paid to other dealers............................... $123,697 $2,018,948 $179,111 $240,241 $58,768

California
Fund
---------
Class II*
Total commissions received.......................... $136
Paid to other dealers............................... $270
</TABLE>

*For the period May 1, 1996 (effective date) to May 31, 1996.

d. Other Affiliates and Related Party Transactions:

Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisers, and Investor Services, all wholly-owned subsidiaries of
Resources.

At May 31, 1996, Resources owned 30%, 18% and 33% of the Arkansas Fund,
Tennessee Fund and Washington Fund, respectively.

6. CREDIT RISK

All of the Funds' investments are in the securities of issuers within their
respective states and U.S. territories and possessions. Such concentration may
subject the Funds more significantly to economic changes occurring within those
states, U.S. territories and possessions.

7. FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout each
year, by Fund, are as follows:
<TABLE>
<CAPTION>

Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------- ------------------------
Ratio of Ratio of
Net Net Distri- Distri- Net Net Expenses Net
Asset Net Realized Total butions butions Asset Assets to AverageInvestment
Period Value at Invest- & Unrealized From From Net From Total Value at End Net Assets Income Portfolio
Ended Beginning ment Gain(Loss)InvestmentInvestment Capital Distri- at End Total of Period (See to Average Turnover
May 31, of Period Income on SecuritiesOperationsIncome Gains butionsof Period Return+ (in 000's)Note 6)++Net Assets Rate

Arkansas Fund
Class I Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19941 $10.00 $.01 $.050 $.060 -- -- -- $10.06 .60% $ 2,213 .03%* 2.00%* --%
1995 10.06 .51 .191 .701 (.441) -- (.441) 10.32 7.27 4,134 .10 5.64 77.63
1996 10.32 .55 (.078) .472 (.582) -- (.582) 10.21 4.65 8,166 .10 5.69 19.22

California Fund
Class I Shares:
19932 10.00 .03 (.060) (.030) -- -- -- 9.97 (3.60)* 2,245 -- 3.85* 8.89
1994 9.97 .53 (.199) .331 (.558) (.013) (.571) 9.73 3.22 31,938 .07 6.14 40.74
1995 9.73 .66 .176 .836 (.636) -- (.636) 9.93 9.08 51,102 .20 6.89 57.06
1996 9.93 .64 (.102) .538 (.658) -- (.658) 9.81 5.55 118,313 .35 6.49 28.02
Class II Shares:
19964 9.82 .05 .004 .054 (.054) -- (.054) 9.82 .54 212 .91* 5.73* 28.02

Hawaii Fund
Class I Shares:
19923 10.00 .09 .158 .248 (.068) -- (.068) 10.18 8.96* 2,978 -- 4.55* --
1993 10.18 .63 .634 1.264 (.644) -- (.644) 10.80 12.77 18,657 -- 5.95 48.70
1994 10.80 .62 (.459) .161 (.601) -- (.601) 10.36 1.35 26,904 .05 5.76 31.35
1995 10.36 .60 .310 .910 (.600) -- (.600) 10.67 9.26 36,827 .20 6.02 22.88
1996 10.67 .60 (.128) .472 (.602) -- (.602) 10.54 4.49 38,805 .35 5.63 16.01

Tennessee Fund
Class I Shares:
19941 10.00 .01 .100 .110 -- -- -- 10.11 1.10 2,224 .03* 1.89* 22.64
1995 10.11 .52 .353 .873 (.453) -- (.453) 10.53 8.97 5,986 .10 6.02 24.71
1996 10.53 .56 (.093) .467 (.597) -- (.597) 10.40 4.50 13,956 .33 5.67 27.23

Washington Fund
Class I Shares:
19932 10.00 .03 (.040) (.010) -- -- -- 9.99 (1.20)* 2,198 -- 3.44* --
1994 9.99 .51 (.464) .046 (.472) (.014) (.486) 9.55 2.88 4,272 .05 5.59 39.52
1995 9.55 .56 .355 .915 (.565) -- (.565) 9.90 10.10 5,741 .10 6.13 18.46
1996 9.90 .56 (.082) .478 (.578) -- (.578) 9.80 4.91 7,718 .10 5.81 19.13

</TABLE>
*Annualized
1For the period May 10, 1994 (effective date of registration) to May 31, 1994.
2For the period May 3, 1993 (effective date of registration) to May 31, 1993.
3For the period February 26, 1992 (effective date of registration) to May 31,
1992. 4For the period May 1, 1996 (effective date) to May 31, 1996.

