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
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(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
--------------------------------------------------------------
(Name and address of agent for service)

Registrant's telephone number, including area code: 650 312-2000
------------

Date of fiscal year end: 5/31
----

Date of reporting period: 11/30/09
--------

ITEM 1. REPORTS TO STOCKHOLDERS.

(GRAPHIC)

NOVEMBER 30, 2009

SEMIANNUAL REPORT
AND SHAREHOLDER LETTER

Franklin California High Yield
Municipal Fund

Franklin Tennessee Municipal Bond Fund

TAX - FREE INCOME

FRANKLIN
MUNICIPAL SECURITIES TRUST

(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)

FRANKLIN - Templeton - 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.

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

(GRAPHIC)

Not part of the semiannual report

Contents

SHAREHOLDER LETTER .................................. 1
SEMIANNUAL REPORT
Municipal Bond Market Overview ...................... 4
Franklin California High Yield Municipal Fund ....... 6
Franklin Tennessee Municipal Bond Fund .............. 15
Financial Highlights and Statements of Investments .. 23
Financial Statements ................................ 45
Notes to Financial Statements ....................... 49
Shareholder Information ............................. 58

Shareholder Letter

Dear Shareholder:

In the third quarter of 2009, U.S. economic activity improved compared with the
previous quarter, while recent economic releases pointed to an easing of the
global recession. Many observers think the recession is already over and the
recovery has started. Although most economists predicted positive U.S. growth
for the second half of 2009, many expected growth would be sluggish as consumers
and the financial system continued to climb out of debt.

The federal funds target rate remained unchanged over the period; however, the
Federal Reserve Board (Fed) was very active. In response to the financial crisis
in 2008, the Fed not only cut the federal funds target rate to a 0% to 0.25%
range, it also employed other strategies to help stem the crisis, resulting in a
substantial increase in its balance sheet. The Fed established various lending
and liquidity facilities and through quantitative easing purchased mortgage
securities and Treasuries, all in an effort to encourage long-term interest
rates to move lower.

Most major financial markets showed signs of recovery, and equity markets staged
a strong rally since March. As financial markets moved off their lows, commodity
prices rebounded. Overall inflation, however, remained tame. Fed Chairman
Bernanke began to prepare markets for the unwinding of the Fed's accommodative
policy and the exit strategy for its lending and liquidity facilities. At this
point, the timing of these actions is uncertain.

The municipal bond market experienced a healthy rebound in the six-month period
under review; the Barclays Capital (BC) Municipal Bond Index returned

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

Not part of the semiannual report | 1

+4.75% and securities with maturities 22 years and longer, which make up a
substantial portion of our portfolios, returned +7.02%.(1)

Although it looked as if the banking and financial crisis may have turned the
corner and economic recovery was under way, we think a note of caution is
warranted. We believe such areas of the economy as employment, housing, state
and local government budgets, and the finance and banking sector will continue
to face challenges and show signs of pressure for an indefinite period.

We believe it is especially important during uncertain times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. Investors with discipline and a sound investment plan
may find favorable long-term opportunities when markets decline.

Franklin Municipal Securities Trust's semiannual report goes into greater detail
about municipal bond market conditions during the period. In addition, you will
find performance data, financial information and discussions from the portfolio
managers. Please remember that all securities markets fluctuate, as do mutual
fund share prices. Municipal bonds provide tax-free income and diversification
from equities. Despite periods of volatility, municipal bonds have a solid
long-term record of performance, driven mostly by their income component.

(1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC Municipal Bond Index is a market value-weighted index engineered for the
long-term tax-exempt bond market. To be included in the index, bonds must
be fixed rate, have at least one year to final maturity and be rated
investment grade (Baa3/BBB- or higher) by at least two of the following
agencies: Moody's, Standard & Poor's or Fitch. The BC Municipal Long Bond
Index is the long (22+ years) component of the BC Municipal Bond Index.

2 | Not part of the semiannual report

Please check our website at franklintempleton.com for special portfolio manager
commentary. Although market conditions are constantly changing, we remain
committed to our disciplined strategy as we manage the Funds, keeping in mind
the trust you have placed in us. We appreciate your confidence and encourage you
to contact us when you have questions about your Franklin Templeton tax-free
investment.

Sincerely,

/s/ Charles B. Johnson

Charles B. Johnson
Chairman
Franklin Municipal Securities Trust

/s/ Sheila Amoroso

Sheila Amoroso

/s/ Rafael R. Costas Jr.

Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department

THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF NOVEMBER 30, 2009. 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.

Not part of the semiannual report | 3

Semiannual Report

Municipal Bond Market Overview

During the six-month period ended November 30, 2009, the municipal bond market
posted a +4.75% total return, as measured by the Barclays Capital (BC) Municipal
Bond Index.(1) The municipal bond market posted not only solid absolute
performance but also strong relative performance when compared to the Treasury
market, as the BC U.S. Treasury Index had a +3.25% total return for the
reporting period.(2)

Among the many factors that affected municipal bond prices during the six-month
period, confidence over issuers' abilities to repay funds, the purchasing power
of those repaid dollars, and the supply of tax-free municipal bonds had a major
impact on municipal bond prices. Due to a changing economic landscape, rating
downgrades of bond insurers, and reconciliation between corporate and municipal
rating scales, many municipal bonds were re-rated during the period. In the
second and third quarters of 2009, Moody's elevated the rating of 185 state and
local government issues while downgrading 120. Recent positive rating actions
coupled with a long-term default rate for investment-grade municipal bonds of
less than 1% helped remind investors of the asset class's underlying credit
strength.(3) Investor interest also increased for lower investment-grade and
speculative-grade issues during the reporting period, which drove the BC Baa
Municipal Bond Index up 6.82%, compared with the BC Aaa Municipal Bond Index's
+3.55% total return.(4)

Further aiding positive municipal bond performance during the reporting period
was a benign inflationary environment. The Consumer Price Index (CPI) and
Producer Price Index (PPI) reported negative year-over-year changes in each
month during the six months under review. In addition, the Congressional Budget
Office (CBO) forecast CPI would remain below 2% through 2019. Historically, a
low inflation outlook has provided confidence for fixed income investors that

(2.) Source: (C) 2009 Morningstar. The BC U.S. Treasury Index is the U.S.
Treasury component of the U.S. Government Index and covers public
obligations of the U.S. Treasury with a remaining maturity of one year or
more.

(3.) Source: Standard & Poor's, "U.S. Municipal Ratings Transitions and
Defaults, 1986-2009," RATINGSDIRECT, 3/11/09.

(4.) Source: (C) 2009 Morningstar. The BC Baa Municipal Bond Index is the Baa
credit quality component of the BC Municipal Bond Index. The BC Aaa
Municipal Bond Index is the Aaa credit quality component of the BC
Municipal Bond Index.

4 | Semiannual Report

future cash flow from their bond investments will retain purchasing power.
However, the CBO's estimate for temperate inflation did not cause the yield
curve to level off, and the yield difference between short- and long-term
municipal bonds averaged a spread of 434 basis points (100 basis points equal
one percentage point) for the six-month period, as measured by the Securities
Industry and Financial Market Association (SIFMA) Municipal Swap Index and the
Bloomberg Fair Value 30-Year AAA Index.(5) The 10-year average using the same
indexes was 249 basis points.(5) If the CBO's estimate of future inflation is
realized, then buyers of longer term bonds will reap the rewards of attractive
returns over inflation.

Tax-free bond supply also affected municipal bond market performance over the
past six months. Thus far in 2009, tax-exempt bond issuance rose only 1.3%
compared with the same period in 2008.(6) The small number of tax-free offerings
left investors with a limited amount of bonds to construct their portfolios and
helped drive municipal bond prices higher. Details of the supply of tax-exempt
offerings during 2009 are noteworthy because the way municipalities accessed
capital markets underwent a structural change. In February 2009 the American
Recovery and Reinvestment Act was signed into law, allowing municipalities to
issue taxable bonds and receive a 35% federal government subsidy for all coupon
payments distributed to investors for the life of the bonds. This rebate allowed
municipalities to borrow significantly below their after-tax cost in the
traditional tax-exempt municipal bond market. These new subsidized, taxable
municipal bonds, known as Build America Bonds, are likely to suppress future
supply of tax-exempt municipal bonds as long as the government permits their
use.

Given the various ratings changes, the relatively steep yield curve, and short
supply during the reporting period, we looked for opportunities to keep our
portfolios fully invested in longer term bonds, which helped support the Funds'
dividend distributions. At period-end, we continued to be active in the market
and felt that municipal bonds at current yields represented an attractive
long-term opportunity.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF NOVEMBER 30,
2009. 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.

(5.) Sources: Thomson Financial; Bloomberg LP. The SIFMA Municipal Swap Index is
a weekly high-grade market index composed of seven-day tax-exempt variable
rate demand notes produced by the Municipal Market Data Group. Actual
issues are selected from Municipal Market Data's database of more than
10,000 active issues based on several specific criteria. The Bloomberg Fair
Value 30-Year AAA Index is an index derived from data points on Bloomberg's
option-free Fair Market Curve consisting of municipal general obligation
bonds.

(6.) Source: THE BOND BUYER, 11/30/09.

Semiannual Report | 5

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.

CREDIT QUALITY BREAKDOWN*
Franklin California High Yield Municipal Fund
Based on Total Long-Term Investments as of 11/30/09**

(PIE CHART)

- - AAA ...................... 5.2%
- - AA ....................... 3.5%
- - A ........................ 19.7%
- - BBB ...................... 14.5%
- - Below Investment Grade ... 6.7%
- - Not Rated by S&P ......... 50.4%

* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. 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. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).

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

RATINGS MOODY'S INTERNAL
- ------- ------- --------

AAA or Aaa -- 5.3%
AA or Aa 0.7% --
A 0.7% 4.1%
BBB or Baa 3.1% 12.7%
Below Investment Grade 1.5% 22.3%
--- ----
Total 6.0% 44.4%
=== ====

We are pleased to bring you Franklin California High Yield Municipal Fund's
semiannual report for the period ended November 30, 2009.

(1.) The Fund may invest up to 100% of its assets in bonds whose interest
payments are subject to federal alternative minimum tax. All or a
significant portion of the income on these obligations may be subject to
such tax. Distributions of capital gains are generally taxable. To avoid
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 27.

6 | Semiannual Report

DIVIDEND DISTRIBUTIONS*
Franklin California High Yield Municipal Fund

DIVIDEND PER SHARE
-----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ----------- ---------- -------------

June 4.27 cents 3.93 cents 3.92 cents 4.33 cents
July 4.27 cents 3.93 cents 3.92 cents 4.33 cents
August 4.27 cents 3.93 cents 3.92 cents 4.33 cents
September 4.30 cents 3.91 cents 3.90 cents 4.38 cents
October 4.30 cents 3.91 cents 3.90 cents 4.38 cents
November 4.30 cents 3.91 cents 3.90 cents 4.38 cents

* 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.

PERFORMANCE OVERVIEW

The Fund's Class A share price, as measured by net asset value, increased from
$8.42 on May 31, 2009, to $9.05 on November 30, 2009. The Fund's Class A shares
paid dividends totaling 25.95 cents per share for the reporting period.(2) The
Performance Summary beginning on page 10 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 5.33% based on an
annualization of the 4.20 cent per share monthly dividend and the maximum
offering price of $9.45 on November 30, 2009. An investor in the 2009 maximum
combined effective federal and California personal income tax bracket of 41.05%
would need to earn a distribution rate of 9.04% 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.

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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.

STATE UPDATE

During the six months under review, California's large and diverse economy
remained mired in recession amid a series of budgetary crises. With a gross
state product of $1.8 trillion, the state is responsible for 13% of U.S. gross
domestic product.(3) If California were a country, it would have the 10th
largest economy in the world. Yet, like nearly all U.S. states impacted by the
deepest recession in 70 years, California's economy remained historically weak
and its unemployment rate rose sharply to 12.3% by November, higher than the

(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

(3.) Source: Moody's Investors Service, "Rating Update: Moody's Confirms Baa1
Rating on State of California and Removes Credit from Watchlist; Outlook is
Stable," 8/21/09.

Semiannual Report | 7

10.0% national rate and a significant jump from the state's prerecession low of
4.8% reached in late 2006.(4) Construction employment led the declines as the
state's depressed housing market improved only marginally from historically low
levels, while commercial real estate had not rebounded at all by period-end.

PORTFOLIO BREAKDOWN
Franklin California High Yield Municipal Fund 11/30/09

% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------

Tax-Supported 39.5%
Hospital & Health Care 14.1%
General Obligation 9.3%
Transportation 9.3%
Prerefunded 8.8%
Other Revenue 6.1%
Higher Education 5.1%
Utilities 5.0%
Subject to Government Appropriations 1.5%
Housing 1.3%

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

Weak revenue collections, limited financial flexibility and a difficult
political environment were among several elements making the state financially
vulnerable. Projections for the fiscal year 2010 budget gap grew through the
spring and summer of 2009, after voters in a special statewide election did not
approve a proposal to issue deficit bonds backed by lottery revenues, and as tax
revenue collections underperformed.

In late July, budget amendments were finally passed to solve the current 2010
fiscal year's estimated $24 billion budget gap, but this was done largely with
one-time solutions that will likely result in further budget gaps in upcoming
years.(5) The budget amendments provided more than $23 billion through a
combination of cuts, raids on local funds, accounting maneuvers, and one-time
revenues.(5) Of the $14 billion in cuts, most went to schools; social services
were also curtailed under the plan.(5) An additional $4 billion came from local
governments, with another $4 billion from accounting shifts, other borrowing and
the assumed sale of the State Compensation Insurance Fund.(5) In response, most
local governments will cut services, implement additional layoffs and make fewer
capital improvements to their communities. The budget amendments also brought
general fund spending for the state in fiscal year 2010 down to about $80
billion, a 20% decline from the $100 billion budgeted for fiscal year 2009.(5)
After the passage of the budget amendments, the state controller in September
announced he would stop making payments with IOUs; the inherent volatility
signified and created by the emergency stopgap of an IOU program had been a
major credit rating concern among independent credit rating agencies. This
year's solutions will come at the cost of projected budget gaps in future years
of up to $15 billion as the state anticipates significant structural imbalances
in fiscal year 2011 and beyond while it seeks to maintain operations while
repaying local governments and schools, with interest, for this year's cuts and
borrowing.(5)

With California's finances under extreme duress, the state's credit rating was
downgraded three notches since February 2009. A recent credit rating setback --
a two-notch downgrade to Baa1 from A2 by independent credit rating agency
Moody's Investors Service -- reflected reliance on one-time measures to solve
the current fiscal problems and the threat of untenable future budget gaps.(6)
By late November, Moody's reviewed and confirmed the current rating with a
stable outlook. Nonetheless, the rating reflected the state's extraordinary

(4.) Source: Bureau of Labor Statistics.

