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
-----------------------------------
(Exact name of registrant as specified in charter)

ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
----------------------------------------------
(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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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: 11/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.

[GRAPHIC OMITTED]

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NOVEMBER 30, 2006
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Franklin California
High Yield Municipal Fund

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
FASTER VIA EMAIL?
FRANKLIN
MUNICIPAL SECURITIES TRUST Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS

FRANKLIN o Templeton o Mutual Series

Franklin Templeton Investments

GAIN FROM OUR PERSPECTIVE(R)

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 offices in over 25 countries,
Templeton offers investors a truly global
perspective.

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

TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans 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, accurate and personal service
that has 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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[GRAPHIC OMITTED]

Not part of the semiannual report

Contents

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

SPECIAL FEATURE:
Understanding Interest Rates .............................................. 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 ...................................................... 48

Notes to Financial Statements ............................................. 52

Shareholder Information ................................................... 61

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Semiannual Report

Municipal Bond Market Overview

For the six-month period ended November 30, 2006, the municipal bond market
continued to face moderate inflation expectations, mixed economic releases,
volatile oil prices, concerns about the dollar, and geopolitical instability.
Municipal bonds underperformed U.S. Treasury bonds for the six-month period. The
Lehman Brothers Municipal Bond Index returned +4.53%, while the Lehman Brothers
U.S. Treasury Index returned +5.63%. 1

During the period, the Federal Reserve Board (Fed) raised the federal funds
target rate from 5.00% to 5.25%. Since June, the Fed left the rate at 5.25%,
citing moderate economic growth, a cooling housing market, and the lagging
effect of prior tightening. The Fed stated that some inflation risk may remain
and the extent and timing of any additional interest rate hikes will depend upon
incoming data on inflation and economic growth.

With the economic and inflation outlook moderating, long-term interest rates
trended lower during the reporting period. The municipal yield curve (the spread
between short- and long-term interest rates) continued to flatten but remained
steeper than the Treasury curve. According to Municipal Market Data, the 2-year
municipal note yield declined 14 basis points (100 basis points equal one
percentage point), the 10-year yield decreased 46 basis points and the 30-year
yield fell 62 basis points during the period. 2 Consequently, long-maturity
municipal bonds continued to perform comparatively well.

1. Source: Standard & Poor's Micropal. 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 $7
million and be issued as part of a transaction of at least $75 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. The Lehman Brothers U.S. Treasury Index includes public
obligations of the U.S. Treasury with a remaining maturity of one year or
more. All issues must have at least one year to final maturity regardless
of call features, have at least $250 million par amount outstanding and be
rated investment grade (Baa3 or better). They must also be dollar
denominated, nonconvertible and publicly issued.

2. Source: Thomson Financial.

Semiannual Report | 7

Motivated by a relatively low interest rate environment, along with expectations
that rates might continue to rise, municipal bond issuers previously had been
refunding higher yielding outstanding debt and accessed the debt market to
finance capital needs. As a result of generally higher interest rates in 2006,
refunding activity declined substantially. So far in 2006, overall supply has
been about 14% lighter than the same period in 2005. 3 Demand for municipal
bonds remained strong over the first half of the Fund's fiscal year as investors
found municipal bonds' taxable equivalent yields attractive. Healthy demand came
from a wide range of traditional buyers such as mutual funds, individuals,
property and casualty companies, and also from nontraditional crossover
participants. Crossover buyers typically invest in taxable securities; however,
they will enter the municipal bond market when municipal valuations are
attractive. This broad base of buyers and tight bond supply supported the
municipal bond market.

3. Source: THE BOND BUYER.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF NOVEMBER 30,
2006. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.

8 | Semiannual Report

Franklin California
High Yield Municipal Fund

YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin California High Yield Municipal
Fund seeks to provide a high level of income exempt from federal and California
personal income taxes by investing at least 80% of its net assets in California
municipal securities including higher-yielding, lower rated 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
Based on Total Long-Term Investments as of 11/30/06**

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

AAA ........................................... 18.3%
AA ............................................ 2.7%
A ............................................. 8.5%
BBB ........................................... 7.7%
Below Investment Grade ........................ 3.6%
Not Rated by S&P .............................. 59.2%

* 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 1.5% -- 7.5%
A 0.1% -- 4.1%
BBB or Baa 1.0% 1.1% 13.6%
Below Investment Grade -- -- 30.3%
- ------------------------------------------------------------
Total 2.6% 1.1% 55.5%

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We are pleased to bring you Franklin California High Yield Municipal Fund's AAA
semiannual report, which covers the period ended November 30, 2006.

1. For investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable. To avoid the imposition of 28% backup withholding on all Fund
distributions and redemption proceeds, U.S. investors must be properly
certified on Form W-9 and non-U.S. investors on Form W-8BEN.

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 29.

Semiannual Report | 9

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

The Fund's Class A share price, as measured by net asset value, increased from
$10.31 on May 31, 2006, to $10.58 on November 30, 2006. The Fund's Class A
shares paid dividends totaling 24.48 cents per share for the reporting 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 4.38%, based
on an annualization of the current 4.03 cent per share monthly dividend and the
maximum offering price of $11.05 on November 30, 2006. An investor in the 2006
maximum combined effective federal and California personal income tax bracket of
41.05% would need to earn a distribution rate of 7.43% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class B,
C and Advisor shares' performance, please see the Performance Summary.

STATE UPDATE

During the six months under review, California's large and diverse economy
continued to expand, powered by a wide variety of industries including trade,
transportation, professional services, technology, education, health services
and manufacturing. Private sector employment and personal incomes increased in
most sectors, while construction lost jobs as residential homebuilding stagnated
and the real estate market entered a downturn. As of November 2006, the state's
unemployment rate was 4.6%, slightly above the 4.5% national average. 3
California is projected to add three million jobs, five million residents and
two million households by 2015. 4 The demographic composition of the state's
workforce is slated to change dramatically, with immigrants and their offspring
accounting for much of the new workers over the next 20 years.

The state ended fiscal year 2006 with a positive general fund balance position.
Despite a soft housing market, which could indicate weakness in what appears to
be a healthy economy, the fiscal year 2007 budget proposal was further revised,
largely in response to the strong growth in personal income tax receipts -- a
trend that is expected to continue. The legislative approval process for the new
budget was relatively smooth as there were no significant budget cuts, tax
increases or deficit borrowing. In addition, the proposed

2. Assumes shares were purchased and held for the entire accrual period,
which differs from the calendar month. 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: Center for Continuing Study of the California Economy, 11/14/06.

10 | Semiannual Report

DIVIDEND DISTRIBUTIONS 2
Franklin California High Yield Municipal Fund

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DIVIDEND PER SHARE
-------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS*
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June 4.08 cents 3.61 cents 3.61 cents --
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July 4.08 cents 3.61 cents 3.61 cents --
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August 4.08 cents 3.61 cents 3.61 cents --
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September 4.08 cents 3.62 cents 3.61 cents --
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October 4.08 cents 3.62 cents 3.61 cents --
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November 4.08 cents 3.62 cents 3.61 cents 0.78 cents
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* Advisor Class shares were first offered on 11/15/06.

budget included a hefty spending increase for its Proposition 98 education
programs that guarantees scaled minimum funding for K-12 schools. However,
California has a history of uneven financial operations. The state's structural
deficit, amounting to about $3 billion for fiscal year 2007, remained a
significant challenge. 5

Overall debt levels rose rapidly, nearly doubling in the past four years to
$1,505 per capita, but are expected to remain manageable despite the state's
accelerating issuance of general obligation (GO) bonds. 5 Independent credit
rating agency Standard & Poor's assigned California's GO bonds an A+ rating with
a stable outlook. 6 The outlook reflected the state's economic improvement and
solid near-term fund balances. The rating remained low compared to other states
due to narrow reserves, heavy reliance on tax revenues from volatile sources,
and the state's ongoing fiscal challenges, the most immediate of which is a
stubborn structural budget gap despite several years of prosperous economic
conditions.

INVESTMENT STRATEGY

We use a consistent, disciplined strategy to maximize income for our
shareholders by seeking to maintain 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, our 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: Standard & Poor's, "Research: Summary: California; General
Obligation," RATINGSDIRECT, 11/22/06.

6. This does not indicate Standard & Poor's rating of the Fund.

Semiannual Report | 11

PORTFOLIO BREAKDOWN
Franklin California High Yield Municipal Fund
11/30/06

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% OF TOTAL
LONG-TERM INVESTMENTS*
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Tax-Supported 45.4%
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Prerefunded 12.2%
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General Obligation 11.1%
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Transportation 7.7%
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Hospital & Health Care 7.6%
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Other Revenue 7.0%
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Higher Education 3.2%
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Utilities 3.1%
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Subject to Government Appropriations 1.9%
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Housing 0.8%
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* Does not include short-term investments and other net assets.

MANAGER'S DISCUSSION

Our value-oriented philosophy of investing primarily for income, combined with a
relatively steep municipal yield curve compared to Treasuries, 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 intend to maintain our conservative, buy-and-hold
investment strategy as we attempt 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, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, STATE,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.

12 | Semiannual Report

Performance Summary as of 11/30/06

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 that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.

PRICE AND DISTRIBUTION INFORMATION

- ----------------------------------------------------------------------------------------------------------
CLASS A (SYMBOL: FCAMX) CHANGE 11/30/06 5/31/06
- ----------------------------------------------------------------------------------------------------------

Net Asset Value (NAV) +$0.27 $10.58 $10.31
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/06-11/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.2448
- ----------------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FBCAX) CHANGE 11/30/06 5/31/06
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.27 $10.63 $10.36
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/06-11/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.2169
- ----------------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FCAHX) CHANGE 11/30/06 5/31/06
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.28 $10.63 $10.35
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/06-11/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.2166
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ADVISOR CLASS (SYMBOL: N/A) CHANGE 11/30/06 11/15/06
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.05 $10.58 $10.53
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DISTRIBUTIONS (11/15/06-11/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.0078
- ----------------------------------------------------------------------------------------------------------

Semiannual Report | 13

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS
MADE WITHIN SEVEN DAYS OF PURCHASE.

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

Cumulative Total Return 1 +5.04% +7.57% +35.73% +79.58%
- ----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +0.56% +2.98% +5.38% +5.57%
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Avg. Ann. Total Return (12/31/06) 3 +1.79% +5.60% +5.57%
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Distribution Rate 4 4.38%
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Taxable Equivalent Distribution Rate 5 7.43%
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30-Day Standardized Yield 6 3.84%
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Taxable Equivalent Yield 5 6.51%
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CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (2/1/00)
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Cumulative Total Return 1 +4.74% +6.96% +32.02% +57.95%
- ----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +0.74% +2.96% +5.39% +6.92%
- ----------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/06) 3 +1.70% +5.61% +6.81%
- ----------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.02%
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Taxable Equivalent Distribution Rate 5 6.82%
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30-Day Standardized Yield 6 3.45%
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Taxable Equivalent Yield 5 5.85%
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CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +4.84% +7.06% +32.17% +70.51%
- ----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.84% +6.06% +5.74% +5.48%
- ----------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/06) 3 +4.70% +5.93% +5.47%
- ----------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.00%
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Taxable Equivalent Distribution Rate 5 6.78%
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30-Day Standardized Yield 6 3.46%
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Taxable Equivalent Yield 5 5.87%
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ADVISOR CLASS 7 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +5.05% +7.58% +35.74% +79.59%
- ----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.05% +7.58% +6.30% +6.03%
- ----------------------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/06) 3 +6.21% +6.50% +6.03%
- ----------------------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.66%
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Taxable Equivalent Distribution Rate 5 7.90%
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30-Day Standardized Yield 6 4.13%
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Taxable Equivalent Yield 5 7.01%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.

FOR MOST RECENT MONTH-END PERFORMANCE, 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 GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES,
THE FUND'S SHARE PRICE MAY DECLINE. THE FUND IS CLASSIFIED AS A NONDIVERSIFIED
FUND BECAUSE IT MAY INVEST A GREATER PORTION OF ITS ASSETS IN ONE ISSUER THAN A
DIVERSIFIED FUND. 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. IN GENERAL, AN INVESTOR IS PAID A
HIGHER YIELD TO ASSUME A GREATER DEGREE OF CREDIT RISK. 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.

ADVISOR CLASS: Shares are available to certain eligible investors as
described in the prospectus.

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

2. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has 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, C and Advisor) per share on 11/30/06.

5. Taxable equivalent distribution rate and yield assume the published rates
as of 6/22/06 for the maximum combined effective federal and California
personal income tax rate 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 11/30/06.

7. Effective 11/15/06, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 11/15/06, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/14/06, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 11/15/06
(commencement of sales), the aggregate total return of Advisor Class
shares was +0.66%.

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 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 6/1/06 VALUE 11/30/06 PERIOD* 6/1/06-11/30/06
- ----------------------------------------------------------------------------------------------------------------------

Actual $1,000 $1,050.40 $3.14
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.01 $3.09
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,047.40 $5.95
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.87
- ----------------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,048.40 $5.96
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.87
- ----------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------------
Actual (11/15/06 - 11/30/06) $1,000 $1,006.60 $0.21
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.51 $2.59
- ----------------------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio for each class (A:
0.61%; B: 1.16%; C: 1.16%; and Advisor Class: 0.51%), multiplied by the
average account value over the period, multiplied by 183/365 for Classes
A, B and C (Actual and Hypothetical) and Advisor Class (Hypothetical) to
reflect the one-half year period. For actual Advisor Class expenses, the
multiplier is 15/365 to reflect the number of days since inception.

