FRANKLIN MUNICIPAL SECURITIES TRUST, N-30D, 1997-01-30

FRANKLIN MUNICIPAL SECURITIES TRUST
N-30D, 1997-01-30

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LETTER TO SHAREHOLDERS

Table of Contents
Page

Letter to Shareholders 1

Fund Reports

Franklin Arkansas
Municipal Bond Fund 3

Franklin California
High Yield Municipal Fund 7

Franklin Hawaii
Municipal Bond Fund 16

Franklin Tennessee
Municipal Bond Fund 21

Franklin Washington
Municipal Bond Fund 25

Statement of Investments 30

Financial Statements 45

Notes to Financial Statements 49

January 15, 1997

Dear Shareholder:

It's a pleasure to bring you the Franklin Municipal Securities Trust semi-annual
report for the period ended November 30, 1996.

Interest rate volatility characterized much of the six-month reporting period.
Early in the period, speculation about strong economic growth and higher
inflation pushed interest rates up. In September, about midway through the
period, reports showed that inflation remained under control and that the
economy was slowing. As such, yields on debt instruments, including municipal
securities, began to decline and continued to do so through November.

On November 30, 1996, the 30-year Treasury yield was 6.36%, compared with 7.0%
at the beginning of the period on May 31, 1996.+ Reflecting a strong bond
market, municipal bonds mostly outperformed the general bond market during the
reporting period. In addition, longer-term bonds generally provided better value
than short- to intermediate-term issues.

Looking forward, we believe the investment outlook is favorable for municipal
bonds. Although equities caught the attention of investors in 1996, we may see
some money shift into tax-free bonds as investors reassess the risk/reward
potential of the different asset classes. We also expect to see a reduced supply
of municipal bonds, as Congress tries to cut the deficit and states seek to
limit their debt. This reduced supply, combined with a greater demand for
municipal bonds, should help municipal bonds remain attractive investments.

The following pages contain specific information regarding your investment and
the other funds in the Franklin Municipal Securities Trust. 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

+Source: Micropal.

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.*

State Update

Arkansas continued to exhibit good financial performance. The growth of the
state's principal revenue sources (sales, use, individual and corporate income
taxes) remained steady and, for fiscal year 1995, the accumulated general fund
balance was $1.2 billion (19% of revenues). In addition, the cost of doing
business remained low (96% of the U.S. level) which makes the state an
attractive place for businesses.**

Arkansas' economic expansion is slowing down, however, and employment growth,
which peaked at an annualized rate of 4.7% in March 1995, is expected to average
less than 2.0% in 1996.

GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT

*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.

**Source: Moody's Municipal Credit Report, 10/17/96.

Layoffs in the defense industry have been offset by growth in other areas,
including food processing and the service sectors. Overall, the state's economic
growth rate continued to exceed national levels and has done so since 1991.

Portfolio Notes

Throughout the past six months, new municipal bond issuance in Arkansas has
remained relatively light. This lack of issuance, coupled with strong demand for
Arkansas bonds, has helped keep yields for Arkansas' bonds lower than the
national markets. Although spreads generally narrowed between high quality
AAA-rated and lower quality BBB-rated bonds, the Franklin Arkansas Municipal
Bond Fund found opportunities to purchase BBB-rated bonds that were considered
cheap to the market, thereby increasing the amount of these bonds in the
portfolio from 14.1% of total long-term investments on May 31, 1996, to 18.1% on
November 30, 1996.

Franklin Arkansas Municipal Bond Fund
Portfolio Breakdown on November 30, 1996
Based on Total Long-Term Investments

% of Total
Long-Term
Sector Investments
-------------------------------------------
Utilities 31.0%

Hospitals 21.8%

Education 20.7%

Housing 9.3%

General Obligations 8.8%

Transportation 4.4%

Industrial 4.0%

For a complete list of portfolio holdings, please see page 30 of this report.

Overall, the fund experienced light cashflows and concentrated on purchasing
current coupon bonds offering good yields. As a result of the small size of the
fund's portfolio, it was advantageous to remain fully invested during the
reporting period.

Performance Summary

We are pleased to report that the Franklin Arkansas Municipal Bond Fund's share
price, as measured by net asset value, increased 39.0 cents, from $10.21 on May
31, 1996, to $10.60 on November 30, 1996.

At the end of the reporting period, your fund's distribution rate was 5.31%,
based on an annualization of the current monthly dividend of 4.9 cents ($0.049)
per share and the maximum offering price of $11.07 on November 30, 1996. This
double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Arkansas state personal income tax bracket of 43.8% would need to
earn 9.45% from a taxable investment to match the fund's tax-free distribution
rate.

Franklin Arkansas Municipal Bond Fund
Dividend Distributions 6/1/96 -- 11/30/96*

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 4.9 cents

Total 29.4 cents

GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT

The fund posted a cumulative total return of +6.77% for the six-month period
ended November 30, 1996, and a one-year total return of +6.49%. Total returns
measure the change in value over the periods indicated, assuming reinvestment of
dividends and capital gains. These calculations do not include the initial sales
charge, and past performance is not predictive of future results.

*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions 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.

Franklin Arkansas Municipal Bond Fund
Periods Ended November 30, 1996

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

Cumulative Total Return1 6.49% 20.41%

Average Annual Total Return2 1.94% 5.73%

Distribution Rate3 5.31%

Taxable Equivalent Distribution Rate4 9.45%

30-Day Standardized Yield5 5.40%

Taxable Equivalent Yield4 9.61%
- --------------------------------------------------------------------------------

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.

2. Average annual total returns measure the change in value of an investment
over the periods indicated and include the maximum 4.25% initial sales charge.
See Note below.

3. Based on an annualization of the current 4.9 cent per share monthly dividend
and the maximum offering price of $11.07 on November 30, 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 income tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 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
4.65%. 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.*

State Update

At the close of California's 1995-96 fiscal year on June 30, 1996, the state had
experienced its second year of operating surpluses and broad economic
improvement. Additionally, California's employment level returned to its
pre-recession level. Based in part on the state's improving economic position,
Standard & Poor's Corporation (a national rating agency) raised its rating of
California's debt from A to A+.

According to a letter Governor Pete Wilson sent on September 12, 1996, to
California's senators and assemblymembers, the state had finally regained the
730,000 jobs lost during the recession in the early 1990's. Despite the strong
job growth, however, California's unemployment level (7.1%) is still above the
national average of 5.4%.** This higher-than-national-average unemployment
level, coupled with structural issues --including mandated school-funding
levels, new prison-sentencing laws and a moderate, but growing debt level --
will impede California's debt from receiving a higher rating. Nonetheless,
Standard & Poor's holds a stable outlook for the state's municipal debt.

*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.

**Source: Standard & Poor's Creditweek Municipal, September 9, 1996.

Portfolio Notes

During the reporting period, the fund's value-oriented approach led us to invest
more assets in investment-grade issues, as the differences between yields (yield
spread) on lower- and higher-rated issues decreased. On May 31, 1996, 26.1% of
the fund's total long-term investments was in issues rated BB or lower, compared
with 15.8% on November 30, 1996.

We participated in several new issues over the six-month period, including one
issued by the California Housing Finance Agency to provide construction and
financing loans for multifamily rental developments. We also participated in an
issue which allowed the San Francisco Airport Authority to finance some of the
airport's architecture, engineering and construction costs, and an offering by
the Calexico Special Finance Authority to refinance a previously issued
security.

Franklin California High Yield Municipal Fund
Portfolio Breakdown on November 30, 1996
Based on Total Long-Term Investments

% of Total
Long-Term
Sector Investments
--------------------------------------------------
Transportation 24.7%

Utilities 12.9%

Housing 10.5%

Certificates of Participation 10.1%

Mello-Roos Bonds 9.8%

Tax Allocation Bonds 7.0%

Special Assessment Bonds 6.5%

Marks-Roos Bonds 5.9%

Industrial Revenue Bonds 4.2%

Education 2.0%

Hospitals 2.0%

General Obligations 1.8%

Other Revenue 1.5%

Health Care 1.1%

For a complete list of portfolio holdings, please see page 32 of this report.

A generally lower supply of non-rated issues has reduced investment
opportunities for us and other high-yield investors. Fortunately, the large size
of Franklin Templeton's Municipal Bond Department can be an advantage in a tight
market. For example, as the largest investor in California municipal debt,
Franklin is often consulted by bond issuers who want to make their new issues
more marketable. In addition, our location in California, combined with our
extensive experience in analyzing California debt, enables us to effectively
explore, evaluate and participate in non-rated deals as they come to market.

Looking forward, we will continue to build strong relationships with national
and regional dealers to help ensure that we are fully aware of investment
opportunities.

GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

Class I

We are pleased to report that the Franklin California High Yield Municipal
Fund's Class I share price, as measured by net asset value, increased 38.0 cents
during the reporting period, from $9.81 on May 31, 1996, to $10.19 on November
30, 1996.

At the end of the reporting period, your fund's distribution rate was 5.86%,
based on an annualization of the current monthly dividend of 5.2 cents ($0.052)
per share and the maximum offering price of $10.64 on November 30, 1996.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future results.

Franklin California High Yield Municipal Fund
Class I
Dividend Distributions 6/1/96 -- 11/30/96*

Dividend
Month Per Share
------------------------------------------------
June 5.5 cents

July 5.5 cents

August 5.5 cents

September 5.2 cents

October 5.2 cents

November 5.2 cents

Total 32.1 cents

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart to the right illustrates, an
investor in the maximum combined federal and California state personal income
tax bracket of 45.2%, would have to earn 10.69% from a taxable investment to
match the fund's tax-free distribution rate.

The fund posted a cumulative total return of +7.22% for the six-month period
ended November 30, 1996, and a one-year total return of +7.85%. Total returns
measure the change in value over the periods indicated, assuming reinvestment of
dividends and capital gains. These calculations do not include the initial sales
charge, and past performance is not predictive of future results.

GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT

<TABLE>
<CAPTION>
Franklin California High Yield Municipal Fund -- Class I

Periods Ended November 30, 1996

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

<S> <C> <C> <C>
Cumulative Total Return1 7.85% 21.06% 26.88%

Average Annual Total Return2 3.24% 5.03% 5.60%

Distribution Rate3 5.86%

Taxable Equivalent Distribution Rate4 10.69%

30-Day Standardized Yield5 5.93%

Equivalent Taxable Yield4 10.83%
- -----------------------------------------------------------------------------------------------
</TABLE>

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.

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

3. Distribution rate is based on an annualization of the current 5.2 cent per
share monthly dividend and the maximum offering price of $10.64 on November 30,
1996.