(5.) Source: Moody's Investors Service, "Special Comment: California Adopts
Budget Solutions," July 2009.

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

8 | Semiannual Report

fiscal pressures when compared with most other U.S. states, and more
specifically the likelihood for increased short-term borrowing.

INVESTMENT STRATEGY

We use a consistent, disciplined strategy in an effort 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 we believe
should provide the most relative value in the market. As we invest during
different interest rate environments, our portfolio becomes progressively more
diversified with a broad range of securities. This broad diversification may
help mitigate interest rate risk. We do not use leverage or exotic derivatives,
nor do we use hedging techniques that could add volatility and contribute to
under-performance in adverse markets. We generally stay fully invested to
maximize income distribution.

MANAGER'S DISCUSSION

Our value-oriented philosophy of investing primarily for income, combined with a
positive sloping municipal yield curve, favored the use of 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, 2009, 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.

Semiannual Report | 9

Performance Summary as of 11/30/09

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 11/30/09 5/31/09
- ----------------------- ------ -------- -------

Net Asset Value (NAV) +$0.63 $9.05 $8.42
DISTRIBUTIONS (6/1/09-11/30/09)
Dividend Income $0.2595

CLASS B (SYMBOL: FBCAX) CHANGE 11/30/09 5/31/09
- ----------------------- ------ -------- -------

Net Asset Value (NAV) +$0.64 $9.10 $8.46
DISTRIBUTIONS (6/1/09-11/30/09)
Dividend Income $0.2371

CLASS C (SYMBOL: FCAHX) CHANGE 11/30/09 5/31/09
- ----------------------- ------ -------- -------

Net Asset Value (NAV) +$0.64 $9.10 $8.46
DISTRIBUTIONS (6/1/09-11/30/09)
Dividend Income $0.2365

ADVISOR CLASS (SYMBOL: FVCAX) CHANGE 11/30/09 5/31/09
- ----------------------------- ------ -------- -------

Net Asset Value (NAV) +$0.64 $9.06 $8.42
DISTRIBUTIONS (6/1/09-11/30/09)
Dividend Income $0.2638

10 | Semiannual Report

Performance Summary (CONTINUED)

PERFORMANCE

CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.

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

Cumulative Total Return(1) +10.70% +19.06% +15.28% +57.02%
Average Annual Total Return(2) +6.04% +13.98% +1.99% +4.16%
Avg. Ann. Total Return (12/31/09)(3) +22.84% +1.87% +4.50%
Distribution Rate(4) 5.33%
Taxable Equivalent Distribution Rate(5) 9.04%
30-Day Standardized Yield(6) 5.14%
Taxable Equivalent Yield(5) 8.72%
Total Annual Operating Expenses(7) 0.63%

CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (2/1/00)
- ------- ------- ------ ------ ------------------

Cumulative Total Return(1) +10.49% +18.48% +12.13% +57.34%
Average Annual Total Return(2) +6.49% +14.48% +1.99% +4.72%
Avg. Ann. Total Return (12/31/09)(3) +23.57% +1.85% +4.74%
Distribution Rate(4) 4.93%
Taxable Equivalent Distribution Rate(5) 8.36%
30-Day Standardized Yield(6) 4.82%
Taxable Equivalent Yield(5) 8.18%
Total Annual Operating Expenses(7) 1.18%

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

Cumulative Total Return(1) +10.48% +18.47% +12.34% +48.77%
Average Annual Total Return(2) +9.48% +17.47% +2.35% +4.05%
Avg. Ann. Total Return (12/31/09)(3) +26.73% +2.20% +4.38%
Distribution Rate(4) 4.93%
Taxable Equivalent Distribution Rate(5) 8.36%
30-Day Standardized Yield(6) 4.82%
Taxable Equivalent Yield(5) 8.18%
Total Annual Operating Expenses(7) 1.18%

ADVISOR CLASS(8) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ ------ -------

Cumulative Total Return(1) +10.87% +19.29% +15.73% +57.63%
Average Annual Total Return(2) +10.87% +19.29% +2.96% +4.66%
Avg. Ann. Total Return (12/31/09)(3) +28.49% +2.83% +4.99%
Distribution Rate(4) 5.67%
Taxable Equivalent Distribution Rate(5) 9.62%
30-Day Standardized Yield(6) 5.48%
Taxable Equivalent Yield(5) 9.30%
Total Annual Operating Expenses(7) 0.53%

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 (800) 342-5236.

Semiannual Report | 11

Performance Summary (CONTINUED)

ENDNOTES

BECAUSE MUNICIPAL BONDS ARE SENSITIVE TO INTEREST RATE MOVEMENTS, THE FUND'S
YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES
GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF
BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY
DECLINE. 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 11/30/09.

(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/29/09 for the maximum combined federal and California state
personal income tax rate of 41.05%, based on the federal income tax rate of
35.00%.

(6.) The 30-day standardized yield for the 30 days ended 11/30/09 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.

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

(8.) Effective 11/15/06, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance 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 cumulative and average annual total returns of
Advisor Class shares were +1.30% and +0.43%.

12 | Semiannual Report

Your Fund's Expenses

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

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

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

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and 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.

Semiannual Report | 13

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.
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
VALUE 6/1/09 VALUE 11/30/09 PERIOD* 6/1/09-11/30/09
----------------- -------------- -----------------------

CLASS A
Actual $1,000 $1,107.00 $3.33
Hypothetical (5% return before expenses) $1,000 $1,021.91 $3.19
CLASS B
Actual $1,000 $1,104.90 $6.23
Hypothetical (5% return before expenses) $1,000 $1,019.15 $5.97
CLASS C
Actual $1,000 $1,104.80 $6.23
Hypothetical (5% return before expenses) $1,000 $1,019.15 $5.97
ADVISOR CLASS
Actual $1,000 $1,108.70 $2.80
Hypothetical (5% return before expenses) $1,000 $1,022.41 $2.69

* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.63%; B: 1.18%; C: 1.18%; and Advisor:
0.53%), multiplied by the average account value over the period, multiplied
by 183/365 to reflect the one-half year period.

14 | Semiannual Report

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 preservation of
capital, by investing at least 80% of its net assets in investment grade
municipal securities that pay interest free from such taxes.(1)

CREDIT QUALITY BREAKDOWN*
Franklin Tennessee Municipal Bond Fund
Based on Total Long-Term Investments as of 11/30/09**

(PIE CHART)

AAA ........................ 17.5%
AA ......................... 38.4%
A .......................... 15.6%
BBB ........................ 5.1%
Not Rated by S&P ........... 23.4%

* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. 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. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings
and generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).

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

RATINGS MOODY'S INTERNAL
- ------- ------- --------

AAA or Aaa 2.3% 1.1%
AA or Aa 10.4% --
A 8.1% 0.3%
BBB or Baa 0.4% 0.8%
---- ---
Total 21.2% 2.2%

We are pleased to bring you Franklin Tennessee Municipal Bond Fund's semi-annual
report for the period ended November 30, 2009.

(1.) The Fund may invest as much as 100% of its assets in bonds whose interest
payments are subject to federal alternative minimum tax. All or a
significant portion of the income on these obligations may be subject to
such tax. Distributions of capital gains 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 41.

Semiannual Report | 15

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 (800)
342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.

PERFORMANCE OVERVIEW

The Fund's Class A share price, as measured by net asset value, increased from
$10.99 on May 31, 2009, to $11.20 on November 30, 2009. The Fund's Class A
shares paid dividends totaling 22.83 cents per share for the reporting
period.(2) The Performance Summary beginning on page 19 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 3.79%. An
investor in the 2009 maximum combined effective federal and Tennessee personal
income tax bracket of 38.90% would need to earn a distribution rate of 6.20%
from a taxable investment to match the Fund's Class A tax-free distribution
rate. During the period under review, renewed investor interest in municipal
bonds and limited new-issue supply tended to reduce the Fund's income and caused
dividends to decline slightly.

DIVIDEND DISTRIBUTIONS*
Franklin Tennessee Municipal Bond Fund
Class A

MONTH DIVIDEND PER SHARE
- ----- ------------------

June 3.80 cents
July 3.80 cents
August 3.80 cents
September 3.80 cents
October 3.80 cents
November 3.70 cents

STATE UPDATE

Similar to the nation's as a whole, Tennessee's economy struggled in its nascent
recovery during the six months under review. Manufacturing declines had the most
severe impact on less-populated cities and rural areas in the state, where
smaller light industrial businesses and retailers are concentrated. In
comparison, Tennessee's major metropolitan areas fared somewhat better, but the
state economy and employment base continued to be heavily dependent on the
manufacturing sector and, in particular, the struggling auto industry. Although
Saturn's Spring Hill manufacturing plant closed, Volkswagen's and Nissan's
construction and upgrade plans for their Chattanooga and Smyrna facilities
promised to boost the overall manufacturing sector. Even though manufacturing
has been a trouble spot, it could also be crucial to Tennessee's eventual
economic rebound. These and other large capital investment projects, funded in
fiscal year 2009, had the potential to lift the state's economy over the long
term. As of November 2009, Tennessee's unemployment rate was 10.3%, compared
with the 10.0% national rate.(3) In addition, the still-fragile housing market
continued to negatively impact Tennesseans, yet its severity has been limited
when compared with most other states; residential foreclosures through second
quarter 2009 were only at about half the national rate.(4)

Key revenue sources in sales and use tax were expectedly bleak for fiscal year
2009, and the $1.1 billion budget shortfall was bridged with expenditure cuts,
federal aid and use of some of the state's rainy day fund.(4) The tax revenue
picture in fiscal year 2010 remained weak, and the 2010 budget was balanced

(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.

(3.) Source: Bureau of Labor Statistics.

(4.) Source: Standard & Poor's, "Tennessee; General Obligation," RATINGSDIRECT,
11/16/09.

16 | Semiannual Report

with the same combination of similar practices as in fiscal year 2009. The rainy
day fund, with a constitutional funding mandate, was $532 million.(4) Despite
budgetary stress brought on by the sales tax shortfall, Tennessee's net
tax-supported debt as a percentage of personal income was less than 2% and debt
per capita was slightly more than $200, compared with the national medians of
2.5% and $865.(5) The state's full funding of its annual required contribution
to the retirement system helped keep the debt burden low.

Independent credit rating agency Standard & Poor's assigned Tennessee's general
obligation debt an AA+ rating with a stable outlook.(6) This rating reflected
the state's good reserve levels, aggressive cost-containment measures and influx
of federal stimulus money, as well as its low debt burden.

INVESTMENT STRATEGY

We use a consistent, disciplined strategy in an effort to maximize tax-exempt
income for our shareholders by seeking to invest in investment grade municipal
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 during different interest rate environments, the Fund's portfolio becomes
progressively more diversified with a broad range of securities. This broad
diversification may help mitigate interest rate risk. We do not use leverage or
exotic derivatives, nor do we use hedging techniques that could add volatility
and contribute to underperformance in adverse markets. We generally seek to stay
fully invested to help maximize income distribution.

MANAGER'S DISCUSSION

Our value-oriented philosophy of investing primarily for income and a positive
sloping municipal yield curve favored the use of longer term bonds during the
reporting period. Consistent with our strategy, we sought to remain fully
invested in bonds ranging from 20 to 30 years in maturity with good call
features. We took advantage of strong retail demand for highly rated essential
service bonds, and sold some AA- and AAA-rated securities that were purchased in
a lower municipal bond interest rate environment. Seeking to provide
shareholders with high, current, tax-free income, the proceeds were reinvested
in securities with current coupons with better call protection in a higher
interest rate environment. We found value in some credit-driven securities
(rated between AA and A) as credit spreads widened to the point where we felt
investors were being adequately compensated for higher credit risk. Despite our
finding value

PORTFOLIO BREAKDOWN
Franklin Tennessee Municipal Bond Fund 11/30/09

% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------

Utilities 32.0%**
General Obligation 15.0%
Prerefunded 13.6%
Hospital & Health Care 13.0%
Higher Education 10.5%
Housing 4.6%
Other Revenue Bonds 4.1%
Transportation 3.9%
Tax-Supported 3.3%

* 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.

(5.) Source: Moody's Investors Service, "2009 State Debt Medians Report,"
MOODY'S U.S. PUBLIC FINANCE, July 2009.

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

Semiannual Report | 17

in credit-driven securities, the Fund's credit quality remained high and
finished the reporting period averaging AA.

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

18 | Semiannual Report

Performance Summary as of 11/30/09

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 11/30/09 5/31/09
- ----------------------- ------ -------- -------

Net Asset Value (NAV) +$0.21 $11.20 $10.99
DISTRIBUTIONS (6/1/09-11/30/09)
Dividend Income $0.2283

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.

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

Cumulative Total Return(2) +4.02% +15.28% +21.91% +69.37%
Average Annual Total Return(3) -0.42% +10.38% +3.15% +4.95%
Avg. Ann. Total Return (12/31/09)(4) +8.64% +2.97% +5.15%
Distribution Rate(5) 3.79%
Taxable Equivalent Distribution Rate(6) 6.20%
30-Day Standardized Yield(7) 3.26%
Taxable Equivalent Yield(6) 5.34%
Total Annual Operating Expenses(8)
Without Waiver 0.74%
With Waiver 0.70%

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 (800) 342-5236.

THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
LIMIT THEIR RESPECTIVE FEES AND TO ASSUME AS THEIR OWN EXPENSE CERTAIN EXPENSES
OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF
INVESTMENT MANAGEMENT FEES, FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT
EXCLUDING RULE 12B-1 FEES OF THE FUND) DO NOT EXCEED 0.60%, (OTHER THAN CERTAIN
NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION,
INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 9/30/10.

Semiannual Report | 19

Performance Summary (CONTINUED)

ENDNOTES

BECAUSE MUNICIPAL BONDS ARE SENSITIVE TO INTEREST RATE MOVEMENTS, THE FUND'S
YIELD AND SHARE PRICE WILL FLUCTUATE WITH MARKET CONDITIONS. BOND PRICES
GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF
BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY
DECLINE. 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.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yield for the
period would have been 3.24%.

(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 3.70 cent per
share monthly dividend and the maximum offering price of $11.70 per share
on 11/30/09.

(6.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/29/09 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.) The 30-day standardized yield for the 30 days ended 11/30/09 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.

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

20 | Semiannual Report

Your Fund's Expenses

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

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

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

- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and 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 | 21

Your Fund's Expenses (CONTINUED)

BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 6/1/09 VALUE 11/30/09 PERIOD* 6/1/09-11/30/09
- ------- ----------------- -------------- -----------------------

Actual $1,000 $1,040.20 $3.58
Hypothetical (5% return before expenses) $1,000 $1,021.56 $3.55

* Expenses are calculated using the most recent six-month annualized expense
ratio, net of expense waivers, of 0.70%, multiplied by 183/365 to reflect
the one-half year period.

