13P
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN FEDERAL MONEY FUND
DATED AUGUST 1, 1994
1.The following paragraph is added to the section "Investment Objectives and
Policies of the Fund":
The Fund believes that its investment policies, as stated in its
Prospectus and the Statement of Additional Information dated August 1, 1994,
as may be amended from time to time, make the Fund a permissible investment
for federal credit unions, based on the Fund's understanding of the laws and
regulations governing credit union regulations as of September 30, 1994.
CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISERS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL
INVESTMENTS FOR THEM. Please see the Statement of Additional Information
("Additional Information Regarding the Fund's Investment Objectives and
Policies -- Credit Union Investment Regulations") for details.
2.Add the following language under "How to Buy Shares of the Fund - General":
The Fund may impose a $10 charge for each returned item against any
shareholder account which, in connection with the purchase of Fund shares,
submits a check or a draft which is returned unpaid to the Fund.
3.The "How to Sell" section of the prospectus is amended to reflect a change to
the operational policies of the Fund:
CONTINGENT DEFERRED SALES CHARGE
The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge will
be made by the Fund, as described below. The 12-month contingency period will
be tolled (or stopped) for the period such shares are exchanged into and held
in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to certain redemptions made by those
investors within 12 months of the calendar month after such investments.
The charge is 1% of the lesser of the value of the shares redeemed
(exclusive of reinvested dividends and capital gain distributions) or the
total cost of such shares, and is retained by Distributors. In determining
if a charge applies, shares not subject to a contingent deferred sales
charge are deemed to be redeemed first, in the following order: (i) shares
representing amounts attributable to capital appreciation; (ii) shares
purchased with reinvested dividends and capital gain distributions; and (iii)
other shares held longer than 12 months; and followed by any shares held less
than 12 months, on a "first in, first out" basis.
Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge, while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
1
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FRANKLIN FEDERAL
MONEY FUND
PROSPECTUS AUGUST 1, 1994
[LOGO]
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
- ------------------------------------------------
Franklin Federal Money Fund (the "Fund" is a no-load, open-end, diversified
management investment company. The Fund's investment objectives are:
* HIGH CURRENT INCOME * LIQUIDITY
* CAPITAL PRESERVATION
THE FUND, UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO
ACHIEVE ITS OBJECTIVES BY INVESTING ALL OF ITS ASSETS IN THE U.S. GOVERNMENT
SECURITIES MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SERIES OF tHE
MONEY MARKET PORTFOLIOS, WHOSE INVESTMENT OBJECTIVES ARE THE SAME AS THOSE OF
THE FUND. AT THE PRESENT TIME, IT IS THE PORTFOLIO'S POLICY TO LIMIT ITS
PORTFOLIO INVESTMENTS TO U.S. TREASURY BILLS, NOTES AND BONDS AND TO REPURCHASE
AGREEMENTS COLLATERALIZED ONLY BY SUCH SECURITIES. THERE CAN, OF COURSE, BE NO
ASSURANCE THAT THE FUND'S OBJECTIVES WILL BE ACHIEVED.
This Prospectus is intended to set forth in a clear and concise
mannerinformation about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE fEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
A Statement of Additional Information concerning the Fund, dated August 1,
1994, as may be amended from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or telephone number shown
above.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
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<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table.................................... 2
Financial Highlights............................. 4
About the Fund................................... 5
Investment Objectives and
Policies of the Fund........................... 5
Administration of the Fund....................... 8
Distributions to Shareholders.................... 10
Taxation of the Fund and
Its Shareholders............................... 11
How to Buy Shares of the Fund.................... 12
How to Redeem Shares of the Fund................. 14
Other Programs and Privileges
Available to Fund Shareholders................. 17
Exchange Privilege............................... 20
Telephone Transactions........................... 22
Valuation of Fund Shares......................... 23
How to Get Information Regarding
an Investment in the Fund...................... 24
Performance...................................... 24
General Information.............................. 25
Account Registrations............................ 25
Important Notice Regarding
Taxpayer IRS Certifications.................... 26
</TABLE>
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund for the fiscal year ended November 30, 1993,
restated to reflect the investment of all of the Fund's assets in the Portfolio
as though such had been in effect at the beginning of the fiscal year, and
include the expenses of the Portfolio.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases............................ NONE
Maximum Sales Charge Imposed on Reinvested Dividends................. NONE
Deferred Sales Charge................................................ NONE
Redemption Fees...................................................... NONE
Exchange Fee......................................................... $5.00*
</TABLE>
2
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<TABLE>
<CAPTION>
ESTIMATED ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C>
Management and Administration Fees................................... 0.58% **+
12b-1 Fees........................................................... NONE
Other Expenses of the Fund....................................0.30%
Other Expenses of the Portfolio...............................0.03%+
-----
Total Other Expenses................................................. 0.33%
------
Total Operating Expenses............................................. 0.91%**
======
</TABLE>
*$5.00 fee is only imposed on Timing Accounts, as described under "Exchange
Privilege." All other exchanges are without charge.
**This amount includes management fees of the Portfolio equal to 0.15% and
administration fees of the Fund equal to 0.43%. Franklin Advisers, Inc.
("Advisers"), the Fund's administrator and the Portfolio's investment manager,
has voluntarily agreed to limit its management and administration fees and
assume responsibility for making payments to offset certain operating expenses
otherwise payable by the Fund and the Portfolio to ensure total aggregate
operating expenses of the Fund and the Portfolio are not higher than if the
Fund were not to invest all of its assets in the Portfolio. With this
reduction, management fees represented 0.12% of the average net assets of the
Portfolio. This arrangement may be terminated by Advisers at any time.
+Annualized.
Investors should be aware that the preceding table is not intended to reflect
in precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end
of each time period. As noted in the preceding table, the Fund charges no
redemption fees:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$9 $29 $50 $111
</TABLE>
THIS EXAMPLE IS BASED ON THE ESTIMATED AGGREGATE ANNUAL OPERATING EXPENSES OF
THE fUND AND THE pORTFOLIO SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In addition, federal
regulations require the example to assume an annual return of 5%, but the
Fund's actual return may be more or less than 5%.
