UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-06481
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Franklin Municipal Securities Trust
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(Exact name of registrant as specified in charter)

One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) Zip code)

Murray L. Simpson, One Franklin Parkway, San Mateo, CA 94403-1906
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(Name and address of agent for service)

Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 05/31
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Date of reporting period: 11/30/04
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Item 1. Reports to Stockholders.

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NOVEMBER 30, 2004
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Franklin California
High Yield Municipal Fund
[GRAPHIC OMITTED]
Franklin Tennessee
Municipal Bond Fund

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SEMIANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
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WANT TO RECEIVE
THIS DOCUMENT
FRANKLIN FASTER VIA EMAIL?
MUNICIPAL SECURITIES TRUST
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.

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[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS

FRANKLIN o Templeton o Mutual Series

FRANKLIN TEMPLETON INVESTMENTS

GAIN FROM OUR PERSPECTIVE

Franklin Templeton's distinct multi-manager
structure combines the specialized expertise
of three world-class investment management
groups--Franklin, Templeton and Mutual Series.

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

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

TEMPLETON. Founded in 1940, Templeton
pioneered international investing and, in
1954, launched what has become the industry's
oldest global fund. Today, with research
offices in over 25 countries, they offer
investors the broadest global reach in the
industry.

MUTUAL SERIES. Founded in 1949, Mutual Series
is dedicated to a unique style of value
investing, searching aggressively for
opportunity among undervalued stocks,
arbitrage situations and distressed companies.

TRUE DIVERSIFICATION Because our management groups work
independently and adhere to distinctly
different investment approaches, Franklin,
Templeton and Mutual Series funds typically
have a low overlap of securities. That's why
our funds can be used to build truly
diversified portfolios covering every major
asset class.

RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with
exceptional risk-adjusted returns over the
long term, as well as the reliable account
services that have helped us become one of the
most trusted names in financial services.

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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the semiannual report

CONTENTS

SHAREHOLDER LETTER ....................................................... 1

SPECIAL FEATURE:
Understanding Your
Tax-Free Income Fund ...................................................... 4

SEMIANNUAL REPORT

Municipal Bond Market Overview ............................................ 7

Franklin California
High Yield Municipal Fund ................................................. 9

Franklin Tennessee
Municipal Bond Fund ....................................................... 18

Financial Highlights and
Statements of Investments ................................................. 25

Financial Statements ...................................................... 41

Notes to Financial Statements ............................................. 44

Shareholder Information ................................................... 54

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SHAREHOLDER LETTER

Dear Shareholder:

During the six-month period ended November 30, 2004, the U.S. economy continued
to grow, although somewhat slower than at the beginning of 2004. Growth was
supported by low interest rates, benign inflation, improving economic data and
positive corporate earnings reports. Counterbalancing these positive factors
were record-high oil prices and concerns about U.S. budget deficits and their
potential long-term effects on interest rates and economic growth.

U.S. bond markets surprisingly posted steady returns when many analysts expected
rates to rise and hurt bonds' performance. At the beginning of the period, the
10-year Treasury yield was 4.66%. During the six-month period, it hit a high of
4.89% as many forecast higher long-term rates because of inflation fears and the
Federal Reserve Board's (Fed's) "measured pace" of raising short-term rates. The
Fed did raise the federal funds target rate a quarter percentage point (0.25%)
in June, August, September and November, and the market expected yet another
hike in December. However, rising oil prices tempered expectations for strong
growth and growth-driven inflation, and the yield on the 10-year Treasury
declined to 4.36% at period-end.

We continue to believe that inflation still remains relatively tame and that in
the near future there is little reason to fear the high inflation and high
interest rates we experienced in the 1970s and 1980s. Long-term interest rates
are largely

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EDELIVERY DETAILS

Log in at franklintempleton.com and click on eDelivery. Shareholders who are
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accounts are eligible for eDelivery.

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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Not part of the semiannual report | 1

driven by the market's expectation of inflation. As the economy keeps improving,
it is reasonable to expect prices for goods and services to rise. Productivity
is still strong by historical standards and there is a perceived slack in the
economy that might allow it to grow without exerting large inflationary
pressures. While we do agree with most market observers who think rates might be
too low given the fundamentals, we do not believe that inflation or interest
rates should rise rapidly. The economic environment appears relatively stable,
and we expect rates to gradually reach levels typical of this environment. At
the same time, we remain mindful of potential inflationary risks posed by the
U.S. budget and trade deficits and their effect on the value of the U.S. dollar
versus other currencies. A sustained dollar decline would make import prices
higher for American consumers, which would contribute to higher inflation, but
no one can tell the extent to which the dollar might fall and how effectively
the government can reduce the deficits.

At period-end, oil was trading at approximately $49 a barrel, substantially
higher than six months ago. Although there is much discussion about the point at
which the price of oil can trigger a recession or stagflation, there is no
definite consensus. However, recent supply and demand conditions made it hard to
anticipate future oil price movements and what effect, if any, they could have
on our economy. We believe that, at recent levels, the price of oil is likely to
have a minor, lagging negative effect on economic growth. We also believe that
increased oil prices alone will not lead to higher overall inflation.

At times of such volatility, we continue to recommend investors consult their
financial advisors and review their portfolios to design a strategy and
portfolio allocation that meet their individual needs, goals and risk tolerance.
Municipal bonds provide tax-free income and diversification from equities.
Despite periods of volatility, municipal bonds have a solid long-term record of
performance, driven mostly by their income component.

In the enclosed semiannual report for Franklin Municipal Securities Trust, the
portfolio managers discuss municipal bond market conditions, investment
decisions and Fund performance during the period. You can also find specific
performance data and financial information about your Fund. Please remember that
all securities markets fluctuate, as do mutual fund share prices.

If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely commentary
from portfolio managers, and find helpful financial planning tools. We hope you
will take advantage of these online services.

2 | Not part of the semiannual report

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

Sincerely,

/s/ Charles B. Johnson

Charles B. Johnson
Chairman
Franklin Municipal Securities Trust

/s/ Sheila Amoroso

Sheila Amoroso

/s/ Rafael R. Costas Jr.

Rafael R. Costas Jr.

Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department

THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF NOVEMBER 30, 2004. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES
CONSIDERED RELIABLE.

[SIDEBAR]

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STATEMENT ON CURRENT INDUSTRY ISSUES
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In our efforts to fulfill our ongoing commitment to provide you with timely and
accurate information, we have prepared a statement on current industry issues as
they pertain to Franklin Resources, Inc., and our subsidiary companies (Franklin
Templeton Investments). You can find the most updated "Statement on Current
Industry Issues" and a detailed Q&A at franklintempleton.com, or call us at
1-800/632-2301.
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Not part of the semiannual report | 3

SPECIAL FEATURE

UNDERSTANDING YOUR TAX-FREE INCOME FUND --
WHAT CAUSES DIVIDENDS AND FUND PRICES TO FLUCTUATE

DID YOU EVER WONDER WHY YOUR TAX-FREE INCOME FUND SHARE PRICE FLUCTUATES? OR WHY
THE DIVIDENDS YOU RECEIVE FROM YOUR TAX-FREE INCOME FUND AREN'T ALWAYS THE SAME?
AT FRANKLIN TEMPLETON INVESTMENTS, MAXIMIZING TAX-FREE INCOME AND PRESERVING OUR
SHAREHOLDERS' CAPITAL ARE OUR TOP PRIORITIES. EVEN SO, CHANGES IN THE ECONOMY
AND INTEREST RATES CAN HAVE AN IMPACT ON YOUR FUND'S SHARE PRICE AND DIVIDENDS.

BELOW, YOU'LL FIND ANSWERS TO COMMONLY ASKED QUESTIONS ABOUT THE RELATIONSHIP
BETWEEN MUNICIPAL BONDS AND INTEREST RATES. UNDERSTANDING WHAT AFFECTS YOUR
TAX-FREE INCOME FUND MAY HELP YOU BECOME A MORE EFFECTIVE INVESTOR.

Q. WHAT IS THE DIFFERENCE BETWEEN SHORT- AND LONG-TERM INTEREST RATES?

A. The Federal Reserve Board controls the Federal funds target rate (Fed
funds rate), which in turn influences the market for shorter-term
securities. The Fed closely monitors the economy and has the power to
raise or lower the Fed funds rate in order to keep inflation in check or
to help stimulate the economy. The Fed funds rate is the rate that banks
charge other banks for overnight loans.

Long-term interest rates, as represented by yields of the 10-year or
30-year Treasury bond, are market-driven and tend to move in anticipation
of changes in the economy and inflation.

Q. WHAT CAUSES INTEREST RATES TO RISE AND FALL?

A. Interest rate trends are primarily determined by economic factors such as
inflation, the strength of the U.S. dollar and the pace of economic
growth. For example, strong economic growth can lead to inflation. If the
Fed becomes concerned about inflation, it may attempt to cool the economy
by raising the Fed funds rate, as it did in summer 2004. On the other
hand, if the economy slows down, the Fed may lower the Fed funds rate to
stimulate economic growth, as we witnessed from January 2001 to June 2003.
Over the summer of 2003, and again in spring 2004, long-term interest
rates rose from historic lows in response to indications of the beginning
of an economic recovery.

[GRAPHIC OMITTED]

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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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4 | Not part of the semiannual report

Q. HOW DO CHANGES IN INTEREST RATES AFFECT BOND PRICES?

A. Typically, bond prices move in the opposite direction of interest rates.
So, when interest rates rise, bond prices fall, and conversely, when rates
decline, bond prices tend to rise in value.

When rates go up, newly issued bonds, with their new, higher yields become
more attractive than comparable existing bonds with lower yields. So,
investors who want to sell their existing bonds have to reduce their
prices to make them equally attractive.

[GRAPHIC OMITTED]

Generally, tax-free income fund portfolios comprising municipal bonds with
longer maturities are more sensitive to changes in long-term interest
rates than portfolios with shorter-term municipal bonds. Similarly funds
with shorter-term municipal bonds are typically more influenced by
short-term rate changes than funds with longer-term municipal bonds.

But, while tax-free income fund prices will fluctuate with interest rate
changes, it's important to remember that price movement is only part of
the picture. As a tax-free income fund investor, you also receive monthly
tax-free income(1), which has historically been the largest component of
total return for municipal bonds.(2) Total return includes price movement
(capital appreciation or depreciation) and income. And since bonds
generally pay interest whether prices move up or down, the interest from
municipal bonds can help cushion a fund's overall total return, especially
when rates are rising.

Q. HOW DO INTEREST RATES AFFECT MY TAX-FREE DIVIDENDS?

A. When interest rates decline, municipal bond issuers often "call" or redeem
existing higher- yielding bonds and replace them with new, lower-yielding
bonds to reduce the amount of interest they pay on the debt. As funds then
have to reinvest proceeds from the called bonds into new lower-yielding
bonds, their investment earnings decline, and the dividends paid out to
shareholders also decline.

(1) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.

(2) Source: Lehman Brothers Municipal Bond Index, 9/30/04. Total return
includes compounded income and capital appreciation over the 20-year
period ending 9/30/04. Past performance does not guarantee future results.

Not part of the semiannual report | 5

[GRAPHIC OMITTED]

Higher interest rates may lead to higher dividends. When interest rates
rise, fewer bonds are called and fund managers may have the opportunity to
invest in new, higher-yielding bonds. As a result, the funds' investment
earnings can increase, and they are able to pay out higher dividends to
shareholders over time.

Q. WHAT IS THE BENEFIT OF FRANKLIN'S INVESTMENT APPROACH WHEN INTEREST RATES
ARE VOLATILE?

A. Since 1977, Franklin has consistently adhered to a strategy of investing
for high, current, tax-free income while working to preserve shareholders'
capital.1

Our straightforward, "plain-vanilla" approach to investing means we do not
use leverage or invest in speculative derivatives or futures, which could
increase the level of risk for our fund portfolios, especially when
interest rates are volatile. Similarly, we do not try to time the market
and predict interest rate movements. Instead, we carefully select bonds
for our fund portfolios that we believe should provide a high level of
stable income until maturity.

We generally invest in current coupon securities to maximize tax-free
income. Over time, as we invest in different interest rate climates, the
portfolios become well diversified with a broad range of securities. As a
result of this strategy, we own many older securities with higher coupons,
which are generally less sensitive to interest rate movements and help to
provide stability to our fund portfolios.

Our tax-free income fund investment strategy cannot eliminate interest
rate risk, but it can help to reduce this risk.

Q. HOW DO STATE BUDGET DEFICITS AND CREDIT RATING DOWNGRADES AFFECT MY
TAX-FREE INCOME FUND?

A. Many states have been facing budget challenges, as the recent economic
slowdown has had an impact on virtually every tax-related revenue source.
As finances for state governments have deteriorated, independent rating
agencies have downgraded debt ratings or issued negative outlooks for some
states' general obligation debt. Rating downgrades may lead to increased
price volatility for certain fund holdings over the short term. However,
over the long term, because of our income-focused strategy, lower-rated
bonds may also present an attractive investment opportunity. Lower ratings
on state debt can translate into higher yields paid to bondholders and
potentially higher dividends to shareholders over time.

Q. WHAT ARE THE KEY BENEFITS OF INVESTING IN TAX-FREE INCOME FUNDS?

A. It's important to remember the reasons to own tax-free income funds don't
change when market conditions change. For long-term investors seeking
monthly, tax-free income and portfolio diversification, we believe
tax-free income funds are an attractive investment option. At Franklin, we
will continue to serve our shareholders by seeking to provide a high level
of tax-free income consistent with prudent investment management and the
preservation of shareholders' capital.

