As filed with the Securities and Exchange Commission on September 30, 1998.
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. 18 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 (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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on December 1, 1998 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:
Franklin Tax-Exempt Money Fund
FRANKLIN TAX-EXEMPT MONEY FUND
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Goals and Strategies; Main Risks;
Investments, Risks, and Performance
Performance
3. Risk/Return Summary: Fees and Expenses
Fee Table
4. Investment Objectives, Goals and Strategies; Main Risks
Principal Investment
Strategies, and Related Risks
5. Management's Discussion of Not Applicable
Fund Performance
6. Management, Organization, and Management; Questions
Capital Structure
7. Shareholder Information Distributions and Taxes; Buying
Shares; Investor Services;
Selling Shares; Account
Policies;
8. Distribution Arrangements Not Applicable
9. Financial Highlights Financial Highlights
Information
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 and Table Cover Page
of Contents
11. Fund History Organization, Voting Rights and
Principal Holders
12. Description of the Fund and Its Goals and Strategies;
Investments and Risks Organization, Voting Rights and
Principal Holders
13. Management of the Fund Officers and Directors
14. Control Persons and Principal Organization, Voting Rights and
Holders of Securities Principal Holders
15. Investment Advisory and Other Officers and Directors;
Services Management and Other Services;
The Fund's Underwriter
16. Brokerage Allocation and Other Portfolio Transactions
Practices
17. Capital Stock and Other Organization, Voting Rights and
Securities Principal Holders
18. Purchase, Redemption and Buying and Selling Shares;
Pricing of Shares Pricing Shares
19. Taxation of the Fund Distributions and Taxes
20. Underwriters The Fund's Underwriter
21. Calculation of Performance Data Performance
22. Financial Statements Cover Page
Prospectus & Application
FRANKLIN
TAX-EXEMPT
MONEY FUND
INVESTMENT STRATEGY TAX-FREE INCOME
DECEMBER 1, 1998
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Contents
The Fund
- ------------------------------------------------------------------------------
Information about the fund you should know before investing
2 Goals and Strategies
3 Main Risks
4 Performance
5 Fees and Expenses
6 Management
6 Distributions and Taxes
8 Financial Highlights
- ------------------------------------------------------------------------------
Your Account
Information about account transactions and services
9 Buying Shares
11 Investor Services
13 Selling Shares
16 Account Policies
17 Questions
For More Information
- ------------------------------------------------------------------------------
Where to learn more about the fund
Back Cover
THE FUND
[CLIP ART - BLUEPRINT] GOALS AND STRATEGIES
GOALS The fund's goal is high current income free from federal income taxes,
consistent with liquidity and capital preservation. The fund also tries to
maintain a stable $1 share price.
PRINCIPAL INVESTMENTS The fund normally invests in high-quality, short-term
municipal securities whose interest is free from federal income taxes,
including the federal alternative minimum tax. Although the fund tries to
invest all of its assets in tax-free securities, it is possible, although not
anticipated, that up to 20% of its assets may be in securities that pay
taxable interest. The fund may invest more than 25% of its assets in
municipal securities that finance similar types of projects, such as hospitals,
housing, industrial development, transportation or pollution control.
[BEGIN CALL OUT BOX]
MUNICIPAL SECURITIES are issued by state and local governments, their
agencies and authorities, as well as by the District of Columbia and U.S.
territories and possessions, to borrow money for various public and private
projects. The issuer pays a fixed or variable rate of interest, and must
repay the amount borrowed ("the principal") at maturity.
[END CALL OUT BOX]
The fund maintains a dollar-weighted average portfolio maturity of 90 days or
less and only buys securities:
o with remaining maturities of 397 days or less,
and
o that the manager determines present minimal
credit risks and are rated in the top two ratings
(or comparable unrated securities) .
The fund may invest a large amount of its assets in variable and floating rate
securities, whose interest rates change either at specific intervals or whenever
a benchmark rate changes. While this feature helps protect against a decline in
the security's market price when interest rates go up, it lowers the fund's
income when interest rates fall.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes unusual or adverse economic, market or other conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goals, because it will not invest or will invest less in tax-free
securities.
[CLIP ART - ARROWS] MAIN RISKS
INCOME RISK is the risk that the fund's income will decrease due to falling
interest rates. Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall. Since
the fund limits its investments to high-quality, short-term securities, its
portfolio will generally earn lower yields than a portfolio with
lower-quality, longer-term securities subject to more risk.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value. Even securities
supported by credit enhancements have the credit risk of the entity providing
the credit support. Credit support provided by a foreign entity may be less
certain because of the possibility of adverse foreign economic, political or
legal developments that may affect the ability of that entity to meet its
obligations. The fund's ability to maintain a stable share price may depend on
these credit supports, which are not backed by federal deposit insurance.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. When interest rates go up, municipal security prices
fall. The opposite is also true: municipal security prices go up when
interest rates fall.
[BEGIN CALL OUT BOX]
Mutual fund shares 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. Although the fund tries to maintain a $1 share price, it is
possible to lose money by investing in the fund.
[END CALL OUT BOX]
MARKET RISK is the risk that a security's value will be reduced by market
activity or the results of supply and demand. This is a basic risk associated
with all securities. When there are more sellers than buyers, prices tend to
fall. Likewise, when there are more buyers than sellers, prices tend to
go up.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS Many of the fund's securities
are issued on a when-issued or delayed delivery basis, where payment and
delivery take place at a future date. Since the market price of the security
may fluctuate during the time before payment and delivery, the fund assumes
the risk that the value of the security at delivery may be more or less than
the purchase price.
[CLIP ART - MARKET BEAR & MARKET BULL] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 10 years. The
table shows the fund's average annual total returns. Of course, past
performance cannot predict or guarantee future results.
ANNUAL TOTAL RETURNS (1)
[THE FOLLOWING INFORMATION WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED
MATERIALS.]
YEAR 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------
5.00% 5.99% 5.66% 3.99% 2.47% 1.91% 2.18% 3.16% 2.84% 3.03%
- --------------
Best quarter:
Q2 '89
1.50%
Worst
quarter:
Q1 '94
0.41%
- --------------
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997
1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------------------
Franklin Tax-Exempt Money 3.02% 2.62% 3.61%
Fund
(1) As of September 30, 1998, the fund's year-to-date return was xx%.
All fund performance assumes reinvestment of dividends.
To obtain the fund's current yield information, please call 1-800/ DIAL BEN.
[CLIP ART - ACCOUNTANT] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund. It is based on the fund's expenses for the fiscal
year ended July 31, 1998.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases None
Exchange fee (1) None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Management fees(2) 0.58%
Distribution and service (12b-1) fees None
Other expenses 0.25%
----------
Total annual fund operating expenses (2) 0.83%
==========
(1) There is a $5 fee for each exchange by a market timer (see page 16).
