As filed with the Securities and Exchange Commission on November 25, 1997.
File Nos.
2-72614
811-3193
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 17 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 (X)
FRANKLIN TAX-EXEMPT MONEY FUND
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (650) 312-2000
HARMON E. BURNS, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post effective amendment.
Title of Securities Being Registered:
Shares of Common Stock of:
Franklin Tax-Exempt Money Fund
FRANKLIN TAX-EXEMPT MONEY FUND
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How does the Fund
Information Measure Performance?"
4. General Description of "How is the Fund Organized?"; "How does the
Registrant Fund Invest its Assets?"; "What are the
Fund's Potential Risks?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion Contained in Registrant's Annual Report to
of Fund Performance Shareholders
6. Capital Stock and Other "How is the Fund Organized?"; "Services to
Securities Help You Manage Your Account"; "What
Distributions Might I Receive from the
Fund?"; "How Taxation Affects the Fund and
its Shareholders"; "What If I Have Questions
About My Account?"
7. Purchase of Securities "How Do I Buy Shares?";"May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Fund?";
"Useful Terms and Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Useful Terms and
Definitions"
9. Pending Legal Proceedings Not Applicable
FRANKLIN TAX-EXEMPT MONEY FUND
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not Applicable
History
13. Investment Objectives and "How does the Fund Invest its Assets?";
Policies "Investment Restrictions"
14. Management of the Fund "Officers and Directors"; "Investment
Management and Other Services".
15. Control Persons and "Officers and Directors"; "Investment
Principal Holders of Management and Other Services";
Securities "Miscellaneous Information"
16. Investment Advisory and "Investment Management and Other Services";
Other Services "The Fund's Underwriter"
17. Brokerage Allocation and "How does the Fund Buy Securities for its
Other Practices Portfolio?"
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange Shares?";
Pricing of Securities "How are Fund Shares Valued?"; "Financial
Being Offered Statements"
20. Tax Status "Additional Information on Distributions and
Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "How does the Fund Measure Performance?"
Performance Data
23. Financial Statements "Financial Statements"
PROSPECTUS & APPLICATION
FRANKLIN TAX-EXEMPT MONEY FUND
INVESTMENT STRATEGY
TAX-FREE INCOME
DECEMBER 1, 1997
This prospectus describes the Franklin Tax-Exempt Money Fund (the "Fund"). It
contains information you should know before investing in the Fund. Please keep
it for future reference.
The Fund has a Statement of Additional Information ("SAI"), dated December 1,
1997, which may be amended from time to time. It includes more information about
the Fund's procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a larger
print version of this prospectus, call 1-800/DIAL BEN.
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 per share.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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 DISTRIBUTORS.
FRANKLIN
TAX-EXEMPT
MONEY FUND
December 1, 1997
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary .........................................2
Financial Highlights ....................................3
How does the Fund Invest its Assets? 4
What are the Fund's Potential Risks? ....................7
Who Manages the Fund? ...................................8
How does the Fund Measure Performance? ..................9
How Taxation Affects the Fund and its Shareholders ......9
How is the Fund Organized? .............................11
ABOUT YOUR ACCOUNT
How Do I Buy Shares?....................................11
May I Exchange Shares for Shares of Another Fund? ......13
How Do I Sell Shares? ..................................15
What Distributions Might I Receive from the Fund? ......17
Transaction Procedures and Special Requirements ........18
Services to Help You Manage Your Account ...............23
What If I Have Questions About My Account? .............25
GLOSSARY
Useful Terms and Definitions ...........................25
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
July 31, 1997. The Fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Exchange Fee (per transaction) $5.00*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.58%**
Other Expenses 0.27%
Total Fund Operating Expenses 0.85%**
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$9 $27 $47 $105
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.38% and total Fund operating
expenses were 0.65%.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Fund's Annual Report to Shareholders for the fiscal
year ended July 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------------------
Net investment income .029 .029 .029 .020 .021 .031 .045 .056 .056 .047
Distributions from net investment income (.029) (.029) (.029) .020) (.021) (.031) (.045) (.056) (.056) (.047)
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00 1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================
Total return+ 2.94% 2.93% 2.98% 1.85% 2.08% 3.14% 4.65% 5.81% 5.77% 4.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in 000's) $161,038 $166,713 $173,123 $202,883 $193,565 $207,374 $249,21 $228,00 $188,727 $214,090
Ratio of expenses to average net assets++ .65% .65% .65% .65% .69% .70% .70% .74% .74% .71%
Ratio of net investment income to average
net assets 2.91% 2.88% 2.65% 1.84% 2.10% 3.15% 4.53% 5.60% 5.67% 4.66%
</TABLE>
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains at Net Asset Value. ++During the periods indicated, Advisers
agreed in advance to waive a portion of the Fund's management fees. Had such
action not been taken, the Fund's ratio of expenses to average net assets would
have been as follows:
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
1991 .71%
1992 .75%
1993 .80%
1994 .81%
1995 .78%
1996 .87%
1997 .85%
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to attain the highest level of current income
that is exempt from federal income taxes, consistent with liquidity and the
preservation of capital. The objective is a fundamental policy of the Fund and
may not be changed without shareholder approval. Of course, there is no
assurance that the Fund will achieve its objective. The Fund also attempts to
maintain a stable Net Asset Value of $1 per share, although there is no
assurance that this will be achieved.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
The Fund attempts to invest 100% and, as a matter of fundamental policy, invests
at least 80% of its assets in securities that pay interest exempt from regular
federal income tax and not specifically treated as a tax preference item under
the federal alternative minimum tax. It is possible, although not anticipated,
that up to 20% of the Fund's assets could be in taxable obligations.
The Fund follows certain procedures required by federal securities laws with
respect to the quality, maturity and diversification of its investments. These
procedures are designed to help maintain a stable $1 share price. Generally,
they require the Fund to maintain a dollar-weighted average portfolio maturity
of 90 days or less and to limit its investments to U.S. dollar denominated
instruments that:
o the Board determines present minimal credit risks;
o are rated by nationally recognized rating services in one of the two highest
rating categories, or are unrated but are considered to be comparable in
quality to securities that have been rated in one of the two highest rating
categories; and
o have remaining maturities of 397 calendar days or less.
For a description of the various rating categories, please see "Appendix -
Description of Ratings" in the SAI.
Under normal market conditions, the Fund invests its assets as described above.
For temporary defensive purposes, however, the Fund may invest up to 100% of its
assets in taxable obligations, including (i) commercial paper rated at least P-1
by Moody's, A-1 by S&P or F-1 by Fitch; (ii) obligations issued or guaranteed by
the full faith and credit of the U.S. government; or (iii) obligations of U.S.
banks with assets of $1 billion or more.
MUNICIPAL SECURITIES. The Fund seeks to achieve its investment objective by
investing in a diversified portfolio of municipal securities. Municipal
securities are obligations that pay interest exempt from federal income tax and
that are issued by or on behalf of states, territories or possessions of the
U.S., the District of Columbia, or their political subdivisions, agencies or
instrumentalities. An opinion as to the tax-exempt status of a municipal
security is generally given to the issuer by the issuer's bond counsel when the
security is issued.
Municipal securities are issued to raise money for various public purposes, such
as constructing public facilities and making loans to public institutions.
Certain types of municipal securities are issued to provide funding for
privately operated facilities.
The Fund may invest more than 25% of its assets in municipal securities in
particular market segments, including, but not limited to, hospital revenue
bonds, housing agency bonds, tax-exempt industrial development revenue bonds,
transportation bonds, or pollution control revenue bonds. An economic, business,
political or other change that affects one security may also affect other
securities in the same market segment, thereby potentially increasing market
risk. Examples of changes that may affect certain market segments include
proposed legislation affecting the financing of a project, shortages or price
increases of needed materials, or declining markets or needs for the projects.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may buy floating and variable
rate obligations. The interest rates on these obligations are not fixed, but
vary with changes in prevailing market rates on predesignated dates. The Fund
may also invest in floating or variable rate demand notes ("VRDNs"). VRDNs carry
a demand feature that allows the Fund to tender the obligation back to the
issuer or a third party before maturity, at par value plus accrued interest,
according to the terms of the obligation. Although it is not a put option in the
usual sense, the demand feature is sometimes known as a "put." Frequently, VRDNs
are secured by letters of credit or other credit support arrangements.
The Fund may invest in floating and variable rate obligations with stated
maturities in excess of one year, if the obligations carry demand features that
comply with certain conditions and SEC rules. The Fund limits its purchase of
floating and variable rate obligations to those meeting the quality standards
discussed in this prospectus. The quality of the underlying creditor, as
determined by Advisers under the supervision of the Board, must also be
equivalent to the quality standards discussed in this prospectus. In addition,
Advisers monitors the earning power, cash flow and other liquidity ratios of the
issuers of floating and variable rate obligations, as well as the
creditworthiness of the institution responsible for paying the principal amount
of the obligation under the demand feature.
MUNICIPAL LEASE OBLIGATIONS. The Fund may invest in municipal lease obligations,
including certificates of participation ("COPs"). Municipal lease obligations
are widely used by state and local governments to finance the purchase of
property. Under a common lease format, lease revenue obligations are issued by a
governmental corporation to pay for the acquisition of property or facilities.
The property or facilities acquired are then leased to a municipality and the
lease payments are used to repay the interest and principal on the obligations
issued to buy the property. After all of the lease payments have been made,
according to the terms of the lease, the municipality gains ownership of the
property for a nominal sum. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and thus may enable a
governmental issuer to increase government liabilities beyond constitutional
debt limits.
