As filed with the Securities and Exchange Commission on November 24, 1999.
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. 19 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 (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
DEBORAH R. GATZEK, 777 MARINERS ISLAND BLVD.,
SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on December 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post effective amendment.
Prospectus
Franklin Tax-Exempt Money Fund
INVESTMENT STRATEGY TAX-FREE INCOME
DECEMBER 1, 1999
[Insert Franklin Templeton Ben Head]
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
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INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goals and Strategies
3 Main Risks
5 Performance
6 Fees and Expenses
7 Management
8 Distributions and Taxes
10 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUT ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
11 Buying Shares
13 Investor Services
16 Selling Shares
19 Account Policies
21 Questions
FOR MORE INFORMATION
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WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
BACK COVER
THE FUND
[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
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GOALS The fund's investment 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 predominately 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, including interest that may be subject to the federal alternative
minimum tax.
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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, floating or variable rate of interest, and must repay the amount
borrowed (the principal) at maturity.
[End callout]
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 by U.S. nationally recognized
rating services (or comparable unrated securities).
The fund may invest 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 rise, it lowers the fund's income when interest rates
fall.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other unusual or adverse
conditions exist. Under these circumstances, the fund may be unable to pursue
its investment goals, because it may not invest or may invest substantially less
in tax-free municipal securities.
[Insert graphic of chart with line going up and down] MAIN RISKS
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INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall. Because the
fund limits its investments to high-quality, short-term securities, its
portfolio generally will earn lower yields than a portfolio with lower-quality,
longer-term securities subject to more risk.
CREDIT There is the possibility that an issuer will be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value.
Many of the fund's portfolio securities may be supported by credit enhancements,
which may be provided by either U.S. or foreign entities. These securities have
the credit risk of the entity providing the credit support. To the extent the
fund holds insured securities, a change in the credit rating of any one or more
of the municipal bond insurers that insure securities in the fund's portfolio
may affect the value of the securities they insure and fund performance. 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 When interest rates rise, municipal security prices fall. The
opposite is also true: municipal security prices rise when interest rates fall.
In general, securities with longer maturities are more sensitive to these price
changes.
MARKET A security's value may 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 rise.
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, thereby increasing market
risk.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS Municipal securities may be 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.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the manager considers.
Municipal issuers generally are not required to report on their Year 2000
readiness. This makes it more difficult for the manager to evaluate their
readiness. There have been reports, however, that many municipal issuers are
behind in their efforts to address the Year 2000 problem. The manager, of
course, cannot audit each issuer and its major suppliers to verify their Year
2000 readiness. The manager is making efforts, however, to contact the issuers
of municipal securities held by the fund to try to assess their Year 2000
readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is possible that the issuer's ability to make timely interest and
principal payments also will be affected, at least temporarily. This may affect
both the amount and timing of the fund's distributions and the fund's
performance. It also is likely that the price of the issuer's securities will be
adversely affected. Please see page 7 for more information.
More detailed information about the fund, its policies (including temporary
investments), risks and municipal securities ratings can be found in the fund's
Statement of Additional Information (SAI).
[Begin callout]
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 callout]
[Insert graphic of bull and bear] PERFORMANCE
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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 calendar 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
[Begin callout]
BEST QUARTER:
Q2 '89 1.50%
WORST QUARTER:
Q1 '94 0.41%
[End callout]
[Insert bar graph]
5.98% 5.66% 3.99% 2.48% 1.91% 2.18% 3.16% 2.84% 3.03% 2.85%
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89 90 91 92 93 94 95 96 97 98
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
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Franklin Tax-Exempt Money Fund 2.85% 2.81% 3.40%
1. As of September 30, 1999, the fund's year-to-date return was 1.77%
All fund performance assumes reinvestment of dividends.
To obtain the fund's current yield information, please call 1-800/DIAL BEN(R).
[Insert graphic of percentage sign] FEES AND EXPENSES
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
Maximum sales charge (load) on purchases None
Exchange fee 1 $5.00
ANNUAL FUND OPERATING EXPENSES (expenses deducted
from fund assets)
Management fees 2 0.57%
Other expenses 0.25%
--------
Total annual fund operating expenses 2 0.82%
--------
1. This fee is only for market timers (see page 20).
2. For the fiscal year ended July 31, 1999, the manager had agreed in advance to
limit its management fees. With this reduction, management fees were 0.49% and
total annual fund operating expenses were 0.74%. 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. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
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
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$84 $262 $455 $1,014
[Insert graphic of briefcase] MANAGEMENT
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Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its affiliates
manage over $218 billion in assets.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended July 31, 1999, management fees,
before any advance waiver, were 0.57% of the fund's average daily net assets.
Under an agreement by the manager to limit its fees, the fund paid 0.49% 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 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and the manager may have no control.