(2) For the period shown, the manager had agreed in advance to limit its
management fees. With this reduction, management fees were 0.40% and total
annual fund operating expenses were 0.65%. The manager may end this
arrangement at any time upon notice to the fund's Board of Directors.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------
$85 $265 $460 $1,025
[CLIP ART - WRITERS] MANAGEMENT
Franklin Advisers, Inc. (Advisers) is the fund's investment manager.
Together, Advisers and its affiliates manage over $236 billion in assets (as
of June 30, 1998).
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended July 31, 1998, management
fees, before any advance waiver, were 0.58% of the fund's average daily net
assets. Under an agreement by the manager to limit its fees, the fund paid
0.40% of its average daily net assets to the manager. The manager may end
this arrangement at any time upon notice to the fund's Board of Directors.
YEAR 2000 ISSUE Like other mutual funds, the fund could be adversely
affected if the computer systems used by the manager and other service
providers do not properly process date-related information on or after
January 1, 2000 (Year 2000 Issue).
The Year 2000 Issue could affect portfolio and operational areas including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions, and
others.
While the Year 2000 Issue could have a negative effect on the fund, the
manager and its affiliated service providers are taking steps that they
believe are reasonably designed to address the Year 2000 Issue, including
seeking reasonable assurances from the fund's other major service providers.
[CLIP ART - HANDGIVE] DISTRIBUTIONS AND TAXES
INCOME DISTRIBUTIONS The fund typically pays income dividends each day that
its net asset value is calculated to shareholders of record as of the close
of business the day before. The amount of these dividends will vary and there
is no guarantee the fund will pay dividends.
TAX CONSIDERATIONS Fund distributions will consist primarily of
exempt-interest dividends from interest earned on municipal securities. In
general, exempt-interest dividends are free from federal income tax. The fund
may, however, invest a portion of its assets in securities that pay taxable
interest. Fund distributions from such taxable interest are taxable to you as
ordinary income. This is true whether you reinvest your distributions in
additional shares of the fund or receive them in cash.
[BEGIN CALL OUT BOX]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
[END CALL OUT BOX]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
Since the fund expects to maintain a stable $1 share price, you should not have
any gain or loss if you sell your fund shares. For tax purposes, an exchange
of your fund shares for shares of a different Franklin Templeton Fund is the
same as a sale.
Exempt-interest dividends are taken into account when determining the taxable
portion of social security or railroad retirement benefits. The fund may
invest a portion of its assets in private activity bonds whose income is a
preference item when determining alternative minimum tax.
Exempt-interest dividends from interest earned on municipal securities of a
state, or its political subdivisions, generally will be free from that
state's personal income taxes. States do not grant tax-free treatment to
interest from municipal securities of other states. Ordinary income
distributions will generally be subject to state and local income tax.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You
should consult your tax professional about federal, state, local or foreign
tax consequences.
For more information, please call 1-800/DIAL BEN to request a free copy of
the Franklin Templeton Tax Information Handbook.
[CLIP ART - DOLLAR] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED JULY 31,
1998 1997 1996 1995 1994
---------------------------------
PER SHARE DATA ($)
Net asset value, 1.00 1.00 1.00 1.00 1.00
beginning of year
----------------------------------
Net investment income .029 .029 .029 .029 .02
Distributions from net (.029) (.029) (.02) (.029) (.029)
investment income
----------------------------------
Net asset value, end of 1.00 1.00 1.00 1.00 1.00
year
==================================
Total return (%)(1) 2.99 2.94 2.93 2.98 1.85
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 164,525 161,038 166,713 173,123 202,883
($ x 1,000)
Ratios to average net
assets: (%)
Expenses 0.65 0.65 0.65 0.65 0.65
Expenses excluding
waiver and payments by 0.83 0.80 0.81 0.78 0.87
affiliate
Net investment income 2.94 2.91 2.88 2.65 1.84
(1) Total return is not annualized.
Your Account
- ---------------------------
[CLIP ART - CASHIER] BUYING SHARES
The first step is to determine the amount you want to invest.
MINIMUM INVESTMENTS
INITIAL ADDITIONAL
Regular accounts $1,000 $50
- --------------------------------------------------------
UGMA/UTMA accounts $100 $50
- --------------------------------------------------------
Broker-dealer sponsored wrap $250 $50
account programs
- --------------------------------------------------------
Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their $100 $50
immediate family members
Many of the fund's investments must be paid for in federal funds, which are
monies held by the fund's custodian on deposit at the Federal Reserve Bank of
San Francisco and elsewhere. The fund generally cannot invest money it
receives from you until it is available to the fund in federal funds, which
may take up to two days. Until then, your purchase may not be considered in
proper form. 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.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see page 11).
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN
ACCOUNT
[CLIP ART -
BUSINESS DEAL]
Contact your Contact your
THROUGH YOUR investment investment
INVESTMENT representative representative
REPRESENTATIVE
- -----------------------------------------------------------
Make your check, Make your check
[CLIP ART - Federal payable to
ENVELOPES] Reserve Draft or Franklin
negotiable bank Tax-Exempt Money
BY MAIL draft payable to Fund. Include
Franklin Tax- your account
Exempt Money Fund. number on the
Instruments check.
drawn on other
mutual funds may Fill out the
not be accepted. deposit slip from
your account
Mail the check or statement or
draft and your checkbook. If you
signed application do not have a
to Investor slip, include a
Services. note with your
name, the fund
name, and your
account number.
Mail the check
and deposit slip
or note to
Investor Services.
- -----------------------------------------------------------
Call to receive a Call to receive a
[CLIP ART - SOUND wire control wire control
WAVES] number and wire number and wire
instructions. instructions.
BY WIRE
Wire the funds to Wire the funds to
1-800/632-2301 Bank of Bank of America,
(or America, ABA ABA routing
1-650/312-2000 routing number number 121000358,
collect) 121000358, for for credit to
credit to Franklin Franklin
To make a same Tax-Exempt Money Tax-Exempt Money
day wire Fund, A/C Fund, A/C
investment, 1493-3-04779. Your 1493-3-04779.
please make sure name and Your name and
we receive your wire control number wire control
order by 3:00 must be number must be
p.m. pacific time. included. included.
Mail your signed
application to
Investor Services.
Please include the
wire control number
or your new account
number on the
application.
- -----------------------------------------------------------
[CLIP ART - Call Shareholder Call Shareholder
ARROWS] Services at the Services at the
number below, or number below or
BY EXCHANGE send signed written our automated
instructions. The TeleFACTS system,
TeleFACTS system or send signed
TeleFACTS(R) cannot be used to written
1-800/247-1753 open a new account. instructions.
(around-the-
clock access) (Please see page 12
for information on (Please see page
exchanges.) 12 for
information on
exchanges.)