22 | Semiannual Report

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

SIX MONTHS ENDED YEAR ENDED MAY 31,
NOVEMBER 30, 2009 -------------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ----------------- -------- ---------- ---------- ---------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .... $ 8.42 $ 9.70 $ 10.44 $ 10.31 $ 10.39 $ 9.94
---------- -------- ---------- ---------- ---------- --------
Income from investment operations(a):
Net investment income(b) ............. 0.25 0.51 0.49 0.48 0.50 0.53
Net realized and unrealized gains
(losses) .......................... 0.64 (1.29) (0.76) 0.13 (0.08) 0.47
---------- -------- ---------- ---------- ---------- --------
Total from investment operations ........ 0.89 (0.78) (0.27) 0.61 0.42 1.00
---------- -------- ---------- ---------- ---------- --------
Less distributions from net investment
income ............................... (0.26) (0.50) (0.47) (0.48) (0.50) (0.55)
---------- -------- ---------- ---------- ---------- --------
Redemption fees(c) ...................... -- --(d) --(d) -- --(d) --(d)
---------- -------- ---------- ---------- ---------- --------
Net asset value, end of period .......... $ 9.05 $ 8.42 $ 9.70 $ 10.44 $ 10.31 $ 10.39
========== ======== ========== ========== ========== ========
Total return(e) ......................... 10.70% (7.91)% (2.58)% 6.03% 4.13% 10.26%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ................................ 0.63% 0.63% 0.62% 0.62% 0.62% 0.64%
Net investment income ................... 5.80% 5.91% 4.87% 4.58% 4.80% 5.22%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....... $1,038,918 $945,110 $1,204,191 $1,329,255 $1,067,011 $777,960
Portfolio turnover rate ................. 6.44% 9.85% 26.43% 3.34% 11.18% 5.43%

(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 repurchases 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.

(d) Amount rounds to less than $0.01 per share.

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

(f) Ratios are annualized for periods less than one year.

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

Semiannual Report | 23

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

SIX MONTHS ENDED YEAR ENDED MAY 31,
NOVEMBER 30, 2009 ---------------------------------------------------
CLASS B (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ------------------ ------- ------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .... $ 8.46 $ 9.75 $ 10.49 $ 10.36 $ 10.44 $ 9.99
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............. 0.23 0.46 0.43 0.42 0.44 0.48
Net realized and unrealized gains
(losses) .......................... 0.65 (1.30) (0.75) 0.14 (0.08) 0.46
------- ------- ------- ------- ------- -------
Total from investment operations ........ 0.88 (0.84) (0.32) 0.56 0.36 0.94
------- ------- ------- ------- ------- -------
Less distributions from net investment
income ............................... (0.24) (0.45) (0.42) (0.43) (0.44) (0.49)
------- ------- ------- ------- ------- -------
Redemption fees(c) ...................... -- --(d) --(d) -- --(d) --(d)
------- ------- ------- ------- ------- -------
Net asset value, end of period .......... $ 9.10 $ 8.46 $ 9.75 $ 10.49 $ 10.36 $ 10.44
======= ======= ======= ======= ======= =======
Total return(e) ......................... 10.49% (8.47)% (3.10)% 5.43% 3.54% 9.61%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ................................ 1.18% 1.17% 1.17% 1.17% 1.17% 1.19%
Net investment income ................... 5.25% 5.37% 4.32% 4.03% 4.25% 4.67%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....... $10,577 $12,743 $22,308 $27,246 $29,980 $31,588
Portfolio turnover rate ................. 6.44% 9.85% 26.43% 3.34% 11.18% 5.43%

(b) Based on average daily shares outstanding.

(d) Amount rounds to less than $0.01 per share.

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

(f) Ratios are annualized for periods less than one year.

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

24 | Semiannual Report

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

SIX MONTHS ENDED YEAR ENDED MAY 31,
NOVEMBER 30, 2009 -------------------------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ----------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .... $ 8.46 $ 9.75 $ 10.48 $ 10.35 $ 10.43 $ 9.97
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............. 0.23 0.46 0.43 0.42 0.44 0.48
Net realized and unrealized gains
(losses) .......................... 0.65 (1.30) (0.74) 0.14 (0.08) 0.47
-------- -------- -------- -------- -------- --------
Total from investment operations ........ 0.88 (0.84) (0.31) 0.56 0.36 0.95
-------- -------- -------- -------- -------- --------
Less distributions from net investment
income ............................... (0.24) (0.45) (0.42) (0.43) (0.44) (0.49)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ...................... -- --(d) --(d) -- --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .......... $ 9.10 $ 8.46 $ 9.75 $ 10.48 $ 10.35 $ 10.43
======== ======== ======== ======== ======== ========
Total return(e) ......................... 10.48% (8.47)% (3.01)% 5.43% 3.54% 9.72%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ................................ 1.18% 1.17% 1.17% 1.17% 1.17% 1.19%
Net investment income ................... 5.25% 5.37% 4.32% 4.03% 4.25% 4.67%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....... $239,268 $212,118 $276,902 $285,410 $190,670 $120,521
Portfolio turnover rate ................. 6.44% 9.85% 26.43% 3.34% 11.18% 5.43%

(b) Based on average daily shares outstanding.

(d) Amount rounds to less than $0.01 per share.

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

(f) Ratios are annualized for periods less than one year.

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

Semiannual Report | 25

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

SIX MONTHS ENDED YEAR ENDED MAY 31,
NOVEMBER 30, 2009 -----------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007(a)
- ------------- ----------------- ------- ------- -------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .... $ 8.42 $ 9.71 $ 10.45 $ 10.53
------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ............. 0.26 0.51 0.50 0.26
Net realized and unrealized gains
(losses) .......................... 0.64 (1.29) (0.76) (0.08)
------- ------- ------- -------
Total from investment operations ........ 0.90 (0.78) (0.26) 0.18
------- ------- ------- -------
Less distributions from net investment
income ............................... (0.26) (0.51) (0.48) (0.26)
------- ------- ------- -------
Redemption fees(d) ...................... -- --(e) --(e) --
------- ------- ------- -------
Net asset value, end of period .......... $ 9.06 $ 8.42 $ 9.71 $ 10.45
======= ======= ======= =======
Total return(f) ......................... 10.87% (7.93)% (2.48)% 1.76%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses ................................ 0.53% 0.53% 0.52% 0.52%
Net investment income ................... 5.90% 6.01% 4.97% 4.68%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....... $92,617 $68,598 $72,279 $18,156
Portfolio turnover rate ................. 6.44% 9.85% 26.43% 3.34%

(a) For the period November 15, 2006 (effective date) to May 31, 2007.

(b) 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 repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.

(d) Effective September 1, 2008, the redemption fee was eliminated.

(e) Amount rounds to less than $0.01 per share.

(f) Total return is not annualized for periods less than one year.

(g) Ratios are annualized for periods less than one year.

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

26 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED)

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

MUNICIPAL BONDS 97.5%
CALIFORNIA 94.4%
ABAG 1915 Act Special Assessment, Windemere Ranch AD 1999-1, Pre-Refunded,
6.20%, 9/02/20 .................................................................... $ 1,950,000 $ 2,185,072
6.30%, 9/02/25 .................................................................... 2,935,000 3,293,921
ABAG Finance Authority for Nonprofit Corps. Revenue,
Elder Care Alliance, California Mortgage Insured, 5.60%, 8/15/34 .................. 4,260,000 4,292,802
Hamlin School, 5.00%, 8/01/37 ..................................................... 10,485,000 8,081,209
Windemere Ranch Financing Program, Sub Series B, 5.00%, 9/02/27 ................... 3,500,000 2,941,750
Windemere Ranch Financing Program, Sub Series B, 5.00%, 9/02/34 ................... 5,310,000 4,167,235
Alameda CFD No. 2 Special Tax, Refunding, 6.125%, 9/01/16 ............................ 1,020,000 1,020,071
Alameda PFA Local Agency Revenue, Special Tax, CFD 1, Series A,
6.70%, 8/01/12 .................................................................... 2,245,000 2,249,849
7.00%, 8/01/19 .................................................................... 4,015,000 4,024,435
Aliso Viejo CFD No. 2005-01 Special Tax, Glenwood at Aliso Viejo, 5.875%, 9/01/27 .... 5,115,000 4,236,396
American Canyon Financing Authority Infrastructure Revenue Special Assessment,
American Canyon Road East,
5.00%, 9/02/25 .................................................................... 1,305,000 1,081,049
5.00%, 9/02/30 .................................................................... 2,020,000 1,577,418
5.10%, 9/02/35 .................................................................... 1,695,000 1,294,929
Anaheim RDA Tax Allocation, Merged Redevelopment Project Area, Refunding, Series A,
FSA Insured, 5.00%, 2/01/31 ....................................................... 8,500,000 8,455,460
Arcadia USD, GO, Capital Appreciation, Election of 2006, Series A, FSA Insured,
zero cpn.,
8/01/42 ........................................................................... 12,735,000 1,347,108
8/01/44 ........................................................................... 25,080,000 2,306,106
Artesia RDA Tax Allocation, Artesia Redevelopment Project Area,
5.50%, 6/01/42 .................................................................... 6,355,000 5,401,941
5.70%, 6/01/42 .................................................................... 3,175,000 2,783,110
Artesia RDA Tax Allocation Special Assessment, Housing Set-Aside, Redevelopment
Project Area, 7.70%, 6/01/46 ...................................................... 3,395,000 3,579,484
Avenal PFAR, Refunding, 5.00%,
9/01/30 ........................................................................... 1,325,000 1,092,767
9/01/36 ........................................................................... 710,000 548,894
Azusa Special Tax, CFD No. 2005-1, Improvement Area 1, 5.00%,
9/01/27 ........................................................................... 2,610,000 1,791,217
9/01/37 ........................................................................... 9,180,000 5,518,373
Baldwin Park USD, GO, Capital Appreciation, Election of 2006, FSA Insured, zero cpn.,
8/01/31 ........................................................................... 5,735,000 1,419,814
Beaumont Financing Authority Local Agency Revenue,
Series B, 5.35%, 9/01/28 .......................................................... 935,000 804,848
Series B, 5.40%, 9/01/35 .......................................................... 1,390,000 1,134,657
Series C, 5.45%, 9/01/27 .......................................................... 6,435,000 5,162,286
Series C, 5.50%, 9/01/29 .......................................................... 855,000 715,575
Series C, 5.50%, 9/01/35 .......................................................... 1,035,000 844,508
Series C, 5.50%, 9/01/35 .......................................................... 3,995,000 3,045,109
Brentwood Infrastructure Financing Authority Infrastructure Revenue, CIFP, Series 1,
5.00%, 9/02/25 .................................................................... 3,195,000 2,526,127
5.125%, 9/02/30 ................................................................... 4,400,000 3,373,128
5.15%, 9/02/35 .................................................................... 3,450,000 2,568,456

Semiannual Report | 27

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Buena Park Community RDA Tax Allocation, Consolidated Redevelopment Project, 6.25%,
9/01/35 ........................................................................... $ 5,000,000 $ 5,012,750
Cabrillo Community College District GO, Capital Appreciation, Election of 2004,
Series B, NATL Insured, zero cpn., 8/01/33 ........................................ 9,475,000 2,114,630
California City RDA Tax Allocation Revenue, Refunding, Series A-1, 7.75%, 9/01/34 .... 9,235,000 9,335,107
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 3,377,250
Refunding, 5.25%, 6/01/46 ......................................................... 5,000,000 3,337,750
California Educational Facilities Authority Revenue,
California College of the Arts, Refunding, 5.00%, 6/01/30 ......................... 1,800,000 1,347,876
California College of the Arts, Refunding, 5.00%, 6/01/35 ......................... 4,405,000 3,180,762
College and University Financing Program, 5.00%, 2/01/30 .......................... 5,425,000 3,919,400
College and University Financing Program, 5.00%, 2/01/37 .......................... 1,150,000 787,762
College and University Financing Program, Refunding, 5.00%, 2/01/26 ............... 1,000,000 763,960
Pooled College and University, Series B, Pre-Refunded, 6.625%, 6/01/20 ............ 215,000 223,716
University of Redlands, Series A, 5.125%, 8/01/38 ................................. 5,000,000 4,649,150
California Health Facilities Financing Authority Revenue,
Asian Community Center, Series A, California Mortgage Insured, 5.00%, 4/01/27 ..... 4,850,000 4,659,443
California-Nevada Methodist, California Mortgage Insured, 5.00%, 7/01/36 .......... 1,575,000 1,364,596
Kaiser Permanente, Series A, ETM, 5.40%, 5/01/28 .................................. 2,500,000 2,508,200
Kaiser Permanente, Series B, ETM, 5.25%, 10/01/16 ................................. 3,250,000 3,286,432
Providence Health and Services, Refunding, Series C, 6.50%, 10/01/33 .............. 4,000,000 4,450,840
Sutter Health, Series A, 5.25%, 11/15/46 .......................................... 10,000,000 9,530,600
California Municipal Finance Authority COP,
5.25%, 2/01/24 .................................................................... 5,000,000 4,658,700
5.375%, 2/01/29 ................................................................... 7,000,000 6,415,710
Community Hospitals of Central California, 5.25%, 2/01/27 ......................... 15,655,000 14,312,271
Community Hospitals of Central California, 5.25%, 2/01/46 ......................... 17,000,000 14,319,100
California Municipal Finance Authority Revenue,
(a) Harbor Regional Center Project, 8.50%, 11/01/39 ................................... 5,000,000 5,002,650
Kern Regional Center Project, Series A, 7.50%, 5/01/39 ............................ 9,000,000 9,508,680
University Students Cooperative Associates, 5.00%, 4/01/37 ........................ 4,000,000 3,169,040
California PCFA Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project,
6.875%, 11/01/27 .................................................................. 5,000,000 5,014,600
California State GO,
FGIC Insured, 6.00%, 8/01/19 ...................................................... 30,000 30,110
Various Purpose, 6.00%, 11/01/39 .................................................. 25,000,000 25,390,250
California State Municipal Finance Authority Revenue,
Biola University, Refunding, 5.625%, 10/01/23 ..................................... 6,000,000 6,166,020
Biola University, Refunding, 5.80%, 10/01/28 ...................................... 7,500,000 7,628,025
Biola University, Refunding, 5.875%, 10/01/34 ..................................... 6,000,000 6,061,980
Loma Linda University, 5.00%, 4/01/37 ............................................. 3,500,000 3,296,160
California State Public Works Board Lease Revenue, Department of Mental Health,
Coalinga, Series A, 5.125%, 6/01/29 ............................................... 10,000,000 8,827,400
California Statewide CDA, COP, Catholic Healthcare West, Pre-Refunded, 6.50%,
7/01/20 ........................................................................... 12,060,000 12,605,836
California Statewide CDA Assisted Living Facilities Revenue, Hollenbeck
Palms/Magnolia, Series A, Radian Insured, 4.50%, 2/01/27 .......................... 2,200,000 1,902,362