[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS

6 | Not part of the semiannual report

SEMIANNUAL REPORT

MUNICIPAL BOND MARKET OVERVIEW

Municipal bonds performed well during the six-month reporting period as interest
rates generally declined while the financial markets had to digest a
presidential election, federal funds target rate increases, record high oil
prices, mixed economic releases and the continued war on terrorism. Municipal
and Treasury bond yields moved downward: 10- and 30-year Treasury bond yields
declined 30 and 35 basis points (100 basis points equal one percent) and 10- and
30-year AAA municipal bond yields, as indicated by Municipal Market Data,
declined 27 and 23 basis points.(1) As yields fell, bond prices rose and the
Lehman Brothers Municipal Bond Index returned 4.30% for the period under
review.(2)

Municipal bonds were able to record positive results even though the Federal
Reserve Board (Fed) systematically raised the short-term federal funds target
rate. Responding to strong second quarter 2004 growth in gross domestic product
and employment, the Fed began raising short-term rates in June. After four
successive 25 basis-point hikes during the reporting period, the federal funds
target rate rose from 1.00% to 2.00%. Facing uncertainty over increasing oil
prices, the Fed restated at its November meeting, "With underlying inflation
expected to be relatively low, the Committee believes that policy accommodation
can be removed at a pace that is likely to be measured."(3) At the same time,
employment and economic growth numbers generally did not meet market
expectations during the third quarter. Consequently, bond markets rose and
brought intermediate- and long-term yields lower so that the yield curve, which
illustrates bond yields from short to long maturities, flattened somewhat during
the reporting period.

It appears that new-issue volume for municipal bonds will be relatively large
for the calendar year. From January through November 2004, municipalities issued
more than $325 billion in new debt as overall interest rate levels remained
low.(4) Although this figure was down almost 8% from the same period in 2003 (a
record year), 2004 is the third successive year of more than $300 billion
dollars in new issuance.(4) Demand for municipal bonds remained strong as
investors sought to

(1) Source: Thomson Financial.

(2) Source: Lehman Brothers Inc. The Lehman Brothers Municipal Bond Index is a
market value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least Baa.
They must have an outstanding par value of at least $5 million and be
issued as part of a transaction of at least $50 million. The bonds must be
dated after 12/31/90, and must be at least one year from their maturity
date. Remarketed issues, taxable municipal bonds, bonds with floating
rates and derivatives are excluded from the index. The index has four main
bond sectors: general obligation, revenue, insured and prerefunded.

(3) Source: Federal Reserve. Press Release, 11/10/04.

(4) Source: The Bond Buyer.

Semiannual Report | 7

reinvest proceeds from a combination of coupon payments, maturities and bond
calls. During the reporting period, municipal bonds continued to offer
attractive yields relative to comparable taxable fixed income securities, which
also assisted in boosting demand from relative value investors who looked for
opportunities in the taxable and tax-exempt markets.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF NOVEMBER 30, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.

8 | Semiannual Report

FRANKLIN CALIFORNIA
HIGH YIELD MUNICIPAL FUND

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin California High Yield Municipal
Fund seeks to provide high, current income exempt from federal and California
state personal income taxes by investing at least 80% of its total assets in
higher-yielding, medium-, lower- and non-rated California securities that pay
interest free from such taxes.(1) Its secondary goal is capital appreciation.

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CREDIT QUALITY BREAKDOWN*
Franklin California High Yield Municipal Fund
11/30/04

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% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
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AAA 6.4%
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AA 0.5%
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A 5.6%
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BBB 11.1%
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Below Investment Grade 8.2%
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Not Rated by S&P 68.2%
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* Standard & Poor's (S&P) is the primary independent rating agency. Moody's
and Fitch are the secondary and tertiary rating agencies. Securities not
rated by an independent rating agency are assigned comparable internal
ratings. Ratings for securities not rated by S&P are in the table below.

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

RATINGS MOODY'S FITCH INTERNAL
AAA or Aaa 0.9% -- 5.1%
A 0.3% -- 0.2%
BBB or Baa 1.2% 1.5% 15.4%
Below Investment Grade -- -- 43.6%
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Total 2.4% 1.5% 64.3%

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We are pleased to bring you Franklin California High Yield Municipal Fund's
semiannual report for the period ended November 30, 2004.

PERFORMANCE OVERVIEW

Because bond yield and price typically move in opposite directions, as municipal
bond yields fell, bond prices rose for the six-month reporting period. The
Fund's Class A share price, as measured by net asset value, increased from $9.94
on

(1) For investors subject to the alternative minimum tax, a small portion of
Fund dividends may be taxable. Distributions of capital gains are
generally taxable.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 28.

[SIDEBAR]

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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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Semiannual Report | 9

May 31, 2004, to $10.14 on November 30, 2004. The Fund's Class A shares paid
dividends totaling 28.02 cents per share for the same period.(2) The Performance
Summary beginning on page 13 shows that at the end of this reporting period the
Fund's Class A shares' distribution rate was 5.07%, based on an annualization of
the current 4.47 cent ($0.0447) per share monthly dividend and the maximum
offering price of $10.59 on November 30, 2004. An investor in the 2004 maximum
combined federal and California state personal income tax bracket of 41.05%
would need to earn a distribution rate of 8.60% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class B and
C shares' performance, please see the Performance Summary.

STATE UPDATE

California's diverse, wealthy economy was in a trend of moderate economic
recovery in private sector employment and personal income growth. The state's
natural advantages of location on the Pacific Rim and proximity to population
and industry centers, including high technology, trade and entertainment,
continued to power the Golden State's economic progress, though
technology-related industries and regions, namely Silicon Valley, have recovered
more slowly than other sectors and regions since the recession. Public sector
employment fell in the wake of recent budget cuts, but private sector employment
grew at a moderate pace, as did the state's personal income levels, and overall
income grew faster than the national average. California's unemployment rate was
5.7% in November 2004, while the national average was 5.4%.(3)

State finances improved as state tax collections for fiscal year 2004 reflected
high personal income and sales tax receipts. The state averted an immediate
liquidity crisis when voters approved $15 billion of deficit-financing bonds in
March 2004.(4) These Economic Recovery Bonds allowed the state to revise its
cash flow projections for 2004 and 2005, and for the time being eliminated the
large deficit balances seen in the past two years. Given this position, plus

(2) Assumes shares were purchased and held for the entire accrual period.
Since dividends accrue daily, your actual distributions will vary
depending on the date you purchased your shares and any account activity.
All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

(3) Source: Bureau of Labor Statistics.

(4) Source: Standard & Poor's, "Research: Gov. Schwarzenegger's Proposed May
Budget Revision Indicates Some Improvement in California Finances,"
RATINGSDIRECT, 5/19/04.

10 | Semiannual Report

improving economic and tax receipt trends, it appeared unlikely that any
significant liquidity strain will reemerge for the state during 2005. However,
the recent increase in California's long-term debt resulted in an above-average
level of indebtedness relative to other states. Furthermore, California's net
tax-supported debt has doubled since the end of fiscal year 2001 to $53 billion.
However, at 4.5% of aggregate personal income, the debt burden -- tenth highest
among the states -- is not currently a credit concern.5

In light of a now established recovery trend in the state's economy and tax
revenues, as well as an improved budgetary and liquidity outlook, independent
credit rating agencies Moody's Investors Service and Standard & Poor's (S&P)
upgraded California's general obligation bond ratings and credit outlook:
Moody's to A3 from Baa1 with a positive outlook, and S&P to A from BBB with a
stable outlook.(6) However, the state's ratings still remained well below the
50-state credit quality average, due to significant ongoing fiscal challenges,
plus administrative and legal factors that weaken its financial flexibility
compared with other states.

INVESTMENT STRATEGY

We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain our exposure to higher coupon securities. We
generally employ a buy-and-hold approach and invest in securities that we
believe should provide the most relative value in the market. As we invest
throughout different interest rate environments, the Fund's portfolio becomes
well diversified with a broad range of coupons, calls and maturities. This broad
diversification may help mitigate interest rate risk. We generally stay fully
invested to maximize income distribution.

(5) Source: Moody's Investors Service, "New Issue: California (State of),"
9/3/04.

(6) These do not indicate ratings of the Fund.

Semiannual Report | 11

[SIDEBAR]

PORTFOLIO BREAKDOWN
Franklin California High Yield Municipal Fund
11/30/04

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% OF TOTAL
LONG-TERM INVESTMENTS*
- --------------------------------------------------------------------------------
Tax-Supported 48.0%
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Transportation 12.3%
- --------------------------------------------------------------------------------
Other Revenue 8.3%
- --------------------------------------------------------------------------------
Prerefunded 8.2%
- --------------------------------------------------------------------------------
Hospital & Health Care 6.4%
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Utilities 5.4%
- --------------------------------------------------------------------------------
Subject to Government Appropriations 4.7%
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Higher Education 4.3%
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General Obligation 1.6%
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Corporate-Backed 0.7%
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Housing 0.1%
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* Does not include short-term investments and other net assets.

DIVIDEND DISTRIBUTIONS*
Franklin California High Yield Municipal Fund
6/1/04-11/30/04

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DIVIDEND PER SHARE
-------------------------------------------
MONTH CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
June 4.67 cents 4.22 cents 4.20 cents
- --------------------------------------------------------------------------------
July 4.67 cents 4.22 cents 4.20 cents
- --------------------------------------------------------------------------------
August 4.67 cents 4.22 cents 4.20 cents
- --------------------------------------------------------------------------------
September 4.67 cents 4.21 cents 4.23 cents
- --------------------------------------------------------------------------------
October 4.67 cents 4.21 cents 4.23 cents
- --------------------------------------------------------------------------------
November 4.67 cents 4.21 cents 4.23 cents
- --------------------------------------------------------------------------------
TOTAL 28.02 CENTS 25.29 CENTS 25.29 CENTS
- --------------------------------------------------------------------------------

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

MANAGER'S DISCUSSION

Our value-oriented philosophy of investing primarily for income, combined with a
relatively steep yield curve, favored longer-term bonds during the reporting
period. Consistent with our strategy, we sought to remain fully invested in
bonds ranging from 15 to 30 years in maturity with good call features. We also
maintained our conservative, buy-and-hold investment strategy as we attempted to
provide shareholders with high, current, tax-free income.

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

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF NOVEMBER 30, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.

12 | Semiannual Report

PERFORMANCE SUMMARY AS OF 11/30/04

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

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

PRICE AND DISTRIBUTION INFORMATION

- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 11/30/04 5/31/04
- -----------------------------------------------------------------------------------------------------

Net Asset Value (NAV) +$0.20 $10.14 $9.94
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/04-11/30/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.2802
- -----------------------------------------------------------------------------------------------------
CLASS B CHANGE 11/30/04 5/31/04
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $10.19 $9.99
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/04-11/30/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.2529
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 11/30/04 5/31/04
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $10.17 $9.97
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/04-11/30/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.2529
- -----------------------------------------------------------------------------------------------------

Semiannual Report | 13

PERFORMANCE SUMMARY (CONTINUED)

PERFORMANCE

CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE MAXIMUM SALES CHARGES.

- ------------------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------------------

Cumulative Total Return(1) +4.88% +6.73% +36.21% +98.93%
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +0.44% +2.15% +5.45% +6.66%
- ------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04)(3) +2.44% +6.27% +6.71%
- ------------------------------------------------------------------------------------------------------------------
Distribution Rate(4) 5.07%
- ------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(5) 8.60%
- ------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(6) 4.48%
- ------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(5) 7.60%
- ------------------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (2/1/00)
- ------------------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +4.57% +6.12% +16.13% +38.94%
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +0.57% +2.12% +4.20% +6.72%
- ------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04)(3) +2.39% +5.04% +6.86%
- ------------------------------------------------------------------------------------------------------------------
Distribution Rate(4) 4.70%
- ------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(5) 7.97%
- ------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(6) 4.11%
- ------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(5) 6.97%
- ------------------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/96)
- ------------------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +4.58% +6.02% +32.43% +60.80%
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +3.58% +5.02% +5.78% +5.69%
- ------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04)(3) +5.40% +6.61% +5.79%
- ------------------------------------------------------------------------------------------------------------------
Distribution Rate(4) 4.71%
- ------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(5) 7.99%
- ------------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(6) 4.13%
- ------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(5) 7.01%
- ------------------------------------------------------------------------------------------------------------------

PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.

FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

14 | Semiannual Report

PERFORMANCE SUMMARY (CONTINUED)

ENDNOTES

MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION FROM INTEREST RATES. SINCE THE FUND CONCENTRATES ITS
INVESTMENTS IN A SINGLE STATE, IT IS SUBJECT TO GREATER RISK OF ADVERSE ECONOMIC
AND REGULATORY CHANGES IN THAT STATE THAN A GEOGRAPHICALLY DIVERSIFIED FUND. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

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

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

(1) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.

(2) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes any current,
applicable, maximum sales charge. Six-month return has not been
annualized.

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

(4) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B
and C) per share on 11/30/04.

(5) Taxable equivalent distribution rate and yield assume the published rates
as of 5/28/04 for the maximum combined federal and California state
personal income tax bracket of 41.05%, based on the federal income tax
rate of 35.00%.

(6) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 11/30/04.

Semiannual Report | 15

YOUR FUND'S EXPENSES

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

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

o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

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

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

ACTUAL FUND EXPENSES

The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

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

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

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

16 | Semiannual Report

YOUR FUND'S EXPENSES (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.