4. Taxable equivalent distribution rate and yield assume the 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 November 30, 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 somewhat lower than noted above. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value. Your investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
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. Without this waiver, the fund's distribution rate and total return
would have been lower, and yield for the period would have been 5.54%. The fee
waiver may be discontinued upon notice to the fund's Board of Trustees.

Performance Summary

Class II

We are pleased to report that the Franklin California High Yield Municipal
Fund's Class II share price, as measured by net asset value, increased 37.0
cents during the reporting period, from $9.82 on May 31, 1996, to $10.19 on
November 30, 1996.

At the end of the reporting period, your fund's distribution rate was 5.43%,
based on an annualization of the current monthly dividend of 4.66 cents
($0.0466) per share and the maximum offering price of $10.29 on November 30,
1996. Distributions will vary based on the earnings of the fund's portfolio, and
past distributions are not predictive of future results.

Franklin California High Yield Municipal Fund
Class II
Dividend Distributions 6/1/96 -- 11/30/96*

Dividend
Month Per Share
------------------------------------------------

June 5.03 cents

July 5.12 cents

August 5.12 cents

September 4.82 cents

October 4.66 cents

November 4.66 cents

Total 29.41 cents

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

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart to the right illustrates, an
investor in the maximum combined federal and California state personal income
tax bracket of 45.2% would have to earn 9.91% from a taxable investment to match
the fund's tax-free distribution rate.

The fund posted a cumulative total return of +6.82% for the six-month period
ended November 30, 1996. Total return measures the change in value over the
period indicated, assuming reinvestment of dividends and capital gains.

This calculation does not include the initial sales charge, and past performance
is not predictive of future results.

GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin California High Yield Municipal Fund -- Class II

Period Ended November 30, 1996

Since
Inception
(5/1/96)
- --------------------------------------------------------------------------------

Cumulative Total Return1 7.28%

Aggregate Total Return2 5.21%

Distribution Rate3 5.43%

Taxable Equivalent Distribution Rate4 9.91%

30-Day Standardized Yield5 5.56%

Taxable Equivalent Yield4 10.15%
- --------------------------------------------------------------------------------

1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the 1.0% initial sales charge and 1.0%
contingent deferred sales charge (CDSC) applicable to shares redeemed within the
first 18 months of investment.

2. Aggregate total return measures the change in value of an investment since
inception and includes the 1.0% initial sales charge and 1.0% CDSC. Since the
fund has existed for less than one year, average annual total returns are not
provided.

3. Distribution rate is based on an annualization of the current 4.66 cent per
share monthly dividend and the maximum offering price of $10.29 on November 30,
1996.

4. Taxable equivalent distribution rate and yield assume the 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 November 30, 1996.

All total return calculations assume reinvestment of dividends and capital
gains, if any, at net asset value. Your investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares. 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. Without this waiver, the fund's distribution rate and total return
would have been lower, and yield for the period would have been 5.15%. The fee
waiver may be discontinued upon notice to the fund's Board of Trustees.

FRANKLIN HAWAII MUNICIPAL BOND FUND

Your Fund's Objective:

Seeks to provide shareholders with a high level of current income exempt from
regular federal and Hawaii state personal income taxes while seeking
preservation of capital by investing primarily in a portfolio of Hawaii
municipal securities.*

State Update

Hawaii continued to experience moderate growth during the reporting period with
relatively low unemployment (5.4%) in October 1996. The service sector, in
particular, gained 700 new jobs in 1996.**

Tourism, an important element of the Hawaiian economy, grew by a moderate 3.2%
in 1995 and continued to improve in 1996. While visitors from mainland United
States accounted for close to 60% of all visitors, those from Japan and South
Korea represented the fastest growing element. The diversification of Hawaii's
tourist base should help limit Hawaii's exposure to the economic swings of the
mainland U.S. in the future.++

Franklin Hawaii Municipal Bond Fund
Portfolio Breakdown on November 30, 1996
Based on Total Long-Term Investments

% of Total
Long-Term
Sector Investments
- ------------------------------------------------
Utilities 28.1%

Transportation 20.2%

Housing 19.0%

Hospitals 17.6%

General Obligations 7.9%

Pre-Refunded 6.0%

Industrial 1.2%

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

**Source: U.S. Bureau of Labor Statistics.

++Source: Standard & Poor's Creditweek Municipal, March 25, 1996.

Although Hawaii has a relatively high level of municipal debt, proposals for the
repeal of some tax credits and the implementation of incremental spending
restrictions could help realign the state's financial position. Hawaii's general
obligation debt has been rated AA by Standard & Poor's, a national rating
agency.

Portfolio Notes

During the six-month period, we continued to seek bonds with high credit
ratings. For example, the percentage of the fund's total long-term investments
in securities rated AAA and AA increased from 59.2% on May 31, 1996, to 65.0% on
November 30, 1996. We also maintained our conservative approach to portfolio
management, selecting new issues based on their stability and income-producing
potential. As you can see from the portfolio breakdown on the preceeding page,
the majority of the fund's assets were invested across sectors that typically
provide stable income -- utilities, transportation, housing and hospitals.

Although the state's debt ratio remains high, Hawaii's general obligation debt
continues to enjoy high ratings from Moody's and Standard & Poor's, two national
credit-rating agencies. The state's debt continues to enjoy excellent market
reception, and our investment outlook for the state's municipal securities
remains positive.

GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Performance Summary

We are pleased to report that the Franklin Hawaii Municipal Bond Fund's share
price, as measured by net asset value, increased 40.0 cents during the reporting
period, from $10.54 on May 31, 1996, to $10.94 on Nov-ember 30, 1996.

At the end of the reporting period, your fund's distribution rate was 5.25%,
based on an an- nualization of the current monthly dividend of 5.0 cents ($0.05)
per share and the maximum offering price of $11.43 on November 30, 1996.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future results.

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart to the right illustrates, an
investor in the maximum combined federal and Hawaii state personal income tax
bracket of 45.6%, would have to earn 9.65% from a taxable investment to match
the fund's tax-free distribution rate.

Franklin Hawaii Municipal Bond Fund
Dividend Distributions 6/1/96 -- 11/30/96*

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

Total 30.0 cents

The fund posted a cumulative total return of +6.70% for the six-month period
ended November 30, 1996, and a one-year total return of +6.29%. Total returns
measure the change in value over the periods indicated, assuming reinvestment of
dividends and capital gains. These calculations do not include the initial sales
charge, and past performance is not predictive of future results.

GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT

<TABLE>
<CAPTION>
Franklin Hawaii Municipal Bond Fund
Periods Ended November 30, 1996

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

<S> <C> <C> <C>
Cumulative Total Return1 6.29% 17.66% 42.52%

Average Annual Total Return2 1.80% 4.05% 6.76%

Distribution Rate3 5.25%

Taxable Equivalent Distribution Rate4 9.65%

30-Day Standardized Yield5 5.16%

Taxable Equivalent Yield4 9.49%
- -----------------------------------------------------------------------------------------------
</TABLE>

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.

2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and include 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 $11.43 on November 30,
1996.

4. Taxable equivalent distribution rate and yield assume the 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 Novem- ber 30, 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 somewhat lower than noted above. All total return calculations
assume reinvestment of dividends and capital gains, if any, at net asset value.
Your investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. 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. Without this waiver, the fund's distribution rate and total return
would have been lower, and yield for the period would have been 4.75%. The fee
waiver may be discontinued 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's economy has diversified through strong service-sector employment
growth and expansion in the health services and distribution industries. The
location and expansion of the Saturn and Nissan facilities and other
automobile-related businesses have strengthened the state's manufacturing sector
significantly. Auto suppliers are expected to continue moving into the state to
take advantage of Tennessee's central location in the southern-based automobile
industry.

The state's financial picture remains sound. A $132 million surplus in fiscal
1993, resulting from tax increases and spending restraints, has carried forward
and increased the general fund balance to $363 million -- including $150 million
designated for revenue fluctuations. The fiscal 1995-96 budget assumes no
permanent tax or fee increases, nor does management expect to draw on the
reserve funds. Tennessee's debt burden remains low, and the positive outlook for
the state reflects ongoing economic diversification and a sound financial
position.

GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Portfolio Notes

We took advantage of a favorable yield-spread environment during the period to
considerably increase the credit quality of the portfolio. Typically, lower
quality bonds pay higher yields than better quality bonds. The higher yield is
often paid to compensate the investor for taking on more risk. During the
period, however, yields on higher quality bonds were nearly as strong as those
generated by lower quality bonds. By purchasing the higher quality bonds, we
maintained our income and improved our overall credit quality. On November 30,
1996, approximately 47% of the bonds in the portfolio were rated AAA, compared
with only 40% on May 31, 1996.

Purchases made during the reporting period were concentrated in "essential
service" sectors, such as education and direct revenue utility issues. Education
and utility bonds comprised 6.6% and 9.5%, respectively, of the portfolio's
total long-term investments on November 30, up significantly from six months
earlier (2.7% and 6.3%, respectively). We participated in issues offered by the
Tennessee State School Board Authority, McKenzie High School District, and the
Collierville Utility District.

Franklin Tennessee Municipal Bond Fund
Portfolio Breakdown on November 30, 1996
Based on Total Long-Term Investments

% of Total
Long-Term
Sector Investments
---------------------------------------------
Housing 22.9%

Industrial 21.1%

General Obligations 17.5%

Transportation 11.1%

Utilities 9.5%

Education 6.6%

Other Revenue 4.5%

Hospitals 2.9%

Pre-Refunded 2.7%

Certificates of Participation 1.2%

For a complete list of portfolio holdings, please see page 39 of this report.

The purchases made over the six-month period were funded by an increase of
assets in the Franklin Tennessee Municipal Bond Fund. The fund's net assets grew
over 34% between May 31 and November 30, 1996, from $13.956 million to $18.722
million. Looking forward, a light supply of Tennessee bonds should keep the
demand for such securities strong. This should bode well for the fund's
performance.

Performance Summary

We are pleased to report that the Franklin Tennessee Municipal Bond Fund's share
price, as measured by net asset value, increased 42.0 cents, from $10.40 on May
31, 1996, to $10.82 on November 30, 1996.

At the end of the reporting period, your fund's distribution rate was 5.31%,
based on an annualization of the current monthly dividend of 5.0 cents ($0.05)
per share and the maximum offering price of $11.30 on November 30, 1996. This
double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. For example, an investor in the maximum combined
federal and Tennessee state personal income tax bracket of 43.2% would need to
earn 9.35% from a taxable investment to match the fund's tax-free distribution
rate.