28 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Statewide CDA Revenue,
Bentley School, Refunding, 6.75%, 7/01/32 ......................................... $ 7,980,000 $ 7,129,172
California Baptist University, Refunding, Series A, 5.40%, 11/01/27 ............... 7,440,000 6,064,790
California Baptist University, Refunding, Series A, 5.50%, 11/01/38 ............... 4,500,000 3,421,215
Catholic Healthcare West, Series C, 5.625%, 7/01/35 ............................... 5,000,000 5,103,700
CHF-Irvine LLC, UCI East Campus Apartments, Phase II, 5.75%, 5/15/32 .............. 10,000,000 9,681,500
Drew School, Refunding, 5.30%, 10/01/37 ........................................... 4,275,000 3,019,518
Elder Care Alliance, Series A, Pre-Refunded, 8.00%, 11/15/22 ...................... 3,000,000 3,665,970
Elder Care Alliance, Series A, Pre-Refunded, 8.25%, 11/15/32 ...................... 4,000,000 4,929,200
Eskaton Village Grass Valley, Pre-Refunded, 8.25%, 11/15/31 ....................... 9,430,000 10,181,288
Henry Mayo Newhall Memorial Hospital, Series A, California Mortgage Insured, 5.00%,
10/01/27 ....................................................................... 3,000,000 2,842,110
Henry Mayo Newhall Memorial Hospital, Series B, California Mortgage Insured, 5.20%,
10/01/37 ....................................................................... 7,500,000 6,673,050
Kaiser Permanente, Series B, 5.25%, 3/01/45 ....................................... 52,910,000 49,685,135
Lancer Educational Student Housing Project, 5.625%, 6/01/33 ....................... 3,000,000 2,425,050
Lodi Memorial Hospital, Series A, California Mortgage Insured, 5.00%, 12/01/37 .... 12,500,000 10,768,500
Methodist Hospital of Southern California Project, FHA Insured, 6.75%, 2/01/38 .... 10,000,000 11,180,700
Monterey Institute International, 5.50%, 7/01/31 .................................. 8,285,000 8,810,103
Presidio Hill School, 6.875%, 8/01/32 ............................................. 6,085,000 5,472,180
Prospect Sierra School, Pre-Refunded, 6.75%, 9/01/32 .............................. 4,920,000 5,223,908
Seven Hills School, 6.50%, 8/01/31 ................................................ 5,315,000 4,684,322
(b) Sonoma County Day School, 6.75%, 1/01/32 .......................................... 5,710,000 4,123,876
Thomas Jefferson School of Law, Series A, 7.25%, 10/01/38 ......................... 10,000,000 10,095,700
Thomas Jefferson School of Law Project, Pre-Refunded, 7.75%, 10/01/31 ............. 4,720,000 5,249,537
Turning Point, Pre-refunded, 6.50%, 11/01/31 ...................................... 6,130,000 6,408,976
ValleyCare Health System, Refunding, Series A, 5.00%, 7/15/22 ..................... 1,000,000 909,020
ValleyCare Health System, Refunding, Series A, 5.125%, 7/15/31 .................... 5,850,000 5,019,358
California Statewide CDA Special Tax Revenue, CFD 2007-1, Orinda, 6.00%, 9/01/29 ..... 5,000,000 4,287,900
Camarillo PFA Wastewater Revenue, AMBAC Insured, 5.00%, 6/01/36 ...................... 1,210,000 1,195,988
Capistrano USD, CFD Special Tax, No. 05-1, Rancho Madrina, 5.25%, 9/01/34 ............ 1,120,000 919,139
Cathedral City 1915 Act Special Assessment, Limited Obligation, Cove ID No. 04-02,
5.00%, 9/02/30 .................................................................... 1,175,000 958,377
5.05%, 9/02/35 .................................................................... 1,305,000 1,023,799
Chabot-Las Positas Community College District GO, Capital Appreciation Bonds,
Series C, AMBAC Insured, zero cpn.,
8/01/44 ........................................................................... 32,750,000 3,098,477
8/01/46 ........................................................................... 35,370,000 2,849,053
Chatom USD, GO, Election of 2006, Capital Appreciation, Series C, XLCA Insured,
zero cpn.,
8/01/47 ........................................................................... 9,450,000 753,260
Chino CFD Special Tax,
No. 03-1, 5.875%, 9/01/33 ......................................................... 1,250,000 1,121,313
No. 03-3, Improvement Area 1, 5.70%, 9/01/29 ...................................... 1,215,000 1,086,538
No. 03-3, Improvement Area 1, 5.75%, 9/01/34 ...................................... 1,420,000 1,205,126
Chula Vista Special Tax,
CFD No. 01-1, Improvement Area B, San Miguel Ranch, 5.45%, 9/01/36 ................ 2,170,000 1,747,870
CFD No. 12-I, McMillin Otay Ranch, 5.25%, 9/01/30 ................................. 2,090,000 1,443,500
CFD No. 12-I, McMillin Otay Ranch, 5.25%, 9/01/36 ................................. 3,630,000 2,380,445

Semiannual Report | 29

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Clovis USD, GO, Capital Appreciation, Election of 2004, Series A, FGIC Insured,
zero cpn.,
8/01/27 ........................................................................... $ 7,500,000 $ 2,732,250
8/01/28 ........................................................................... 5,000,000 1,692,450
Compton Community College District GO, Election of 2002, Series B,
6.625%, 8/01/27 ................................................................... 3,085,000 3,247,610
6.75%, 8/01/34 .................................................................... 4,000,000 4,076,200
Compton USD, GO, Election of 2002, Series C, AMBAC Insured, 5.00%, 6/01/31 ........... 5,000,000 4,753,550
Corona CFD No. 2001-2 Special Tax, Improvement Areas Nos. 1 and 2, Series A, 6.25%,
9/01/32 ........................................................................... 1,890,000 1,759,987
Corona CFD No. 2003-2 Special Tax, Highlands Collection,
5.15%, 9/01/34 .................................................................... 2,810,000 2,177,919
5.20%, 9/01/34 .................................................................... 1,000,000 785,700
Corona-Norco USD, PFA Special Tax Revenue, Series B, 5.00%,
9/01/26 ........................................................................... 1,760,000 1,303,438
9/01/36 ........................................................................... 2,000,000 1,353,120
Corona-Norco USD Special Tax,
CFD No. 04-1, 5.00%, 9/01/24 ...................................................... 1,540,000 1,248,386
CFD No. 04-1, 5.20%, 9/01/36 ...................................................... 2,000,000 1,497,740
Series A, 5.35%, 9/01/26 .......................................................... 1,005,000 803,186
Series A, 5.40%, 9/01/36 .......................................................... 2,530,000 1,899,246
Cotati South Sonoma Business Park AD Special Assessment, Improvement, 6.50%,
9/02/33 ........................................................................... 5,395,000 4,848,217
Daly City Housing Development Finance Agency Mobile Home Park Revenue, Franciscan
Mobile, sub. bond, Refunding, Series B, 5.85%, 12/15/47 ........................... 5,140,000 4,230,220
Del Mar Race Track Authority Revenue, 5.00%, 8/15/25 ................................. 3,165,000 3,002,889
Duarte RDA Tax Allocation, Capital Appreciation, Merged Redevelopment Project, ETM,
zero cpn., 12/01/28 ............................................................... 30,795,000 12,230,234
Eastern California Municipal Water District CFD No. 2003-15, Special Tax, Morgan
Valley, Series A, 5.20%, 9/01/37 .................................................. 2,000,000 1,484,360
El Dorado County Special Tax,
CFD No. 1992-1, 6.125%, 9/01/16 ................................................... 4,735,000 4,664,022
CFD No. 2001-1, 5.35%, 9/01/35 .................................................... 1,900,000 1,409,515
CFD No. 2005-1, 5.00%, 9/01/21 .................................................... 1,000,000 732,200
CFD No. 2005-1, 5.15%, 9/01/25 .................................................... 2,075,000 1,411,685
CFD No. 2005-1, 5.25%, 9/01/35 .................................................... 6,705,000 3,884,274
El Monte Water Authority Revenue, Refunding, AMBAC Insured, 5.00%,
9/01/31 ........................................................................... 4,300,000 4,314,319
9/01/36 ........................................................................... 3,855,000 3,700,993
El Rancho USD, GO, Capital Appreciation, Election of 2003, FGIC Insured, zero cpn.,
8/01/29 ........................................................................... 2,400,000 718,392
Escondido Revenue COP, Series A, FGIC Insured,
6.00%, 9/01/31 .................................................................... 770,000 785,523
Pre-Refunded, 6.00%, 9/01/31 ...................................................... 865,000 910,058
Escondido Special Tax, CFD No. 01, Eureka,
5.10%, 9/01/26 .................................................................... 695,000 538,993
5.15%, 9/01/36 .................................................................... 1,400,000 1,014,874
Fairfield CFD Special Tax, No. 3, North Cordelia General Improvements, 6.00%,
9/01/32 ........................................................................... 1,200,000 1,207,980
9/01/37 ........................................................................... 5,810,000 5,809,361

30 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Fontana Special Tax, CFD No. 37, 5.00%, 9/01/30 ...................................... $ 1,000,000 $ 743,990
Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding,
zero cpn.,
1/15/26 ........................................................................... 38,720,000 13,199,648
1/15/30 ........................................................................... 4,000,000 994,440
1/15/31 ........................................................................... 85,780,000 19,658,203
Garden Grove Housing Authority MFHR, Set-Aside Tax Increment, Series C, 6.70%,
7/01/24 ........................................................................... 6,140,000 6,146,263
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Asset-Backed, Senior Series A-1, 5.75%, 6/01/47 ................................... 24,500,000 17,646,125
Asset-Backed, Series A-2, Pre-Refunded, 7.90%, 6/01/42 ............................ 750,000 914,828
Asset-Backed, Series A-3, Pre-Refunded, 7.875%, 6/01/42 ........................... 6,400,000 7,801,088
Capital Appreciation, Asset-Backed, Refunding, Series C, second sub., zero cpn.,
6/01/47 ........................................................................ 50,000,000 1,460,000
Enhanced, Asset-Backed, Series A, FSA Insured, 5.00%, 6/01/35 ..................... 10,000,000 9,397,000
Hanford Joint UHSD, GO, Capital Appreciation, Election of 2004, Series B, FSA Insured,
zero cpn.,
8/01/32 ........................................................................... 3,635,000 777,999
8/01/33 ........................................................................... 3,705,000 730,737
8/01/35 ........................................................................... 4,120,000 691,048
Huntington Beach CFD Special Tax Revenue, Grand Coast Resort, 6.45%, 9/01/31 ......... 5,000,000 4,697,000
(b) Imperial County Special Tax, CFD No. 98-1,
6.45%, 9/01/17 .................................................................... 1,670,000 1,553,334
6.50%, 9/01/31 .................................................................... 5,705,000 4,928,093
Indio 1915 Act GO,
AD No. 1999-1, 7.125%, 9/02/20 .................................................... 1,725,000 1,732,711
AD No. 2001-1, 6.50%, 9/02/26 ..................................................... 3,975,000 3,810,395
Indio CFD Special Tax,
5.00%, 9/01/25 .................................................................... 4,000,000 3,032,800
5.10%, 9/01/30 .................................................................... 1,275,000 923,738
No. 04-3, Terra Lago, Improvement Area 1, 5.15%, 9/01/35 .......................... 1,275,000 890,345
Irvine 1915 Act Special Assessment, Limited Obligation,
AD No. 00-18, Group Five, 5.00%, 9/02/26 .......................................... 1,275,000 1,110,857
AD No. 00-18, Group Five, Refunding, 5.00%, 9/02/29 ............................... 2,000,000 1,700,340
AD No. 03-19, Group Five, Refunding, 5.00%, 9/02/25 ............................... 1,500,000 1,328,820
AD No. 03-19, Group Four, 5.00%, 9/02/29 .......................................... 1,500,000 1,273,755
AD No. 03-19, Group Three, 5.00%, 9/02/29 ......................................... 1,110,000 937,062
AD No. 04-20, Group One, 5.00%, 9/02/25 ........................................... 2,740,000 2,424,763
AD No. 04-20, Group One, 5.00%, 9/02/30 ........................................... 10,975,000 9,334,567
Irvine Special Tax, CFD No. 2005-2, 5.25%, 9/01/36 ................................... 2,000,000 1,643,360
Jurupa Community Services District Special Tax,
CFD No. 7, Series A, 5.10%, 9/01/28 ............................................... 2,695,000 2,235,745
CFD No. 7, Series A, 5.15%, 9/01/35 ............................................... 3,690,000 2,891,189
CFD No. 11, Series A, 5.00%, 9/01/25 .............................................. 1,930,000 1,647,101
CFD No. 11, Series A, 5.05%, 9/01/30 .............................................. 2,495,000 1,991,883
CFD No. 11, Series A, 5.10%, 9/01/35 .............................................. 2,065,000 1,605,703
CFD No. 12, Series A, 5.10%, 9/01/29 .............................................. 2,000,000 1,618,440
CFD No. 12, Series A, 5.15%, 9/01/35 .............................................. 3,000,000 2,368,500
CFD No. 17, Series A, 5.125%, 9/01/25 ............................................. 1,350,000 1,205,307