- ------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 5/31/04 VALUE 11/30/04 PERIOD* 5/31/04-11/30/04
- ------------------------------------------------------------------------------------------------------------------

Actual $1,000 $1,048.80 $3.29
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.86 $3.24
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,045.70 $6.10
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.10 $6.02
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,045.80 $6.10
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.10 $6.02
- ------------------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio for each class (A:
0.64%; B: 1.19%; and C: 1.19%), multiplied by the average account value
over the period, multiplied by 183/365 to reflect the one-half year
period.

Semiannual Report | 17

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Tennessee Municipal Bond Fund
seeks to provide high, current income exempt from federal and Tennessee state
personal income taxes, consistent with prudent investment management and the
preservation of capital, by investing at least 80% of its total assets in
securities that pay interest free from such taxes.(1)

- --------------------------------------------------------------------------------

CREDIT QUALITY BREAKDOWN*
Franklin Tennessee Municipal Bond Fund
Based on Total Long-Term Investments as of 11/30/04**

[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]

AAA ...................................... 46.4%
AA ....................................... 14.1%
A ........................................ 3.5%
BBB ...................................... 3.5%
Not Rated by S&P ......................... 32.5%

* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Ratings for securities not rated by S&P
are in the table below.

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

RATINGS MOODY'S
AAA or Aaa 23.1%
AA or Aa 8.6%
A 0.5%
BBB or Baa 0.3%
- -----------------------------------------
Total 32.5%

- --------------------------------------------------------------------------------

We are pleased to bring you Franklin Tennessee Municipal Bond Fund's semiannual
report for the period ended November 30, 2004.

PERFORMANCE OVERVIEW

Because bond yield and price move in opposite directions, as municipal bond
yields fell, bond prices rose for the six-month reporting period. The Fund's
Class A share price, as measured by net asset value, rose from $11.04 on May 31,
2004, to $11.31 on November 30, 2004. The Fund's Class A shares paid dividends

(1) For investors subject to the alternative minimum tax, a small portion of
Fund dividends may be taxable. Distributions of capital gains are
generally taxable.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.

[SIDEBAR]

18 | Semiannual Report

totaling 24.00 cents per share for the same period.(2) The Performance Summary
beginning on page 21 shows that at the end of this reporting period the Fund's
Class A shares' distribution rate was 4.07%. An investor in the 2004 maximum
combined federal and Tennessee state personal income tax bracket of 38.90% would
need to earn a distribution rate of 6.66% from a taxable investment to match the
Fund's Class A tax-free distribution rate.

STATE UPDATE

Tennessee's economy has emerged from its fragile recessionary period. The
state's finances and well-diversified economy were strained in recent years,
forcing state legislators to drain the Rainy Day Fund and rely heavily on
one-time (also called "nonrecurring") revenues to fund ongoing operating
expenses. After two consecutive years of job losses, due in large part to the
contracting non-durable manufacturing sector, employment stabilized in fiscal
year 2004 and grew minimally, at less than 1%.(3) Job growth was most notable
within the construction, transportation and retail sectors. Contraction in
manufacturing-related industries, exacerbated by slowing domestic demand and
increased international competition, slowed significantly in fiscal year 2004
yet has been an ongoing problem since the 1990s.

Over the last several years, Tennessee's budget gaps were created largely by the
effects of the economic downturn, education spending enhancements, state
employee pay raises and the challenging TennCare state health care program,
which currently serves about 1.3 million residents or roughly 25% of Tennessee's
population who are either Medicaid-eligible, uninsured or uninsurable.(3)
Significant and unexpected increases in the amount of state funding needed to
support TennCare has easily outpaced state tax revenue growth in almost every
fiscal year since 1998. Seeking a permanent solution, state legislators are
attempting to implement a major new set of TennCare reform initiatives that, if
enacted, are projected to save an estimated cumulative $2 billion for fiscal
years 2005 through 2008.(3)

Tennessee closed its most recent $250 million budget gap in fiscal year 2003
through a combination of cuts and a one-cent sales tax increase, allowing the
state to finish the fiscal year with a small $57 million surplus due largely to
better-than-expected revenues enhanced by a nascent economic recovery.(4) The
revenue increase solved the state's projected near-term budget deficits, allowed
for 2004 fiscal year budgeting that got by without any one-time revenues to
achieve balance, and enabled a balanced 2005 fiscal year budget with recurring

(3) Source: Moody's Investors Service, "Rating Update: Tennessee (State of),"
8/3/04.

(4) Source: Standard & Poor's, "Research: Tennessee; Tax Secured, General
Obligation," RATINGSDIRECT, 8/17/04.

[SIDEBAR]

DIVIDEND DISTRIBUTIONS(2)
Franklin Tennessee Municipal Bond Fund
Class A
6/1/04-11/30/04

- --------------------------------------------------------------------------------
MONTH DIVIDEND PER SHARE
- --------------------------------------------------------------------------------
June 4.00 cents
- --------------------------------------------------------------------------------
July 4.00 cents
- --------------------------------------------------------------------------------
August 4.00 cents
- --------------------------------------------------------------------------------
September 4.00 cents
- --------------------------------------------------------------------------------
October 4.00 cents
- --------------------------------------------------------------------------------
November 4.00 cents
- --------------------------------------------------------------------------------
Total 24.00 cents
- --------------------------------------------------------------------------------

Semiannual Report | 19

[SIDEBAR]

PORTFOLIO BREAKDOWN
Franklin Tennessee Municipal Bond Fund
11/30/04

- --------------------------------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS*
- --------------------------------------------------------------------------------
Utilities 30.7%**
- --------------------------------------------------------------------------------
General Obligation 20.3%
- --------------------------------------------------------------------------------
Prerefunded 19.7%
- --------------------------------------------------------------------------------
Hospital & Health Care 10.3%
- --------------------------------------------------------------------------------
Other Revenue 6.9%
- --------------------------------------------------------------------------------
Transportation 4.7%
- --------------------------------------------------------------------------------
Housing 2.8%
- --------------------------------------------------------------------------------
Subject to Government Appropriations 2.7%
- --------------------------------------------------------------------------------
Corporate-Backed 1.0%
- --------------------------------------------------------------------------------
Tax-Supported 0.9%
- --------------------------------------------------------------------------------

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

** The Fund may invest more than 25% in municipal securities that finance
similar types of projects such as utilities. A change that affects one
project may affect all similar projects, thereby increasing market risk.

revenues prudently matching recurring expenditures. In fact, with an estimated
$380 million in excess revenues from fiscal year 2004, the state began fiscal
year 2005 by putting some of the operating surplus toward social service
programs, the depleted Rainy Day Fund and the revenue stabilization fund.(4)

Tennessee enjoys a low debt burden and manageable future debt issuance. Citing a
number of positive trends stemming from the state's economic recovery and
turnaround of financial operations, independent credit rating agency Moody's
Investors Service revised Tennessee's credit outlook in August 2004, to stable
from negative, and affirmed its high general obligation debt rating of Aa2.(5)
The rating also reflected the state's historically modest debt ratios and
increasing economic diversification. With a newly created structural budget
balance and stronger state finances, the implementation of various TennCare
reforms is seen as crucial to the program and Tennessee's efforts to maintain
future structural budget balance.

INVESTMENT STRATEGY

MANAGER'S DISCUSSION

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

(5) This does not indicate Moody's rating of the Fund.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF NOVEMBER 30, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.

20 | Semiannual Report

PERFORMANCE SUMMARY AS OF 11/30/04

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

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

PRICE AND DISTRIBUTION INFORMATION

- ----------------------------------------------------------------------------------------------------------
CLASS A CHANGE 11/30/04 5/31/04
- ----------------------------------------------------------------------------------------------------------

Net Asset Value (NAV) +$0.27 $11.31 $11.04
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/04-11/30/04)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.24
- ----------------------------------------------------------------------------------------------------------

PERFORMANCE(1)

CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE. CUMULATIVE TOTAL RETURN EXCLUDES
THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURNS INCLUDE THE MAXIMUM SALES CHARGE.

- ----------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ----------------------------------------------------------------------------------------------------------

Cumulative Total Return(2) +4.59% +4.30% +38.93% +99.48%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +0.14% -0.11% +5.87% +6.68%
- ----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/04)(4) +0.47% +6.45% +6.48%
- ----------------------------------------------------------------------------------------------------------
Distribution Rate(5) 4.07%
- ----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate(6) 6.66%
- ----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield(7) 3.19%
- ----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield(6) 5.22%
- ----------------------------------------------------------------------------------------------------------

FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.

Semiannual Report | 21

PERFORMANCE SUMMARY (CONTINUED)

ENDNOTES

(1) The Fund's manager agreed in advance to waive a portion of its management
fees and to make certain payments to reduce expenses. If the manager had
not taken this action, the Fund's distribution rate and total return would
have been lower, and yield for the period would have been 3.11%. The fee
waiver may be discontinued at any time upon notice to the Fund's Board of
Trustees.

(2) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.

(3) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum sales
charge. Six-month return has not been annualized.

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

(5) Distribution rate is based on an annualization of the current 4.00 cent
per share dividend and the maximum offering price per share of $11.80 on
11/30/04.

(6) Taxable equivalent distribution rate and yield assume the published rates
as of 5/28/04 for the maximum combined federal and Tennessee state
personal income tax bracket of 38.90%, based on the federal income tax
rate of 35.00%.

(7) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 11/30/04.

22 | Semiannual Report

YOUR FUND'S EXPENSES

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

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

o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

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

ACTUAL FUND EXPENSES

You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

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

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Semiannual Report | 23

YOUR FUND'S EXPENSES (CONTINUED)

- ----------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 5/31/04 VALUE 11/30/04 PERIOD* 5/31/04-11/30/04
- ----------------------------------------------------------------------------------------------------------------

Actual $1,000 $1,045.90 $3.59
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.56 $3.55
- ----------------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio of 0.70%, multiplied by
the average account value over the period, multiplied by 183/365 to
reflect the one-half year period.

24 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

----------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2004 YEAR ENDED MAY 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period .......... $ 9.94 $ 10.21 $ 9.97 $ 9.95 $ 9.52 $ 10.60
-------------------------------------------------------------------------------
Income from investment operations:

Net investment income(a) ..................... .27 .56 .54 .57(e) .60 .56

Net realized and unrealized gains (losses) ... .21 (.28) .25 .02(e) .39 (1.08)
-------------------------------------------------------------------------------
Total from investment operations .............. .48 .28 .79 .59 .99 (.52)
-------------------------------------------------------------------------------
Less distributions from net investment income . (.28) (.55) (.55) (.57) (.56) (.56)
-------------------------------------------------------------------------------
Redemption fees ............................... --(c) -- -- -- -- --
-------------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.14 $ 9.94 $ 10.21 $ 9.97 $ 9.95 $ 9.52
===============================================================================

Total return(b) ............................... 4.88% 2.81% 8.15% 5.99% 10.61% (4.88)%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ............. $654,275 $548,292 $537,770 $503,337 $483,666 $464,423

Ratios to average net assets:

Expenses ..................................... .64%(d) .65% .65% .65% .65% .66%

Expenses net of waiver and payments by
affiliate .................................. .64%(d) .65% .65% .61% .50% .49%

Net investment income ........................ 5.38%(d) 5.61% 5.36% 5.66%(e) 6.02% 5.70%

Portfolio turnover rate ....................... 5.19% 8.79% 10.13% 21.77% 29.01% 47.45%

(a) Based on average daily shares outstanding.

(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.

(d) Annualized.

(e) Effective June 1, 2001, the Fund adopted the provisions of the AICPA Audit
and Accounting Guide for Investment Companies and began amortizing all
premium and discount on fixed-income securities, as required. The effect
of this change was as follows:

Net investment income per share ........................... $ .01
Net realized and unrealized gains (losses) per share ...... (.01)
Ratio of net investment income to average net assets ...... .08%

Per share data and ratios for prior periods have not been restated to
reflect this change in accounting policy.

Semiannual Report | See notes to financial statements. | 25

FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND (CONTINUED)

---------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2004 YEAR ENDED MAY 31,
CLASS B (UNAUDITED) 2004 2003 2002 2001 2000(f)
---------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period .............. $ 9.99 $ 10.25 $ 10.02 $ 9.98 $ 9.54 $ 9.34
----------------------------------------------------------------------------

Income from investment operations:

Net investment income(a) ......................... .25 .51 .49 .52(e) .53 .17

Net realized and unrealized gains (losses) ....... .20 (.28) .24 .03(e) .42 .20
----------------------------------------------------------------------------
Total from investment operations .................. .45 .23 .73 .55 .95 .37
----------------------------------------------------------------------------
Less distributions from net investment income ..... (.25) (.49) (.50) (.51) (.51) (.17)
----------------------------------------------------------------------------
Redemption fees ................................... --(c) -- -- -- -- --
----------------------------------------------------------------------------
Net asset value, end of period .................... $ 10.19 $ 9.99 $ 10.25 $ 10.02 $ 9.98 $ 9.54
============================================================================

Total return(b) ................................... 4.57% 2.24% 7.52% 5.58% 10.08% 4.00%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ................. $ 30,390 $28,197 $29,268 $23,029 $11,598 $ 808

Ratios to average net assets:

Expenses ......................................... 1.19%(d) 1.20% 1.20% 1.20% 1.20% 1.19%(d)

Expenses net of waiver and payments by
affiliate ...................................... 1.19%(d) 1.20% 1.20% 1.16% 1.05% 1.02%(d)

Net investment income ............................ 4.83%(d) 5.06% 4.81% 5.13%(e) 5.32% 5.33%(d)

Portfolio turnover rate ........................... 5.19% 8.79% 10.13% 21.77% 29.01% 47.45%

(a) Based on average daily shares outstanding.