Franklin Tennessee Municipal Bond Fund
Dividend Distributions 6/1/96 -- 11/30/96*

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

Total 30.0 cents

GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT

The fund posted a cumulative total return of +7.00% for the six-month period
ended November 30, 1996, and a one-year total return of +6.49%. Total returns
measure the change in value over the periods indicated, assuming reinvestment of
dividends and capital gains. These calculations do not include the initial sales
charge, and past performance is not predictive of future results.

Franklin Tennessee Municipal Bond Fund

Periods Ended November 30, 1996

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

Cumulative Total Return1 6.49% 23.02%

Average Annual Total Return2 1.94% 6.62%

Distribution Rate3 5.31%

Taxable Equivalent Distribution Rate4 9.35%

30-Day Standardized Yield5 5.12%

Taxable Equivalent Yield4 9.02%
- -----------------------------------------------------------------------------

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.

2. Average annual total returns measure the change in value of an investment
over the periods indicated and include the maximum 4.25% initial sales charge.
See Note below.

3. Based on an annualization of the current 5.0 cent per share dividend and the
maximum offering price of $11.30 on November 30, 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 income tax rate of 39.6%.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 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
4.66%. 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 strengthen through its gradual diversification
into services, trade and high-tech, as well as from the rejuvenation of the
aerospace industry. While in the past we have lamented the plight of Boeing,
1996 was one of the best years for this Seattle-based firm. It won orders for
$46 billion worth of aircraft in 1996 alone.**

Although Boeing promises to remain a stalwart, if at times cyclical element of
Washington's economy, the trend is toward a more diverse and mature economic
base. Well-known Washington-based companies representing this trend include
Nordstrom, Starbucks and Microsoft. Many companies and families, are attracted
to the state by the generous tax incentives given to firms and the
lower-than-national-average living expenses.

Franklin Washington Municipal Bond Fund
Portfolio Breakdown on November 30, 1996
Based on Total Long-Term Investments

% of Total
Long-Term
Sector Investments
----------------------------------------------
Utilities 33.1%

General Obligations 23.6%

Housing 14.1%

Education 12.3%

Industrial 10.6%

Transportation 2.6%

Hospitals 2.4%

Certificates of Participation 1.3%

For a complete list of portfolio holdings, please see page 42 of this report.

**Source: Bloomberg, December 3, 1996.

The state's overall debt burden is considered moderate, which can be partly
attributed to Initiative 601 and its mandated limits on state spending and debt
levels. Because the state's revenue is largely derived from sales and
gross-receipt taxes, it can be vulnerable to economic downturns. The state's
general obligation debt continued to receive an AA rating from Standard & Poor's
Corporation, a national rating agency.++

Portfolio Notes

During the reporting period, we continued to manage the fund conservatively,
focusing security selection on stable issues with income-producing potential. As
you can see from the table on the preceding page, a majority of the fund's
assets was invested in bonds of sectors that typically provide stable income --
utilities, housing and industrial. Additionally, we sought to maintain the
fund's high level of investment in bonds with high credit qualities; as of
November 30, 1996, 85.5% of total long-term investments was in bonds rated A or
better.

As Washington's economy continues to diversify and becomes less cyclical, the
state's financial position should continue to improve. Based on this outlook and
the state's sound fiscal policies, we believe Washington's municipal debt should
remain an attractive investment.

GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT

++Source: Standard & Poor's Creditweek Municipal, June 24, 1996.

Performance Summary

We are pleased to report that the Franklin Washington Municipal Bond Fund's
share price, as measured by net asset value, increased 39.0 cents during the
reporting period, from $9.80 on May 31, 1996, to $10.19 on Nov- ember 30, 1996.

At the end of the reporting period, your fund's distribution rate was 5.41%,
based on an annualization of the current monthly dividend of 4.8 cents ($0.048)
per share and the maximum offering price of $10.64 on November 30, 1996.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future results.

This double tax-free rate is generally higher than the after-tax return on a
comparable taxable investment. As the chart on the next page illustrates, an
investor in the maximum federal income tax bracket of 39.6% would have to earn
8.96% from a taxable investment to match the fund's tax-free distribution rate.

Franklin Washington Municipal Bond Fund
Dividend Distributions 6/1/96 -- 11/30/96*

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

Total 28.8 cents

The fund posted a cumulative total return of +6.99% for the six-month period
ended November 30, 1996, and a one-year total return of +6.21%. Total returns
measure the change in value over the periods indicated, assuming reinvestment of
dividends and capital gains. These calculations do not include the initial sales
charge, and past performance is not predictive of future results.

GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT

<TABLE>
<CAPTION>
Franklin Washington Municipal Bond Fund

Periods Ended November 30, 1996

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

<S> <C> <C> <C>
Cumulative Total Return1 6.21% 18.76% 23.66%

Average Annual Total Return2 1.70% 4.39% 4.84%

Distribution Rate3 5.41%

Taxable Equivalent Distribution Rate4 8.96%

30-Day Standardized Yield5 5.45%

Taxable Equivalent Yield4 9.02%
- -------------------------------------------------------------------------------------------------------------
</TABLE>

1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.

2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and include the 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 $10.64 on November 30,
1996.

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

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 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. Without this waiver, the fund's distribution rate and total return
would have been lower, and yield for the period would have been 4.77%. The fee
waiver may be discontinued upon notice to the fund's Board of Trustees.

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, November 30, 1996 (unaudited)

Face Value
Amount Franklin Arkansas Municipal Bond Fund (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments 96.6%
$ 110,000 Arkansas Development Financing Authority, SFMR, MBS Program, Series D, 6.85%,
01/01/27 ......................................................................... $ 116,794
130,000 Arkansas GO, Refunding, Waste Disposal and Pollution, Series B, 6.25%, 07/01/20 ... 137,686
1,000,000 Arkansas State Development Finance Authority, Series A, Waste Water Systems
Revenue, Revolving Loan Fund, 5.85%, 12/01/19 .................................... 1,034,580
500,000 Arkansas State Student Loan Authority Revenue, Refunding, Sub-Series B, 6.25%,
06/01/10 ......................................................................... 516,120
300,000 Arkansas State Water Reserve Development, Series B, 5.75%, 07/01/25 ............... 305,673
100,000 Blytheville Solid Waste Recycling and Sewage Treatment Revenue, Nucor Corp.
Project, 6.375%, 01/01/23 ........................................................ 103,790
250,000 Camden Environmental Improvement Revenue, International Paper Co. Project,
Series A, 7.625%, 11/01/18 ....................................................... 284,685
500,000 Conway Public Facilities Board, Capital Improvement Revenue, Hendrix College
Project, 6.00%, 10/01/26 ......................................................... 513,765
130,000 Fort Smith Water and Sewer Revenue, Refunding and Construction, MBIA Insured,
6.00%, 10/01/12 .................................................................. 137,965
130,000 Fouke School District No. 15, Refunding and Construction, MBIA Insured, 6.60%,
04/01/19 ......................................................................... 139,892
115,000 Greenland School District No. 95, Washington County, Refunding and Construction,
MBIA Insured, 6.50%, 05/01/13 .................................................... 120,778
125,000 Guam Airport Authority Revenue, Series B, 6.60%, 10/01/10 ......................... 130,328
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 ...... 203,800
400,000 Jefferson County PCR, Refunding, Arkansas Power & Light Co., 6.30%, 06/01/18 ...... 417,104
Jonesboro City Water and Light Plant, Public Utilities System Revenue,
100,000 MBIA Insured, 5.40%, 11/15/13 ................................................. 100,961
200,000 Refunding, AMBAC Insured, 5.25%, 12/01/13 ..................................... 199,776
450,000 Jonesboro Residential Housing and Health Care Facilities Board, Hospital Revenue,
Refunding, St. Bernard's Regional Medical Center, Series B, AMBAC Insured,
5.90%, 07/01/16 .................................................................. 463,680
140,000 Little Rock Capital Improvement, Refunding, 6.30%, 02/01/09 ....................... 144,955
130,000 Little Rock Municipal Airport Revenue, Refunding, MBIA Insured, 6.00%, 11/01/14 ... 135,694
120,000 Little Rock School District GO, Refunding, 6.25%, 12/01/07 ........................ 120,875
100,000 Little Rock School District, Refunding, FSA Insured, 5.60%, 01/01/20 .............. 100,645
440,000 Little Rock Waste Disposal Revenue, 5.80%, 05/01/16 ............................... 452,641
400,000 Paragould Hospital Revenue, 6.375%, 10/01/17 ...................................... 410,144
500,000 Pope County PCR, Refunding, Arkansas Power and Light Co. Project, 6.30%, 11/01/20 . 513,575
250,000 Puerto Rico Commonwealth GO, 6.50%, 07/01/23 ...................................... 269,888
165,000 Puerto Rico Commonwealth Highway Authority Revenue, Series Q, 6.00%, 07/01/20 ..... 166,889
175,000 Puerto Rico Electric Power Authority Revenue, Series R, 6.25%, 07/01/17 ........... 184,020
$ 175,000 Puerto Rico SFMR, Bank and Financial Agency, Affordable Housing Mortgage,
Portfolio I, 6.25%, 04/01/29 ..................................................... $ 179,531
125,000 Pulaski County Health Facilities Board Revenue, Refunding, Nazareth Sisters of Charity,
St. Vincent's Infirmary, MBIA Insured, 6.05%, 11/01/09 ........................... 134,893
600,000 Pulaski County Public Facilities Board, MFR, Refunding, South Oaks Apartments,
Series A, 6.50%, 10/20/29 ........................................................ 620,705
700,000 Saline County Hospital Revenue, Refunding, Connie Lee Insured, 6.00%, 09/01/19 .... 721,161
195,000 Saline County Retirement Housing and Healthcare Facilities Board Revenue, Refunding,
AMBAC Insured, 5.80%, 06/01/11 ................................................... 201,182
375,000 University of Central Arkansas Revenue, Athletic Facilities, Series C, AMBAC Insured,
6.125%, 04/01/26 ................................................................. 392,272
125,000 University of Southern Arkansas, Student Fees, MBIA Insured, 6.00%, 10/01/13 ...... 129,072
------------
Total Investments (Cost $9,409,773) 96.6% .............................. 9,805,519
Other Assets and Liabilities, Net 3.4%.................................. 349,413
------------
Net Assets 100.0% ...................................................... $10,154,932
============

At November 30, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $9,409,773 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .................................................. $ 395,746
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value................................................... --
------------
Net unrealized appreciation ..................................................... $ 395,746
============

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

The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, November 30, 1996 (unaudited)