[Insert graphic of dollar signs and stacks of coins]
DISTRIBUTIONS AND TAXES
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INCOME DISTRIBUTIONS The fund typically pays income dividends each day that its
net asset value is calculated. Your account may begin to receive dividends on
the day after we receive your investment and will continue to receive dividends
through the day we receive a request to sell your shares. 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 exempt from federal income tax. The fund, however,
may invest a portion of its assets in securities that pay income that is not
tax-exempt. Fund distributions from such income are taxable to you as ordinary
income. Distributions of ordinary income are taxable whether you reinvest your
distributions in additional fund shares or receive them in cash.
[Begin callout]
BACKUP WITHHOLDING
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By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the fund to do so. [End callout]
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.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. Because the fund expects to
maintain a stable $1 share price, you should not have any gain or loss if you
sell your fund shares.
Exempt-interest dividends are taken into account when determining the taxable
portion of your social security or railroad retirement benefits. The fund may
invest a portion of its assets in private activity bonds. The income from these
bonds is a preference item when determining your alternative minimum tax.
Exempt-interest dividends from interest earned on municipal securities of a
state, or its political subdivisions, generally are exempt from that state's
personal income tax. Most states, however, do not grant tax-free treatment to
interest from municipal securities of other states.
Distributions of ordinary income generally will be subject to
state and local income tax. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax
consequences of your investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
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This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED JULY 31,
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1999 1998 1997 1996 1995
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PER SHARE DATA ($)
Net asset value, beginning of 1.00 1.00 1.00 1.00 1.00
year
-------------------------------------
Net investment income .025 .029 .029 .029 .029
Distributions from net
investment income (.025) (.029) (.029) (.029) (.029)
-------------------------------------
Net asset value, end of year 1.00 1.00 1.00 1.00 1.00
-------------------------------------
Total return (%) 2.49 2.99 2.94 2.93 2.98
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 190,727 164,525 161,038 166,713 173,123
Ratios to average net assets:
(%)
Expenses .74 .65 .65 .65 .65
Expenses excluding waiver and
payments by affiliate .82 .83 .80 .81 .78
Net investment income 2.46 2.94 2.91 2.88 2.65
YOUR ACCOUNT
[Insert graphic of paper with lines and someone writing]
BUYING SHARES
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MINIMUM INVESTMENTS
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INITIAL ADDITIONAL
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Regular accounts $1,000 $50
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UGMA/UTMA accounts $100 $50
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Broker-dealer sponsored wrap account $250 $50
programs
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Full-time employees, officers, trustees $100 $50
and directors of Franklin Templeton
entities, and their immediate family
members
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PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN
YOUR STATE OR JURISDICTION.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance Products
Trust, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund.
[End callout]
Certain Franklin Templeton Funds offer multiple share classes not offered by
this fund. Please note that for selling or exchanging your shares, or for other
purposes, the fund's shares are considered Class A shares. Before January 1,
1999, the fund's shares were considered Class I shares.
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 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 the next page).
BUYING SHARES
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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[Insert graphic of Contact your Contact your
hands shaking] THROUGH investment investment
YOUR INVESTMENT representative representative
REPRESENTATIVE
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[Insert graphic of Make your check, Make your check
envelope] BY MAIL Federal Reserve Draft payable to Franklin
or negotiable bank Tax-Exempt Money
draft payable to Fund. Include your
Franklin Tax-Exempt account number on
Money Fund. the check.
Instruments drawn on
other mutual funds Fill out the deposit
may not be accepted. slip from your
account statement or
Mail the check or checkbook. If you do
draft and your signed not have a slip,
application to include a note with
Investor your name, the fund
Services. name, and your
account number.
Mail the check and deposit slip
or note to Investor Services.
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[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
BY WIRE and wire instructions. and wire
1-800/632-2301 instructions.
(or 1-650/312-2000 Wire the funds and
collect) mail your signed To make a same day
application to wire investment,
Investor Services. please make sure we
Please include the receive your order
wire control number by 3:00 p.m. pacific
or your new account time.
number on the
application.
To make a same day
wire investment,
please make sure we
receive your order by
3:00 p.m. pacific
time.
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[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] BY number below, or send number below or our
EXCHANGE signed written automated TeleFACTS
instructions. The system, or send
TeleFACTS(R) TeleFACTS system signed written
1-800/247-1753 cannot be used to instructions.
(around-the-clock open a new account.
access) (Please see page 14
(Please see page 14 for information on
for information on exchanges.)
exchanges.)
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
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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. To sign up, complete the appropriate
section of your account application.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in shares of
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 distributions you receive from the fund in
an existing account in the fund or in the same share class of another Franklin
Templeton Fund. Any initial sales charges or contingent deferred sales charges
(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.
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the fund. If you choose not to
reinvest your distributions, the fund will distribute distributions paid during
the month as directed on the last business day of each month.
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.
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*. If you exchange shares from the fund to another Franklin
Templeton Fund, a sales charge may apply unless you acquired your fund shares by
exchange or through the reinvestment of dividends, or you otherwise qualify to
buy shares without an initial sales charge.
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange
into the fund. Advisor Class shareholders of other Franklin Templeton Funds also
may exchange into the fund. Advisor Class shareholders who exchange their shares
for shares of the fund and later decide they would like to exchange into another
fund that offers Advisor Class may do so.