(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.

(d) Annualized.

Net investment income per share .......................... $.01
Net realized and unrealized gains (losses) per share ..... (.01)
Ratio of net investment income to average net assets ..... .08%

Per share data and ratios for prior periods have not been restated to
reflect this change in accounting policy.

(f) For the period February 1, 2000 (effective date) to May 31, 2000.

26 | See notes to financial statements. | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND (CONTINUED)

------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2004 YEAR ENDED MAY 31,
CLASS C (UNAUDITED) 2004 2003 2002 2001 2000
------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period ............... $ 9.97 $ 10.24 $ 10.01 $ 9.98 $ 9.55 $ 10.63
-------------------------------------------------------------------------

Income from investment operations:

Net investment income(a) .......................... .25 .51 .48 .52(e) .54 .51

Net realized and unrealized gains (losses) ........ .20 (.29) .25 .02(e) .40 (1.08)
-------------------------------------------------------------------------
Total from investment operations ................... .45 .22 .73 .54 .94 (.57)
-------------------------------------------------------------------------
Less distributions from net investment income ...... (.25) (.49) (.50) (.51) (.51) (.51)
-------------------------------------------------------------------------
Redemption fees .................................... --(c) -- -- -- -- --
-------------------------------------------------------------------------
Net asset value, end of period ..................... $ 10.17 $ 9.97 $ 10.24 $ 10.01 $ 9.98 $ 9.55
=========================================================================

Total return(b) .................................... 4.58% 2.24% 7.43% 5.49% 9.98% (5.39)%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) .................. $93,261 $79,294 $77,748 $74,611 $67,735 $64,890

Ratios to average net assets:

Expenses .......................................... 1.19%(d) 1.20% 1.20% 1.20% 1.20% 1.21%

Expenses net of waiver and payments by affiliate . 1.19%(d) 1.20% 1.20% 1.16% 1.05% 1.04%

Net investment income ............................. 4.83%(d) 5.06% 4.81% 5.12%(e) 5.48% 5.15%

Portfolio turnover rate ............................ 5.19% 8.79% 10.13% 21.77% 29.01% 47.45%

(a) Based on average daily shares outstanding.

(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.

(d) Annualized.

Net investment income per share .......................... $.01
Net realized and unrealized gains (losses) per share ..... (.01)
Ratio of net investment income to average net assets ..... .08%

Per share data and ratios for prior periods have not been restated to
reflect this change in accounting policy.

Semiannual Report | See notes to financial statements. | 27

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED)

- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS 90.5%
BONDS 78.6%
ABAG 1915 Act Revenue, Windemere Ranch AD 1,
7.30%, 9/02/17 ........................................................................... $ 9,870,000 $10,421,141
7.35%, 9/02/20 ........................................................................... 7,820,000 8,250,726
ABAG 1915 Act Special Assessment,
Windemere Ranch AD 1, 7.45%, 9/02/30 ..................................................... 4,820,000 5,099,705
Windmere Ranch AD 99-1, 6.20%, 9/02/20 ................................................... 1,950,000 2,019,478
Windmere Ranch AD 99-1, 6.30%, 9/02/25 ................................................... 2,935,000 3,015,595
ABAG Finance Authority for Nonprofit Corps. COP, California Mortgage Insured, 6.15%,
1/01/22 ................................................................................... 1,300,000 1,406,574
ABAG Finance Authority for Nonprofit Corps. Revenue, Elder Care Alliance, California Mortgage
Insured, 5.60%, 8/15/34 ................................................................... 4,260,000 4,378,343
Adelanto Water Authority Revenue,
Parity Water Systems Acquisition Project, Series A, Pre-Refunded, 7.50%, 9/01/28 ......... 3,200,000 3,757,376
Water Systems Acquisition Project, sub. lien, Series A, Pre-Refunded, 7.50%, 9/01/28 ..... 2,000,000 2,398,140
Alameda CFD No. 2 Special Tax, 6.125%, 9/01/16 .............................................. 1,240,000 1,270,826
Alameda PFA Local Agency Revenue, Special Tax, Community Facility No. 1-A,
6.70%, 8/01/12 ........................................................................... 3,400,000 3,612,398
7.00%, 8/01/19 ........................................................................... 4,015,000 4,259,433
Avenal PFAR, Refunding,
7.00%, 9/02/10 ........................................................................... 930,000 977,625
7.25%, 9/02/27 ........................................................................... 3,665,000 3,833,700
Burbank Wastewater Treatment Revenue, Series A, AMBAC Insured, 5.00%, 6/01/34 ............... 1,430,000 1,450,506
Calexico Special Financing Authority Sales Tax Revenue,
ETM, 7.40%, 1/01/05 ...................................................................... 285,000 286,220
ETM, 7.40%, 1/01/06 ...................................................................... 340,000 359,094
Pre-Refunded, 7.40%, 1/01/18 ............................................................. 7,680,000 8,111,309
California City RDA Tax Allocation Revenue, Refunding, Series A-1, 7.75%, 9/01/34 ........... 9,670,000 10,490,596
California Educational Facilities Authority Revenue,
Keck Graduate Institute, 6.75%, 6/01/30 .................................................. 2,500,000 2,705,725
Pooled College and University, Series B, 6.625%, 6/01/20 ................................. 1,000,000 1,107,690
Pooled College and University, Series B, Pre-Refunded, 6.30%, 4/01/21 .................... 1,000,000 1,110,290
California Health Facilities Financing Authority Revenue,
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 ......................................... 2,500,000 2,582,325
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ........................................ 3,250,000 3,480,392
Thessalonika Family, Series A, California Mortgage Insured, 6.20%, 12/01/15 .............. 990,000 1,048,321
California PCFA, PCR, Southern California Edison Co., Series B, 6.40%, 12/01/24 ............. 2,000,000 2,005,200
California PCFA Solid Waste Disposal Revenue,
Browning-Ferris Industries Inc., 6.75%, 9/01/19 .......................................... 7,000,000 7,023,240
Keller Canyon Landfill Co. Project, 6.875%, 11/01/27 ..................................... 9,100,000 9,121,112
California State GO, FGIC Insured, 6.00%, 8/01/19 ........................................... 30,000 30,786
California State Public Works Board Lease Revenue, Department of Mental Health, Coalinga,
Series A, 5.125%, 6/01/29 ................................................................. 5,000,000 5,058,100

28 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
California Statewide CDA, COP,
Catholic Healthcare West, 6.50%, 7/01/20 ................................................ $12,060,000 $13,337,998
International School of Peninsula Project, 7.50%, 11/01/29 .............................. 10,565,000 10,931,183
Windward School, 6.90%, 9/01/23 ......................................................... 2,000,000 2,066,080
(a)California Statewide CDA Lease Revenue, Special Facilities, United Airlines, Series A, 5.70%,
10/01/33 .................................................................................. 3,320,000 2,066,766
California Statewide CDA Revenue,
Bentley School, Refunding, 6.75%, 7/01/32 ............................................... 8,250,000 8,631,480
Elder Care Alliance, Series A, 8.00%, 11/15/22 .......................................... 3,000,000 3,119,010
Elder Care Alliance, Series A, 8.25%, 11/15/32 .......................................... 4,000,000 4,162,560
Eskaton Village Grass Valley, 8.25%, 11/15/31 ........................................... 10,000,000 10,977,900
John F. Kennedy University, 6.75%, 10/01/33 ............................................. 5,000,000 4,887,700
Monterey Institute International, 7.75%, 7/01/31 ........................................ 8,285,000 7,296,682
Presidio Hill School, 6.875%, 8/01/32 ................................................... 6,195,000 6,336,742
Prospect Sierra School, 6.75%, 9/01/32 .................................................. 5,000,000 5,165,800
Seven Hills School, 6.50%, 8/01/31 ...................................................... 5,600,000 5,674,704
Sonoma County Day School, 6.75%, 1/01/32 ................................................ 6,000,000 6,257,880
Thomas Jefferson School of Law Project, 7.75%, 10/01/31 ................................. 5,000,000 5,329,200
Turning Point, 6.50%, 11/01/31 .......................................................... 6,130,000 6,321,869
California Statewide CDA Revenue COP, California Mortgage Insured, Pre-Refunded, 7.25%,
12/01/22 .................................................................................. 1,800,000 1,836,000
California University Fresno Association Inc. Revenue, Senior Auxiliary Organization Event
Center, 6.00%, 7/01/22 .................................................................... 3,500,000 3,683,610
Campbell RDA Tax Allocation, Central Campbell Redevelopment Project, Series A, 6.55%,
10/01/32 .................................................................................. 5,300,000 5,705,503
Chino CFD Special Tax,
No. 03-1, 5.875%, 9/01/33 ............................................................... 1,250,000 1,245,562
No. 03-3, Improvement Area 1, 5.70%, 9/01/29 ............................................ 1,215,000 1,188,100
No. 03-3, Improvement Area 1, 5.75%, 9/01/34 ............................................ 1,420,000 1,386,261
Chula Vista Special Tax, CFD No. 2000-1, 6.60%, 9/01/30 ..................................... 1,500,000 1,554,045
Corona CFD Special Tax, No. 01-02 Improvement Nos. 1 and 2, 6.25%, 9/01/32 .................. 1,890,000 1,902,153
Corona-Norco USD Special Tax, CFD No. 99-1, 7.00%, 9/01/29 .................................. 2,120,000 2,237,406
Cotati South Sonoma Business Park AD Special Assessment, Improvement, 6.50%,
9/02/33 ................................................................................... 5,805,000 5,852,079
Duarte RDA Tax Allocation,
Davis Addition Project Area, Refunding, 6.70%, 9/01/14 .................................. 2,615,000 2,832,803
Davis Addition Project Area, Refunding, 6.90%, 9/01/18 .................................. 4,120,000 4,460,765
Rancho Duarte Phase I Project Area, Pre-Refunded, 6.80%, 9/01/16 ........................ 635,000 722,478
El Dorado County Public Financing Revenue, Pre-Refunded, 6.375%, 2/15/25 .................... 1,885,000 2,070,993
El Dorado County Special Tax, CFD No. 1992-1, 6.125%, 9/01/16 ............................... 4,745,000 4,921,656
Elk Grove Special Tax, East Franklin Community No. 1-A, 6.00%, 8/01/33 ...................... 1,750,000 1,780,555
Elsinore Valley Municipal Water District Special Tax, CFD No. 99-1, 7.00%, 9/01/29 .......... 3,500,000 3,671,605

Semiannual Report | 29

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Escondido Revenue COP, Refunding, Series A, FGIC Insured, 6.00%, 9/01/31 ................ $ 1,785,000 $ 1,990,418
Fontana Special Tax, CFD No. 12,
6.60%, 9/01/19 ...................................................................... 3,295,000 3,469,668
6.625%, 9/01/30 ..................................................................... 7,675,000 8,030,890
Fullerton Water Revenue, COP, AMBAC Insured, 5.00%,
9/01/28 ............................................................................. 2,650,000 2,690,677
9/01/34 ............................................................................. 2,795,000 2,824,879
Garden Grove Housing Authority MFHR, Set-Aside Tax Increment, Series C, 6.70%,
7/01/24 ............................................................................... 6,375,000 6,451,882
Gateway Improvement Authority Revenue, Marin City CFD, Series A, Pre-Refunded, 7.75%,
9/01/25 ............................................................................... 2,480,000 2,628,403
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, Asset Backed,
Series A-2, 7.90%, 6/01/42 .......................................................... 750,000 814,657
Series A-3, 7.875%, 6/01/42 ......................................................... 6,400,000 6,941,440
Series B, 5.625%, 6/01/38 ........................................................... 14,000,000 14,698,320
Half Moon Bay COP, Sea Crest School, 6.75%, 7/01/30 ..................................... 3,760,000 3,881,335
Hercules RDA Tax Allocation, Hercules Merged Project, 6.40%, 9/01/21 .................... 5,000,000 5,070,300
Huntington Beach CFD Special Tax Revenue, Grand Coast Resort, 6.45%, 9/01/31 ............ 5,000,000 5,171,400
Imperial County Special Tax, CFD No. 98-1,
6.45%, 9/01/17 ...................................................................... 2,085,000 1,952,394
6.50%, 9/01/31 ...................................................................... 5,705,000 5,115,731
Indio 1915 Act GO,
AD No. 99-1, 7.125%, 9/02/20 ........................................................ 2,240,000 2,361,363
AD No. 2001-1, 6.50%, 9/02/26 ....................................................... 4,615,000 4,709,931
John C. Fremont Hospital District Health Facilities Revenue, California Mortgage Insured,
6.75%, 6/01/13 ........................................................................ 1,500,000 1,547,085
Lafayette RDA Tax Allocation, 5.75%, 8/01/32 ............................................ 1,000,000 1,011,730
Lake Elsinore 1915 Act Special Assessment, AD No. 93-1, Limited Obligation, Refunding,
7.00%, 9/02/30 ........................................................................ 8,710,000 9,170,672
Lake Elsinore Special Tax, Improvements, CFD No. 2-A,
5.85%, 9/01/24 ...................................................................... 1,035,000 1,034,886
5.95%, 9/01/34 ...................................................................... 2,200,000 2,196,722
Lake Elsinore USD, CFD, Special Tax, No. 2001-1, 6.30%, 9/01/33 ......................... 4,510,000 4,609,716
Lancaster Financing Authority Tax Allocation Revenue, Redevelopment Project Nos. 5 and 6,
Refunding,
5.40%, 2/01/29 ...................................................................... 500,000 489,395
5.60%, 2/01/34 ...................................................................... 1,250,000 1,233,975
Lancaster RDA Tax Allocation,
7.00%, 12/01/29 ..................................................................... 1,780,000 1,787,458
Residential Redevelopment Project, sub. lien, Refunding, 6.65%, 9/01/27 ............. 2,500,000 2,635,225
Lee Lake Water District CFD No. 1 Special Tax, Sycamore Creek, 6.50%, 9/01/24 ........... 1,000,000 1,059,380
Lee Lake Water District CFD No. 3 Special Tax, Retreat, 5.875%, 9/01/27 ................. 3,000,000 2,986,260