- ------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX
7777, SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301 (MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M.,
PACIFIC TIME)
[CLIP ART - HANDSHAKE] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. The minimum investment to open an
account with an automatic investment plan is $50.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in the
fund by transferring money from your paycheck to the fund by electronic funds
transfer. If you are interested, indicate on your application that you would
like to receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest your distributions in the fund or in
the same share class of another Franklin Templeton Fund. Any Initial sales
charges or CDSCs will not apply if you reinvest your distributions within 365
days. You can also have your distributions deposited in a bank account, or
mailed by check. Deposits to a bank account may be made by electronic funds
transfer.
[BEGIN CALL OUT BOX]
TELEFACTS(R)
Our TeleFACTS system offers around-the-clock access to information about your
account or any Franklin Templeton Fund. This service is available from
touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure,
call 1-800/DIAL BEN.
[END CALL OUT BOX]
Please indicate on your application the distribution option you have chosen,
otherwise we will automatically reinvest your distributions in the fund. If
you choose not to reinvest your distributions in the fund, the fund will
distribute distributions paid during the month as directed on the last
business day of each month.
CHECK WRITING PRIVILEGES You may request redemption drafts (checks) free of
charge on your account application or, for an existing account, by calling
our TeleFACTs system. Check writing privileges allow you to write checks
against your account and are available unless you hold share certificates.
For security reasons and reasons related to the requirements of check
processing systems, 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 the payee.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*. The fund's shares are considered Class I shares
for exchange and other purposes. The initial sales charge of the fund you
exchange into will apply unless you acquired your fund shares by exchange or
you otherwise qualify to buy shares without an initial sales charge.
[BEGIN CALL OUT BOX]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges. Exchanges also have the same tax consequences as ordinary
sales and purchases.
[END CALL OUT BOX]
Exchanges may only be made between identically registered accounts, unless
you send written instructions with a signature guarantee
Frequent exchanges can interfere with fund management and drive up costs for
all shareholders. To protect shareholders, there are limits on the number and
amount of exchanges you may make (please see Market timers on page 16 ).
*Advisor Class shareholders of other Franklin Templeton Funds and certain
Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
the fund. These shareholders may later exchange their fund shares for Advisor
Class shares of another fund, if they otherwise qualify to buy Advisor Class
shares.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, please call Investor Services at 1-800/632-2301.
[CLIP ART - BROKER] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell less than $50,000 can generally
be made over the phone or with a simple letter. Sometimes, however, to
protect you and the fund we will need written instructions signed by all
registered owners, with a signature guarantee for each owner, if:
o you are selling more than $50,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
o you have changed the address on your account by phone within the last 15
days
We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
[BEGIN CALL OUT BOX]
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[END CALL OUT BOX]
SELLING SHARES BY CHECK For accounts with check writing privileges, you may
make checks payable to any person and for any amount of $100 or more. Since
you will not know the exact amount in your account on the day a check clears,
a check should not be used to close your account.
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. The shares will be
redeemed at the net asset value next determined after we receive the check,
as long as the check 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.
The checks are drawn through Bank of America NT & SA. Bank of America may end
this service at any time upon notice to you. You generally will 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. Since the fund is not a bank, the fund
cannot assure that a stop payment order you write will be effective. The fund
will use its best efforts, however, to see that these orders are carried out.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
CONTINGENT DEFERRED SALES CHARGE (CDSC) Most Franklin Templeton Funds impose
a 1% CDSC on certain Class I shares sold with 12 months of purchase. While
the fund generally does not have a CDSC, it will impose one if you sell
shares exchanged into the fund from another Franklin Templeton Fund and those
shares would have been assessed a CDSC in the other fund. Please keep in mind
that the time the shares are held in the Franklin Tax-Exempt Money Fund does
not count towards the CDSC holding period.
The CDSC is based on the current value of the shares being sold or their net
asset value when purchased, whichever is less. To keep your CDSC as low as
possible, we will first sell any shares in your account that are not subject
to a CDSC. If there are not enough of these to meet your request, we will
sell the shares in the order they were purchased.
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
[CLIP ART -
BUSINESS DEAL]
Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- -------------------------------------------------------------
[CLIP ART - Send written instructions and endorsed
ENVELOPES] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or trust
accounts may need to send additional
documents.
Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. Be sure to
include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
- -------------------------------------------------------------
[CLIP ART - As long as your transaction is for
TELEPHONE] $50,000 or less, you do not hold share
certificates and you have not changed
BY PHONE your address by phone within the last
15 days, you can sell your shares by
1-800/632-2301 phone.
A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature
guarantee, are required to send the
check to another address or to make it
payable to another person.
- -------------------------------------------------------------
[CLIP ART - SOUND You can call or write to have
WAVES] redemption proceeds of $1,000 or more
wired to a bank or escrow account. See
the policies above for selling shares
by mail or phone.
BY WIRE Before requesting a wire, please make
sure we have your bank account
information on file. If we do not have
this information, you will need to
send written instructions with your
bank's name and address, your bank
account number, the ABA routing
number, and a signature guarantee.
Requests received in proper form by
3:00 p.m. pacific time will be wired
the next business day. Requests
received in proper form by 9:00 a.m.
pacific time may be wired to an escrow
account the same day.
- -------------------------------------------------------------
[CLIP ART - ARROWS] Obtain a current prospectus for the
fund you are considering.
BY EXCHANGE
Call Shareholder Services at the
TeleFACTS number below or our automated
1-800/247-1753 TeleFACTS(R) system, or send signed
(around-the-clock written instructions. See the policies
access) above for selling shares by mail or
phone.
If you hold share certificates, you
will need to return them to the fund
before your exchange can be processed.
- -------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX
7777, SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301 (MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M.,
PACIFIC TIME)
[CLIP ART - CERTIFICATE] ACCOUNT POLICIES
CALCULATING SHARE PRICE When you buy and sell fund shares, you pay the net
asset value (NAV) per share. The fund calculates its NAV per share at 3:00
p.m. pacific time, each day the New York Stock Exchange is open, by dividing
its net assets by the number of shares outstanding. The fund's assets are
generally valued at their amortized cost.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee and UGMA/UTMA accounts) because you sell some of your
shares, we may mail you a notice asking you to bring the account back up to
its applicable minimum investment amount. If you choose not to do so within
30 days, we may close your account and mail the proceeds to the address of
record.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's
financial reports every six months. To reduce fund expenses, we try to
identify related shareholders in a household and send only one copy of the
financial reports. If you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and
other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5.00. You will be
considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (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.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase under
the exchange privilege.
o At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o If you buy shares with a check or draft that is returned to the fund
unpaid, the fund may impose a $10 charge against your account for each
returned item.
o When you buy shares, it does not create a checking or other bank account
relationship with the fund or any bank.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check would be harmful to existing
shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
[CLIP ART - QUESTION]
QUESTIONS
More detailed information about the fund and its policies can be found in the
fund's Statement of Additional Information (SAI). If you have any questions
about the fund or your account, you can write to us at 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You can also call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE MONDAY THROUGH FRIDAY)
NUMBER
- -------------------------------------------------------------
Shareholder 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Services
Fund Information 1-800/ DIAL BEN 5:30 a.m. to 8:00 p.m.
