As filed with the Securities and Exchange Commission on November 29, 2000.
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. 20 (X)
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 (X)
--
FRANKLIN TAX-EXEMPT MONEY FUND
------------------------------
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (650) 312-2000
MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
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(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, 2000 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, 2000
[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
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goals and Strategies
4 Main Risks
6 Performance
7 Fees and Expenses
8 Management
9 Distributions and Taxes
11 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
12 Buying Shares
15 Investor Services
18 Selling Shares
21 Account Policies
23 Questions
FOR MORE INFORMATION
[Begin callout]
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 to provide investors with as high a level of
income exempt from federal income taxes as is consistent with prudent investment
management and the preservation of shareholders' capital. The Fund also seeks
liquidity in its investments and tries to maintain a stable $1 share price.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund 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.
[Begin callout]
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. Municipal
securities pay a fixed, floating or variable rate of interest, and require that
the amount borrowed (principal) be repaid 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 When the manager believes market or economic conditions
are unusual or unfavorable for investors, the manager may invest up to 100% of
the Fund's assets in a temporary defensive manner by holding all or a
substantial portion of its assets in cash, cash equivalents or other high
quality short-term investments. Temporary defensive investments may include
securities that pay taxable interest. The manager also may invest in these types
of securities or hold cash when securities meeting the Fund's investment
criteria are unavailable or to maintain liquidity. In these circumstances, the
Fund may be unable to achieve its investment goal.
[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 An issuer of municipal securities may 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 and, thus, impact Fund
performance.
Many of the Fund's portfolio securities may be supported by credit enhancements,
which may be provided by either U.S. or foreign banks and insurance companies.
These securities have the credit risk of the entity providing the credit
support. Credit support provided by a foreign bank or insurance company 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. 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, the Fund's share price and Fund performance. The Fund might also be
adversely impacted by the inability of an insurer to meet its insurance
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 Changes in interest rates can be sudden and unpredictable. Rate
changes occur in response to general economic conditions and also as a result of
actions by the Federal Reserve Board. A reduction in short-term interest rates
will normally result in reduced interest income to the Fund and thus a reduction
in dividends payable to shareholders. An increase in short-term interest rates
will normally have the effect of increasing dividends to shareholders.
As a general rule, when interest rates rise, debt securities can lose market
value. Similarly, when interest rates fall, debt securities can gain value.
However, because the length of time to maturity of the money market instruments
in the Fund's portfolio is very short, it is unlikely to be affected by interest
rate changes in this way except in the case of unexpectedly large interest rate
changes over a very short period of time.
MARKET Market risk is the risk that a security's value may be reduced by market
activity or the results of supply and demand (because prices tend to fall when
there are more sellers than buyers and rise when there are more buyers than
sellers).
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.
More detailed information about the Fund, its policies and risks and about
municipal securities held by the Fund 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 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 a bull and a 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
[Insert bar graph]
5.66% 3.99% 2.48% 1.91% 2.18% 3.16% 2.84% 3.03% 2.85% 2.48%
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90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q2 '90 1.41%
WORST QUARTER:
Q1 '94 0.41%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
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Franklin Tax-Exempt Money 2.48% 2.87% 3.05%
Fund
1. As of September 30, 2000, the Fund's year-to-date return was
2.45%.
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
-----------------
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 None
purchases
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND
ASSETS)
Management fees 0.56%
Other expenses 0.18%
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Total annual Fund operating expenses 0.74%
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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
----------------------------------------
$76 $237 $411 $918
[Insert graphic of briefcase] MANAGEMENT
----------
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 $229 billion in assets.
The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended July 31, 2000, the Fund paid 0.56% of its average daily net assets to the
manager for its services.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------
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
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, 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 $1 share price, you should not have any gain or loss if you
sell your Fund shares.
Exempt-interest dividends are taken into account when determining the taxable
portion of your social security or railroad retirement benefits. The Fund may
invest a portion of its assets in private activity bonds. The income from these
bonds is a preference item when determining your alternative minimum tax.