Semiannual Report | 17

Franklin Tennessee Municipal Bond Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Tennessee Municipal Bond Fund
seeks to maximize income exempt from federal and Tennessee personal income
taxes, consistent with prudent 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 11/30/06**

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

AAA ........................................ 45.8%
AA ......................................... 16.0%
A .......................................... 1.7%
BBB ........................................ 5.3%
Not Rated by S&P ........................... 31.2%

* 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 24.8%
AA or Aa 6.1%
A 0.3%
- --------------------------
Total 31.2%

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

We are pleased to bring you Franklin Tennessee Municipal Bond Fund's semiannual
report for the period ended November 30, 2006.

PERFORMANCE SUMMARY

The Fund's Class A share price, as measured by net asset value, increased from
$11.18 on May 31, 2006, to $11.39 on November 30, 2006. The

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 43.

18 | Semiannual Report

Fund's Class A shares paid dividends totaling 23.10 cents per share for the
reporting 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 3.83%. An investor in the 2006 maximum combined effective federal and
Tennessee personal income tax bracket of 38.90% would need to earn a
distribution rate of 6.27% from a taxable investment to match the Fund's Class A
tax-free distribution rate.

STATE UPDATE

Tennessee's economy has continued to diversify in recent years, and economic
growth has been incremental but positive. The state's stable overall economy
includes a job base that closely mirrors the nation's, and from a peak of 1.6%
in 2004 to 1.2% in 2006, job growth has remained steady. 3 Large employment
gains in retail, services and health care more than offset manufacturing job
losses.

The state has a recent history of structurally balanced budgets, which matched
recurring revenues and expenditures. In addition, Tennessee's financial
condition benefited from conservative revenue growth estimates, TennCare cost
containment reforms and improved general fund revenue performance. Sales tax
collections, which represent a significant portion of state tax revenues,
averaged 6% annual growth from 2004-2006, with fiscal year 2007 sales tax
collections expected to increase almost 5% and overall tax revenue growth
conservatively projected at about 3%. 4 The state implemented enrollment
reductions and benefit limitations for the TennCare health care reform program,
which officials believe will curtail costs. Tennessee reached its goals of
bringing state-funded TennCare expenditures to within 26% of total state tax
revenues and ensuring program growth will occur at a measured pace. 3 The state
increased its general fund reserve balance over the past several years. In
addition, the expected balance for fiscal year 2007 is a record-high $497
million. 3

The state's debt levels historically have been low relative to other states.
Tennessee ranked 45th among states for net tax-supported debt per capita and as
a percent of personal income. State net tax-supported debt per capita was $234,
compared with the 50-state median of $754. 4 Debt as a percentage

DIVIDEND DISTRIBUTIONS 2
Franklin Tennessee Municipal Bond Fund
Class A

- -------------------------------------------------------------------------------
MONTH DIVIDEND PER SHARE
- -------------------------------------------------------------------------------
June 3.85 cents
- -------------------------------------------------------------------------------
July 3.85 cents
- -------------------------------------------------------------------------------
August 3.85 cents
- -------------------------------------------------------------------------------
September 3.85 cents
- -------------------------------------------------------------------------------
October 3.85 cents
- -------------------------------------------------------------------------------
November 3.85 cents
- -------------------------------------------------------------------------------

3. Source: Standard & Poor's, "Research: Summary: Tennessee; General
Obligation," RATINGSDIRECT, 11/9/06.

4. Source: Moody's Investors Service, "New Issue: Tennessee (State of),"
11/10/06.

Semiannual Report | 19

PORTFOLIO BREAKDOWN
Franklin Tennessee Municipal Bond Fund
11/30/06

- --------------------------------------------------------------------------------
% OF TOTAL
LONG-TERM INVESTMENTS*
- --------------------------------------------------------------------------------
Utilities 32.1%**
- --------------------------------------------------------------------------------
Prerefunded 24.4%
- --------------------------------------------------------------------------------
General Obligation 18.9%
- --------------------------------------------------------------------------------
Hospital & Health Care 5.4%
- --------------------------------------------------------------------------------
Other Revenue 4.9%
- --------------------------------------------------------------------------------
Higher Education 4.3%
- --------------------------------------------------------------------------------
Housing 4.2%
- --------------------------------------------------------------------------------
Transportation 3.2%
- --------------------------------------------------------------------------------
Subject to Government Appropriations 1.9%
- --------------------------------------------------------------------------------
Tax-Supported 0.7%
- --------------------------------------------------------------------------------

* 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.

of personal income was 0.8%, well below the 2.5% median for all states. 4
Independent credit rating agency Standard & Poor's assigned Tennessee's general
obligation bonds a rating of AA+ with a stable outlook, while Moody's Investors
Service's rating for the state was Aa2 with a positive outlook. 5 The ratings
and outlooks reflected Tennessee's ongoing economic improvement and measures
taken to strengthen its finances and return to long-term fiscal stability.

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.

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. These do not indicate ratings of the Fund.

20 | Semiannual Report

Performance Summary as of 11/30/06

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 that a shareholder
would pay on Fund dividends, capital gain distributions, if any, or any realized
gains on the sale of Fund shares. Total return reflects reinvestment of the
Fund's dividends and capital gain distributions, if any, and any unrealized
gains or losses.

PRICE AND DISTRIBUTION INFORMATION

- ----------------------------------------------------------------------------------------------------------
CLASS A (SYMBOL: FRTIX) CHANGE 11/30/06 5/31/06
- ----------------------------------------------------------------------------------------------------------

Net Asset Value (NAV) +$0.21 $11.39 $11.18
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (6/1/06-11/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.2310
- ----------------------------------------------------------------------------------------------------------

PERFORMANCE 1

CUMULATIVE TOTAL RETURN EXCLUDES THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE THE MAXIMUM SALES CHARGE. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE.
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

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

Cumulative Total Return 2 +3.96% +5.38% +28.66% +69.60%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -0.49% +0.90% +4.26% +4.97%
- -----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (12/31/06) 4 -0.17% +4.49% +4.97%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate 5 3.83%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Distribution Rate 6 6.27%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 7 3.14%
- -----------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 6 5.14%
- -----------------------------------------------------------------------------------------------------------

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

MUNICIPAL BONDS ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS;
THEREFORE, THE FUND'S YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET
CONDITIONS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES,
THE FUND'S SHARE PRICE MAY DECLINE. THE FUND IS CLASSIFIED AS A NONDIVERSIFIED
FUND BECAUSE IT MAY INVEST A GREATER PORTION OF ITS ASSETS IN ONE ISSUER THAN A
DIVERSIFIED FUND. 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.

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 3.09%. 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.

3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. 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 3.80 cent
per share monthly dividend and the maximum offering price of $11.90 per
share on 11/30/06.

6. Taxable equivalent distribution rate and yield assume the published rates
as of 6/22/06 for the maximum combined effective federal and Tennessee
state personal income tax rate 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 11/30/06.

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 6/1/06 VALUE 11/30/06 PERIOD* 6/1/06-11/30/06
- -----------------------------------------------------------------------------------------------------------

Actual $1,000 $1,039.60 $3.58
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.56 $3.55
- -----------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio, net of expense
waivers, 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, 2006 YEAR ENDED MAY 31,
CLASS A (UNAUDITED) 2006 2005 2004 2003 2002
-----------------------------------------------------------------------------------

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

Net asset value, beginning of period ............. $ 10.31 $ 10.39 $ 9.94 $ 10.21 $ 9.97 $ 9.95
-------------------------------------------------------------------------------
Income from investment operations a:

Net investment income b ......................... 0.24 0.50 0.53 0.56 0.54 0.57

Net realized and unrealized gains (losses) ...... 0.27 (0.08) 0.47 (0.28) 0.25 0.02
-------------------------------------------------------------------------------
Total from investment operations ................. 0.51 0.42 1.00 0.28 0.79 0.59
-------------------------------------------------------------------------------
Less distributions from net investment income .... (0.24) (0.50) (0.55) (0.55) (0.55) (0.57)
-------------------------------------------------------------------------------
Redemption fees .................................. -- d -- d -- d -- -- --
-------------------------------------------------------------------------------
Net asset value, end of period ................... $ 10.58 $ 10.31 $ 10.39 $ 9.94 $ 10.21 $ 9.97
===============================================================================

Total return c ................................... 5.04% 4.13% 10.26% 2.81% 8.15% 5.99%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ................ $1,233,445 $1,067,011 $777,960 $548,292 $537,770 $503,337

Ratios to average net assets:

Expenses before waiver and expenses
by affiliates .................................. 0.61% e 0.62% 0.64% 0.65% 0.65% 0.65%

Expenses net of waiver and payments
by affiliates .................................. 0.61% e 0.62% 0.64% 0.65% 0.65% 0.61%

Net investment income ........................... 4.64% e 4.80% 5.22% 5.61% 5.36% 5.66%

Portfolio turnover rate .......................... 3.17% 11.18% 5.43% 8.79% 10.13% 21.77%

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

b Based on average daily shares outstanding.

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

d Amount rounds to less than $0.01 per share.

e Annualized.

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 25

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

-------------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2006 YEAR ENDED MAY 31,
CLASS B (UNAUDITED) 2006 2005 2004 2003 2002
-------------------------------------------------------------------------------------

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

Net asset value, beginning of period ............ $ 10.36 $ 10.44 $ 9.99 $ 10.25 $ 10.02 $ 9.98
-------------------------------------------------------------------------------
Income from investment operations a:

Net investment income b ........................ 0.21 0.44 0.48 0.51 0.49 0.52

Net realized and unrealized gains (losses) ..... 0.28 (0.08) 0.46 (0.28) 0.24 0.03
-------------------------------------------------------------------------------
Total from investment operations ................ 0.49 0.36 0.94 0.23 0.73 0.55
-------------------------------------------------------------------------------
Less distributions from net investment income ... (0.22) (0.44) (0.49) (0.49) (0.50) (0.51)
-------------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- -- --
-------------------------------------------------------------------------------
Net asset value, end of period .................. $ 10.63 $ 10.36 $ 10.44 $ 9.99 $ 10.25 $ 10.02
===============================================================================

Total return c .................................. 4.74% 3.54% 9.61% 2.24% 7.52% 5.58%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ............... $28,833 $29,980 $31,588 $28,197 $29,268 $23,029

Ratios to average net assets:

Expenses before waiver and payments
by affiliates ................................. 1.16% e 1.17% 1.19% 1.20% 1.20% 1.20%

Expenses net of waiver and payments
by affiliates ................................. 1.16% e 1.17% 1.19% 1.20% 1.20% 1.16%

Net investment income .......................... 4.09% e 4.25% 4.67% 5.06% 4.81% 5.13%

Portfolio turnover rate ......................... 3.17% 11.18% 5.43% 8.79% 10.13% 21.77%

b Based on average daily shares outstanding.

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

d Amount rounds to less than $0.01 per share.

e Annualized.

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

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

-----------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2006 YEAR ENDED MAY 31,
CLASS C (UNAUDITED) 2006 2005 2004 2003 2002
-----------------------------------------------------------------------------------

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

Net asset value, beginning of period .............. $ 10.35 $ 10.43 $ 9.97 $ 10.24 $ 10.01 $ 9.98
-------------------------------------------------------------------------------
Income from investment operations a:

Net investment income b .......................... 0.21 0.44 0.48 0.51 0.48 0.52

Net realized and unrealized gains (losses) ....... 0.29 (0.08) 0.47 (0.29) 0.25 0.02
-------------------------------------------------------------------------------
Total from investment operations .................. 0.50 0.36 0.95 0.22 0.73 0.54
-------------------------------------------------------------------------------
Less distributions from net investment income ..... (0.22) (0.44) (0.49) (0.49) (0.50) (0.51)
-------------------------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d -- -- --
-------------------------------------------------------------------------------
Net asset value, end of period .................... $ 10.63 $ 10.35 $ 10.43 $ 9.97 $ 10.24 $ 10.01
===============================================================================

Total return c .................................... 4.84% 3.54% 9.72% 2.24% 7.43% 5.49%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ................. $237,383 $190,670 $120,521 $79,294 $77,748 $74,611

Ratios to average net assets:

Expenses before waiver and payments
by affiliates ................................... 1.16% e 1.17% 1.19% 1.20% 1.20% 1.20%

Expenses net of waiver and payments
by affiliates ................................... 1.16% e 1.17% 1.19% 1.20% 1.20% 1.16%

Net investment income ............................ 4.09% e 4.25% 4.67% 5.06% 4.81% 5.12%

Portfolio turnover rate ........................... 3.17% 11.18% 5.43% 8.79% 10.13% 21.77%

b Based on average daily shares outstanding.

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

d Amount rounds to less than $0.01 per share.

e Annualized.

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 27

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

-------------------
SIX MONTHS ENDED
NOVEMBER 30, 2006 d
ADVISOR CLASS (UNAUDITED)
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)

Net asset value, beginning of period .......................... $10.53
------
Income from investment operations a:

Net investment income b ...................................... 0.02

Net realized and unrealized gains (losses) ................... 0.05
------
Total from investment operations .............................. 0.07
------
Less distributions from net investment income ................. (0.02)
------
Redemption fees ............................................... -- e
------
Net asset value, end of period ................................ $10.58
======

Total return c ................................................ 0.66%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ............................. $ 140

Ratios to average net assets:

Expenses before waiver and payments by affiliates ............ 0.51% f

Expenses net of waiver and payments by affiliates ............ 0.51% f

Net investment income ........................................ 4.74% f

Portfolio turnover rate ....................................... 3.17%

b Based on average daily shares outstanding.

c Total return is not annualized for periods less than one year.

d For the period November 15, 2006 (effective date) to November 30, 2006.

e Amount rounds to less than $0.01 per share.

f Annualized.