6:30 a.m. to 2:30 p.m.
(1-800/342-5236) (Saturday)
Retirement Plan 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Services
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file # 811-3193
Lit. Code #
FRANKLIN
TAX-EXEMPT
MONEY FUND
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
DECEMBER 1, 1998 SAN MATEO, CA 94403-7777 1-800/DIAL BEN(R)
- ---------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated December 1, 1998, which we may amend from time
to time, contains the basic information you should know before investing in
the fund. You should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended July 31, 1998, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals and Strategies
Officers and Directors
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Fund's Underwriter
Performance
Miscellaneous Information
Description of Ratings for Municipal Securities
- ------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------
GOALS AND STRATEGIES
- ------------------------------------------------------------------------------
The fund's goal is high current income free from federal income taxes,
consistent with liquidity and capital preservation. This goal is fundamental,
which means it may not be changed without shareholder approval. Of course, there
is no assurance that the fund will meet its goal. The fund also tries to
maintain a stable $1 share price. Except as noted, the fund's investment
policies discussed in this SAI are fundamental and may not be changed without
shareholder approval.
As a fundamental policy, the fund normally invests at least 80% of its assets
in securities that pay interest free from federal income taxes, including the
federal alternative minimum tax. As a nonfundamental policy, the fund tries
to invest all of its assets in tax-free municipal securities. The issuer's
bond counsel generally gives the issuer an opinion on the tax-exempt status
of a municipal security when the security is issued.
Below is a description of various types of municipal and other securities
that the fund may buy. Other types of municipal securities may become
available that are similar to those described below and in which the fund may
also invest, if consistent with its investment goal and policies.
TAX ANTICIPATION NOTES are issued to finance short-term working capital needs
of municipalities 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 are similar to tax anticipation notes except they
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 are normally issued to provide interim financing
until long-term financing can be arranged. Proceeds from long-term bond
issues then provide the money for the repayment of the notes.
CONSTRUCTION LOAN NOTES are issued 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 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 meet longer-term capital needs and generally have maturities
from one to 30 years when issued. They have two principal classifications:
general obligation bonds and revenue bonds.
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.
REVENUE BONDS. The full faith, credit and taxing power of the issuer do not
secure revenue bonds. Instead, 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. Some authorities have 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 are issued by or on behalf of
public authorities to finance various privately operated facilities for
business, manufacturing, housing, sports and pollution control, as well as
public facilities such as airports, mass transit systems, ports and parking.
The payment of principal and interest 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.
VARIABLE OR FLOATING RATE SECURITIES The fund may invest in variable or
floating rate securities, including variable rate demand notes, which have
interest rates that change either at specific intervals (variable rate), from
daily up to monthly, or whenever a benchmark rate changes (floating rate).
The interest rate adjustments are designed to help stabilize the security's
price. Variable or floating rate securities may include a demand feature,
which may be unconditional. The demand feature allows the holder to demand
prepayment of the principal amount before maturity, generally on no more than
30 days' notice. The holder receives the principal amount plus any accrued
interest either from the issuer or by drawing on a bank letter of credit, a
guarantee or insurance issued with respect to the security.
The fund's investment in variable or floating rate securities is subject to
certain rules under federal securities laws on the quality and maturity of
the securities and to procedures adopted by the fund's Board of Directors and
designed to minimize credit risks. The fund may invest in variable or
floating rate securities with stated maturities of more than one year, if the
securities carry demand features that comply with certain conditions and
rules. The policies in this paragraph are not fundamental.
MUNICIPAL LEASE OBLIGATIONS The fund may invest in municipal lease
obligations, including certificates of participation. Municipal lease
obligations finance the purchase of public property. The property is leased
to the state or a local government, and the lease payments are used to pay
the interest on the obligations. Municipal lease obligations differ from
other municipal securities because the lessee's governing body must set aside
the money to make the lease payments each year. If the money is not set
aside, the issuer or the lessee can end the lease without penalty. If the
lease is cancelled, investors who own the municipal lease obligations may not
be paid.
The fund's Board of Directors reviews the fund's municipal lease obligations
to assure that they are liquid investments based on various factors reviewed
by the fund's manager 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 comparable in quality to the ratings required for the
fund to invest, including an assessment of the likelihood of the lease being
canceled, taking into account how essential the leased property is and the
term of the lease compared to the useful life of the leased property; (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. The policies in this paragraph are not
fundamental.
Since annual appropriations are required to make lease payments, municipal
lease obligations generally are not subject to constitutional limitations on
the issuance of debt and may allow an issuer to increase government
liabilities beyond constitutional debt limits. When faced with increasingly
tight budgets, local governments have more discretion to curtail lease
payments under a municipal lease obligation than they do to curtail payments
on other municipal securities. If not enough money is appropriated to make
the lease payments, the leased property may be repossessed as security for
holders of the municipal lease obligations. If this happens, there is no
assurance that the property's private sector or re-leasing value will be
enough to make all outstanding payments on the municipal lease obligations or
that the payments will continue to be tax-free.
While cancellation risk is inherent to municipal lease obligations, the fund
believes that this risk may be reduced, although not eliminated, by its
policies on the quality of securities in which it may invest.
CALLABLE BONDS The fund may invest in callable bonds, which allow the issuer
to repay some or all of the bonds ahead of schedule. If a bond is called, the
fund will receive the principal amount, the accrued interest, and a small
additional payment as a call premium. The manager may sell a callable bond
before its call date, if it believes the bond is at its maximum premium
potential.
An issuer is more likely to call its bonds when interest rates are falling,
because the issuer can issue new bonds with lower interest payments. If a
bond is called, the fund may have to replace it with a lower-yielding
security. A call of some or all of these securities may lower the fund's
income and its distributions to shareholders. If the fund originally paid a
premium for the bond because it had appreciated in value from its original
issue price, the fund also may not be able to recover the full amount it paid
for the bond. One way for the fund to protect itself from call risk is to buy
bonds with call protection. Call protection is an assurance that the bond
will not be called for a specific time period, typically five to 10 years
from when the bond is issued.
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 impact the fund's net asset value. Based on a number of factors,
including certain portfolio management strategies used by the manager, the
fund believes it has reduced the risk of an adverse impact on its net asset
value from calls of callable bonds. In light of the fund's pricing policies
and certain amortization procedures required by the Internal Revenue Service
(IRS), the fund does not expect to suffer any material adverse impact related
to the value at which it has carried the bonds in connection with calls of
bonds purchased at a premium. As with any investment strategy, however, there
is no guarantee that a call may not have a more substantial impact than
anticipated.