30 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Lincoln Special Tax, CFD No. 2003-1,
5.90%, 9/01/24 ....................................................................... $ 2,000,000 $ 2,002,940
5.95%, 9/01/28 ....................................................................... 5,000,000 5,007,300
6.00%, 9/01/34 ....................................................................... 4,000,000 4,005,840
Los Angeles Harbor Department Revenue, Series B, 6.00%, 8/01/14 .......................... 3,500,000 3,719,135
Los Angeles MFR, Refunding, Series J-2C, 8.50%, 1/01/24 .................................. 1,000,000 936,190
Lynwood PFA Lease Revenue,
6.25%, 9/01/22 ....................................................................... 1,080,000 1,173,895
6.30%, 9/01/29 ....................................................................... 2,680,000 2,874,622
Lynwood PFA Tax Allocation, Alameda Project Area, 6.30%, 9/01/24 ......................... 1,000,000 1,070,870
Lynwood PFAR, Water System Improvement Project, 6.50%, 6/01/21 ........................... 1,175,000 1,214,515
Menifee USD Special Tax, CFD No. 2002-2,
6.05%, 9/01/26 ....................................................................... 1,000,000 1,006,640
6.10%, 9/01/34 ....................................................................... 3,715,000 3,739,593
Modesto PFA Lease Revenue, John Thurman Field Renovation Project, 6.125%, 11/01/16 ....... 1,325,000 1,407,653
Murrieta 1915 Act Special Tax, CFD No. 2000-1, 6.375%, 9/01/30 ........................... 4,100,000 4,259,449
Murrieta CFD Special Tax,
Blackmore Ranch, Series 2003-2, 6.10%, 9/01/34 ....................................... 2,000,000 2,011,880
No. 2, The Oaks Improvement Area A, 5.90%, 9/01/27 ................................... 2,000,000 2,004,200
No. 2, The Oaks Improvement Area A, 6.00%, 9/01/34 ................................... 3,570,000 3,593,419
No. 2, The Oaks Improvement Area B, 6.00%, 9/01/27 ................................... 1,285,000 1,293,430
No. 2, The Oaks Improvement Area B, 6.00%, 9/01/34 ................................... 3,870,000 3,891,637
Murrieta CFD Special Tax Revenue, No. 1 Bluestone Improvement Area A, 6.20%, 9/01/25 ..... 2,105,000 2,137,375
Norco Special Tax,
CFD No. 97-1, 7.10%, 10/01/30 ........................................................ 2,640,000 2,838,290
CFD No. 2002-1, 6.50%, 3/01/33 ....................................................... 1,500,000 1,500,915
North Natomas CFD No. 4 Special Tax, Series B, 6.375%, 9/01/31 ........................... 4,300,000 4,453,639
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.60%,
3/15/28 ................................................................................ 1,865,000 1,963,174
Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ........................ 2,100,000 2,175,558
Oxnard Harbor District Revenue,
Series A, 5.75%, 8/01/20 ............................................................. 1,110,000 1,159,295
Series B, 6.00%, 8/01/24 ............................................................. 2,000,000 2,134,700
Perris CFD Special Tax, No. 2002-1, Series A,
6.375%, 9/01/23 ...................................................................... 1,475,000 1,481,652
6.50%, 9/01/29 ....................................................................... 2,045,000 2,062,035
6.50%, 9/01/33 ....................................................................... 2,120,000 2,137,660
Perris PFA Local Agency Revenue, Series A, 6.25%, 9/01/33 ................................ 3,000,000 3,037,110
Pico Rivera Water Authority Revenue, Refunding, Series A, 6.25%, 12/01/32 ................ 7,250,000 7,532,750
Placentia COP, Improvement Project,
5.45%, 7/01/25 ....................................................................... 1,000,000 998,720
5.60%, 7/01/30 ....................................................................... 500,000 491,965

Semiannual Report | 31

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Rancho Water District Special Tax, Community Facilities 99-1,
Area A, Series A, 6.70%, 9/01/30 ................................................... $ 2,100,000 $ 2,187,759
Area B, Series A, 6.70%, 9/01/30 ................................................... 2,435,000 2,536,759
Richmond 1915 Act, Limited Obligation, ID No. 99-01, 7.20%, 9/02/30 .................... 7,885,000 8,143,865
Richmond Revenue, YMCA East Bay Project, Refunding, 7.25%, 6/01/17 ..................... 2,380,000 2,477,628
Riverside County CFD Special Tax, No. 89-1, Mountain Cove, Refunding, 6.50%, 9/01/25 ... 3,390,000 3,528,176
Riverside County CFD Special Tax, No. 87-5, senior lien, Refunding, Series A, 7.00%,
9/01/13 .............................................................................. 7,335,000 7,839,648
Roseville Special Tax,
CFD No. 1, Stone Point, 6.375%, 9/01/28 ............................................ 2,500,000 2,559,250
Highland CFD No. 1, 6.30%, 9/01/25 ................................................. 8,960,000 9,236,864
Stone Point CFD No. 1, 6.375%, 9/01/24 ............................................. 1,750,000 1,795,640
Stoneridge CFD No. 1, 6.20%, 9/01/21 ............................................... 1,250,000 1,299,413
Stoneridge CFD No. 1, 6.30%, 9/01/31 ............................................... 1,500,000 1,559,985
Woodcreek West CFD No. 1, 6.70%, 9/01/25 ........................................... 3,000,000 3,140,070
Sacramento County Sanitation District Financing Authority Revenue, Sacramento Regional
County Sanitation, Series A, AMBAC Insured, 5.00%, 12/01/35 .......................... 7,000,000 7,100,100
Sacramento County Special Tax, CFD No.1, Refunding, 6.30%, 9/01/21 ..................... 1,575,000 1,614,281
San Diego Port District Revenue, MBIA Insured, 5.00%, 9/01/29 .......................... 4,030,000 4,082,471
San Diego Special Tax, CFD No. 1, Series B, Pre-Refunded, 7.10%, 9/01/20 ............... 3,500,000 3,700,865
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Refunding, Series A, 5.50%, 1/15/28 ................................................ 2,820,000 2,628,071
senior lien, 5.00%, 1/01/33 ........................................................ 12,500,000 11,121,500
San Marcos PFA Special Tax Revenue,
Series A, 6.375%, 9/01/35 .......................................................... 3,535,000 3,560,699
Series A, Pre-Refunded, 6.70%, 9/01/32 ............................................. 3,500,000 3,690,575
Series A, Pre-Refunded, 6.30%, 9/01/33 ............................................. 1,000,000 1,089,910
Series A, Pre-Refunded, 6.45%, 9/01/34 ............................................. 3,180,000 3,588,630
Series B, Pre-Refunded, 6.50%, 9/01/33 ............................................. 6,655,000 7,275,978
San Marcos RDA Tax Allocation, Affordable Housing Project, Series A, 5.65%, 10/01/28 ... 2,000,000 2,042,100
San Mateo RDA Tax Allocation, Merged Area, Series A, 5.50%, 8/01/22 .................... 1,000,000 1,053,110
Simi Valley 1915 Act Special Assessment, AD No. 98-1, Madera, 7.30%, 9/02/24 ........... 4,000,000 4,251,480
Southern California Public Power Authority Transmission Project Revenue, Southern
Transmission Project, 6.125%, 7/01/18 ................................................ 50,000 50,179
Stockton CFD Special Tax, No. 2001-1, Spanos Park West, 6.25%, 9/01/25 ................. 3,500,000 3,592,015
Stockton Improvement Bond Revenue, 1915 Act, Limited Obligation, Mosher AD 02,
6.20%, 9/02/23 ..................................................................... 2,955,000 3,016,996
6.30%, 9/02/33 ..................................................................... 3,390,000 3,470,784
Stockton RDAR, Stockton Events Center Arena Project, FGIC Insured, 5.00%, 9/01/28 ...... 1,500,000 1,523,025
Truckee-Donner PUD Special Tax, CFD No. 04-1,
5.75%, 9/01/29 ..................................................................... 2,975,000 2,894,378
5.80%, 9/01/35 ..................................................................... 4,630,000 4,493,924

32 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Upland CFD Special Tax, 2003-2 San Antonio Improvement, Series 1-A,
5.90%, 9/01/24 ......................................................................... $ 2,380,000 $ 2,394,280
6.00%, 9/01/34 ......................................................................... 2,000,000 2,009,220
Vallejo COP, Marine World Foundation Project, Refunding, 7.40%, 2/01/28 ................... 9,345,000 9,632,452
Vallejo RDA Tax Allocation, Housing Set-Aside, Series A, 7.00%, 10/01/31 .................. 5,185,000 5,242,398
Ventura USD, GO, Refunding, FSA Insured, 4.50%, 8/01/30 ................................... 4,175,000 3,973,306
West Sacramento Special Tax,
CFD No. 10, 6.75%, 9/01/26 ............................................................. 3,235,000 3,373,943
CFD No. 16, 5.90%, 9/01/23 ............................................................. 1,000,000 1,009,410
Woodland Special Tax, CFD No. 1,
6.00%, 9/01/28 ......................................................................... 5,000,000 4,798,100
6.25%, 9/01/34 ......................................................................... 6,750,000 6,597,720
------------
TOTAL BONDS ............................................................................... 611,348,289
------------
ZERO COUPON/STEP-UP BONDS 11.9%
(b)Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, FGIC Insured,
8/01/27 ................................................................................ 7,500,000 2,193,225
8/01/28 ................................................................................ 5,000,000 1,375,400
Duarte RDA Tax Allocation, Capital Appreciation, Merged Redevelopment Project, 12/01/28 ... 30,795,000 7,666,107
Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding,
1/15/26 ................................................................................ 38,720,000 11,127,354
1/15/30 ................................................................................ 4,000,000 897,360
1/15/31 ................................................................................ 85,780,000 18,040,392
Moreland School District GO, Election of 2002, Series D, FGIC Insured,
8/01/30 ................................................................................ 3,400,000 799,748
8/01/31 ................................................................................ 2,000,000 443,500
8/01/32 ................................................................................ 4,405,000 920,689
8/01/34 ................................................................................ 4,405,000 822,149
8/01/37 ................................................................................ 5,700,000 897,750
San Diego RDA Tax Allocation, Capital Appreciation, Series B,
9/01/10 ................................................................................ 3,460,000 2,697,624
9/01/15 ................................................................................ 6,810,000 3,943,467
9/01/16 ................................................................................ 1,500,000 810,555
9/01/19 ................................................................................ 1,800,000 788,256
9/01/20 ................................................................................ 1,800,000 732,816
9/01/21 ................................................................................ 1,800,000 682,794
9/01/22 ................................................................................ 1,900,000 666,767
9/01/23 ................................................................................ 1,900,000 621,718
9/01/24 ................................................................................ 1,900,000 578,265
9/01/25 ................................................................................ 1,900,000 537,776
9/01/26 ................................................................................ 1,900,000 502,436
9/01/27 ................................................................................ 1,900,000 470,592
9/01/28 ................................................................................ 1,900,000 441,313