OTHER INVESTMENT POLICIES OF THE FUND
When-Issued and Delayed Delivery Transactions. The Fund may buy and sell
municipal securities on a "when-issued" and "delayed delivery" basis. These are
trading practices where payment and delivery of the securities take place at a
future date. These transactions are subject to market fluctuations and the risk
that the value of a security at delivery may be more or less than its purchase
price. Although the Fund will generally buy municipal securities on a
when-issued basis with the intention of acquiring the securities, it may sell
the securities before the settlement date if it is deemed advisable. When the
Fund is the buyer, it will maintain cash or liquid securities, with an aggregate
value equal to the amount of its purchase commitments, in a segregated account
with its custodian bank until payment is made. The Fund will not engage in
when-issued and delayed delivery transactions for investment leverage purposes.
BORROWING. The Fund may borrow up to 10% of its total assets from banks for
temporary or emergency purposes. No new investments will be made by the Fund
while any outstanding borrowings exceed 5% of its total assets. The Fund may
also lend its portfolio securities to qualified securities dealers or other
institutional investors, if the loans do not exceed 10% of the value of the
Fund's total assets at the time of the most recent loan. The Fund, however,
currently intends to limit its lending of securities to no more than 5% of its
total assets.
ILLIQUID INVESTMENTS. The Fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the Fund has valued them, and include
securities subject to legal or contractual restrictions on resale.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.
Each of the Fund's policies and restrictions discussed in this prospectus and in
the SAI is considered at the time the Fund makes an investment. The Fund is
generally not required to sell a security because of a change in circumstances.
WHAT ARE THE FUND'S POTENTIAL RISKS?
Yields on municipal securities vary, depending on a variety of factors. These
include the general condition of the financial and municipal securities markets,
the size of a particular offering, the credit rating of the issuer and the
maturity of the obligation. Generally, municipal securities with longer
maturities produce higher current yields than municipal securities with shorter
maturities. Prices of longer-term securities, however, typically fluctuate more
than those of shorter-term securities due to changes in interest rates, tax laws
and other general market conditions. Lower-quality municipal securities also
generally produce higher yields than higher-quality municipal securities.
Lower-quality securities, however, generally have a higher degree of risk
associated with the issuer's ability to make timely principal and interest
payments. Because the Fund limits its investments to short-term, high quality
securities, its portfolio will generally earn lower yields than a portfolio with
longer-term, lower quality securities that are subject to greater risk. The
yield to shareholders is accordingly likely to be lower.
CREDIT ENHANCEMENTS. The Fund invests in securities backed by guarantees from
foreign and domestic banks and other financial institutions. The Fund's ability
to maintain a stable share price is largely dependent on these guarantees, which
are not supported by federal deposit insurance. Therefore, changes in the credit
quality of these institutions could have an adverse impact on securities they
have guaranteed or backed. This could cause losses to the Fund and affect the
stability of its share price.
NONAPPROPRIATION RISK OF MUNICIPAL LEASE OBLIGATIONS. A feature that
distinguishes municipal lease obligations from more traditional forms of
municipal debt is the "nonappropriation" clause in the lease. A nonappropriation
clause allows the municipality to terminate the lease annually without penalty
if the municipality's appropriating body does not allocate the necessary funds.
Local administrations, when faced with increasingly tight budgets, have more
discretion to curtail payments under municipal lease obligations than they do to
curtail payments on traditionally funded debt obligations. If the municipality
does not appropriate sufficient monies to make lease payments, the lessor or its
agent is typically entitled to repossess the property. The private sector value
of the property may be more or less than the amount the municipality was paying.
While the risk of nonappropriation is inherent to municipal lease obligations,
the Fund believes that this risk may be reduced, although not eliminated, by its
policy of investing only in securities rated in one of the two highest rating
categories, or in unrated securities Advisers believes to be comparable in
quality to securities rated in one of the two highest rating categories. When
assessing the risk of nonappropriation, the rating services and Advisers
consider, among other factors, the issuing municipality's credit rating, how
essential the leased property is to the municipality, and the term of the lease
compared to the useful life of the leased property. While there is no limit as
to the amount of assets that the Fund may invest in municipal lease obligations,
as of July 31, 1997, the Fund held 0.19% of its net assets in COPs and other
municipal lease obligations.
CREDIT, MARKET AND INTEREST RATE RISK. Credit risk is a function of the ability
of an issuer of a municipal security to make timely interest payments and to pay
the principal of a security upon maturity. It is generally reflected in a
security's underlying credit rating and its stated interest rate (normally the
coupon rate). A change in the credit risk associated with a municipal security
may cause a corresponding change in the security's price. Market risk is the
risk of price fluctuation of a municipal security caused by changes in general
economic and interest rate conditions that affect the market as a whole. In
addition, changes in interest rates may affect the value of a security.
Generally, when interest rates rise the value of a municipal security falls, and
vice versa. Interest rates have increased and decreased in the past. These
changes are unpredictable. The short duration and high credit quality of the
securities in which the Fund invests may generally reduce these risks.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
INVESTMENT MANAGER. Advisers manages the Fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, Advisers and its
affiliates manage over $223 billion in assets, including $46 billion in the
municipal securities market. Please see "Investment Management and Other
Services" and "Miscellaneous Information" in the SAI for information on
securities transactions and a summary of the Fund's Code of Ethics.
MANAGEMENT FEES. During the fiscal year ended July 31, 1997, management fees,
before any advance waiver, totaled 0.58% of the average daily net assets of the
Fund. Total operating expenses, including fees paid to Advisers before any
advance waiver, were 0.85%. Under an agreement by Advisers to limit its fees,
the Fund paid management fees totaling 0.38%. Total expenses of the Fund were
0.65%. Advisers may end this arrangement at any time upon notice to the Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Fund Buy
Securities for its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. Please see
"Investment Management and Other Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Fund advertises its performance. Commonly used measures
of performance include current and effective yield. The Fund may also advertise
its taxable-equivalent yield and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield. The taxable-equivalent yield and effective yield show the before-tax
yield or effective yield that would have to be earned from a taxable investment
to equal the Fund's yield or effective yield, assuming one or more tax rates.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not guarantee future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will generally not be liable
for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends are derived from interest income exempt from regular
federal income tax, and are not subject to regular federal income tax for you.
To the extent dividends are derived from taxable income from temporary
investments, including the discount from certain stripped obligations or their
coupons or income from securities loans or other taxable transactions, from the
excess of net short-term capital gain over net long-term capital loss, or from
ordinary income derived from the sale or disposition of bonds purchased with
market discount after April 30, 1993, they are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
The Fund does not generally hold securities for more than one year. Therefore,
it does not expect to realize or distribute any long-term capital gains.
Pursuant to the Code, certain distributions that are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January will be treated, for tax purposes, as if received by
you on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss, although no gain or loss is anticipated with respect to
shares of the Fund since the Fund attempts to maintain a stable Net Asset Value
of $1 per share.
Since the Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than dividend income, no portion of the Fund's
distributions will generally be eligible for the corporate dividends-received
deduction.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions, including the portion of the dividends on an average basis
that is a tax preference item under the federal alternative minimum tax. If you
have not held shares of the Fund for a full calendar year, you may have
designated as tax-exempt or as tax preference income a percentage of income that
is not equal to the actual amount of tax-exempt or tax preference income earned
during the period of your investment in the Fund.
The interest on bonds issued to finance public purpose state and local
government operations is generally tax-exempt. Interest on certain private
activity bonds, while still tax-exempt for regular income tax reporting, is a
preference item in determining if you are subject to the alternative minimum
tax, and could subject you to, or increase your liability for, federal and state
alternative minimum taxes. In addition, all distributions derived from interest
exempt from regular federal income tax may subject a corporate shareholder to,
or increase a corporate shareholder's liability for, the federal alternative
minimum tax, because these distributions are included in the corporation's
adjusted current earnings.
Consistent with its investment objective, the Fund may buy private activity
bonds if, in Advisers' opinion, the bonds represent the most attractive
investment opportunity then available to the Fund. For the fiscal year ended
July 31, 1997, the Fund derived 4.5% of its income from bonds, the interest on
which is a preference item subject to the federal alternative minimum tax for
certain investors.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax, are includable in the tax base for determining the extent to which a
shareholder's social security or railroad retirement benefits will be subject to
regular federal income tax. You are required to disclose the receipt of
tax-exempt interest dividends on your federal income tax returns.
Interest on indebtedness incurred (directly or indirectly) by you to buy or
carry Fund shares may not be fully deductible for federal income tax purposes.
You should consult with your personal tax advisor on the deductibility of this
interest.
You should also consult with your tax advisor to determine whether state or
local income or franchise taxes will apply to your investment in the Fund or to
distributions or redemption proceeds received from the Fund. For example,
distributions attributable to interest received from obligations of a given
state or its political subdivisions may be exempt from income taxes in that
state.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes on distributions received by you from the Fund
and the application of foreign tax laws to these distributions.
HOW IS THE FUND ORGANIZED?
The Fund is a no-load, diversified, open-end management investment company,
commonly called a mutual fund. It was organized as a California corporation on
March 18, 1980, and is registered with the SEC. Each share of the Fund has one
vote. All shares have equal voting, participation and liquidation rights. Shares
of the Fund are considered Class I shares for redemption, exchange and other
purposes.
The Fund has cumulative voting rights. This gives each shareholder a number of
votes equal to the number of shares owned times the number of Board members to
be elected. You may cast all of your votes for one candidate or distribute your
votes between two or more candidates.
The Fund does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may also be called by the Board in its discretion or by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a Board
member.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
You may buy shares of the Fund without a sales charge and write redemption
drafts against your account. Redemption drafts are similar to checks and are
referred to as checks in this prospectus. When you buy shares, it does not
create a checking or other bank account relationship with the Fund or any bank.
