SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN MONEY FUND
DATED August 1, 1994
1. Add the following language under "How to Buy Shares of the Fund - General":
The Fund may impose a $10 charge for each returned item against any
shareholder account which, in connection with the purchase of Fund shares,
submits a check or a draft which is returned unpaid to the Fund.
2. The "How to Sell" section of the prospectus is amended to reflect a change to
the operational policies of the Fund:
CONTINGENT DEFERRED SALES CHARGE
The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge
will be made by the Fund, as described below. The 12-month contingency
period will be tolled (or stopped) for the period such shares are exchanged
into and held in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to certain redemptions made by those
investors within 12 months of the calendar month after such investments. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total cost of
such shares, and is retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales charge are deemed
to be redeemed first, in the following order: (i) shares representing
amounts attributable to capital appreciation; (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii) other shares
held longer than 12 months; and followed by any shares held less than 12
months, on a "first in, first out" basis.
Requests for redemptions for a specified dollar amount will result in
additional shares being redeemed to cover any applicable contingent deferred
sales charge, while requests for redemption of a specific number of shares
will result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
<PAGE>
FRANKLIN
MONEY
FUND
PROSPECTUS August 1, 1994
[FRANKLIN LOGO]
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
- -------------------------------------------------------------------------------
Franklin Money Fund (the "Fund") is a no-load, open-end, diversified management
investment company. The Fund's investment objectives are:
- High Current Income - Liquidity
- Capital Preservation
THE FUND, UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO
ACHIEVE ITS OBJECTIVES BY INVESTING ALL OF ITS ASSETS IN THE SHARES OF THE MONEY
MARKET PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SERIES OF THE MONEY MARKET
PORTFOLIOS ("MONEY MARKET"), WHOSE INVESTMENT OBJECTIVES ARE THE SAME AS THAT OF
THE FUND. The Portfolio in turn invests primarily in various money market
instruments, such as: United States ("U.S.") government securities, and other
U.S. dollar denominated securities which the Board of Trustees of Money Market
has determined present minimal credit risks and which have, as required by
federal securities laws, received a rating in one of the two highest categories
as determined by nationally recognized statistical rating organizations
("NRSRO") which may include obligations of U.S. regulated banking institutions,
commercial paper, and corporate obligations maturing in 397 days or less as
described under "Investment Objective and Policies of the Fund."
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the Fund, dated August
1, 1994, as may be amended from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or telephone number shown
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
1
<PAGE>
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table ........................... 2
Financial Highlights .................... 4
About the Fund .......................... 4
Investment Objective and
Policies of the Fund ................... 5
Administration of the Fund .............. 10
Distributions to Shareholders ........... 12
Taxation of the Fund
and Its Shareholders ................... 13
How to Buy Shares of the Fund ........... 13
How to Redeem Shares of the Fund ........ 15
Other Programs and Privileges
Available to Fund Shareholders ......... 18
Exchange Privilege ...................... 22
Telephone Transactions .................. 24
Valuation of Fund Shares ................ 25
How to Get Information
Regarding an Investment in the Fund .... 25
Performance ............................. 26
General Information ..................... 26
Account Registrations ................... 27
Important Notice Regarding
Taxpayer IRS Certifications ............ 28
</TABLE>
EXPENSE TABLE
- -------------------------------------------------------------------------------
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on the
aggregate operating expenses of the Fund for the fiscal year ended November 30,
1993, restated to reflect the investment of all of the Fund's assets in the
Portfolio as though such had been in effect at the beginning of the fiscal year,
and include the estimated expenses of the Portfolio.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases ........................ NONE
Maximum Sales Charge Imposed on Reinvested Dividends ............. NONE
Deferred Sales Charge ............................................ NONE
Redemption Fees .................................................. NONE
Exchange Fee ..................................................... $5.00*
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administration Fees ............................... 0.45%**+
12b-1 Fees ....................................................... NONE
Other Expenses of the Fund ....................................... 0.33%**
Other Expenses of the Portfolio .................................. 0.02%**+
-----
Total Operating Expenses ......................................... 0.80%**+
=====
</TABLE>
*$5.00 fee is imposed only on Timing Accounts, as described under "Exchange
Privilege." All other exchanges are without charge.