7. FINANCIAL HIGHLIGHTS (cont.)

+Total return measures the change in value of an investment over the period
indicated. It is not annualized except where indicated. It does not include the
maximum front-end sales charge or contingent deferred sales charge, and assumes
reinvestment of dividends and capital gains at net asset value. Prior to May 1,
1994, dividends were reinvested at the maximum offering price, and capital gains
at net asset value. Effective May 1, 1994, with the implementation of the Rule
12b-1 distribution plan for Class I shares, the sales charge on reinvested
dividends was eliminated. ++During the periods indicated, Advisers agreed in
advance to waive all or a portion of its management fees and to make payments of
other expenses incurred by the Funds. Had such action not been taken, the ratios
of operating expenses to average net assets would have been as follows:

Ratio of
Expenses
to Average
Net Assets
Arkansas Fund
Class I:
19941.................................... 1.20%*
1995..................................... 1.11
1996..................................... 1.04

California Fund
Class I:
19932.................................... 1.42*
1994..................................... .87
1995..................................... .88
1996..................................... .81
Class II:
19964.................................... 1.81*

Ratio of
Expenses
to Average
Net Assets
Hawaii Fund
Class I:
19923.................................... 1.57%*
1993..................................... 1.06
1994..................................... .92
1995..................................... .87
1996..................................... .84

Tennessee Fund
Class I:
19941.................................... 1.05*
1995..................................... .92
1996..................................... .91

Washington Fund
Class I:
19932.................................... 1.44*
1994..................................... .71
1995..................................... 1.05
1996..................................... .92

During this fiscal year, the Trust paid distributions from undistributed net
investment income in the amounts shown in the Statement of Changes in Net
Assets. The total amount of these distributions is hereby designated as
exempt-interest dividends under Section 852(b)(5) of the Internal Revenue Code.

FRANKLIN MUNICIPAL SECURITIES TRUST

Report of Independent Auditors

To the Shareholders and Board of Trustees

of Franklin Municipal Securities Trust:

We have audited the accompanying statements of assets and liabilities of each of
the funds comprising the Franklin Municipal Securities Trust, including each
Fund's statement of investments in securities and net assets, as of May 31,
1996, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds comprising the Franklin Municipal Securities Trust as of May 31,
1996, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

San Francisco, California

July 3, 1996

Franklin Municipal Securities Trust Annual Report 5/31/96.

APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)

GRAPHIC MATERIAL (1)

This chart shows in pie chart format the fund'securities breakdown by sector as
a percentage of the fund's total net assets.

Quality Breakdown on 5/31/96

AAA 46.5%
AA 20.4%
A 19.0%
BBB 14.1%

GRAPHIC MATERIAL (2)

This bar chart shows the comparison between the fund's disribution rate of 5.52%
and the taxable equivalent distribution rate of 9.83%.

GRAPHIC MATERIAL (3)

The following line graph hypothetically compares the performance of the fund's
shares with the Consumer Price Index (CPI) and the Lehman Brothers Municipal
Bond Index, based on a $10,000 investment from 5/10/94 to 5/31/96.

Period Ending Fund Index Index

5/10/94 9,579 10,000 10,000
5/31/94 9,636 10,059 10,005
6/30/94 9,550 9,998 10,039
7/31/94 9,722 10,181 10,066
8/31/94 9,741 10,216 10,106
9/30/94 9,565 10,066 10,133
10/31/94 9,271 9,887 10,141
11/30/94 8,978 9,708 10,154
12/31/94 9,268 9,921 10,154
1/31/95 9,608 10,205 10,194
2/28/95 9,930 10,502 10,235
3/31/95 10,017 10,623 10,269
4/30/95 10,045 10,636 10,303
5/31/95 10,322 10,975 10,323
6/30/95 10,219 10,879 10,344
7/31/95 10,268 10,983 10,344
8/31/95 10,388 11,122 10,371
9/30/95 10,487 11,192 10,392
10/31/95 10,648 11,355 10,426
11/30/95 10,830 11,543 10,419
12/31/95 10,952 11,654 10,411
1/31/96 11,002 11,743 10,473
2/29/96 10,907 11,663 10,506
3/31/96 10,781 11,513 10,561
4/30/96 10,759 11,481 10,602
5/31/96 10,800 11,477 10,622

Total Return 8.00% 14.77% 6.22%

GRAPHIC MATERIAL (4)

This chart shows in pie chart format the fund'securities breakdown by sector as
a percentage of the fund's total net assets.

Quality Breakdown on 5/31/96

AAA 9.4%
AA 10.6%
A 29.7%
BBB 31.9%
Below Investment Grade 18.4%

GRAPHIC MATERIAL (5)

This bar chart shows the comparison between the fund's Class I shares
disribution rate of 6.44% and the taxable equivalent distribution rate of
11.76%.