The preceding table summarizes the estimated aggregate fees and expenses
incurred by both the Fund and the Portfolio. The Board of Directors of the Fund
considered the aggregate fees and expenses to be paid by both the Fund and the
Portfolio under the Fund's policy of investing all of its assets in shares of
the Portfolio, and such fees and expenses the Fund would pay if it invested
directly in various types of money market instruments. This arrangement,
whereby the Fund invests all of its assets in shares of the Portfolio, enables
various institutional investors, including the Fund and other investment
companies, to pool their assets, which may be expected to result in the
achievement of a variety of operating economies. Accordingly, the Board of
Directors concluded that the aggregate expenses of the Fund and the Portfolio
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were expected to be lower than the expenses that would be incurred by the Fund
if it invested directly in various types of money market instruments. Of
course, there is no guarantee or assurance that asset growth and lower expenses
will be recognized. Advisers, however, has voluntarily agreed to limit expenses
so that in no event will shareholders of the Fund incur higher expenses than if
the Fund invested directly in various types of money market instruments.
Further information regarding the Fund's and the Portfolio's fees and expenses
is included under "Administration of the Fund."
FINANCIAL HIGHLIGHTS
Set forth below is a table containing the financial highlights for a share of
the Fund throughout the ten fiscal years ended November 30, 1993. The
information for each of the five fiscal years in the period ended November 30,
1993, has been audited by Coopers & Lybrand, the Fund's independent auditors,
whose audit report appears in the financial statements in the Fund's Statement
of Additional Information. The remaining figures, which are also audited, are
not covered by the auditors# current report. A copy of the Statement of
Additional Information, as well as a copy of the Annual Report which contains
further information regarding performance, may be obtained as noted on the
front cover of this Prospectus.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE*
Net asset value at
beginning of year. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income .022 .029 .053 .074 .081 .063 .054 .057 .069 .091
Distributions from net
investment income. (.022) (.029) (.053) (.074) (.081) (.063) (.054) (.057) (.069) (.091)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value
at end of year.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return**..... 2.22% 2.97% 5.42% 7.69% 8.45% 6.50% 5.53% 5.86% 7.08% 9.43%
RATIOS/SUPPLEMENTAL
DATA
Net assets at end of
year (in 000's).... $120,933 $134,931 $211,249 $196,535 $130,743 $156,042 $140,548 $129,997 $133,510 $153,242
Ratio of expenses to
average net assets .90% .85% .79% .81% .88% .96% 1.02% 1.03% .97% .98%
Ratio of net income to
average net assets 2.20% 2.95% 5.26% 7.33% 8.24% 6.27% 5.43% 5.66% 6.93% 9.22%
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
**Total return measures the change in value of an investment over the periods
indicated. It assumes reinvestment of dividends at net asset value.
4
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ABOUT THE FUND
The Fund is a no-load, open-end, diversified management investment company,
commonly known as a mutual fund, incorporated under the laws of the state of
California on April 8, 1980, and registered with the SEC under the Investment
Company Act of 1940 (the "1940 Act").
The Fund attempts to maintain a stable net asset value of $1.00 per share
although there is no assurance that this will be achieved. Although a
shareholder may write redemption drafts (similar to checks) against the
account, the purchase of shares of the Fund does not create a checking or other
bank account.
Shares of the Fund may be purchased at net asset value (without a sales charge)
with an initial investment of at least $500 and subsequent investments of $25
or more. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVES AND
POLICIES OF THE FUND
The investment objectives of the Fund are to obtain as high a level of current
income (in the context of the type of investments available to the Fund) as is
consistent with capital preservation and liquidity. The Fund pursues its
investment objectives by investing all of its assets in the Portfolio, which
has the same investment objectives and substantially similar policies as the
Fund. The Portfolio is a separate diversified series of The Money Market
Portfolios, an open-end management investment company managed by Advisers.
Shares of the Portfolio are acquired by the Fund at net asset value, with no
sales charge. Accordingly, an investment in the Fund is an indirect investment
in the Portfolio. As with any other investment, there is no assurance that the
Fund's objectives will be attained.
SPECIAL INFORMATION REGARDING THE
FUND'S MASTER/FEEDER FUND STRUCTURE
The investment objectives of both the Fund and the Portfolio are fundamental
and may not be changed without shareholder approval. The investment policies of
the Fund, fundamental and non-fundamental, are substantially similar to those
described herein with respect to the Portfolio, except that in all cases, the
Fund is permitted to pursue such policies by investing in an open-end
management investment company with the same investment objectives, policies and
limitations as the Fund.
Information on administration and expenses is included under "Administration of
the Fund." See the Statement of Additional Information for information
regarding the Fund's and the Portfolio's investment restrictions.
An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in the Portfolio, the Fund's expenses may increase or the
economies of scale which have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could have effective
voting control over the operation of the Portfolio. Further, in the event that
the shareholders of the Fund do not approve a proposed future change in the
Fund's objectives or fundamental policies, which has been approved for the
Portfolio, the Fund may be forced to withdraw its investment from the Portfolio
and seek another investment company with the same objectives and policies. If
the Board of Directors of the Fund considers that it is in the best interest of
the Fund to do so, the Fund may withdraw its investment in the Portfolio at any
time. In that event, the Board of Directors of the Fund would consider what
action to take, in-
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cluding the investment of all of the assets of the Fund in another pooled
investment entity having the same investment objectives and policies as the
Fund, or the hiring of an investment adviser to manage the Fund's investments.
Either may cause an increase in Fund expenses. Further, the Fund's structure
is a relatively new format which often results in certain operational and other
complexities. The Franklin organization, however, was one of the first mutual
fund complexes in the country to implement such a structure and the directors
do not believe that the additional complexities outweigh the potential benefits
to be gained by shareholders.
The Franklin Group of Funds(R) has another fund which invests in the Portfolio.
In the future, other funds may be created which may invest in the Portfolio or
existing funds may be restructured so that they may invest in the Portfolio.
Any such fund may be offered at the same or a different public offering price;
thus, an investor in one fund may experience a different return from an
investor in another fund which also invests exclusively in the Portfolio. The
Fund or Advisers will forward any interested shareholder additional
information, including a prospectus and statement of additional information, if
requested, regarding such other funds through which they may make investments
in the Portfolio. Investors may contact the departments listed under "How to
Get Information Regarding an Investment in the Fund."
The Portfolio is a series of The Money Market Portfolios, a management
investment company registered under the 1940 Act. The Money Market Portfolios
is a Delaware business trust, organized on June 16, 1992, and is authorized to
issue an unlimited number of shares of beneficial interest with a par value of
$.01 per share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. The Money Market Portfolios currently issues
shares in two separate series; however, additional series may be added in the
future by the Board of Trustees of The Money Market Portfolios, the assets and
liabilities of which will be separate and distinct from any other series.