**The above figures have been restated to reflect estimated aggregate operating
expenses of the Fund and the Portfolio as though the Fund's assets had been
invested in the Portfolio for the fiscal year ended November 30, 1993. This
amount includes management fees of the Portfolio equal to 0.15% and
administration fees of the Fund equal to 0.30%. Franklin Advisers, Inc., the
Fund's administrator and the Portfolio's investment manager, however, has
voluntarily agreed to limit its management fees and assume responsibility for
making payments to offset the operating expenses otherwise payable by the Fund
and the Portfolio to ensure that total aggregate operating expenses of the Fund
and the Portfolio are not higher than if the Fund were not to invest all of its
assets in the Portfolio. With this reduction, management fees and total
operating expenses represented 0.13% and 0.02%, respectively, of the average net
assets of the Portfolio. This arrangement may be terminated by Advisers at any
time.
+Annualized.
Investors should be aware that the preceding table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in the Fund over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the end of each
time period. As noted in the preceding table, the Fund charges no redemption
fees:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$8 $26 $44 $99
</TABLE>
THIS EXAMPLE IS BASED ON THE ESTIMATED AGGREGATE ANNUAL OPERATING EXPENSES OF
THE FUND AND THE PORTFOLIO SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The operating expenses are borne by the Fund and only indirectly by shareholders
as a result of their investment in the Fund. In addition, federal regulations
require the example to assume an annual return of 5%, but the Fund's actual
return may be more or less than 5%.
The preceding table summarizes the estimated aggregate fees and expenses
incurred by both the Fund and the Portfolio. The Board of Directors of the Fund
considered the aggregate fees and expenses to be paid by both the Fund and the
Portfolio under the Fund's policy of investing all of its assets in shares of
the Portfolio, and such fees and expenses the Fund would pay if it invested
directly in various types of money market instruments. This arrangement, whereby
the Fund invests all of its assets in shares of the Portfolio, enables various
institutional investors, including the Fund and other investment companies, to
pool their assets, which may be expected to result in the achievement of a
variety of operating economies.
3
<PAGE>
Accordingly, the Board of Directors concluded that the aggregate expenses of the
Fund and the Portfolio were expected to be lower than the expenses that would be
incurred by the Fund if it invested directly in various types of money market
instruments. Of course, there is no guarantee or assurance that asset growth and
lower expenses will be recognized. Franklin Advisers, Inc. ("Advisers"),
however, has voluntarily agreed to limit expenses so that in no event will
shareholders of the Fund incur higher expenses than if the Fund invested
directly in various types of money market instruments. Further information
regarding the Fund's and the Portfolio's fees and expenses is included under
"Administration of the Fund."
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Set forth below is a table containing financial highlights for a share
outstanding throughout the fiscal years ended November 30. The information for
each of the five fiscal years in the period ended November 30, 1993 has been
audited by Coopers & Lybrand, independent auditors, whose audit report appears
in the financial statements in the Fund's Statement of Additional Information.
The remaining figures, which are also audited, are not covered by the auditors'
current report. A copy of the Statement of Additional Information, as well as a
copy of the Annual Report which contains further information regarding
performance, may be obtained without charge as noted on the front cover of this
Prospectus.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE*
Net asset value at
beginning of year ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------
Net investment income ........ .023 .031 .055 .074 .084
Distributions from net
investment income ........... (.023) (.031) (.055) (.074) (.084)
---------------------------------------------------------------------
Net asset value at
end of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================================================================
Total return**................. 2.36% 3.12% 5.66% 7.64% 8.76%
RATIOS/SUPPLEMENTAL
DATA
Net assets at end of year
(in 000's) .................... $1,040,026 $1,101,571 $1,353,141 $1,579,053 $1,600,756
Ratio of expenses to
average net assets ........... .80% .79% .74% .73% .74%
Ratio of net investment
income to average
net assets .................. 2.32% 3.08% 5.53% 7.42% 8.38%
</TABLE>
<TABLE>
<CAPTION>
1988 1987 1986 1985 1984
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE*
Net asset value at
beginning of year ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------
Net investment income ......... .067 .058 .061 .073 .096
Distributions from net
investment income ............ (.067) (.058) (.061) (.073) (.096)
------------------------------------------------------------------
Net asset value at
end of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==================================================================
Total return**................. 6.92% 6.00% 6.24% 7.51% 9.89%
RATIOS/SUPPLEMENTAL
DATA
Net assets at end of year
(in 000's) .................... $1,373,991 $1,261,286 $936,341 $944,411 $1,020,094
Ratio of expenses to
average net assets ........... .80% .85% .87% .96% .94%
Ratio of net investment
income to average
net assets ................... 6.66% 5.90% 6.09% 7.33% 9.66%
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
**Total return measures the change in value of an investment over the years
indicated. It assumes reinvestment of dividends at net asset value.
