o MUN P-7
SUPPLEMENT DATED SEPTEMBER 1, 2000
TO THE PROSPECTUS OF
FRANKLIN MUNICIPAL SECURITIES TRUST
DATED OCTOBER 1, 1999
The prospectus is amended as follows:
I. All references to Franklin Templeton Trust Company in this prospectus are
replaced with Franklin Templeton Bank & Trust.
II. As of February 1, 2000, the Franklin California High Yield Municipal Fund
offers three classes of shares: Class A, Class B and Class C.
III. The section "Performance" for the California High Yield Fund, found on
page 8, is replaced with the following:
[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 6 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS/1/
[Insert bar graph]
-6.07% 18.96% 6.17% 11.71% 7.35% -6.68%
94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
8.28%
WORST
QUARTER:
Q1 '94
-4.86%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (5/3/93)
-------------------------------------------------------------------
Franklin California High Yield -10.65% 6.23% 4.70%
Municipal Fund - Class A/2/
Lehman Brothers Municipal Bond Index/3/ -2.06% 6.91% 5.40%
SINCE
INCEPTION
1 YEAR (5/1/96)
-------------------------------------------------------------------
Franklin California High Yield -8.91% 4.39%
Municipal Fund - Class C/2/
Lehman Brothers Municipal Bond Index/3/ -2.06% 5.27%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
IV. The section "Fees and Expenses" for the California High Yield Fund, found
on page 9, is replaced with the following:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B/1/ CLASS C
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Maximum sales charge (load) as a 4.25% 4.00% 1.99%
percentage of offering price
Load imposed on purchases 4.25% None 1.00%
Maximum deferred sales charge None/2/ 4.00%/3/ 0.99%/4/
(load)
Exchange fee None None None
Please see "Sales Charges" on page 25 for an explanation of how and when
these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B/1/ CLASS C
----------------------------------------------------------------
Management fees/5/ 0.53% 0.53% 0.53%
Distribution and service (12b-1) 0.10% 0.65% 0.65%
fees
Other expenses 0.08% 0.08% 0.08%
----------------------------
Total annual fund operating 0.71% 1.26% 1.26%
expenses/5/
============================
1. The fund began offering Class B shares on February 1, 2000. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended May 31, 1999. The distribution and service (12b-1) fees are based
on the maximum fees allowed under Class B's Rule 12b-1 plan.
2. Except for investments of $1 million or more (see page 25).
3. Declines to zero after six years.
4. This is equivalent to a charge of 1% based on net asset value.
5. For the fiscal year ended May 31, 1999, the manager had agreed in advance
to limit its management fees. With this reduction, management fees were 0.26%
and total annual fund operating expenses were 0.44% for Class A and 0.99% for
Class C, and would have been 0.99% for Class B. The manager may end this
arrangement at any time upon notice to the fund's Board of Trustees.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $494/1/ $642 $803 $1,270
CLASS B $528 $700 $892 $1,371/2/
CLASS C $325 $496 $785 $1,607
If you do not sell your
shares:
CLASS B $128 $400 $692 $1,371/2/
CLASS C $227 $496 $785 $1,607
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
V. The management team for the California High Yield Fund on page 11 is
replaced with the following:
The team responsible for the fund's management is:
SHEILA AMOROSO, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Amoroso has been an analyst or portfolio manager of the fund since its
inception. She is the co-
Director of Franklin's Municipal Bond Department. She joined the Franklin
Templeton Group in 1986.
BERNARD SCHROER, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Schroer has been an analyst or portfolio manager of the fund since its
inception. He joined the Franklin Templeton Group in 1987.
JOHN WILEY, VICE PRESIDENT OF ADVISERS
Mr. Wiley has been an analyst or portfolio manager of the fund since its
inception. He joined the Franklin Templeton Group in 1989.