Exempt-interest dividends from interest earned on municipal securities of a
state, or its political subdivisions, generally are exempt from that state's
personal income tax. Most states, however, do not grant tax-free treatment to
interest from municipal securities of other states.
Distributions of ordinary income generally will be subject to
state and local taxes. Non-U.S. investors may be subject to U.S.
withholding and estate tax. You should consult your tax advisor
about the federal, state, local or foreign tax consequences of
your investment in the Fund.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------
This table presents the Fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED JULY 31,
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2000 1999 1998 1997 1996
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PER SHARE DATA ($)
Net asset value, beginning of 1.00 1.00 1.00 1.00 1.00
year ------------------------------------
Net investment income .030 .025 .029 .029 .029
Distributions from net
investment income (.030) (.025) (.029) (.029) (.029)
------------------------------------
Net asset value, end of year 1.00 1.00 1.00 1.00 1.00
------------------------------------
Total return (%) 3.02 2.49 2.99 2.94 2.93
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 169,338 190,727 164,525 161,038 166,713
($ x 1,000)
Ratios to average net
assets: (%)
Expenses .74 .74 .65 .65 .65
Expenses excluding waiver and .74 .82 .83 .80 .81
payments by affiliate
Net investment income 3.02 2.46 2.94 2.91 2.88
YOUR ACCOUNT
[Insert graphic of a 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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Automatic investment plans $50 $50
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UGMA/UTMA accounts $100 $50
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Broker-dealer sponsored wrap account
programs $250 $50
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Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their
immediate family members $100 $50
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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]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[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.
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 "Investor Services" on page 15). For example, if you would like
to link one of your bank accounts to your Fund account so that you may use
electronic fund transfers to and from your bank account to buy and sell shares,
please complete the bank information section of the application. We will keep
your bank information on file for future purchases and redemptions.
BUYING SHARES
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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[Insert graphic
of hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
----------------------------------------------------------------------
[Insert graphic If you have another Before requesting a
of phone] Franklin Templeton fund telephone purchase,
account with your bank please make sure we
BY PHONE account information on have your bank account
file, you may open a new information on file. If
(Up to $100,000 account by phone. we do not have this
per day) information, you will
To make a same day need to send written
1-800/632-2301 investment, please call instructions with your
us by 3:00 p.m. Pacific bank's name and
time. address, a voided check
or savings account deposit slip,
and a signature guarantee if the
bank and Fund accounts do not have
at least one common owner.
To make a same day investment,
please call us by 3:00 p.m. Pacific
time.
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Make your check, Federal Make your check payable
[Insert graphic Reserve Draft or to Franklin Tax-Exempt
of envelope] negotiable bank draft Money Fund. Include
payable to Franklin your account number on
BY MAIL Tax-Exempt Money Fund. the check.
Instruments drawn on
other mutual funds may
not be accepted. Fill out the deposit
slip from your account
statement or checkbook.
Mail the check or draft If you do not have a
and your signed slip, include a note
application to Investor with your name, the
Services. Fund name, and your
account number.
Mail the check and deposit slip
or note to Investor Services.
----------------------------------------------------------------------
[Insert graphic Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.
BY WIRE Wire the funds and To make a same day wire
mail your signed investment, please make sure we
application to Investor receive your order by 3:00 p.m.
Services. Please include Pacific Time.
the wire control number
or your new account
number on the application.
1-800/632-2301
(or
1-650/312-2000
collect)
To make a same day wire
investment, please make
sure we receive your
order by 3:00 p.m.
Pacific time.
----------------------------------------------------------------------
[Insert graphic Call Shareholder Call Shareholder
of two arrows Services at the number Services at the number
pointing in below, or send signed below or our automated
opposite written instructions. TeleFACTS system, or
directions] The TeleFACTS system send signed written
cannot be used to open a instructions.