ESCROW-SECURED OR DEFEASED BONDS are created when an issuer refunds, before
maturity, an outstanding bond issue that is not immediately callable (or
pre-refunds), and sets aside funds for redemption of the bonds at a future
date. The issuer uses the proceeds from a new bond issue to buy high grade,
interest bearing debt securities, generally direct obligations of the U.S.
government. These securities are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of principal and
interest on the pre-refunded bond. Escrow-secured bonds often receive a
triple A or equivalent rating.
STRIPPED MUNICIPAL SECURITIES Municipal securities may be sold in "stripped"
form. Stripped municipal securities represent separate ownership of principal
and interest payments on municipal securities.
U.S. GOVERNMENT OBLIGATIONS 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 is a promissory note issued by a corporation to finance its
short-term credit needs. The fund may invest in taxable commercial paper only
for temporary defensive purposes.
WHEN-ISSUED TRANSACTIONS Municipal securities are frequently offered on a
"when-issued" basis. When so offered, the price, which is generally expressed
in yield terms, is fixed at the time the commitment to buy is made, but
delivery and payment take place at a later date. During the time between
purchase and settlement, no payment is made by the fund to the issuer and no
interest accrues to the fund. If the other party to the transaction fails to
deliver or pay for the security, the fund could miss a favorable price or
yield opportunity, or could experience a loss.
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 negatively affected by its purchase
of municipal securities on a when-issued basis. The fund will not engage in
when-issued transactions for investment leverage purposes (this policy is not
fundamental).
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 considered 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. If assets
of the fund are held in cash pending the settlement of a purchase of
securities, the fund will not earn income on those assets. The policies in
this paragraph are not fundamental.
ILLIQUID INVESTMENTS The fund may invest up to 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.
REPURCHASE AGREEMENTS Although the fund currently has no intention of doing
so, it may enter into repurchase agreements. Under a repurchase agreement,
the fund agrees to buy U.S. government securities from a bank or
broker-dealer (the seller) and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven
days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian securities with an initial market value of at least 102% of
the repurchase price, and is required to maintain the value of the securities
subject to the repurchase agreement at not less than their repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the seller, including possible delays or restrictions upon the fund's
ability to sell the underlying securities. The fund may enter into repurchase
agreements only with parties who meet creditworthiness standards approved by
the fund's Board of Directors, I.E., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase agreement.
The fund does not invest in repurchase agreements with a term or more than
one year. The securities underlying a repurchase agreement may, however, have
maturity dates longer than one year from the effective date of the repurchase
agreement. The fund may not enter into a repurchase agreement with a term of
more than seven days if, as a result, more than 10% of the fund's net assets
would be invested in such repurchase agreements and other illiquid securities.
DIVERSIFICATION The fund is a diversified fund. It follows certain
procedures required by federal securities laws with respect to the
diversification of its investments. The fund also intends to meet certain
diversification requirements for tax purposes. Diversification involves
limiting the amount of money invested in any one issuer or, on a broader
scale, in any one state or type of project to help spread and reduce the
risks of investment.
For the purpose of diversification, each political subdivision, agency, or
instrumentality of a state, each multi-state 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 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.
The fund may invest more than 25% of its assets in municipal securities that
finance similar types of projects, such as hospitals, housing, industrial
development, transportation or pollution control. A change that affects one
project, such as proposed legislation on the financing of the project, a
shortage of the materials needed for the project, or a declining need for the
project, would likely affect all similar projects.
TEMPORARY INVESTMENTS When the manager believes unusual or adverse economic,
market or other conditions exist, it may invest the fund's portfolio in a
temporary defensive manner. Under these circumstances, the fund may invest
all of its assets in securities that pay taxable interest, including (i) high
quality commercial paper; (ii) securities 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.
SECURITIES TRANSACTIONS Generally, all of the securities held by the fund
are offered on the basis of a quoted yield to maturity. The price of the
security is adjusted so that, relative to the stated rate of interest, 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.
The frequency of portfolio transactions, usually referred to as the portfolio
turnover rate, varies from year to year, depending on market conditions.
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.
CREDIT QUALITY All things being equal, the lower a security's credit
quality, the higher the risk and the higher the yield the security generally
must pay as compensation to investors for the higher risk.
A security's credit quality depends on the issuer's ability to pay interest
on the security and, ultimately, to repay the principal. Independent rating
agencies, such as Fitch Investors Service Inc., Moody's Investors Service,
Inc., and Standard & Poor's Corporation (S&P), often rate municipal
securities based on their opinion of the issuer's credit quality. Most rating
agencies use a descending alphabet scale to rate long-term securities, and a
descending numerical scale to rate short-term securities. These ratings are
described at the end of this SAI under "Description of Ratings for Municipal
Securities."
An insurance company, bank or other foreign or domestic entity may provide
credit support for a municipal security and enhance its credit quality. For
example, some municipal securities are insured, which means they are covered
by an insurance policy that insures the timely payment of principal and
interest. Other municipal securities may be backed by letters of credit,
guarantees, or escrow or trust accounts that contain securities backed by the
full faith and credit of the U.S. government to secure the payment of
principal and interest.
As discussed in the fund's prospectus, the fund only buys securities that the
manager determines present minimal credit risks and that are rated in one of
the top two ratings or that are comparable unrated securities in the
manager's opinion. In addition to considering ratings in its selection of
portfolio securities, the manager 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.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares 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 goals, 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 by (i) the purchase of a portion of an issue of debt
securities in accordance with its investment goals, policies, and
restrictions, (ii) engaging in repurchase transactions, and (iii) 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 "Goals and Strategies";
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; and
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
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The fund has a Board of Directors (Board). The Board is responsible for the
overall management of the fund, including general supervision and review of
the fund's 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.
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS THE FUND DURING THE PAST FIVE YEARS
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Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Director
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee,
as the case may be, of 51 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, General Host Corporation
(nursery and craft centers).
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 50 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, General Host Corporation
(nursery and craft centers).
*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
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
53 of the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Director
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission
Systems, Inc. (wireless communications); director or trustee, as the case may
be, of 27 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Director, Fischer Imaging Corporation (medical imaging
systems) and General Partner, Peregrine Associates, which was the General
Partner of Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Director
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of
49 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman, White River Corporation (financial services) and
Hambrecht and Quist Group (investment banking), and President, National
Association of Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., 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
53 of the investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief 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.; Executive Vice President and Chief Financial Officer, Franklin
Advisers, Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; President and Director, Franklin
Templeton Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor Services, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal
Officer and Chief Operating Officer, Franklin Investment Advisory Services,
Inc.; and officer of 53 of the investment companies in the Franklin Templeton
Group of Funds.