Face Value
Amount Franklin California High Yield Municipal Fund (Note 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 98.9%
$ 2,000,000 Adelanto Water Authority Revenue, Water Systems Acquisition Project, Series A,
7.50%, 09/01/28 ............................................................... $ 2,054,960
Alameda Public Financing Authority, Local Agency Revenue, Refunding, Special Tax,
Community Facility No. 1-A,
3,400,000 6.70%, 08/01/12 ............................................................. 3,454,570
4,015,000 7.00%, 08/01/19 ............................................................. 4,143,681
470,000 Antioch 1915 Act, AD No. 27, Series D, 7.30%, 09/02/13 ......................... 484,100
5,000,000 Beaumont Financing Authority, Local Agency Revenue, Refunding, Sewer Enterprise
Project, Series A, 6.75%, 09/01/25 ............................................ 4,961,650
1,510,000 Belmont RDA, Tax Allocation, Los Costanos Community Development, Series A,
6.80%, 08/01/24 ............................................................... 1,628,414
565,000 Benicia 1915 Act, Refunding, Fleetside Industrial Park Assessment, 7.00%, 09/02/14 582,035
Calexico Special Financing Authority, Sales Tax Revenue,
10,000 7.40%, 01/01/99 ............................................................. 10,212
125,000 7.40%, 01/01/00 ............................................................. 127,941
165,000 7.40%, 01/01/01 ............................................................. 169,105
175,000 7.40%, 01/01/02 ............................................................. 179,505
220,000 7.40%, 01/01/03 ............................................................. 225,476
235,000 7.40%, 01/01/04 ............................................................. 240,285
285,000 7.40%, 01/01/05 ............................................................. 290,338
340,000 7.40%, 01/01/06 ............................................................. 344,668
7,680,000 7.40%, 01/01/18 ............................................................. 7,734,682
1,000,000 California Educational Facilities Authority Revenue, Pooled College and University
Projects, Series B, 6.00%, 12/01/12 ........................................... 1,000,780
California Health Facilities Financing Authority Revenue, Insured,
1,800,000 Cedarknoll, Series B, 7.50%, 08/01/20 ....................................... 1,957,788
990,000 Thessalonika Family, Series A, 6.20%, 12/01/15 .............................. 1,026,729
California HFA Revenue, Home Mortgage,
5,000,000 MFHR, Series B, AMBAC Insured, 6.15%, 08/01/22 .............................. 5,082,700
1,150,000 Series B, 7.125%, 02/01/26 .................................................. 1,207,052
1,795,000 Series F-1, 7.00%, 08/01/26 ................................................. 1,870,228
2,500,000 Series H, 6.25%, 08/01/27 ................................................... 2,547,425
3,285,000 bSeries R, MBIA Insured, 6.15%, 08/01/27 ..................................... 3,336,673
2,000,000 California PCFA, PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 2,079,740
1,000,000 California PCFA, Solid Waste Disposal Revenue, Browning-Ferris Industries, Inc.,
6.75%, 09/01/19................................................................ 1,086,970
80,000 California Special District Association Finance Corp., COP, Series V, 7.50%, 05/01/13 84,033
California State GO,
1,730,000 FGIC Insured, 6.00%, 08/01/19 ............................................... 1,796,605
1,250,000 Veterans, Series BD, BE, and BF, 6.40%, 02/01/22 ............................ 1,285,000
$ 3,000,000 California State HFA, HMR, Series L, MBIA Insured, 6.40%, 08/01/27 ............. $ 3,099,270
1,800,000 California Statewide Communities Development Authority Revenue, COP, 7.25%,
12/01/22 ...................................................................... 2,013,624
1,000,000 Capistrano USD, CFD, Special Tax No. 92-1, 7.00%, 09/01/18 ..................... 1,012,210
Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue, Senior Lien,
Series A,
5,500,000 6.50%, 01/01/32 ............................................................. 5,781,710
4,575,000 6.00%, 01/01/34 ............................................................. 4,581,588
2,000,000 Refunding, 6.00%, 01/01/16 .................................................. 2,016,120
6,375,000 Garden Grove Housing Authority, MFHR, Set-Aside Tax Increment, Series C, 6.70%,
07/01/24....................................................................... 6,456,473
2,500,000 Gateway Improvement Authority Revenue, Marin City CFD, Series A, 7.75%,
09/01/25 ...................................................................... 2,616,450
Granada Sanitation District, 1915 Act, Sewage Treatment Facilities, Financing District,
Series A,
1,000,000 7.125%, 09/02/16 ............................................................ 1,029,890
1,000,000 7.25%, 09/02/22 ............................................................. 1,029,880
2,600,000 Hesperia Public Financing Authority, Improvement Revenue, Series B, 7.375%,
10/01/23 ...................................................................... 2,667,028
2,500,000 Irvine 1915 Act, AD No. 94-15, 6.70%, 09/02/20 ................................. 2,511,000
Irvine Ranch Water District, Joint Powers Agency, Local Pool Revenue,
1,000,000 Issue I, 7.875%, 02/15/23 ................................................... 1,041,540
2,000,000 Issue II, 8.25%, 08/15/23 ................................................... 2,128,780
1,500,000 John C. Fremont Hospital District Revenue, California Health Facilities, Insured, 6.75%,
06/01/13....................................................................... 1,620,360
1,265,000 Lake Elsinore 1915 Act, AD No. 93-1, Series A, 7.90%, 09/02/24 ................. 1,312,830
2,000,000 Lemon Grove School District COP, Vista La Mesa Elementary School Construction,
6.40%, 09/01/26 ............................................................... 2,024,040
140,000 Long Beach Special Tax, CFD No. 2, 7.50%, 09/01/11 ............................. 141,607
1,350,000 Los Angeles County Transportation Commission, Sales Tax Revenue, Series A,
6.25%, 07/01/16................................................................ 1,350,486
3,500,000 Los Angeles Harbor Development Revenue, Series B, 6.00%, 08/01/14 .............. 3,639,650
3,000,000 Los Angeles Metropolitan Transportation Authority, Sales Tax Revenue, Refunding,
Proposition A, Series A, MBIA Insured, 5.625%, 07/01/18 ....................... 2,997,990
1,150,000 Los Angeles MFR, Refunding, Series J-2, 8.50%, 01/01/24 ........................ 1,139,052
1,175,000 Lynwood Public Financing Authority Revenue, Water System Improvement Project,
6.50%, 06/01/21 ............................................................... 1,207,348
1,480,000 Millbrae Elementary School District, COP, Financing Project, 6.90%, 03/01/22 ... 1,562,732
2,000,000 Newport Mesa USD, Special Tax, CFD No. 90-1, 6.75%, 09/01/21 ................... 2,034,380
$ 2,815,000 Oakland Revenue, Refunding, YMCA of the East Bay Project, 7.10%, 06/01/10 ...... $ 2,927,093
1,591,000 Orinda 1915 Act, AD No. 94-1, Oak Springs, 8.25%, 09/02/19 ..................... 1,640,051
10,000,000 Palmdale Special Tax, CFD No. 93-1, Ritter Ranch Project, Series A, 8.50%, 09/01/17 9,797,700
500,000 Perris Public Financing Authority, Local Agency Revenue, Series B, 7.25%, 08/15/23 505,115
1,100,000 Richmond Joint Powers Financing Authority, 1915 Act, ID Nos. 851 and 853, Series B,
8.50%, 09/02/19 ............................................................... 1,134,166
3,185,000 Richmond Revenue, Refunding, YMCA of the East Bay Project, 7.25%, 06/01/17 ..... 3,323,802
85,000 Sacramento County 1915 Act, Refunding, Sunrise/U.S. Corridor Assessment, 7.00%,
09/02/09....................................................................... 87,560
1,710,000 San Buenaventura COP, Capital Improvement Projects, 6.85%, 08/01/16 ............ 1,747,124
850,000 San Diego County Educational Facilities Authority No. 1, Lease Revenue, 6.50%,
08/15/15....................................................................... 882,700
3,500,000 San Diego Special Tax, CFD No. 1, Series B, 7.10%, 09/01/20 .................... 3,586,625
San Francisco City and County Airports Commission, International Airport Revenue,
Second Series,
1,570,000 Issue 8A, FGIC Insured, 6.25%, 05/01/20 ..................................... 1,650,478
5,000,000 Issue 12A, 5.90%, 05/01/26 .................................................. 5,085,200
800,000 San Francisco City and County Revenue, Irwin Memorial Blood Centers, Series A,
6.80%, 12/01/21................................................................ 850,200
San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue,
18,150,000 Junior Lien, (original accretion rate 7.30%), 0.00%, 01/01/28 ............... 2,158,943
750,000 Senior Lien, 7.00%, 01/01/30 ................................................ 809,280
3,450,000 Senior Lien, 6.75%, 01/01/32 ................................................ 3,677,045
5,000,000 San Jose Financing Authority Revenue, Convention Center Project, Series C,
6.40%, 09/01/17 ............................................................... 5,178,950
1,500,000 San Ramon Public Financing Authority, Refunding, Tax Allocation, 6.90%, 02/01/24 1,589,805
2,545,000 Santa Barbara RDA, Tax Allocation, Refunding, Central City Redevelopment,
Series B, 6.00%, 03/01/07 ..................................................... 2,595,416
1,500,000 Santa Rosa 1915 Act, Fountain/Grove Parkway Extension Assessment, 7.625%,
09/02/19....................................................................... 1,545,540
1,140,000 Southern California Public Power Authority, Southern Transmission Project Revenue,
Sub-Crossover Refunding, 6.125%, 07/01/18 ..................................... 1,166,585
1,200,000 Tracy COP, I-205 Corridor Improvement Project, 7.00%, 10/01/27 ................. 1,256,004
2,250,000 West Covina COP, Refunding, Civic Center, 6.875%, 09/01/14 ..................... 2,309,062
7,400,000 Western Placer Waste Management Authority Revenue, 6.75%, 07/01/14 ............. 7,804,853
3,060,000 Westminster COP, Public Improvements Project, 6.00%, 06/01/22 .................. 3,099,687
------------
Total Long Term Investments (Cost $168,313,399)........................... 174,418,367
------------
$ 300,000 California PCFA, PCR, Southern California Edison Co., Refunding, Series A,
Daily VRDN and Put, 4.25%, 02/28/08 ........................................... $ 300,000
500,000 Irvine 1915 Act, AD 95-12, Series A, Daily VRDN and Put, 3.90%, 09/02/21 ....... 500,000
600,000 Irvine Ranch Water District, Consolidated Improvement Districts, Daily VRDN and Put,
3.95%, 06/01/15 ............................................................... 600,000
------------
Total Short Term Investments (Cost $1,400,000)............................ 1,400,000
------------
Total Investments (Cost $169,713,399) 99.7%.......................... 175,818,367
Other Assets and Liabilities, Net 0.3% .............................. 598,291
------------
Net Assets 100.0% ................................................... $176,416,658
============