BY EXCHANGE new account.
(Please see page 16 for (Please see page 16 for
TeleFACTS(R) information on information on
1-800/247-1753 exchanges.) exchanges.)
(around-the-clock
access)
----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 33096,
ST. PETERSBURG, FL 33733-8096
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 a headset] INVESTOR SERVICES
-----------------
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include the minimum initial investment of $50 with your
application.
AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically 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 buy,
sell or exchange your shares and make certain other changes to your account by
phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one signature
for all transactions. This type of telephone exchange is available as long as
you have telephone exchange privileges on your account.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone purchase, exchange or redemption privileges on your
account application.
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.
[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.
Because excessive trading can hurt fund performance, operations and
shareholders, the Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges, reject any exchange, or
restrict or refuse purchases if (i) the Fund or its manager believes the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund (please
see "Market Timers" on page 22).
*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.
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 a certificate] SELLING SHARES
--------------
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 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
hands shaking]
Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
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[Insert graphic of Send written instructions and endorsed
envelope] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or trust accounts may need to
send additional documents.
Specify the Fund, the account number and the dollar value
or number of shares you wish to sell. Be sure to include
all necessary signatures and any additional documents, as
well as signature guarantees if required.
A check will be mailed to the name(s) and address on the
account, or otherwise according to your written
instructions.
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[Insert graphic of As long as your transaction is for
phone] $100,000 or less, you do not hold share
certificates and you have not changed
BY PHONE your address by phone within the last
15 days, you can sell your shares by
1-800/632-2301 phone.
A check will be mailed to the name(s) and address on the
account. Written instructions, with a signature guarantee,
are required to send the check to another address or to
make it payable to another person.
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[Insert graphic of You can call or write to have
three lightning redemption proceeds sent to a bank
bolts] account. See the policies above for
selling shares by mail or phone.
Before requesting to have redemption
proceeds sent to a bank account, please
BY ELECTRONIC FUNDS make sure we have your bank account
TRANSFER (ACH) information on file. If we do not have
this information, you will need to send written
instructions with your bank's name and address, a voided
check or savings account deposit slip, and a signature
guarantee if the bank and Fund accounts do not have at
least one common owner.
If we receive your request in proper form by 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
two arrows pointing fund you are considering.
in opposite
directions] Call Shareholder Services at the number
below or our automated TeleFACTS
BY EXCHANGE system, or send signed written
instructions. See the policies above
TeleFACTS(R) for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you
access) will need to return them to the Fund
before your exchange can be processed.
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 33096,
ST. PETERSBURG, FL 33733-8096
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
----------------
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 monthly account statements that show all
your account transactions during the month. You also will receive written
notification after each transaction affecting your account (except for
distributions, transactions made through automatic investment or withdrawal
programs, and shares sold by check, which will be reported on your monthly
statement). You also will receive the Fund's financial reports every six months.
To reduce Fund expenses, we try to identify related shareholders in a household
and send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and statements
and other information about your account directly from the Fund.
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 purchases or exchanges by Market
Timers. You may be considered a Market Timer if you have (i) requested an
exchange out of any of the Franklin Templeton funds within two weeks of an
earlier exchange request out of any fund, or (ii) exchanged shares out of any of
the Franklin Templeton funds more than twice within a rolling 90 day period, or
(iii) otherwise seem to follow a market timing pattern that may adversely affect
the Fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.
Anyone, including the shareholder or the shareholder's agent, who is considered
to be a Market Timer by the Fund, its manager or shareholder services agent,
will be issued a written notice of their status and the Fund's policies.
Identified Market Timers will be required to register with the market timing
desk of Franklin Templeton Investor Services, Inc., and to place all purchase
and exchange trade requests through the desk. Some funds do not allow
investments by Market Timers.