Semiannual Report | 31

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Jurupa Community Services District Special Tax, (continued)
CFD No. 17, Series A, 5.20%, 9/01/36 .............................................. $ 2,825,000 $ 2,358,705
CFD No. 18, Eastvale, Series A, 5.00%, 9/01/26 .................................... 1,295,000 1,086,764
CFD No. 18, Eastvale, Series A, 5.00%, 9/01/36 .................................... 2,400,000 1,829,976
CFD No. 19, Eastvale, 5.00%, 9/01/27 .............................................. 1,500,000 1,236,090
CFD No. 19, Eastvale, 5.00%, 9/01/36 .............................................. 1,500,000 1,129,155
CFD No. 30, Series A, 5.60%, 9/01/37 .............................................. 1,000,000 822,210
Lafayette RDA Tax Allocation, 5.75%, 8/01/32 ......................................... 1,000,000 950,180
Lake Elsinore 1915 Act Special Assessment, AD No. 93-1, Limited Obligation, Refunding,
7.00%, 9/02/30 .................................................................... 8,035,000 7,973,050
Lake Elsinore Special Tax,
CFD No. 2003-2, Canyon Hills, Improvement Area A, Series A, 5.85%, 9/01/24 ........ 1,035,000 971,679
CFD No. 2003-2, Canyon Hills, Improvement Area A, Series A, 5.95%, 9/01/34 ........ 2,200,000 1,904,496
CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.10%, 9/01/22 ............ 750,000 686,633
CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.15%, 9/01/25 ............ 635,000 555,765
CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.25%, 9/01/30 ............ 1,195,000 995,148
CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 1, 5.25%, 9/01/35 ............ 1,225,000 945,614
CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 2, Series A, 5.20%, 9/01/26 .. 915,000 773,111
CFD No. 2004-3, Rosetta Canyon, Improvement Area No. 2, Series A, 5.25%, 9/01/37 .. 2,800,000 2,128,952
CFD No. 2005-2, Aberhill Ranch, Improvement Area A, Series A, 5.45%, 9/01/36 ...... 5,695,000 4,165,266
CFD No. 2006-2, Viscaya, Series A, 5.40%, 9/01/36 ................................. 2,020,000 1,577,115
Lake Elsinore USD, CFD No. 2001-1 Special Tax, Pre-Refunded, 6.30%, 9/01/33 .......... 4,400,000 4,929,056
Lancaster Financing Authority Tax Allocation Revenue, Redevelopment Project Nos.
5 and 6, Refunding,
5.40%, 2/01/29 .................................................................... 500,000 474,235
5.60%, 2/01/34 .................................................................... 1,250,000 1,151,613
Lancaster RDA Tax Allocation, Combined Redevelopment Project Areas, 6.875%,
8/01/34 ........................................................................... 2,000,000 2,120,660
8/01/39 ........................................................................... 2,000,000 2,105,700
Lee Lake Water District CFD No. 1 Special Tax, Sycamore Creek,
6.50%, 9/01/24 .................................................................... 1,000,000 949,930
5.25%, 9/01/28 .................................................................... 1,750,000 1,421,787
5.30%, 9/01/35 .................................................................... 3,300,000 2,532,024
Lee Lake Water District CFD No. 3 Special Tax, Retreat, 5.875%, 9/01/27 .............. 3,000,000 2,530,770
Lincoln CFD No. 2003-1 Special Tax, Pre-Refunded,
5.90%, 9/01/24 .................................................................... 1,780,000 2,120,888
5.95%, 9/01/28 .................................................................... 4,450,000 5,310,363
6.00%, 9/01/34 .................................................................... 3,520,000 4,206,963
Lincoln PFA Special Tax Revenue, Sub Series B, 5.00%, 9/01/34 ........................ 3,410,000 2,480,775
Loma Linda Hospital Revenue, Loma Linda University Medical Center, Series A, 5.00%,
12/01/21 .......................................................................... 7,500,000 6,853,125
Long Beach Bond Finance Authority Natural Gas Purchase Revenue, Series A,
5.00%, 11/15/29 ................................................................... 9,630,000 8,464,674
5.50%, 11/15/37 ................................................................... 25,000,000 22,727,250
Los Angeles County Sanitation Districts Financing Authority Revenue, Capital Projects,
District No. 14, Refunding, Sub Series B, FGIC Insured, 5.00%, 10/01/28 ........... 6,120,000 6,184,260
(b) Los Angeles MFR, Refunding, Series J-2C, 8.50%, 1/01/24 .............................. 600,000 540,606

32 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Lynwood PFA Lease Revenue,
6.25%, 9/01/22 .................................................................... $ 1,080,000 $ 1,092,895
6.30%, 9/01/29 .................................................................... 2,680,000 2,691,068
Lynwood PFA Tax Allocation, Alameda Project Area, 6.30%, 9/01/24 ..................... 1,000,000 1,000,200
M-S-R Energy Authority Gas Revenue, Series B, 6.50%, 11/01/39 ........................ 7,500,000 7,679,850
Menifee USD Special Tax, CFD No. 2002-2,
6.05%, 9/01/26 .................................................................... 990,000 888,089
6.10%, 9/01/34 .................................................................... 3,675,000 3,300,003
Merced CFD No. 2005-1 Special Tax, Improvement Area No. 1, 5.30%, 9/01/36 ............ 2,400,000 1,378,560
Merced RDA Tax Allocation, Merced Gateways Redevelopment Project, Series A, 6.50%,
9/01/39 ........................................................................... 6,250,000 6,368,812
Moorpark CFD No. 2004-1 Special Tax, Moorpark Highlands,
5.25%, 9/01/26 .................................................................... 1,795,000 1,480,139
5.30%, 9/01/38 .................................................................... 4,020,000 2,971,222
Moreland School District GO, Election of 2002, Series D, FGIC Insured, zero cpn.,
8/01/30 ........................................................................... 3,400,000 1,004,360
8/01/31 ........................................................................... 2,000,000 551,120
8/01/32 ........................................................................... 4,405,000 1,128,693
8/01/34 ........................................................................... 4,405,000 1,256,482
8/01/37 ........................................................................... 5,700,000 1,372,389
Moreno Valley USD Special Tax,
CFD No. 2004-6, 5.00%, 9/01/22 .................................................... 2,105,000 1,742,708
CFD No. 2004-6, 5.10%, 9/01/28 .................................................... 2,000,000 1,532,360
CFD No. 2004-6, 5.20%, 9/01/36 .................................................... 5,000,000 3,548,050
CFD No. 2005-2, 5.00%, 9/01/36 .................................................... 815,000 592,880
Murrieta 1915 Act Special Tax, CFD No. 2000-1, 6.375%, 9/01/30 ....................... 4,100,000 3,863,881
Murrieta CFD No. 2000-2 Special Tax, The Oaks,
Improvement Area A, 5.90%, 9/01/27 ................................................ 2,000,000 1,695,520
Improvement Area A, 6.00%, 9/01/34 ................................................ 3,570,000 2,926,400
Improvement Area B, 6.00%, 9/01/27 ................................................ 1,285,000 1,194,973
Improvement Area B, 6.00%, 9/01/34 ................................................ 1,000,000 875,510
Improvement Area B, 6.00%, 9/01/34 ................................................ 2,800,000 2,450,224
Murrieta CFD No. 2001-1 Special Tax, Bluestone, Improvement Area A, 6.20%,
9/01/25 ........................................................................... 2,105,000 1,809,942
Murrieta CFD No. 2003-2 Special Tax, Blackmore Ranch, 6.10%, 9/01/34 ................. 2,000,000 1,787,520
Murrieta CFD No. 2004-1 Special Tax, Bremerton, 5.625%, 9/01/34 ...................... 700,000 602,084
Napa Valley Community College District GO, Election of 2002, Series C, NATL Insured,
zero cpn.,
8/01/33 ........................................................................... 13,130,000 2,582,408
8/01/34 ........................................................................... 13,380,000 2,450,815
Norco Special Tax,
CFD No. 02-1, 6.50%, 3/01/33 ...................................................... 1,395,000 1,338,433
CFD No. 97-1, Pre-Refunded, 7.10%, 10/01/30 ....................................... 2,640,000 2,835,149
North Natomas CFD Special Tax, No. 4, Series B, 6.375%, 9/01/31 ...................... 4,300,000 3,821,238
Oceanside CFD No. 2001-1 Special Tax, Morro Hills Development, 5.50%, 9/01/34 ........ 3,175,000 2,602,262
Orange County 1915 Act Special Assessment, Limited Obligation, AD No. 01-1-GP1,
5.00%, 9/02/28 .................................................................... 3,000,000 2,565,330
5.10%, 9/02/33 .................................................................... 2,000,000 1,648,700

Semiannual Report | 33

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Oxnard Harbor District Revenue,
Series A, 5.75%, 8/01/20 .......................................................... $ 1,110,000 $ 1,063,735
Series B, 6.00%, 8/01/24 .......................................................... 6,000,000 6,214,320
Oxnard Special Tax, CFD No. 3, Seabridge, 5.00%, 9/01/35 ............................. 5,000,000 3,780,250
Palomar Pomerado Health Care District COP, 6.75%, 11/01/39 ........................... 10,000,000 9,773,300
Perris CFD No. 05-2 Special Tax, Harmony Grove, Series A,
5.00%, 9/01/21 .................................................................... 1,130,000 954,952
5.20%, 9/01/24 .................................................................... 1,505,000 1,249,662
5.25%, 9/01/29 .................................................................... 3,585,000 2,895,784
5.30%, 9/01/35 .................................................................... 4,200,000 3,323,796
Perris CFD No. 2001-1 Special Tax,
Improvement Area No. 4, May Farms, Series A, 5.00%, 9/01/25 ....................... 1,415,000 1,107,634
Improvement Area No. 4, May Farms, Series A, 5.10%, 9/01/30 ....................... 865,000 660,851
Improvement Area No. 4, May Farms, Series A, 5.15%, 9/01/35 ....................... 1,075,000 804,272
Improvement Area No. 5, May Ranch, Series A, 5.00%, 9/01/26 ....................... 575,000 454,411
Improvement Area No. 5, May Ranch, Series A, 5.00%, 9/01/37 ....................... 1,580,000 1,131,343
Perris CFD No. 2002-1 Special Tax, Series A,
6.375%, 9/01/23 ................................................................... 1,415,000 1,376,399
6.50%, 9/01/29 .................................................................... 1,970,000 1,887,496
6.50%, 9/01/33 .................................................................... 2,035,000 1,931,235
Perris CFD No. 2004-3 Special Tax, Improvement Area No. 2, Series A, 5.30%, 9/01/35 .. 1,370,000 1,049,886
Perris PFA Local Agency Revenue, Series A, 6.25%, 9/01/33 ............................ 2,955,000 2,637,958
Perris PFAR Tax Allocation,
5.30%, 10/01/26 ................................................................... 2,000,000 1,723,380
5.35%, 10/01/36 ................................................................... 4,010,000 3,273,523
Pico Rivera Water Authority Revenue, Refunding, Series A, 6.25%, 12/01/32 ............ 7,250,000 6,661,300
Pomona USD, GO, Election of 2008, Series A, Assured Guaranty, 5.25%, 8/01/33 ......... 3,500,000 3,485,650
Poway USD Special Tax,
CFD No. 6, 4S Ranch, 5.125%, 9/01/35 .............................................. 6,000,000 4,981,200
CFD No. 6, Improvement Area B, 5.125%, 9/01/36 .................................... 5,035,000 4,064,604
CFD No. 14, Area A, 5.125%, 9/01/26 ............................................... 1,770,000 1,409,893
CFD No. 14, Area A, 5.25%, 9/01/36 ................................................ 5,225,000 3,851,974
CFD No. 14, Del Sur, 5.125%, 9/01/26 .............................................. 2,200,000 1,752,410
Rancho Cordova CFD No. 2003-1 Special Tax, Sunridge Anatolia,
5.25%, 9/01/25 .................................................................... 2,235,000 1,980,098
5.375%, 9/01/30 ................................................................... 1,650,000 1,308,566
5.375%, 9/01/37 ................................................................... 7,130,000 5,675,694
5.50%, 9/01/37 .................................................................... 2,635,000 2,162,017
Rancho Mirage Joint Powers Financing Authority Revenue, Eisenhower Medical Center,
Series A, 5.00%, 7/01/47 .......................................................... 5,000,000 4,438,050
Richmond Joint Powers Financing Authority Revenue, Reassessment, Refunding, Series A,
AMBAC Insured, 5.00%, 9/02/30 ..................................................... 1,085,000 1,038,974
Rio Elementary School District Special Tax, CFD No. 1, 5.20%, 9/01/35 ................ 5,000,000 3,539,800
Riverbank USD, GO, Election of 2005, Series B, Assured Guaranty, zero cpn.,
8/01/38 ........................................................................... 6,690,000 1,130,677
8/01/43 ........................................................................... 8,750,000 1,070,475
Riverside County Special Tax, CFD No. 87-5, senior lien, Refunding, Series A, 7.00%,
9/01/13 ........................................................................... 4,160,000 4,206,218

34 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Riverside USD Special Tax,
CFD No. 13, Improvement Area 1, 5.375%, 9/01/34 ................................... $ 2,320,000 $ 1,802,988
CFD No. 14, Series A, 5.40%, 9/01/26 .............................................. 1,010,000 834,624
CFD No. 14, Series A, 5.45%, 9/01/35 .............................................. 2,060,000 1,681,207
CFD No. 15, Improvement Area 1, 5.45%, 9/01/25 .................................... 2,970,000 2,622,421
CFD No. 15, Improvement Area 1, 5.55%, 9/01/30 .................................... 2,390,000 2,031,930
CFD No. 15, Improvement Area 1, 5.60%, 9/01/34 .................................... 2,000,000 1,658,440
CFD No. 15, Series A, 5.15%, 9/01/25 .............................................. 1,730,000 1,492,557
CFD No. 15, Series A, 5.25%, 9/01/30 .............................................. 1,230,000 1,037,579
CFD No. 15, Series A, 5.25%, 9/01/35 .............................................. 1,500,000 1,237,890
CFD No. 17, Aldea, 5.125%, 9/01/35 ................................................ 1,425,000 1,130,809
CFD No. 18, 5.00%, 9/01/25 ........................................................ 505,000 409,914
CFD No. 18, 5.00%, 9/01/34 ........................................................ 1,125,000 878,434
CFD No. 22, 5.25%, 9/01/35 ........................................................ 1,535,000 1,214,830
Road 17 Levee Area PFA Assessment Revenue, Road 17 Levee Improvement Project, 6.75%,
9/01/29 ........................................................................... 2,630,000 2,726,495
Romoland School District Special Tax, CFD 1,
Improvement Area 1, 5.45%, 9/01/38 ................................................ 3,215,000 2,463,076
Improvement Area 2, 5.375%, 9/01/38 ............................................... 3,080,000 2,193,299
Roseville Special Tax, CFD No. 1,
Fiddyment Ranch, 5.00%, 9/01/17 ................................................... 1,495,000 1,411,295
Fiddyment Ranch, 5.00%, 9/01/19 ................................................... 980,000 897,533
Fiddyment Ranch, 5.125%, 9/01/21 .................................................. 980,000 884,587
Fiddyment Ranch, 5.00%, 9/01/24 ................................................... 1,010,000 838,169
Fiddyment Ranch, 5.00%, 9/01/25 ................................................... 1,020,000 857,167
Fiddyment Ranch, 5.125%, 9/01/26 .................................................. 4,945,000 4,167,646
Fiddyment Ranch, 5.25%, 9/01/36 ................................................... 7,880,000 6,074,377
Longmeadow, 5.00%, 9/01/36 ........................................................ 2,370,000 1,709,031
Stone Point, 6.375%, 9/01/24 ...................................................... 1,750,000 1,662,552
Stone Point, 6.375%, 9/01/28 ...................................................... 2,500,000 2,241,400
Stoneridge, Pre-Refunded, 6.20%, 9/01/21 .......................................... 1,250,000 1,394,613
Stoneridge, Pre-Refunded, 6.30%, 9/01/31 .......................................... 1,500,000 1,676,130
Westpark, 5.15%, 9/01/30 .......................................................... 5,500,000 4,240,720
Westpark, 5.20%, 9/01/36 .......................................................... 4,500,000 3,369,915
Roseville Westpark CFD No. 1 Special Tax, Public Facilities,
5.20%, 9/01/26 .................................................................... 1,000,000 856,570
5.25%, 9/01/37 .................................................................... 1,600,000 1,202,864
Sacramento County Airport System Revenue, Senior Series B, FSA Insured, 5.25%,
7/01/39 ........................................................................... 10,000,000 9,252,500
Sacramento County Special Tax, CFD No. 1, Refunding, 6.30%, 9/01/21 .................. 1,575,000 1,558,100
Sacramento Special Tax, North Natomas CFD No. 97-01, Refunding,
5.00%, 9/01/29 .................................................................... 1,180,000 983,436
5.10%, 9/01/35 .................................................................... 1,515,000 1,191,578
San Diego RDA Tax Allocation, Capital Appreciation,
Refunding, Series B, zero cpn., 9/01/10 ........................................... 825,000 792,916
Refunding, Series B, zero cpn., 9/01/15 ........................................... 6,810,000 4,760,735
Refunding, Series B, zero cpn., 9/01/16 ........................................... 1,500,000 973,740
Refunding, Series B, zero cpn., 9/01/19 ........................................... 1,800,000 940,824