At November 30, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $169,713,399 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ............................................... $ 6,319,782
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value................................................ (214,814)
------------
Net unrealized appreciation................................................... $ 6,104,968
============

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
HFA - Housing Finance Agency
HMR - Home Mortgage 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.
</TABLE>

FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, November 30, 1996 (unaudited)

Face Value
Amount Franklin Hawaii Municipal Bond Fund (Note 1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 96.6%
Guam Airport Authority Revenue, Series B,
$ 200,000 6.60%, 10/01/10 ............................................................... $ 208,524
1,000,000 6.70%, 10/01/23 ............................................................... 1,042,440
280,000 Guam Government, Limited Obligation Highway, Refunding, Series A, CGIC Insured,
6.30%, 05/01/12 ................................................................. 301,333
300,000 Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 .......................... 306,837
Hawaii State Airport System Revenue,
300,000 Refunding, Third Series 1994, AMBAC Insured, 5.75%, 07/01/09 .................. 310,932
60,000 Second Series 1990, FGIC Insured, 7.50%, 07/01/20 ............................. 66,671
1,520,000 Second Series 1991, 7.00%, 07/01/18 ........................................... 1,657,970
200,000 Second Series 1991, MBIA Insured, 6.75%, 07/01/21 ............................. 215,544
400,000 Second Series 1992, MBIA Insured, 6.90%, 07/01/12 ............................. 466,800
Hawaii State Department of Budget and Finance, Special Purpose Revenue,
100,000 Hawaii Electric Co., 7.20%, 12/01/14 .......................................... 107,255
1,950,000 Hawaii Electric Co., Series A, MBIA Insured, 6.60%, 01/01/25 .................. 2,112,747
3,425,000 Hawaii Electric Co. and Subsidiaries, MBIA Insured, 6.55%, 12/01/22 ........... 3,699,719
1,100,000 Kapiolani Health Obligation, 6.25%, 07/01/21 .................................. 1,132,824
105,000 Pali Momi Medical Center Project, Pre-Refunded, 7.65%, 07/01/19 ............... 121,428
500,000 Queens Medical Center Project, FGIC Insured, Pre-Refunded, 6.20%, 07/01/22 .... 553,200
25,000 Refunding, Hawaii Electric Co., 6.875%, 04/01/12 .............................. 25,641
100,000 Refunding, Kaiser Permanente, Series A, 6.25%, 03/01/21 ....................... 104,281
600,000 Refunding, Kapiolani Health Care System, 6.40%, 07/01/13 ...................... 624,426
225,000 Refunding, Kapiolani Health Care System, 6.00%, 07/01/19 ...................... 227,086
1,000,000 Refunding, Queens Health System, Series A, 6.05%, 07/01/16 .................... 1,041,360
120,000 Refunding, Queens Health System, Series A, 6.00%, 07/01/20 .................... 124,145
1,000,000 Refunding, Queens Health System, Series A, 5.75%, 07/01/26 .................... 1,009,200
725,000 Refunding, Queens Medical Center Project, FGIC Insured, Pre-Refunded, 6.50%,
07/01/12 ..................................................................... 755,189
1,100,000 Refunding, Wahiawa General Hospital Project, 7.50%, 07/01/12 .................. 1,177,803
1,100,000 St. Francis Medical Centers, CGIC Insured, 6.50%, 07/01/22 .................... 1,189,914
75,000 Hawaii State Department of Transportation, Special Facilities Revenue, Refunding,
Matson Terminals, Inc., 5.75%, 03/01/13 ......................................... 75,530
Hawaii State GO,
100,000 Series BT, Pre-Refunded, 6.125%, 02/01/11 ..................................... 107,712
100,000 Series BW, 6.375%, 03/01/11 ................................................... 112,462
100,000 Series CA, 6.00%, 01/01/09 .................................................... 109,168
Hawaii State Harbor Capital Improvement Revenue,
1,000,000 Refunding, Series 1994, FGIC Insured, 6.25%, 07/01/15 ......................... 1,058,250
500,000 Refunding, Series 1994, FGIC Insured, 6.375%, 07/01/24 ........................ 529,530
70,000 Series 1990, MBIA Insured, 7.25%, 07/01/10 .................................... 77,091
Hawaii State Harbor Capital Improvement Revenue, (cont.)
$ 80,000 Series 1990, MBIA Insured, 7.00%, 07/01/17 .................................... $ 87,314
200,000 Series 1992, FGIC Insured, 6.50%, 07/01/19 .................................... 214,832
Hawaii State Housing Finance and Development Corp. Revenue, Affordable Rental
Housing Program, Series A,
1,000,000 6.00%, 07/01/15 ............................................................... 1,010,070
750,000 6.05%, 07/01/22 ............................................................... 757,538
250,000 6.10%, 07/01/30 ............................................................... 252,505
Hawaii State Housing Finance and Development Corp., SFM Purchase Revenue,
465,000 Series A, 7.10%, 07/01/24 ..................................................... 489,845
290,000 Series A, 6.00%, 07/01/26 ..................................................... 291,030
3,050,000 Series B, 5.85%, 07/01/17 ..................................................... 3,072,052
Honolulu City and County,
150,000 Refunding, Series 1992, 6.00%, 12/01/14 ....................................... 162,080
85,000 Series A, 6.30%, 03/01/08 ..................................................... 91,222
100,000 Series A, 6.30%, 03/01/11 ..................................................... 106,603
75,000 Series A, Pre-Refunded, 6.70%, 08/01/07 ....................................... 83,303
100,000 Series A, Pre-Refunded, 6.70%, 08/01/11 ....................................... 111,070
1,000,000 Series B, 6.125%, 06/01/14 .................................................... 1,054,040
1,785,000 Water Supply Board, Water System Revenue, 5.80%, 07/01/21 ..................... 1,839,567
1,205,000 Honolulu City and County MFHR, Waipahu Towers Project, Series A, 6.90%, 06/20/35 . 1,277,192
220,000 Kauai County GO, Refunding, Series C, AMBAC Insured, 5.95%, 08/01/10 ............. 238,669
100,000 Maui County Board, Water Supply Revenue, Series A, FGIC Insured, Pre-Refunded,
6.70%, 12/01/11 ................................................................. 111,725
Maui County GO,
50,000 Refunding, Series 1992, 6.05%, 09/01/07 ....................................... 52,567
300,000 Refunding, Series 1992, 6.10%, 09/01/08 ....................................... 314,856
385,000 Refunding, Series A, FGIC Insured, 5.75%, 01/01/11 ............................ 396,789
150,000 Series A, FGIC Insured, 5.75%, 01/01/13 ....................................... 154,316
1,000,000 Northern Mariana Islands Commonwealth Ports Authority, Seaport Revenue,
Port Saipan Harbor Improvement, Series A, 6.85%, 10/01/25 ....................... 1,034,630
145,000 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
Pre-Refunded, 7.00%, 07/01/19 ................................................... 154,986
200,000 Puerto Rico Commonwealth GO, Series A, MBIA Insured, 5.75%, 07/01/24 ............. 205,736
315,000 Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series T,
Pre-Refunded, 6.625%, 07/01/18 .................................................. 354,674
Puerto Rico Electric Power Authority Revenue,
60,000 Series O, 7.125%, 07/01/14 .................................................... 64,452
55,000 Series O, Pre-Refunded, 7.125%, 07/01/14 ...................................... 59,979
1,000,000 Series T, 6.375%, 07/01/24 .................................................... 1,057,540
$ 350,000 Puerto Rico Industrial Medical and Environmental Facilities Revenue, PCFA,
PepsiCo, Inc. Project, 6.25%, 11/15/13 .......................................... $ 376,691
215,000 Puerto Rico PBA, Guaranteed, Public Education and Health Facilities, Series L,
Pre-Refunded, 6.875%, 07/01/21 .................................................. 244,719
1,230,000 Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 01/01/22 ... 1,265,054
------------
Total Long Term Investments (Cost $35,862,116).............................. 37,640,658
------------
aShort Term Investments 1.0%
400,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly
VRDN and Put, 3.20%, 12/01/15 (Cost $400,000).................................... 400,000
------------
Total Investments (Cost $36,262,116) 97.6% ............................ 38,040,658
Other Assets and Liabilities, Net 2.4% ................................ 927,673
------------
Net Assets 100.0% ..................................................... $38,968,331
============

At November 30, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $36,269,029 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................. $ 1,771,644
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................. (15)
------------
Net unrealized appreciation .................................................... $ 1,771,629
============

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.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, November 30, 1996 (unaudited)