MINIMUM
INVESTMENTS*
To Open Your Account $500
To Add to Your Account $ 25
*We may refuse any order to buy shares.
METHOD STEPS TO FOLLOW
BY MAIL For an initial investment:
1. Complete and sign the enclosed shareholder
application.
2. Return the application to the
Fund with your check, Federal
Reserve draft or negotiable
bank draft made payable to the
Fund. Instruments drawn on
other investment companies may
not be accepted.
For additional investments:
1. Send a check or use the
deposit slips included with
your monthly statement or
checkbook (if you have
requested one).
2. If you send a check, please include your
account number on the check.
BY WIRE 1. Call Shareholder
Services or, if that number is
busy, call 1-650/312-2000
collect, to receive a wire
control number. A new number
is needed every time you wire
money into your account. If
you do not have a currently
effective wire control number,
we will return the money to
the bank and it will not be
credited to your account.
2. Wire the funds to Bank of
America, ABA routing number
121000358, for credit to
Franklin Tax-Exempt Money
Fund, A/C 1493-3-04779. Your
name and wire control number
must be included.
3. For initial investments, you must also
complete and sign the enclosed shareholder
application and return it to the Fund.
THROUGH YOUR DEALER CALL YOUR INVESTMENT REPRESENTATIVE
If the Fund receives your order in proper form before 3:00 p.m. Pacific time, it
will be credited to your account that day. Orders received after 3:00 p.m. will
be credited the following business day.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the Fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the Fund on arbitrage rebate calculations.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
METHOD STEPS TO FOLLOW
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates
for the shares you want to exchange
BY PHONE Call Shareholder Services or TeleFACTS(R)
If you do not want the ability to
exchange by phone to apply to your
account, please let us know.
THROUGH YOUR DEALER CALL YOUR INVESTMENT REPRESENTATIVE
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered. You may, however, exchange
shares from a Fund account requiring two or more signatures into another
identically registered money fund account requiring only one signature for
all transactions. Please notify us in writing if you do not want this option
to be available on your account. Additional procedures may apply. Please see
"Transaction Procedures and Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the Fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.
Because excessive trading can hurt Fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the Fund
at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
BY CHECK
(Only available if there are no
outstanding share certificates
for your account)
1. You may request redemption drafts
(checks) free of charge on the shareholder
application or by calling TeleFACTS(R)
2. You may make checks payable to any
person and in any amount of $100 or
more. You will continue to earn daily
income dividends until the check has
cleared. Please see "More Information
About Selling Your Shares By Check"
below.
BY MAIL 1. Send us signed written
instructions. If you would like your
redemption proceeds wired to a bank
account, complete the "Wire Redemption
Privilege" section of the shareholder
application and send it to us or
include the following information in
your instructions:
The name, address and telephone number of
the bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or
credit union, the name of the
corresponding bank and the account
number
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
other requirements.
BY PHONE Call Shareholder Services. If you would like
your redemption proceeds wired to a bank
account, other than an escrow account, you
must first sign up for the wire feature. To
sign up, complete the "Wire Redemption
Privilege" section of the shareholder
application and send it to us or send us
written instructions, with a signature
guarantee. To avoid any delay in processing,
the instructions should include the items
listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000
by completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates issued
for the shares you want to sell or you
have already returned them to the Fund
o Unless the address on your account was
changed by phone within the last 15 days
If you do not want the ability to redeem by
phone to apply to your account, please let
us know.
THROUGH YOUR DEALER CALL YOUR INVESTMENT REPRESENTATIVE
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 3:00 p.m. Pacific time, your wire payment will be
sent the next business day. For requests received in proper form after 3:00 p.m.
Pacific time, the payment will be sent the second business day. You may have
redemption proceeds wired to an escrow account the same day, if we receive your
request in proper form before 9:00 a.m. Pacific time. By offering this service
to you, the Fund is not bound to meet any redemption request in less than the
seven day period prescribed by law. Neither the Fund nor its agents shall be
liable to you or any other person if, for any reason, a redemption request by
wire is not processed as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
MORE INFORMATION ABOUT SELLING YOUR SHARES BY CHECK
If you want the convenience of check access to your Fund account, order your
checks from the Fund, free of charge, as described above. For security reasons
and reasons related to check processing systems that require checks to be a
certain size and printed with specific encoding formats, the Fund can only
accept checks ordered from the Fund. The Fund cannot be responsible for any
check not ordered from the Fund that is returned unpaid to a payee.
The checks are drawn through Bank of America NT & SA (the "Bank"). The Bank may
terminate this service at any time upon notice to you.
When a check is presented for payment, we will redeem an equivalent number of
shares in your account to cover the amount of the check. Your shares will be
redeemed at the Net Asset Value next determined after we receive a check that
does not exceed the collected balance in your account. If a check is presented
for payment that exceeds the collected balance in your account, the Bank may
return the check unpaid. Since you will not know the exact amount in your
account on the day a check clears, you should not use a check to close your
account.
You will generally not be able to convert a check drawn on your Fund account
into a certified or cashier's check by presenting it at the Bank. Because the
Fund is not a bank, we cannot assure that a stop payment order written by you
will be effective. We will use our best efforts, however, to see that these
orders are carried out.
CONTINGENT DEFERRED SALES CHARGE
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the Fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if you sell shares that were exchanged into
the Fund from another Franklin Templeton Fund and those shares would have been
assessed a Contingent Deferred Sales Charge in the other fund. The charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the Fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business the day before.
The daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. THE FUND DOES NOT PAY
"INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON AN INVESTMENT IN
ITS SHARES.
DIVIDEND OPTIONS
Dividends will automatically be reinvested each day in the form of additional
shares of the Fund at the Net Asset Value per share at the close of business.
If you complete the "Special Payment Instructions for Dividends" section of the
shareholder application included with this prospectus, you may direct your
dividends to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.
You may also choose to receive dividends in cash. If you have the money sent to
another person or to a checking account, you may need a signature guarantee. If
you send the money to a checking account, please see "Electronic Fund Transfers"
under "Services to Help You Manage Your Account."
If you choose one of these options, the dividends reinvested and credited to
your account during the month will be redeemed as of the close of business on
the last business day of the month and paid as directed on the shareholder
application. You may change your dividend option at any time by notifying us by
mail or phone. Please allow at least seven days for us to process the new
option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share at 3:00 p.m. Pacific time. To calculate Net Asset Value
per share, the Fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of shares
outstanding. The Fund's assets are valued as described under "How are Fund
Shares Valued?" in the SAI.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive signed written instructions, with a
signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
Many of the Fund's investments must be paid for in federal funds, which are
monies held by the Fund's custodian bank on deposit at the Federal Reserve Bank
of San Francisco and elsewhere. The Fund generally cannot invest money received
from you until it is converted into and is available to the Fund in federal
funds. Therefore, your purchase order may not be considered in proper form until
the money received from you is available in federal funds, which may take up to
two days. If the Fund is able to make investments immediately (within one
business day), it may accept your order with payment in other than federal
funds.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
CORPORATION CORPORATE RESOLUTION
PARTNERSHIP 1. The pages from the partnership
agreement that identify the general
partners, or
2. A certification for a partnership
agreement
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
TAX IDENTIFICATION NUMBER
The IRS requires us to have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $500.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
CUMULATIVE QUANTITY DISCOUNTS
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50.
If you would like to establish a systematic withdrawal plan, call Shareholder
Services. You may choose to direct your payments to buy the same class of shares
of another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking account. If you choose to have the money sent
to a checking account, please see "Electronic Fund Transfers" below.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
systematic withdrawal plan sent directly to a checking account. If the checking
account is with a bank that is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If you choose
this option, please allow at least fifteen days for initial processing. We will
send any payments made during that time to the address of record on your
account.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements, money fund checks, and deposit slips for
Franklin accounts.
You will need the Fund's code number to use TeleFACTS(R). The Fund's code number
is 114.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
Special procedures have been designed for banks and other institutions that
would like to open multiple accounts in the Fund. Please see the SAI for more
information.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you.
Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Directors of the Fund
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different classes have proportionate interests in the same
portfolio of investment securities. They differ, however, primarily in their
sales charge structures and Rule 12b-1 plans. Shares of the Fund are considered
Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. Regardless of when during the month
you purchased shares, they will age one month on the last day of that month and
each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FITCH - Fitch Investors Service, Inc.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
FRANKLIN
TAX-EXEMPT
MONEY FUND
STATEMENT OF
ADDITIONAL INFORMATION
DECEMBER 1, 1997
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
TABLE OF CONTENTS
How does the Fund Invest its Assets? ......................... 2
Investment Restrictions ...................................... 5
Officers and Directors ....................................... 6
Investment Management
and Other Services ..........................................10
How does the Fund Buy Securities for its Portfolio? .........11
How Do I Buy, Sell and Exchange Shares? .....................11
How are Fund Shares Valued? ..................................13
Additional Information on
Distributions and Taxes .....................................14
The Fund's Underwriter .......................................15
How does the Fund Measure Performance? ......................15
Miscellaneous Information ....................................16
Financial Statements .........................................17
Useful Terms and Definitions .................................17
Appendix
Description of Ratings ......................................18
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
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The Franklin Tax-Exempt Money Fund (the "Fund") is a no-load, diversified,
open-end management investment company. The Fund's investment objective is to
attain the highest level of current income that is exempt from federal income
taxes, consistent with liquidity and the preservation of capital. The Fund seeks
to achieve its objective by investing in a diversified portfolio of short-term,
high quality municipal securities.
The Prospectus, dated December 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How does the Fund Invest its Assets?"
Except as noted, the Fund's investment policies discussed in this SAI are
fundamental and may not be changed without shareholder approval.