GRAPHIC MATERIAL (6)

The following line graph hypothetically compares the performance of the fund's
Class I shares with the Consumer Price Index (CPI) and the Lehman Brothers
Municipal Bond Index, based on a $10,000 investment from 5/3/93 to 5/31/96.

Period Ending Fund Index Index

5/3/93 $9,579 10,000 10,000
5/31/93 9,550 10,051 10,013
6/30/93 9,713 10,218 10,027
7/31/93 9,703 10,232 10,027
8/31/93 9,909 10,445 10,055
9/30/93 10,059 10,564 10,076
10/31/93 10,092 10,584 10,117
11/30/93 10,039 10,491 10,124
12/31/93 10,223 10,712 10,124
1/31/94 10,346 10,834 10,152
2/28/94 10,183 10,553 10,186
3/31/94 9,726 10,124 10,221
4/30/94 9,759 10,210 10,235
5/31/94 9,843 10,299 10,242
6/30/94 9,744 10,236 10,277
7/31/94 9,931 10,423 10,305
8/31/94 10,006 10,460 10,346
9/30/94 9,906 10,306 10,374
10/31/94 9,763 10,123 10,381
11/30/94 9,538 9,939 10,395
12/31/94 9,604 10,158 10,395
1/31/95 9,892 10,448 10,436
2/28/95 10,181 10,753 10,478
3/31/95 10,397 10,876 10,513
4/30/95 10,453 10,889 10,547
5/31/95 10,736 11,237 10,568
6/30/95 10,631 11,139 10,590
7/31/95 10,678 11,245 10,590
8/31/95 10,793 11,387 10,617
9/30/95 10,898 11,459 10,638
10/31/95 11,069 11,625 10,673
11/30/95 11,264 11,818 10,666
12/31/95 11,427 11,932 10,658
1/31/96 11,489 12,023 10,721
2/29/96 11,403 11,941 10,756
3/31/96 11,296 11,788 10,812
4/30/96 11,279 11,755 10,854
5/31/96 11,330 11,750 10,874
Total Return 13.30% 17.50% 8.74%

GRAPHIC MATERIAL (7)

This bar chart shows the comparison between the fund's Class II shares
disribution rate of 4.61% and the taxable equivalent distribution rate of 8.42%.

GRAPHIC MATERIAL (8)

This chart shows in pie chart format the fund'securities breakdown by sector as
a percentage of the fund's total net assets.

Quality Breakdown on 5/31/96

AAA 40.1%
AA 19.1%
A 30.8%
BBB 10.0%

GRAPHIC MATERIAL (9)

This bar chart shows the comparison between the fund's disribution rate of 5.45%
and the taxable equivalent distribution rate of 10.03%.

GRAPHIC MATERIAL (10)

Period Ending Fund Index Index

2/26/92 9,579 10,000 10,000
2/29/92 9,579 10,000 10,004
3/31/92 9,579 10,004 10,055
4/30/92 9,684 10,093 10,069
5/31/92 9,804 10,212 10,083
6/30/92 9,924 10,384 10,119
7/31/92 10,326 10,696 10,140
8/31/92 10,166 10,591 10,169
9/30/92 10,171 10,660 10,197
10/31/92 10,008 10,555 10,233
11/30/92 10,280 10,744 10,247
12/31/92 10,452 10,854 10,240
1/31/93 10,596 10,980 10,290
2/28/93 10,940 11,377 10,326
3/31/93 10,923 11,256 10,363
4/30/93 10,996 11,370 10,392
5/31/93 11,058 11,434 10,406
6/30/93 11,273 11,625 10,421
7/31/93 11,293 11,640 10,421
8/31/93 11,531 11,882 10,450
9/30/93 11,718 12,017 10,472
10/31/93 11,759 12,040 10,515
11/30/93 11,603 11,934 10,522
12/31/93 11,897 12,186 10,522
1/31/94 12,035 12,325 10,550
2/28/94 11,674 12,006 10,586
3/31/94 11,011 11,517 10,622
4/30/94 11,086 11,615 10,637
5/31/94 11,205 11,716 10,645
6/30/94 11,128 11,645 10,681
7/31/94 11,346 11,858 10,710
8/31/94 11,390 11,899 10,753
9/30/94 11,192 11,724 10,782
10/31/94 10,882 11,516 10,789
11/30/94 10,629 11,307 10,803
12/31/94 10,930 11,556 10,803
1/31/95 11,278 11,886 10,846
2/28/95 11,672 12,232 10,890
3/31/95 11,785 12,373 10,926
4/30/95 11,830 12,388 10,962
5/31/95 12,241 12,783 10,984
6/30/95 12,069 12,672 11,006
7/31/95 12,196 12,792 11,006
8/31/95 12,336 12,955 11,034
9/30/95 12,405 13,036 11,056
10/31/95 12,593 13,225 11,093
11/30/95 12,840 13,445 11,085
12/31/95 13,030 13,574 11,077
1/31/96 13,089 13,677 11,143
2/29/96 12,982 13,584 11,178
3/31/96 12,838 13,410 11,236
4/30/96 12,802 13,373 11,280
5/31/96 12,789 13,367 11,302

