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SUPPLEMENT DATED AUGUST 3, 1998
TO THE PROSPECTUSES OF
FRANKLIN FEDERAL TAX-FREE INCOME FUND
DATED SEPTEMBER 1, 1997
FRANKLIN MUNICIPAL SECURITIES TRUST
DATED OCTOBER 1, 1997
The prospectus is amended as follows:
I. The minimum investments table in the section "How Do I Buy Shares? - Opening
Your Account" is replaced with the following:
MINIMUM
INVESTMENTS
- --------------------------------------------------------------------------------
To open a regular account........................................ $1,000
To open a custodial account for a minor (an UGMA/UTMA account)... $ 100
To open an account with an automatic investment plan............. $ 50
To add to an account............................................. $ 50
For purchases by broker-dealers, registered investment advisors or certified
financial planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs, the minimum initial
investment is $250. The minimum initial investment is $100 for officers,
trustees, directors and full-time employees of the Franklin Templeton Funds or
the Franklin Templeton Group, and their family members, consistent with our
then-current policies.
We reserve the right to change the amount of these minimums from time to time
or to waive or lower these minimums for certain purchases. We also reserve the
right to refuse any order to buy shares.
II. The first two paragraphs and waiver categories 1, 2 and 3 in the section
"Sales Charge Waivers," found under "How Do I Buy Shares? - Sales Charge
Reductions and Waivers," are replaced with the following. The waiver categories
numbered 4 through 12 in the prospectus are renumbered accordingly.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of Fund shares, you may buy shares of the Fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the sales
charge waivers listed below apply to purchases of Class I shares only, except
for items 1 and 2 which also apply to Class II purchases.
Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the Fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of shares.
Certain exceptions apply, however, to Class II shareholders who chose to
reinvest their distributions in Class I shares of the Fund before November 17,
1997, and to Advisor Class or Class Z shareholders of a Franklin Templeton
Fund who may reinvest their distributions in Class I shares of the Fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund
if you originally paid a sales charge on the shares and you reinvest the money
in the same class of shares. This waiver does not apply to exchanges.
If you paid a Contingent Deferred Sales Charge when you redeemed your shares
from a Franklin Templeton Fund, a Contingent Deferred Sales Charge will apply
to your purchase of Fund shares and a new Contingency Period will begin. We
will, however, credit your Fund account with additional shares based on the
Contingent Deferred Sales Charge you paid and the amount of redemption
proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Bank CD,
you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date the CD matures, including any rollover.
3. Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds or the Templeton Variable Products Series Fund.
You should contact your tax advisor for information on any tax consequences
that may apply.
5. Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD or
a Franklin Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date the CD matures,
including any rollover, or the date you redeem your money fund shares.
6. Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you redeemed your Class
A shares from a Templeton Global Strategy Fund, a Contingent Deferred Sales
Charge will apply to your purchase of Fund shares and a new Contingency Period
will begin. We will, however, credit your Fund account with additional shares
based on the contingent deferred sales charge you paid and the amount of the
redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
III. The following new category 16 is added to the section "Sales Charge
Waivers," found under "How Do I Buy Shares? - Sales Charge Reductions and
Waivers":
16. Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors
IV. The following paragraph is added at the end of the section "How Do I Buy
Shares?":
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of Fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the Fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
V. The first paragraph under "May I Exchange Shares for Shares of Another Fund?
Will Sales Charges Apply to My Exchange?" is replaced with the following:
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable
sales charge of the new fund, if the difference is more than 0.25%. If you have
never paid a sales charge on your shares because, for example, they have always
been held in a money fund, you will pay the Fund's applicable sales charge no
matter how long you have held your shares. These charges may not apply if you
qualify to buy shares without a sales charge.
VI. The sections "Contingent Deferred Sales Charge - Class I" and "Contingent
Deferred Sales Charge - Class II," found under "May I Exchange Shares for Shares
of Another Fund? - Will Sales Charges Apply to My Exchange?", are replaced with
the following:
CONTINGENT DEFERRED SALES CHARGE. For accounts with shares subject to a
Contingent Deferred Sales Charge, we will first exchange any shares in your
account that are not subject to the charge. If there are not enough of these to
meet your exchange request, we will exchange shares subject to the charge in
the order they were purchased.
If you exchange Class I shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class II shares for shares of Money
Fund II, however, the time your shares are held in that fund will count towards
the completion of any Contingency Period.
VII. The following new item is added under "May I Exchange Shares for Shares of
Another Fund? - Exchange Restrictions":
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your Fund shares.
VIII. Under "What Distributions Might I Receive from the Fund? - Distribution
Options," the references in the first two paragraphs to the ability of Class II
shareholders to reinvest or direct their distributions to Class I shares of the
Fund or another Franklin Templeton Fund are deleted and the following paragraph
is added to the section:
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions in
Class I shares of the Fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class II shareholders may reinvest
their distributions in shares of any Franklin Templeton money fund.
IX. The section "Keeping Your Account Open," found under "Transaction Procedures
and Special Requirements," is replaced in its entirety with the following:
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50
for employee accounts and custodial accounts for minors. We will only do this
if the value of your account fell below this amount because you voluntarily
sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of your
account to $1,000, or $100 for employee accounts and custodial accounts for
minors. These minimums do not apply to accounts managed by the Franklin
Templeton Group.
X. The following definition is revised in the "Useful Terms and Definitions"
section:
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. The holding period for Class I begins on the
first day of the month in which you buy shares. Regardless of when during the
month you buy Class I shares, they will age one month on the last day of that
month and each following month. The holding period for Class II begins on the
day you buy your shares. For example, if you buy Class II shares on the 18th of
the month, they will age one month on the 18th day of the next month and each
following month.
Please keep this supplement for future reference.