The Fund is a diversified fund. For the purpose of determining diversification,
each political subdivision, agency, or instrumentality of a state, each
multistate agency of which a state is a member, and each public authority that
issues private activity bonds on behalf of a private entity is considered a
separate issuer. Escrow-secured or defeased bonds, described below, are not
generally considered an obligation of the original municipality when determining
diversification. For securities backed only by the assets or revenues of a
particular instrumentality, facility or subdivision, the entity is considered
the issuer.
Generally, all of the securities held by the Fund are offered on the basis of a
quoted yield to maturity, and the price of the security is adjusted so that,
relative to the stated interest rate, it will return the quoted rate to the
buyer. The maturities of these securities at the time of issuance generally
range between three months to one year.
As discussed in the Prospectus, the Fund limits its investments to securities
that are rated in one of the two highest rating categories by a nationally
recognized rating service, such as Moody's, S&P or Fitch, or are unrated but are
considered by Advisers to be comparable in quality to securities that have been
rated in one of the two highest rating categories. In addition to considering
ratings assigned by the rating services in its selection of portfolio securities
for the Fund, Advisers considers, among other things, information about the
financial history and condition of the issuer, revenue and expense prospects
and, in the case of revenue bonds, the financial history and condition of the
source of revenue to service the bonds. Securities that depend on the credit of
the U.S. government are regarded as having a triple A or equivalent rating. For
a description of the various rating categories, please see "Appendix -
Description of Ratings."
Generally, the Fund's policy is to hold securities in its portfolio until they
mature. Due to the short-term nature of the maturities of the securities in the
Fund's portfolio, the Fund does not expect to have any reportable annual
portfolio turnover.
DESCRIPTION OF MUNICIPAL AND OTHER SECURITIES
The Prospectus contains a general description of municipal securities. The
following provides more detailed information about the various municipal and
other securities in which the Fund may invest. There may be other types of
municipal securities that become available that are similar to those described
below and in which the Fund may also invest, if consistent with its investment
objective and policies.
TAX ANTICIPATION NOTES. These are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
which will be used to pay the notes. They are usually general obligations of the
issuer, secured by the taxing power for the payment of principal and interest.
REVENUE ANTICIPATION NOTES. These are issued in expectation of the receipt of
other kinds of revenue, such as federal revenues available under the Federal
Revenue Sharing Program.
BOND ANTICIPATION NOTES. These are normally issued to provide interim financing
until long-term financing can be arranged. Long-term bonds then provide the
money for the repayment of the notes.
CONSTRUCTION LOAN NOTES. These are sold to provide construction financing for
specific projects. After successful completion and acceptance, many projects
receive permanent financing through the Federal Housing Administration under the
Federal National Mortgage Association or the Government National Mortgage
Association.
TAX-EXEMPT COMMERCIAL PAPER. This typically represents a short-term obligation
(270 days or less) issued by a municipality to meet working capital needs. The
Fund may invest in unrated tax-exempt commercial paper only if the issuer has an
outstanding debt security rated in one of the two highest rating categories.
MUNICIPAL BONDS. These meet longer-term capital needs and generally have
maturities of more than one year when issued. They have two principal
classifications: general obligation bonds and revenue bonds.
1. GENERAL OBLIGATION BONDS. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads. The basic security
behind general obligation bonds is the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. The taxes that can
be levied for the payment of debt service may be limited or unlimited as to the
rate or amount of special assessments.
2. REVENUE BONDS. Revenue bonds are not secured by the full faith, credit and
taxing power of the issuer. Rather, the principal security for a revenue bond is
generally the net revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects, including: electric, gas, water and sewer systems; highways,
bridges and tunnels; port and airport facilities; colleges and universities; and
hospitals. The principal security behind these bonds may vary. For example,
housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Many bonds
provide additional security in the form of a debt service reserve fund that may
be used to make principal and interest payments on the issuer's obligations.
Some authorities are provided further security in the form of state assurances
(although without obligation) to make up deficiencies in the debt service
reserve fund.
TAX-EXEMPT INDUSTRIAL DEVELOPMENT REVENUE BONDS. These are bonds that pay
tax-exempt interest and are, in most cases, revenue bonds. They are issued by or
on behalf of public authorities to raise money for the financing of various
privately operated facilities for business, manufacturing, housing, sports and
pollution control. These bonds are also used to finance public facilities such
as airports, mass transit systems, ports and parking. The payment of the
principal and interest on these bonds is solely dependent on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of the
facility or other property as security for payment.
FLOATING OR VARIABLE RATE DEMAND NOTES ("VRDNS"). These are tax-exempt
obligations with a floating or variable interest rate. They have a right of
demand, which may be unconditional, to receive payment of the unpaid principal
balance plus accrued interest upon a short notice period, generally up to 30
days, before specified dates. The payment may be received either from the issuer
or by drawing on a bank letter of credit, a guarantee or insurance issued with
respect to the note. The interest rate is adjustable at intervals ranging from
daily up to monthly, and is calculated to maintain the market value of the VRDN
at approximately its par value upon the adjustment date.
The Fund may buy VRDNs according to procedures adopted by the Board and designed
to minimize credit risks. VRDNs purchased by the Fund must be of high quality,
as determined by the Board, with respect to both their long-term and short-term
aspects. If, however, credit support is provided in the event of default on the
underlying security, the Fund may rely only on the high quality character of the
short-term aspect of the demand note, that is, the demand feature. If the
quality of any VRDN falls below the high quality level required by the Board and
SEC rules, the Fund must either exercise the demand feature or sell the VRDN in
the secondary market within a reasonable period of time, whichever Advisers
believes is in the best interest of the Fund and its shareholders. The
maturities of VRDNs held by the Fund are deemed to be the longer of the demand
period or the period remaining until the next interest rate adjustment, although
the stated maturities may be in excess of one year. The policies discussed in
this paragraph are not fundamental.
WHEN-ISSUED TRANSACTIONS. Municipal securities are frequently issued on a
"when-issued" basis. When so issued, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to buy is made, but delivery
and payment for the when-issued securities take place at a later date. During
the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. To the extent assets of the Fund
are held in cash pending the settlement of a purchase of securities, the Fund
would earn no income on those assets. It is the Fund's intention, however, to be
fully invested to the extent practicable and consistent with its investment
policies. When the Fund makes the commitment to buy a municipal security on a
when-issued basis, it records the transaction and reflects the value of the
security in the determination of its Net Asset Value. The Fund believes that its
Net Asset Value or income will not be adversely affected by its purchase of
municipal securities on a when-issued basis.
CALLABLE BONDS. Callable bonds allow the issuer to redeem the bonds before their
maturity date. To protect bondholders, however, callable bonds may be issued
with provisions that prevent them from being called for a period of time,
typically five to ten years from the date of issue. During times of generally
declining interest rates, if the call protection on a calflable bond expires,
there is an increased likelihood that the bond may be called by the issuer.
Advisers may sell a callable bond before its call date, if it believes the bond
is at its maximum premium potential.
When pricing callable bonds, each bond is marked-to-market daily based on the
bond's call date. Thus, the call of some or all of the Fund's callable bonds may
have an impact on the Fund's Net Asset Value. Based on a number of factors,
including certain portfolio management strategies used by Advisers, the Fund
believes it has reduced the risk of an adverse impact on its Net Asset Value
based on calls of callable bonds. In light of the Fund's pricing policies and
because the Fund follows certain amortization procedures required by the IRS,
the Fund is not expected to suffer any material adverse impact related to the
value at which the Fund has carried the bonds in connection with calls of bonds
purchased at a premium. Notwithstanding these policies, however, the
reinvestment of the proceeds of any called bond may be in bonds that pay a lower
rate of return than the called bonds and, as with any investment strategy, there
is no guarantee that a call may not have a more substantial impact than
anticipated.
ESCROW-SECURED OR DEFEASED BONDS. These are created when an issuer refunds in
advance of maturity (or pre-refunds) an outstanding bond issue that is not
immediately callable, and it becomes necessary or desirable to set aside funds
for redemption of the bonds at a future date. In an advance refunding, the
issuer uses the proceeds of a new bond issue to buy high grade, interest bearing
debt securities that are then deposited in an irrevocable escrow account held by
a trustee bank to secure all future payments of principal and interest of the
advance refunded bond. Escrow-secured bonds often receive a triple A or
equivalent rating from Moody's, S&P or Fitch.
STRIPPED MUNICIPAL SECURITIES. Municipal securities may be sold in "stripped"
form. Stripped municipal securities represent separate ownership of principal
and interest payments on the municipal securities.
MUNICIPAL LEASE OBLIGATIONS. The Fund may invest in municipal lease obligations,
including certificates of participation. The Board reviews municipal lease
obligations held in the Fund's portfolio to assure that they are liquid
investments based on various factors reviewed by Advisers and monitored by the
Board. These factors include (a) the credit quality of the obligations and the
extent to which they are rated or, if unrated, comply with existing criteria and
procedures followed to ensure that they are of comparable quality to the ratings
required for the Fund to invest, including an assessment of the likelihood that
the leases will not be canceled; (b) the size of the municipal securities
market, both in general and with respect to municipal lease obligations; and (c)
the extent to which the type of municipal lease obligations held by the Fund
trade on the same basis and with the same degree of dealer participation as
other municipal securities of comparable credit rating or quality. These
policies, with respect to municipal lease obligations, are not fundamental.
U.S. GOVERNMENT OBLIGATIONS. These are issued by the U.S. Treasury or by
agencies and instrumentalities of the U.S. government and are backed by the full
faith and credit of the U.S. government. They include Treasury bills, notes and
bonds.
COMMERCIAL PAPER. This refers to promissory notes issued by corporations in
order to finance their short-term credit needs.