Semiannual Report | 33

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
ZERO COUPON/STEP-UP BONDS (CONT.)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.60% thereafter,
1/15/16 ................................................................................ $ 4,500,000 $ 3,928,230
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.70% thereafter,
1/15/19 ................................................................................ 3,000,000 2,599,140
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.75% thereafter,
1/15/21 ................................................................................ 24,750,000 21,253,072
junior lien, ETM, 1/01/28 ................................................................ 19,150,000 5,843,622
------------
TOTAL ZERO COUPON/STEP-UP BONDS ................................................................ 92,282,117
------------
TOTAL LONG TERM INVESTMENTS (COST $670,634,807) ................................................ 703,630,406
------------
SHORT TERM INVESTMENTS 8.7%
BONDS
(c)California State Department of Water Resources Power Supply Revenue,
Series B-5, Daily VRDN and Put, 1.62%, 5/01/22 ........................................... 900,000 900,000
Series C-7, FSA Insured, Weekly VRDN and Put, 1.65%, 5/01/22 ............................. 5,000,000 5,000,000
(c)California State Economic Recovery Revenue,
Series C-3, Daily VRDN and Put, 1.62%, 7/01/23 ........................................... 6,000,000 6,000,000
Series C-8, Daily VRDN and Put, 1.66%, 7/01/23 ........................................... 2,000,000 2,000,000
(c)California State GO,
Kindergarten University, Series B-3, Daily VRDN and Put, 1.63%, 5/01/34 .................. 7,100,000 7,100,000
Series A-3, Daily VRDN and Put, 1.62%, 5/01/33 ........................................... 4,500,000 4,500,000
(c)Daly City HFA, MFR, Refunding, Weekly VRDN and Put, 1.64%, 10/15/29 ......................... 1,700,000 1,700,000
(c)Irvine 1915 Act Special Assessment,
AD No. 03-19, Series A, Daily VRDN and Put, 1.63%, 9/02/29 ............................... 200,000 200,000
AD No. 97-13, Daily VRDN and Put, 1.63%, 9/02/23 ......................................... 1,100,000 1,100,000
(c)Irvine Ranch Water District Revenue,
Consolidated, Daily VRDN and Put, 1.64%, 8/01/16 ......................................... 800,000 800,000
Nos. 140, 240, 105 and 250, Daily VRDN and Put, 1.64%, 4/01/33 ........................... 3,875,000 3,875,000
(c)Irvine USD Special Tax,
CFD No. 01-1, Daily VRDN and Put, 1.63%, 9/01/38 ......................................... 600,000 600,000
CFD No. 03-1, Daily VRDN and Put, 1.63%, 9/01/39 ......................................... 1,200,000 1,200,000
(c)Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2, Daily VRDN
and Put, 1.63%, 7/01/35 .................................................................... 9,700,000 9,700,000
(c)Metropolitan Water District Southern California Waterworks Revenue,
Refunding, Series B-1, Daily VRDN and Put, 1.63%, 7/01/35 ................................ 1,300,000 1,300,000
Refunding, Series B-3, Daily VRDN and Put, 1.70%, 7/01/35 ................................ 1,200,000 1,200,000
Series C-2, Daily VRDN and Put, 1.60%, 7/01/36 ........................................... 6,400,000 6,400,000
(c)Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Series B, Weekly VRDN and
Put, 1.64%, 10/01/26 ....................................................................... 500,000 500,000
(c)Orange County Sanitation Districts COP, Refunding,
Series A, Daily VRDN and Put, 1.64%, 8/01/29 ............................................. 3,000,000 3,000,000
Series B, Daily VRDN and Put, 1.64%, 8/01/30 ............................................. 10,700,000 10,700,000

34 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

SHORT TERM INVESTMENTS (CONT.)
BONDS (CONT.)
(c)Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, MBIA Insured,
Weekly VRDN and Put, 1.58%, 12/01/15 ............................................... $ 100,000 $ 100,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $67,875,000) ....................................... 67,875,000
------------
TOTAL INVESTMENTS (COST $738,509,807) 99.2% ........................................... 771,505,406
OTHER ASSETS, LESS LIABILITIES .8% .................................................... 6,420,090
------------
NET ASSETS 100.0% ..................................................................... $777,925,496
============

See glossary of terms on page 40.

(a) Defaulted securities. See Note 6.

(b) See Note 1(b) regarding securities purchased on a when-issued or delayed
delivery basis.

(c) Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.

Semiannual Report | See notes to financial statements. | 35

FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL HIGHLIGHTS

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

--------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2004 YEAR ENDED MAY 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period .......... $ 11.04 $ 11.59 $ 10.95 $ 10.82 $ 10.02 $ 11.16
----------------------------------------------------------------------------

Income from investment operations:

Net investment income(a) ..................... .24 .49 .50 .52 .55 .56

Net realized and unrealized gains (losses) ... .27 (.55) .65 .15 .81 (1.15)
----------------------------------------------------------------------------
Total from investment operations .............. .51 (.06) 1.15 .67 1.36 (.59)
----------------------------------------------------------------------------
Less distributions from net investment income . (.24) (.49) (.51) (.54) (.56) (.55)
----------------------------------------------------------------------------
Redemption fees ............................... --(c) -- -- -- -- --
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 11.31 $ 11.04 $ 11.59 $ 10.95 $ 10.82 $ 10.02
============================================================================

Total return(b) ............................... 4.59% (.56)% 10.64% 6.38% 13.74% (5.30)%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ............. $114,444 $111,223 $115,514 $99,208 $85,455 $63,742

RATIOS TO AVERAGE NET ASSETS:

Expenses ..................................... .80%(d) .79% .80% .80% .82% .81%

Expenses net of waiver and payments by
affiliate .................................. .70%(d) .60% .60% .56% .40% .40%

Net investment income ........................ 4.27%(d) 4.34% 4.49% 4.76% 5.13% 5.36%

Portfolio turnover rate ....................... 7.01% 13.01% 8.24% 22.99% 9.89% 29.94%

(a) Based on average daily shares outstanding.

(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.

(d) Annualized.

36 | See notes to financial statements. | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED)

- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TENNESSEE MUNICIPAL BOND FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS 97.2%
BONDS
Chattanooga GO, 5.00%, 3/01/22 ............................................................ $ 2,215,000 $ 2,295,537
Clarksville Water Sewer and Gas Revenue, Refunding and Improvement, FSA Insured, 5.00%,
2/01/22 ................................................................................. 2,000,000 2,072,760
Cleveland Public Improvement GO, FGIC Insured, 5.25%, 6/01/24 ............................. 3,000,000 3,114,090
Fayetteville and Lincoln IDBR, Hospital Facility Lease, AMBAC Insured,
5.30%, 5/01/28 ........................................................................ 1,830,000 1,895,642
Pre-Refunded, 5.30%, 5/01/28 .......................................................... 1,170,000 1,278,857
Franklin GO, Sewer and Water, Series B, 5.00%, 4/01/19 .................................... 1,000,000 1,062,170
Franklin IDB, MFHR, Landings Apartment Project, Refunding, Series A, FSA Insured, 6.00%,
10/01/26 ................................................................................ 1,000,000 1,036,480
Franklin Special School District GO, 5.00%, 6/01/22 ....................................... 1,455,000 1,522,148
Hallsdale Powell Utility District Knox County Water and Sewer Revenue, Refunding and
Improvement, Series A, FGIC Insured, 5.00%, 4/01/27 ..................................... 2,500,000 2,554,500
Harpeth Valley Utilities District Davidson and Williamson Counties Revenue, Utilities
Improvement, MBIA Insured, 5.00%, 9/01/29 ............................................... 1,000,000 1,013,020
Hollow Rock-Bruceton Special School District GO, FSA Insured, Pre-Refunded, 5.75%,
4/01/24 ................................................................................. 500,000 533,485
Humphreys County IDB Solid Waste Disposal Revenue, I.E. du Pont de Nemours and Co. Project,
6.70%, 5/01/24 .......................................................................... 800,000 818,296
Jackson Natural Gas Revenue, AMBAC Insured, 5.00%, 4/15/18 ................................ 2,000,000 2,106,600
Johnson City GO, Solid Waste, AMBAC Insured, 5.80%, 5/01/09 ............................... 100,000 102,244
Johnson City Health and Educational Facilities Board Hospital Revenue,
first mortgage, Mountain States Health, Refunding, Series A, MBIA Insured, 6.00%,
7/01/21 ............................................................................. 2,970,000 3,324,380
Series 2000 A, MBIA Insured, Pre-Refunded, 5.125%, 7/01/25 ............................ 3,000,000 3,107,670
Johnson City Health and Educational Facilities Board Revenue, Pine Oaks Assisted Project,
Series A, GNMA Secured, 5.90%, 6/20/37 .................................................. 1,390,000 1,457,346
Johnson County Public Improvement GO, Series B, AMBAC Insured, Pre-Refunded, 6.70%,
5/01/20 ................................................................................. 100,000 106,360
Knox County First Utility District Water and Sewer Revenue, Refunding and Improvement,
Series A, MBIA Insured, 5.625%, 12/01/19 ................................................ 1,000,000 1,091,310
Knox County Health Educational and Housing Board Hospital Facilities Revenue, Fort Sanders
Alliance, Refunding, MBIA Insured, 5.75%, 1/01/14 ....................................... 1,250,000 1,432,525
Knox County IDB, MFR, Waterford Apartments, Refunding, Series A, FHA Insured, 5.95%,
3/01/28 ................................................................................. 250,000 256,448
Knoxville Electric Revenue, System, Series U, 5.125%, 7/01/21 ............................. 2,340,000 2,464,394
Lawrenceburg Electric Revenue, MBIA Insured, Pre-Refunded, 5.50%, 7/01/26 ................. 1,000,000 1,117,960
Lawrenceburg PBA, GO, Electric Systems, Public Works, AMBAC Insured, 5.00%, 7/01/22 ....... 2,500,000 2,707,775
Lenoir City Electric System Revenue, Refunding and Improvement, FSA Insured, 5.00%,
6/01/21 ................................................................................. 2,000,000 2,083,200
McKenzie High School District GO, FSA Insured, Pre-Refunded, 5.75%, 4/01/22 ............... 500,000 533,485
Memphis GO, 5.00%, 4/01/17 ................................................................ 2,000,000 2,095,100
Memphis-Shelby County Airport Authority Airport Revenue, Series D, AMBAC Insured, 6.00%,
3/01/24 ................................................................................. 4,780,000 5,221,672
Memphis-Shelby County Sports Authority Revenue, Memphis Arena Project, Series A, AMBAC
Insured, 5.25%, 11/01/23 ................................................................ 7,145,000 7,655,225

Semiannual Report | 37

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Metropolitan Government of Nashville and Davidson County Electric Revenue, Series A,
5.20%, 5/15/23 ......................................................................... $ 800,000 $ 842,200
AMBAC Insured, 5.00%, 5/15/25 .......................................................... 5,000,000 5,159,500
Metropolitan Government of Nashville and Davidson County GO,
Public Improvements, 5.875%, 5/15/26 ................................................... 1,000,000 1,057,250
Refunding, 5.125%, 5/15/25 ............................................................. 2,600,000 2,665,858
Metropolitan Government of Nashville and Davidson County Health and Educational Facilities
Board Revenue,
Ascension Health Credit, Series A, AMBAC Insured, Pre-Refunded, 5.875%, 11/15/28 ....... 2,500,000 2,849,875
Meharry Medical College Project, AMBAC Insured, Pre-Refunded, 6.875%, 12/01/24 ......... 150,000 153,000
Mortgage, Dandridge Towers Section 8, Series A, ETM, 6.375%, 1/01/11 ................... 500,000 527,215
Metropolitan Government of Nashville and Davidson County Sports Authority Revenue, Stadium
Public Improvement Project, AMBAC Insured, Pre-Refunded, 5.875%, 7/01/21 ................. 1,775,000 1,894,156
Metropolitan Government of Nashville and Davidson County Water and Sewer Revenue,
Refunding, 5.50%, 1/01/16 ................................................................ 620,000 621,922
Montgomery County Health Educational and Housing Facility Board Hospital Revenue,
Clarksville Regional Health System, Refunding and Improvement, 5.375%, 1/01/28 ........... 3,000,000 2,890,440
Oak Ridge Utility District Gas System Revenue, AMBAC Insured, 5.50%, 4/01/25 ............... 750,000 799,380
Pigeon Forge Public Improvement GO, MBIA Insured, 5.90%, 6/01/09 ........................... 100,000 100,000
Puerto Rico Commonwealth GO, Public Improvement, Series A, FGIC Insured, Pre-Refunded,
5.00%, 7/01/32 ........................................................................... 2,000,000 2,219,180
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, Series Y,
Pre-Refunded, 6.00%, 7/01/22 ............................................................. 500,000 537,355
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Hospital Revenue, Hospital Auxilio Mutuo Obligation, Series A, MBIA
Insured, 6.25%, 7/01/24 ................................................................ 200,000 204,588
Puerto Rico PBA Revenue, Guaranteed, Government Facilities, Series D,
5.375%, 7/01/33 ........................................................................ 655,000 675,305
Pre-Refunded, 5.375%, 7/01/33 .......................................................... 1,845,000 2,066,954
Rutherford County Consolidated Utility District Waterworks Revenue, Refunding, MBIA Insured,
5.00%, 2/01/27 ........................................................................... 1,000,000 1,036,320
Shelby County GO, Public Improvement and School, Refunding, Series B, 5.00%, 6/01/24 ....... 2,000,000 2,043,540
Shelby County Health Educational and Housing Facilities Board Revenue, Ave Maria Assisted
Living Project, Series A, 5.50%, 12/01/31 ................................................ 2,010,000 2,071,988
South Blount County Utility District Waterworks Revenue, FGIC Insured, 4.50%, 12/01/22 ..... 2,000,000 2,005,320
South Fulton IDBR, Tyson Foods Inc. Project, 6.40%, 10/01/20 ............................... 300,000 309,048
Sullivan County IDBR, Brandymill, Refunding, Series I-A, 6.35%, 7/20/27 .................... 350,000 360,458
Tennessee HDA Revenue,
Homeownership, 5.375%, 7/01/23 ......................................................... 555,000 564,729
Homeownership Program, Issue 4A, 6.375%, 7/01/22 ....................................... 225,000 231,966
Homeownership, Series 3C, 6.00%, 1/01/20 ............................................... 555,000 573,093
Mortgage Finance, Series B, MBIA Insured, 6.20%, 7/01/18 ............................... 85,000 87,183
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 .... 1,000,000 1,043,530
West Carroll Special School GO, MBIA Insured, 5.375%, 6/01/29 .............................. 1,055,000 1,098,329

38 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
West Wilson Utility District Waterworks Revenue,
Improvement, MBIA Insured, 5.00%, 6/01/26 .............................................. $ 1,805,000 $ 1,854,439
Refunding, AMBAC Insured, 5.25%, 6/01/23 ............................................... 4,500,000 4,771,395
White House Utility District Revenue, FSA Insured, 5.125%, 1/01/26 ......................... 2,500,000 2,580,850
White House Utility District Robertson and Sumner Counties Water and Sewer Revenue, FSA
Insured, Pre-Refunded, 6.00%, 1/01/26 .................................................... 1,000,000 1,141,810
White House Utility District Robertson and Sumner Counties Waterworks System Revenue,
Refunding, Series B, FGIC Insured, 5.375%, 1/01/19 ....................................... 1,000,000 1,053,670
Williams County GO, Public Improvement, Pre-Refunded, 5.375%, 3/01/19 ...................... 1,480,000 1,647,802
Williamson County GO, Public Improvement,
Pre-Refunded, 5.00%, 4/01/20 ........................................................... 2,000,000 2,199,120
Refunding, 5.00%, 3/01/20 .............................................................. 2,000,000 2,151,880
Wilson County COP, FSA Insured, 5.25%, 3/30/18 ............................................. 1,000,000 1,081,790
------------
TOTAL LONG TERM INVESTMENTS (COST $104,332,879) ............................................ 111,233,117
------------

SHORT TERM INVESTMENTS 1.2%
BONDS
(a)Clarksville PBA Revenue, Pooled Financing, Tennessee Municipal Bond Fund, Daily VRDN and
Put, 1.68%,
1/01/33 ................................................................................ 600,000 600,000
7/01/34 ................................................................................ 500,000 500,000
(a)Montgomery County PBA Pooled Financing Revenue, Tennessee County Loan Pool, Daily VRDN
and Put, 1.68%, 4/01/32 .................................................................. 300,000 300,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,400,000) ............................................. 1,400,000
------------
TOTAL INVESTMENTS (COST $105,732,879) 98.4% ................................................ 112,633,117
OTHER ASSETS, LESS LIABILITIES 1.6% ........................................................ 1,811,337
------------
NET ASSETS 100.0% .......................................................................... $114,444,454
============

See glossary of terms on page 40.