Face Value
Amount Franklin Tennessee Municipal Bond Fund (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 105.4%
$ 500,000 Carroll County IDB, IDR, Refunding, Henry I. Siegel Co., Inc. Project, 7.20%, 04/01/05 $ 506,240
500,000 Collierville Water and Sewer Systems, MBIA Insured, 5.625%, 11/01/21 ............. 501,285
675,000 Dickson Electric System Revenue, MBIA Insured, 5.50%, 09/01/16 ................... 678,821
1,000,000 bFranklin IDB, MFHR, Refunding, Landings Apartment Project, Series A, FSA Insured,
6.00%, 10/01/26 ................................................................. 1,005,790
500,000 Hamilton County IDB, MFHR, Patten Towers Apartments, Series B, 7.125%, 02/01/09 .. 501,225
500,000 Hollow Rock-Bruceton Special School District, FSA Insured, 5.75%, 04/01/24 ....... 509,540
800,000 Humphreys County IDB, Solid Waste Disposal Revenue, Du Pont (E.I.) De Nemours
& Co. Project, 6.70%, 05/01/24 .................................................. 869,440
500,000 Johnson City Public Improvement, FSA Insured, 5.90%, 06/01/12 .................... 519,840
100,000 Johnson City Public Improvement, GO, Series B, AMBAC Insured, 6.70%, 05/01/20 .... 111,279
100,000 Johnson City Solid Waste, AMBAC Insured, 5.80%, 05/01/09 ......................... 104,793
100,000 Knox-Chapman Utility District, Knox County Water and Sewer Revenue, Refunding,
MBIA Insured, 6.10%, 01/01/19 ................................................... 105,331
345,000 Knox County Health, Educational and Housing Facilities Board, Hospital Revenue,
Refunding, Mercy Health Systems, Series B, AMBAC Insured, 5.875%, 09/01/15 ...... 354,087
250,000 Knox County IDB, MFMR, Refunding, Waterford Apartments, Series A, 5.95%, 03/01/28 252,740
145,000 Knox County Public Improvement, Pre-Refunded, 6.875%, 04/01/14 ................... 162,277
200,000 Lawrenceburg Electric Revenue, MBIA Insured, 5.50%, 07/01/26 ..................... 200,170
1,305,000 Loudon County IDB, Solid Waste Disposal Revenue, Kimberly-Clark Corp. Project,
6.20%, 02/01/23 ................................................................. 1,339,269
150,000 Macon County GO, FGIC Insured, 5.90%, 09/01/13 ................................... 155,264
620,000 Maury County IDB, PCR, Multi-Modal, Refunding, Saturn Corp. Project, 6.50%,
09/01/24 ........................................................................ 658,998
500,000 Mc Kenzie High School District, FSA Insured, 5.75%, 04/01/22 ..................... 510,385
500,000 Memphis GO, 5.75%, 08/01/15 ...................................................... 512,335
Memphis Health, Educational and Housing Facilities Board, Mortgage Revenue,
Refunding,
150,000 Edgewater Territory, FHA/GNMA Insured, 7.375%, 01/20/27 ....................... 160,505
100,000 MF, River Trace II, Series A, 6.45%, 04/01/26 ................................. 102,770
500,000 Memphis-Shelby County Airport Authority Revenue, Refunding, MBIA Insured, 5.65%,
09/01/15 ........................................................................ 508,920
100,000 Memphis-Shelby County Airport Authority, Special Facilities and Project Revenues,
Refunding, Federal Express Corp., 6.75%, 09/01/12 ............................... 107,076
200,000 Metropolitan Government of Nashville and Davidson County, Electric Revenue,
Refunding, Series A, 6.00%, 05/15/17 ............................................ 206,898
350,000 Metropolitan Government of Nashville and Davidson County, GO, 6.125%, 05/15/19 ... 368,004
500,000 Metropolitan Government of Nashville and Davidson County, Health and Educational
Facilities Board, Refunding, Dandridge Towers, Series 8-A, 6.375%, 01/01/11 ..... 507,300
$ 150,000 Metropolitan Government of Nashville and Davidson County, Health and Educational
Facilities Board Revenue, Meharry Medical College Project, AMBAC Insured,
Pre-Refunded, 6.875%, 12/01/24 .................................................. $ 174,690
750,000 Metropolitan Government of Nashville and Davidson County, Sports Authority Revenue,
Stadium Public Improvement Project, AMBAC Insured, 5.875%, 07/01/21 ............. 774,458
205,000 Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%,
07/01/15 ........................................................................ 221,439
180,000 Milan Special School District, AMBAC Insured, 6.625%, 04/01/11 ................... 196,645
300,000 Northern Mariana Islands Commonwealth Ports Authority, Seaport Revenue, Port Saipan
Harbor Improvement, Series A, 6.85%, 10/01/25 ................................... 310,389
100,000 Pigeon Forge Public Improvement, MBIA Insured, 5.90%, 06/01/09 ................... 104,767
185,000 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
Pre-Refunded, 7.00%, 07/01/19 ................................................... 197,741
100,000 Puerto Rico Commonwealth Electric Power Authority Revenue, Water Resources,
Series R, 6.25%, 07/01/17 ....................................................... 105,154
100,000 Puerto Rico Commonwealth GO, 6.50%, 07/01/23 ..................................... 107,955
500,000 Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y,
6.00%, 07/01/22 ................................................................. 516,840
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 ......................................... 212,746
600,000 Puerto Rico Ports Authority Revenue, Special Facilities, American Airlines, Series A,
6.25%, 06/01/26 ................................................................. 623,436
530,000 Shelby County GO, Series B, 6.00%, 03/01/16 ...................................... 551,009
500,000 bShelby County Public Improvement, Series B, 5.75%, 11/01/21 ..................... 507,890
300,000 South Fulton IDBR, Tyson Foods, Inc. Project, 6.40%, 10/01/20 .................... 310,386
350,000 Sullivan County IDBR, Refunding, Brandymill, Series I-A, GNMA Secured, 6.35%,
07/20/27 ........................................................................ 367,462
800,000 Tennesse HDA, Home Ownership Program, Issue 4A, 6.375%, 07/01/22 ................. 820,696
Tennessee HDA, Mortgage Finance,
200,000 Series A, 6.90%, 07/01/25 ..................................................... 212,654
300,000 Series B, 6.60%, 07/01/25 ..................................................... 312,504
630,000 Series B, MBIA Insured, 6.20%, 07/01/18 ....................................... 645,668
100,000 Tennessee State Local Development Authority Revenue, Community Provider Pooled
Loan Program, 6.55%, 10/01/23 ................................................... 105,700
Tennessee State School Board Authority, Higher Educational Facilities, Series A,
100,000 6.25%, 05/01/22 ............................................................... 103,818
500,000 Refunding, MBIA Insured, 5.50%, 05/01/26 ...................................... 500,414
220,000 Wilson County COP, Educational Facilities, 6.125%, 06/30/10 ...................... 232,123
------------
Total Long Term Investments (Cost $18,929,000).......................... 19,737,166
------------
$ 100,000 Puerto Rico Commonwealth Government Development Bank, Refunding, Weekly
VRDN and Put, 3.20%, 12/01/15 (Cost $100,000).................................... $ 100,000
------------
Total Investments (Cost $19,029,000) 105.9%.............................. 19,837,166
Liabilitites in Excess of Other Assets(5.9)% ........................... (1,115,378)
------------
Net Assets 100.0% ....................................................... $18,721,788
============

At November 30, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $19,029,000 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................. $ 808,166
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................... --
------------
Net unrealized appreciation .................................................... $ 808,166
============

PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
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 - Mutli-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
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.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Statement of Investments in Securities and Net Assets, November 30, 1996 (unaudited)

Face Value
Amount Franklin Washington Municipal Bond Fund (Note 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 94.5%
$100,000 Aberdeen GO, Series A, MBIA Insured, 5.80%, 12/01/12 ................................ $ 102,011
100,000 Bellevue Water and Sewer Revenue, Refunding, 5.875%, 07/01/10 ....................... 103,670
200,000 Bellingham Housing Authority Revenue, Cascade Meadows Project, 7.10%, 11/01/23 ...... 210,464
100,000 Clark County School District No. 114, Evergreen School, Refunding, AMBAC Insured,
5.95%, 12/01/12 .................................................................... 105,331
200,000 Clark County Sewer Revenue, MBIA Insured, 5.70%, 12/01/16 ........................... 203,194
400,000 Conservation and Renewable Energy System Revenue, Washington Conservation Project,
6.50%, 10/01/14 .................................................................... 425,016
100,000 Douglas County PUD No. 1, Electric District Systems Revenue, MBIA Insured, 6.00%,
01/01/15 ........................................................................... 105,006
100,000 Federal Way GO, Refunding, 5.85%, 12/01/21 .......................................... 101,198
250,000 Grant County PUD No. 002, Wanapum Hydroelectric Revenue, Second Series A, 6.375%,
01/01/23 ........................................................................... 260,288
100,000 King County GO, Sewer District, 5.875%, 01/01/15 .................................... 103,730
175,000 King County Housing Authority Revenue, Woodridge Park Project, 6.25%, 05/01/15 ...... 179,235
100,000 King County School District No. 400, Mercer Island, 5.90%, 12/01/15 ................. 103,749
100,000 King County School District No. 412, Shoreline, 6.10%, 06/01/13 ..................... 105,413
200,000 King County School District No. 415, Kent, FSA Insured, 5.875%, 06/01/16 ............ 206,082
200,000 Lewis County PUD No. 001, Cowlitz Falls Hydroelectric Project Revenue, 6.00%, 10/01/24 203,830
175,000 Pierce County EDC Revenue, Solid Waste, Occidental Petroleum Corp., 5.80%, 09/01/29 . 168,054
650,000 Pilchuck Development Public Corp., Special Facilities Airport Revenue, Tramco, Inc.
Project, B.F. Goodrich, 6.00%, 08/01/23 ............................................ 643,962
200,000 Port Chelan County GO, MBIA Insured, 6.25%, 12/01/15 ................................ 212,128
200,000 Port of Seattle Revenue, Series B, 6.00%, 11/01/17 .................................. 202,062
450,000 SeaTac GO, MBIA Insured, 6.50%, 12/01/13 ............................................ 487,998
100,000 Seattle Housing Authority, Low Income Housing Assistance Revenue, Kin On Project,
7.40%, 11/20/36 .................................................................... 109,337
200,000 Seattle Municipality Metropolitan Sewer Revenue, Refunding, Series V, 6.20%, 01/01/32 205,276
100,000 Snohomish County GO, MBIA Insured, 5.90%, 12/01/15 .................................. 102,298
200,000 Snohomish County Housing Authority Revenue, Pooled, 6.30%, 04/01/16 ................. 204,502
200,000 Snohomish County PUD No. 1, Electric and Generation Systems Revenue, Refunding,
FGIC Insured, 6.00%, 01/01/18 ...................................................... 206,438
100,000 bSnohomish County PUD No. 1, Water Revenue, 5.85%, 11/01/17 ......................... 101,191
130,000 Spokane County GO, Refunding, 6.00%, 12/01/14 ....................................... 136,575
100,000 Spokane County Water District No. 3 Revenue, Refunding, 5.90%, 01/01/14 ............. 101,183
300,000 Stevens County Public Corp., PCR, Refunding, Water Power Co. Project, 6.00%, 12/01/23 302,901
100,000 Sunnyside GO, MBIA Insured, 6.10%, 12/01/14 ......................................... 106,024
200,000 Tacoma Electric Systems Revenue, Refunding, FGIC Insured, 6.25%, 01/01/15 ........... 211,470
100,000 Tacoma Refuse Utility Revenue, AMBAC Insured, 7.00%, 12/01/19 ....................... 111,927
$500,000 University of Washington Alumuni Association, Lease Revenue, Roosevelt University
Medical Center, CGIC Insured, 6.30%, 08/15/14 ...................................... $ 534,430
100,000 Washington State COP, Office Building Project, Series A, MBIA Insured, 6.00%, 04/01/12 102,954
Washington State Health Care Facilities Authority Revenue,
100,000 Multicare Medical Center, FGIC Insured, 5.75%, 08/15/22 .......................... 100,669
80,000 Refunding, Peace Health Facility, MBIA Insured, 5.625%, 11/15/15 ................. 80,224
Washington State Housing Finance Commission,
100,000 Series 1A-1, 6.25%, 06/01/16 ..................................................... 101,638
200,000 SF Program, Series 1A-3, 6.15%, 12/01/15 ......................................... 204,462
75,000 Washington State Housing Finance, SFMR, MBS Program, Series A, 7.05%, 07/01/22 ...... 80,066
240,000 Washington State Motor Vehicle Fuel Tax, Series D, 6.00%, 09/01/20 .................. 250,242
100,000 Whatcom County School District No. 501, Bellingham, 6.05%, 12/01/13 ................. 103,931
------------
Total Long Term Investments (Cost $7,391,882) ................................. 7,690,159
------------
aShort Term Investments 1.2%
100,000 Washington State Health Care Facilities Authority Revenue, Sisters of Providence,
Series D, Daily VRDN and Put, 4.00%, 10/01/05 (Cost $100,000)....................... 100,000
------------
Total Investments (Cost $7,491,882) 95.7%................................... 7,790,159
Other Assets and Liabilities, Net 4.3%.................................... 349,953
------------
Net Assets 100.0% .......................................................... $8,140,112
============