REPURCHASE AGREEMENTS. Although the Fund currently has no intention of doing so,
it may invest in repurchase agreements. In a repurchase agreement, the Fund buys
U.S. government securities from a bank or broker-dealer at one price and agrees
to sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Fund by a
custodian bank approved by the Board. The bank or broker-dealer must transfer to
the custodian securities with an initial market value of at least 102% of the
repurchase price to help secure the obligation to repurchase the securities at a
later date. The securities are then marked-to-market daily to maintain coverage
of at least 100%. If the bank or broker-dealer does not repurchase the
securities as agreed, the Fund may experience a loss or delay in the liquidation
of the securities underlying the repurchase agreement and may also incur
liquidation costs. The Fund, however, intends to enter into repurchase
agreements only with banks or broker-dealers that are considered creditworthy by
Advisers.
The Fund may invest in short-term repurchase agreements, usually from overnight
to one week. The Fund does not invest in repurchase agreements with a term of
more than one year. The securities subject to a repurchase agreement, however,
may have maturity dates of more than one year from the effective date of the
repurchase agreement. The Fund may not enter into a repurchase agreement with
more than seven days to maturity if, as a result, more than 10% of the Fund's
net assets would be invested in such repurchase agreements or other illiquid
securities.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors, if
such loans do not exceed 10% of the value of the Fund's total assets at the time
of the most recent loan. The borrower must deposit with the Fund's custodian
bank collateral with an initial market value of at least 102% of the market
value of the securities loaned, including any accrued interest, with the value
of the collateral and loaned securities marked-to-market daily to maintain
collateral coverage of at least 100%. This collateral shall consist of cash,
securities issued by the U.S. government, its agencies or instrumentalities, or
irrevocable letters of credit. The lending of securities is a common practice in
the securities industry. The Fund may engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
cash collateral in short-term interest-bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meetifng if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities or securities which are backed by the full faith
and credit of the U.S.) if, as a result, more than 5% of its total assets would
be invested in the securities of such issuer or more than 10% of the outstanding
voting securities of any class of any issuer would be held by the Fund.
2. Borrow money, except from a bank for temporary or emergency purposes and not
for investment purposes, and then in an amount not exceeding 10% of the value of
the Fund's total assets at the time of borrowing. (No new investments will be
made by the Fund while any outstanding borrowings exceed 5% of its total
assets.) Secured temporary borrowings may take the form of reverse repurchase
agreements, pursuant to which the Fund would sell portfolio securities for cash
and simultaneously agree to repurchase them at a specified date for the same
amount of cash plus an interest component.
3. Pledge, mortgage, or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities having
a market value at the time of pledge not exceeding 10% of the value of the
Fund's total assets.
4. Knowingly purchase or otherwise acquire any securities which are subject to
legal or contractual restrictions on resale or for which there is no readily
available market or engage in any repurchase transactions of more than seven
days' duration if, as a result, more than 10% of its total assets would be
invested in all such securities.
5. Underwrite any issue of securities, except to the extent that the purchase of
municipal obligations in accordance with the Fund's investment objectives,
policies, and restrictions, either directly from the issuer, or from an
underwriter for an issuer, may be deemed to be underwriting.
6. Purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal obligations secured by real estate or interests therein.
7. Purchase or sell commodities or commodity contracts or invest in oil, gas or
other mineral exploration or development programs.
8. Make loans, except (i) by the purchase of a portion of an issue of debt
securities in accordance with its investment objectives, policies, and
restrictions, (ii) by engaging in repurchase transactions, and (iii) by making
loans of portfolio securities not in excess of 10% of the value of the Fund's
total assets.
9. Make short sales of securities or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of transactions.
10. Purchase or retain the securities of any issuer other than the securities of
the Fund, if, to the Fund's knowledge, those directors and officers of the Fund,
or of the investment manager, who individually own beneficially more than 1/2 of
1% of the outstanding securities of such issuer together own beneficially more
than 5% of such outstanding securities.
11. Invest for the purpose of exercising control or management of another
company.
12. Write, purchase or sell puts, calls, or combinations thereof, except that it
may obtain rights to resell municipal bonds and notes as set forth under "How
does the Fund Invest its Assets?"
13. Purchase securities of other investment companies, except in connection with
a merger, consolidation or acquisition of assets.
14. Purchase securities (other than municipal bonds, notes and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities)
if, as a result, more than 25% of total Fund assets would be invested in any one
industry.
15. Purchase an industrial revenue bond if, as a result of such purchase, more
than 5% of total Fund assets would be invested in industrial revenue bonds where
the payment of principal and interest are the responsibility of companies with
less than three years of operating history.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
OFFICERS AND DIRECTORS
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME, AGE AND OFFICES WITH THE DURING THE PAST FIVE
ADDRESS FUND YEARS
Frank H. Abbott, III (76) Director
1045 Sansome Street
San Francisco, CA 94111
President and Director, Abbott
Corporation (an investment
company); and director or
trustee, as the case may be,
of 29 of the investment
companies in the Franklin
Templeton Group of Funds.
Harris J. Ashton (65) Director
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
President, Chief Executive
Officer and Chairman of the
Board, General Host
Corporation (nursery and craft
centers); Director, RBC
Holdings, Inc. (a bank holding
company) and Bar-S Foods (a
meat packing company); and
director or trustee, as the
case may be, of 53 of the
investment companies in the
Franklin Templeton Group of
Funds.
S. Joseph Fortunato (65) Director
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Member of the law firm of
Pitney, Hardin, Kipp & Szuch;
Director, General Host
Corporation (nursery and craft
centers); and director or
trustee, as the case may be,
of 55 of the investment
companies in the Franklin
Templeton Group of Funds.
*Charles B. Johnson (64) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Director
President, Chief Executive
Officer and Director, Franklin
Resources, Inc.; Chairman of
the Board and Director,
Franklin Advisers, Inc.,
Franklin Advisory Services,
Inc., Franklin Investment
Advisory Services, Inc. and
Franklin Templeton
Distributors, Inc.; Director,
Franklin/Templeton Investor
Services, Inc., Franklin
Templeton Services, Inc. and
General Host Corporation
(nursery and craft centers);
and officer and/or director or
trustee, as the case may be,
of most of the other
subsidiaries of Franklin
Resources, Inc. and of 54 of
the investment companies in
the Franklin Templeton Group
of Funds.
*Rupert H. Johnson, Jr. (57) President
777 Mariners Island Blvd. and Director
San Mateo, CA 94404
Executive Vice President and
Director, Franklin Resources,
Inc. and Franklin Templeton
Distributors, Inc.; President
and Director, Franklin
Advisers, Inc.; Senior Vice
President and Director,
Franklin Advisory Services,
Inc. and Franklin Investment
Advisory Services, Inc.;
Director, Franklin/Templeton
Investor Services, Inc.; and
officer and/or director or
trustee, as the case may be,
of most of the other
subsidiaries of Franklin
Resources, Inc. and of 58 of
the investment companies in
the Franklin Templeton Group
of Funds.
Frank W.T. LaHaye (68) Director
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
General Partner, Peregrine
Associates and Miller &
LaHaye, which are General
Partners of Peregrine Ventures
and Peregrine Ventures II
(venture capital firms);
Chairman of the Board and
Director, Quarterdeck
Corporation (software firm);
Director, Fischer Imaging
Corporation (medical imaging
systems) and Digital
Transmission Systems, Inc.
(wireless communications); and
director or trustee, as the
case may be, of 27 of the
investment companies in the
Franklin Templeton Group of
Funds.
Gordon S. Macklin (69) Director
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (financial services); Director, Fund American
Enterprises Holdings, Inc., MCI Communications Corporation, CCC Information
Services Group, Inc. (information services), MedImmune, Inc. (biotechnology),
Shoppers Express (home shopping), and Spacehab, Inc. (aerospace services); and
director or trustee, as the case may be, of 50 of the investment companies in
the Franklin Templeton Group of Funds; formerly Chairman, Hambrecht and Quist
Group, Director, H & Q Healthcare Investors, and President, National Association
of Securities Dealers, Inc.
Harmon E. Burns (52) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President,
Secretary and Director,
Franklin Resources, Inc.;
Executive Vice President and
Director, Franklin Templeton
Distributors, Inc. and
Franklin Templeton Services,
Inc.; Executive Vice
President, Franklin Advisers,
Inc.; Director,
Franklin/Templeton Investor
Services, Inc.; and officer
and/or director or trustee, as
the case may be, of most of
the other subsidiaries of
Franklin Resources, Inc. and
of 58 of the investment
companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (37) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President and
Chief Financial Officer,
Franklin Resources, Inc.;
Executive Vice President and
Director, Templeton Worldwide,
Inc.; Executive Vice
President, Chief Operating
Officer and Director,
Templeton Investment Counsel,
Inc.; Senior Vice President
and Treasurer, Franklin
Advisers, Inc.; Treasurer,
Franklin Advisory Services,
Inc.; Treasurer and Chief
Financial Officer, Franklin
Investment Advisory Services,
Inc.; President, Franklin
Templeton Services, Inc.;
Senior Vice President,
Franklin/Templeton Investor
Services, Inc.; and officer
and/or director or trustee, as
the case may be, of 58 of the
investment companies in the
Franklin Templeton Group of
Funds.
Deborah R. Gatzek (48) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and
General Counsel, Franklin
Resources, Inc.; Senior Vice
President, Franklin Templeton
Services, Inc. and Franklin
Templeton Distributors, Inc.;
Vice President, Franklin
Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice
President, Chief Legal Officer
and Chief Operating Officer,
Franklin Investment Advisory
Services, Inc.; and officer of
58 of the investment companies
in the Franklin Templeton
Group of Funds.
Thomas J. Kenny (34) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President,
Franklin Advisers, Inc.; and
officer of eight of the
investment companies in the
Franklin Templeton Group of
Funds.