Total Return 27.89% 33.67% 13.02%

GRAPHIC MATERIAL (11)

This chart shows in pie chart format the fund'securities breakdown by sector as
a percentage of the fund's total net assets.

Quality Breakdown on 5/31/96

AAA 40.0%
AA 25.1%
A 20.9%
BBB 14.0%

GRAPHIC MATERIAL (12)

This bar chart shows the comparison between the fund's disribution rate of 5.52%
and the taxable equivalent distribution rate of 9.72%.

GRAPHIC MATERIAL (13)

Period Ending Fund Index Index

5/10/94 9,579 10,000 10,000
5/31/94 9,693 10,000 10,000
6/30/94 9,579 10,000 10,000
7/31/94 9,799 10,000 10,000
8/31/94 9,818 10,000 10,000
9/30/94 9,644 10,000 10,000
10/31/94 9,381 10,000 10,000
11/30/94 9,148 10,000 10,000
12/31/94 9,448 10,000 10,000
1/31/95 9,799 10,000 10,000
2/28/95 10,103 10,000 10,000
3/31/95 10,201 10,000 10,000
4/30/95 10,219 10,000 10,000
5/31/95 10,537 10,000 10,000
6/30/95 10,436 10,000 10,000
7/31/95 10,485 10,000 10,000
8/31/95 10,637 10,000 10,000
9/30/95 10,706 10,000 10,000
10/31/95 10,858 10,000 10,000
11/30/95 11,063 10,000 10,000
12/31/95 11,187 10,000 10,000
1/31/96 11,250 10,000 10,000
2/29/96 11,135 10,000 10,000
3/31/96 11,010 10,000 10,000
4/30/96 10,989 10,000 10,000
5/31/96 11,010 10,000 10,000

Total Return 10.10% 0.00% 0.00%

GRAPHIC MATERIAL (14)

This chart shows in pie chart format the fund'securities breakdown by sector as
a percentage of the fund's total net assets.

Quality Breakdown on 5/31/96

AAA 46.6%
AA 28.4%
A 10.5%
BBB 14.5%

GRAPHIC MATERIAL (15)

This bar chart shows the comparison between the fund's disribution rate of 5.63%
and the taxable equivalent distribution rate of 9.32%.

GRAPHIC MATERIAL (16)

Period Ending Fund Index Index

5/3/93 9,579 10,000 10,000
5/31/93 9,569 10,000 10,000
6/30/93 9,770 10,000 10,000
7/31/93 9,761 10,000 10,000
8/31/93 9,968 10,000 10,000
9/30/93 10,098 10,000 10,000
10/31/93 10,172 10,000 10,000
11/30/93 9,974 10,000 10,000
12/31/93 10,237 10,000 10,000
1/31/94 10,361 10,000 10,000
2/28/94 10,061 10,000 10,000
3/31/94 9,373 10,000 10,000
4/30/94 9,448 10,000 10,000
5/31/94 9,584 10,000 10,000
6/30/94 9,489 10,000 10,000
7/31/94 9,748 10,000 10,000
8/31/94 9,764 10,000 10,000
9/30/94 9,527 10,000 10,000
10/31/94 9,287 10,000 10,000
11/30/94 9,049 10,000 10,000
12/31/94 9,305 10,000 10,000
1/31/95 9,666 10,000 10,000
2/28/95 10,008 10,000 10,000
3/31/95 10,132 10,000 10,000
4/30/95 10,129 10,000 10,000
5/31/95 10,552 10,000 10,000
6/30/95 10,400 10,000 10,000
7/31/95 10,462 10,000 10,000
8/31/95 10,633 10,000 10,000
9/30/95 10,718 10,000 10,000
10/31/95 10,922 10,000 10,000
11/30/95 11,150 10,000 10,000
12/31/95 11,302 10,000 10,000
1/31/96 11,344 10,000 10,000
2/29/96 11,253 10,000 10,000
3/31/96 11,106 10,000 10,000
4/30/96 11,070 10,000 10,000
5/31/96 11,067 10,000 10,000

Total Return 10.67% 0.00% 0.00%