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

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED)

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

LONG TERM INVESTMENTS 91.4%
MUNICIPAL BONDS 91.4%
CALIFORNIA 88.6%
ABAG 1915 Act Special Assessment, Windemere Ranch AD,
1999-1, 6.20%, 9/02/20 ................................................................... $ 1,950,000 $ 2,097,245
1999-1, 6.30%, 9/02/25 ................................................................... 2,935,000 3,165,045
Series 1, 7.30%, 9/02/17 ................................................................. 9,865,000 10,439,340
Series 1, 7.35%, 9/02/20 ................................................................. 7,820,000 8,274,968
Series 1, 7.45%, 9/02/30 ................................................................. 4,815,000 5,103,900
ABAG Finance Authority for Nonprofit Corps. COP, California Mortgage Insured, 6.15%,
1/01/22 .................................................................................... 1,220,000 1,246,657
ABAG Finance Authority for Nonprofit Corps. Revenue, Elder Care Alliance, California
Mortgage Insured, 5.60%, 8/15/34 ........................................................... 4,260,000 4,642,548
Adelanto Water Authority Revenue,
Parity, Water System Acquisition Project, Series A, Pre-Refunded, 7.50%, 9/01/28 ......... 3,095,000 3,339,226
Subordinated, Water System Acquisition Project, Series A, Pre-Refunded, 7.50%,
9/01/28 ................................................................................. 2,000,000 2,170,260
Alameda CFD No. 2 Special Tax, Refunding, 6.125%, 9/01/16 ................................... 1,240,000 1,263,672
Alameda PFA Local Agency Revenue, Special Tax, CFD 1, Series A,
6.70%, 8/01/12 ........................................................................... 3,400,000 3,480,852
7.00%, 8/01/19 ........................................................................... 4,015,000 4,111,280
American Canyon Financing Authority Infrastructure Revenue Special Assessment, American
Canyon Road East,
5.00%, 9/02/25 ........................................................................... 1,305,000 1,339,335
5.00%, 9/02/30 ........................................................................... 2,020,000 2,065,208
5.10%, 9/02/35 ........................................................................... 1,695,000 1,738,053
Avenal PFAR,
Pre-Refunded, 7.00%, 9/02/10 ............................................................. 695,000 723,203
Pre-Refunded, 7.25%, 9/02/27 ............................................................. 3,665,000 3,836,485
Refunding, 5.00%, 9/01/30 ................................................................ 1,325,000 1,371,375
Refunding, 5.00%, 9/01/36 ................................................................ 710,000 727,629
Beaumont Financing Authority Local Agency Revenue,
Series B, 5.35%, 9/01/28 ................................................................. 1,000,000 1,040,540
Series B, 5.40%, 9/01/35 ................................................................. 1,490,000 1,548,989
Series C, 5.45%, 9/01/27 ................................................................. 6,435,000 6,672,773
Series C, 5.50%, 9/01/29 ................................................................. 855,000 896,989
Series C, 5.50%, 9/01/35 ................................................................. 1,035,000 1,080,354
Series C, 5.50%, 9/01/35 ................................................................. 4,000,000 4,139,680
Bell GO, Election of 2003, MBIA Insured, 5.00%, 8/01/34 ..................................... 5,195,000 5,552,104
Beverly Hills USD, GO, Election of 2002, Series B, 5.00%, 8/01/27 ........................... 3,940,000 4,258,588
Brentwood Infrastructure Financing Authority Infrastructure Revenue, CIFP, Series 1,
5.00%, 9/02/25 ........................................................................... 3,195,000 3,284,109
5.125%, 9/02/30 .......................................................................... 4,400,000 4,509,912
5.15%, 9/02/35 ........................................................................... 3,450,000 3,532,041
Burbank Wastewater Treatment Revenue, Refunding, Series A, AMBAC Insured, 5.00%,
6/01/34 .................................................................................... 1,430,000 1,526,511
California City RDA Tax Allocation Revenue, Refunding, Series A-1, 7.75%, 9/01/34 ........... 9,575,000 10,541,883

Semiannual Report | 29

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

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

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California County Tobacco Securitization Agency Tobacco Settlement Revenue,
Asset-Backed, Los Angeles County Security, zero cpn. to 12/01/10, 5.70% thereafter,
6/01/46 .................................................................................. $ 5,000,000 $ 4,249,600
Refunding, 5.25%, 6/01/46 ................................................................. 5,000,000 5,106,050
California Educational Facilities Authority Revenue,
California College of the Arts, Refunding, 5.00%, 6/01/30 ................................. 1,800,000 1,873,224
California College of the Arts, Refunding, 5.00%, 6/01/35 ................................. 4,405,000 4,571,553
Keck Graduate Institute, 6.75%, 6/01/30 ................................................... 2,500,000 2,729,900
Occidental College, Refunding, Series A, MBIA Insured, 5.00%, 10/01/30 .................... 2,000,000 2,151,960
Occidental College, Refunding, Series A, MBIA Insured, 5.00%, 10/01/33 .................... 7,345,000 7,886,106
Pooled College and University, Series B, 6.625%, 6/01/20 .................................. 1,000,000 1,105,480
Pooled College and University Projects, Series B, Pre-Refunded, 6.30%, 4/01/21 ............ 1,000,000 1,028,640
California Health Facilities Financing Authority Revenue,
California-Nevada Methodist, 5.00%, 7/01/26 ............................................... 1,750,000 1,869,315
California-Nevada Methodist, 5.00%, 7/01/36 ............................................... 2,075,000 2,202,986
Kaiser Permanente, Series A, 5.00%, 4/01/37 ............................................... 18,460,000 19,413,828
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 .......................................... 2,500,000 2,552,750
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ......................................... 3,250,000 3,377,562
Thessalonika Family, Series A, California Mortgage Insured, 6.20%, 12/01/15 ............... 630,000 637,006
California HFAR, Home Mortgage, Series K, 4.80%, 8/01/41 ..................................... 10,000,000 10,140,000
California State GO,
5.00%, 2/01/33 ............................................................................ 15,600,000 16,462,212
FGIC Insured, 6.00%, 8/01/19 .............................................................. 30,000 30,116
Refunding, AMBAC Insured, 5.00%, 3/01/34 .................................................. 10,000,000 10,659,300
Various Purpose, MBIA Insured, 5.00%, 3/01/33 ............................................. 2,025,000 2,165,819
California State Public Works Board Lease Revenue,
Department of Mental Health, Coalinga, Series A, 5.125%, 6/01/29 .......................... 5,000,000 5,307,700
University of California, Institute Project, Series C, AMBAC Insured, 5.00%, 4/01/30 ...... 5,000,000 5,361,700
California State University of Fresno Assn. Inc. Revenue, Senior Auxiliary Organization
Event Center, Pre-Refunded, 6.00%, 7/01/22 .................................................. 3,500,000 3,962,525
California Statewide CDA, COP,
Catholic Healthcare West, 6.50%, 7/01/20 .................................................. 3,365,000 3,676,229
Catholic Healthcare West, Pre-Refunded, 6.50%, 7/01/20 .................................... 8,695,000 9,621,800
International School of the Peninsula Project, Pre-Refunded, 7.50%, 11/01/29 .............. 10,255,000 11,318,854
Windward School, 6.90%, 9/01/23 ........................................................... 990,000 1,013,651
a California Statewide CDA Lease Revenue, Special Facilities, United Airlines, Series A,
5.70%, 10/01/33 ............................................................................. 3,320,000 1,479,790
California Statewide CDA Revenue,
Bentley School, Refunding, 6.75%, 7/01/32 ................................................. 8,250,000 8,981,197
Elder Care Alliance, Series A, 8.00%, 11/15/22 ............................................ 3,000,000 3,206,940
Elder Care Alliance, Series A, 8.25%, 11/15/32 ............................................ 4,000,000 4,285,800
Eskaton Village Grass Valley, Pre-Refunded, 8.25%, 11/15/31 ............................... 9,865,000 11,516,894
John F. Kennedy University, 6.75%, 10/01/33 ............................................... 5,000,000 5,413,050
Kaiser Permanente, Series B, 5.00%, 3/01/41 ............................................... 25,000,000 26,185,000
Monterey Institute International, 5.50%, 7/01/31 .......................................... 8,285,000 8,329,988
Presidio Hill School, 6.875%, 8/01/32 ..................................................... 6,195,000 6,631,438

30 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Statewide CDA Revenue, (continued)
Prospect Sierra School, Pre-Refunded, 6.75%, 9/01/32 ...................................... $ 5,000,000 $ 5,633,750
Seven Hills School, 6.50%, 8/01/31 ........................................................ 5,600,000 5,764,304
Sonoma County Day School, 6.75%, 1/01/32 .................................................. 6,000,000 6,221,340
Sutter Health, Refunding, Series A, 5.00%, 11/15/43 ....................................... 21,500,000 22,574,570
Thomas Jefferson School of Law Project, Pre-Refunded, 7.75%, 10/01/31 ..................... 5,000,000 5,843,000
Turning Point, 6.50%, 11/01/31 ............................................................ 6,130,000 6,484,253
Camarillo PFA Wastewater Revenue, AMBAC Insured, 5.00%, 6/01/36 .............................. 2,960,000 3,177,294
Campbell RDA Tax Allocation, Central Campbell Redevelopment Project, Series A,
Pre-Refunded, 6.55%, 10/01/32 ............................................................... 5,300,000 5,828,092
Capistrano USD, CFD Special Tax, No. 05-1, Rancho Madrina, 5.25%, 9/01/34 .................... 1,120,000 1,152,323
Castro Valley USD, GO, Election of 2005, FGIC Insured, 5.00%, 8/01/34 ........................ 5,310,000 5,675,009
Cathedral City 1915 Act Special Assessment, Limited Obligation, Cove ID 04-02,
5.00%, 9/02/30 ............................................................................ 1,200,000 1,228,392
5.05%, 9/02/35 ............................................................................ 1,335,000 1,368,362
Chabot-Las Positas Community College District GO, Capital Appreciation Bonds, Series C,
AMBAC Insured, zero cpn.,
8/01/44 ................................................................................... 32,750,000 5,148,300
8/01/46 ................................................................................... 35,370,000 5,022,894
Chino CFD Special Tax,
No. 03-1, 5.875%, 9/01/33 ................................................................. 1,250,000 1,328,413
No. 03-3, Improvement Area 1, 5.70%, 9/01/29 .............................................. 1,215,000 1,294,668
No. 03-3, Improvement Area 1, 5.75%, 9/01/34 .............................................. 1,420,000 1,510,000
Chula Vista CFD Special Tax,
No. 01-1, Improvement Area, San Miguel, Series B, 5.45%, 9/01/36 .......................... 2,175,000 2,239,815
No. 12-I, Mcmillin Otay Ranch, 5.25%, 9/01/30 ............................................. 2,135,000 2,192,175
No. 12-I, Mcmillin Otay Ranch, 5.25%, 9/01/36 ............................................. 3,705,000 3,789,807
Chula Vista Special Tax, CFD No. 2000-1, Pre-Refunded, 6.60%, 9/01/30 ........................ 1,500,000 1,606,455
Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, FGIC Insured, zero cpn.,
8/01/27 ................................................................................... 7,500,000 3,077,100
8/01/28 ................................................................................... 5,000,000 1,960,650
Corona CFD No. 2003-2 Special Tax, Highlands Collection, 5.20%, 9/01/34 ...................... 1,000,000 1,027,770
Corona CFD Special Tax,
No. 01-02, Improvement Nos. 1 and 2, 6.25%, 9/01/32 ....................................... 1,890,000 1,955,564
No. 03-2, Highlands, 5.15%, 9/01/34 ....................................................... 2,810,000 2,861,226
b Corona-Norco USD, PFA Special Tax Revenue, Series B, 5.00%,
9/01/26 ................................................................................... 1,760,000 1,785,626
9/01/36 ................................................................................... 2,000,000 2,021,380
Corona-Norco USD Special Tax,
CFD No. 04-1, 5.00%, 9/01/24 .............................................................. 1,540,000 1,581,719
CFD No. 04-1, 5.20%, 9/01/36 .............................................................. 2,000,000 2,061,140
CFD No. 99-1, Pre-Refunded, 7.00%, 9/01/29 ................................................ 2,120,000 2,331,894
Series A, 5.35%, 9/01/26 .................................................................. 1,005,000 1,035,954
Series A, 5.40%, 9/01/36 .................................................................. 2,530,000 2,607,848
Cotati South Sonoma Business Park AD Special Assessment, Improvement, 6.50%,
9/02/33 ..................................................................................... 5,655,000 5,850,211