Diomedes Loo-Tam (58) Treasurer
777 Mariners Island Blvd. and Principal
San Mateo, CA 94404 Accounting
Officer
Senior Vice President,
Franklin Templeton Services,
Inc.; and officer of 35 of the
investment companies in the
Franklin Templeton Group of
Funds.
Edward V. McVey (60) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President and
National Sales Manager,
Franklin Templeton
Distributors, Inc.; and
officer of 30 of the
investment companies in the
Franklin Templeton Group of
Funds.
Richard C. Stoker (60) Vice President
11615 Spring Ridge Rd.
Potomac, MD 20854
Senior Vice President,
Franklin Templeton
Distributors, Inc.; Vice
President, Franklin
Management, Inc.; and officer
of five of the investment
companies in the Franklin
Templeton Group of Funds.
R. Martin Wiskemann (70) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President,
Portfolio Manager and
Director, Franklin Advisers,
Inc.; Senior Vice President,
Franklin Management, Inc.;
Vice President and Director,
ILA Financial Services, Inc.;
and officer and/or director or
trustee, as the case may be,
of 17 of the investment
companies in the Franklin
Templeton Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently paid
$100 per month plus $100 per meeting attended. As shown above, the nonaffiliated
Board members also serve as directors or trustees of other investment companies
in the Franklin Templeton Group of Funds. They may receive fees from these funds
for their services. The following table provides the total fees paid to
nonaffiliated Board members by the Fund and by other funds in the Franklin
Templeton Group of Funds.
NUMBER OF
BOARDS IN THE
TOTAL FEES FRANKLIN TEMPLETON
TOTAL FEES RECEIVED FROM THE GROUP OF FUNDS
RECEIVED FRANKLIN TEMPLETON ON WHICH
NAME FROM THE FUND**GROUP OF FUNDS*** EACH SERVES****
- --------------------------------------------------------------------------------
Frank H. Abbott, III......... $2,300 $165,236 29
Harris J. Ashton............. $2,300 $343,591 53
S. Joseph Fortunato.......... $2,300 $360,411 55
David W. Garbellano*......... $2,100 $148,916 28
Frank W.T. LaHaye............ $2,200 $139,233 27
Gordon S. Macklin............ $2,300 $335,541 50
*Deceased, September 27, 1997.
**For the fiscal year ended July 31, 1997.
***For the calendar year ended December 31, 1996.
****We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not include
the total number of series or funds within each investment company for which the
Board members are responsible. The Franklin Templeton Group of Funds currently
includes 58 registered investment companies, with approximately 171 U.S. based
funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or Board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the Fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or Board members who are
shareholders of Resources may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
As of November 3, 1997, the officers and Board members, as a group, owned of
record and beneficially approximately 860,665 shares, or less than 1% of the
Fund's total outstanding shares. Many of the Board members also own shares in
other funds in the Franklin Templeton Group of Funds.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. Advisers is the investment manager of
the Fund. Advisers provides investment research and portfolio management
services, including the selection of securities for the Fund to buy, hold or
sell and the selection of brokers through whom the Fund's portfolio transactions
are executed. Advisers' extensive research activities include, as appropriate,
traveling to meet with issuers and to review project sites. Advisers' activities
are subject to the review and supervision of the Board to whom Advisers renders
periodic reports of the Fund's investment activities. Advisers and its officers,
directors and employees are covered by fidelity insurance for the protection of
the Fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action with
respect to any of the other funds it manages, or for its own account, that may
differ from action taken by Advisers on behalf of the Fund. Similarly, with
respect to the Fund, Advisers is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that Advisers and
access persons, as defined by the 1940 Act, may buy or sell for its or their own
account or for the accounts of any other fund. Advisers is not obligated to
refrain from investing in securities held by the Fund or other funds that it
manages. Of course, any transactions for the accounts of Advisers and other
access persons will be made in compliance with the Fund's Code of Ethics. Please
see "Miscellaneous Information - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee equal to a daily rate of 1/584 of 1% of the value of net assets
up to and including $100 million; and 1/730 of 1% of the value of net assets
over $100 million up to and including $250 million; and 1/811 of 1% of the value
of net assets in excess of $250 million. The fee is computed at the close of
business each day.
For the fiscal years ended July 31, 1995, 1996 and 1997, management fees, before
any advance waiver, totaled $1,102,243, $1,016,591 and $928,704, respectively.
Under an agreement by Advisers to limit its fees, the Fund paid management fees
totaling $742,949, $644,383 and $601,542 for the same periods.
MANAGEMENT AGREEMENT. The management agreement is in effect until February 28,
1998. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities on 60 days' written notice to Advisers, or by Advisers on 60 days'
written notice to the Fund, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. These include
preparing and maintaining books, records, and tax and financial reports, and
monitoring compliance with regulatory requirements. FT Services is a wholly
owned subsidiary of Resources.
Under its administration agreement, Advisers pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is paid by Advisers. It is not a separate expense of the Fund.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the Fund. The custodian does not participate in decisions relating to the
purchase and sale of portfolio securities.
AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended July
31, 1997, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's Annual Report to
Shareholders for the fiscal year ended July 31, 1997.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
Since most purchases by the Fund are principal transactions at net prices, the
Fund incurs little or no brokerage costs. The Fund deals directly with the
selling or buying principal or market maker without incurring charges for the
services of a broker on its behalf, unless it is determined that a better price
or execution may be obtained by using the services of a broker. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask prices. As a general rule, the Fund does not buy
bonds in underwritings where it is given no choice, or only limited choice, in
the designation of dealers to receive the commission. The Fund seeks to obtain
prompt execution of orders at the most favorable net price. Transactions may be
directed to dealers in return for research and statistical information, as well
as for special services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on the
research services Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Fund's
officers are satisfied that the best execution is obtained, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by Advisers are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by
Advisers, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
Depending on Advisers' view of market conditions, the Fund may or may not buy
securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Fund may, however, sell
securities before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended July 31, 1995, 1996 and 1997, the Fund paid no
brokerage commissions.
As of July 31, 1997, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
All purchases of Fund shares will be credited to you, in full and fractional
shares of the Fund (rounded to the nearest 1/1000 of a share), in an account
maintained for you by the Fund's transfer agent. No share certificates will be
issued for fractional shares at any time. No certificates will be issued to you
if you have elected to redeem shares by check or by preauthorized bank or
brokerage firm account methods. The offering of shares of the Fund may be
suspended at any time and resumed at any time thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the 25th day of the month in which a payment is scheduled. If the 25th falls
on a weekend or holiday, we will process the redemption on the next business
day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
If a withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
REDEMPTIONS IN KIND. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash.
General Information
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of any efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee that the Fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
processing a large number of checks each month. Fees for special services will
not increase the expenses borne by the Fund.
Special procedures have been designed for banks and other institutions wishing
to open multiple accounts. An institution may open a single master account by
filing one application form with the Fund, signed by personnel authorized to act
for the institution. Individual sub-accounts may be opened at the time the
master account is filed by listing them, or instructions may be provided to the
Fund at a later date. These sub-accounts may be established by the institution
with registration either by name or number. The investment minimums applicable
to the Fund are applicable to each sub-account. The Fund will provide each
institution with a written confirmation for each transaction in a sub-account
and arrangements may be made at no additional charge for the transmittal of
duplicate confirmations to the beneficial owner of the sub-account.
The Fund will provide to each institution, on a quarterly basis or more
frequently if requested, a statement setting forth each sub-account's share
balance, income earned for the period, income earned for the year to date, and
total current market value.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share as of 3:00 p.m. Pacific time, each
day that the NYSE is open for trading. As of the date of this SAI, the Fund is
informed that the NYSE observes the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The valuation of the Fund's portfolio securities, including any securities held
in a separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method 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. While this method provides certainty in calculation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
Fund computed as described above may tend to be higher than a like computation
made by a fund with identical investments but utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from an
investment in a fund utilizing only market values, and existing investors in the
Fund would receive less investment income. The opposite would be true in a
period of rising interest rates.
The Fund's use of amortized cost, which helps the Fund maintain its Net Asset
Value per share of $1, is permitted by a rule adopted by the SEC. Under this
rule, the Fund must adhere to certain conditions. The Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and only buy
instruments having remaining maturities of 397 calendar days or less. The Fund
must also invest only in those U.S. dollar-denominated securities that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized rating services, or if
unrated are deemed comparable in quality, or are instruments issued by an issuer
that, with respect to an outstanding issue of short-term debt that is comparable
in priority and protection, has received a rating within the two highest rating
categories. Securities subject to floating or variable interest rates with
demand features that comply with applicable SEC rules may have stated maturities
in excess of one year.
The Board has established procedures designed to stabilize, to the extent
reasonably possible, the Fund's price per share at $1, as computed for the
purpose of sales and redemptions. These procedures include a review of the
Fund's holdings by the Board, at such intervals as it may deem appropriate, to
determine if the Fund's Net Asset Value calculated by using available market
quotations deviates from $1 per share based on amortized cost. The extent of any
deviation will be examined by the Board. If a deviation exceeds 1/2 of 1%, the
Board will promptly consider what action, if any, will be initiated. If the
Board determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, it will take
corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a Net Asset Value per share by using
available market quotations.
ADDITIONAL INFORMATION
ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund'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 Fund.
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities or from unrealized appreciation or
depreciation in the value of portfolio securities are required to maintain a $1
Net Asset Value per share and may result in under or over distributions of
investment company taxable income or net tax-exempt income.