Thomas J. Kenny (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Franklin Advisers, Inc.; and officer of eight of
the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Richard C. Stoker (61)
11615 Spring Ridge Rd.
Potomac, MD 20854
Vice President
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 (71)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 15 of the investment companies in the
Franklin Templeton Group of Funds.
* This Board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
As of June 1, 1998, the fund pays nonaffiliated Board members $100 per month
plus $75 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, which may pay them fees for their
services. The fees payable to nonaffiliated Board members by the fund are
subject to reductions resulting from fee caps limiting the amount of fees
payable to Board members who serve on other boards within the Franklin
Templeton Group of Funds. 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
TOTAL FEES TOTAL FEES RECEIVED THE FRANKLIN
RECEIVED FROM THE FRANKLIN TEMPLETON GROUP OF
FROM THE TEMPLETON GROUP OF FUNDS ON WHICH EACH
NAME FUND* FUNDS** SERVES
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Frank H. Abbott, III $2,268 $165,937 27
Harris J. Ashton 2,180 344,642 49
S. Joseph Fortunato 2,160 361,562 51
David W. Garbellano*** 200 91,317 n/a
Frank W. T. La Haye 2,268 141,433 27
Gordon S. Macklin 2,180 337,292 49
*For the fiscal year ended July 31, 1998. During the period from August 1,
1997, through May 31, 1998, fees at the rate of $100 per month plus $100 per
meeting attended were in effect.
**For the calendar year ended December 31, 1997.
***Deceased, September 27, 1997.
Nonaffiliated Board members 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 Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin Advisers, Inc.
The manager is wholly owned by Franklin Resources, Inc. (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.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager's extensive research activities include, as appropriate, traveling to
meet with issuers and to review project sites. The manager provides periodic
reports to the fund's Board, which reviews and supervises the manager's
investment activities. To protect the fund, the manager and its officers,
directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager 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 the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages. Of course, any transactions for the
accounts of the manager and other access persons will be made in compliance
with the fund's code of ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group
who are access persons may 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 and statements must be sent to a
compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) 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.
MANAGEMENT FEES The fund pays the manager a fee equal to a daily rate of:
o 1/584 of 1% of the value of net assets up to and including $100 million;
o 1/730 of 1% of the value of net assets over $100 million up to and
including $250 million; and
o 1/811 of 1% of the value of net assets in excess of $250 million.
The fee is computed at the close of business each day according to the terms
of the management agreement.
For the last three fiscal years ended July 31, the manager had agreed in
advance to waive a portion of its fees. The table below shows the management
fees before any advance waiver and the management fees the fund paid:
Management Fees Before Advance
Waiver ($) Management Fees Paid ($)
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1998 938,729 644,753
1997 928,704 601,542
1996 1,016,591 644,383
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund's manager to provide certain
administrative services and facilities for the fund. FT Services is wholly
owned by Resources and is an affiliate of the fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the periods shown, the manager paid FT Services the following
administration fees:
Administration Fees Paid ($)
------------------------------------------------
1998(1) 244,094
1997(2) 200,058
(1) For the fiscal year ended July 31, 1998.
(2) For the period from October 1, 1996, through July 31, 1997.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo,
CA 94403-7777.
For its services, Investor Services receives 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, NY 10286, acts as custodian of the fund's securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the fund's Annual Report to Shareholders and
reviews the fund's registration statement filed with the U.S. Securities and
Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
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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 the manager determines that
the fund may obtain a better price or execution 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 has 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 the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services allows the manager 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, the manager 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 the manager 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 the manager, 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 may improve execution and
reduce transaction costs to the fund.
Depending on the manager's 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
evaluation by the manager of the issuer.
During the fiscal years ended July 31, 1998, 1997 and 1996, the fund paid no
brokerage commissions. As of July 31, 1998, the fund did not own securities
of its regular broker-dealers.
DISTRIBUTIONS AND TAXES
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The fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund's daily net income includes
accrued interest and any original issue or acquisition 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 $1 share price), less the estimated
expenses of the fund.
By meeting certain requirements of the tax code, the fund has qualified and
continues to qualify to pay exempt-interest dividends to you. These dividends
are derived from interest income exempt from regular federal income tax, and
are not subject to regular federal income tax when distributed to you. In
addition, to the extent that exempt-interest dividends are derived from
interest on obligations of a state or its political subdivisions, or from
interest on qualifying U.S. territorial obligations (including qualifying
obligations of Puerto Rico, the U.S. Virgin Islands or Guam), they will also
be exempt from that state's personal income taxes. A state generally does not
grant tax-free treatment to interest on state and municipal securities of
other states.
The fund may earn taxable income on any temporary investments or ordinary
income derived from the sale of market discount bonds. Any fund distributions
from such income will be taxable to you as ordinary income, whether you
receive them in cash or additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Because the
fund is a money fund, it does not anticipate realizing any long term capital
gains.
MAINTAINING A $1 SHARE PRICE Gains and losses on the sale of portfolio
securities and unrealized appreciation or depreciation in the value of these
securities may require the fund to adjust distributions in order to maintain a
$1 share price. These procedures may result in under- or over-distributions of
net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you
of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year, including the
portion of the distributions that on average comprise taxable income or
interest income that is a tax preference item under the alternative minimum
tax. If you have not held fund shares for a full year, you may have
designated as taxable or tax-exempt or as a tax preference a percentage of
income that is not equal to the actual amount of such income earned during
the period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected
to be treated as a regulated investment company under Subchapter M of the tax
code, has qualified as such for its most recent fiscal year, and intends to
so qualify during the current fiscal year. As a regulated investment company,
the fund generally pays no federal income tax on the income and gains it
distributes to you. The fund's Board of Directors reserves the right not to
maintain the qualification of the fund as a regulated investment company if
it determines such course of action to be beneficial to shareholders. In such
case, the fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed
as ordinary dividend income to the extent of the fund's available earnings
and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS The Code requires the fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal
excise taxes. The fund intends to declare and pay sufficient dividends in
December (or in January that are treated by you as received in December of
the prior year) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are
taxable transactions for federal and state income tax purposes. Because the
fund tries to maintain a stable $1 share price, you should not expect to realize
a capital gain or loss upon the sale or exchange of your shares.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the fund's income is
derived primarily from interest rather than dividends, no portion of its
distributions will generally be eligible for the corporate dividends-received
deduction. None of the dividends paid by the fund for the most recent fiscal
year qualified for such deduction, and it is anticipated that none of the
current year's dividends will so qualify.
TREATMENT OF PRIVATE ACTIVITY BOND INTEREST Interest on certain private
activity bonds, while still exempt from regular federal income tax, is a
preference item for taxpayers when determining their alternative minimum tax
under the tax code and under the income tax provisions of several states.