Semiannual Report | 35

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Diego RDA Tax Allocation, Capital Appreciation, (continued)
Refunding, Series B, zero cpn., 9/01/20 ........................................... $ 1,800,000 $ 869,328
Refunding, Series B, zero cpn., 9/01/21 ........................................... 1,800,000 801,396
Refunding, Series B, zero cpn., 9/01/22 ........................................... 1,900,000 789,602
Refunding, Series B, zero cpn., 9/01/23 ........................................... 1,900,000 733,115
Refunding, Series B, zero cpn., 9/01/24 ........................................... 1,900,000 666,748
Series B, zero cpn., 9/01/25 ...................................................... 1,900,000 613,529
Series B, zero cpn., 9/01/26 ...................................................... 1,900,000 566,428
Series B, zero cpn., 9/01/27 ...................................................... 1,900,000 520,657
Series B, zero cpn., 9/01/28 ...................................................... 1,900,000 477,945
San Diego USD, GO, Capital Appreciation, Election of 2008, Series A, zero cpn. to
7/01/19, 6.00% thereafter, 7/01/33 ................................................ 10,000,000 5,769,900
San Francisco City and County Redevelopment Financing Authority Tax Allocation
Revenue, Mission Bay South Redevelopment, Series D, 6.625%, 8/01/39 ............... 2,265,000 2,347,265
San Joaquin County Public Facilities Financing Corp. Revenue COP, Wastewater
Conveyance Project, 6.00%, 8/01/37 ................................................ 1,000,000 783,890
San Joaquin Delta Community College District GO, Election of 2004, Capital
Appreciation, Series B, FSA Insured, zero cpn., 8/01/30 ........................... 3,900,000 1,056,939
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, 5.60%, 1/15/16 ......................... 4,500,000 4,550,715
Capital Appreciation, Refunding, Series A, 5.70%, 1/15/19 ......................... 3,000,000 3,002,850
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/21 ......................... 24,750,000 24,548,040
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/26 ....... 19,475,000 5,251,239
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/15/32 ....... 50,225,000 7,556,853
junior lien, ETM, zero cpn., 1/01/28 .............................................. 19,150,000 8,581,306
Refunding, Series A, 5.50%, 1/15/28 ............................................... 3,645,000 3,324,969
senior lien, 5.00%, 1/01/33 ....................................................... 27,840,000 24,669,859
San Marcos Public Facilities Authority Special Tax Revenue,
Refunding, Series A, 5.65%, 9/01/36 ............................................... 5,180,000 4,079,923
Series A, 5.05%, 9/01/38 .......................................................... 3,250,000 2,532,270
San Marcos RDA Tax Allocation, Affordable Housing Project, Series A,
5.65%, 10/01/28 ................................................................... 2,000,000 2,002,060
Santa Cruz County RDA Tax Allocation, 6.625%, 9/01/29 ................................ 2,650,000 2,863,987
Saugus USD, CFD No. 2005-4 Special Tax, 5.30%, 9/01/36 ............................... 2,000,000 1,411,920
Sierra View Local Health Care District Revenue, 5.25%, 7/01/32 ....................... 3,000,000 2,743,320
Simi Valley 1915 Act Special Assessment, AD No. 98-1, Madera, 7.30%, 9/02/24 ......... 2,220,000 2,244,931
Southern California Public Power Authority Transmission Project Revenue, Southern
Transmission Project, 6.125%, 7/01/18 ............................................. 50,000 50,015
Stockton 1915 Act Special Assessment, Limited Obligation, Mosher AD No. 2003-2,
6.20%, 9/02/23 .................................................................... 2,955,000 2,943,860
6.30%, 9/02/33 .................................................................... 3,390,000 3,172,362
Stockton PFA Lease Revenue, Capital Improvement Projects, Series A, 7.00%, 9/01/38 ... 7,000,000 7,102,550
Stockton Special Tax, Spanos Park West CFD No. 2001-1, Pre-Refunded, 6.25%, 9/01/25 .. 3,500,000 4,077,850
Tehachapi RDA Tax Allocation, Tehachapi Redevelopment Project, Radian Insured, 5.25%,
12/01/37 .......................................................................... 1,500,000 1,254,630
Temecula RDA Tax Allocation Revenue, sub. lien, Escrow, Redevelopment Project No. 1,
5.625%, 12/15/38 .................................................................. 2,000,000 1,630,920
Temecula Valley USD, CFD No. 2005-1 Special Tax, 5.00%, 9/01/36 ...................... 1,000,000 725,640

36 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Tobacco Securitization Authority Northern California Tobacco Settlement Revenue,
Capital Appreciation, Asset-Backed, Series A-2, 5.40%, 6/01/27 .................... $ 1,250,000 $ 1,119,563
Series A-1, 5.375%, 6/01/38 ....................................................... 5,000,000 3,852,400
Series A-1, 5.50%, 6/01/45 ........................................................ 2,000,000 1,396,340
Tobacco Securitization Authority Southern California Tobacco Settlement Revenue,
Asset-Backed Bonds, Second Sub Series, zero cpn., 6/01/46 ......................... 25,000,000 686,000
Truckee-Donner PUD Special Tax, CFD No. 04-1,
5.75%, 9/01/29 .................................................................... 2,975,000 2,471,957
5.80%, 9/01/35 .................................................................... 4,630,000 3,809,842
Truckee-Donner PUD Special Tax Allocation, Special Tax Bonds,
5.20%, 9/01/25 .................................................................... 3,000,000 2,452,170
5.25%, 9/01/30 .................................................................... 5,050,000 3,938,242
5.30%, 9/01/35 .................................................................... 7,395,000 5,660,133
Tustin CFD No. 07-01 Special Tax, Tustin Legacy, 6.00%, 9/01/37 ...................... 2,100,000 1,874,628
Upland CFD No. 2003-2 Special Tax, San Antonio, Improvement Area 1, Series A,
5.90%, 9/01/24 .................................................................... 2,380,000 2,192,623
6.00%, 9/01/34 .................................................................... 2,000,000 1,798,440
Vallejo RDA Tax Allocation, Housing Set-Aside, Refunding, Series A, 7.00%, 10/01/31 .. 4,575,000 4,430,476
Valley Sanitary District 1915 Act Special Assessment, AD No. 04, Valley Sanitary
District, Limited Obligation,
5.00%, 9/02/25 .................................................................... 1,060,000 829,726
5.20%, 9/02/30 .................................................................... 1,370,000 1,061,134
West Kern Community College District GO, Capital Appreciation, Election of 2004,
Series B, XLCA Insured, zero cpn.,
11/01/25 .......................................................................... 2,435,000 905,406
11/01/26 .......................................................................... 2,480,000 845,085
11/01/27 .......................................................................... 1,400,000 439,348
11/01/28 .......................................................................... 1,445,000 420,278
11/01/29 .......................................................................... 1,485,000 400,653
11/01/30 .......................................................................... 2,650,000 655,292
11/01/31 .......................................................................... 2,695,000 618,125
West Sacramento Special Tax,
CFD No. 16, Pre-Refunded, 5.90%, 9/01/23 .......................................... 1,000,000 1,108,630
CFD No. 20, 5.125%, 9/01/25 ....................................................... 500,000 410,935
CFD No. 20, 5.30%, 9/01/35 ........................................................ 1,740,000 1,370,163
Westside USD, CFD No. 2005-3 Special Tax, 5.00%,
9/01/26 ........................................................................... 700,000 534,044
9/01/36 ........................................................................... 2,080,000 1,475,864
William S. Hart UHSD, CFD No. 2005-1 Special Tax, 5.30%, 9/01/36 ..................... 2,500,000 1,763,650
Woodland Special Tax, CFD No. 1,
6.00%, 9/01/28 .................................................................... 5,000,000 4,273,650
6.25%, 9/01/34 .................................................................... 6,615,000 5,703,718
Yuba Community College District GO, Capital Appreciation, Election of 2006, Series B,
AMBAC Insured, zero cpn.,
8/01/42 ........................................................................... 10,090,000 973,080
8/01/43 ........................................................................... 10,540,000 945,333
8/01/44 ........................................................................... 11,010,000 918,014

Semiannual Report | 37

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Yucca Valley RDA Tax Allocation, Yucca Valley Redevelopment Project No. 1,
5.50%, 6/01/28 .................................................................... $ 2,110,000 $ 2,034,124
5.75%, 6/01/38 .................................................................... 5,485,000 5,087,886
---------------
1,305,146,251
---------------
U.S. TERRITORIES 3.1%
GUAM 1.2%
Guam Government GO,
Refunding, Series A, 5.00%, 11/15/23 .............................................. 7,245,000 6,478,189
Refunding, Series A, 5.25%, 11/15/37 .............................................. 6,500,000 5,316,025
Series A, 7.00%, 11/15/39 ......................................................... 5,000,000 5,092,900
---------------
16,887,114
---------------
NORTHERN MARIANA ISLANDS 0.1%
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A,
6.60%, 3/15/28 .................................................................... 1,655,000 1,565,680
---------------
PUERTO RICO 1.8%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/44 .................................................................... 5,000,000 5,120,800
Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series A, 5.50%, 7/01/32 ........................... 10,000,000 9,661,100
Series A, 5.00%, 7/01/24 .......................................................... 10,150,000 9,584,339
---------------
24,366,239
---------------
TOTAL U.S. TERRITORIES ............................................................... 42,819,033
---------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,491,089,765) ............................................................. 1,347,965,284
---------------
SHORT TERM INVESTMENTS 1.5%
MUNICIPAL BONDS 1.5%
CALIFORNIA 1.5%
(c) California PCFA, PCR, Pacific Gas and Electric Co., Refunding, Series C, Daily VRDN
and Put, 0.20%, 11/01/26 .......................................................... 4,700,000 4,700,000
(c) California State Department of Water Resources Power Supply Revenue, Refunding,
Series F, Sub Series F-4, Daily VRDN and Put, 0.19%, 5/01/22 ...................... 5,105,000 5,105,000
California State Revenue, RAN, Sub Series A-1, 3.00%, 5/25/10 ........................ 10,000,000 10,074,000
(c) Irvine 1915 Act Special Assessment, Limited Obligation, AD No. 93-14, Daily VRDN and
Put, 0.21%, 9/02/25 ............................................................... 200,000 200,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $20,088,637) ...................................... 20,079,000
---------------
TOTAL INVESTMENTS (COST $1,511,178,402) 99.0% ........................................ 1,368,044,284
OTHER ASSETS, LESS LIABILITIES 1.0% .................................................. 13,335,236
---------------
NET ASSETS 100.0% .................................................................... $ 1,381,379,520
===============

38 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND

See Abbreviations on page 57.

(a) Security purchased on a when-issued basis. See Note 1(b).

(b) Security has been deemed illiquid because it may not be able to be sold
within seven days. At November 30, 2009, the aggregate value of these
securities was $11,145,909, representing 0.81% of net assets.

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

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

Semiannual Report | 39

Franklin Municipal Securities Trust

FINANCIAL HIGHLIGHTS

FRANKLIN TENNESSEE MUNICIPAL BOND FUND

SIX MONTHS ENDED YEAR ENDED MAY 31,
NOVEMBER 30, 2009 ----------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ----------------- -------- -------- -------- -------- --------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 10.99 $ 11.04 $ 11.18 $ 11.18 $ 11.48 $ 11.04
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b)..................... 0.22 0.45 0.45 0.46 0.47 0.48
Net realized and unrealized gains (losses) .. 0.22 (0.04) (0.14) --(c) (0.30) 0.44
-------- -------- -------- -------- -------- --------
Total from investment operations ............... 0.44 0.41 0.31 0.46 0.17 0.92
-------- -------- -------- -------- -------- --------
Less distributions from net investment income .. (0.23) (0.46) (0.45) (0.46) (0.47) (0.48)
-------- -------- -------- -------- -------- --------
Redemption fees(d) ............................. -- -- --(c) --(c) --(c) --(c)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................. $ 11.20 $ 10.99 $ 11.04 $ 11.18 $ 11.18 $ 11.48
======== ======== ======== ======== ======== ========
Total return(e) ................................ 4.02% 3.90% 2.80% 4.15% 1.54% 8.50%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses before waiver and payments
by affiliates ............................... 0.72% 0.74% 0.75% 0.75% 0.77% 0.79%
Expenses net of waiver and payments
by affiliates ............................... 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Net investment income .......................... 4.02% 4.25% 4.08% 4.06% 4.15% 4.24%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $262,043 $225,895 $199,415 $167,215 $146,005 $121,645
Portfolio turnover rate ........................ 4.46% 11.12% 11.48% 10.25% 2.47% 8.36%

(b) Based on average daily shares outstanding.

(d) Effective September 1, 2008, the redemption fee was eliminated.

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

(f) Ratios are annualized for periods less than one year.