Whenever the Fund, as an investor in the Portfolio, is asked to vote on a
matter relating to the Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its votes in the same proportion as the Fund's
shareholders have voted.
GENERAL
In accordance with procedures adopted pursuant to Rule 2a-7 under the 1940
Act, the Portfolio limits its investments to those U.S. dollar denominated
instruments which The Money Market Portfolios' Board of Trustees determines
present minimal credit risks and which are, as required by the federal
securities laws, rated in one of the two highest rating categories as
determined by nationally recognized statistical rating agencies, or
which are unrated but considered to be of comparable quality, with
remaining maturities of 397 calendar days or less ("Eligible Securities").
The Portfolio maintains a dollar weighted average maturity of the
securities in its portfolio of 90 days or less. The Portfolio will not invest
more than 5% of its total assets in Eligible Securities of a single
issuer, other than U.S. government securities, rated in the highest
category by the requisite number of rating agencies, except that the
Portfolio may exceed that limit as permitted by Rule 2a-7 for a period of up
to three business days; and the Portfolio will not invest (a) the greater of
1% of the Portfolio's total assets or $1 million in Eligible Securities
issued by a single issuer rated in the second highest category and (b) more
than 5% of its total assets in Eligible Securities of all issuers rated in the
second category.
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Because the Portfolio limits its investments to high quality securities, its
portfolio will generally earn lower yields than if the Portfolio purchased
securities with a lower rating and correspondingly greater risk and the yield
to shareholders in the Portfolio is accordingly likely to be lower.
DESCRIPTION OF SECURITIES IN WHICH
THE PORTFOLIO MAY INVEST
U.S. Government Securities. The Portfolio may invest only in marketable
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the U.S.
government ("U.S. government securities") or in repurchase agreements (as
described below) collateralized by such securities. As a fundamental policy,
subject to change only by shareholder approval, the Portfolio will invest only
in obligations, including U.S. Treasury bills, notes, bonds and securities of
the Government National Mortgage Association (popularly called "GNMAs" or
"Ginnie Maes") and the Federal Housing Administration, which are issued or
guaranteed by the U.S. government and supported by the full faith and credit of
the U.S. government. Repurchase agreements with respect to obligations issued
or guaranteed by the U.S. government and supported by the full faith and credit
of the U.S. are included within this fundamental policy. The Fund's fundamental
policy in this regard permits it to invest in another open-end investment
company which also has such a policy.
At the present time, it is the Portfolio's policy to limit its portfolio
investments to U.S. Treasury bills, notes and bonds and to repurchase
agreements collateralized only by such securities. This policy may only be
changed upon 30 days' written notice to shareholders and to the National
Association of Insurance Commissioners.
Repurchase Agreements. The Portfolio may engage in repurchase transactions, in
which it purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. A default by the seller might cause the Portfolio to experience a
loss or delay in the liquidation of the collateral securing the repurchase
agreement. The Portfolio might also incur disposition costs in liquidating the
collateral. The Portfolio, however, intends to enter into repurchase agreements
only with government securities dealers recognized by the Federal Reserve Board
or with member banks of the Federal Reserve System. Under the 1940 Act, a
repurchase agreement is deemed to be the loan of money by the Portfolio to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement
and the Portfolio's custodian will take title to, or actual delivery of, the
security.
The Portfolio may not enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 10% of the market value of the
Portfolio's total assets would be invested in such repurchase agreements,
together with any other investment the Portfolio may hold for which market
quotations are not readily available.
OTHER POLICIES
The Portfolio may borrow from banks, for temporary or emergency purposes
only, and pledge its assets for such loans, in amounts up to 10% of its total
assets. No new investments will be made by
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the Portfolio while any outstanding loans exceed 5% of the Portfolio's total
assets.
Depending on its view of market conditions and cash requirements, the Portfolio
may or may not hold securities purchased until maturity. The yield on certain
instruments held by the Portfolio may decline if sold prior to maturity.
Whenever the Portfolio believes market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Portfolio may do so without restriction or
limitation (subject to the tax requirements for qualification as a regulated
investment company). This practice will not likely have an adverse impact on
the Portfolio's income or net asset value, as brokerage commissions are not
normally charged on the purchase or sale of money market instruments.
As approved by The Money Money Market Portfolios' Board of Trustees and subject
to the following conditions, the Portfolio may lend its portfolio securities to
qualified securities dealers or other institutional investors, provided that
such loans do not exceed 10% of the value of the Portfolio's total assets at
the time of the most recent loan, and further provided that the borrower
deposits 102% collateral for the benefit of the Portfolio. The lending of
securities is a common practice in the securities industry. The Portfolio will
engage in security loan arrangements with the primary objective of increasing
the Portfolio's income either through investing cash collateral in short-term,
interest bearing obligations or by receiving loan premiums from the borrower.
The Portfolio will continue to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.
The investment objectives and policies stated above are fundamental policies
and may not be changed without shareholder approval. The Fund and the Portfolio
are subject to a number of additional investment restrictions, some of which
may be changed only with the approval of a majority of either the Fund's or the
Portfolio's outstanding voting securities. For a list of these restrictions and
more information concerning the policies discussed above, please refer to the
Statement of Additional Information.
ADMINISTRATION OF THE FUND
The Fund's Board of Directors has the primary responsibility for the overall
management of the Fund and for electing the officers of the Fund who are
responsible for administering its day-to-day operations. For information
concerning the officers and directors of the Fund and the officers and trustees
of The Money Market Portfolios, see "Officers and Directors" in the Statement
of Additional Information.
The Fund's Board of Directors, with all disinterested directors as well as the
interested directors voting in favor, has adopted written procedures designed
to deal with potential conflicts of interest which may arise from having
substantially the same persons serving on both the Fund's Board of Directors
and The Money Market Portfolios' Board of Trustees. The procedures call for an
annual review of the Fund's relationship with the Portfolio. In the event a
conflict is deemed to exist, the Boards may take action, up to and including
the establishment of a new board of directors or board of trustees. The Board
of Directors has determined that there are no conflicts of interest presented
by the Fund's relationship with the Portfolio at the present time. See
"Appendix" in the Fund's Statement of Additional Information for a summary of
the conflict of interest procedures.
8
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Advisers serves as the Fund's administrator and as the Portfolio's investment
manager. Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company, the principal shareholders of
which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own approximately 20%, 16% and 10%, respectively, of Resources' outstanding
shares. Through its subsidiaries, Resources is engaged in various aspects of
the financial services industry. Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (112 separate series)
with aggregate assets of over $75 billion.