The Fund may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. However, because under normal
circumstances the Fund's portfolio is composed of short-term securities, the
Fund does not expect to realize any long-term capital gains or losses. Any net
short-term or long-term capital gains that are realized by the Fund (adjusted
for any daily amounts of unrealized appreciation or depreciation and taking into
account any capital loss carryforward or post-October loss deferral) will
generally be distributed once each year and may be distributed more frequently
if necessary to avoid federal excise taxes. Any distributions of capital gain
will be reinvested in additional shares of the Fund at Net Asset Value, unless
you have previously elected to have them paid in cash.
If you withdraw the entire amount in your account at any time during a month,
all dividends accrued with respect to your account during that month up to the
time of withdrawal will be paid in the same manner and at the same time as your
withdrawal proceeds. You will receive a monthly summary of your account,
including information about dividends reinvested or paid.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, to the alternative
minimum tax on a portion of its tax-exempt income, and distributions (including
tax-exempt interest dividends) to shareholders will be taxable to the extent of
the Fund's available earnings and profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. The Fund intends, as a matter of policy,
to declare and pay these dividends, if any, in December to avoid the imposition
of this tax, but can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders subject to taxation, gain
or loss will be recognized in an amount equal to the difference between your
basis in the shares and the amount realized from the transaction, subject to the
rules described below. If you hold your shares as a capital asset, gain or loss
realized will be capital gain or loss and will be long-term for federal income
tax purposes if the shares have been held for more than one year. Since the Fund
attempts to maintain a stable $1 share price, however, you are not expected to
realize a capital gain or loss on the sale or exchange of Fund shares.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by a fund from direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by the fund. Investments in GNMA/FNMA securities, repurchase agreements
collateralized by U.S. government securities, and commercial paper do not
generally qualify for tax-free treatment. Investments in state and municipal
obligations of states other than your state of residence also generally do not
qualify for tax-free treatment. To the extent that such investments are made,
the Fund will provide you with the percentage of any dividends paid that may
qualify for such tax-free treatment at the end of each calendar year. You should
consult with your own tax advisor with respect to the application of your state
and local laws to these distributions and on the application of other state and
local laws on distributions and redemption proceeds received from the Fund.
If you are defined in the Code as a "substantial user" (or related person) of
facilities financed by private activity bonds, you should consult with your tax
advisor before buying shares of the Fund.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the Fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
For the fiscal years ended July 31, 1996 and 1997, Distributors received $1,571
and $0, respectively, in connection with redemptions or repurchases of shares of
the Fund.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the Fund. It
is calculated 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, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The Fund's current yield for the seven day period ended July 31, 1997,
was 3.05%.
EFFECTIVE YIELD. The Fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The Fund's effective yield for the
seven day period ended July 31, 1997, was 3.09%.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/7]-1
TAXABLE-EQUIVALENT YIELDS. The Fund may also quote a taxable-equivalent yield
and a taxable-equivalent effective yield that show the before-tax yield that
would have to be earned from a taxable investment to equal the Fund's yield.
These yields are computed by dividing the portion of the Fund's yield that is
tax-exempt by one minus the highest applicable federal income tax rate and
adding the product to the portion of the Fund's yield that is not tax-exempt, if
any. The Fund's taxable-equivalent yield based on the Fund's current yield for
the seven day period ended July 31, 1997, was 5.05%. The Fund's
taxable-equivalent effective yield based on the Fund's effective yield for the
seven day period ended July 31, 1997, was 5.12%.
As of July 31, 1997, the federal income tax rate upon which the Fund's
taxable-equivalent yield quotations are based was 39.6%. From time to time, as
any changes to the rate become effective, taxable-equivalent yield quotations
advertised by the Fund will be updated to reflect these changes. The Fund
expects updates may be necessary as tax rates are changed by the federal
government. The advantage of tax-free investments, like the Fund, will be
enhanced by any tax rate increases. Therefore, the details of specific tax
increases may be used in sales material for the Fund.
OTHER PERFORMANCE QUOTATIONS
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report(R) - industry averages for seven-day
annualized and compounded yields of taxable, tax-free, and government money
funds.
b) Bank Rate Monitor - a weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - a weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. CDs are
frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 49 years and
now services more than 2.8 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $223 billion in assets under
management for more than 5.7 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 121 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
From time to time advertisements or sales material issued by the Fund may
discuss or be based upon information in a recent issue of the Special Report on
Tax Freedom Day published by the Tax Foundation, a Washington, D.C. based
nonprofit research and public education organization. The report illustrates,
among other things, the annual amount of time the average taxpayer works to
satisfy his or her tax obligations to the federal, state and local taxing
authorities.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a Notice of Levy.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations must be sent to a compliance
officer and, within 10 days after the end of each calendar quarter, a report of
all securities transactions must be provided to the compliance officer; and
(iii) access persons involved in preparing and making investment decisions must,
in addition to (i) and (ii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or other
client transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended July 31, 1997, including the auditors'
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Directors of the Fund
CD - Certificate of deposit
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FITCH - Fitch Investors Service, Inc.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated December 1, 1997, as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
APPENDIX
DESCRIPTION OF RATINGS
MUNICIPAL BOND RATINGS
MOODY'S
AAA: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
BAA: Municipal bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
These bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.
BA: Municipal bonds rated Ba are judged to have predominantly speculative
elements and their future cannot be considered well assured. Often the
protection of interest and principal payments may be very moderate and, thereby,
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
CON.(-): Municipal bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon the
completion of construction or the elimination of the basis of the condition.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in a small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Municipal bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
FITCH
AAA: Municipal bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB: Municipal bonds rated BB are considered speculative. The obligor's ability
to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus signs
are not used with the AAA category.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, CDs, medium-term notes, and municipal and investment notes. The
short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
FRANKLIN TAX-EXEMPT MONEY FUND
File Nos. 2-72614
811-3193
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated July 31, 1997 as
filed with the SEC electronically on form type N-30D on October 10,
1997.
(i) Report of Independent Accountants
(ii) Statement of Investments in Securities and Net Assets -
July 31, 1997
(iii) Statement of Assets and Liabilities - July 31, 1997
(iv) Statement of Operations - for the year ended July 31,
1997
(v) Statements of Changes in Net Assets - for the years
ended July 31, 1997 and 1996
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are incorporated by reference herein, except
exhibits 8(iii), 11(i) and 27(i) which are attached.
(1) copies of the charter as now in effect;
(i) Articles of Incorporation dated March 17, 1980
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(ii) Certificate of Amendment to Articles of Incorporation dated
July 14, 1981
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws of Franklin Tax-Exempt Money Fund
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(ii) Amendment to By-Laws dated November 17, 1987
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the rights
of the holders of such securities, and copies of each security being
registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between Registrant and Franklin
Advisers, Inc. dated December 1, 1986
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(ii) Amendment to Management Agreement between Registrant and
Franklin Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 16 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: November 27, 1996
(6) copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of
all agreements between principal underwriters and dealers;
(i) Amended and Restated Distribution Agreement between Registrant
and Franklin/Templeton Distributors, Inc. dated April 23,
1995.
Filing: Post-Effective Amendment No. 16 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: November 27, 1996
(ii) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as such;
any such plan that is not set forth in a formal document, furnish a
reasonably detailed description thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and
similar investments of the Registrant, including the schedule of
remuneration;
(i) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 16 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: November 27, 1996
(ii) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 16 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: November 27, 1996
(iii) Amendment dated May 7, 1997 to the Master Custody Agreement
dated February 16, 1996 between Registrant and Bank of New
York
(9) copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part at
or after the date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when sold
be legally issued, fully paid and nonassessable;
Not Applicable
(11) copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this Registration
Statement and required by Section 7 of the 1933 Act;
(i) Consent of Independent Accountants
(12) all financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in consideration
for providing the initial capital between or among the Registrant,
the underwriter, advisor, promoter or initial stockholders and
written assurances from promoters or initial stockholders that
their purchases were made for investment purposes without any
present intention of redeeming or reselling;
(i) Letter of Understanding dated July 14, 1981
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers its
securities, any instructions thereto and any other documents making
up the model plan. Such form(s) should disclose the costs and fees
charged in connection therewith;
Not Applicable
(15) copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act, which describes all material aspects of
the financing of distribution of Registrant's shares, and any
agreements with any person relating to implementation of such plan.
Not Applicable
(16) schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 (which need not
be audited).
(i) Schedule for computation of performance quotation
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(17) Power of Attorney
(i) Power of Attorney dated September 18, 1995
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(ii) Certificate of Secretary dated September 18, 1995
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: September 29, 1995
(18) Copies of any plan entered into by Registrant pursuant to Rule
18f-3 under the 1940 Act.
Not Applicable
(27) Financial Data Schedule
(i) Financial Data Schedule
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of August 31, 1997, the number of record holders of the only class of
securities of the Registrant were as follows:
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Common Stock 11,345
ITEM 27 INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Please see the By-Laws, Management, and Distribution Agreements previously filed
as exhibits and incorporated herein by reference.
Notwithstanding the provisions contained in the Registrant's By-Laws, in the
absence of authorization by the appropriate court on the merits pursuant to said
By-Laws, any indemnification under said By-Laws shall be made by Registrant only
if authorized in the manner provided by such By-Laws.
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The officers and directors of the Registrant's investment advisor also serve as
officers and/or directors or trustees for (1) the advisor's corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the Franklin
Templeton Group of Funds. In addition, Mr. Charles B. Johnson is a director of
General Host Corporation. For additional information please see Part B and
Schedules A and D of Form ADV of the Fund's investment advisor (SEC File
801-26292), incorporated herein by reference, which sets forth the officers and
directors of the investment advisor and information as to any business,
profession, vocation or employment of a substantial nature engaged in by those
officers and directors during the past two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc. Franklin Equity Fund Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund Franklin Floating Rate Trust Franklin Gold
Fund Franklin High Income Trust Franklin Investors Securities Trust Franklin
Managed Trust Franklin Money Fund Franklin Municipal Securities Trust Franklin
Mutual Series Fund Inc. Franklin New York Tax-Free Income Fund Franklin New York
Tax-Free Trust Franklin Real Estate Securities Trust Franklin Strategic Mortgage
Portfolio Franklin Strategic Series Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Annuity Fund
Templeton Variable Products Series Fund
b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this N-1A and
Schedule A of Form BD filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File No.8-5889)
c) Not Applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA 94404-1585.