(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.

Semiannual Report | See notes to financial statements. | 39

FRANKLIN MUNICIPAL SECURITIES TRUST

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2004 (UNAUDITED) (CONTINUED)

GLOSSARY OF TERMS

1915 ACT - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
CDA - Community Development Authority/Agency
CFD - Community Facilities District
COP - Certificate of Participation
ETM - Escrow to Maturity
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
HFA - Housing Finance Revenue
ID - Improvement District
IDB - Industrial Development Bond/Board
IDBR - Industrial Development Bond Insurance Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PFAR - Public Financing Authority Revenue
PUD - Public Utility District
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
USD - Unified/Union School District

40 | See notes to financial statements. | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2004 (unaudited)

----------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
----------------------------------------

Assets:
Investments in securities:
Cost ................................................................................... $ 738,509,807 $ 105,732,879
========================================
Value .................................................................................. 771,505,406 112,633,117
Cash .................................................................................... 36,597 45,009
Receivables:
Capital shares sold .................................................................... 2,296,138 377,954
Interest ............................................................................... 10,602,733 1,644,189
----------------------------------------
Total assets ....................................................................... 784,440,874 114,700,269
----------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................................................ 3,615,300 --
Capital shares redeemed ................................................................ 1,477,279 22,926
Affiliates ............................................................................. 429,157 69,326
Distributions to shareholders ........................................................... 958,570 157,323
Other liabilities ....................................................................... 35,072 6,240
----------------------------------------
Total liabilities .................................................................. 6,515,378 255,815
----------------------------------------
Net assets, at value ............................................................. $ 777,925,496 $ 114,444,454
========================================

Net assets consist of:
Undistributed net investment income (distributions in excess of net investment income) .. $ 934,228 $ (82,092)
Net unrealized appreciation (depreciation) .............................................. 32,995,599 6,900,238
Accumulated net realized gain (loss) .................................................... (54,753,804) (4,271,231)
Capital shares .......................................................................... 798,749,473 111,897,539
----------------------------------------
Net assets, at value ............................................................. $ 777,925,496 $ 114,444,454
========================================
CLASS A:
Net assets, at value .................................................................... $ 654,275,109 $ 114,444,454
========================================
Shares outstanding ...................................................................... 64,540,595 10,123,079
========================================
Net asset value per sharea .............................................................. $ 10.14 $ 11.31
========================================
Maximum offering price per share (net asset value per share / 95.75%) ................... $ 10.59 $ 11.81
========================================

CLASS B:
Net assets, at value .................................................................... $ 30,389,814
=================
Shares outstanding ...................................................................... 2,983,237
=================
Net asset value and maximum offering price per share(a) ................................. $ 10.19
=================
CLASS C:
Net assets, at value .................................................................... $ 93,260,573
=================
Shares outstanding ...................................................................... 9,166,429
=================
Net asset value and maximum offering price per share(a) ................................. $ 10.17
=================

(a) Redemption price is equal to net asset value less any applicable
contingent deferred sales charge and redemption fees retained by the Fund.

Semiannual Report | See notes to financial statements. | 41

FRANKLIN MUNICIPAL SECURITIES TRUST

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS
for the six months ended November 30, 2004 (unaudited)

----------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
----------------------------------------

Investment income:
Interest ........................................................................... $21,479,087 $ 2,822,143
----------------------------------------

Expenses:
Management fees (Note 3) ........................................................... 1,730,624 353,223
Distribution fees: (Note 3)
Class A ........................................................................... 298,978 56,895
Class B ........................................................................... 95,201 --
Class C ........................................................................... 275,986 --
Transfer agent fees (Note 3) ....................................................... 110,712 19,088
Custodian fees ..................................................................... 4,603 741
Reports to shareholders ............................................................ 17,400 2,811
Registration and filing fees ....................................................... 9,736 2,308
Professional fees .................................................................. 11,386 6,908
Trustees' fees and expenses ........................................................ 16,193 2,904
Other .............................................................................. 25,254 8,311
----------------------------------------
Total expenses ................................................................ 2,596,073 453,189
Expenses waived/paid by affiliate (Note 3) .................................... -- (53,767)
----------------------------------------
Net expenses ................................................................. 2,596,073 399,422
----------------------------------------
Net investment income ....................................................... 18,883,014 2,422,721
----------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .......................................... 428,638 (224,885)
Net change in unrealized appreciation (depreciation) on investments ................ 13,372,245 2,917,138
----------------------------------------
Net realized and unrealized gain (loss) ............................................. 13,800,883 2,692,253
----------------------------------------
Net increase (decrease) in net assets resulting from operations ..................... $32,683,897 $ 5,114,974
========================================

42 | See notes to financial statements. | Semiannual Report

Franklin Municipal Securities Trust

Financial Statements (continued)

Statements of Changes in Net Assets
for the six months ended November 30, 2004 (unaudited)
and the year ended May 31, 2004

---------------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL FUND MUNICIPAL BOND FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 2004 MAY 31, 2004 NOVEMBER 30, 2004 MAY 31, 2004
---------------------------------------------------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ............................. $ 18,883,014 $ 35,491,776 $ 2,422,721 $ 4,995,997
Net realized gain (loss) from investments ......... 428,638 (3,613,987) (224,885) (835,130)
Net change in unrealized appreciation
(depreciation) on investments .................... 13,372,245 (15,379,542) 2,917,138 (4,912,854)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................... 32,683,897 16,498,247 5,114,974 (751,987)
Distributions to shareholders from:
Net investment income:
Class A .......................................... (16,584,513) (29,289,738) (2,450,345) (4,945,913)
Class B .......................................... (735,218) (1,410,436) -- --
Class C .......................................... (2,116,121) (3,748,240) -- --
---------------------------------------------------------------------------
Total distributions to shareholders ................ (19,435,852) (34,448,414) (2,450,345) (4,945,913)
Capital share transactions: (Note 2)
Class A .......................................... 94,874,931 25,529,518 556,302 1,406,489
Class B .......................................... 1,617,893 (324,671) -- --
Class C .......................................... 12,400,112 3,742,503 -- --
---------------------------------------------------------------------------
Total capital share transactions ................... 108,892,936 28,947,350 556,302 1,406,489
Redemption fees .................................... 615 -- 583 --
---------------------------------------------------------------------------
Net increase (decrease) in net assets ......... 122,141,596 10,997,183 3,221,514 (4,291,411)
Net assets:
Beginning of period ................................ 655,783,900 644,786,717 111,222,940 115,514,351
---------------------------------------------------------------------------
End of period ...................................... $ 777,925,496 $ 655,783,900 $ 114,444,454 $ 111,222,940
---------------------------------------------------------------------------

Undistributed net investment income (distributions in
excess of net investment income) included in
net assets:
End of period ..................................... $ 934,228 $ 1,487,066 $ (82,092) $ (54,468)
===========================================================================

Semiannual Report | See notes to financial statements. | 43

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Municipal Securities Trust (the Trust) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end investment
company, consisting of two series (the Funds). The Funds' investment objectives
are to provide tax-free income.

The following summarizes the Funds' significant accounting policies.

A. SECURITY VALUATION

Tax-free bonds generally trade in the over-the-counter market. The Trust
utilizes independent pricing services to perform any of the pricing functions
under procedures approved by the Board of Trustees. Tax-free bonds may be valued
by the pricing services using matrix pricing which considers such factors as
prices of comparable quality issues, yield, maturity, coupon, and credit
ratings. If events occur that materially affect the values of securities after
the prices are determined, but prior to 4:00 p.m. Eastern time or the close of
trading on the NYSE, whichever is earlier, or if market quotations are deemed
not readily available or reliable, the securities will be valued at fair value
as determined following procedures approved by the Board of Trustees.

B. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS

The Funds may purchase 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. Sufficient
assets have been segregated for these securities.

C. INCOME TAXES

No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under Sub Chapter M of the Internal
Revenue Code and to distribute substantially all of its income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders.

44 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)

Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

E. ACCOUNTING ESTIMATES

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

F. REDEMPTION FEES

Effective June 1, 2004, redemptions and exchanges of the Funds' shares held five
trading days or less may be subject to the Funds' redemption fee, which is 2% of
the amount redeemed. Such fees are retained by the Funds and accounted for as
additional paid-in capital as noted in the Statements of Changes in Net Assets.

G. GUARANTEES AND INDEMNIFICATIONS

Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
enters into contracts with service providers that contain general
indemnification clauses. The Trust's maximum exposure under these arrangements
is unknown as this would involve future claims that may be made against the
Trust that have not yet occurred. However, based on experience, the Trust
expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

The classes of shares offered within each of the Funds are indicated below. Each
class of shares differs by its initial sales load, contingent deferred sales
charges, distribution fees, voting rights on matters affecting a single class
and its exchange privilege.

- ----------------------------------------------------------------------------------------------
CLASS A CLASS A, CLASS B & Class C
- ----------------------------------------------------------------------------------------------

Franklin Tennessee Municipal Bond Fund Franklin California High Yield Municipal Fund

Semiannual Report | 45

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

At November 30, 2004, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Funds' shares were as follows:

-------------------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL FUND MUNICIPAL BOND FUND
-------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------

CLASS A SHARES:
Six months ended November 30, 2004
Shares sold ............................... 11,748,011 $ 118,763,335 646,322 $ 7,299,093
Shares issued in reinvestment of
distributions ........................... 753,189 7,618,280 130,274 1,467,679
Shares redeemed ........................... (3,129,268) (31,506,684) (729,199) (8,210,470)
-------------------------------------------------------------------------------
Net increase (decrease) ................... 9,371,932 $ 94,874,931 47,397 $ 556,302
===============================================================================
Year ended May 31, 2004
Shares sold ............................... 11,670,672 $ 117,381,174 1,654,961 $ 18,681,629
Shares issued in reinvestment of
distributions ........................... 1,302,070 13,078,767 259,244 2,927,031
Shares redeemed ........................... (10,482,592) (104,930,423) (1,804,495) (20,202,171)
-------------------------------------------------------------------------------
Net increase (decrease) ................... 2,490,150 $ 25,529,518 109,710 $ 1,406,489
===============================================================================
CLASS B SHARES:
Six months ended November 30, 2004
Shares sold ............................... 307,203 $ 3,112,771
Shares issued in reinvestment of
distributions ........................... 37,733 383,294
Shares redeemed ........................... (185,289) (1,878,172)
-----------------------------------
Net increase (decrease) ................... 159,647 $ 1,617,893
===================================
Year ended May 31, 2004
Shares sold ............................... 561,357 $ 5,662,808
Shares issued in reinvestment of
distributions ........................... 71,729 724,005
Shares redeemed ........................... (663,549) (6,711,484)
-----------------------------------
Net increase (decrease) ................... (30,463) $ (324,671)
===================================
CLASS C SHARES:
Six months ended November 30, 2004
Shares sold ............................... 1,641,089 $ 16,693,913
Shares issued in reinvestment of
distributions ........................... 113,407 1,150,952
Shares redeemed ........................... (538,446) (5,444,753)
-----------------------------------
Net increase (decrease) ................... 1,216,050 $ 12,400,112
===================================

Year ended May 31, 2004
Shares sold ............................... 2,300,568 $ 23,223,004
Shares issued in reinvestment of
distributions ........................... 194,771 1,964,001
Shares redeemed ........................... (2,135,275) (21,444,502)
-----------------------------------
Net increase (decrease) ................... 360,064 $ 3,742,503
===================================

46 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES

Certain officers and trustees of the Funds are also officers and/or directors of
the following entities:

- -----------------------------------------------------------------------------------------
ENTITY AFFILIATION
- -----------------------------------------------------------------------------------------

Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
Franklin Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services LLC (Investor Services) Transfer agent

A. MANAGEMENT FEES

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

- ----------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- ----------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million

For the Franklin Tennessee Municipal Bond Fund, Advisers agreed in advance to
voluntarily waive a portion of management fees, as noted in the Statements of
Operations. Total expenses waived by Advisers are not subject to reimbursement
by the fund subsequent to the fund's fiscal year end.