At November 30, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $7,491,882 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost..................................................... $ 310,268
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .................................................... (11,991)
------------
Net unrealized appreciation ....................................................... $ 298,277
============

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.
FSA - Financial Security Assistance
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.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements

Statements of Assets and Liabilities
November 30, 1996 (unaudited)

Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost ............................$ 9,409,773 $169,713,399 $36,262,116 $19,029,000 $7,491,882
======== ========== ======== ======== ========

At value ...................................... 9,805,519 175,818,367 38,040,658 19,837,166 7,790,159
Cash............................................ 56,840 182,900 55,421 76,735 86,488
Receivables:
Interest ...................................... 180,608 3,574,814 925,847 356,142 165,708
Investment securities sold .................... -- -- -- -- 200,000
Capital shares sold ........................... 116,956 456,574 2,150 10,853 192
From affiliates ............................... 10,961 -- -- -- 8,235
-------- ---------- -------- -------- --------
Total assets .............................. 10,170,884 180,032,655 39,024,076 20,280,896 8,250,782
-------- ---------- -------- -------- --------
Liabilities:
Payables:
Investment securities purchased:
When-issued basis (Note 1) ................... -- 3,307,448 -- 1,515,469 100,309
Distributions to shareholders ................. 14,350 222,532 44,445 26,767 9,565
Capital shares repurchased .................... -- 33,178 400 -- --
Management fees ............................... -- 19,472 5,035 -- --
Distribution fees ............................. 445 23,782 2,243 1,547 --
Shareholder servicing costs ................... 1,157 1,224 1,501 14 796
Accrued expenses and other liabilities.......... -- 8,361 2,121 15,311 --
-------- ---------- -------- -------- --------
Total liabilities ......................... 15,952 3,615,997 55,745 1,559,108 110,670
-------- ---------- -------- -------- --------
Net assets, at value............................. $10,154,932 $176,416,658 $38,968,331 $18,721,788 $8,140,112
======== ========== ======== ======== ========
Net assets consist of:
Undistributed net investment income............. $ 42,956 $-- $ 145,567 $ 40,965 $ 41,186
Accumulated distributions in excess of net
investment income (Note 1)..................... -- (6,649) -- -- --
Net unrealized appreciation on investments...... 395,746 6,104,968 1,778,542 808,166 298,277
Net realized loss............................... (42,274) (2,329,675) (787,318) (73,500) (124,629)
Class I capital shares.......................... 9,758,504 166,263,097 37,831,540 17,946,157 7,925,278
Class II capital shares......................... -- 6,384,917 -- -- --
-------- ---------- -------- -------- --------
Net assets, at value............................. $10,154,932 $176,416,658 $38,968,331 $18,721,788 $8,140,112
======== ========== ======== ======== ========
Class I shares:
Net assets, at value............................ $10,154,932 $169,869,784 $38,968,331 $18,721,788 $8,140,112
======== ========== ======== ======== ========
Shares outstanding.............................. 957,717 16,678,408 3,563,244 1,730,018 798,999
======== ========== ======== ======== ========
Net asset value per share*...................... $10.60 $10.19 $10.94 $10.82 $10.19
======== ========== ======== ======== ========
Class II shares:
Net assets, at value............................ $ 6,546,874
==========
Shares outstanding.............................. 642,251
==========
Net asset value per share*...................... $10.19
==========

* 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.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements (cont.)

Statements of Operations
for the six months ended November 30, 1996 (unaudited)

Franklin Franklin Franklin Franklin Franklin
Arkansas California Hawaii Tennessee Washington
Municipal High Yield Municipal Municipal Municipal
Bond Fund Municipal Fund Bond Fund Bond Fund Bond Fund
------- ---------- -------- --------- ---------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest ...................................... $267,892 $ 4,892,469 $1,170,574 $ 491,543 $233,738
------- ---------- -------- --------- ---------
Expenses:
Management fees (Note 5) ...................... 28,811 433,728 122,047 51,658 24,697
Distribution fees- Class I (Note 5) ........... 3,589 64,969 17,512 7,062 2,241
Distribution fees- Class II (Note 5) .......... -- 12,306 -- -- --
Shareholder servicing costs (Note 5)........... 1,223 15,405 5,997 1,680 826
Registration and filing fees................... 5,920 8,980 2,665 2,283 1,686
Professional fees.............................. 2,101 9,251 4,256 1,145 2,126
Pricing service fees........................... 1,553 4,275 2,065 3,403 2,043
Reports to shareholders ....................... -- 10,441 4,246 1,287 1,104
Custodian fees ................................ 114 423 197 136 64
Other.......................................... 3,292 331 7,318 4,469 3,148
Management fees waived by manager (Note 5) .... (28,811) (297,812) (96,392) (40,188) (24,697)
Other expenses assumed by manager (Note 5) .... (13,222) -- -- -- (9,356)
------- ---------- -------- --------- ---------
Total expenses............................ 4,570 262,297 69,911 32,935 3,882
------- ---------- -------- --------- ---------
Net investment income..................... 263,322 4,630,172 1,100,663 458,608 229,856
------- ---------- -------- --------- ---------
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss)...................... (3,113) (284,917) 56,798 (8,220) (87)
Net unrealized appreciation................... 354,610 6,063,145 1,361,833 685,432 298,999
------- ---------- -------- --------- ---------
Net realized and unrealized gain on investments. 351,497 5,778,228 1,418,631 677,212 298,912
------- ---------- -------- --------- ---------
Net increase in net assets
resulting from operations...................... $614,819 $10,408,400 $2,519,294 $1,135,820 $528,768
======= ========== ======== ========= =========

The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements (cont.)

Statements of Changes in Net Assets
for the six months ended November 30, 1996 (unaudited)
and the year ended May 31, 1996

Franklin Arkansas Franklin California High Franklin Hawaii
Municipal Bond Fund Yield Municipal Fund Municipal Bond Fund
------------------- ------------------------ -------------------
Six months Year Six months Year Six months Year
ended ended ended ended ended ended
11/30/96 5/31/96 11/30/96 5/31/96 11/30/96 5/31/96
--------- --------- ---------- --------- ---------- ----------
Increase (decrease)
in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income....... $ 263,322 $ 340,476 $ 4,630,172 $ 4,922,744 $ 1,100,663 $ 2,156,740
Net realized gain (loss)
from security transactions. (3,113) (2,503) (284,917) (275,621) 56,798 (122,116)
Net unrealized appreciation
(depreciation) on
investments................ 354,610 (96,898) 6,063,145 (1,356,026) 1,361,833 (371,355)
--------- --------- ---------- ---------- ---------- ---------
Net increase in net
assets resulting
from operations........ 614,819 241,075 10,408,400 3,291,097 2,519,294 1,663,269
Distributions to shareholders:
From undistributed net
investment income:
Class I ................... (257,255) (335,368) (4,546,835) (5,000,226) (1,079,821) (2,147,284)
Class II .................. -- -- (101,878) (536) -- --
In excess of net investment
income:
Class I ................... -- -- (2,954) -- -- --
Class II .................. -- -- (3,695) -- -- --
Increase (decrease) in net
assets from capital share
transactions (Note 2)....... 1,631,821 4,126,099 52,138,237 69,133,506 (1,275,891) 2,461,396
--------- --------- ---------- ---------- ---------- ---------
Net increase in
net assets............. 1,989,385 4,031,806 57,891,275 67,423,841 163,582 1,977,381
Net assets:
Beginning of period.......... 8,165,547 4,133,741 118,525,383 51,101,542 38,804,749 36,827,368
--------- --------- ---------- ---------- ---------- ---------
End of period................ $10,154,932 $8,165,547 $176,416,658 $118,525,383 $38,968,331 $38,804,749
========= ========= ========== ========== ========== =========
Undistributed net investment
income (accumulated distribu-
tions in excess of net invest-
ment income) included in net
assets:
Beginning of period......... $ 36,889 $ 31,781 $ 18,541 $ 96,559 $ 124,725 $ 115,269
========= ========= ========== ========== ========== =========
End of period............... $ 42,956 $ 36,889 $ (6,649) $ 18,541 $ 145,567 $ 124,725
========= ========= ========== ========== ========== =========

The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
<CAPTION>
FRANKLIN MUNICIPAL SECURITIES TRUST

Financial Statements (cont.)

Statements of Changes in Net Assets (cont.)
for the six months ended November 30, 1996 (unaudited)
and the year ended May 31, 1996

Franklin Tennessee Franklin Washington
Municipal Bond Fund Municipal Bond Fund
------------------- -------------------
Six months Year Six months Year
ended ended ended ended
11/30/96 5/31/96 11/30/96 5/31/96
--------- --------- ---------- -------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income................................... $ 458,608 $ 531,567 $ 229,856 $ 360,705
Net realized loss from security transactions ........... (8,220) (60,537) (87) (39,744)
Net unrealized appreciation (depreciation) on investments 685,432 (131,830) 298,999 (33,367)
--------- --------- ---------- -------
Net increase in net assets resulting from operations 1,135,820 339,200 528,768 287,594
Distributions to shareholders from
undistributed net investment income:
Class I .............................................. (463,168) (528,162) (225,649) (360,198)
Increase in net assets from capital
share transactions (Note 2).............................. 4,092,857 8,159,263 119,031 2,049,769
--------- --------- ---------- -------
Net increase in net assets ......................... 4,765,509 7,970,301 422,150 1,977,165
Net assets:
Beginning of period ..................................... 13,956,279 5,985,978 7,717,962 5,740,797
--------- --------- ---------- -------
End of period............................................ $18,721,788 $13,956,279 $8,140,112 $7,717,962
========= ========= ========== =======
Undistributed net investment income included in net assets:
Beginning of period ..................................... $ 45,525 $ 42,120 $ 36,979 $ 36,472
========= ========= ========== =======
End of period ........................................... $ 40,965 $ 45,525 $ 41,186 $ 36,979
========= ========= ========== =======

The accompanying notes are an integral part of these financial statements.
</TABLE>

FRANKLIN MUNICIPAL SECURITIES TRUST

Notes to Financial Statements (unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin Municipal Securities Trust (the Trust) is an open-end, management
investment company (mutual fund), registered under the Investment Company Act of
1940, as amended. The Trust's shares are offered in five different
non-diversified 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 tax-free income.