ABOUT THE FUND
- -------------------------------------------------------------------------------
The Fund is a no-load, open-end, diversified management investment company,
commonly known as a mutual fund, incorporated under the laws of the state of
California on November 7, 1975, and has registered with the SEC under the
Investment Company Act of 1940 (the "1940 Act").
4
<PAGE>
The Fund attempts to maintain a stable net asset value of $1.00 per share
(although there is no assurance that this will be achieved). Although a
shareholder may write redemption drafts (similar to checks) against the account,
the purchase of shares of the Fund does not create a checking or other bank
account.
Shares of the Fund may be purchased at net asset value (without a sales charge)
with an initial investment of at least $500 and subsequent investments of $25 or
more. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- -------------------------------------------------------------------------------
The investment objective of the Fund is to obtain as high a level of current
income (in the context of the type of investments available to the Fund) as is
consistent with capital preservation and liquidity. The Fund pursues its
investment objective by investing all of its assets in the Portfolio, which has
the same investment objectives and substantially similar policies and
restrictions as the Fund. The Portfolio is a separate diversified series of The
Money Market Portfolios, an open-end management investment company, managed by
Advisers. Shares of the Portfolio are acquired by the Fund at net asset value
with no sales charge. Accordingly, an investment in the Fund is an indirect
investment in the Portfolio. As with any other investment, there is no assurance
that the Fund's objective will be attained.
SPECIAL INFORMATION REGARDING THE FUND'S MASTER/FEEDER FUND STRUCTURE
The investment objectives of both the Fund and the Portfolio are fundamental and
may not be changed without shareholder approval. The investment policies of the
Fund, fundamental and non-fundamental, are identical to those described herein
with respect to the Portfolio, except that in all cases, the Fund is permitted
to pursue such policies by investing in an open-end management investment
company with the same investment objective and substantially similar policies
and limitations as the Fund. Any additional exceptions are noted below.
Information on administration and expenses is included under "Administration of
the Fund." See the SAI for further information regarding the Fund's and the
Portfolio's investment restrictions.
An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in the Portfolio, the Fund's expenses may increase or the economies
of scale which have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could have effective
voting control over the operation of the Portfolio. Further, in the event that
the shareholders of the Fund do not approve a proposed future change in the
Fund's objective or fundamental policies, which has been approved for the
Portfolio, the Fund may be forced to withdraw its investment from the Portfolio
and seek another investment company with the same objective and policies. If the
Board of Directors of the Fund considers that it is in the best interest of the
Fund to do so, the Fund may withdraw its investment in the Portfolio at any
time. In that event, the Board of Directors of the Fund would consider what
action to take, including the investment of all of the assets of the Fund in
another pooled investment entity having substantially similar investment
objectives and policies as the Fund or the hiring of an investment adviser to
manage the Fund's investments. Either circumstances may cause an increase in
Fund expenses. Further, the Fund's structure is a relatively
5
<PAGE>
new format which often results in certain operational and other complexities.
The Franklin organization, however, was one of the first mutual fund complexes
in the country to implement such a structure, and the directors do not believe
that the additional complexities outweigh the potential benefits to be gained by
shareholders.