B. ADMINISTRATIVE FEES

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

C. DISTRIBUTION FEES

The Funds reimburse Distributors for costs incurred in marketing the Funds'
shares under a Rule 12b-1 plan up to a certain percentage per year of their
average daily net assets of each class as follows:

------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
------------------------------------------
Class A .......................... .15% .15%
Class B .......................... .65% --
Class C .......................... .65% --

Under the Class A distribution plan, costs exceeding the maximum for the current
plan year cannot be reimbursed in subsequent periods.

Semiannual Report | 47

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

D. SALES CHARGES/UNDERWRITING AGREEMENTS

Distributors has advised the Funds of the following commission transactions
related to the sale of the Funds' shares for the period:

--------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
--------------------------------------------

Sales charges received............................... $ 208,852 $ 18,125
Contingent deferred sales charges retained........... $ 20,901 $ --

E. TRANSFER AGENT FEES

The Funds paid transfer agent fees as noted in the Statements of Operations of
which the following amounts were paid to Investor Services:

--------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
--------------------------------------------

Transfer agent fees ................................. $ 74,303 $11,562

4. INCOME TAXES

At May 31, 2004, the Funds had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:

--------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
--------------------------------------------

Capital loss carryovers expiring in:
2005 ............................................... $ 390,400 $ --
2008 ............................................... 8,364,686 543,762
2009 ............................................... 31,858,136 1,676,320
2010 ............................................... 4,003,471 480,932
2011 ............................................... -- 95,080
2012 ............................................... 7,294,061 984,101
--------------------------------------------
$51,910,754 $ 3,780,195
============================================

On May 31, 2004, the Franklin California High Yield Municipal Fund had expired
capital loss carryovers of $4,508, which were reclassified to paid-in capital.

At May 31, 2004, the Franklin California High Yield Municipal Fund and the
Franklin Tennessee Municipal Bond Fund had deferred capital losses occurring
subsequent to October 31, 2003 of $3,271,000 and $266,151, respectively. For tax
purposes, such losses will be reflected in the year ending May 31, 2005.

48 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. INCOME TAXES (CONTINUED)

Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of bond discounts and defaulted
securities.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of bond workout expenditures and bond
discounts.

At November 30, 2004, the net unrealized appreciation (depreciation) based on
the cost of investments for income tax purposes was as follows:

--------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
--------------------------------------------

Cost of investments .................................... $ 737,373,155 $ 105,713,047
--------------------------------------------
Unrealized appreciation ................................ $ 37,728,160 $ 6,990,617
Unrealized depreciation ................................ (3,595,909) (70,547)
--------------------------------------------
Net unrealized appreciation (depreciation) ............. $ 34,132,251 $ 6,920,070
--------------------------------------------

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short-term securities) for the
period ended November 30, 2004, were as follows:

--------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
--------------------------------------------

Purchases .............................................. $ 82,902,865 $ 7,786,934
Sales .................................................. $ 34,859,784 $ 8,096,958

6. CREDIT RISK AND DEFAULTED SECURITIES

The Franklin California High Yield Municipal Fund has 51.8% of its portfolio
invested in below investment grade and comparable quality unrated high yield
securities, which tend to be more sensitive to economic conditions than higher
rated securities. The risk of loss due to default by the issuer may be
significantly greater for the holders of high yielding securities because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.

The Franklin California High Yield Municipal Fund held defaulted securities
and/or other securities for which the income has been deemed uncollectible. At
November 30, 2004, the value of these securities was $2,066,766, representing
..3% of the fund's net assets. The fund discontinues accruing income on
securities for which income has been deemed uncollectible and provides an
estimate for losses on interest receivable. For information as to specific
securities, see the accompanying Statement of Investments.

Semiannual Report | 49

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. REGULATORY MATTERS

GOVERNMENTAL INVESTIGATIONS AND SETTLEMENTS

A. INVESTIGATIONS

As part of various investigations by the Securities and Exchange Commission
("SEC"), the U.S. Attorney for the Northern District of California, the New York
Attorney General, the California Attorney General, the U.S. Attorney for the
District of Massachusetts, the Securities Division of the Office of the
Secretary of the Commonwealth of Massachusetts, the Florida Department of
Financial Services and the Commissioner of Securities, the West Virginia
Attorney General, the Vermont Department of Banking, Insurance, Securities, and
Health Care Administration and the National Association of Securities Dealers,
Inc. ("NASD") relating to certain practices in the mutual fund industry,
including late trading, market timing and market support payments to securities
dealers who sell fund shares, Franklin Resources, Inc. and certain of its
subsidiaries (as used in this section, together, the "Company"), as well as
certain current or former executives and employees of the Company received
requests for information and/or subpoenas to testify or produce documents. The
Company and its current employees provided documents and information in response
to those requests and subpoenas. In addition, the Company responded, and in one
instance, is currently responding to requests for similar kinds of information
from regulatory authorities in some of the foreign countries where the Company
conducts its global asset management business.

B. SETTLEMENTS

On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC's investigation into market timing activity. In
connection with that agreement, the SEC issued an "Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the
Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions
and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the
activities of a limited number of third parties that ended in 2000 and those
that were the subject of the first Massachusetts administrative complaint
described below.

Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions. The SEC Order also requires Franklin Advisers, Inc. to, among
other things, enhance and periodically review compliance policies and
procedures.

50 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. REGULATORY MATTERS (CONTINUED)

GOVERNMENTAL INVESTIGATIONS AND SETTLEMENTS (CONTINUED)

B. SETTLEMENTS (CONTINUED)

On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of
the Office of the Secretary of the Commonwealth of Massachusetts (the "State of
Massachusetts") related to the administrative complaint filed on February 4,
2004. The administrative complaint concerned one instance of market timing that
was also a subject of the August 2, 2004 settlement that Franklin Advisers, Inc.
reached with the SEC, as described above.

Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts
Consent Order included two different sections: "Statement of Fact" and
"Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS
admitted the facts in the Statements of Fact.

On October 25, 2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources Inc.'s Form 8-K filing (in which it
described the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing") failed to state that Franklin
Advisers, Inc. and FTAS admitted the Statements of Fact portion of the
Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November 19, 2004,
resolving the Second Complaint. As a result of the November 19, 2004 settlement,
Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts
Consent Order did not change and there was no monetary fine associated with this
second settlement.

On November 17, 2004, Franklin Resources, Inc. announced that Franklin/Templeton
Distributors, Inc. ("FTDI") reached an agreement with the California Attorney
General's Office ("CAGO"), resolving the issues resulting from the CAGO's
investigation concerning sales and marketing support payments. The Company
believes that the settlement of the CAGO matter is in the best interest of the
Company and its fund shareholders. Under the terms of the settlement, FTDI
neither admitted nor denied the allegations in the CAGO's complaint and agreed
to pay $2 million to the State of California as a civil penalty, $14 million to
Franklin Templeton funds and $2 million to the CAGO for its investigative costs.

Semiannual Report | 51

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. REGULATORY MATTERS (CONTINUED)

GOVERNMENTAL INVESTIGATIONS AND SETTLEMENTS (CONTINUED)

B. SETTLEMENTS (CONTINUED)

On December 13, 2004, Franklin Resources, Inc. announced that FTDI and Franklin
Advisers, Inc. reached an agreement with the SEC, resolving the issues resulting
from the SEC's investigation concerning marketing support payments to securities
dealers who sell fund shares. In connection with that agreement, the SEC issued
an "Order Instituting Administrative and Cease-and-Desist Proceedings, Making
Findings, and Imposing Remedial Sanctions Pursuant to Sections 203(e) and 203(k)
of the Investment Advisers Act of 1940, Sections 9(b) and 9(f) of the Investment
Company Act of 1940, and Section 15(b) of the Securities Exchange Act of 1934"
(the "Order").

The Company believes that the settlement of this matter is in the best interest
of the Company and its fund shareholders. Under the terms of the Order, in which
FTDI and Franklin Advisers, Inc. neither admitted nor denied the findings
contained therein, they agreed to pay the funds a penalty of $20 million and
disgorgement of $1 (one dollar). FTDI and Franklin Advisers, Inc. also agreed to
implement certain measures and undertakings relating to marketing support
payments to broker-dealers for the promotion or sale of fund shares, including
making additional disclosures in the funds' Prospectuses and Statements of
Additional Information. The Order further requires the appointment of an
independent distribution consultant, at the Company's expense, who shall develop
a plan for the distribution of the penalty and disgorgement to the funds.

OTHER LEGAL PROCEEDINGS

The Trust, in addition to the Company and other funds, and certain current and
former officers, employees, and directors have been named in multiple lawsuits
in different federal courts in Nevada, California, Illinois, New York and
Florida, alleging violations of various federal securities laws and seeking,
among other things, monetary damages and costs. Various subsidiaries of Franklin
Resources, Inc., as well as certain funds managed by those subsidiaries, have
also been named in multiple lawsuits filed in state courts in Illinois.
Specifically, the lawsuits claim breach of duty with respect to alleged
arrangements to permit market timing and/or late trading activity, or breach of
duty with respect to the valuation of the portfolio securities of certain funds
managed by Franklin Resources, Inc. subsidiaries, resulting in alleged market
timing activity. The majority of these lawsuits duplicate, in whole or in part,
the allegations asserted in the Massachusetts administrative complaint described
above. The lawsuits are styled as class actions, or derivative actions on behalf
of either the named funds or Franklin Resources, Inc.

52 | Semiannual Report

FRANKLIN MUNICIPAL SECURITIES TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. REGULATORY MATTERS (CONTINUED)

OTHER LEGAL PROCEEDINGS (CONTINUED)

In addition, the Company, as well as certain current and former officers,
employees, and directors have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of directed brokerage payments and/or payment of allegedly
excessive advisory, commission, and distribution fees. These lawsuits are styled
as class actions and derivative actions brought on behalf of certain funds.

The Company's management strongly believes that the claims made in each of the
lawsuits are without merit and intends to vigorously defend against them. The
Company cannot predict with certainty, however, the eventual outcome of the
remaining governmental investigations or private lawsuits, nor whether they will
have a material negative impact on the Company. Public trust and confidence are
critical to the Company's business and any material loss of investor and/or
client confidence could result in a significant decline in assets under
management by the Company, which would have an adverse effect on future
financial results. If the Company finds that it bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Trust, it is
committed to making the Trust or their shareholders whole, as appropriate. The
Company is committed to taking all appropriate actions to protect the interests
of the funds' shareholders.

Semiannual Report | 53

FRANKLIN MUNICIPAL SECURITIES TRUST

SHAREHOLDER INFORMATION

PROXY VOTING POLICIES AND PROCEDURES

The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.

QUARTERLY STATEMENT OF INVESTMENTS

The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.

54 | Semiannual Report

This page intentionally left blank.

LITERATURE REQUEST

LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF
SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR
SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR
BEEPING TONE.

FRANKLIN TEMPLETON INVESTMENTS

INTERNATIONAL

Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund

GLOBAL

Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

GROWTH

Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II(1)

VALUE

Franklin Balance Sheet Investment Fund(2)
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(2)
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
Mutual Shares Fund

BLEND

Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund(4)

SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund

ASSET ALLOCATION

Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund

TARGET FUNDS

Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund

INCOME

Franklin Adjustable U.S. Government Securities Fund(5)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust(3)
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5),(6)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund

TAX-FREE INCOME(7)

NATIONAL FUNDS

Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(8)

LIMITED-TERM FUNDS

California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund

INTERMEDIATE-TERM FUNDS

California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund

STATE-SPECIFIC

Alabama
Arizona
California(9)
Colorado
Connecticut
Florida(9)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(8)
Michigan(8)
Minnesota(8)
Missouri
New Jersey
New York(9)
North Carolina
Ohio(8)
Oregon
Pennsylvania
Tennessee
Virginia

INSURANCE FUNDS

Franklin Templeton Variable Insurance Products Trust(10)

(1) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.

(2) The fund is only open to existing shareholders and select retirement
plans.

(3) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.

(4) Upon reaching approximately $350 million in assets, the fund intends to
close to all investors.

(5) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

(6) Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and
strategy remained the same.

(7) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.

(8) Portfolio of insured municipal securities.

(9) These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).

(10) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.

11/04 Not part of the semiannual report

[LOGO](R)
FRANKLIN(R) TEMPLETON(R) One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906

o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.

SEMIANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN MUNICIPAL
SECURITIES TRUST

INVESTMENT MANAGER

Franklin Advisers, Inc.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES

1-800/632-2301

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

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

MUN S2004 01/05

Item 2. Code of Ethics.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(d) N/A

(f) Pursuant to Item 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.

Item 4. Principal Accountant Fees and Services. N/A

Item 5. Audit Committee of Listed Registrants. N/A

Item 6. Schedule of Investments. N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies. N/A

Item 8. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers. N/A

Item 9. Submission of Matters to a Vote of Security Holders. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.

Item 10. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.

Item 11. Exhibits.

(A) Code of Ethics

(B) (1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

(B) (2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN MUNICIPAL SECURITIES TRUST

By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date January 20, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date January 20, 2005

By /s/Galen G. Vetter
Chief Financial Officer
Date January 20, 2005