Semiannual Report | 31

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Del Mar Race Track Authority Revenue, 5.00%, 8/15/25 .......................................... $ 3,665,000 $ 3,846,527
Duarte RDA Tax Allocation,
Capital Appreciation, Merged Redevelopment Project, zero cpn., 12/01/28 .................... 30,795,000 9,107,005
Davis Addition Project Area, Refunding, 6.70%, 9/01/14 ..................................... 2,215,000 2,304,774
Davis Addition Project Area, Refunding, 6.90%, 9/01/18 ..................................... 4,120,000 4,286,736
Rancho Duarte Phase I Project Area, Pre-Refunded, 6.80%, 9/01/16 ........................... 560,000 584,326
El Dorado County Public Financing Revenue, Pre-Refunded, 6.375%, 2/15/25 ...................... 1,885,000 1,914,010
El Dorado County Special Tax,
CFD No. 1992-1, 6.125%, 9/01/16 ............................................................ 4,745,000 4,935,891
CFD No. 2001-1, 5.35%, 9/01/35 ............................................................. 1,900,000 1,957,304
CFD No. 2005-1, 5.00%, 9/01/21 ............................................................. 1,000,000 1,020,800
CFD No. 2005-1, 5.15%, 9/01/25 ............................................................. 2,075,000 2,130,818
CFD No. 2005-1, 5.25%, 9/01/35 ............................................................. 4,180,000 4,309,204
El Monte Water Authority Revenue, Refunding, AMBAC Insured, 5.00%,
9/01/31 .................................................................................... 4,300,000 4,650,966
9/01/36 .................................................................................... 3,855,000 4,159,969
El Rancho USD, GO, Capital Appreciation, Election of 2003, FGIC Insured, zero cpn.,
8/01/29 ...................................................................................... 2,400,000 950,592
Elk Grove Special Tax, East Franklin Community No. 1-A, Pre-Refunded, 6.00%, 8/01/33 .......... 1,750,000 1,846,670
Elsinore Valley Municipal Water District Special Tax, CFD No. 99-1, 7.00%, 9/01/29 ............ 3,500,000 3,666,110
Escondido Revenue COP, Refunding, Series A, FGIC Insured, 6.00%, 9/01/31 ...................... 1,735,000 1,895,800
Escondido Special Tax, CFD No. 01, Eureka,
5.10%, 9/01/26 ............................................................................. 700,000 712,859
5.15%, 9/01/36 ............................................................................. 1,400,000 1,425,662
Fontana Special Tax,
CFD No. 12, Pre-Refunded, 6.60%, 9/01/19 ................................................... 3,295,000 3,590,199
CFD No. 12, Pre-Refunded, 6.625%, 9/01/30 .................................................. 7,675,000 8,367,592
CFD No. 37, 5.00%, 9/01/30 ................................................................. 1,000,000 1,015,490
Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding, zero cpn.,
1/15/26 .................................................................................... 38,720,000 12,809,350
1/15/30 .................................................................................... 4,000,000 1,053,280
1/15/31 .................................................................................... 85,780,000 21,213,394
Fremont USD Alameda County GO, Election of 2002, Series B, FSA Insured, 5.00%,
8/01/27 ...................................................................................... 5,665,000 6,123,072
Fullerton Water Revenue COP, AMBAC Insured, 5.00%,
9/01/28 .................................................................................... 2,650,000 2,833,831
9/01/34 .................................................................................... 2,795,000 2,979,274
Garden Grove Housing Authority MFHR, Set-Aside Tax Increment, Series C, 6.70%,
7/01/24 ...................................................................................... 6,375,000 6,449,524
Glendora USD, GO, Election of 2005, Series A, MBIA Insured,
5.00%, 8/01/27 ............................................................................. 1,350,000 1,469,597
5.25%, 8/01/30 ............................................................................. 2,725,000 3,025,431
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue, Asset-Backed,
Series A-2, 7.90%, 6/01/42 ................................................................. 750,000 921,008
Series A-3, 7.875%, 6/01/42 ................................................................ 6,400,000 7,850,176
Series B, Pre-Refunded, 5.625%, 6/01/38 .................................................... 14,000,000 15,679,020

32 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Half Moon Bay COP, Sea Crest School, 6.75%, 7/01/30 .......................................... $ 3,645,000 $ 3,805,380
Hercules RDA Tax Allocation, Hercules Merged Project, Pre-Refunded, 6.40%, 9/01/21 ........... 5,000,000 5,467,550
Huntington Beach CFD Special Tax Revenue, Grand Coast Resort, 6.45%, 9/01/31 ................. 5,000,000 5,422,750
c Imperial County Special Tax, CFD No. 98-1,
6.45%, 9/01/17 ............................................................................ 1,970,000 2,010,503
6.50%, 9/01/31 ............................................................................ 5,705,000 5,824,463
Indio 1915 Act GO,
AD No. 99-1, 7.125%, 9/02/20 .............................................................. 2,075,000 2,241,581
AD No. 2001-1, 6.50%, 9/02/26 ............................................................. 4,405,000 4,748,414
Indio CFD Special Tax,
5.00%, 9/01/25 ............................................................................ 4,000,000 4,117,000
5.10%, 9/01/30 ............................................................................ 1,275,000 1,314,487
5.15%, 9/01/35 ............................................................................ 1,275,000 1,317,305
5.15%, 9/01/35 ............................................................................ 725,000 749,121
Irvine 1915 Act Special Assessment,
AD No. 00-18, Group Five, 5.00%, 9/02/26 .................................................. 1,295,000 1,325,290
AD No. 03-19, Group Three, 5.00%, 9/02/29 ................................................. 1,120,000 1,142,971
Limited Obligation Assessment 03-19, Group Four, 5.00%, 9/02/29 ........................... 1,500,000 1,533,570
Irvine Special Tax, CFD No. 2005-2, 5.25%, 9/01/36 ........................................... 2,000,000 2,061,440
Jurupa Community Services District Special Tax,
CFD No. 7, Series A, 5.10%, 9/01/28 ....................................................... 2,695,000 2,773,290
CFD No. 7, Series A, 5.15%, 9/01/35 ....................................................... 3,690,000 3,767,822
CFD No. 11, Series A, 5.00%, 9/01/25 ...................................................... 1,930,000 1,962,656
CFD No. 11, Series A, 5.05%, 9/01/30 ...................................................... 2,495,000 2,531,801
CFD No. 11, Series A, 5.10%, 9/01/35 ...................................................... 2,065,000 2,088,066
CFD No. 12, Series A, 5.10%, 9/01/29 ...................................................... 2,000,000 2,043,700
CFD No. 12, Series A, 5.15%, 9/01/35 ...................................................... 3,000,000 3,065,400
CFD No. 17, Series A, 5.125%, 9/01/25 ..................................................... 1,350,000 1,383,710
CFD No. 17, Series A, 5.20%, 9/01/36 ...................................................... 3,325,000 3,424,650
CFD No. 18, Eastvale, Series A, 5.00%, 9/01/26 ............................................ 1,295,000 1,317,792
CFD No. 18, Eastvale, Series A, 5.00%, 9/01/36 ............................................ 2,400,000 2,433,096
CFD No. 19, Eastvale, 5.00%, 9/01/27 ...................................................... 1,500,000 1,524,300
CFD No. 19, Eastvale, 5.00%, 9/01/36 ...................................................... 1,500,000 1,518,345
Lafayette RDA Tax Allocation, 5.75%, 8/01/32 ................................................. 1,000,000 1,075,210
Lake Elsinore 1915 Act Special Assessment, AD No. 93-1, Limited Obligation, Refunding,
7.00%, 9/02/30 .............................................................................. 8,445,000 9,198,632
Lake Elsinore CFD No. 2006-2 Special Tax, Viscaya, Series A, 5.40%, 9/01/36 .................. 2,020,000 2,089,629
Lake Elsinore Special Tax,
CFD No. 2, Area A, Series A, 5.45%, 9/01/36 ............................................... 5,695,000 5,872,058
CFD No. 3, Improvement Area 1, 5.10%, 9/01/22 ............................................. 750,000 783,383
CFD No. 3, Improvement Area 1, 5.15%, 9/01/25 ............................................. 635,000 664,293
CFD No. 3, Improvement Area 1, 5.25%, 9/01/30 ............................................. 1,195,000 1,249,839
CFD No. 3, Improvement Area 1, 5.25%, 9/01/35 ............................................. 1,225,000 1,276,487
CFD No. 2004-3, Series A, 5.20%, 9/01/26 .................................................. 915,000 931,845
CFD No. 2004-3, Series A, 5.25%, 9/01/37 .................................................. 2,800,000 2,855,776

Semiannual Report | 33

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Lake Elsinore Special Tax, (continued)
Improvements, CFD No. 2-A, 5.85%, 9/01/24 ................................................. $ 1,035,000 $ 1,108,682
Improvements, CFD No. 2-A, 5.95%, 9/01/34 ................................................. 2,200,000 2,355,958
Lake Elsinore USD, CFD Special Tax, No. 2001-1, 6.30%, 9/01/33 ............................ 3,000,000 3,272,460
Lake Elsinore USD, CFD Special Tax, No. 2001-1, 6.30%, 9/01/33 ............................ 1,470,000 1,578,030
Lancaster Financing Authority Tax Allocation Revenue, Redevelopment Project Nos. 5 and 6,
Refunding,
5.40%, 2/01/29 ............................................................................ 500,000 528,490
5.60%, 2/01/34 ............................................................................ 1,250,000 1,333,250
Lee Lake Water District CFD No. 1 Special Tax, Sycamore Creek,
6.50%, 9/01/24 ............................................................................ 1,000,000 1,106,930
5.25%, 9/01/28 ............................................................................ 1,750,000 1,816,553
5.30%, 9/01/35 ............................................................................ 3,300,000 3,420,450
Lee Lake Water District CFD No. 3 Special Tax, Retreat, 5.875%, 9/01/27 ...................... 3,000,000 3,199,050
Lincoln Special Tax, CFD No. 2003-1,
5.90%, 9/01/24 ............................................................................ 1,815,000 1,892,283
5.95%, 9/01/28 ............................................................................ 4,535,000 4,728,010
6.00%, 9/01/34 ............................................................................ 3,610,000 3,763,569
Lodi USD, GO, Election of 2002, MBIA Insured, 5.00%, 8/01/29 ................................. 3,010,000 3,237,345
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series A, 5.00%,
12/01/21 .................................................................................... 7,500,000 7,876,575
b Los Angeles County Public Works Financing Authority Lease Revenue, Master Project,
Refunding, Series B, FGIC Insured, 5.00%, 9/01/33 ........................................... 13,170,000 14,133,122
c Los Angeles MFR, Refunding, Series J-2C, 8.50%, 1/01/24 ...................................... 620,000 616,627
Los Angeles USD, GO, Election of 2005, Series C, AMBAC Insured, 5.00%, 7/01/28 ............... 3,565,000 3,875,654
Lynwood PFA Lease Revenue,
6.25%, 9/01/22 ............................................................................ 1,080,000 1,156,129
6.30%, 9/01/29 ............................................................................ 2,680,000 2,868,752
Lynwood PFA Tax Allocation, Alameda Project Area, 6.30%, 9/01/24 ............................. 1,000,000 1,065,320
Lynwood PFAR, Water System Improvement Project, 6.50%, 6/01/21 ............................... 1,175,000 1,191,356
Magnolia School District GO, Refunding, FGIC Insured, 5.00%, 8/01/31 ......................... 2,555,000 2,753,805
Menifee USD Special Tax, CFD No. 2002-2,
6.05%, 9/01/26 ............................................................................ 1,000,000 1,078,910
6.10%, 9/01/34 ............................................................................ 3,715,000 4,000,721
Merced CFD No. 2005-1 Special Tax, Improvement Area No. 1, 5.30%, 9/01/36 .................... 2,400,000 2,467,392
Modesto PFA Lease Revenue, John Thurman Field Renovation Project, 6.125%, 11/01/16 ........... 1,165,000 1,190,350
Moorpark CFD No. 2004-1 Special Tax, Moorpark Highlands,
5.25%, 9/01/26 ............................................................................ 1,900,000 1,958,501
5.30%, 9/01/38 ............................................................................ 4,250,000 4,380,602
Moreland School District GO, Election of 2002, Series D, FGIC Insured, zero cpn.,
8/01/30 ................................................................................... 3,400,000 988,346
8/01/31 ................................................................................... 2,000,000 548,240
8/01/32 ................................................................................... 4,405,000 1,138,428
8/01/34 ................................................................................... 4,405,000 1,057,244
8/01/37 ................................................................................... 5,700,000 1,154,763