Advisers serves as the Fund's administrator pursuant to an administration
agreement effective August 1, 1994. Pursuant to the administration agreement,
Advisers provides various administrative, statistical, and other services to
the Fund in return for a monthly administration fee at the annual rate of
91/200 of 1% for the first $100 million of the Fund's net assets; 33/100 of 1%
of the Fund's net assets over $100 million up to and including $250 million;
and 7/25 of 1% of the Fund's net assets in excess of $250 million.
The Fund is responsible for its own operating expenses including, but not
limited to, Advisers' administration fee; taxes, if any; custodian, legal and
auditing fees; fees and expenses of directors who are not members of,
affiliated with or interested persons of Advisers; salaries of any personnel
not affiliated with Advisers; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the value of the Fund's net
assets; printing and other expenses relating to the Fund's operations; filing
fees; brokerage fees and commissions, if any; costs of registering and
maintaining registration of the Fund's shares under federal and state
securities laws; plus any extraordinary and non-recurring expenses which are
not expressly assumed by Advisers.
Advisers has voluntarily agreed to limit its administrative fee and assume
responsibility for making payments to offset certain operating expenses
otherwise payable by the Fund to ensure total aggregate operating expenses of
the Fund are not higher than if the Fund were not to invest all of its assets
in the Portfolio. This action by Advisers to limit its administrative fee and
assume responsibility for payment of expenses related to the operations of the
Fund may be terminated by Advisers at any time.
The Portfolio has a management agreement with Advisers which provides for the
supervision and implementation of the Portfolio's investment activities and
certain administrative services and facilities which are necessary to conduct
the Portfolio's business.
Under the management agreement with Advisers, the Portfolio is obligated to pay
Advisers a fee, computed daily and payable monthly, at the annual rate of 0.15%
of the Portfolio's average daily net assets. Under the agreement, the Portfolio
is responsible for its own operating expenses, including, but not limited to,
Advisers' fee; taxes, if any; legal and auditing fees; fees and costs of its
custodian; fees and expenses of trustees who are not members of, affiliated
with or interested persons of Advisers; salaries of any personnel not
affiliated with Advisers; insurance premiums, trade association dues, and
expenses of obtaining quotations for calculating the value of the Portfolio's
net assets; printing and other expenses relating to the Portfolio's operations;
filing fees; brokerage fees and commissions, if any; costs of registering and
maintaining registration of the Portfolio's shares under federal and state
securities laws; plus any
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extraordinary and non-recurring expenses which are not expressly assumed by
Advisers.
Advisers has limited its management fees and has assumed responsibility for
making payments to offset certain operating expenses otherwise payable by the
Portfolio. This action by Advisers to limit its management fees and to assume
responsibility for payment of the expenses related to operations of the
Portfolio may be terminated by Advisers at any time. The contractual management
fees which would have been incurred by the Portfolio absent a fee reduction by
Advisers for the Portfolio's fiscal year ended June 30, 1993 and the 6-month
period ended December 31, 1993 were $253,943 and $189,550, respectively. The
management fees actually paid by the Portfolio to Advisers for the Portfolio's
fiscal year ended June 30, 1993 and the 6-month period ended December 31, 1993
were $211,003 and $154,723, respectively.
Fund shareholders will bear a portion of the Portfolio's operating expenses,
including its management fee, to the extent that the Fund, as a shareholder of
the Portfolio, bears such expenses. The portion of the Portfolio's expenses
borne by the Fund is dependent upon the number of other shareholders of the
Portfolio, if any.
It is not anticipated that the Portfolio or the Fund will incur a significant
amount of brokerage expenses because short-term money market instruments are
generally traded on a "net" basis, that is, in principal transactions without
the addition or deduction of brokerage commissions or transfer taxes. To the
extent that the Portfolio does participate in transactions involving brokerage
commissions, it is Advisers' responsibility to select brokers through which
such transactions will be effected. Advisers tries to obtain the best execution
on all such transactions. If it is felt that more than one broker is able to
provide the best execution, Advisers will consider the furnishing of quotations
and of other market services, research, statistical and other data for Advisers
and its affiliates, as well as the sale of shares of the Fund, as factors in
selecting a broker. Further information is included under "Execution of
Portfolio Transactions" in the Fund's Statement of Additional Information.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Prior to August 1, 1994, the Fund's assets were managed pursuant to a
management agreement with Advisers. During the fiscal year ended November 30,
1993 and the 6-month period ended May 31, 1994, management fees equal to 0.60%
and 0.58% (annualized), respectively, of the average daily net assets of the
Fund were paid to Advisers. During the fiscal year ended November 30, 1993 and
the 6-month period ended May 31, 1994, expenses borne by the Fund, including
fees paid to Advisers and to Investor Services, equaled 0.90% and 0.89%
(annualized), respectively, of the average daily net assets of the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares dividends each day that the Fund's net asset value is
calculated, payable to shareholders of record as of the close of business the
preceding day. The amount of dividends may fluctuate from day to day and
dividends may be omitted on some days, depending on changes in the factors that
comprise the Fund's net investment income. The Fund does not pay "interest" to
its shareholders, nor is any amount of dividends or return guaranteed in any
way.
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Dividends are automatically reinvested daily in the form of additional shares
of the Fund at the net asset value per share at the close of business each day.
The Fund's daily dividend consists of the income dividends paid by the
Portfolio. The Portfolio's daily dividend includes accrued interest and any
original issue and market discount, plus or minus any gain or loss on the sale
of portfolio securities and changes in unrealized appreciation or depreciation
in portfolio securities (to the extent required to maintain a stable net asset
value per share) less amortization of any premium paid on the purchase of
portfolio securities and the estimated expenses of the Portfolio.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.
The Statement of Additional Information includes a further discussion of
distributions.
DIVIDENDS IN CASH
Shareholders may request to have their dividends paid out monthly in
cash by filing written instructions with Investor Services. For such
shareholders, the shares reinvested and credited to their account during the
month will be redeemed as of the close of business on the last business day of
the month and the proceeds will be paid to them in cash. By completing the
"Special Payment Instructions for Dividends" section of the Shareholder
Application included with this Prospectus, a shareholder may direct the selected
distributions to another fund in the Franklin Group of Funds(R) or the Templeton
Group, to another person, or directly to a checking account. If the bank at
which the account is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If this last
option is requested, the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be sent to the
address of record. Additional information regarding automated fund transfers may
be obtained from Franklin's Shareholder Services Department.