ADDITIONAL POLICIES Please note that the Fund maintains additional policies and
reserves certain rights, including:
o The Fund may restrict or 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, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds 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
---------
If you have any questions about the Fund or your account, you can write to us at
P.O. Box 33096, St. Petersburg, FL 33733-8096. You also can call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
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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 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
TeleFACTS(R) 1-800/247-1753 (around-the-clock
(automated) access)
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
franklintempleton.com
You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].
Investment Company Act file #811-3193 114 P 12/00
>
FRANKLIN TAX-EXEMPT MONEY FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 33096, ST. PETERSBURG, FL 33733-8096 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, 2000, 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, 2000, 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, Strategies and Risks . . . . . . . . . . . 2
Officers and Directors. . . . . . . . . . . . . . 6
Management and Other Services . . . . . . . . . . 9
Portfolio Transactions. . . . . . . . . . . . . . 10
Distributions and Taxes . . . . . . . . . . . . . 10
Organization, Voting Rights
and Principal Holders. . . . . . . . . . . . . . 11
Buying and Selling Shares . . . . . . . . . . . . 12
Pricing Shares . . . . . . . . . . . . . . . . . 14
The Underwriter . . . . . . . . . . . . . . . . . 15
Performance . . . . . . . . . . . . . . . . . . . 15
Miscellaneous Information . . . . . . . . . . . . 16
Description of Ratings . . . . . . . . . . . . . 17
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
-------------------------------------------------------------------
o ARE NOT 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, STRATEGIES AND RISKS
-------------------------------------------------------------------
The Fund's investment goal is high current income exempt from federal income
taxes as is consistent with liquidity, prudent investment management and
preservation of shareholder's capital. 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 total
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.
MUNICIPAL BONDS 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.
ANTICIPATION NOTES are issued to provide interim financing of various municipal
needs in anticipation of the receipt of other sources of money for repayment of
the notes.
BOND ANTICIPATION NOTES are normally issued to provide interim financing until a
long-term bond financing can be arranged which provides the money for the
repayment of the notes.
REVENUE ANTICIPATION NOTES are issued in expectation of the receipt of revenue
sources, other than tax receipts, such as federal revenues available under the
Federal Revenue Sharing Program.
TAX ANTICIPATION NOTES are issued to finance the short-term working capital
needs of municipalities in anticipation of the receipt of various seasonal tax
revenues that are used to repay the notes. They are usually general obligations
of the issuer and are secured by the taxing power for the payment of principal
and interest.
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 below the
rate at which the original bond was issued, 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.
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.
ESCROW-SECURED OR PRE-REFUNDED BONDS are created when an 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 in order to
redeem (or pre-refund), before maturity, an outstanding bond issue that is not
immediately callable. 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. Pre-refunded bonds often receive a triple
A or equivalent rating. Because pre-refunded bonds still bear the same interest
rate, and have a very high credit quality, their price may increase. However, as
the original bond approaches its call date, the bond's price will fall to its
call price. The Fund's manager attempts to manage the pre-refunded bonds in its
portfolio so that it sells them before this decline in price occurs.
MUNICIPAL LEASE OBLIGATIONS are created to finance the purchase of property for
public use. The property is then leased to the state or a local government and
these leases secure the municipal lease obligations. The lease payments are used
to pay the interest on the obligations. However, municipal lease obligations
differ from other municipal securities because each year the lessee's governing
body must appropriate (set aside) the money to make the lease payments. 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. (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 municipal lease securities in which it may invest.
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.
TAX-EXEMPT COMMERCIAL PAPER typically represents a short-term obligation (270
days or less) issued by a municipality to meet working capital needs.
TAX-EXEMPT INDUSTRIAL DEVELOPMENT REVENUE BONDS are issued by or on behalf of
public authorities to finance various privately operated facilities which are
expected to benefit the municipality and its residents, such as 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.
U.S. GOVERNMENT SECURITIES 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.
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 Funds' income when interest rates fall. Of
course, the Funds' 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 section are not
fundamental.