[Begin callout]
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, including minimum
investment amounts. Exchanges also have the same tax consequences
as ordinary sales and purchases.
[End callout]
Generally 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 or operations 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
20).
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, complete the appropriate section of your
application.
[Insert graphic of certificate] SELLING SHARES
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You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can 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:
[Begin callout]
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 callout]
o you are selling more than $100,000 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
We also may 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.
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, N.A. 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 investments of Class A shares sold within 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 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, each time you place a request to sell shares 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
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TO SELL SOME OR ALL OF YOUR SHARES
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[Insert graphic of Contact your investment representative
hands shaking]
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
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[Insert graphic of Send written instructions and endorsed share
envelope] BY MAIL certificates (if you hold share certificates)
to Investor Services. 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.
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[Insert graphic of As long as your transaction is for $100,000
phone] BY PHONE or less, you do not hold share certificates
and you have not changed your address by
1-800/632-2301 phone within the last 15 days, you can sell
your shares by 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.
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[Insert graphic of You can call or write to have redemption
three lightning proceeds sent to a bank account. See the
bolts] BY ELECTRONIC policies above for selling shares by mail
FUNDS TRANSFER (ACH) or phone.
Before requesting to have redemption proceeds sent to a
bank account, please make sure we have your bank account
information on file. If we do not have this information,
you will need to send written instructions with your
bank's name and address, a voided check or savings
account deposit slip, and a signature guarantee if the
ownership of the bank and fund accounts is different.
If we receive your request in proper form by
3:00 p.m. pacific time, proceeds sent by ACH
generally will be available within two to
three business days.
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[Insert graphic of Obtain a current prospectus for the fund you
two arrows pointing are considering.
in opposite
directions] BY Call Shareholder Services at the number below
EXCHANGE or our automated TeleFACTS system, or send
signed written instructions. See the policies
TeleFACTS(R) above for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you will need
access) to return them to the fund before your
exchange can be processed.
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
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CALCULATING SHARE PRICE When you buy shares, you pay the net asset value (NAV)
per share. When you sell shares, you receive the NAV minus any applicable
contingent deferred sales charge (CDSC).
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 confirmation statements after most
transactions affecting your account (except distributions and certain
transactions through automatic investment or withdrawal programs), as well as
quarterly statements that show all your account transactions during the quarter.
You also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and send
only one copy of the financial reports. If you need additional copies, please
call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive 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 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. 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, or (iv)
otherwise seem to follow a timing pattern. 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 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, wire or electronic funds transfer 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.
[Insert graphic of question mark] QUESTIONS
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If you have any questions about the fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. 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.
TELEPHONE HOURS (PACIFIC TIME,
DEPARTMENT NAME NUMBER MONDAY THROUGH FRIDAY)
- ---------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
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.franklintempleton.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,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-3193 114 P 12/99
FRANKLIN TAX-EXEMPT MONEY FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 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, 1999, 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, 1999, 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 2
Officers and Directors 6
Management and Other Services 8
Portfolio Transactions 9
Distributions and Taxes 10
Organization, Voting Rights and
Principal Holders 11
Buying and Selling Shares 11
Pricing Shares 14
The Underwriter 14
Performance 15
Miscellaneous Information 16
Description of Ratings 17
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF
THE U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------
GOALS AND STRATEGIES
- -------------------------------------------------------------------
The fund's investment 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.
Municipal securities issued by a state or its counties, municipalities,
authorities, agencies, or other subdivisions, as well as municipal securities
issued by U.S. territories such as Guam, Puerto Rico, the Mariana Islands or the
U.S. Virgin Islands, generally pay interest free from federal income taxes.
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 also may invest, if
consistent with its investment goals 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.
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
generally is 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. While this
feature helps protect against a decline in the security's market price when
interest rates rise, it lowers the fund's income when interest rates fall. Of
course, the fund's income from its variable rate investments also may increase
if interest rates rise.
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 one to 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, as well as to procedures adopted by the fund's board of directors
designed to minimize credit risks. The fund may buy certain types of variable
and floating rate securities if they are consistent with the fund's goal of
maintaining a stable share price. 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 generally
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 appropriate (set aside) the money to
make the lease payments each year. If the money is not appropriated, 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 board of
directors reviews the fund's municipal lease obligations to try to assure that
they are liquid investments based on various factors reviewed by the fund's
manager and monitored by the board (this policy is 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 may receive 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. When pricing callable bonds, the call feature is factored into the
price of the bonds and may impact the fund's net asset value.
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, its yield
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.
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 does not believe its net asset
value or income will 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 generally will 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 securities guaranteed as to payment of principal and interest by
the U.S. government or its agencies from a qualified bank or broker-dealer 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 dollar amount invested by the fund in each
repurchase agreement. The manager will monitor the value of such securities
daily to determine that the value equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
fund's ability to sell the underlying securities. The fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, 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 transaction.
To the extent it invests in repurchase agreements, the fund may not invest in
repurchase agreements with a term or more than one year, and usually would
invest in those with terms ranging from overnight to one week. 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 must meet certain
diversification requirements under federal securities laws. The fund also
intends to meet certain diversification requirements for tax purposes.