ITEM 31 MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32 UNDERTAKINGS
(a) The Registrant hereby undertakes to promptly call a meeting of shareholders
for the purpose of voting upon the question of removal of any director or
directors when requested in writing to do so by the recordholders of not less
than 10 percent of the Registrant's outstanding shares and to assist its
shareholders in communicating with other shareholders in accordance with the
requirements of Section 16(c) of the Investment Company Act of 1940.
(b) The Registrant hereby undertakes to comply with the information requirement
in Item 5A of the Form N-1A by including the required information in the Fund's
annual report and to furnish each person to whom a prospectus is delivered a
copy of the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Mateo and the State of California, on the 25th day
of November, 1997.
FRANKLIN TAX-EXEMPT MONEY FUND
(Registrant)
By: RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
RUPERT H. JOHNSON, JR.* Principal Executive Officer
Rupert H. Johnson, Jr. and Director
Dated: November 25, 1997
CHARLES B. JOHNSON* Director
Charles B. Johnson Dated: November 25, 1997
FRANK H. ABBOTT, III* Director
Frank H. Abbott, III Dated: November 25, 1997
HARRIS J. ASHTON* Director
Harris J. Ashton Dated: November 25, 1997
S. JOSEPH FORTUNATO* Director
S. Joseph Fortunato Dated: November 25, 1997
FRANK W.T. LAHAYE* Director
Frank W.T. LaHaye Dated: November 25, 1997
GORDON MACKLIN* Director
Gordon Macklin Dated: November 25, 1997
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: November 25, 1997
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: November 25, 1997
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
FRANKLIN TAX-EXEMPT MONEY FUND
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Articles of Incorporation dated *
March 17, 1980
EX-99.B1(ii) Certificate of Amendment to *
Articles of Incorporation dated
July 14, 1981
EX-99.B2(i) By-Laws *
EX-99.B2(ii) Amendment to By-Laws dated November *
17, 1987
EX-99.B5(i) Management Agreement between *
Registrant and Franklin Advisers,
Inc. dated December 1, 1986
EX-99.B5(ii) Amendment dated August 1, 1995 to *
Management Agreement between
Registrant and Franklin Advisers, Inc.
EX-99.B6(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors,
Inc. dated April 23, 1995
EX-99.B6(ii) Forms of Dealer Agreements between *
Franklin/Templeton Distributors,
Inc. and Securities Dealers
EX-9.B8(i) Master Custody Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(ii) Terminal Link Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(iii) Amendment dated May 7, 1997 Attached
to the Master Custody Agreement
dated February 16, 1996 between
Registrant and Bank of New York
EX-99.B11(i) Consent of Independent Accountants Attached
EX-99.B13(i) Letter of Understanding dated July *
14, 1981
EX-99.B16(i) Schedule for computation of *
performance quotation
EX-99.B17(i) Power of Attorney dated September *
18, 1995
EX-99.B17(ii) Certificate of Secretary dated *
September 18, 1995
EX-27.B(i) Financial Data Schedule Attached
* Incorporated by Reference
AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.
It is hereby agreed as follows:
A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as modified
hereby, the Agreement is confirmed in all respects. Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Agreement.
B. The Agreement shall be amended to add a new Section 4. 1 0 as
follows:
4.10 ADDITIONAL DUTIES WITH RESPECT TO RUSSIAN SECURITIES.
(a) Upon 3 business days prior written notice from a Fund that
it will invest in any security issued by a Russian issuer ("Russian Security"),
the Custodian shall to the extent required and in accordance with the terms of
the Subcustodian Agreement between the Custodian and Credit Suisse ("Foreign
Custodian") dated as of August 8, 1996 (the "Subcustodian Agreement") direct the
Foreign Custodian to enter into a contract ("Registrar Contract") with the
entity providing share registration services to the Russian issuer ("Registrar")
containing substantially the following protective provisions:
(1) REGULAR SHARE CONFIRMATIONS. Each Registrar Contract
must establish the Foreign Custodian's right to conduct regular share
confirmations on behalf of the Foreign Custodian's customers.
(2) PROMPT RE-REGISTRATIONS. Registrars must be obligated
to effect re-registrations within 72 hours (or such other specified time as the
United States Securities and Exchange Commission (the "SEC") may deem
appropriate by rule, regulation, order or "no-action" letter) of receiving the
necessary documentation.
(3) USE OF NOMINEE NAME. The Registrar Contract must
establish the Foreign Custodian's right to hold shares not held directly in the
beneficial owner's name in the name of the Foreign Custodian's nominee.
(4) AUDITOR VERIFICATION. The Registrar Contract must allow
the independent auditors of the Custodian and the Custodian's clients to obtain
direct access to the share register for the independent auditors of each of the
Foreign Custodian's clients.
(5) SPECIFICATION OF REGISTRAR'S RESPONSIBILITIES AND
LIABILITIES. The contract must set forth: (1) the Registrar's responsibilities
with regard to corporate actions and other distributions; (ii) the Registrar's
liabilities as established under the regulations applicable to the Russian share
registration -system and (iii) the procedures for making a claim against and
receiving compensation from the registrar in the event a loss is incurred.
(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share confirmations,
which shall require the Foreign Custodian to (1) request either a duplicate
share extract or some other sufficient evidence of verification and (2)
determine if the Foreign Custodian's records correlate with those of the
Registrar. For at least the first two years following the Foreign Custodian's
first use of a Registrar in connection with a Fund investment, and subject to
the cooperation of the Registrar, the Foreign Custodian will conduct these share
confirmations on at least a quarterly basis, although thereafter they may be
conducted on a less frequent basis, but no less frequently than annually, if the
Fund's Board of Directors, in consultation with the Custodian, determine it
appropriate.
(c) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Subcustodian to maintain custody of the Fund's share
register extracts or other evidence of verification obtained pursuant to
paragraph (b) above.
(d) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Foreign Custodian to comply with the rules, regulations,
orders and "no-action" letters of the SEC with respect to
(1) the receipt, holding, maintenance, release and delivery
of Securities; and
(2) providing notice to the Fund and its Board of Directors
of events specified in such rules, regulations, orders and letters.
(e) The Custodian shall have no liability for the action or
inaction of any Registrar or securities depository utilized in connection with
Russian Securities except to the extent that any such action or inaction was the
result of the Custodian's negligence. With respect to any costs, expenses,
damages, liabilities or claims, including attorneys' and accountants' fees
(collectively, "Losses") incurred by a Fund as a result of the acts or the
failure to act by any Foreign Custodian or its subsidiary in Russia
("Subsidiary"), the Custodian shall take appropriate action to recover such
Losses from the Foreign Custodian or Subsidiary. The Custodian's sole
responsibility and liability to a Fund with respect to any Losses shall be
limited to amounts so received from the Foreign Custodian or Subsidiary
(exclusive of costs and expenses incurred by the Custodian) except to the extent
that such losses were the result of the Custodian's negligence.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE BANK OF NEW YORK
By:/s/ Stephen E. Grunston
Name: STEPHEN E. GRUNSTON
Title: Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT
By:/s/ Deborah R. Gatzek
Name: Deborah R. Gatzek
Title: Vice President
By:/s/ Karen L. Skidmore
Name: Karen L. Skidmore
Title: Assistant Vice President
Amendment to Master Custody Agreement
The Bank of New York and Templeton Variable Products Series Fund, for itself and
on behalf of its series, hereby amend Schedule A of the Master Custody Agreement
dated as of February 16, 1996, to add the series listed below:
REGISTERED INVESTMENT COMPANY SERIES
Templeton Variable Products Series Fund Franklin Growth Investments Fund
Dated as of: May 1, 1997
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
By: /s/ Karen L. Skidmore
Title: Asst. Vice President &
Asst. Secretary
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
Title: Vice President
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 17
to the Registration Statement of Franklin Tax-Exempt Money Fund on Form N-1A
File No.2-72614 of our report dated September 2, 1997 on our audit of the
financial statements and financial highlights of Franklin Tax-Exempt Money Fund,
which report is included in the Annual Report to Shareholders for the year ended
July 31, 1997, which is incorporated by reference in the Registration Statement.
COOPERS & LYBRAND L.L.P.
San Francisco, California
November 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN
TAX-EXEMPT MONEY FUND JULY 31, 1997, ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 160,887,484
<INVESTMENTS-AT-VALUE> 160,887,484
<RECEIVABLES> 1,144,621
<ASSETS-OTHER> 57,704
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162,089,809
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,052,018
<TOTAL-LIABILITIES> 1,052,018
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 161,037,791
<SHARES-COMMON-PRIOR> 166,713,447
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,720,328
<OTHER-INCOME> 0
<EXPENSES-NET> (1,045,644)
<NET-INVESTMENT-INCOME> 4,674,684
<REALIZED-GAINS-CURRENT> (1,844)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,672,840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,672,840)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 264,112,919
<NUMBER-OF-SHARES-REDEEMED> (274,452,392)
<SHARES-REINVESTED> 4,663,817
<NET-CHANGE-IN-ASSETS> (5,675,656)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 928,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,372,806
<AVERAGE-NET-ASSETS> 160,741,059
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> (.029)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .650
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