The Franklin Group of Funds(R) has two other funds which may invest in the
Portfolio and which are designed for institutional investors only. It is
possible that in the future other funds may be created which may likewise invest
in the Portfolio or existing funds may be restructured so that they may invest
in the Portfolio. Any such fund may be offered at the same or a different public
offering price; thus, an investor in such fund may experience a different return
from an investor in another investment company which invests exclusively in the
Portfolio. The Fund or Advisers will forward to any interested shareholder
additional information, including a prospectus and statement of additional
information, if requested, regarding such other institutions through which they
may make investments in the Portfolio. Investors interested in obtaining
information about such funds may contact the departments listed under "How to
Get Information Regarding an Investment in the Fund." The Portfolio is a series
of Money Market, a management investment company registered under the 1940 Act.
Money Market is a Delaware business trust organized on July 10, 1992 and is
authorized to issue an unlimited number of shares of beneficial interest with a
par value of $.01 per share. All shares have one vote and, when issued, are
fully paid, non-assessable, and redeemable. Money Market currently issues shares
in two separate series; however, additional series may be added in the future by
the Board of Trustees of Money Market, the assets and liabilities of which will
be separate and distinct from any other series.
Whenever the Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to the Portfolio, the Fund, will hold a meeting of Fund shareholders
and will cast its votes in the same proportion as the Fund's shareholders have
voted.
GENERAL
In accordance with procedures adopted pursuant to Rule 2a-7 under the 1940 Act,
the Portfolio limits its investments to those U.S. dollar denominated
instruments which the Board of Trustees of Money Market determines present
minimal credit risks and which are, as required by the federal securities laws,
rated in one of the two highest rating categories as determined by nationally
recognized statistical rating agencies, or which are unrated and of comparable
quality, with remaining maturities of 397 calendar days or less ("Eligible
Securities"). The Portfolio maintains a dollar weighted average maturity of the
securities in its portfolio of 90 days or less. The Portfolio will not invest
more than 5% of its total assets in Eligible Securities of a single issuer,
other than U.S. government securities, rated in the highest category by the
requisite number of rating agencies, except that the Portfolio may exceed that
limit as permitted by Rule 2a-7 for a period of up to three business days; and
the Portfolio will not invest (a) the greater of 1% of the Portfolio's total
assets or $1 million in Eligible Securities issued by a single issuer rated in
the second highest category and (b) more than 5% of its total assets in Eligible
Securities of all issuers rated in the second highest category. These procedures
are a fundamental policy of the Portfolio and the Fund, except to the extent
that the Fund invests all of its assets in another registered investment company
having substantially similar investment objectives and policies of the Fund.
Because the Portfolio limits its investments to high quality securities, its
portfolio will generally earn
6
<PAGE>
lower yields than if the Portfolio purchased securities with a lower rating and
correspondingly greater risk.
As a matter of fundamental policy (which may not be changed without shareholder
approval), the Portfolio may not purchase any securities other than obligations
of the U.S. government, its agencies or instrumentalities, if, immediately after
such purchase, more than 5% of the value of the Portfolio's total assets would
be invested in securities of any one issuer with respect to 75% of the
Portfolio's total assets, or more than 10% of the outstanding voting securities
of any one issuer would be owned by the Portfolio, except to the extent that the
Fund invests all of its assets in another registered investment company having
substantially similar investment objectives and policies as the Fund. As stated
above in accordance with procedures adopted pursuant to Rule 2a-7, the Portfolio
will not invest more than 5% of the Portfolio's total assets in Eligible
Securities of a single issuer, other than U.S. government securities.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest in U.S. government securities, which consist of
marketable fixed, floating and variable rate securities issued or guaranteed by
the U.S. government, its agencies, or by various instrumentalities which have
been established or sponsored by the U.S. government ("U.S. government
securities"). Certain of these obligations, including U.S. Treasury bills, notes
and bonds and securities of the Government National Mortgage Association
(popularly called "GNMAs" or "Ginnie Maes") and the Federal Housing
Administration, are issued or guaranteed by the U.S. government and supported by
the full faith and credit of the U.S. government. Other U.S. government
securities are issued or guaranteed by federal agencies or government-sponsored
enterprises and are not direct obligations of the U.S. government, but involve
sponsorship or guarantees by government agencies or enterprises. These
obligations include securities that are supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of the Federal Home Loan
Bank, and securities that are supported by the credit of the instrumentality,
such as Federal National Mortgage Association ("FNMA") bonds. In this
connection, the Portfolio may use any portion of its assets invested in U.S.
government securities to concurrently enter into repurchase agreements with
respect to such securities.