For the purpose of diversification, each political subdivision, agency, or
instrumentality, 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
generally are not 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.
TEMPORARY INVESTMENTS When the manager believes the securities trading markets
or the economy are experiencing excessive volatility or a prolonged general
decline, or other unusual or adverse conditions exist, including the
unavailability of securities that meet the fund's investment criteria, 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 by 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 The frequency of portfolio transactions, usually
referred to as the portfolio turnover rate, varies from year to year, depending
on market conditions. 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. (Fitch), Moody's Investors
Service, Inc. (Moody's), 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."
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 guarantees 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 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.
MATURITY Municipal securities are issued with a specific maturity date - the
date when the issuer must repay the amount borrowed. Maturities typically range
from less than one year (short term) to 30 years (long term). In general,
securities with longer maturities are more sensitive to price changes, although
they may provide higher yields. The fund only buys securities with remaining
maturities of 397 calendar days or less and maintains a dollar-weighted average
portfolio maturity of 90 days or less.
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.
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 bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions. If a percentage
restriction or limitation 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 will not be considered a violation of the restriction or
limitation.
OFFICERS AND DIRECTORS
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The fund has a board of directors. 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 name, age and address of the officers and board members, as well as their
affiliations, positions held with the fund, and principal occupations during the
past five years are shown below.
Frank H. Abbott, III (78)
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) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
DIRECTOR
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 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) (until 1998).
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
DIRECTOR
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 49 of the investment companies in the Franklin Templeton
Group of Funds.
*Charles B. Johnson (66)
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 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 48 of the investment companies in the Franklin
Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
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.
and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin
Advisory Services, LLC; 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 51 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (70)
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); 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),
Digital Transmission Systems, Inc. (wireless communications) and Quarterdeck
Corporation (software firm), and General Partner, Peregrine Associates, which
was the General Partner of Peregrine Ventures (venture capital firm).
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
DIRECTOR
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 47 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 (54)
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 Investment Advisory Services, Inc. and
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 51 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC;
Executive Vice President, Chief Financial Officer 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, LLC and Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton 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 51 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (50)
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, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 52 of the investment
companies in the Franklin Templeton Group of Funds.
Thomas J. Kenny (36)
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 (60)
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 (62)
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.
R. Martin Wiskemann (72)
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.
The fund pays noninterested board members $100 per month plus $75 per meeting
attended. Board members who serve on the audit committee of the fund and other
funds in the Franklin Templeton Group of Funds receive a flat fee of $2,000 per
committee meeting attended, a portion of which is allocated to the fund. Members
of a committee are not compensated for any committee meeting held on the day of
a board meeting. Noninterested board members also may serve as directors or
trustees of other funds in the Franklin Templeton Group of Funds and may receive
fees from these funds for their services. The fees payable to noninterested
board members by the fund are subject to reductions resulting from fee caps
limiting the amount of fees payable to board members who serve on other boards
within the Franklin Templeton Group of Funds. The following table provides the
total fees paid to noninterested board members by the fund and by the Franklin
Templeton Group of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
TOTAL FEES RECEIVED FROM TEMPLETON
RECEIVED THE FRANKLIN GROUP
FROM THE TEMPLETON OF FUNDS
FUND 1 GROUP OF FUNDS ON WHICH
NAME ($) 2 ($) EACH SERVES 3
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Frank H. Abbott, III 1,281 166,614 27
Harris J. Ashton 1,514 361,157 47
S. Joseph Fortunato 1,412 367,835 49
Frank W. T. LaHaye 1,356 171,536 27
Gordon S. Macklin 1,514 361,157 47
1. For the fiscal year ended July 31, 1999.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 53 registered investment companies, with approximately 156 U.S. based
funds or series.
Noninterested 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.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin
Advisers, Inc. The manager is a wholly owned subsidiary of
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's
extensive research activities include, as appropriate, traveling to meet with
issuers and to review project sites. The manager also selects the brokers who
execute the fund's portfolio transactions. The manager provides periodic reports
to the 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 $250
million.
The fee is computed at the close of business each day according to the terms of
the management agreement.
For the last three fiscal years ended July 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($) 1
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1999 858,360
1998 644,753
1997 601,542
1. For the fiscal years ended July 31, 1999, 1998 and 1997, management fees,
before any advance waiver, totaled $1,002,255, $938,729 and $928,704,
respectively. Under an agreement by the manager to limit its fees, the fund paid
the management fees shown.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the 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 $1.2 billion.
During the last three fiscal years ended July 31, the manager paid FT Services
the following administration fees:
ADMINISTRATION
FEES PAID ($)
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1999 264,168
1998 244,094
1997 1 200,058
1. 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., San Mateo, CA 94404. Please send all
correspondence to Investor Services to P.O. Box 997151, Sacramento, CA
95899-9983.
For its services, Investor Services receives a fixed fee per account. The fund
also will 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 will 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 it is determined that a better price
or execution may be obtained by using the services of a broker. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask prices. As a general rule, the fund does not buy
securities in underwritings where it is given no choice, or only limited choice,
in the designation of dealers to receive the commission. The fund seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the special executions or on the
research services 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, also may 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.