34 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Moreno Valley USD, CFD Special Tax,
No. 2004-6, 5.00%, 9/01/22 .................................................................. $ 2,105,000 $ 2,154,236
No. 2004-6, 5.10%, 9/01/28 .................................................................. 2,000,000 2,056,640
No. 2004-6, 5.20%, 9/01/36 .................................................................. 5,000,000 5,152,650
b No. 2005-2, 5.00%, 9/01/36 .................................................................. 815,000 824,967
Murrieta 1915 Act Special Tax, CFD No. 2000-1, 6.375%, 9/01/30 ................................. 4,100,000 4,439,931
Murrieta CFD Special Tax,
Blackmore Ranch, Series 2003-2, 6.10%, 9/01/34 .............................................. 2,000,000 2,132,900
No. 2, The Oaks Improvement Area A, 5.90%, 9/01/27 .......................................... 2,000,000 2,126,040
No. 2, The Oaks Improvement Area A, 6.00%, 9/01/34 .......................................... 3,570,000 3,803,514
No. 2, The Oaks Improvement Area B, 6.00%, 9/01/27 .......................................... 1,285,000 1,380,154
No. 2, The Oaks Improvement Area B, 6.00%, 9/01/34 .......................................... 1,000,000 1,070,720
No. 2, The Oaks Improvement Area B, 6.00%, 9/01/34 .......................................... 2,870,000 3,072,966
No. 04-1, Bremerton, 5.625%, 9/01/34 ........................................................ 700,000 734,706
Murrieta CFD Special Tax Revenue, No. 1 Bluestone Improvement Area, Series A, 6.20%,
9/01/25 ....................................................................................... 2,105,000 2,250,898
Napa Valley USD, GO, Election of 2002, FGIC Insured, 5.00%,
8/01/26 ..................................................................................... 1,000,000 1,081,630
8/01/29 ..................................................................................... 4,100,000 4,425,294
Norco Special Tax,
CFD No. 97-1, Pre-Refunded, 7.10%, 10/01/30 ................................................. 2,640,000 3,022,298
CFD No. 2002-1, 6.50%, 3/01/33 .............................................................. 1,500,000 1,647,495
North Natomas CFD Special Tax, No. 4, Series B, 6.375%, 9/01/31 ................................ 4,300,000 4,491,995
Oakland GO, Measure G, AMBAC Insured, 5.00%, 1/15/31 ........................................... 4,585,000 4,939,283
Oakland RDA Tax Allocation, Broadway Project, Series C-TE, AMBAC Insured, 5.00%,
9/01/36 ....................................................................................... 4,945,000 5,274,535
Oakland USD Alameda County GO, Election of 2000, MBIA Insured, 5.00%, 8/01/27 .................. 2,000,000 2,154,100
Oceanside CFD Special Tax, No. 2001-1, Morro Hills Development, 5.50%, 9/01/34 ................. 3,470,000 3,568,721
Ontario COP, Water System Improvement Project, MBIA Insured, 5.00%, 7/01/34 .................... 8,000,000 8,486,880
Orange County 1915 Act Special Assessment, Limited Obligation, AD 01-1-GP1,
5.00%, 9/02/28 .............................................................................. 3,000,000 3,050,790
5.10%, 9/02/33 .............................................................................. 2,000,000 2,032,280
Oxnard Financing Authority Wastewater Revenue, Headworks Project, AMBAC Insured,
5.00%, 6/01/31 ................................................................................ 2,705,000 2,910,201
Oxnard Harbor District Revenue,
Series A, 5.75%, 8/01/20 .................................................................... 1,110,000 1,180,352
Series B, 6.00%, 8/01/24 .................................................................... 2,000,000 2,170,320
Oxnard Special Tax, CFD No. 3, Seabridge, 5.00%, 9/01/35 ....................................... 5,000,000 5,069,750
Palm Desert Financing Authority Tax Allocation Revenue, MBIA Insured, 5.00%, 4/01/41 ........... 4,470,000 4,757,421
Perris CFD Special Tax,
CFD No. 05-2, Series A, 5.00%, 9/01/21 ...................................................... 1,130,000 1,156,860
CFD No. 05-2, Series A, 5.20%, 9/01/24 ...................................................... 1,505,000 1,559,165
CFD No. 05-2, Series A, 5.25%, 9/01/29 ...................................................... 3,585,000 3,704,380
CFD No. 05-2, Series A, 5.30%, 9/01/35 ...................................................... 4,205,000 4,366,766
CFD No. 2001-1, May Farms, Series A, 5.00%, 9/01/25 ......................................... 1,415,000 1,457,606
CFD No. 2001-1, May Farms, Series A, 5.10%, 9/01/30 ......................................... 865,000 894,592

Semiannual Report | 35

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Perris CFD Special Tax, (continued)
CFD No. 2001-1, May Farms, Series A, 5.15%, 9/01/35 ..................................... $ 1,075,000 $ 1,110,765
CFD No. 2002-1, Series A, 6.375%, 9/01/23 ............................................... 1,475,000 1,628,887
CFD No. 2002-1, Series A, 6.50%, 9/01/29 ................................................ 2,045,000 2,270,175
CFD No. 2002-1, Series A, 6.50%, 9/01/33 ................................................ 2,120,000 2,346,946
CFD No. 2004-3, Improvement Area No. 2, Series A, 5.30%, 9/01/35 ........................ 1,390,000 1,459,597
No. 2001-1, Improvement Area No. 5, Series A, 5.00%, 9/01/26 ............................ 585,000 587,978
No. 2001-1, Improvement Area No. 5, Series A, 5.00%, 9/01/37 ............................ 1,600,000 1,610,080
Perris PFA Local Agency Revenue, Series A, 6.25%, 9/01/33 .................................. 3,000,000 3,300,390
Perris PFAR Tax Allocation,
5.30%, 10/01/26 ......................................................................... 2,000,000 2,059,180
5.35%, 10/01/36 ......................................................................... 4,010,000 4,126,049
Pico Rivera Water Authority Revenue, Refunding, Series A, 6.25%, 12/01/32 .................. 7,250,000 7,846,095
Placentia-Yorba Linda USD, GO, Election of 2002, Series C, MBIA Insured, 5.00%,
8/01/29 ................................................................................... 4,100,000 4,425,294
Poway USD Special Tax,
CFD, Area 6, Series B, 5.125%, 9/01/36 .................................................. 5,035,000 5,180,360
CFD, Ranch 6-4S, 5.125%, 9/01/35 ........................................................ 5,000,000 5,146,900
CFD No. 14, Area A, 5.125%, 9/01/26 ..................................................... 1,770,000 1,824,020
CFD No. 14, Area A, 5.25%, 9/01/36 ...................................................... 5,225,000 5,385,616
CFD No. 14, Del Sur, 5.125%, 9/01/26 .................................................... 2,200,000 2,260,104
Rancho Cordova CFD Special Tax, No. 2003-1, Sunridge Anatolia,
5.25%, 9/01/25 .......................................................................... 2,235,000 2,292,641
5.375%, 9/01/30 ......................................................................... 1,650,000 1,694,468
5.50%, 9/01/37 .......................................................................... 2,635,000 2,709,070
Rancho Santiago Community College District GO, FSA Insured, 5.125%,
9/01/28 ................................................................................. 5,295,000 6,282,835
9/01/29 ................................................................................. 6,745,000 8,028,371
Rancho Water District Special Tax, Community Facilities 99-1,
Area A, Series A, Pre-Refunded, 6.70%, 9/01/30 .......................................... 2,100,000 2,232,762
Area B, Series A, Pre-Refunded, 6.70%, 9/01/30 .......................................... 2,435,000 2,588,941
Redlands USD, GO, Election of 2002, FSA Insured, 5.00%, 7/01/25 ............................ 3,900,000 4,218,786
Richmond 1915 Act Special Assessment, Limited Obligation, ID No. 99-01, Pre-Refunded,
7.20%, 9/02/30 ............................................................................ 7,870,000 8,434,122
Richmond Joint Powers Financing Authority Revenue, Reassessment, Refunding, Series A,
AMBAC Insured, 5.00%, 9/02/30 ............................................................. 1,110,000 1,145,775
Rio Elementary School District CFD Special Tax, No. 1, 5.20%, 9/01/35 ...................... 5,000,000 5,117,900
Riverside County CFD Special Tax,
No. 87-5, senior lien, Refunding, Series A, 7.00%, 9/01/13 .............................. 6,620,000 7,028,520
No. 89-1, Mountain Cove, Pre-Refunded, 6.50%, 9/01/25 ................................... 3,390,000 3,715,779
Riverside USD Special Tax,
CFD No. 13, Improvement Area 1, 5.375%, 9/01/34 ......................................... 2,320,000 2,390,737
CFD No. 14, Series A, 5.40%, 9/01/26 .................................................... 1,010,000 1,041,027
CFD No. 14, Series A, 5.45%, 9/01/35 .................................................... 2,060,000 2,123,221
CFD No. 15, Improvement Area 1, 5.45%, 9/01/25 .......................................... 2,970,000 3,062,397
CFD No. 15, Improvement Area 1, 5.55%, 9/01/30 .......................................... 2,390,000 2,464,735

36 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Riverside USD Special Tax, (continued)
CFD No. 15, Improvement Area 1, 5.60%, 9/01/34 ............................................ $ 2,000,000 $ 2,062,480
CFD No. 15, Series A, 5.15%, 9/01/25 ...................................................... 1,730,000 1,783,249
CFD No. 15, Series A, 5.25%, 9/01/30 ...................................................... 1,230,000 1,267,896
CFD No. 15, Series A, 5.25%, 9/01/35 ...................................................... 1,500,000 1,546,095
CFD No. 17, Aldea, 5.125%, 9/01/35 ........................................................ 1,425,000 1,450,508
CFD No. 18, 5.00%, 9/01/25 ................................................................ 505,000 511,742
CFD No. 18, 5.00%, 9/01/34 ................................................................ 1,125,000 1,134,428
CFD No. 22, 5.25%, 9/01/35 ................................................................ 1,535,000 1,573,697
Romoland School District Special Tax, CFD 1,
Improvement Area 1, 5.45%, 9/01/38 ........................................................ 3,215,000 3,313,250
Improvement Area 2, 5.375%, 9/01/38 ....................................................... 3,085,000 3,168,048
Roseville Special Tax, CFD No. 1,
Fiddyment Ranch, 5.00%, 9/01/17 ........................................................... 1,520,000 1,564,779
Fiddyment Ranch, 5.00%, 9/01/19 ........................................................... 1,000,000 1,020,800
Fiddyment Ranch, 5.125%, 9/01/21 .......................................................... 1,000,000 1,027,320
Fiddyment Ranch, 5.00%, 9/01/24 ........................................................... 1,010,000 1,027,816
Fiddyment Ranch, 5.00%, 9/01/25 ........................................................... 1,020,000 1,036,534
Fiddyment Ranch, 5.125%, 9/01/26 .......................................................... 5,000,000 5,113,150
Fiddyment Ranch, 5.25%, 9/01/36 ........................................................... 8,000,000 8,206,720
Highland, Pre-Refunded, 6.30%, 9/01/25 .................................................... 8,610,000 9,392,821
Longmeadow, 5.00%, 9/01/36 ................................................................ 2,370,000 2,400,170
Stone Point, 6.375%, 9/01/24 .............................................................. 1,750,000 1,928,098
Stone Point, 6.375%, 9/01/28 .............................................................. 2,500,000 2,746,825
Stoneridge, 6.20%, 9/01/21 ................................................................ 1,250,000 1,347,675
Stoneridge, 6.30%, 9/01/31 ................................................................ 1,500,000 1,618,185
WestPark, 5.15%, 9/01/30 .................................................................. 5,500,000 5,639,645
WestPark, 5.20%, 9/01/36 .................................................................. 4,500,000 4,617,225
Woodcreek West, Pre-Refunded, 6.70%, 9/01/25 .............................................. 3,000,000 3,303,840
Roseville Westpark CFD No. 1 Special Tax, Public Facilities,
5.20%, 9/01/26 ............................................................................ 1,000,000 1,030,500
5.25%, 9/01/37 ............................................................................ 1,600,000 1,648,752
Sacramento County Sanitation District Financing Authority Revenue, Sacramento Regional
County Sanitation, Series A, AMBAC Insured, 5.00%, 12/01/35 ................................. 7,000,000 7,499,310
Sacramento County Special Tax, CFD No. 1, Refunding, 6.30%, 9/01/21 .......................... 1,575,000 1,617,226
Sacramento Special Tax, North Natomas Community Facilities 97-01, Refunding,
5.00%, 9/01/29 ............................................................................ 1,190,000 1,216,727
5.10%, 9/01/35 ............................................................................ 1,525,000 1,562,088
San Diego Port District Revenue, MBIA Insured, 5.00%, 9/01/29 ................................ 4,030,000 4,306,780
San Diego RDA Tax Allocation, Capital Appreciation, Series B, zero cpn.,
9/01/10 ................................................................................... 2,750,000 2,340,443
9/01/15 ................................................................................... 6,810,000 4,576,592
9/01/16 ................................................................................... 1,500,000 950,490
9/01/19 ................................................................................... 1,800,000 936,468
9/01/20 ................................................................................... 1,800,000 871,956
9/01/21 ................................................................................... 1,800,000 813,528

Semiannual Report | 37

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Diego RDA Tax Allocation, Capital Appreciation, Series B, zero cpn., (continued)
9/01/22 ................................................................................... $ 1,900,000 $ 795,891
9/01/23 ................................................................................... 1,900,000 743,831
9/01/24 ................................................................................... 1,900,000 694,355
9/01/25 ................................................................................... 1,900,000 649,078
9/01/26 ................................................................................... 1,900,000 607,525
9/01/27 ................................................................................... 1,900,000 569,848
9/01/28 ................................................................................... 1,900,000 535,059
San Francisco City and County Airports Commission International Airport Revenue, Issue 32G,
Refunding, Second Series, FGIC Insured, 5.00%, 5/01/26 ...................................... 8,565,000 9,279,492
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 4,585,095
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.70% thereafter,
1/15/19 .................................................................................. 3,000,000 3,040,890
Capital Appreciation, Refunding, Series A, zero cpn. to 1/15/07, 5.75% thereafter,
1/15/21 .................................................................................. 24,750,000 25,049,475
junior lien, ETM, zero cpn., 1/01/28 ...................................................... 19,150,000 7,845,372
Refunding, Series A, 5.50%, 1/15/28 ....................................................... 3,320,000 3,344,734
senior lien, 5.00%, 1/01/33 ............................................................... 12,500,000 12,500,500
San Marcos PFA Special Tax Revenue, Series A,
6.375%, 9/01/35 ........................................................................... 3,535,000 3,690,399
5.65%, 9/01/36 ............................................................................ 5,180,000 5,403,465
Pre-Refunded, 6.45%, 9/01/34 .............................................................. 3,180,000 3,308,885
San Marcos Public Facilities Authority Special Tax Revenue, Series A, 5.05%, 9/01/38 ...... 3,250,000 3,270,215
San Marcos RDA Tax Allocation, Affordable Housing Project, Series A, 5.65%, 10/01/28 ......... 2,000,000 2,054,320
San Mateo RDA Tax Allocation, Merged Area, Series A, Pre-Refunded, 5.50%, 8/01/22 ............ 1,000,000 1,032,810
Santa Rosa RDA Tax Allocation, Southwest Redevelopment Project, Series A, AMBAC Insured,
5.00%, 8/01/25 .............................................................................. 1,250,000 1,343,475
Saugus USD Special Tax, CFD No. 2005-1, 5.30%, 9/01/36 ....................................... 2,000,000 2,061,460
Simi Valley 1915 Act Special Assessment, AD No. 98-1, Madera, 7.30%, 9/02/24 ................. 4,000,000 4,235,720
Southern California Public Power Authority Transmission Project Revenue, Southern
Transmission Project, 6.125%, 7/01/18 ....................................................... 50,000 50,042
Stockton 1915 Act Revenue, Limited Obligation, Mosher AD 02, 6.20%, 9/02/23 .................. 2,955,000 3,101,125
Stockton 1915 Act Special Assessment, Limited Obligation, Mosher AD 02, 6.30%,
9/02/33 ..................................................................................... 3,390,000 3,557,534
Stockton CFD Special Tax, No. 2001-1, Spanos Park West, Pre-Refunded, 6.25%,
9/01/25 ..................................................................................... 3,500,000 4,047,680
Sunnyvale School District GO, Election of 2004, Series A, FSA Insured, 5.00%, 9/01/27 ........ 2,745,000 2,968,745
Temecula Valley USD, CFD Special Tax, No. 2005-1, 5.00%, 9/01/36 ............................. 1,000,000 1,017,680
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Capital Appreciation, Asset-Backed, Series A-2, zero cpn. to 5/31/08, 5.40% thereafter,
6/01/27 .................................................................................. 1,250,000 1,199,850
Series A-1, 5.375%, 6/01/38 ............................................................... 5,000,000 5,226,850
Series A-1, 5.50%, 6/01/45 ................................................................ 2,000,000 2,108,060