Shareholders may be able to change their dividend options by telephone. See
"Telephone Transactions."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the Statement of Additional Information.
The Fund and the Portfolio have elected to be treated as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such and intend to continue to so qualify. By
distributing all of their incomes and meeting certain other requirements
relating to the sources of income and diversification of assets, the Fund and
the Portfolio will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.
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Shareholders should consult their tax advisors with respect to the
applicability of state and local intangible property or income taxes to their
shares of the Fund and distributions and redemption proceeds received from the
Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to such distributions.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares, and by the Fund directly. The use of the term "securities dealer" shall
include other financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle customer orders and
accounts with the Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity. All shares of the Fund are
purchased at net asset value, without a sales charge, next determined after
receipt of a purchase order in proper form. The minimum initial investment is
$500 and subsequent investments must be $25 or more. These minimums may be
waived when the shares are purchased through plans established at Franklin
providing for regular periodic investments. Purchases in proper form received
by the Fund prior to 3:00 p.m. Pacific time will be credited to the
shareholder's account on that business day. If received after 3:00 p.m., the
purchase will be credited the following business day.
Many of the types of instruments in which the Fund (through the Portfolio)
invests must be paid for in federal funds, which are monies held by the Fund's
custodian bank on deposit at a Federal Reserve Bank. Therefore, a check or
draft received from an investor to purchase shares of the Fund generally cannot
be invested by the Fund until it is converted into and is available to the Fund
in federal funds, which may take up to two days. In such case, purchase orders
by an investor will generally not be considered in proper form and effective
until such conversion and availability. In the event the Fund is able to make
investments immediately (within one business day), it may accept a purchase
order with payment other than in federal funds and shares of the Fund will be
purchased at the net asset value next computed after receipt of the order and
payments.
Shares may be purchased in any one of the following ways:
BY MAIL
(1) For an initial investment, include the completed Shareholder Application
contained in this Prospectus. For subsequent investments, the deposit
slips which are included with the shareholder's monthly statement or
checkbook (if one has been requested) may be used, or the shareholder
should reference the account number on the check.
(2) Make the check, Federal Reserve draft or negotiable bank draft payable
to Franklin Federal Money Fund. Instruments drawn on other investment
companies may not be accepted.
(3) Send the check, Federal Reserve draft or negotiable bank draft to
Franklin Federal Money Fund, 777 Mariners Island Blvd., P.O. Box 7777,
San Mateo, California 94403-7777.
BY WIRE
(1) Call Franklin's Shareholder Services Department at 1-800/632-2301. If that
line is busy,
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call 415/312-2000 collect, to advise that funds will be wired for
investment. The Fund will supply a wire control number for the investment.
It is necessary to obtain a new wire control number every time money is
wired into an account in the Fund. Wire control numbers are effective for
one transaction only and may not be used more than once. Shareholders
should contact Franklin's Shareholder Services Department at the above
telephone number to obtain a wire control number each time funds are to be
wired for investment to the Fund. Wired money which is not properly
identified with a currently effective wire control number will be returned
to the bank from which it was wired and will not be credited to the
shareholder's account.
(2) Wire funds to Bank of America, ABA routing number 121000358, for credit to
Franklin Federal Money Fund, A/C 1493-3-04779. The wire control number and
shareholder's name must be included. Wired funds received by the Bank and
reported by the Bank to the Fund by 3:00 p.m. Pacific time are normally
credited on that day. Later wires are credited the following business day.
(3) If the purchase is not to an existing account, a completed Shareholder
Application must be sent to Franklin Federal Money Fund at 777 Mariners
Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777, to assure
proper credit for the wire.
THROUGH SECURITIES DEALERS
Investors may, if they wish, invest in the Fund by purchasing shares through a
securities dealer as noted above. Securities dealers which process orders on
behalf of their customers may charge a reasonable fee for their services.
Investments made directly, without the assistance of a securities dealer, are
without charge. In certain states, shares of the Fund may be purchased only
through registered securities dealers.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program.
GENERAL
The Fund and Distributors reserve the right to reject any order for the
purchase of shares of the Fund or to waive the minimum investment requirements
when the shares are being purchased through plans established at Franklin
providing for regular periodic investments. In addition, the offering of shares
of the Fund may be suspended by the Fund at any time and resumed at any time
thereafter.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers
pursuant to state law.
If the purchase or sale of Fund shares with the assistance of certain banks
were deemed to be an impermissible activity for such bank under the Glass
Steagall Act or other federal laws, such activities would likely be
discontinued by such bank. Investors utilizing such bank assistance would then
be able to seek other avenues to invest in Fund shares, such as securities
dealers registered with the SEC or from the Fund directly.
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<PAGE>
HOW TO REDEEM SHARES OF THE FUND
All or any part of a shareholder's investment may be converted into cash,
without penalty or charge, by redeeming shares in any one or more of the
methods discussed below on any day the New York Stock Exchange (the "Exchange")
is open for trading. Regardless of the method of redemption, payment for the
shareholder's redeemed shares will be sent within seven days after receipt of
the redemption request in proper form, except that the Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally reduce this
delay, shares purchased with such instruments will also be held pending
clearance. Shares purchased by federal funds wire are available for immediate
redemption. Shareholders are requested to provide a telephone number(s) where
they may be reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when necessary
will speed the processing of the redemption.
Retirement account liquidations require the completion of certain additional
forms to ensure compliance with Internal Revenue Service ("IRS") regulations.
To liquidate a retirement account, a shareholder or the shareholder's
securities dealer may call Franklin's Retirement Plans Department to obtain the
necessary forms.
Shares may be redeemed in any of the following ways:
1. BY CHECK
The Fund will supply redemption drafts (which are similar to checks and are
referred to as checks throughout this Prospectus) to shareholders who have
requested them on the Shareholder Application. The election of the check
redemption procedure does not create a checking account or other bank account
relationship between a shareholder and the Fund or any bank. These checks are
drawn through the Fund's custodian, Bank of America NT & SA (the "Custodian" or
"Bank"). Shareholders will generally not be able to convert a check drawn on
the Fund account into a certified or cashier's check by presentation at the
Fund's Custodian. The shareholder may make checks payable to the order of any
person in any amount not less than $100. There is no charge to the shareholder
for this check redemption procedure.