During the fiscal years ended July 31, 1999, 1998 and 1997, the fund did not pay
any brokerage commissions.
As of July 31, 1999, 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 Internal Revenue 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 they are
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 also may be exempt from that state's personal income taxes. Most
states generally do 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, on the discount
from stripped obligations or their coupons, on income from securities loans or
other taxable transactions, or on 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 in 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 from net short-term capital gains 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 to maintain a $1 share
price. These procedures may result in under- or over-distributions by the fund
of its net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your distributions at the time they are paid, and will advise you
of their tax status for federal income tax purposes 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,
the fund may designate and distribute to you, as taxable, tax-exempt or tax
preference income, 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 Internal
Revenue 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 board 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 earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or to pay them January, in which case you must treat them as received
in December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all 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, however, you should not expect to realize a
capital gain or loss on 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, generally no portion of
its distributions will 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 Internal
Revenue 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 Internal Revenue 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.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
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The fund is an open-end management investment company, commonly called a mutual
fund. The fund was organized as a California corporation on March 17, 1980, and
is registered with the SEC.
Certain Franklin Templeton Funds offer multiple classes of shares. The different
classes have proportionate interests in the same portfolio of investment
securities. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans. Please note that for selling or exchanging your shares, or for
other purposes, the fund's shares are considered Class A shares. Before January
1, 1999, the fund's shares were considered Class I shares.
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. The fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, we are required to help you communicate with
other shareholders about the removal of a board member. A special meeting also
may 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 outstanding shares of the fund.
As of November 5, 1999, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of the fund. The
board members may own shares in other funds in the Franklin Templeton Group of
Funds.
BUYING AND SELLING SHARES
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The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). 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.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars and 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 to accrue 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. We
may deduct any applicable banking charges imposed by the bank from your account.
The offering of fund shares may be suspended at any time and resumed at any time
thereafter.
DEALER COMPENSATION Distributors and/or its affiliates may provide financial
support to 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
and/or total assets with the Franklin Templeton Group of Funds. 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 generally are 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 U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
fund. In these circumstances, the securities distributed would be valued at the
price used to compute the fund's net assets and you may incur brokerage fees in
converting the securities to cash. Redemptions in kind are taxable transactions.
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.
All purchases of fund shares will be credited to you, in full and fractional
fund shares (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. No certificates will be issued to you if you have
elected to redeem shares by check or by preauthorized bank or brokerage firm
account methods.
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.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH 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 also may
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 fund's expenses.
There are special procedures for banks and other institutions that wish 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 when the master account is
opened by listing them on the application, or by providing instructions to the
fund at a later date. These sub-accounts may be registered either by name or
number. The fund's investment minimums apply to each sub-account. The fund will
send confirmation and account statements for the sub-accounts to the
institution.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
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.
PRICING SHARES
- -------------------------------------------------------------------
When you buy shares, you pay the net asset value (NAV) per share. When you sell
shares, you receive the NAV minus any applicable contingent deferred sales
charge (CDSC).
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 the NAV per share each business day at 3:00 p.m. pacific
time. The fund does not calculate the NAV on days the New York Stock Exchange
(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 using 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 using 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 a $1 share
price, is permitted by a rule adopted by the U.S. Securities and Exchange
Commission (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 with remaining maturities of 397 days or less.
The fund also must invest only in those U.S. dollar-denominated securities that
the manager, in accordance with procedures adopted by the board, determines
present minimal credit risks and that are rated in one of the top two ratings by
U.S. nationally recognized rating services (or comparable unrated securities),
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 ratings. Securities subject to floating
or variable interest rates with demand features that comply with applicable SEC
rules may have stated maturities in excess of 397 days.
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 $1 per share based on amortized cost. The extent of any
deviation will be examined by the board. If a deviation exceeds 1/2 of 1%, the
board will promptly consider what action, if any, will be initiated. If the
board determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, it will take
corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a net asset value per share by using
available market quotations.
THE UNDERWRITER
- -------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The table below shows the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended July
31:
AMOUNT RECEIVED
IN CONNECTION WITH
REDEMPTIONS
AND REPURCHASES
($)
- ----------------------------------------------------------------------
1999 607
1998 0
1997 0
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.
Average annual total return, current yield and effective yield quotations used
by the fund are based on the standardized methods of computing performance
mandated by the SEC. An explanation of these and other methods used by the fund
to compute or express performance follows. Regardless of the method used, past
performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes income dividends are reinvested at net asset value. The
quotation assumes the account was completely redeemed at the end of each period
and the deduction of all applicable charges and fees.
The average annual total returns for the indicated periods ended July 31, 1999,
were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
- ----------------------------------------------------------------------
2.49 2.87 3.18
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CURRENT YIELD Current yield shows the income per share earned by the fund. It is
calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account with 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 current yield for the seven day period ended July 31, 1999, was 2.44%.