38 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Tobacco Securitization Authority Southern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Second Sub Series, zero cpn., 6/01/46 .................................. $ 25,000,000 $ 2,131,000
Torrance COP, Refunding and Public Improvement Project, Series A, AMBAC Insured, 5.00%,
6/01/34 .................................................................................... 3,720,000 3,946,325
Truckee-Donner PUD Special Tax, CFD No. 04-1,
5.75%, 9/01/29 ........................................................................... 2,975,000 3,069,188
5.80%, 9/01/35 ........................................................................... 4,630,000 4,776,539
Truckee-Donner PUD Special Tax Allocation, Special Tax Bonds,
5.20%, 9/01/25 ........................................................................... 3,000,000 3,092,250
5.25%, 9/01/30 ........................................................................... 5,050,000 5,204,631
5.30%, 9/01/35 ........................................................................... 7,395,000 7,607,976
Tustin USD School Facilities Improvement District GO, No. 2002-1, Election of 2002,
Series B, AMBAC Insured, 5.00%, 6/01/31 .................................................... 3,605,000 3,908,036
Upland CFD Special Tax, 2003-2 San Antonio Improvement, Series 1-A,
5.90%, 9/01/24 ........................................................................... 2,380,000 2,507,592
6.00%, 9/01/34 ........................................................................... 2,000,000 2,109,540
Vacaville USD, GO, Election of 2001, MBIA Insured, 5.00%,
8/01/24 .................................................................................. 2,510,000 2,711,051
8/01/25 .................................................................................. 1,000,000 1,078,580
8/01/26 .................................................................................. 1,000,000 1,077,810
Vallejo COP, Marine World Foundation Project, Refunding, 7.40%, 2/01/28 ..................... 9,345,000 9,571,710
Vallejo RDA Tax Allocation, Housing Set-Aside, Refunding, Series A, 7.00%, 10/01/31 ......... 4,965,000 5,519,938
Valley Sanitary District 1915 Act Special Assessment, AD No. 04, Valley Sanitary District,
Limited Obligation,
5.00%, 9/02/25 ........................................................................... 1,060,000 1,087,942
5.20%, 9/02/30 ........................................................................... 1,370,000 1,453,063
Ventura USD, GO, Refunding, FSA Insured,
5.125%, 8/01/28 .......................................................................... 1,180,000 1,306,767
4.50%, 8/01/30 ........................................................................... 4,175,000 4,285,429
West Sacramento Special Tax,
CFD No. 10, Pre-Refunded, 6.75%, 9/01/26 ................................................. 3,235,000 3,566,814
CFD No. 16, Pre-Refunded, 5.90%, 9/01/23 ................................................. 1,000,000 1,119,940
CFD No. 20, 5.125%, 9/01/25 .............................................................. 500,000 516,135
CFD No. 20, 5.30%, 9/01/35 ............................................................... 1,740,000 1,805,146
Western Riverside County Water and Wastewater Finance Authority Revenue,
Eastern Municipal Water District Improvement, Series A, 5.00%,
9/01/30 .................................................................................. 1,925,000 2,025,331
9/01/35 .................................................................................. 2,000,000 2,098,280
b Westside USD, CFD Special Tax, No. 2005-3, 5.00%,
9/01/26 .................................................................................. 700,000 702,618
9/01/36 .................................................................................. 2,080,000 2,080,000
William S. Hart UHSD Special Tax, CFD No. 2005-1, 5.30%, 9/01/36 ............................ 2,500,000 2,576,825
Woodland Special Tax, CFD No. 1,
6.00%, 9/01/28 ........................................................................... 5,000,000 5,480,150
6.25%, 9/01/34 ........................................................................... 6,750,000 7,478,662
--------------
1,329,041,921
--------------

Semiannual Report | 39

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 2.8%
GUAM 0.2%
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.60%,
3/15/28 .................................................................................... $ 1,790,000 $ 1,999,806
--------------
PUERTO RICO 2.6%
Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, 5.00%,
7/01/35 .................................................................................... 10,000,000 10,616,800
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue, Series A,
FGIC Insured, 5.00%,
7/01/25 .................................................................................. 12,330,000 13,425,027
7/01/26 .................................................................................. 13,940,000 15,189,721
--------------
39,231,548
--------------
TOTAL U.S. TERRITORIES ...................................................................... 41,231,354
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,288,411,461) ........................................... 1,370,273,275
--------------
SHORT TERM INVESTMENTS 8.4%
MUNICIPAL BONDS 8.4%
CALIFORNIA 8.4%
d California Health Facilities Financing Authority Revenue, Sutter Health, Refunding, Series B,
AMBAC Insured, Daily VRDN and Put, 3.47%, 7/01/12 .......................................... 3,000,000 3,000,000
d California Infrastructure and Economic Development Bank Insured Revenue, Rand Corp.,
Series B, AMBAC Insured, Daily VRDN and Put, 3.47%, 4/01/42 ................................ 5,200,000 5,200,000
d California PCFA, PCR, Exxon Mobil Project, Refunding, Daily VRDN and Put, 3.45%,
4/01/17 .................................................................................... 1,600,000 1,600,000
d California State Department of Water Resources Power Supply Revenue,
Refunding, Sub Series F-1, Daily VRDN and Put, 3.35%, 5/01/19 ............................ 2,100,000 2,100,000
Refunding, Sub Series F-5, Weekly VRDN and Put, 3.68%, 5/01/22 ........................... 1,700,000 1,700,000
Series B-3, Daily VRDN and Put, 3.52%, 5/01/22 ........................................... 10,000,000 10,000,000
Series B-5, Daily VRDN and Put, 3.55%, 5/01/22 ........................................... 3,900,000 3,900,000
Series B-6, Daily VRDN and Put, 3.35%, 5/01/22 ........................................... 1,500,000 1,500,000
Series C-7, FSA Insured, Weekly VRDN and Put, 3.30%, 5/01/22 ............................. 7,700,000 7,700,000
d California State Economic Recovery GO, Series C-1, Daily VRDN and Put, 3.68%,
7/01/23 .................................................................................... 3,300,000 3,300,000
d California State Economic Recovery Revenue,
Series C-2, Weekly VRDN and Put, 3.55%, 7/01/23 .......................................... 4,350,000 4,350,000
Series C-3, Daily VRDN and Put, 3.55%, 7/01/23 ........................................... 200,000 200,000
Series C-6, Daily VRDN and Put, 3.47%, 7/01/23 ........................................... 9,200,000 9,200,000
Series C-8, Daily VRDN and Put, 3.52%, 7/01/23 ........................................... 5,775,000 5,775,000
Series C-16, FSA Insured, Weekly VRDN and Put, 3.30%, 7/01/23 ............................ 2,900,000 2,900,000
d California State GO,
Kindergarten-University, Refunding, Series A-1, Daily VRDN and Put, 3.50%, 5/01/34 ....... 800,000 800,000
Kindergarten-University, Refunding, Series A-3, Daily VRDN and Put, 3.65%, 5/01/34 ....... 700,000 700,000
Kindergarten-University, Series A-5, Daily VRDN and Put, 3.47%, 5/01/34 .................. 1,100,000 1,100,000
Kindergarten-University, Series B-3, Daily VRDN and Put, 3.35%, 5/01/34 .................. 5,900,000 5,900,000
Series A-1, Daily VRDN and Put, 3.65%, 5/01/33 ........................................... 2,000,000 2,000,000
Series A-2, Daily VRDN and Put, 3.47%, 5/01/33 ........................................... 4,400,000 4,400,000
Series A-3, Daily VRDN and Put, 3.55%, 5/01/33 ........................................... 5,600,000 5,600,000

40 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
d Daly City HFA, MFR, Refunding, Weekly VRDN and Put, 3.33%, 10/15/29 ...................... $ 3,000,000 $ 3,000,000
d Irvine 1915 Act Revenue, AD No. 94-15, Daily VRDN and Put, 3.35%, 9/02/20 ................ 1,100,000 1,100,000
d Irvine 1915 Act Special Assessment, AD No. 93-14, Daily VRDN and Put, 3.55%,
9/02/25 ................................................................................. 800,000 800,000
d Irvine Ranch Water District Revenue, ID No. 182, Series A, Daily VRDN and Put, 3.55%,
11/15/13 ................................................................................ 800,000 800,000
d Los Angeles Department of Water and Power Waterworks Revenue, Sub Series B-2,
Daily VRDN and Put, 3.35%, 7/01/35 ...................................................... 1,400,000 1,400,000
d Los Angeles Water and Power Revenue, Refunding, Sub Series B-1, Weekly VRDN and Put,
3.30%, 7/01/34 .......................................................................... 6,300,000 6,300,000
d Metropolitan Water District Southern California Waterworks Revenue,
Refunding, Series B-1, Daily VRDN and Put, 3.35%, 7/01/35 ............................. 7,700,000 7,700,000
Refunding, Series B-3, Daily VRDN and Put, 3.55%, 7/01/35 ............................. 100,000 100,000
Series B, Weekly VRDN and Put, 3.27%, 7/01/27 ......................................... 1,000,000 1,000,000
Series C-1, Daily VRDN and Put, 3.68%, 7/01/36 ........................................ 4,800,000 4,800,000
Series C-2, Daily VRDN and Put, 3.47%, 7/01/36 ........................................ 5,950,000 5,950,000
d Newport Beach Revenue, Hoag Memorial Presbyterian Hospital, Series B, Weekly VRDN and
Put, 3.45%, 10/01/26 .................................................................... 4,800,000 4,800,000
d Orange County Housing Authority Apartment Development Revenue, Oasis Martinique,
Refunding, Series I, FNMA Insured, Weekly VRDN and Put, 3.34%, 6/15/28 .................. 6,000,000 6,000,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $126,675,000) ......................................... 126,675,000
--------------
TOTAL INVESTMENTS (COST $1,415,086,461) 99.8% ............................................ 1,496,948,275
OTHER ASSETS, LESS LIABILITIES 0.2% ...................................................... 2,853,644
--------------
NET ASSETS 100.0% ........................................................................ $1,499,801,919
==============

See Selected Portfolio Abbreviations on page 47.

a See Note 6 regarding defaulted securities.

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

c Security has been deemed illiquid because it may not be able to be sold
within seven days. At November 30, 2006, the aggregate value of these
securities was $8,451,593, representing 0.56% of net assets.

d 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. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 41

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

----------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 2006 YEAR ENDED MAY 31,
CLASS A (UNAUDITED) 2006 2005 2004 2003 2002
----------------------------------------------------------------------------------

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

Net asset value, beginning of period ............. $ 11.18 $ 11.48 $ 11.04 $ 11.59 $ 10.95 $ 10.82
-----------------------------------------------------------------------------
Income from investment operations a:

Net investment income b ......................... 0.23 0.47 0.48 0.49 0.50 0.52

Net realized and unrealized gains (losses) ...... 0.21 (0.30) 0.44 (0.55) 0.65 0.15
-----------------------------------------------------------------------------
Total from investment operations ................. 0.44 0.17 0.92 (0.06) 1.15 0.67
-----------------------------------------------------------------------------
Less distributions from net investment income .... (0.23) (0.47) (0.48) (0.49) (0.51) (0.54)
-----------------------------------------------------------------------------
Redemption fees .................................. -- d -- d -- d -- -- --
-----------------------------------------------------------------------------
Net asset value, end of period ................... $ 11.39 $ 11.18 $ 11.48 $ 11.04 $ 11.59 $ 10.95
=============================================================================

Total return c ................................... 3.96% 1.54% 8.50% (0.56)% 10.64% 6.38%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000's) ................ $160,910 $146,005 $121,645 $111,223 $115,514 $99,208

Ratios to average net assets:

Expenses before waiver and payments
by affiliates .................................. 0.75% e 0.77% 0.79% 0.79% 0.80% 0.80%

Expenses net of waiver and payments
by affiliates .................................. 0.70% e 0.70% 0.70% 0.60% 0.60% 0.56%

Net investment income ........................... 4.07% e 4.15% 4.24% 4.34% 4.49% 4.76%

Portfolio turnover rate .......................... 6.24% 2.47% 8.36% 13.01% 8.24% 22.99%

b Based on average daily shares outstanding.

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

d Amount rounds to less than $0.01 per share.

e Annualized.