Private activity bond interest could subject you to or increase your
liability under federal and state alternative minimum taxes, depending on
your individual or corporate tax position. Persons who are defined in the tax
code as substantial users (or persons related to such users) of facilities
financed by private activity bonds should consult with their tax advisors
before buying fund shares.
For more information, please call 1-800/ DIAL BEN to request a free copy of
the Franklin Templeton Tax Information Handbook.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
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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 and 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. For Board member elections, this means
the number of votes you will have is equal to the number of shares you own
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 be called by shareholders holding at least 10% of the outstanding
shares to vote on the removal of a Board member. In certain circumstances, we
are required to help you communicate with other shareholders about the
removal of a Board member. A special meeting may also be called by the Board
in its discretion.
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.
As of September 11, 1998, the officers and Board members, as a group, owned
of record and beneficially less than 1% of the fund's total shares. The Board
members may own shares in other funds in the Franklin Templeton Group of
Funds.
BUYING AND SELLING SHARES
- ------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. A securities dealer
includes any 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. Banks and financial institutions
that sell shares of the fund may be required by state law to register as
securities dealers.
The investment authority of certain investors may be restricted by law. If
you are such an investor, your 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.
All purchases of fund shares will be credited to you, in full and fractional
shares of the fund (rounded to the nearest 1/100 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 and no share 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 fund
shares may be suspended at any time and resumed at any time thereafter.
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.
DEALER COMPENSATION 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 rules of the
National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
EXCHANGE PRIVILEGE If a substantial number of shareholders should, within a
short period, sell their fund shares 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 seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh 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.
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. 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. When you sell your
shares under a systematic withdrawal plan, it is a taxable transaction.
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.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. 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 fund's 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.
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.
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. The fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional 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.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to your, 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 the prospectus.
Franklin Templeton Investor Services, Inc. (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.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
PRICING SHARES
- ------------------------------------------------------------------------------
When you buy and sell fund shares, you pay the net asset value (NAV) per
share. 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.
The fund calculates its NAV as of 3:00 p.m. pacific time, each day the New
York Stock Exchange (NYSE) is open for trading. The fund does not calculate
its NAV on days the NYSE is closed for trading, which include 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 fund's 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.
THE FUND'S UNDERWRITER
- ------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
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, 1998, 1997 and 1996, Distributors
received $0, $1,571 and $0, respectively, in connection with redemptions or
repurchases of fund shares.
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 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.
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, 1998, was 2.89%.
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, 1998, was 2.93%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-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, 1998, was 4.78%. The fund's
taxable-equivalent effective yield based on the fund's effective yield for
the seven day period ended July 31, 1998, was 4.85%.
As of July 31, 1998, 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 goals and performance
results of funds belonging to the Franklin Templeton Group of Funds. Franklin
Resources, Inc. 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 goal, 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 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.
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.
Advertisements or information may also compare the fund's performance to the
return on certificates of deposit (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 50 years
and now services more than 3 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 $236 billion in
assets under management for more than 6 million U.S. based mutual fund
shareholder and other accounts (as of June 30, 1998). The Franklin Templeton
Group of Funds offers 119 U.S. based open-end investment companies to the
public. The fund may identify itself by its NASDAQ symbol or CUSIP number.
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.
DESCRIPTION OF RATINGS FOR MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------
MUNICIPAL BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (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 that 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
that 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 that
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.
STANDARD & POOR'S CORPORATION (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.
Plus (+) or minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FITCH INVESTORS SERVICE, INC.
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 that 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 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. Business and financial alternatives can be
identified, however, that 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.
The relative degree of safety, however, 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
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the
previously filed document indicated below, except as noted:
(A) ARTICLES OF INCORPORATION
(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
(B) BY-LAWS
(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. 2-726143
Filing Date: September 29, 1995
(C) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Not Applicable
(D) INVESTMENT ADVISORY CONTRACTS
(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
(E) UNDERWRITING CONTRACTS
(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
(F) BONUS OR PROFIT SHARING CONTRACTS
Not Applicable
(G) CUSTODIAN AGREEMENTS
(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
Filing: Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: November 25, 1997
(iv) Amendment dated February 27, 1998 to the Master
Custody Agreement dated February 16, 1996 between
Registrant and Bank of New York
(H) OTHER MATERIAL CONTRACTS
Not Applicable
(I) LEGAL OPINION
(i) Opinion and consent of counsel dated September 15, 1998
(J) OTHER OPINIONS
(i) Consent of Independent Auditor
(K) OMITTED FINANCIAL STATEMENTS
Not Applicable
(L) INITIAL CAPITAL AGREEMENTS
(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
(M) RULE 12B-1 PLAN
Not Applicable
(N) RULE 18F-3 PLAN
Not Applicable
(O) 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
(27) Financial Data Schedule
(i) Financial Data Schedule
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None
ITEM 25. 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.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The officers and directors of the Registrant's investment adviser, Franklin
Advisers, Inc., ("Advisers") also serve as officers and/or directors or
trustees for (1) Advisers' corporate parent, Franklin Resources, Inc., and/or
(2) other investment companies in the Franklin Templeton Group of Funds. In
addition, Mr. Charles B. Johnson was formerly 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 Advisers 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 27. 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 Mutual Series Fund Inc.
Franklin Municipal Securities Trust
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
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 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)
ITEM 28. 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.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 30. UNDERTAKINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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 29th
day of September, 1998.