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

40 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED)

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

MUNICIPAL BONDS 97.2%
TENNESSEE 87.3%
Blount County PBA, GO, Local Government Public Improvement, Series B-15-A,
Assured Guaranty, 5.00%,
6/01/28 ........................................................................... $ 1,100,000 $ 1,171,225
6/01/32 ........................................................................... 2,565,000 2,663,881
Bristol Electric Revenue, System, AMBAC Insured, 5.00%, 9/01/29 ...................... 1,075,000 1,117,312
Chattanooga Electric Revenue, Series A, 5.00%, 9/01/33 ............................... 7,000,000 7,302,050
Chattanooga Health Educational and Housing Facility Board Revenue, Catholic Health
Initiatives, Series D, 6.25%, 10/01/33 ............................................ 500,000 537,475
Chattanooga-Hamilton County Hospital Authority Hospital Revenue, Erlanger Medical
Center, Refunding, FSA Insured, 5.00%, 10/01/22 ................................... 3,250,000 3,295,142
Clarksville Electric System Revenue, XLCA Insured, 5.00%,
9/01/23 ........................................................................... 2,325,000 2,468,848
9/01/32 ........................................................................... 4,000,000 4,050,960
Clarksville Water Sewer and Gas Revenue,
Improvement, FSA Insured, Pre-Refunded, 5.00%, 2/01/22 ............................ 1,210,000 1,274,699
Refunding and Improvement, FSA Insured, 5.00%, 2/01/22 ............................ 790,000 803,786
Franklin County Health and Educational Facilities Board Revenue, University South
Project, AMBAC Insured, 5.00%, 9/01/24 ............................................ 2,000,000 2,133,340
Gallatin Water and Sewer Revenue, Assured Guaranty, 5.00%, 1/01/33 ................... 2,215,000 2,289,225
Greene County GO, Refunding, Series B, NATL Insured, 5.00%, 6/01/24 .................. 1,000,000 1,048,530
Hallsdale-Powell Utility District Knox County Water and Sewer Revenue,
FGIC Insured, 5.00%, 4/01/31 ...................................................... 1,000,000 1,035,910
Refunding and Improvement, Series A, FGIC Insured, 5.00%, 4/01/27 ................. 2,500,000 2,581,075
Harpeth Valley Utilities District Davidson and Williamson Counties Revenue, Utilities,
Improvement,
FGIC Insured, 5.00%, 9/01/35 ...................................................... 3,700,000 3,797,680
NATL Insured, 5.00%, 9/01/29 ...................................................... 1,000,000 1,041,450
NATL Insured, 5.00%, 9/01/34 ...................................................... 2,310,000 2,368,605
Hawkins County First Utility District Waterworks Revenue, Series B, Assured Guaranty,
5.00%, 6/01/42 .................................................................... 1,250,000 1,273,375
Jackson Hospital Revenue, Jackson-Madison Project, Refunding and Improvement, 5.50%,
4/01/33 ........................................................................... 3,000,000 2,972,520
Johnson City Electric Revenue, Improvement, FSA Insured, 5.00%, 5/01/29 .............. 1,000,000 1,058,340
Johnson City Health and Educational Facilities Board Hospital Revenue,
first mortgage, Mountain States Health, Series A, NATL Insured, Pre-Refunded,
6.00%, 7/01/21 .................................................................... 2,970,000 3,057,763
Series A, NATL Insured, Pre-Refunded, 5.125%, 7/01/25 ............................. 3,000,000 3,023,910
Johnson City Health and Educational Facilities Board Revenue, Pine Oaks Assisted
Project, Series A, GNMA Secured, 5.90%, 6/20/37 ................................... 1,350,000 1,360,867
Kingsport GO, Series B, Assured Guaranty, 5.00%, 3/01/29 ............................. 1,030,000 1,103,944
Kingsport IDB, MFHR, Model City Airport Project, GNMA Insured, 5.50%, 7/20/39 ........ 2,995,000 3,094,284
Knox County First Utility District Water and Sewer Revenue, NATL Insured, 5.00%,
12/01/24 .......................................................................... 1,790,000 1,908,391
12/01/25 .......................................................................... 1,000,000 1,060,490
Knox County First Utility District Water and Sewer Revenue GO, Refunding and
Improvement, 5.00%,
12/01/26 .......................................................................... 1,390,000 1,532,489
12/01/29 .......................................................................... 1,500,000 1,632,900

Semiannual Report | 41

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
Knox County Health Educational and Housing Facilities Board Hospital Facilities
Revenue, Covenant Health System, Refunding and Improvement, Series A, zero cpn.,
1/01/36 ........................................................................... $ 5,000,000 $ 931,500
Fort Sanders Alliance, Refunding, NATL Insured, 5.75%, 1/01/14 .................... 1,250,000 1,355,975
Knox County Health Educational and Housing Facilities Board Revenue, University Health
System Inc., Refunding, 5.25%,
4/01/27 ........................................................................... 2,500,000 2,433,275
4/01/36 ........................................................................... 5,000,000 4,668,950
Knoxville Electric Revenue, System, Series U, Pre-Refunded, 5.125%, 7/01/21 .......... 2,340,000 2,405,403
Knoxville Waste Water System Revenue, Improvement, Series A, NATL Insured, 5.00%,
4/01/37 ........................................................................... 3,620,000 3,694,355
Knoxville Water Revenue, System Improvement, Series R, FSA Insured, 5.00%, 3/01/30 ... 2,370,000 2,482,125
Lawrenceburg PBA, GO, Electric System, Public Works, Refunding, AMBAC Insured, 5.00%,
7/01/22 ........................................................................... 2,500,000 2,724,025
Lenoir City Electric System Revenue, Refunding and Improvement, FSA Insured, 5.00%,
6/01/21 ........................................................................... 2,000,000 2,046,540
Maryville Revenue, Series A, Assured Guaranty, 5.00%, 6/01/38 ........................ 7,850,000 8,024,427
Memphis GO, General Improvement,
Assured Guaranty, 5.00%, 4/01/22 .................................................. 3,325,000 3,704,848
Assured Guaranty, 5.00%, 4/01/27 .................................................. 1,975,000 2,136,989
NATL Insured, 5.00%, 10/01/22 ..................................................... 5,000,000 5,378,550
Memphis-Shelby County Airport Authority Airport Revenue, Series D, AMBAC Insured,
6.00%, 3/01/24 .................................................................... 9,930,000 10,052,735
Memphis-Shelby County Sports Authority Inc. Revenue, Memphis Arena Project,
Refunding, Series B, 5.375%, 11/01/29 ............................................. 5,000,000 5,156,750
Series A, AMBAC Insured, Pre-Refunded, 5.25%, 11/01/23 ............................ 7,145,000 8,035,981
Metropolitan Government of Nashville and Davidson County Electric Revenue, Series A,
5.00%, 5/15/33 .................................................................... 3,000,000 3,132,270
AMBAC Insured, 5.00%, 5/15/25 ..................................................... 5,000,000 5,274,850
Metropolitan Government of Nashville and Davidson County GO,
Refunding, Series B, 5.00%, 8/01/25 ............................................... 5,000,000 5,398,800
Series C, 5.00%, 2/01/25 .......................................................... 3,000,000 3,212,130
Metropolitan Government of Nashville and Davidson County Health and Educational
Facilities Board Revenue,
Mortgage, Dandridge Towers Section 8, Series A, ETM, 6.375%, 1/01/11 .............. 360,000 360,065
Vanderbilt University, Refunding, Series A, 5.00%, 10/01/39 ....................... 1,000,000 1,037,690
Vanderbilt University, Refunding, Series B, 5.00%, 10/01/39 ....................... 4,000,000 4,150,760
Vanderbilt University, Series A, 5.50%, 10/01/29 .................................. 3,500,000 3,932,040
Murfreesboro GO, Refunding, 5.00%,
6/01/18 ........................................................................... 2,000,000 2,294,740
6/01/19 ........................................................................... 1,500,000 1,707,705
Oak Ridge Utility District Gas System Revenue, AMBAC Insured, 5.50%, 4/01/25 ......... 750,000 755,970
Rutherford County Consolidated Utility District Waterworks Revenue,
FSA Insured, 5.00%, 2/01/36 ....................................................... 3,060,000 3,144,670
Refunding, NATL Insured, 5.00%, 2/01/27 ........................................... 1,000,000 1,051,850
Shelby County Health Educational and Housing Facilities Board Revenue,
Ave Maria Assisted Living Project, Series A, 5.50%, 12/01/31 ...................... 1,995,000 2,006,471
Baptist Memorial Health, Series 2004A, 5.00%, 9/01/19 ............................. 3,015,000 3,139,911
Methodist, Series B, FSA Insured, 5.25%, 9/01/27 .................................. 5,000,000 5,248,550
St. Jude Children's Research Hospital, Refunding, 5.00%, 7/01/36 .................. 5,000,000 4,999,800

42 | Semiannual Report

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
TENNESSEE (CONTINUED)
South Blount County Utility District Waterworks Revenue,
FGIC Insured, Pre-Refunded, 4.50%, 12/01/22 ....................................... $ 750,000 $ 823,747
FSA Insured, 5.00%, 12/01/33 ...................................................... 1,000,000 1,047,270
FSA Insured, 5.25%, 12/01/39 ...................................................... 3,310,000 3,502,576
Tennessee HDA Revenue, Homeownership Program,
5.375%, 7/01/23 ................................................................... 390,000 390,874
2006-3, 4.90%, 7/01/37 ............................................................ 4,845,000 4,427,264
Series 1, 5.00%, 7/01/29 .......................................................... 1,400,000 1,419,446
Series 3C, 6.00%, 1/01/20 ......................................................... 190,000 190,160
Series 4B, 6.00%, 7/01/25 ......................................................... 2,000,000 2,189,120
Tennessee State School Bond Authority Revenue, Higher Educational Facilities, Second
Program,
Refunding, Series A, 5.00%, 5/01/39 ............................................... 3,000,000 3,097,650
Refunding, Series A, NATL Insured, 5.00%, 5/01/26 ................................. 1,250,000 1,328,362
Refunding, Series A, NATL Insured, 5.00%, 5/01/30 ................................. 3,000,000 3,135,660
Series A, 5.00%, 5/01/34 .......................................................... 3,555,000 3,668,867
Series B, 5.50%, 5/01/38 .......................................................... 4,000,000 4,288,920
West Wilson Utility District Waterworks Revenue,
AMBAC Insured, Pre-Refunded, 5.25%, 6/01/23 ....................................... 3,780,000 4,047,586
Improvement, NATL Insured, Pre-Refunded, 5.00%, 6/01/26 ........................... 1,805,000 2,089,648
Refunding, AMBAC Insured, 5.25%, 6/01/23 .......................................... 720,000 734,710
Refunding, NATL Insured, 4.75%, 6/01/23 ........................................... 1,805,000 1,874,781
Refunding and Improvement, NATL Insured, 4.75%, 6/01/28 ........................... 1,000,000 1,025,990
White House Utility District Robertson and Sumner Counties Water and Sewer Revenue,
FSA Insured, Pre-Refunded, 5.125%, 1/01/26 ........................................ 1,100,000 1,156,694
FSA Insured, Pre-Refunded, 6.00%, 1/01/26 ......................................... 1,000,000 1,004,480
Refunding, FSA Insured, 5.125%, 1/01/26 ........................................... 1,400,000 1,416,702
Williamson County GO, Public Improvement,
Pre-Refunded, 5.375%, 3/01/19 ..................................................... 1,480,000 1,498,589
Pre-Refunded, 5.00%, 4/01/20 ...................................................... 2,000,000 2,202,120
Refunding, 5.00%, 3/01/20 ......................................................... 2,000,000 2,187,100
---------------
228,889,482
---------------
U.S. TERRITORIES 9.9%
GUAM 2.0%
Guam Economic Development and Commerce Authority Revenue, Tobacco Settlement,
Asset-Backed, Refunding, 5.25%, 6/01/32 ........................................... 2,250,000 1,924,650
Guam Government Limited Obligation Revenue, Section 30, Series A, 5.625%, 12/01/29 ... 3,205,000 3,250,223
---------------
5,174,873
---------------
PUERTO RICO 7.9%
Puerto Rico Commonwealth GO, Public Improvement,
Refunding, Series A-4, FSA Insured, 5.00%, 7/01/31 ................................ 2,760,000 2,780,921
Series A, FGIC Insured, Pre-Refunded, 5.00%, 7/01/32 .............................. 1,500,000 1,664,475
Puerto Rico Electric Power Authority Power Revenue, Refunding, Series SS, NATL
Insured, 5.00%, 7/01/25 ........................................................... 5,000,000 4,920,100
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Hospital Revenue, Hospital Auxilio Mutuo Obligation
Group Project,
Series A, NATL Insured, 6.25%, 7/01/24 ............................................ 200,000 200,032

Semiannual Report | 43

Franklin Municipal Securities Trust

STATEMENT OF INVESTMENTS, NOVEMBER 30, 2009 (UNAUDITED) (CONTINUED)

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

MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. $ 655,000 $ 636,640
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 1,845,000 2,044,906
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub. bond, Series B,
6.375%, 8/01/39 .................................................................. 8,000,000 8,457,040
--------------
20,704,114
--------------
TOTAL U.S. TERRITORIES ............................................................... 25,878,987
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $247,582,030) .............. 254,768,469
--------------
SHORT TERM INVESTMENTS (COST $2,400,000) 0.9%
MUNICIPAL BONDS 0.9%
U.S. TERRITORIES 0.9%
PUERTO RICO 0.9%
(a) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.17%, 7/01/32 ............................................................... 2,400,000 2,400,000
--------------
TOTAL INVESTMENTS (COST $249,982,030) 98.1% .......................................... 257,168,469
OTHER ASSETS, LESS LIABILITIES 1.9% .................................................. 4,874,911
--------------
NET ASSETS 100.0% .................................................................... $ 262,043,380
==============

See Abbreviations on page 57.

(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.