IN ADDITION TO STANDARD PURCHASES AND SALES OF VARIOUS MUNICIPAL SECURITIES, THE
FUND MAY ALSO ENGAGE IN OTHER STRATEGIES, WHICH ARE DESCRIBED BELOW. SHOULD
OTHER STRATEGIES, NOT SPECIFICALLY DESCRIBED BELOW, BECOME AVAILABLE OR
ATTRACTIVE, THE MANAGER MAY ENGAGE IN THEM SO LONG AS THEY ARE CONSISTENT WITH
THE FUND'S GOALS AND OBJECTIVES.
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 Ratings Group (S&P(R)), often
rate municipal securities based on their analysis 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.
Securities in the top four ratings are "investment grade," although securities
in the fourth highest rating may have some speculative features. 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.
These limitations generally are applied when the Fund makes an investment so
that the Fund is not required to sell a security because of a later change in
circumstances.
In addition to considering ratings in its selection of the Fund's portfolio
securities, the manager may consider, 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.
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 pre-funded 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.
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.
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.
PORTFOLIO TURNOVER Portfolio turnover refers to the frequency of portfolio
transactions. 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.
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 of 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.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unusual or unfavorable for investors, the manager may invest up to 100% of
the Fund's assets in a temporary defensive manner or hold a substantial portion
of its portfolio in cash, cash equivalents or other high quality short-term
investments. Unfavorable market or economic conditions may include excessive
volatility or a prolonged general decline in the securities markets, in the
securities in which the Fund invests, or in the economies of the states and
territories where the Fund invests.
Temporary defensive investments may include securities that pay taxable
interest, including (i) high quality commercial paper and obligations of U.S.
banks (including commercial banks and savings and loan associations) with assets
of $1 billion or more and (ii) securities issued by or guaranteed by the full
faith and credit of the U.S. government. The Fund also may invest all of its
assets in municipal securities issued by a U.S. territory such as Guam, Puerto
Rico, the Mariana Islands or the U.S. Virgin Islands. The manager also may
invest in these types of securities or hold cash when securities meeting the
Fund's investment criteria are unavailable or to maintain liquidity.
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 includes the value of the security in the
calculation of its net asset value. The Fund does not believe that 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 set aside on its books cash or liquid securities, with an
aggregate value equal to the amount of its purchase commitments, 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 described in this paragraph are not fundamental.
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 (79)
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 29 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).
Harris J. Ashton (68)
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 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Chairman of the Board, General Host Corporation
(nursery and craft centers) (until 1998).
S. Joseph Fortunato (68)
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 50 of the investment companies in Franklin Templeton
Investments.
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND DIRECTOR
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, 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 49 of the investment companies in Franklin Templeton Investments.
*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND DIRECTOR
Vice Chairman, Member - Office of the Chairman and Director,
Franklin Resources, Inc.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Director, Franklin
Advisers, Inc., Franklin Investment Advisory Services, Inc. and
Franklin/Templeton Investor Services, Inc.; Senior Vice
President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 52 of the
investment companies in Franklin Templeton Investments.
Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
DIRECTOR
Chairman, Peregrine Venture Management Company (venture capital); Director, The
California Center for Land Recycling (redevelopment); director or trustee, as
the case may be, of 29 of the investment companies in Franklin Templeton
Investments; and FORMERLY, General Partner, Miller & LaHaye and Peregrine
Associates, the general partners of Peregrine Venture funds.
Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
DIRECTOR
Director, Martek Biosciences Corporation, WorldCom, Inc.
(communications services), MedImmune, Inc. (biotechnology),
Overstock.com (internet services), White Mountains Insurance
Group, Ltd. (holding company) and Spacehab, Inc. (aerospace
services); director or trustee, as the case may be, of 48 of the
investment companies in Franklin Templeton Investments; and
FORMERLY, Chairman, White River Corporation (financial services)
(until 1998) and Hambrecht & Quist Group (investment banking)
(until 1992), and President, National Association of Securities
Dealers, Inc. (until 1987).