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 and
Rupert H. Johnson, Jr. Director
Dated: September 29, 1998
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: September 29, 1998
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: September 29, 1998
Frank H. Abbott III* Director
Frank H. Abbott III Dated: September 29, 1998
Harris J. Ashton* Director
Harris J. Ashton Dated: September 29, 1998
S. Joseph Fortunato* Director
S. Joseph Fortunato Dated: September 29, 1998
Charles B. Johnson* Director
Charles B. Johnson Dated: September 29, 1998
Frank W.T. LaHaye* Director
Frank W.T. LaHaye Dated: September 29, 1998
Gordon S. Macklin* Director
Gordon S. Macklin Dated: September 29, 1998
*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.(a)(i) Articles of Incorporation dated March 17, 1980 *
EX-99.(a)(ii) Certificate of Amendment to Articles of *
Incorporation dated July 14, 1981
EX-99.(b)(i) By-Laws *
EX-99.(b)(ii) Amendment to By-Laws dated November 17, 1987 *
EX-99.(d)(i) Management Agreement between Registrant and *
and Franklin Adivsers, Inc. dated December
1, 1986
EX-99.(d)(ii) Amendment to Management Agreement between *
between Registrant and Franklin Advisers,
Inc., dated August 1, 1995
EX-99.(e)(i) Amended and Restated Distribution Agreement *
between Registrant and Franklin/Templeton
Distributors, Inc. dated April 23, 1995
EX-99.(e)(ii) Forms of Dealer Agreements between *
Franklin/Templeton Distributors, Inc. and
Securities Dealers
EX-99.(g)(i) Master Custody Agreement between Registrant *
and Bank of New York dated February 16, 1996
EX-99.(g)(ii) Terminal Link Agreement between Registrant and *
Bank of New York dated February 16, 1996
EX-99.(g)(iii) Amendment dated May 7, 1997 to the Master *
Custody Agreement dated February 16, 1996
between Registrant and Bank of New York
EX-99.(g)(iv) Amendment dated February 27, 1998 to the *
Master Custody Agreement dated February 16,
1996 between Registrant and Bank of New York
EX-99.(i)(i) Opinion and consent of counsel dated September Attached
15, 1998
EX-99.(j)(i) Consent of Independent Auditor Attached
EX-99.(l)(i) Letter of Understanding dated July 14, 1981 Attached
EX-99.(o)(i) Power of Attorney dated September 18, 1995 *
EX-99.(o)(ii) Certificate of Secretary dated September 18, *
1995
EX-27.(i) Financial Data Schedule Attached
* Incorporated by Reference
Amendment to Master Custody Agreement
Effective February 27, 1998, The Bank of New York and each of the Investment
Companies listed in the Attachment appended to this Amendment, for themselves
and each series listed in the Attachment, hereby amend the Master Custody
Agreement dated as of February 16, 1996 by:
1. Replacing Exhibit A with the attached; and
2. Only with respect to the Investment Companies and series thereof listed in
the Attachment, deleting paragraphs (a) and (b) of Subsection 3.5 and
replacing them with the following:
(a) Promptly after each purchase of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase;
(g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian shall, upon
receipt of Securities purchased by or for the Fund, pay to the broker
specified in the Proper Instructions out of the money held for the account
of such Series the total amount payable upon such purchase, provided that
the same conforms to the total amount payable as set forth in such Proper
Instructions.
(b) Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c)
the number of shares or the principal amount sold, and accrued interest, if
any; (d) the date of sale; (e) the sale price per unit; (f) the total
amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Proper
Instructions against payment of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as
set forth in such Proper Instructions.
Investment Companies The Bank of New York
By: /s/ Elizabeth N. Cohernour By: /s/ Stephen E. Grunston
-------------------------- -----------------------
Name: Elizabeth N. Cohernour Name: Stephen E. Grunston
Title: Authorized Officer Title: Vice President
Attachment
INVESTMENT COMPANY SERIES
Franklin Mutual Series Fund Inc. Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin Valuemark Funds Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin New York Tax-Free Income Fund Delaware Business Trust
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Trust Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income
Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Valuemark Funds (cont.) Massachusetts Business Trust Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Growth Investments Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business Trust
Franklin Principal Maturity Trust Massachusetts Business Trust
Franklin Universal Trust Massachusetts Business Trust
INTERVAL FUND
Franklin Floating Rate Trust Delaware Business Trust
- ------------------------------------------- -------------------------------- -------------------------------------------------------
</TABLE>
Law Offices
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8115
September 15, 1998
Franklin Tax-Exempt Money Fund
777 Mariners Island Blvd.
San Mateo, CA 94403-7777
Re: LEGAL OPINION-SECURITIES ACT OF 1933
Ladies and Gentlemen:
We have examined the Articles of Incorporation, as amended (the "Articles
of Incorporation") of the Franklin Tax-Exempt Money Fund (the "Fund"), a
corporation organized under the laws of the State of California on March 18,
1980, the By-Laws of the Fund and the various pertinent proceedings we deem
material. We have also examined the Notification of Registration and the
Registration Statements filed under the Investment Company Act of 1940 (the
"Investment Company Act") and the Securities Act of 1933 (the "Securities Act"),
all as amended to date, as well as other items we deem material to this opinion.
The Fund is authorized by its Articles of Incorporation to issue five
billion (5,000,000,000) shares of common stock without a par value. The Fund
isues one class of shares designated the Franklin Tax-Exempt Money Fund.
The Fund has filed with the U.S. Securities and Exchange Commission (the
"Commission"), a Registration Statement under the Securities Act, which
Registration Statement is deemed to register an indefinite number of shares of
the Fund pursuant to the provisions of Rule 24f-2 under the Investment Company
Act. You have further advised us that the Fund has filed, and each year
hereafter will timely file, a Notice pursuant to Rule 24f-2 perfecting the
registration of the shares sold by the Fund during each fiscal year during which
such registration of an indefinite number of shares remains in effect.
You have also informed us that the shares of the Fund have been, and will
continue to be, sold in accordance with the Fund's usual method of distributing
its registered shares, under which prospectuses are made available for delivery
to offerees and purchasers of such shares in accordance with Section 5(b) of the
Securities Act.
Based upon the foregoing information and examination, so long as the Fund
remains a valid and subsisting Fund under the laws of the State of California,
and the registration of an indefinite number of shares of the Fund remains
effective, the authorized shares of the Fund when issued for the consideration
set by the Board of Directors pursuant to the Articles of Incorporation, and
subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid,
and non-assessable shares, and the holders of such shares will have all the
rights provided for with respect to such holding by the Articles of
Incorporation and the laws of the State of California.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement of the Fund, and any amendments thereto, covering the
registration of the shares of the Fund under the Securities Act and the
applications registration statements or notice filings, and amendments thereto,
filed in accordance with the securities laws of the several states in which
shares of the Fund are offered, and we further consent to reference in the
registration statement of the Fund to the fact that this opinion concerning
the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: /s/BRUCE G. LETO
Bruce G. Leto
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in Post-Effective Amendment No. 18
to the Registration Statement of Franklin Tax-Exempt Money Fund on Form N-1A
File No.2-72614 of our report dated September 4, 1998 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, 1998, which is incorporated by reference in the Registration Statement.
PricewaterhouseCoopers LLP
/s/PricewaterhouseCoopers LLP
San Francisco, California
September 29, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN TAX-EXEMPT MONEY FUND JULY 31, 1998 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 163,696,285
<INVESTMENTS-AT-VALUE> 163,696,285
<RECEIVABLES> 1,098,332
<ASSETS-OTHER> 214,774
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 165,009,391
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 484,256
<TOTAL-LIABILITIES> 484,256
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 164,525,135
<SHARES-COMMON-PRIOR> 161,037,791
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 164,525,135
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,836,320
<OTHER-INCOME> 0
<EXPENSES-NET> (1,058,093)
<NET-INVESTMENT-INCOME> 4,778,127
<REALIZED-GAINS-CURRENT> 1,693
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,779,820
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,779,820)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 358,177,980
<NUMBER-OF-SHARES-REDEEMED> (359,483,372)
<SHARES-REINVESTED> 4,792,736
<NET-CHANGE-IN-ASSETS> 3,487,344
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (983,729)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,352,169)
<AVERAGE-NET-ASSETS> 162,733,042
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.029
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.029)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.650
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