BANK OBLIGATIONS
The Portfolio may also invest in bank obligations or instruments secured by bank
obligations. Such instruments may include fixed, floating or variable rate
certificates of deposit, letters of credit, time deposits, and bankers'
acceptances issued by banks and savings institutions with assets of at least one
billion dollars. Bank obligations may be obligations of U.S. banks, foreign
branches of U.S. banks (referred to as "Eurodollar Investments"), U.S. branches
of foreign banks (referred to as "Yankee Dollar Investments") and foreign
branches of foreign banks ("Foreign Bank Investments"). When investing in a bank
obligation issued by a branch, the parent bank must have assets of at least five
billion dollars. The Portfolio may invest only up to 25% of its assets in
obligations of foreign branches of U.S. or foreign banks. Investments in
obligations of U.S. branches of foreign banks, which are considered domestic
banks, may only be made if such branches have a federal or state charter to do
business in the U.S. and are subject to U.S. regulatory authorities. See
"Investment Objective and Policies of the Fund - Investment Risk Considerations"
for more information regarding these investments.
7
<PAGE>
Time Deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The Portfolio may not invest more than 10% of its assets in Time
Deposits with maturities in excess of seven calendar days.
COMMERCIAL PAPER
The Portfolio may also invest in commercial paper of domestic or foreign issuers
which is considered by the Portfolio to present minimal credit risks and which
is rated within the two highest rating categories by NRSROs or, if unrated, has
been determined by the investment manager to be of comparable quality to
instruments that are Eligible Securities pursuant to procedures approved by
Money Market's Board of Trustees.
CORPORATE OBLIGATIONS
The corporate obligations which the Portfolio may purchase are fixed, floating
or variable rate bonds, debentures or notes which are considered by the
Portfolio to present minimal credit risks and which are rated within the two
highest rating categories by NRSROs or, if unrated, have been determined by the
investment manager to be of comparable quality to instruments which are Eligible
Securities pursuant to procedures approved by Money Market's Board of Trustees.
Such obligations must mature in 397 calendar days or less. Generally, the higher
an instrument is rated, the greater its safety and the lower its yield.
(For informational purposes, included in the SAI is an explanation of ratings by
two NRSROs, Standard & Poor's Corporation and Moody's Investors Service.)
MUNICIPAL SECURITIES
The Portfolio may invest up to 10% of its assets in taxable municipal
securities, issued by or on behalf of states, territories and possessions of the
U.S. and the District of Columbia and their political subdivisions, agencies,
and instrumentalities, the interest on which is not exempt from federal income
tax, which are considered by the Portfolio to present minimal credit risks and
which are rated within the two highest rating categories by nationally
recognized statistical rating organizations or, if unrated, have been determined
by Advisers to be of comparable quality to instruments that are Eligible
Securities pursuant to procedures approved by the Money Market's Board of
Trustees. Generally, municipal securities are used to raise money for various
public purposes such as constructing public facilities and making loans to
public institutions. Taxable municipal bonds are generally issued to provide
funding for privately operated facilities.
REPURCHASE AGREEMENTS
The Portfolio may engage in repurchase transactions, in which the Portfolio
purchases a U.S. government security subject to resale to a bank or dealer at an
agreed-upon price and date. The transaction requires the collateralization of
the seller's obligation by the transfer of securities with an initial market
value, including accrued interest, equal to at least 102% of the dollar amount
invested by the Portfolio in each agreement, with the value of the underlying
securities marked to market daily to maintain coverage of at least 100%. A
default by the seller might cause the Portfolio to experience a loss or delay in
the liquidation of the collateral securing the repurchase agreement. The
Portfolio might also incur disposition costs in liquidating the collateral. The
Portfolio, however, intends to enter into repurchase agreements only with
government securities dealers recognized by the Federal Reserve Board or with
member banks of the Federal Reserve System. Under the 1940 Act, a repurchase
agreement is deemed to be the loan of money by the Portfolio to the seller,
collat-
8
<PAGE>
eralized by the underlying security. The U.S. government security subject
to resale (the collateral) will be held pursuant to a written agreement and the
Portfolio's custodian will take title to, or actual delivery of, the security.