VI. The section "Performance" for the Tennessee Fund, found on page 19, is
replaced with the following:
[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 5 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
ANNUAL TOTAL RETURNS/1/
[Insert bar graph]
18.38% 9.57% 5.88% 6.62% -6.40%
95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '95
7.98%
WORST
QUARTER:
Q1 '97
-4.48%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (5/10/94)
------------------------------------------------------------------
Franklin Tennessee Municipal Bond -10.41% 5.59% 4.72%
Fund/2/
Lehman Brothers Municipal Bond -2.06% 6.91% 5.96%
Index/3/
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
VII. The management team for the Tennessee Fund on page 21 is replaced with
the following:
The team responsible for the fund's management is:
SHEILA AMOROSO, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Amoroso has been an analyst or portfolio manager of the fund since its
inception. She is the co-
Director of Franklin's Municipal Bond Department. She joined the Franklin
Templeton Group in 1986.
FRANCISCO RIVERA, PORTFOLIO MANAGER OF ADVISERS
Mr. Rivera has been an analyst or portfolio manager of the fund since 1996.
He joined the Franklin Templeton Group in 1994.
JOHN WILEY, VICE PRESIDENT OF ADVISERS
Mr. Wiley has been an analyst or portfolio manager of the fund since its
inception. He joined the Franklin Templeton Group in 1989.
VIII. In the section "Choosing A Share Class", which begins on page 25, the
following changes are made:
(a) The first chart on page 25 is replaced with the following:
CLASS B (CALIFORNIA CLASS C (CALIFORNIA
CLASS A HIGH YIELD FUND ONLY) HIGH YIELD FUND ONLY)
o Initial sales o No initial o Initial sales
charge of 4.25% or sales charge charge of 1%
less
o Deferred sales o Deferred sales charge o Deferred sales
charge of 1% on of 4% on shares you charge of 1% on
purchases of $1 sell within the first shares you sell
million or more year, declining to 1% within 18 months
sold within 12 within six years and
months eliminated after that
o Lower annual o Higher annual o Higher annual
expenses than Class expenses than Class A expenses than
B or C due to lower (same as Class C) due Class A (same as
distribution fees to higher Class B) due to
distribution fees. higher
Automatic conversion distribution fees.
to Class A shares No conversion to
after eight years, Class A shares, so
reducing future annual expenses do
annual expenses. not decrease.
THE CALIFORNIA HIGH YIELD FUND BEGAN OFFERING CLASS B SHARES ON FEBRUARY 1,
2000.
(b) The following is added before the discussion of Class C sales charges on
page 26:
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES THIS % IS DEDUCTED FROM
WITHIN THIS MANY YEARS AFTER BUYING YOUR PROCEEDS AS A CDSC
THEM
--------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
below). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We invest any investment of $250,000 or more in
Class A shares, since a reduced initial sales charge is available and Class
A's annual expenses are lower.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 0.65% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
(c) The section "Contingent Deferred Sales Charge (CDSC) - Class A & C" on
page 26 is renamed "Contingent Deferred Sales Charge (CDSC) - Class A, B & C."
IX. The section "Sales charge waivers" on page 28 is replaced with the
following:
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales
charge. The CDSC for each class may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).
X. The section "Minimum investments" on page 29 is replaced with the
following:
MINIMUM INVESTMENTS
INITIAL ADDITIONAL
-----------------------------------------------------------------
Regular accounts $1,000 $50
-----------------------------------------------------------------
Automatic investment plans $50 $50
-----------------------------------------------------------------
UGMA/UTMA accounts $100 $50
-----------------------------------------------------------------
Broker-dealer sponsored wrap account $250 $50
programs
-----------------------------------------------------------------
Full-time employees, officers, trustees
and directors of Franklin Templeton
entities, and
their immediate family members $100 $50
-----------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
XI. The section "Account Application" on page 30 is replaced with the
following:
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 31). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.
