SHARE CLASS REDESIGNATION
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Class I
Class C - Formerly Class II
SUPPLEMENT DATED JANUARY 1, 1999
TO THE PROSPECTUS OF
FRANKLIN MUNICIPAL SECURITIES TRUST
DATED OCTOBER 1, 1998
The prospectus is amended as follows:
I. As of January 1, 1999, Class I shares are designated Class A and Class II
shares are designated Class C. All references in the prospectus to Class I
shares are replaced with Class A, and all references to Class II shares are
replaced with Class C.
II. The following is added under "What Are the Risks of Investing in the
Funds?":
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors the manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. The manager, of course, cannot audit
each issuer and its major suppliers to verify their Year 2000 readiness.
If an issuer in which a fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of a fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see "Year 2000 Problem" under "Who Manages the Funds?" for more information.
III. The following replaces the section "Year 2000 Issue" under "Who Manages the
Funds?":
YEAR 2000 PROBLEM. The funds' business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the funds' operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
funds' portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others.
The manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their
Year 2000 problems. Of course, the funds' ability to reduce the effects of
the Year 2000 problem is also very much dependent upon the efforts of third
parties over which the funds and the manager may have no control.
IV. The chart found under "How Do I Buy Shares? - Purchase Price of Fund Shares"
is replaced with the following:
TOTAL SALES CHARGE AMOUNT PAID TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
CLASS A
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than
$250,000 3.50% 3.63% 3.25%
$250,000 but less than
$500,000 2.50% 2.56% 2.25%
$500,000 but less than
$1,000,000 2.00% 2.04% 1.85%
$1,000,000 or more* None None None
CLASS C - CALIFORNIA HIGH
YIELD FUND ONLY
Under $1,000,000* 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more and any Class C purchase. Please see "How Do I Sell
Shares? - Contingent Deferred Sales Charge." Please also see "Other Payments
to Securities Dealers" below for a discussion of payments Distributors may
make out of its own resources to Securities Dealers for certain purchases.
Purchases of Class C shares are limited to purchases below $1 million. Please
see "Choosing a Share Class."
V. In the section "Sales Charge Waivers," found under "How Do I Buy Shares? -
Sales Charge Reductions and Waivers," the second waiver category is replaced
with the following:
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares,
except proceeds from the sale of Class B shares will be reinvested in
Class A shares.
If you paid a Contingent Deferred Sales Charge when you sold your Class
A or C shares, we will credit your account with the amount of the
Contingent Deferred Sales Charge paid but a new Contingent Deferred
Sales Charge will apply. For Class B shares reinvested in Class A, a
new Contingent Deferred Sales Charge will not apply, although your
account will not be credited with the amount of any Contingent Deferred
Sales Charge paid when you sold your Class B shares.
Proceeds immediately placed in a Franklin Bank CD also may be
reinvested without a front-end sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This waiver does not apply to shares you buy and sell under our
exchange program. Shares purchased with proceeds from a money fund may
be subject to a sales charge.
VI. The third item in the section "Exchange Restrictions," found under "May I
Exchange Shares for Shares of Another Fund?", is replaced with the following:
Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. PLEASE NOTIFY US IN
WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR ACCOUNT.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
VII. In the "By Phone" section of the chart under "How Do I Sell Shares?", the
first bulleted item is replaced with the following:
If the request is $100,000 or less. Institutional accounts may exceed
$100,000 by completing a separate agreement. Call Institutional Services
to receive a copy.
VIII. Under "Transaction Procedures and Special Requirements",
(a) the section "Joint Accounts" is replaced with the following:
JOINT ACCOUNTS. For accounts with more than one registered owner, the funds
accept written instructions signed by only one owner for transactions and
account changes that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
(b) and the reference to $50,000 in the section "Signature Guarantees" is
replaced with $100,000.
IX. In the section "Services to Help You Manage Your Account - TeleFACTS(R),"
the third bulleted item is replaced with the following:
exchange shares (within the same class) between identically
registered Franklin Templeton Class A, B or C accounts; and
X. In the "Useful Terms and Definitions" section, the definition of "Class I and
Class II" is replaced with the following:
CLASS A, CLASS B AND CLASS C - The California High Yield Fund offers two
classes of shares, designated "Class A" and "Class C." The two classes have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge structures and Rule 12b-1 plans. Shares of
the Arkansas, Hawaii, Tennessee and Washington funds are considered Class A
shares for redemption, exchange and other purposes. Certain funds in the
Franklin Templeton Funds also offer a class of shares designated "Class B."
Please keep this supplement for future reference.