ILLIQUID INVESTMENTS
It is the policy of the Portfolio that illiquid securities (securities that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which the Portfolio has valued the securities) may
not constitute, at the time of purchase, more than 10% of the value of the total
net assets of the Portfolio.
OTHER POLICIES
The Portfolio may borrow from banks for temporary or emergency purposes only and
pledge its assets for such loans in amounts up to 5% of the Portfolio's total
assets. No new investments will be made by the Portfolio while any outstanding
loans exceed 5% of its total assets.
Depending on its view of market conditions and cash requirements, the Portfolio
may or may not hold securities purchased until maturity. The yield on certain
instruments held by the Portfolio may decline if sold prior to maturity.
Whenever the Portfolio's investment manager believes market conditions are such
that yields could be increased by actively trading the portfolio securities to
take advantage of short-term market variations, the Portfolio may do so without
restriction or limitation. The Portfolio may not invest in securities other than
the types of securities listed above and is subject to other specific investment
restrictions as detailed under "Additional Information Regarding the Fund's
Investment Objective and Policies" in the SAI.
As approved by of the Board of Trustees and subject to the following conditions,
the Portfolio may lend its portfolio securities to qualified securities dealers
or other institutional investors, provided that such loans do not exceed 25% of
the value of the Portfolio's total assets at the time of the most recent loan,
and further provided that the borrower deposits and maintains 102% collateral
for the benefit of the Portfolio. The lending of securities is a common practice
in the securities industry. The Portfolio engages in security loan arrangements
with the primary objective of increasing the Portfolio's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Portfolio continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.
The Fund may not purchase securities of any issuer having a record, together
with predecessors, of less than three years' continuous operation, if,
immediately after such purchase, more than 5% of the Fund's total assets taken
at market value would be invested in such securities, except to the extent that
all or substantially all of the Fund's assets may be invested in another
registered investment company having substantially similar same investment
objectives and policies as the Fund.
INVESTMENT RISK CONSIDERATIONS
Any of the Portfolio's Eurodollar Investments, Yankee Dollar Investments,
Foreign Bank Investments or investments in commercial paper of foreign issuers
will involve risks that are different from investments in obligations of
domestic entities. These risks may include future unfavorable political and
economic developments, possible withholding taxes, seizure of foreign deposits,
currency controls, interest limitations, or other governmen-
9
<PAGE>
tal restrictions which might affect the payment of principal or interest on
securities the Portfolio holds. In addition, there may be less publicly
available information regarding such foreign banks or foreign issuers of
commercial paper.
ADMINISTRATION OF THE FUND
- -------------------------------------------------------------------------------
The Fund's Board of Directors has the primary responsibility for the overall
management of the Fund and for electing the officers of the Fund who are
responsible for administering its day-to-day operations. For information
concerning the officers and directors of the Fund and the officers and trustees
of Money Market, see "Officers and Directors" in the Statement of Additional
Information. The Board of Directors, with all disinterested directors as well as
the interested directors voting in favor, has adopted written procedures
designed to deal with potential conflicts of interest which may arise from the
Fund and Money Market having substantially the same Boards. The procedures call
for an annual review of the Fund's relationship with the Portfolio, and in the
event a conflict is deemed to exist, the Boards may take action, up to and
including the establishment of a new board of directors or board of trustees.
The Board of Directors has determined that there are no conflicts of interest
presented by this arrangement at the present time. See "Appendix" in the Fund's
SAI for a summary of the conflict of interest procedures.
Advisers serves as the Fund's administrator and as the Portfolio's investment
manager. Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company, the principal shareholders of
which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own approximately 20%, 16% and 10%, respectively, of Resources' outstanding
shares. Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager to 34 U.S.
registered investment companies (112 separate series) with aggregate assets of
over $75 billion.