When such a check is presented for payment, the Fund will redeem a sufficient
number of full and fractional shares in the shareholder's account to cover the
amount of the check. This enables the shareholder to continue earning daily
income dividends until the check has cleared. Shares will be redeemed at their
net asset value next determined after receipt of a check which does not exceed
the collected balance of the account. Only shareholders having accounts in
which no share certificates have been issued will be permitted to redeem shares
by check.
Because the Fund is not a bank, no assurance can be given that stop payment
orders on checks written by shareholders will be effective. The Fund, however,
will use its best efforts to see that such orders are carried out.
Shareholders will be subject to the right of the Bank to return unpaid checks
in amounts exceeding the collected balance of their account at the time the
check is presented for payment. Checks should not be used to close a Fund
account because when the check is written the shareholder will not know the
exact total value of the account on the day the check clears. The Bank reserves
the
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<PAGE>
right to terminate this service at any time upon notice to shareholders.
2. BY TELEPHONE
A shareholder may redeem shares by telephoning the Fund at 1-800/632-2301.
Payment of redemption requests of $1,000 or less (once per business day) will
be sent by mail to the shareholder's address as reflected on the Fund's
records. For payments over $1,000, the shareholder must complete the "Wire
Redemptions Privilege" section of the Shareholder Application. Proceeds will
then be wired directly to the commercial bank or brokerage firm designated by
the shareholder. Wires will not be sent for redemption requests of $1,000 or
less. Shareholders may have redemption proceeds of over $1,000, up to $50,000
per day per Fund account, sent directly to their address of record by filing a
completed Telephone Redemption Authorization Agreement (the "Agreement"). The
Agreement may be obtained by writing to the Fund or Investor Services at the
address shown on the cover or by calling the number above. The Fund and
Investor Services will employ reasonable procedures to confirm that
instructions given by telephone are genuine. Shareholders, however, bear the
risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
Telephone redemption requests received before 3:00 p.m. Pacific time on any
business day will be processed that same day. The redemption check will be sent
within seven days, made payable to all the registered owners on the account,
and will be sent only to the address of record. Wire payments will be
transmitted the next business day following receipt prior to 3:00 p.m. Pacific
time of a request for redemption in proper form. Shareholders may wish to allow
for longer processing time if they want to assure that redemption proceeds will
be available at a specific time for a specific transaction. Shareholders may be
able to have redemption proceeds wired to an escrow account the same day,
provided that the request is received prior to 9:00 a.m. Pacific time.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.
Redemption instructions must include the shareholder's name and account number
and be called to the Fund. No shares for which share certificates have been
issued may be redeemed by telephone instructions. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts which wish to
execute redemptions in excess of $50,000 must complete an Institutional
Telephone Privileges Agreement which is available from Franklin's Institutional
Services Department by telephoning 1-800/321-8563. The telephone redemption
privilege may be modified or discontinued by the Fund at any time upon 60 days'
notice to shareholders.
3. BY MAIL
A shareholder may redeem all or a portion of the shareholder's shares by
sending a letter to Investor Services, at the address shown on the back cover
of this Prospectus, requesting redemption and surrendering share certificates
if any have been issued.
IMPORTANT THINGS TO REMEMBER
WHEN REDEEMING SHARES
Written requests for redemption must be signed by all registered owners.
Where shares to be redeemed are represented by share certificates, the request
for redemption must
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<PAGE>
be accompanied by the share certificate and a share assignment form signed by
the registered shareholders exactly as the account is registered, with the
signature(s) guaranteed as referenced below. Shareholders are advised, for
their own protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution"
as defined under Rule 17Ad-15 under the Securities Exchange Act of 1934.
Generally, eligible guarantor institutions include (1) national or state
banks, savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and credit unions;
(2) national securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a national
securities exchange or a clearing agency or which have minimum net capital
of $100,000; or (4) institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program. A notarized signature will not be sufficient
for the request to be in proper form.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) copy of the pertinent pages of the trust document listing the trustee(s) or
a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these
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<PAGE>
accounts have varying requirements, depending upon the state of residence.
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
Written requests for redemption, all share certificates, and all certificate
assignment forms should be sent to the Fund or Investor Services at the address
shown on the back cover of this Prospectus.
Payment for written requests for redemption will be sent within seven days
after receipt of the request in proper form. Redemptions will be made in cash
at the net asset value per share next determined after receipt by the Fund of a
redemption request in proper form, including all share certificates,
assignments, signature guarantees and other documentation as may be required by
Investor Services. The amount received upon redemption may be more or less than
the shareholder's original investment. Redemptions may be suspended under
certain limited circumstances pursuant to rules adopted by the SEC.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agents shall be
liable to any shareholder or other person for a redemption payment by wire
which for any reason may not be processed as described in this section.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT, OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and any capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. A lost, stolen or destroyed certificate cannot
be replaced without obtaining a sufficient indemnity bond. The cost of such a
bond, which is generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate will be
issued if requested in writing by the shareholder or by the shareholder's
securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder monthly to reflect
the daily dividends reinvested, as well as after each transaction which affects
the shareholder's account, except a redemption effected by check. This
statement will also show the total number of Fund shares owned by the
shareholder, including the number of shares in "plan balance" for the account
of the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the shareholder's account, provided that the net asset
value of the shares held by the shareholder is at least $5,000. There are no
service charges for establishing or maintaining a System-
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atic Withdrawal Plan. The minimum amount which the shareholder may withdraw is
$100 per withdrawal transaction, although this is merely the minimum amount
allowed under the plan and should not be mistaken for a recommended amount.
The plan may be established on a monthly, quarterly, semiannual or annual basis.
Sufficient shares of the Fund will be liquidated (generally on the first
business day of the month in which the distribution is scheduled) at net asset
value to meet the specified withdrawals. Payments are generally received three
to five days after the date of liquidation. By completing the "Special Payment
Instructions for Dividends" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected withdrawals to
another fund in the Franklin Group of Funds or the Templeton Group, to another
person, or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be
made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial
processing. Withdrawals which may be paid in the interim will be sent to the
address of record. Liquidation of shares may deplete the investment and
withdrawal payments cannot be considered as actual yield or income since part
of such payments may be a return of capital. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. A Systematic Withdrawal Plan may be terminated
on written notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the account, or
upon the Fund's receipt of notification of the death or incapacity of the
shareholder. Shareholders may change the amount (but not below the specified
minimum) and schedule of withdrawal payments or suspend such payments (for up
to one month) by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic Withdrawal Plan is in
effect.