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 effective yield for the seven
day period ended July 31, 1999, was 2.47%.
The following SEC formula was used to calculate this figure:
365/7
Effective yield = [(Base period return + 1) ] - 1
TAXABLE-EQUIVALENT YIELDS The fund also may 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 yield that is tax-exempt by
one minus the highest applicable federal income tax rate and adding the product
to the portion of the yield that is not tax-exempt, if any. The
taxable-equivalent yield based on the fund's current yield for the seven day
period ended July 31, 1999, was 4.04%. The taxable-equivalent effective yield
based on the fund's effective yield for the seven day period ended July 31,
1999, was 4.09%.
As of July 31, 1999, the federal income tax rate upon which the
taxable-equivalent yield quotations were 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 also may 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:
o 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.
o IBC Money Fund Report(R) - industry averages for seven day annualized and
compounded yields of taxable, tax-free and government money funds.
o Bank Rate Monitor - a weekly publication that reports various bank investments
such as CD rates, average savings account rates and average loan rates.
o 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 information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or sales material issued by the fund also 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 also may 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 is one of the
oldest mutual fund organizations 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 $218 billion in assets under management for more than 6 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 105 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.
Franklin is a leader in the tax-free mutual fund industry and manages more than
$48 billion in municipal security assets for over three quarters of a million
investors. According to Research and Ratings Review, Franklin had one of the
largest staffs of municipal securities analysts in the industry, as of June 14,
1999.
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1999, taxes could cost almost $47
on every $100 earned from a fully taxable investment (based on the maximum
combined 39.6% federal tax rate and the highest state tax rate of 12% for 1999).
Franklin tax-free funds, however, offer tax relief through a professionally
managed portfolio of tax-free securities selected based on their yield, quality
and maturity. An investment in a Franklin tax-free fund can provide you with the
potential to earn income free of federal taxes and, depending on the fund, state
and local taxes as well, while supporting state and local public projects.
Franklin tax-free funds also may provide tax-free compounding, when dividends
are reinvested. An investment in Franklin's tax-free funds can grow more rapidly
than similar taxable investments.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has been
making necessary software changes to help the computer systems that service the
fund and its shareholders to be Year 2000 compliant. After completing these
modifications, comprehensive tests are conducted in one of Resources' U.S. test
labs to verify their effectiveness. Resources continues to seek reasonable
assurances from all major hardware, software or data-services suppliers that
they will be Year 2000 compliant on a timely basis. Resources is also developing
a contingency plan, including identification of those mission critical systems
for which it is practical to develop a contingency plan. However, in an
operation as complex and geographically distributed as Resources' business, the
alternatives to use of normal systems, especially mission critical systems, or
supplies of electricity or long distance voice and data lines are limited.
DESCRIPTION OF RATINGS
- -------------------------------------------------------------------
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.
B: Municipal bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Municipal bonds rated Caa are of poor standing. These issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Municipal bonds rated Ca represent obligations that are
speculative to a high degree. These issues are often in default
or have other marked shortcomings.
C: Municipal bonds rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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.
BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the highest
degree of speculation. While these bonds will likely have some quality and
protective characteristics, they are outweighed by large uncertainties or major
risk exposures to adverse conditions.
C: This rating is reserved for income bonds on which no interest
is being paid.
D: Debt rated "D" is in default and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" 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. (FITCH)
AAA: Municipal bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal 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.
B: Municipal bonds rated B are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Municipal bonds rated CCC have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC: Municipal bonds rated CC are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C: Municipal bonds rated C are in imminent default in the payment
of interest or principal.
DDD, DD and D: Municipal bonds rated DDD, DD and D are in default on interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for recovery
while D represents the lowest potential for recovery.
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, DDD, DD or D categories.
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.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings, which are also applicable to municipal paper investments, 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 for both short-term debt and commercial paper, 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, certificates of deposit, 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.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.