Advisers serves as the Fund's administrator pursuant to an administration
agreement, effective August 1, 1994. Pursuant to the administration agreement,
Advisers provides various administrative, statistical, and other services to the
Fund in return for a monthly administration fee at the annual rate of 91/200 of
1% for the first $100 million of the Fund's average daily net assets; 33/100 of
1% of the Fund's net assets over $100 million up to and including $250 million;
and 7/25 of 1% of the Fund's net assets in excess of $250 million.
The Fund is responsible for its own operating expenses including, but not
limited to, Advisers' administration fee; taxes, if any; custodian, legal and
auditing fees; fees and expenses of directors who are not members of, affiliated
with or interested persons of Advisers; salaries of any personnel not affiliated
with Advisers; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Fund's net assets; printing and
other expenses relating to the Fund's operations; filing fees; brokerage fees
and commissions, if any; costs of registering and maintaining registration of
the Fund's shares under federal and state securities laws; plus any
extraordinary and non-recurring expenses which are not expressly assumed by
Advisers.
Advisers has voluntarily agreed to limit its administrative fee and assume
responsibility for making payments to offset certain operating expenses
otherwise payable by the Fund to ensure total aggregate operating expenses of
the Fund are not higher than if the Fund were not to invest all of its assets in
the Portfolio. This action by Advisers to limit its administrative fee and
assume responsibility for pay-
10
<PAGE>
ment of expenses related to the operations of the Fund may be terminated by
Advisers at any time.
The Portfolio has a management agreement with Advisers which provides for the
supervision and implementation of the Portfolio's investment activities and
certain administrative services and facilities which are necessary to conduct
the Portfolio's business.
Under the management agreement with Advisers, the Portfolio is obligated to pay
Advisers a fee equal to an annual rate of 15/100 of 1% of the Portfolio's
average net assets. The fee is computed and paid monthly based on the average
daily net assets of the Portfolio during the month. The Portfolio is responsible
for its own operating expenses, including, but not limited to: Advisers' fee;
taxes, if any; legal and auditing fees; fees and costs of its custodian; the
fees and expenses of trustees who are not members of, affiliated with or
interested persons of Advisers; salaries of any personnel not affiliated with
Advisers; insurance premiums, trade association dues, and expenses of obtaining
quotations for calculating the value of the Portfolio's net assets; printing and
other expenses relating to the Portfolio's operations; filing fees; brokerage
fees and commissions, if any; costs of registering and maintaining registration
of the Portfolio's shares under federal and state securities laws; plus any
extraordinary and non-recurring expenses which are not expressly assumed by
Advisers.
Advisers has limited its management fees and has assumed responsibility for
making payments to offset certain operating expenses otherwise payable by the
Portfolio. This action by Advisers to limit its management fees and to assume
responsibility for payment of the expenses related to operations of the
Portfolio may be terminated by Advisers at any time. The contractual management
fees which would have been incurred by the Portfolio absent a fee reduction by
Advisers for the Portfolio's fiscal year ended June 30, 1993 and the 6-month
period ended December 31, 1993, were $272,196 and $260,764, respectively. The
management fees actually paid by the Portfolio to Advisers for the Portfolio's
fiscal year ended June 30, 1993 and the 6-month period ended December 31, 1993,
were $229,483 and $225,075, respectively.
Fund shareholders will bear a portion of the Portfolio's operating expenses,
including its management fee, to the extent that the Fund, as a shareholder of
the Portfolio, bears such expenses. The portion of the Portfolio's expenses
borne by the Fund is dependent upon the number of other shareholders of the
Portfolio, if any. Advisers may, but is not obligated to, waive all or any
portion of the management fee due from the Portfolio or the administration fee
due from the Fund. This arrangement may be terminated by Advisers at any time.
It is not anticipated that the Portfolio will incur a significant amount of
brokerage expenses because short-term money market instruments are generally
traded on a "net" basis, that is, in principal transactions without the addition
or deduction of brokerage commissions or transfer taxes. To the extent that the
Portfolio does participate in transactions involving brokerage commissions, it
is Advisers' responsibility to select brokers through which such transactions
will be effected. Advisers tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, Advisers will consider the furnishing of quotations and of other
market services, research, statistical and other data for Advisers and its
affiliates, as well as the sale of shares of the Fund, as factors in selecting a
broker. Further information is included under "The Fund's Policies Regarding
Brokers Used on Portfolio Transactions" in the Fund's SAI.