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

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED)

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

LONG TERM INVESTMENTS 96.8%
MUNICIPAL BONDS 96.8%
TENNESSEE 86.6%
Bristol Electric Revenue, System, AMBAC Insured, 5.00%, 9/01/29 ................................ $ 1,075,000 $ 1,160,968
Chattanooga GO, 5.00%, 3/01/22 ................................................................. 2,215,000 2,288,870
Clarksville Water Sewer and Gas Revenue, Refunding and Improvement, FSA Insured, 5.00%,
2/01/22 ....................................................................................... 2,000,000 2,091,360
Cleveland Public Improvement GO, FGIC Insured, Pre-Refunded, 5.25%, 6/01/24 .................... 3,000,000 3,124,800
Fayetteville and Lincoln IDBR, Hospital Facility Lease, AMBAC Insured,
5.30%, 5/01/28 .............................................................................. 1,830,000 1,876,756
Pre-Refunded, 5.30%, 5/01/28 ................................................................ 1,170,000 1,198,922
Franklin County Health and Educational Facilities Board Revenue, University South Project,
AMBAC Insured, 5.00%, 9/01/24 ................................................................. 2,000,000 2,155,340
Franklin GO, Sewer and Water, Series B, Pre-Refunded, 5.00%, 4/01/19 ........................... 1,000,000 1,082,010
Franklin Special School District GO, 5.00%, 6/01/22 ............................................ 1,455,000 1,562,932
Greene County GO, Refunding, Series B, MBIA Insured, 5.00%, 6/01/24 ............................ 1,000,000 1,083,240
Hallsdale-Powell Utility District Knox County Water and Sewer Revenue,
FGIC Insured, 5.00%, 4/01/31 ................................................................ 1,000,000 1,090,020
Refunding and Improvement, Series A, FGIC Insured, 5.00%, 4/01/27 ........................... 2,500,000 2,653,725
Harpeth Valley Utilities District Davidson and Williamson Counties Revenue, Utilities
Improvement, MBIA Insured, 5.00%,
9/01/29 ..................................................................................... 1,000,000 1,071,430
9/01/34 ..................................................................................... 2,310,000 2,467,057
Jackson Natural Gas Revenue, AMBAC Insured, 5.00%, 4/15/18 ..................................... 2,000,000 2,009,220
Johnson City GO, Solid Waste, AMBAC Insured, 5.80%, 5/01/09 .................................... 100,000 100,079
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 3,213,243
Series 2000 A, MBIA Insured, Pre-Refunded, 5.125%, 7/01/25 .................................. 3,000,000 3,104,340
Johnson City Health and Educational Facilities Board Revenue, Pine Oaks Assisted Project,
Series A, GNMA Secured, 5.90%, 6/20/37 ........................................................ 1,390,000 1,435,161
Knox County First Utility District Water and Sewer Revenue,
MBIA Insured, 5.00%, 12/01/24 ............................................................... 1,790,000 1,953,158
MBIA Insured, 5.00%, 12/01/25 ............................................................... 1,000,000 1,090,280
Refunding and Improvement, Refunding, Series A, MBIA Insured, 5.625%, 12/01/19 .............. 555,000 571,561
Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded, 5.625%,
12/01/19 ................................................................................... 445,000 458,497
Knox County Health Educational and Housing Facilities Board Hospital Facilities Revenue,
Fort Sanders Alliance, Refunding, MBIA Insured, 5.75%, 1/01/14 ................................ 1,250,000 1,412,288
Knox County IDB, MFR, Waterford Apartments, Refunding, Series A, FHA Insured, 5.95%,
3/01/28 ....................................................................................... 250,000 252,930
Knoxville Electric Revenue, System, Series U, Pre-Refunded, 5.125%, 7/01/21 .................... 2,340,000 2,461,774
Knoxville Waste Water System Revenue, Improvement, Series A, MBIA Insured, 5.00%,
4/01/37 ....................................................................................... 3,620,000 3,884,513
Knoxville Water Revenue, System Improvement, Series R, FSA Insured, 5.00%, 3/01/30 ............. 2,370,000 2,548,603
Lawrenceburg Electric Revenue, MBIA Insured, Pre-Refunded, 5.50%, 7/01/26 ...................... 1,000,000 1,049,010
Lawrenceburg PBA, GO, Electric Systems, Public Works, AMBAC Insured, 5.00%, 7/01/22 ............ 2,500,000 2,767,575

Semiannual Report | 43

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
Lenoir City Electric System Revenue, Refunding and Improvement, FSA Insured, 5.00%,
6/01/21 ....................................................................................... $ 2,000,000 $ 2,102,400
Memphis GO, Pre-Refunded, 5.00%, 4/01/17 ....................................................... 2,000,000 2,056,660
Memphis-Shelby County Airport Authority Airport Revenue, Series D, AMBAC Insured, 6.00%,
3/01/24 ....................................................................................... 4,780,000 5,071,962
Memphis-Shelby County Sports Authority Revenue, Memphis Arena Project, Series A,
AMBAC Insured, 5.25%, 11/01/23 ................................................................ 7,145,000 7,727,460
Metropolitan Government of Nashville and Davidson County Electric Revenue, Series A,
5.20%, 5/15/23 .............................................................................. 800,000 835,240
AMBAC Insured, 5.00%, 5/15/25 ............................................................... 5,000,000 5,335,650
Metropolitan Government of Nashville and Davidson County GO,
Refunding, 5.125%, 5/15/25 .................................................................. 2,600,000 2,667,132
Refunding, Series B, 5.00%, 8/01/25 ......................................................... 5,000,000 5,430,350
Series C, 5.00%, 2/01/25 .................................................................... 3,000,000 3,228,480
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 2,680,725
Mortgage, Dandridge Towers Section 8, Series A, ETM, 6.375%, 1/01/11 ........................ 500,000 506,225
Metropolitan Government of Nashville and Davidson County Water and Sewer Revenue,
Refunding, 5.50%, 1/01/16 ..................................................................... 620,000 620,360
Montgomery County Health Educational and Housing Facility Board Hospital Revenue,
Clarksville Regional Health System, Improvement, Pre-Refunded, 5.375%,
1/01/18 ..................................................................................... 175,000 179,954
1/01/28 ..................................................................................... 4,270,000 4,390,884
Oak Ridge Utility District Gas System Revenue, AMBAC Insured, 5.50%, 4/01/25 ................... 750,000 788,678
Rutherford County Consolidated Utility District Waterworks Revenue,
FSA Insured, 5.00%, 2/01/36 ................................................................. 3,060,000 3,302,260
Refunding, MBIA Insured, 5.00%, 2/01/27 ..................................................... 1,000,000 1,084,540
Shelby County GO, Public Improvement and School, Refunding, Series B, 5.00%, 6/01/24 ........... 2,000,000 2,072,840
Shelby County Health Educational and Housing Facilities Board Revenue, Ave Maria Assisted
Living Project, Series A, 5.50%, 12/01/31 ..................................................... 2,010,000 2,104,631
South Blount County Utility District Waterworks Revenue, FGIC Insured, 4.50%, 12/01/22 ......... 1,750,000 1,800,872
Sullivan County IDBR, Brandymill, Refunding, Series I-A, 6.35%, 7/20/27 ........................ 350,000 358,257
Tennessee HDA Revenue,
Homeownership, Series 3C, 6.00%, 1/01/20 .................................................... 330,000 340,181
Homeownership Program, 5.375%, 7/01/23 ...................................................... 430,000 440,703
Homeownership Program, Issue 4A, 6.375%, 7/01/22 ............................................ 35,000 35,691
Homeownership Program 2006-3, 4.90%, 7/01/37 ................................................ 5,000,000 5,087,800
Tennessee State School Bond Authority Revenue, Higher Education Facilities, Second Program,
Refunding, Series A, MBIA Insured, 5.00%,
5/01/26 ..................................................................................... 1,250,000 1,346,763
5/01/30 ..................................................................................... 3,000,000 3,234,480
West Carroll Special School GO, MBIA Insured, Pre-Refunded, 5.375%, 6/01/29 .................... 1,055,000 1,102,011

44 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

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

LONG TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
West Wilson Utility District Waterworks Revenue,
AMBAC Insured, Pre-Refunded, 5.25%, 6/01/23 ............................................. $ 3,780,000 $ 4,049,325
Improvement, MBIA Insured, 5.00%, 6/01/26 ............................................... 1,805,000 1,931,657
Refunding, AMBAC Insured, 5.25%, 6/01/23 ................................................ 720,000 765,763
Refunding, MBIA Insured, 4.75%, 6/01/23 ................................................. 1,805,000 1,910,953
White House Utility District Robertson and Sumner Counties Water and Sewer Revenue,
FSA Insured, Pre-Refunded, 5.125%, 1/01/26 .............................................. 1,100,000 1,166,407
FSA Insured, Pre-Refunded, 6.00%, 1/01/26 ............................................... 1,000,000 1,071,890
Refunding, FSA Insured, 5.125%, 1/01/26 ................................................. 1,400,000 1,470,952
White House Utility District Robertson and Sumner Counties Waterworks System Revenue,
Series B, FGIC Insured, Pre-Refunded, 5.375%, 1/01/19 ..................................... 1,000,000 1,001,170
Williamson County GO, Public Improvement,
Pre-Refunded, 5.375%, 3/01/19 ........................................................... 1,480,000 1,561,400
Pre-Refunded, 5.00%, 4/01/20 ............................................................ 2,000,000 2,136,420
Refunding, 5.00%, 3/01/20 ............................................................... 2,000,000 2,185,940
Wilson County COP, FSA Insured, 5.25%, 3/30/18 ............................................. 1,000,000 1,039,180
------------
139,443,908
------------
U.S. TERRITORIES 10.2%
PUERTO RICO 9.5%
Puerto Rico Commonwealth GO, Public Improvement, Series A, FGIC Insured, Pre-Refunded,
5.00%, 7/01/32 ............................................................................ 1,500,000 1,614,540
Puerto Rico Electric Power Authority Power Revenue, Refunding, Series SS, MBIA Insured,
5.00%, 7/01/25 ............................................................................ 5,000,000 5,404,900
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 ............................................................. 200,000 200,368
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/30 ........ 5,000,000 5,396,700
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .................................................... 655,000 697,549
Series D, Pre-Refunded, 5.375%, 7/01/33 ................................................. 1,845,000 2,010,902
------------
15,324,959
------------
VIRGIN ISLANDS 0.7%
Virgin Islands PFAR, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 .... 1,000,000 1,037,140
------------
TOTAL U.S. TERRITORIES ..................................................................... 16,362,099
------------
TOTAL LONG TERM INVESTMENTS (COST $147,946,966) ............................................ 155,806,007
------------
SHORT TERM INVESTMENTS 1.1%
MUNICIPAL BONDS 1.1%
TENNESSEE 1.1%
a Clarksville PBA Revenue, Pooled Financing, Tennessee Municipal Bond Fund, Daily VRDN and
Put, 3.65%,
1/01/33 ................................................................................. 645,000 645,000
11/01/35 ................................................................................ 400,000 400,000

Semiannual Report | 45

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED) (CONTINUED)

SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
a Montgomery County PBA Pooled Financing Revenue, Tennessee County Loan Pool, Daily VRDN
and Put, 3.65%,
4/01/32 .................................................................................. $ 300,000 $ 300,000
7/01/34 .................................................................................. 300,000 300,000
2/01/36 .................................................................................. 100,000 100,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,745,000) .............................................. 1,745,000
------------
TOTAL INVESTMENTS (COST $149,691,966) 97.9% ................................................. 157,551,007
OTHER ASSETS, LESS LIABILITIES 2.1% ......................................................... 3,358,662
------------
NET ASSETS 100.0% ........................................................................... $160,909,669
============

See Selected Portfolio Abbreviations on page 47.

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. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.

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

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2006 (UNAUDITED)

SELECTED PORTFOLIO ABBREVIATIONS

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
CIFP - Capital Improvement Financing Program
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
ID - Improvement District
IDB - Industrial Development Bond/Board
IDBR - Industrial Development Board 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
UHSD - Unified/Union High School District
USD - Unified/Union School District

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 47

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2006 (unaudited)

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

Assets:
Investments in securities:
Cost ................................................................................... $ 1,415,086,461 $ 149,691,966
=====================================
Value .................................................................................. $ 1,496,948,275 $ 157,551,007
Cash .................................................................................... 1,461,214 83,211
Receivables:
Capital shares sold .................................................................... 9,080,403 1,611,137
Interest ............................................................................... 18,272,012 2,247,046
-------------------------------------
Total assets ..................................................................... 1,525,761,904 161,492,401
-------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................................................ 21,517,756 --
Capital shares redeemed ................................................................ 2,013,815 317,585
Affiliates ............................................................................. 833,535 88,029
Distributions to shareholders .......................................................... 1,562,072 171,180
Accrued expenses and other liabilities .................................................. 32,807 5,938
-------------------------------------
Total liabilities ................................................................ 25,959,985 582,732
-------------------------------------
Net assets, at value ........................................................... $ 1,499,801,919 $ 160,909,669
=====================================
Net assets consist of:
Paid-in capital ......................................................................... $ 1,471,980,323 $ 157,305,752
Undistributed net investment income (distributions in excess of net investment income) .. 455,701 (93,683)
Net unrealized appreciation (depreciation) .............................................. 81,861,814 7,859,041
Accumulated net realized gain (loss) .................................................... (54,495,919) (4,161,441)
=====================================
Net assets, at value ........................................................... $ 1,499,801,919 $ 160,909,669
=====================================

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

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2006 (unaudited)

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

CLASS A:
Net assets, at value ............................................................ $1,233,445,152 $160,909,669
=====================================
Shares outstanding .............................................................. 116,569,164 14,132,538
=====================================
Net asset value per share a ..................................................... $ 10.58 $ 11.39
=====================================
Maximum offering price per share (net asset value per share / 95.75%) ........... $ 11.05 $ 11.90
=====================================
CLASS B:
Net assets, at value ............................................................ $ 28,833,270
==============
Shares outstanding .............................................................. 2,711,282
==============
Net asset value and maximum offering price per share a .......................... $ 10.63
==============
CLASS C:
Net assets, at value ............................................................ $ 237,383,221
==============
Shares outstanding .............................................................. 22,340,613
==============
Net asset value and maximum offering price per share a .......................... $ 10.63
==============
ADVISOR CLASS:
Net assets, at value ............................................................ $ 140,276
==============
Shares outstanding .............................................................. 13,260
==============
Net asset value and maximum offering price per share a .......................... $ 10.58
==============

a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Funds.