FRANKLIN TAX-EXEMPT MONEY FUND
FILE NOS. 2-72614
811-3193
FORM N-1A
PART C
OTHER INFORMATION
ITEM 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) Amendment of Amended and Restated Distribution Agreement between
Registrant and Franklin/Templeton Distributors, Inc. dated January
12, 1999
(iii)Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and securities dealers
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-72614
Filing Date: September 30, 1998
(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
Filing: Post-Effective Amendment No. 19 to
Registration Statement on Form N-1A
File No. 2-72614
Filing Date: September 30, 1998
(v) Foreign Custody Management Agreement between the
Registrant and Bank of New York dated July 30, 1998
Filing: Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A
File No. 2-72614
Filing Date: September 30, 1998
(h) Other Material Contracts
Not Applicable
(i) Legal Opinion
(i) Opinion and consent of counsel dated September 15, 1998
Filing: Post-Effective Amendment No. 19 to
Registration Statement on Form N-1A
File No. 2-72614
Filing Date: September 30, 1998
(j) Other Opinions
(i) Consent of Independent Auditors
(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
(o) Rule 18f-3 Plan
Not Applicable
(p) Power of Attorney
(i) Power of Attorney dated September 14, 1999
(ii) Certificate of Secretary dated September 29, 1999
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 trustees, 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 trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with 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 Declaration of Trust, By-Laws, Management Agreement 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 manager also serve as officers
and/or trustees for (1) Franklin Advisers, Inc.'s (Advisors) 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 (Advisors (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
Franklin Templeton Variable Insurance Products Trust
(formerly Franklin Valuemark Funds)
Institutional Fiduciary Trust
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
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 certifies that it meets all of the
requirements for the effectiveness of this Post-Effective Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of California,
on the 23rd day of November, 1999
FRANKLIN TAX-EXEMPT MONEY FUND
(Registrant)
By: /S/RUPERT JOHNSON
-------------------
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: November 23, 1999
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: November 23, 1999
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: November 23, 1999
Frank H. Abbott III* Director
Frank H. Abbott III Dated: November 23, 1999
Harris J. Ashton* Director
Harris J. Ashton Dated: November 23, 1999
S. Joseph Fortunato* Director
S. Joseph Fortunato Dated: November 23, 1999
Charles B. Johnson* Director
Charles B. Johnson Dated: November 23, 1999
Frank W.T. LaHaye* Director
Frank W.T. LaHaye Dated: November 23, 1999
Gordon S. Macklin* Director
Gordon S. Macklin Dated: November 23, 1999
*By /s/LEIANN NUZUM
Leiann Nuzum, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
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 Franklin Advisers, Inc. dated
December 1, 1986
EX-99.(d)(ii) Amendment to Management Agreement 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) Amendment of Amended and Restated Attached
Distribution Agreement between Registrant
and Franklin/Templeton Distributors, Inc.
dated January 12, 1999
EX-99.(e)(iii) 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.(g)(v) Foreign Custody Management Agreement *
between the Registrant and Bank of New
York dated July 30, 1998
EX-99.(i)(i) Opinion and consent of counsel dated *
September 15, 1998
EX-99.(j)(i) Consent of Independent Auditors Attached
EX-99.(l)(i) Letter of Understanding dated July 14, *
1981
EX-99.(p)(i) Power of Attorney dated September 14, 1999 Attached
EX-99.(p)(ii) Certificate of Secretary dated September Attached
29, 1999
* Incorporated by Reference
FRANKLIN TAX-EXEMPT MONEY FUND
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc
777 Mariners Island Blvd.
San Mateo, CA 94404
Re: Amendment of Amended and Restated Distribution
Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund," which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act") and whose shares are
registered under the Securities Act of 1933, as amended (the "1933 Act"). You
have informed us that your company is registered as a broker-dealer under the
provisions of the Securities Exchange Act of 1934, as amended (the "1934 Act")
and that your company is a member of the National Association of Securities
Dealers, Inc.
This agreement is an amendment (the "Amendment") of the Amended and Restated
Distribution Agreement (the "Agreement") currently in effect between you and us.
As used herein all capitalized terms herein have the meanings set forth in the
Agreement. We have been authorized to execute and deliver the Amendment to you
by a resolution of our Board passed at a meeting at which a majority of Board
members, including a majority who are not otherwise interested persons of the
Fund and who are not interested persons of our investment adviser, its related
organizations or of you or your related organizations, were present and voted in
favor of such resolution approving the Amendment.
To the extent that any provision of the Amendment conflicts with any provision
of the Agreement, the Amendment provision supersedes the Agreement provision.
The Agreement and the Amendment together constitute the entire agreement between
the parties hereto and supersede all prior oral or written agreements between
the parties hereto.
Section 4. entitled "Compensation" is amended by adding the
following sentences at the end of Subsection 4.B:
The compensation provided in the Class B Distribution Plan applicable to
Class B Shares (the "Class B Plan") is divided into a distribution fee and
a service fee, each of which fees is in compensation for different
services to be rendered to the Fund. Subject to the termination provisions
in the Class B Plan, the distribution fee with respect to the sale of a
Class B Share shall be earned when such Class B Share is sold and shall be
payable from time to time as provided in the Class B Plan. The
distribution fee payable to you as provided in the Class B Plan shall be
payable without offset, defense or counterclaim (it being understood by
the parties hereto that nothing in this sentence shall be deemed a waiver
by the Fund of any claim the Fund may have against you). You may direct
the Fund to cause our custodian to pay such distribution fee to Lightning
Finance Company Limited ("LFL") or other persons providing funds to you to
cover expenses referred to in Section 2(a) of the Class B Plan and to
cause our custodian to pay the service fee to you for payment to dealers
or others or directly to others to cover expenses referred to in Section
2(b) of the Class B Plan.
We understand that you intend to assign your right to receive certain
distribution fees with respect to Class B Shares to LFL in exchange for
funds that you will use to cover expenses referred to in Section 2(a) of
the Class B Plan. In recognition that we will benefit from your
arrangement with LFL, we agree that, in addition to the provisions of
Section 7 (iii) of the Class B Plan, we will not pay to any person or
entity, other than LFL, any such assigned distribution fees related to
Class B Shares sold by you prior to the termination of either the
Agreement or the Class B Plan. We agree that the preceding sentence shall
survive termination of the Agreement.