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.

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. Original Issue discount and
premium are amortized as required by the Internal Revenue Code. 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 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-dividend date.
Once each month dividends are reinvested in additional shares of the Funds, or
paid in cash as requested by the shareholders.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

d. Investment Income, Expenses and Distributions: (cont.)

Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sale transactions.

e. 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.

f. 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.

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.

<TABLE>
<CAPTION>
2. TRUST SHARES

At November 30, 1996, there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in each of the Funds' shares were
as follows:

Arkansas Fund California Fund Hawaii Fund
----------------------------------------------------------
Class I shares: Shares Amount Shares Amount Shares Amount
------ --------- -------- -------- -------- --------
Six Months Ended November 30, 1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold ............................. 169,883 $1,754,634 6,102,438 $60,747,148 255,770 $ 2,744,802
Shares issued in reinvestment
of distributions ....................... 16,478 170,933 160,749 1,603,186 42,608 455,832
Shares redeemed ......................... (28,623) (293,746) (1,643,816) (16,384,817) (417,339) (4,476,525)
------ --------- -------- -------- -------- --------
Net increase (decrease) ............ 157,738 $1,631,821 4,619,371 $45,965,517 (118,961) $(1,275,891)
====== ========= ======== ======== ======== ========
Year Ended May 31, 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
====== ========= ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
2. TRUST SHARES (cont.)

Tennessee Fund Washington Fund
-------------- ----------
Shares Amount Shares Amount
------- -------- -------- --------
Six Months Ended November 30, 1996
<S> <C> <C> <C> <C>
Shares sold ....................................................... 518,213 $5,468,399 46,399 $ 463,261
Shares issued in reinvestment of distributions .................... 27,657 292,541 16,062 159,942
Shares redeemed ................................................... (157,504) (1,668,083) (50,859) (504,172)
------- -------- -------- --------
Net increase ................................................. 388,366 $4,092,857 11,602 $ 119,031
======= ======== ======== ========
Year Ended May 31, 1996
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
======= ======== ======== ========

California Fund
----------------
Class II shares: Shares Amount
------- ---------
Six Months Ended November 30, 1996
Shares sold ....................................................... 624,082 $6,207,536
Shares issued in reinvestment of distributions .................... 6,616 66,285
Shares redeemed ................................................... (10,064) (101,101)
------- ---------
Net increase ................................................. 620,634 $6,172,720
======= =========
For the period May 1, 1996 (effective date) to May 31, 1996
Shares sold ....................................................... 21,567 $ 211,700
Shares issued in reinvestment of distributions .................... 50 497
------- ---------
Net increase.................................................. 21,617 $ 212,197
======= =========
</TABLE>

<TABLE>
<CAPTION>
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>

3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (cont.)

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 is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
November 30, 1996, by $6,913 in the Hawaii Fund.

<TABLE>
<CAPTION>
4. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended November 30, 1996, were as
follows:

Arkansas California Hawaii Tennessee Washington
Fund Fund Fund Fund Fund
-------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Purchases....................................... $1,809,913 $78,235,306 $2,608,990 $7,724,936 $598,818
Sales........................................... $ 458,782 $23,395,038 $3,922,395 $2,836,007 $421,915
</TABLE>

<TABLE>
<CAPTION>
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 net assets
of each Fund as follows:

Annualized Fee Rate Average Daily Net Assets
------------------- --------------------------------------------------
<S> <C>
0.625% First $100 million
0.50% Over $100 million up to and including $250 million
0.45% In excess of $250 million
</TABLE>

Advisers agreed in advance to waive management fees and assume payment of other
expenses for the Funds, aggregating $510,478, for the six months ended November
30, 1996.

Under an agreement, Franklin Templeton Services, Inc. (FT Services) provides
administrative services and facilities for the Funds. The fee is paid by
Advisers and computed monthly based on average daily net assets. It is not a
separate expense of the Funds.

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 six months ended November 30, 1996, aggregated $25,131 of which $24,652 was
paid to Investor Services.

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

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 $107,679 for the six months ended November
30, 1996.

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, the amounts paid to
other dealers, and any applicable contingent deferred sales charges for the six
months ended November 30, 1996 were as follows:

<TABLE>
<CAPTION>
Arkansas California Hawaii Tennessee Washington
Class I Fund Fund Fund Fund Fund
------ -------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Total commissions received .............................. $62,165 $1,381,984 $72,291 $169,213 $15,319
Paid to other dealers ................................... $58,386 $1,247,201 $65,918 $157,717 $14,343
</TABLE>

Class II

Total commissions received ........................................ $108,390
Paid to other dealers ............................................. $ 54,059
Contingent deferred sales charge .................................. $ 571

d. Other Affiliates and Related Party Transactions:

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

At November 30. 1996, Resources owned 26%, 14% 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.

<TABLE>
<CAPTION>
7. FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period by Fund, are as follows:

Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------- ------------------------
Total Distri- Net Ratio of Ratio of
Net From butions Distri- Asset Expenses Net
Asset Net Net Realized Invest- From Net butions Value Net Assets to Average Investment
Period Value at Invest- & Unrealized ment Invest- From Total at End at End Net Assets Income Portfolio
Ended Beginning ment Gain (Loss) Opera- ment Capital Distri- of Total of Period (See to Average Turnover
May 31, of Period Income on Securities tions Income Gains butions Period Return+ (in 000's) Note 5)++ Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas Fund
<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
19965 10.21 .24 .394 .634 (.244) -- (.244) 10.60 6.77 10,155 .10* 5.76* 5.14

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
19965 9.81 .32 .377 .697 (.317)** -- (.317) 10.19 7.22 169,870 .34* 6.28* 15.91
Class II Shares:
19964 9.82 .05 .004 .054 (.054) -- (.054) 9.82 .54 212 .91* 5.73* 28.02
19965 9.82 .29 .370 .660 (.290)** -- (.290) 10.19 6.82 6,547 .89* 5.38* 15.91

Hawaii Fund
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
19965 10.54 .30 .397 .697 (.297) -- (.297) 10.94 6.70 38,968 .36* 5.65* 6.93

Tennessee Fund
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
19965 10.40 .29 .428 .718 (.298) -- (.298) 10.82 7.00 18,722 .40* 5.56* 17.13

7. FINANCIAL HIGHLIGHTS (cont.)

<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
19965 9.80 .29 .385 .675 (.285) -- (.285) 10.19 6.99 8,140 .10* 5.83* 5.56

</TABLE>

*Annualized

**Includes distributions in excess of net investment income in the amount of
$0.0002 and $0.006 for Class I and Class II, respectively.

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.

5For the six months ended November 30, 1996.

+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 expenses to average
net assets would have been as follows:

Ratio of
Expenses
to Average
Net Assets
- ------------------------------------------------------
Arkansas Fund
19941.................................... 1.20%*
1995..................................... 1.11
1996..................................... 1.04
19965.................................... 1.02*

California Fund
Class I:
19932.................................... 1.42*
1994..................................... .87
1995..................................... .88
1996..................................... .81
19965.................................... .74*

Class II:
19964.................................... 1.81
19965.................................... 1.27*

Ratio of
Expenses
to Average
Net Assets
- ------------------------------------------------------
Hawaii Fund
19923.................................... 1.57%*
1993..................................... 1.06
1994..................................... .92
1995..................................... .87
1996..................................... .84
19965.................................... .85*

Tennessee Fund
19941.................................... 1.05*
1995..................................... .92
1996..................................... .91
19965.................................... .89*

Washington Fund
19932.................................... 1.44*
1994..................................... .71
1995..................................... 1.05
1996..................................... .92
19965.................................... .96*

Franklin Municipal Securities Trust Semi-Annual Report November 30, 1996.

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

GRAPHIC MATERIAL (1)

This chart shows in pie chart format the fund's securities quality breakdown as
a percentage of the fund's total long-term investments.

<TABLE>
<CAPTION>
Quality Breakdown on November 30, 1996
<S> <C>
AAA 41.8%
AA 17.6%
A 22.5%
BBB 18.1%
</TABLE>

GRAPHIC MATERIAL (2)

This bar chart shows the comparison between the fund's disribution rate of 5.31%
and the taxable equivalent distribution rate of 9.45%.

GRAPHIC MATERIAL (3)

This chart shows in pie chart format the fund's securities quality breakdown as
a percentage of the fund's total long-term investments.

<TABLE>
<CAPTION>
Quality Breakdown on November 30, 1996
<S> <C>
AAA 10.3%
AA 6.0%
A 26.6%
BBB 41.3%
Below Investment Grade 15.8%
</TABLE>

GRAPHIC MATERIAL (4)

This bar chart shows the comparison between the fund's disribution rate of 5.86%
and the taxable equivalent distribution rate of 10.69%, for Class I shares.

GRAPHIC MATERIAL (5)

This bar chart shows the comparison between the fund's disribution rate of 5.43%
and the taxable equivalent distribution rate of 9.91%, for Class II shares.

GRAPHIC MATERIAL (6)

This chart shows in pie chart format the fund's securities quality breakdown as
a percentage of the fund's total long-term investments.

<TABLE>
<CAPTION>
Quality Breakdown on November 30, 1996
<S> <C>
AAA 39.5%
AA 25.5%
A 21.7%
BBB 13.3%
</TABLE>

GRAPHIC MATERIAL (7)

This bar chart shows the comparison between the fund's disribution rate of 5.25%
and the taxable equivalent distribution rate of 9.65%, for Class I shares.

GRAPHIC MATERIAL (8)

This chart shows in pie chart format the fund's securities quality breakdown as
a percentage of the fund's total long-term investments.

<TABLE>
<CAPTION>
Quality Breakdown on November 30, 1996
<S> <C>
AAA 47.4%
AA 26.7%
A 15.0%
BBB 10.9%
</TABLE>

GRAPHIC MATERIAL (9)

This bar chart shows the comparison between the fund's disribution rate of 5.31%
and the taxable equivalent distribution rate of 9.35%, for Class I shares.

GRAPHIC MATERIAL (10)

This chart shows in pie chart format the fund's securities quality breakdown as
a percentage of the fund's total long-term investments.

<TABLE>
<CAPTION>
Quality Breakdown on November 30, 1996
<S> <C>
AAA 45.2%
AA 28.9%
A 11.4%
BBB 14.5%
</TABLE>

GRAPHIC MATERIAL (11)

This bar chart shows the comparison between the fund's disribution rate of 5.41%
and the taxable equivalent distribution rate of 8.96%, for Class I shares.