XII. The following is added to the section "Buying shares" on page 30:
----------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
BY PHONE account with your please make sure we
bank account have your bank
(Up to $100,000 per information on file, account information
day) you may open a new on file. If we do not
1-800/632-2301 account by phone. have this
information, you will
To make a same day need to send written
investment, please instructions with
call us by 1:00 p.m. your bank's name and
Pacific time or the address, a voided
close of the New York check or savings
Stock Exchange, account deposit slip,
whichever is earlier. and a signature
guarantee if the bank
and Fund accounts do
not have at least one
common owner.
To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange,
whichever is earlier.
----------------------------------------------------------------------
XIII. The section "Automatic Investment Plan" on page 31 is replaced with the
following:
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include the minimum initial investment of
$50 with your application.
XIV. The footnote in the section "Distribution Options" on page 31 is
replaced with the following:
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
XV. The section "Telephone Privileges" on page 31 is replaced with the
following:
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
buy, sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to 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. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone purchase, exchange or redemption privileges
on your account application.
XVI. The following is added after the second paragraph in the section
"Exchange Privilege" on page 32:
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
XVII. The last paragraph of the "Exchange Privilege" section on page 32 is
replaced with the following:
Because excessive trading can hurt fund performance, operations and
shareholders, each fund, effective November 1, 2000, reserves the right to
revise or terminate the exchange privilege, limit the amount or number of
exchanges, reject any exchange, or restrict or refuse purchases if (i) the
fund or its manager believes the fund would be harmed or unable to invest
effectively, or (ii) the fund receives or anticipates simultaneous orders
that may significantly affect the fund (please see "Market Timers" on page
36).
XVIII. The second paragraph of the "By Mail" section in the Selling Shares
chart on page 34 is replaced with the following:
Specify the fund, the account number and the dollar value or number of shares
you wish to sell. If you own both Class A and B shares, also specify the
class of shares, otherwise we will sell your Class A shares first. Be sure to
include all necessary signatures and any additional documents, as well as
signature guarantees if required.
XIX. In the Selling Shares table on page 34 the section "By Electronic Funds
Transfer (ACH)" is replaced with the following:
----------------------------------------------------------------------
[Insert graphic of three lightning You can call or write to have
bolts] redemption proceeds sent to a
BY ELECTRONIC FUNDS TRANSFER (ACH) bank account. See the policies
above for selling shares by mail
or phone.
Before requesting to have
redemption proceeds sent to a
bank account, please make sure
we have your bank account
information on file. If we do
not have this information, you
will need to send written
instructions with your bank's
name and address, a voided check
or savings account deposit slip,
and a signature guarantee if the
bank and fund accounts do not
have at least one common owner.
If we receive your request in
proper form by 1:00 p.m. Pacific
time, proceeds sent by ACH
generally will be available
within two to three business
days.
----------------------------------------------------------------------
XX. The section "Statements and reports" on page 35 is replaced with the
following:
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the Fund.
XXI. The section "Market Timers" on page 36 is replaced with the following:
MARKET TIMERS Each fund does not allow investments by Market Timers. You may
be considered a Market Timer if you have (i) requested an exchange out of any
of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect
the fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.
XXII. The first category in the section "Additional Policies" on page 36 is
revised to read:
o The funds may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
XXIII. The section "Dealer compensation" on page 37 is replaced with the
following:
DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
-----------------------------------------------------------------
COMMISSION (%) - 3.00 2.00
Investment under $100,000 4.00 - -
$100,000 but under $250,000 3.25 - -
$250,000 but under $500,000 2.25 - -
$500,000 but under $1 million 1.85 - -
$1 million or more up to 0.75/1/ - -
12B-1 FEE TO DEALER 0.10 0.15/2/ 0.65/3/
A dealer commission of up to 1% may be paid on Class C NAV purchases. A
dealer commission of up to 0.25% may be paid on Class A NAV purchases by
certain trust companies and bank trust departments, eligible governmental
authorities, and broker-dealers or others on behalf of clients participating
in comprehensive fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
Please keep this supplement for future reference.