MULTIPLE ACCOUNTS FOR FIDUCIARIES
Special procedures have been designed for banks and other institutions wishing
to open multiple accounts in the Fund. Further information is included in the
Fund's Statement of Additional Information.
RIGHTS OF ACCUMULATION
The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may
be entitled when purchasing shares of one of the many funds in the Franklin
Group of Funds and in the Templeton Group of Funds which are sold with a sales
charge. Included for these purposes are (a) the open-end investment companies
in the Franklin Group (except Franklin Valuemark II and Franklin Government
Securities Trust) (the "Franklin Group of Funds"), (b) other investment
products in the Franklin Group underwritten by Distributors or its affiliates
(although certain investments may not have the same schedule of sales charges
and/or may not be subject to reduction) (the products in subparagraphs (a) and
(b) are referred to as the "Franklin Group"), and (c) the open-end U.S.
registered investment companies in the Templeton Group of Funds except
Templeton American Trust, Inc., Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
(the "Templeton Group").
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<PAGE>
Purchases of Fund shares will also be included toward the completion of a
Letter of Intent with respect to any of the funds in the Franklin Group of
Funds and the Templeton Group which are sold with a sales charge.
To assist shareholders in obtaining additional information regarding these
programs, a list of telephone numbers is included under "How to Get Information
Regarding an Investment in the Fund."
RETIREMENT PLANS - TAX DEFERRED INVESTMENTS
Shares of the Fund may be used for retirement programs providing for
tax-deferred investments for both individuals and businesses. The Fund may be
used as an investment vehicle for an existing retirement plan or Franklin Trust
Company may provide the plan documents and trustee or custodian services. A
plan document must be adopted in order for a plan to be in existence.
Franklin Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for various types of retirement plans. Brochures for each of the plans
sponsored by Franklin contain important information regarding eligibility,
contribution limits and IRS requirements. Please note that separate
applications other than the one contained in this Prospectus must be used to
establish a Franklin Trust Company retirement account. To obtain a retirement
plan brochure or application, call toll free 1-800/DIAL BEN (1-800/342-5236).
The Franklin IRA is an individual retirement account in which the
contributions, annually limited to the lesser of $2,000 or 100% of an
individual's earned compensation, accumulate on a tax-deferred basis until
withdrawn. Under the current tax law, individuals who (or whose spouses) are
covered by a company retirement plan (termed "active participants") may be
restricted in the amount they may claim as an IRA deduction on their returns.
The IRA deduction is gradually reduced to the extent that a taxpayer's adjusted
gross incomes exceed certain specified limits.
Two IRAs, with a combined limit of $2,250 or 100% of earned compensation, may
be established by a married couple in which only one spouse is a wage earner.
The $2,250 may be split between the two IRAs, so long as no more than $2,000 is
contributed to either one for a given tax year.
A Franklin Rollover IRA account is designed to maintain the tax-deferred status
of a qualifying distribution from an employer-sponsored retirement plan, such
as a 401(k) plan or qualified pension plan. Additionally, if the eligible
distribution is directly transferred to a rollover IRA account, the
distribution will be exempt from 20% mandatory federal withholding, a new
withholding law enacted in 1993.
The Franklin Simplified Employee Pension Plan (SEP-IRA) and Salary Reduction
Simplified Employee Pension Plan (SAR-SEP) are for use by small businesses
(generally 25 or fewer employees) to provide a retirement plan for their
employees and, at the same time, provide for a tax-deduction to the employer.
SEP-IRA contributions are made to an employee's IRA, at the discretion of the
employer, up to the lesser of $30,000 or 15% of compensation* per employee. The
SAR-SEP allows employees to contribute a portion of their salary to an IRA on a
pre-tax basis through salary deferrals. The maximum annual salary deferral
limit for a SAR-SEP is the lesser of 15% of compensation (adjusted for
deferrals) or $9,240 (1994 limit; indexed for inflation).
The Franklin 403(b) Retirement Plan is a salary deferral plan for employees of
certain non-profit and educational institutions [Section 501(c)(3)
organizations and public schools]. The 403(b) Plan allows participants to
determine the annual amount of
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salary they wish to defer. The maximum annual salary deferral amount is
generally the lesser of 25% of compensation (adjusted for deferrals) or $9,500.
The Franklin Business Retirement Plans provide employers with additional
retirement plan options and may be used individually, in combination, or with
custom designed features. The Profit Sharing Plan allows an employer to make
contributions, at its discretion, of up to the lesser of $30,000 or 15% of
compensation* per employee each year. The Money Purchase Pension Plan allows
the employer to contribute up to the lesser of $30,000 or 25% of compensation*
per employee; however, contributions are required annually at the rate
(percentage) elected by the employer at the outset of the plan. In order to
achieve a combined contribution rate of 25%, while maintaining a certain degree
of flexibility, employers may establish both a Profit Sharing Plan and a Money
Purchase Pension Plan (with a fixed contribution rate of 10%).
Franklin Trust Company can add optional provisions to the Profit Sharing and
Money Purchase Pension Plans described above and provide a Defined Benefit,
Target Benefit, and 401(k) Plans on a custom designed basis. Business
Retirement Plans, whether standard or custom designed, may require an annual
report (Form 5500) to be filed with the IRS.
Redemptions from any Franklin retirement plan accounts require the completion
of specific distribution forms to comply with IRS regulations. Please see "How
to Redeem Shares of the Fund."
Individuals and employers should consult with a competent tax or financial
advisor before choosing a retirement plan.
*The limit on compensation for determining SEP and qualified plan contributions
is reduced from $235,840 in 1993 to $150,000 in 1994. The new $150,000 limit
will be adjusted for inflation, but only in $10,000 increments.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares
of the Fund available to institutional accounts. For further information,
contact Franklin's Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives and policies. The
shares of most of these investment companies are offered to the public with a
sales charge. If a shareholder's investment objective or outlook for the
securities markets changes, Fund shares may be exchanged for shares of any of
the other investment companies in the Franklin Group of Funds or the Templeton
Group (as defined under "How to Buy Shares of the Fund") which are eligible for
sale in the shareholder's state of residence and in conformity with such fund's
stated eligibility requirements and investment minimums. Exchanges may be made
in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any
outstanding share certificates.