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 49

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS
for the six months ended November 30, 2006 (unaudited)

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

Investment income:
Interest ............................................................................. $36,228,531 $ 3,671,149
----------------------------
Expenses:
Management fees (Note 3a) ............................................................ 3,225,292 446,984
Distribution fees: (Note 3c)
Class A ............................................................................. 569,513 76,897
Class B ............................................................................. 94,431 --
Class C ............................................................................. 684,229 --
Transfer agent fees (Note 3e) ........................................................ 186,417 23,746
Custodian fees ....................................................................... 9,592 1,072
Reports to shareholders .............................................................. 34,547 3,362
Registration and filing fees ......................................................... 23,231 3,133
Professional fees .................................................................... 10,416 9,776
Trustees' fees and expenses .......................................................... 17,515 2,280
Other ................................................................................ 42,951 10,464
----------------------------
Total expenses ................................................................ 4,898,134 577,714
Expenses waived/paid by affiliates (Note 3f) .................................. -- (39,642)
----------------------------
Net expenses ................................................................ 4,898,134 538,072
----------------------------
Net investment income ...................................................... 31,330,397 3,133,077
----------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............................................ 187,106 (11,294)
Net change in unrealized appreciation (depreciation) on investments .................. 36,357,744 2,811,344
----------------------------
Net realized and unrealized gain (loss) ............................................... 36,544,850 2,800,050
----------------------------
Net increase (decrease) in net assets resulting from operations ....................... $67,875,247 $ 5,933,127
============================

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

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

------------------------------------------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL FUND MUNICIPAL BOND FUND
------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 2006 YEAR ENDED NOVEMBER 30, 2006 YEAR ENDED
(UNAUDITED) MAY 31, 2006 (UNAUDITED) MAY 31, 2006
------------------------------------------------------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 31,330,397 $ 52,424,549 $ 3,133,077 $ 5,585,564
Net realized gain (loss) from investments .... 187,106 (508,967) (11,294) 52,369
Net change in unrealized appreciation
(depreciation) on investments .............. 36,357,744 (8,004,566) 2,811,344 (3,555,574)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .................. 67,875,247 43,911,016 5,933,127 2,082,359
------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A .................................... (26,531,737) (44,685,749) (3,113,349) (5,617,732)
Class B .................................... (605,551) (1,322,154) -- --
Class C .................................... (4,311,890) (6,510,001) -- --
Advisor Class .............................. (166) -- -- --
------------------------------------------------------------------------------
Total distributions to shareholders ........... (31,449,344) (52,517,904) (3,113,349) (5,617,732)
------------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .................................... 136,359,424 296,262,889 12,084,407 27,895,643
Class B .................................... (1,896,855) (1,379,404) -- --
Class C .................................... 41,114,468 71,311,943 -- --
Advisor Class .............................. 139,750 -- -- --
------------------------------------------------------------------------------
Total capital share transactions .............. 175,716,787 366,195,428 12,084,407 27,895,643
------------------------------------------------------------------------------
Redemption fees ............................... (2,517) 3,816 118 6
------------------------------------------------------------------------------
Net increase (decrease) in
net assets ............................ 212,140,173 357,592,356 14,904,303 24,360,276
Net assets:
Beginning of period ........................... 1,287,661,746 930,069,390 146,005,366 121,645,090
------------------------------------------------------------------------------
End of period ................................. $ 1,499,801,919 $ 1,287,661,746 $ 160,909,669 $ 146,005,366
==============================================================================
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of period ................................ $ 455,701 $ 574,648 $ (93,683) $ (113,411)
==============================================================================

Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 51

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 (1940 Act) as a non-diversified, open-end
investment company, consisting of two funds (the Funds). The classes of shares
offered within each of the Funds are indicated below. Effective November 15,
2006, the Franklin California High Yield Municipal Fund began offering a new
class of shares, Advisor Class. 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 & ADVISOR CLASS
- ------------------------------------------------------------------------------------------

Franklin Tennessee Municipal Bond Fund Franklin California High Yield Municipal Fund

The following summarizes the Funds' significant accounting policies.

A. SECURITY VALUATION

Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Trust may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Trust's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.

The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's 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.

52 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. INCOME TAXES

No provision has been made for U.S. income taxes because each fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its income and net realized
gains.

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. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders. Distributions to shareholders are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.

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

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. Differences in class-level
expenses may result in payment of different per share distributions by 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

A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.

Semiannual Report | 53

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

G. GUARANTEES AND INDEMNIFICATIONS

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

2. SHARES OF BENEFICIAL INTEREST

At November 30, 2006, there were an unlimited number of shares authorized ($0.01
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, 2006
Shares sold ............................... 19,548,956 $ 203,731,520 1,730,925 $ 19,439,810
Shares issued in reinvestment
of distributions ......................... 1,232,409 12,836,060 162,125 1,821,784
Shares redeemed ........................... (7,700,015) (80,208,156) (816,904) (9,177,187)
-------------------------------------------------------------------------
Net increase (decrease) ................... 13,081,350 $ 136,359,424 1,076,146 $ 12,084,407
=========================================================================
Year ended May 31, 2006
Shares sold ............................... 39,825,537 $ 412,530,271 3,747,670 $ 42,420,481
Shares issued in reinvestment
of distributions ......................... 2,024,541 20,970,629 270,571 3,061,825
Shares redeemed ........................... (13,254,025) (137,238,011) (1,558,450) (17,586,663)
-------------------------------------------------------------------------
Net increase (decrease) ................... 28,596,053 $ 296,262,889 2,459,791 $ 27,895,643
=========================================================================
CLASS B SHARES:
Six months ended November 30, 2006
Shares sold ............................... 60,431 $ 632,963
Shares issued in reinvestment
of distributions ......................... 29,892 312,824
Shares redeemed ........................... (272,053) (2,842,642)
----------------------------------
Net increase (decrease) ................... (181,730) $ (1,896,855)
==================================
Year ended May 31, 2006
Shares sold ............................... 121,424 $ 1,265,577
Shares issued in reinvestment
of distributions ......................... 63,697 663,312
Shares redeemed ........................... (317,819) (3,308,293)
----------------------------------
Net increase (decrease) ................... (132,698) $ (1,379,404)
==================================

54 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

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

CLASS C SHARES:
Six months ended November 30, 2006
Shares sold ..................................... 5,189,822 $ 54,340,618
Shares issued in reinvestment
of distributions ............................... 217,993 2,280,401
Shares redeemed ................................. (1,483,829) (15,506,551)
-------------------------------
Net increase (decrease) ......................... 3,923,986 $ 41,114,468
===============================
Year ended May 31, 2006
Shares sold ..................................... 8,609,116 $ 89,498,866
Shares issued in reinvestment
of distributions ............................... 325,944 3,389,940
Shares redeemed ................................. (2,076,150) (21,576,863)
-------------------------------
Net increase (decrease) ......................... 6,858,910 $ 71,311,943
===============================
ADVISOR CLASS SHARES:
Period ended November 30, 2006 a
Shares sold ..................................... 13,260 $ 139,750
-------------------------------
Net increase (decrease) ......................... 13,260 $ 139,750
===============================

a For the period November 15, 2006 (effective date) to November 30, 2006.

3. TRANSACTIONS WITH AFFILIATES

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

- -----------------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- -----------------------------------------------------------------------------------------------

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

Semiannual Report | 55

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

A. MANAGEMENT FEES

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

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion

B. ADMINISTRATIVE FEES

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

C. DISTRIBUTION FEES

The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the
Funds reimburse Distributors for costs incurred in connection with the sale and
distribution of each fund's shares up to a certain percentage per year of its
average daily net assets as follows:

------------------------------------------
FRANKLIN CALIFORNIA FRANKLIN TENNESSEE
HIGH YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
------------------------------------------
Class A ................. 0.15% 0.15%

Distributors has set the current rate at 0.10% per year for each of the Funds.

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

56 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

C. DISTRIBUTION FEES (CONTINUED)

Under the fund's compensation distribution plans, the fund pays Distributors for
costs incurred in connection with the sale and distribution of the fund's shares
up to a certain percentage per year of their average daily net assets of each
class as follows:

-------------------
FRANKLIN CALIFORNIA
HIGH YIELD
MUNICIPAL FUND
-------------------
Class B ......................................... 0.65%
Class C ......................................... 0.65%

D. SALES CHARGES/UNDERWRITING AGREEMENTS

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

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

Sales charges retained net of commissions paid to unaffiliated
broker/dealers .................................................... $327,149 $60,432
Contingent deferred sales charges retained ......................... $ 79,606 $ 285

E. TRANSFER AGENT FEES

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

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

Transfer agent fees ................................................ $113,462 $13,398

F. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS

For the Franklin Tennessee Municipal Bond Fund, Advisers agreed in advance to
voluntarily waive a portion of management fees. Total expenses waived by
Advisers are not subject to reimbursement by the fund subsequent to the fund's
fiscal year end. Advisers may discontinue this waiver at any time.

Semiannual Report | 57

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At May 31, 2006, the capital loss carryforwards were as follows:

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

Capital loss carryforwards expiring in:
2008 ............................................ $ 7,867,595 $ 491,071
2009 ............................................ 31,858,136 1,676,320
2010 ............................................ 4,003,471 480,932
2011 ............................................ -- 95,080
2012 ............................................ 7,294,061 984,101
2013 ............................................ 2,650,186 422,643
--------------------------------------
$ 53,673,449 $ 4,150,147
======================================

For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At May 31, 2006, the Franklin California High Yield Municipal Fund
deferred realized capital losses of $1,008,876.

At November 30, 2006, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:

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

Cost of investments .............................. $1,413,591,603 $149,661,331
======================================

Unrealized appreciation .......................... $ 84,709,571 $ 7,889,676
Unrealized depreciation .......................... (1,352,899) --
--------------------------------------
Net unrealized appreciation (depreciation) ....... $ 83,356,672 $ 7,889,676
======================================

Net investment income and net realized gains (losses) differ for financial
statement and tax purposes primarily due to differing treatments of defaulted
securities and bond discounts.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
period ended November 30, 2006, were as follows:

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

Purchases ........................................ $ 183,943,907 $ 23,210,799
Sales ............................................ $ 40,379,760 $ 9,356,638

58 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

6. CREDIT RISK AND DEFAULTED SECURITIES

The Franklin California High Yield Municipal Fund has 33.85% 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, 2006, the value of this security was $1,479,790, representing 0.10%
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. The securities have been identified on the
accompanying Statement of Investments.

7. CONCENTRATION OF RISK

Each of the Funds invests a large percentage of its total assets in obligations
of issuers within its respective state. Such concentration may subject the Funds
to risks associated with industrial or regional matters, and economic, political
or legal developments occurring within those states.

8. REGULATORY MATTERS

As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators. Specifically, the
Company entered into settlements with the SEC, among others, concerning market
timing and marketing support.

On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Trust did not participate in that
Settlement.

The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.

Semiannual Report | 59

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

8. REGULATORY MATTERS (CONTINUED)

In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.

The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Trust, it is
committed to making the Trust or its shareholders whole, as appropriate.

9. NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. The Funds are currently evaluating the impact, if any, of
applying the various provisions of FIN 48.

In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Trust believes the adoption of SFAS 157
will have no material impact on its financial statements.

60 | Semiannual Report

Franklin Municipal Securities Trust

SHAREHOLDER INFORMATION

PROXY VOTING POLICIES AND PROCEDURES

The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 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 Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.

QUARTERLY STATEMENT OF INVESTMENTS

The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year 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.

Semiannual Report | 61

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 BRIC 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 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 MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund

BLEND

Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund

SECTOR

Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate 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

RETIREMENT TARGET FUNDS

Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund

INCOME

Franklin Adjustable U.S. Government Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 4
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 4
Templeton Global Bond Fund
Templeton Income Fund

TAX-FREE INCOME 6

NATIONAL FUNDS

Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7

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 Michigan 7
Arizona Minnesota 7
California 8 Missouri
Colorado New Jersey
Connecticut New York 8
Florida 8 North Carolina
Georgia Ohio 7
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 7 Virginia

INSURANCE FUNDS

Franklin Templeton Variable Insurance Products Trust 9

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

5. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy
remained the same.

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

7. Portfolio of insured municipal securities.

8. 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).

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

09/06 Not part of the semiannual report

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

|_| WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

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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 S2006 01/07

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 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

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

(2) The audit committee financial expert is 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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. N/A

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END
MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY Holders. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.

ITEM 11. CONTROLS AND PROCEDURES. (A) EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES. The Registrant maintains disclosure controls and procedures that
are designed to 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 12. EXHIBITS.

(a)(1) Code of Ethics

(a)(2) 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) 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
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date January 25, 2007

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
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Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date January 25, 2007

By /S/GALEN G. VETTER
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Galen G. Vetter
Chief Financial Officer
Date January 25, 2007