Sheila Amoroso (41)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Advisers, Inc.; and officer of
eight of the investment companies in Franklin Templeton
Investments.
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director,
Franklin Resources, Inc.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice President,
Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc., Franklin/Templeton Investor Services, Inc. and
Franklin Templeton 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 52 of the investment companies in
Franklin Templeton Investments.
Rafael R. Costas, Jr. (35)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Advisers, Inc.; and officer of
eight of the investment companies in Franklin Templeton
Investments.
Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Chief Financial
Officer and Chief Operating Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin/Templeton
Investor Services, Inc.; President and Chief Financial Officer,
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,
Franklin Advisers, Inc. and Franklin Investment Advisory
Services, Inc.; Chief Financial Officer, Franklin Advisory
Services, LLC; Chairman 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 52 of the investment
companies in Franklin Templeton Investments.
David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Associate General Counsel, Franklin Templeton Investments;
President, Chief Executive Officer and Director, Franklin Select
Realty Trust, Property Resources, Inc., Property Resources Equity
Trust, Franklin Real Estate Management, Inc. and Franklin
Properties, Inc.; officer and director of some of the other
subsidiaries of Franklin Resources, Inc.; officer of 53 of the
investment companies in Franklin Templeton Investments; and
FORMERLY, President, Chief Executive Officer and Director,
Franklin Real Estate Income Fund and Franklin Advantage Real
Estate Income Fund (until 1996).
Barbara J. Green (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources,
Inc.; Senior Vice President, Templeton Worldwide, Inc.; officer
of 53 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Deputy Director, Division of
Investment Management, Executive Assistant and Senior Advisor to
the Chairman, Counselor to the Chairman, Special Counsel and
Attorney Fellow, U.S. Securities and Exchange Commission
(1986-1995), Attorney, Rogers & Wells (until 1986), and Judicial
Clerk, U.S. District Court (District of Massachusetts) (until
1979).
Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Templeton Distributors, Inc.;
officer of one of the other subsidiaries of Franklin Resources,
Inc. and of 30 of the investment companies in Franklin Templeton
Investments.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and
officer of 34 of the investment companies in Franklin Templeton
Investments.
Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Executive Vice President and General Counsel, Franklin Resources,
Inc.; officer and/or director of some of the subsidiaries of
Franklin Resources, Inc.; officer of 53 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Chief
Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and
Director, Templeton Asset Management Ltd. (until 1999).
Thomas Walsh (38)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Advisers, Inc.; and officer of
eight of the investment companies in Franklin Templeton
Investments.
R. Martin Wiskemann (73)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President, and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; and officer
and/or director or trustee, as the case may be, of 15 of the
investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President and Director, ILA Financial Services,
Inc. (until 1998).
*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 Franklin Templeton Investments receive a flat fee of $2,000 per
committee meeting attended, a portion of which is allocated to the Fund. Members
of a committee are not compensated for any committee meeting held on the day of
a board meeting. Noninterested board members also may serve as directors or
trustees of other funds in Franklin Templeton Investments and may receive fees
from these funds for their services. The fees payable to noninterested board
members by the Fund are subject to reductions resulting from fee caps limiting
the amount of fees payable to board members who serve on other boards within
Franklin Templeton Investments. The following table provides the total fees paid
to noninterested board members by the Fund and by Franklin Templeton
Investments.
TOTAL FEES TOTAL FEES NUMBER OF BOARDS
RECEIVED RECEIVED FROM IN FRANKLIN
FROM THE FRANKLIN TEMPLETON
NAME FUND/1 ($) TEMPLETON INVESTMENTS ON
INVESTMENTS/2 ($) WHICH EACH
SERVES/3
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Frank H. Abbott, III 1,485 156,060 29
Harris J. Ashton 1,612 363,165 48
S. Joseph Fortunato 1,502 363,238 50
Frank W. T. LaHaye 1,560 156,060 29
Gordon S. Macklin 1,612 363,165 48
1. For the fiscal year ended July 31, 2000.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered
investment companies in Franklin Templeton Investments. This
number does not include the total number of series or funds
within each investment company for which the board members are
responsible. Franklin Templeton Investments currently includes 52
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 Franklin Templeton
Investments 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 Franklin
Templeton Investments. 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 Franklin Templeton Investments, 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.