EXCHANGES BY TELEPHONE
Shareholders, or their investment representative of record, if any, may
exchange shares of the Fund by telephone by calling Investor Services at
1-800/632-2301 or the automated Franklin TeleFACTS(R) system (day or night) at
1-800/247-1753. If the shareholder does not wish this privilege ex-
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tended to a particular account, the Fund or Investor Services should be
notified.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Please refer to "Telephone
Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the
other exchange procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases of the Fund's shares, Investor Services will
accept exchange orders by telephone or by other means of electronic
transmission from securities dealers who execute a dealer or similar agreement
with Distributors. See also "Exchanges by Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have previously
been deposited. A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Shares of the Fund acquired other than pursuant to the Exchange Privilege or
the reinvestment of dividends with respect to such shares, may be exchanged at
the offering price of one of the other funds in the Franklin Group of Funds or
the Templeton Group. Such offering price includes the applicable sales charge
of the fund into which the shares are being exchanged. Exchanges will be
effected at the respective net asset values or offering prices of the funds
involved at the close of business on the day on which the request is received
in proper form.
There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT ACCOUNTS
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Franklin Group of Funds and the Templeton Group can be accomplished
through a trustee-to-trustee transfer and requires the completion of additional
documentation before it can be effected. Franklin/Templeton IRA and 403(b)
retirement accounts may accomplish exchanges directly after August 30, 1994.
Certain restrictions may apply to other types of retirement plans. See
"Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
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RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
Effective September 1, 1994, the Fund will amend its policy in regard to Timing
Accounts, to reflect the following:
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing Account
or any person whose transactions seem to follow a timing pattern who: (i) makes
an exchange request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) makes more than two exchanges out of the Fund
per calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in Advisers' judgment, the Fund would
be unable to invest effectively in accordance with its investment objectives
and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy Shares of the
Fund," reserve the right to refuse any order for the purchase of shares.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares
in one account to another identically registered account in the Fund, and (iv)
exchange Fund shares as described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described under "How to
Redeem Shares of the Fund - By Telephone" will be able to redeem shares of the
Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obliga-
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tion to apply for or accept telephone transaction privileges. In any instance
where the Fund or Investor Services is not reasonably satisfied that
instructions received by telephone are genuine, the requested transaction will
not be executed, and neither the Fund nor Investor Services will be liable for
any losses which may occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Trust Company or Templeton Funds Trust Company retirement accounts. To
assure compliance with all applicable regulations, special forms are required
for any distribution, redemption, or dividend payment. Currently, while the
telephone exchange privilege is extended to these retirement accounts, a
Franklin/Templeton Transfer Authorization Form must be on file in order to
transfer retirement plan assets between a Franklin fund and a Templeton fund
within the same plan type. Effective September 1, 1994, however, this
authorization form will not be required for Franklin/Templeton IRA and 403(b)
retirement accounts. Certain restrictions may apply to other types of
retirement plans. Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, Franklin retirement account shareholders may call
1-800/527-2020, and Templeton retirement account shareholders may call
1-800/354-9191 (press "2" when prompted to do so) to speak to a Retirement Plan
Specialist.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
The net asset value of the shares of the Fund is determined by the Fund at 3:00
p.m. Pacific time each day that the Exchange is open for business.
The net asset value per share is calculated by adding the value of all of the
Fund's portfolio holdings (i.e., shares of the Portfolio) and other assets,
deducting the Fund's liabilities, and dividing the result by the number of Fund
shares outstanding.
The valuation of portfolio securities held by the Portfolio is based upon their
amortized cost value, which does not take into account unrealized capital gain
or loss. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Portfolio's use of amortized cost, which facilitates the
maintenance of the Portfolio's per share net asset value of $1.00, is permitted
by Rule 2a-7. Further information is included under "Determination of Net Asset
Value" in the Statement of Additional Information.
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HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Yield information about the Fund may be accessed by entering
Fund Code 13 followed by the # sign, when requested to do so by the automated
operator.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone.
<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
-------------------- ------------- ----------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
All Franklin departments may also be reached at 1-800/632-2350.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including quotations of its current
and effective yield.
Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from the Fund during a seven-day period. It is computed by determining
the net change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield
is computed in the same manner except that the annualization of the return for
the seven-day period reflects the results of compounding (that is, the effect
of reinvesting dividends paid on both the original share and those acquired
from the reinvestment of such dividends).
In each case, performance figures are based upon past performance and will
reflect all recurring charges against Fund income. Such quotations will reflect
the value of any additional shares purchased with dividends from the original
share and any dividends declared on both the original share and such additional
shares. The investment results of the Fund, like all other investment
companies, will fluctuate over time; thus, performance figures
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<PAGE>
should not be considered to represent what an investment may earn in the future
or what the Fund's performance may be in any future period.
GENERAL INFORMATION
The Fund's authorized capital stock consists of five billion shares of no par
value. All shares are of one class, have one vote and, when issued, are fully
paid and nonassessable. All shares have equal voting, participation and
liquidation rights, but have no subscription, preemptive or conversion rights.
Shares of the Fund have cumulative voting rights which means that in all
elections of directors, each shareholder has the right to cast a number of
votes equal to the number of shares owned multiplied by the number of directors
to be elected at such election and each shareholder may cast the whole number
of votes for one candidate or distribute such votes among two or more
candidates.
The Fund is not required nor does it intend to hold routine annual meetings of
shareholders. The Fund may, however, hold a meeting for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. A meeting may also be called by a majority of
the Board of Directors or by shareholders holding at least ten percent of the
shares entitled to vote at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or
removal of directors such as that provided in Section 16(c) of the 1940 Act.
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $250 and has been inactive
(except for the reinvestment of distributions) for a period of at least six
months, provided advance notice is given to the shareholder. More information
is included in the Statement of Additional Information.
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused
by the shareholder's failure to cash such check(s).
Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions as to
ownership.
Accounts should not be registered in the name of a minor either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the
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<PAGE>
"Minor" under the Uniform Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer.
Both the delivering and receiving securities dealers must have executed dealer
or similar agreements on file with Distributors. Unless such agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving dealer and sign any documents required by
the dealer(s) to evidence consent to the transfer. Under current procedures,
the account transfer may be processed by the delivering securities dealer and
the Fund after the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may be possible to
effect such transfers electronically through the services of the NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee,
or both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near
future, include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend or other reportable payment and withhold
31% of any such payments made to individuals and other non-exempt shareholders
who have not provided a correct taxpayer identification number ("TIN") and made
certain required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a
securities dealer notifies the Fund that the TIN furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding for
previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close
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<PAGE>
an account by redeeming its shares in full at the then current net asset value
upon receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
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