Section 4. entitled "Compensation" is amended by adding the
following Subsection 4.C. after Subsection 4.B.:
C. With respect to the sales commission on the redemption of Shares of
each series and class of the Fund as provided in Subsection 4.A. above, we
will cause our shareholder services agent (the "Transfer Agent") to
withhold from redemption proceeds payable to holders of the Shares all
contingent deferred sales charges properly payable by such holders in
accordance with the terms of our then current prospectuses and statements
of additional information (each such sales charge, a "CDSC"). Upon receipt
of an order for redemption, the Transfer Agent shall direct our custodian
to transfer such redemption proceeds to a general trust account. We shall
then cause the Transfer Agent to pay over to you or your assigns from the
general trust account such CDSCs properly payable by such holders as
promptly as possible after the settlement date for each such redemption of
Shares. CDSCs shall be payable without offset, defense or counterclaim (it
being understood that nothing in this sentence shall be deemed a waiver by
us of any claim we may have against you.) You may direct that the CDSCs
payable to you be paid to any other person.
Section 11. entitled "Conduct of Business" is amended by replacing the reference
in the second paragraph to "Rules of Fair Practice" with a reference to the
"Conduct Rules".
Section 16. entitled "Miscellaneous" is amended in the first paragraph by
changing the first letter of each of the words in each of the terms in
quotations marks, except "Parent," to the lower case and giving to the term
"assignment" the meaning as set forth only in the 1940 Act and the Rules and
Regulations thereunder (and not as set forth in the 1933 Act and the Rules and
Regulations thereunder.)
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN TAX-EXEMPT MONEY FUND
By: /S/ DEBORAH R. GATZEK
Deborah R. Gatzek
Vice President & Secretary
Accepted:
Franklin/Templeton Distributors, Inc.
By: /S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
Dated: January 12, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 19
to the Registration Statement of Franklin Tax-Exempt Money Fund on Form N-1A,
File No. 2-72614, of our report dated September 3, 1999, 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, 1999, filed with the Securities and Exchange Commission pursuant to
section 30(d) of the Investment Company Act of 1940, which is incorporated by
reference in the Registration Statement. We also consent to the reference to our
firm under the captions "Financial Highlights" and "Auditor."
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
November 24, 1999
POWER OF ATTORNEY
The undersigned officers and directors of FRANKLIN TAX-EXEMPT MONEY FUND
(the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH R.
GATZEK, KAREN L. SKIDMORE AND LEIANN NUZUM (with full power to each of them to
act alone) his attorney in-fact and agent, in all capacities, to execute,
deliver and file in the names of the undersigned, any and all instruments that
said attorneys and agents may deem necessary or advisable to enable the
Registrant to comply with or register any security issued by the Registrant
under the Securities Act of 1933, as amended, and/or the Investment Company Act
of 1940, as amended, and the rules, regulations and interpretations thereunder,
including, but not limited to, any registration statement, including any and all
pre- and post-effective amendments thereto, any other document to be filed with
the U.S. Securities and Exchange Commission and any and all documents required
to be filed with respect thereto with any other regulatory authority. Each of
the undersigned grants to each of said attorneys, full authority to do every act
necessary to be done in order to effectuate the same as fully, to all intents
and purposes, as he could do if personally present, thereby ratifying all that
said attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
This Power of Attorney may be executed in one or more counterparts, each
of which shall be deemed to be an original, and all of which shall be deemed to
be a single document.
The undersigned officers and directors hereby execute this Power of
Attorney as of the 14th day of September, 1999.
/S/ RUPERT H. JOHNSON, JR. /S/ FRANK H. ABBOTT, III
Rupert H. Johnson, Jr. Frank H. Abbott, III,
Principal Executive Officer and Director Director
/S/ HARRIS J. ASHTON /S/ S. JOSEPH FORTUNATO
Harris J. Ashton, S. Joseph Fortunato,
Director Director
/S/ CHARLES B. JOHNSON /S/ FRANK W.T. LAHAYE
Charles B. Johnson, Frank W.T. LaHaye,
Director Director
/S/GORDON MACKLIN /S/ MARTIN L. FLANAGAN
Gordon S. Macklin, Martin L. Flanagan,
Director, Principal Financial Officer
/S/ DIOMEDES LOO-TAM
Diomedes Loo-Tam,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of FRANKLIN
TAX-EXEMPT MONEY FUND (the "Fund").
As Secretary of the Fund, I further certify that the following resolution was
adopted by a majority of the Directors of the Fund present at a meeting held at
777 Mariners Island Boulevard, San Mateo, California 94404, on September 14,
1999.
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
Board, appointing Harmon E. Burns, Deborah R. Gatzek,
Karen L. Skidmore, Leiann Nuzum and Mark H. Plafker as
attorneys-in-fact for the purpose of filing documents
with the Securities and Exchange Commission, be
executed by each Director and designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
/S/ DEBORAH R. GATZEK
Dated: SEPTEMBER 29, 1999 Deborah R. Gatzek
------------------ Secretary