The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the Fund or that are currently held by the Fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).
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 $250
million.
The fee is computed at the close of business each day according to the terms of
the management agreement.
For the last three fiscal years ended July 31, the Fund paid the following
management fees:
MANAGEMENT FEES PAID/1 ($)
-------------------------------------------
2000 1,159,574
1999 858,360
1998 644,753
1. For the fiscal years ended July 31, 1999 and 1998, management fees, before
any advance waiver, totaled $1,002,255 and $938,729, 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 $1.2 billion.
During the last three fiscal years ended July 31, the manager paid FT Services
the following administration fees:
ADMINISTRATION FEES PAID ($)
------------------------------------------
2000 308,565
1999 264,168
1998 244,094
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 33096, St. Petersburg, FL
33733-8096.
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 SEC.
PORTFOLIO TRANSACTIONS
-------------------------------------------------------------------
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 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 Franklin Templeton Investments, 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, 2000, 1999 and 1998, the Fund did not pay
any brokerage commissions.
As of July 31, 2000, 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 typically pays dividends from
its daily net income each day that its net asset value is calculated. 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 (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 from many sources, including from temporary
investments, the discount from stripped obligations or their coupons, income
from securities loans or other taxable transactions, or ordinary income derived
from the sale of market discount bonds. Any distributions by the Fund 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 its $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 Code. The
Fund has qualified as a regulated investment company for its most recent fiscal
year, and intends to continue to 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 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 distributions in December
(or to pay them in January, in which case you must treat them as received in
December) but can give no assurances that its distributions will be sufficient
to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) 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 any 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 none of its
distributions will be eligible for the corporate dividends-received deduction.
TREATMENT OF PRIVATE ACTIVITY BOND INTEREST Interest on certain private activity
bonds, while exempt from regular federal income tax, is a preference item for
taxpayers when determining their alternative minimum tax under the 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 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
-------------------------------------------------------------------
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.
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 1, 2000, 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 Franklin Templeton Investments.
BUYING AND SELLING SHARES
-------------------------------------------------------------------
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 Franklin Templeton
Investments. This support is based primarily on the amount of sales of fund
shares and/or total assets with Franklin Templeton Investments. 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 Franklin
Templeton Investments; 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 Franklin Templeton Investments. 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 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.
Each month in which a payment is scheduled, we will redeem an equivalent amount
of shares in your account on the day of the month you have indicated on your
account application or, if no day is indicated, on the 20th day of the month. If
that day falls on a weekend or holiday, we will process the redemption on the
next business day. For plans set up before June 1, 2000, we will continue to
process redemptions on the 25th day of the month (or the next business day)
unless you instruct us to change the processing date. Available processing dates
currently are the 1st, 5th, 10th, 15th, 20th and 25th days of the month. 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.
To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The Fund may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically 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.
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
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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 set
aside on the Fund's books 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 SEC.
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 $1 per share based on amortized cost. The extent of any
deviation will be examined by the board. If a deviation exceeds 1/2 of 1%, the
board will promptly consider what action, if any, will be initiated. If the
board determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, it will take
corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a net asset value per share by using
available market quotations.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the
principal underwriter in the continuous public offering of the
Fund's shares. Distributors is located at 777 Mariners Island
Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The table below shows the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended July
31:
AMOUNT RECEIVED IN
CONNECTION WITH REDEMPTIONS
AND REPURCHASES ($)
-----------------------------------------------
2000 78,882
1999 607
1998 0
PERFORMANCE
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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, 2000,
were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
----------------------------------------------------------------------
3.02 2.88 2.91
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, 2000, was 3.59%.