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

44 | Semiannual Report

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2009 (unaudited)

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

Assets:
Investments in securities:
Cost ............................................................. $1,511,178,402 $249,982,030
-------------- ------------
Value ............................................................ $1,368,044,284 $257,168,469
Cash ................................................................ 93,335 1,412,319
Receivables:
Capital shares sold .............................................. 2,096,282 373,813
Interest ......................................................... 20,410,213 3,627,203
Other assets ........................................................ 408 191
-------------- ------------
Total assets .................................................. 1,390,644,522 262,581,995
-------------- ------------
Liabilities:
Payables:
Investment securities purchased .................................. 5,000,000 --
Capital shares redeemed .......................................... 1,423,945 83,160
Affiliates ....................................................... 753,029 138,166
Distributions to shareholders .................................... 1,961,373 295,589
Accrued expenses and other liabilities .............................. 126,655 21,700
-------------- ------------
Total liabilities ............................................. 9,265,002 538,615
-------------- ------------
Net assets, at value ....................................... $1,381,379,520 $262,043,380
============== ============
Net assets consist of:
Paid-in capital ..................................................... $1,576,268,587 $257,626,524
Undistributed net investment income (distributions in excess of net
investment income) ............................................... 2,987,840 (206,275)
Net unrealized appreciation (depreciation) .......................... (143,134,118) 7,186,439
Accumulated net realized gain (loss) ................................ (54,742,789) (2,563,308)
-------------- ------------
Net assets, at value ....................................... $1,381,379,520 $262,043,380
============== ============

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

Semiannual Report | 45

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
November 30, 2009 (unaudited)

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

CLASS A:
Net assets, at value ................................................ $1,038,917,516 $262,043,380
-------------- ------------
Shares outstanding .................................................. 114,744,284 23,395,628
-------------- ------------
Net asset value per share(a) ........................................ $ 9.05 $ 11.20
-------------- ------------
Maximum offering price per share (net asset value per share /
95.75%) $ 9.45 $ 11.70
-------------- ------------
CLASS B:
Net assets, at value ................................................ $ 10,577,078
--------------
Shares outstanding .................................................. 1,162,091
--------------
Net asset value and maximum offering price per share(a).............. $ 9.10
--------------
CLASS C:
Net assets, at value ................................................ $ 239,268,072
--------------
Shares outstanding .................................................. 26,294,649
--------------
Net asset value and maximum offering price per share(a) ............. $ 9.10
--------------
ADVISOR CLASS:
Net assets, at value ................................................ $ 92,616,854
--------------
Shares outstanding .................................................. 10,217,179
--------------
Net asset value and maximum offering price per share ................ $ 9.06
--------------

(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.

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

46 | Semiannual Report

Franklin Municipal Securities Trust

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS
for the six months ended November 30, 2009 (unaudited)

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

Investment income:
Interest ............................................................... $ 41,809,094 $5,761,753
------------ ----------
Expenses:
Management fees (Note 3a) .............................................. 3,032,366 671,716
Distribution fees: (Note 3c)
Class A ............................................................. 490,935 122,589
Class B ............................................................. 37,521 --
Class C ............................................................. 731,102 --
Transfer agent fees (Note 3e) .......................................... 205,805 34,355
Custodian fees ......................................................... 8,330 1,537
Reports to shareholders ................................................ 37,952 7,531
Registration and filing fees ........................................... 11,743 4,143
Professional fees ...................................................... 19,448 15,030
Trustees' fees and expenses ............................................ 33,319 5,150
Other .................................................................. 67,852 15,324
------------ ----------
Total expenses ................................................... 4,676,373 877,375
Expenses waived/paid by affiliates (Note 3f) ..................... -- (23,728)
------------ ----------
Net expenses .................................................. 4,676,373 853,647
------------ ----------
Net investment income ...................................... 37,132,721 4,908,106
------------ ----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .............................. (6,744,423) 240,887
Net change in unrealized appreciation (depreciation) on investments .... 100,479,728 4,451,656
------------ ----------
Net realized and unrealized gain (loss) ................................... 93,735,305 4,692,543
------------ ----------
Net increase (decrease) in net assets resulting from operations ........... $130,868,026 $9,600,649
============ ==========

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

Semiannual Report | 47

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, 2009 YEAR ENDED NOVEMBER 30, 2009 YEAR ENDED
(UNAUDITED) MAY 31, 2009 (UNAUDITED) MAY 31, 2009
----------------- -------------- ----------------- ------------

Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 37,132,721 $ 76,854,492 $ 4,908,106 $ 8,522,779
Net realized gain (loss) from investments ..... (6,744,423) (28,190,094) 240,887 (811,635)
Net change in unrealized appreciation
(depreciation) on investments .............. 100,479,728 (188,255,693) 4,451,656 348,684
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ............... 130,868,026 (139,591,295) 9,600,649 8,059,828
-------------- -------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A .................................... (29,034,564) (58,764,247) (4,990,973) (8,585,541)
Class B .................................... (314,639) (854,201) -- --
Class C .................................... (6,024,627) (12,099,349) -- --
Advisor Class .............................. (2,455,511) (3,953,464) -- --
-------------- -------------- ------------ ------------
Total distributions to shareholders .............. (37,829,341) (75,671,261) (4,990,973) (8,585,541)
-------------- -------------- ------------ ------------
Capital share transactions: (Note 2)
Class A .................................... 23,919,082 (93,646,544) 31,539,040 27,005,281
Class B .................................... (3,000,285) (6,687,168) -- --
Class C .................................... 11,117,982 (26,339,288) -- --
Advisor Class .............................. 17,735,064 4,822,385 -- --
-------------- -------------- ------------ ------------
Total capital share transactions ................. 49,771,843 (121,850,615) 31,539,040 27,005,281
-------------- -------------- ------------ ------------
Redemption fees .................................. -- 1,704 -- --
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets ...... 142,810,528 (337,111,467) 36,148,716 26,479,568
Net assets:
Beginning of period .............................. 1,238,568,992 1,575,680,459 225,894,664 199,415,096
-------------- -------------- ------------ ------------
End of period .................................... $1,381,379,520 $1,238,568,992 $262,043,380 $225,894,664
============== ============== ============ ============
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of period .................................... $ 2,987,840 $ 3,684,460 $ (206,275) $ (123,408)
============== ============== ============ ============

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

48 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Municipal Securities Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as an open-end investment company,
consisting of two funds (Funds). The classes of shares offered within each of
the Funds are indicated below. Each 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 Funds 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 Funds' 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 Funds have 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 Funds' Board of
Trustees.

B. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS

The Funds may purchase securities on a when-issued 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.

Semiannual Report | 49

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 it is each fund's
policy 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.

The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of November 30, 2009, and have
determined that no provision for income tax is required in the Funds' financial
statements.

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; these
dividends are reinvested and paid 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 of America. 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, not
including class specific expenses, are allocated daily to each class of shares
based upon the relative proportion of net assets of each class. Differences in
per share distributions, by class, are generally due to differences in class
specific expenses.

E. INSURANCE

The scheduled payments of interest and principal for each insured municipal
security in the Trust are insured by either a new issue insurance policy or a
secondary insurance policy. Some municipal securities in the Funds are secured
by collateral guaranteed by an agency of the U.S. government. Insurance
companies typically insure municipal bonds that tend to be of very high quality,
with the majority of underlying municipal bonds rated A or better. However,
there is a risk that in the event of an issuer default, the insurer may not be
able to fulfill its obligations under the terms of the policy.

Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security or paid by a third party.

50 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

F. 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.

G. REDEMPTION FEES

A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.

H. 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, on behalf of the Funds, 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, 2009, there were an unlimited number of shares authorized
(without 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, 2009
Shares sold ....................... 12,954,795 $ 115,059,446 3,534,216 $ 39,256,857
Shares issued in reinvestment of
distributions .................. 1,928,439 16,913,975 322,772 3,583,321
Shares redeemed ................... (12,429,319) (108,054,339) (1,014,845) (11,301,138)
----------- ------------- ---------- ------------
Net increase (decrease) ........... 2,453,915 $ 23,919,082 2,842,143 $ 31,539,040
=========== ============= ========== ============
Year ended May 31, 2009
Shares sold ....................... 21,872,397 $ 189,194,107 4,841,383 $ 51,678,704
Shares issued in reinvestment of
distributions .................. 3,809,795 32,208,460 549,123 5,829,752
Shares redeemed ................... (37,487,980) (315,049,111) (2,905,343) (30,503,175)
----------- ------------- ---------- ------------
Net increase (decrease) ........... (11,805,788) $ (93,646,544) 2,485,163 $ 27,005,281
=========== ============= ========== ============

Semiannual Report | 51

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 B SHARES:
Six Months ended November 30, 2009
Shares sold ........................ 5,543 $ 49,849
Shares issued in reinvestment of
distributions .................. 21,164 185,676
Shares redeemed .................... (370,649) (3,235,810)
---------- ------------
Net increase (decrease) ............ (343,942) $ (3,000,285)
========== ============
Year ended May 31, 2009
Shares sold ........................ 27,703 $ 247,290
Shares issued in reinvestment of
distributions ................... 54,218 462,370
Shares redeemed .................... (862,777) (7,396,828)
---------- ------------
Net increase (decrease) ............ (780,856) $ (6,687,168)
========== ============
CLASS C SHARES:
Six Months ended November 30, 2009
Shares sold ........................ 3,124,352 $ 27,891,430
Shares issued in reinvestment of
distributions ................... 384,413 3,383,012
Shares redeemed .................... (2,292,267) (20,156,460)
---------- ------------
Net increase (decrease) ............ 1,216,498 $ 11,117,982
========== ============
Year ended May 31, 2009
Shares sold ........................ 4,476,631 $ 39,358,483
Shares issued in reinvestment of
distributions ...................... 786,626 6,681,288
Shares redeemed .................... (8,586,360) (72,379,059)
---------- ------------
Net increase (decrease) ............ (3,323,103) $(26,339,288)
========== ============
ADVISOR CLASS SHARES:
Six Months ended November 30, 2009
Shares sold ........................ 2,818,711 $ 24,338,554
Shares issued in reinvestment of
distributions ................... 46,978 414,275
Shares redeemed .................... (790,925) (7,017,765)
---------- ------------
Net increase (decrease) ............ 2,074,764 $ 17,735,064
========== ============
Year ended May 31, 2009
Shares sold ........................ 5,805,182 $ 49,106,925
Shares issued in reinvestment of
distributions ...................... 69,232 580,451
Shares redeemed .................... (5,174,719) (44,864,991)
---------- ------------
Net increase (decrease) ............ 699,695 $ 4,822,385
========== ============

52 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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 $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% 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
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.

In addition, under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.

Semiannual Report | 53

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

C. DISTRIBUTION FEES (CONTINUED)

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

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

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

Distributors has agreed to limit the current rate at 0.10% per year for each of
the Funds.
Compensation Plans:
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 ......... $163,529 $99,037
Contingent deferred sales charges retained ..... $ 9,244 $ 4,771

E. TRANSFER AGENT FEES

For the period ended November 30, 2009, 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 .... $114,382 $16,882

F. WAIVER AND EXPENSE REIMBURSEMENTS

For the Franklin Tennessee Municipal Bond Fund, Advisers contractually agreed to
waive or limit its fees and to assume as their own expense certain expenses
otherwise payable by the fund so that the common expenses (i.e. a combination of
management fees, administrative fees, and other expenses, but excluding
distribution fees) do not exceed 0.60% (other than certain non-routine expenses
or costs, including those relating to litigation, indemnification,
reorganizations, and liquidations) until September 30, 2010.

54 | Semiannual Report

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, 2009, the capital loss carryforwards were as follows:

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

Capital loss carryforwards expiring in:
2010 ...................................... $ 4,003,471 $ 480,932
2011 ...................................... -- 95,080
2012 ...................................... 7,294,061 984,101
2013 ...................................... 2,650,186 422,643
2015 ...................................... 684,955 11,310
2016 ...................................... 1,572,273 --
2017 ...................................... 5,767,799 810,129
----------- ----------
$21,972,745 $2,804,195
=========== ==========

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, 2009, the Franklin California High Yield Municipal Fund
deferred realized capital losses of $26,025,620.

At November 30, 2009, 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 .......................... $1,509,099,843 $249,930,915
-------------- ------------
Unrealized appreciation ...................... $ 35,996,182 $ 9,204,364
Unrealized depreciation ...................... (177,051,741) (1,966,810)
-------------- ------------
Net unrealized appreciation (depreciation) ... $ (141,055,559) $ 7,237,554
============== ============

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

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
period ended November 30, 2009, were as follows:

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

Purchases .................................... $117,544,308 $41,835,726
Sales ........................................ $ 81,002,983 $10,602,965

Semiannual Report | 55

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

6. CREDIT RISK

At November 30, 2009, the Franklin California High Yield Municipal Fund had
30.57% of its portfolio invested in high yield securities rated below investment
grade. These securities may be more sensitive to economic conditions causing
greater price volatility and are potentially subject to a greater risk of loss
due to default than higher rated securities.

7. CONCENTRATION OF RISK

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

8. CREDIT FACILITY

Effective January 23, 2009, the Funds, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.

Under the terms of the Global Credit Facility, the Funds shall, in addition to
interest charged on any borrowings made by the Funds and other costs incurred by
the Funds, pay their share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon their
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Funds incurred commitment fees of their pro
rata portion of the Global Credit Facility, which is reflected in other expenses
on the Statements of Operations. During the period ended November 30, 2009, the
Funds did not utilize the Global Credit Facility.

The commitment fees the Funds incurred for the period were as follows:

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

Commitment fees .............................. $1,418 $247

56 | Semiannual Report

Franklin Municipal Securities Trust

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. FAIR VALUE MEASUREMENTS

The Funds follow a fair value hierarchy that distinguishes between market data
obtained from independent sources (observable inputs) and the Funds' own market
assumptions (unobservable inputs). These inputs are used in determining the
value of the Funds' investments and are summarized in the following fair value
hierarchy:

- Level 1 - quoted prices in active markets for identical securities

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

- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)

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

At November 30, 2009, all of the Funds' investments in securities carried at
fair value were in Level 2 inputs.

10. SUBSEQUENT EVENTS

The Funds have evaluated subsequent events through January 19, 2010, the
issuance date of the financial statements and determined that no events have
occurred that require disclosure.

ABBREVIATIONS

SELECTED PORTFOLIO

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
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
ID - Improvement District
IDB - Industrial Development Bond/Board
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
NATL - National Public Financial Guarantee Corp.
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
RAN - Revenue Anticipation Note
RDA - Redevelopment Agency/Authority
UHSD - Unified/Union High School District
USD - Unified/Union School District
XLCA - XL Capital Assurance

Semiannual Report | 57

Franklin Municipal Securities Trust

SHAREHOLDER INFORMATION

PROXY VOTING POLICIES AND PROCEDURES

The Trust's investment manager 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 (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 (800)
SEC-0330.

58 | Semiannual Report

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Franklin Templeton Funds

LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(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.

VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund(2)
Mutual Recovery Fund(3)
Mutual Shares Fund

BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund

GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund

SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund

GLOBAL
Mutual Global Discovery Fund(4)
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund

HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund

ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund

FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund

TAX-FREE INCOME(6)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)

LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund

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

INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(10)

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

(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.

(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.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.

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

(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.) The fund invests primarily in insured municipal securities.

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

(9.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.

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

01/10 Not part of the semiannual report

(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)

One Franklin Parkway
San Mateo, CA 94403-1906

SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN MUNICIPAL SECURITIES TRUST

INVESTMENT MANAGER
Franklin Advisers, Inc.

DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES
(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 S2009 01/10

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 John B. Wilson 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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting 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/LAURA F. FERGERSON
---------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date January 27, 2010

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/LAURA F. FERGERSON
---------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date January 27, 2010

By /s/GASTON GARDEY
------------------------------
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date January 27, 2010