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, 2000, was 3.66%.
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, 2000, was 5.95%. The taxable-equivalent effective yield
based on the Fund's effective yield for the seven day period ended July 31,
2000, was 6.06%.
As of July 31, 2000, 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 Franklin Templeton Investments. Franklin Resources, Inc. is
the parent company of the advisors and underwriter of Franklin Templeton 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 SMITH BARNEY 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 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 Franklin Templeton Investments, 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 approximately 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, Franklin Templeton Investments has over
$229 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. Franklin Templeton Investments
offers 108 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
$44 billion in municipal security assets for over three quarters of a million
investors.
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 2000, 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 2000).
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.
DESCRIPTION OF RATINGS
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MUNICIPAL BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
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.
BELOW INVESTMENT GRADE
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.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa in its municipal bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
INVESTMENT GRADE
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.
BELOW INVESTMENT GRADE
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)
INVESTMENT GRADE
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.
BELOW INVESTMENT GRADE
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. Reflects 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
Filing: Post-Effective Amendment No. 19 to Registration
Statement on Form N-1A
File No. 2-72614
Filing Date: November 24, 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) Amendment dated August 30, 2000 to Exhibit A of Master Custody
Agreement between Registrant and Bank of New York dated February
16, 1996
(h) Other Material Contracts
(i) Subcontract for Fund Administrative Service dated October 1, 1996
and Amendment thereto dated August 10, 2000 between Franklin
Advisers, Inc. and Franklin Templeton Services Inc.
(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
(n) Rule 18f-3 Plan
Not Applicable
(p) Code of Ethics
(i) Code of Ethics
(q) Power of Attorney
(i) Power of Attorney dated September 12, 2000
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 (Advisers) corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the
Franklin/Templeton Group of Funds. In addition, Mr. Charles B. Johnson was
formerly a director of General Host Corporation. For additional information
please see Part B and Schedules A and D of Form ADV of Advisers (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 Growth and Income Fund Franklin Federal Money Fund Franklin Federal
Tax-Free Income Fund Franklin Floating Rate Master Trust Franklin Floating Rate
Trust Franklin Gold and Precious Metals 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
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 Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
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 29th day of November, 2000.
FRANKLIN TAX-EXEMPT MONEY FUND
(Registrant)
By: /s/ David P. Goss
-----------------
David P. Goss
Vice 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 29, 2000
Martin L. Flanagan* Principal Financial Officer Dated:
Martin L. Flanagan November 29, 2000
Kimberley H. Monasterio Principal Accounting Officer
Kimberley H. Monasterio Dated: November 29, 2000
Frank H. Abbott III* Director
Frank H. Abbott III Dated: November 29, 2000
Harris J. Ashton* Director
Harris J. Ashton Dated: November 29, 2000
S. Joseph Fortunato* Director
S. Joseph Fortunato Dated: November 29, 2000
Charles B. Johnson* Director
Charles B. Johnson Dated: November 29, 2000
Frank W.T. LaHaye* Director
Frank W.T. LaHaye Dated: November 29, 2000
Gordon S. Macklin* Director
Gordon S. Macklin Dated: November 29, 2000
*By /s/ David P. Goss
-----------------
David P. Goss, 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 *
EX-99.(a)(ii) Certificate of Amendment to Articl *
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 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) Amendment dated August 30, 2000 to Exhibit A of Attached
Master Custody Agreement between Registrant and
Bank of New York dated February 16, 1996
EX-99.(h)(i) Subcontract for Fund Administrative Service dated Attached
October 1, 1996 and Amendment thereto dated
August 10, 2000 between Franklin Advisers, Inc.
and Franklin Templeton Services Inc.
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) Code of Ethics Attached
EX-99.(q)(i) Power of Attorney dated September 12, 2000 Attached
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* Incorporated by Reference