11
<PAGE>
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended November 30, 1993 and the six months ended May 31,
1994, the expenses borne by the Fund, including fees paid to Advisers and to
Investor Services, totalled 0.80% and 0.81% (annualized) of the average daily
net assets of the Fund, respectively.
Prior to July 29, 1994, the Fund's assets were managed pursuant to a management
agreement with Advisers. During the fiscal year ended November 30, 1993 and the
six-month period ended May 31, 1994, management fees totalling 0.47% and 0.47%
(annualized) of the average daily net assets of the Fund were paid to Advisers,
respectively.
DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
The Fund declares dividends for each day that the Fund's net asset value is
calculated, payable to shareholders of record as of the close of business the
preceding day. The amount of dividends may fluctuate from day to day and
dividends may be omitted on some days, depending on changes in the factors that
comprise the Fund's net investment income.
The Fund does not pay "interest" to its shareholders, nor is any amount of
dividends or return guaranteed in any way.
Dividends are automatically reinvested daily in the form of additional shares of
the Fund at the net asset value per share at the close of business each day.
The Fund's daily dividend consists of the income dividends paid by the
Portfolio. The Portfolio's daily dividend includes accrued interest and any
original issue and market discount, plus or minus any gain or loss on the sale
of portfolio securities and changes in unrealized appreciation or depreciation
in portfolio securities (to the extent required to maintain a stable net asset
value per share), less amortization of any premium paid on the purchase of
portfolio securities and the estimated expenses of the Fund.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares. The SAI includes a
further discussion of distributions.
DIVIDENDS IN CASH
Shareholders may request to have their dividends paid out monthly in cash by
filing written instructions with Investor Services. For such shareholders, the
shares reinvested and credited to their account during the month will be
redeemed as of the close of business on the last business day of the month and
the proceeds will be paid to them in cash. By completing the "Special Payment
Instructions for Dividends" section of the Shareholder Application included with
this Prospectus, a shareholder may direct the selected distributions to another
fund in the Franklin Group of Funds or the Templeton Group, to another person,
or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing. Dividends
which may be paid in the interim will be sent to the address of record.
Additional information regarding automated fund transfers may be obtained from
Franklin's Shareholder Services Department.
12
<PAGE>
Shareholders may be able to change their dividend options by telephone. See
"Telephone Transactions."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
- -------------------------------------------------------------------------------
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Distributions and Taxes" in the SAI.
The Fund and the Portfolio have elected to be treated as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such, and intend to continue to so qualify. By
distributing all of their income and meeting certain other requirements relating
to the sources of their income and diversification of their assets, the Fund and
the Portfolio will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in the
Fund and to distributions and redemption proceeds received from the Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
HOW TO BUY SHARES OF THE FUND
- -------------------------------------------------------------------------------
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares, and by the Fund directly. The use of the term "securities dealer" shall
include other financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle customer orders and
accounts with the Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity. All shares of the Fund are
purchased at net asset value, without a sales charge, next determined after
receipt of a purchase order in proper form. The minimum initial investment is
$500 and subsequent investments must be $25 or more. These minimums may be
waived when the shares are purchased through plans established at Franklin
providing for regular periodic investments. Purchases in proper form received by
the Fund prior to 3:00 p.m. Pacific time will be credited to the shareholder's
account on that business day. If received after 3:00 p.m., the purchase will be
credited the following business day. Many of the types of instruments in which
the Fund (through the Portfolio) invests must be paid for in federal funds,
which are monies held by its custodian bank on deposit at the Federal Reserve
Bank of San Francisco and elsewhere. Therefore, the monies paid by an investor
for shares of the Fund
13
<PAGE>
generally cannot be invested by the Fund until they are converted into and are
available to the Fund in federal funds, which may take up to two days. In such
cases, purchases by investors may not be considered in proper form and effective
until such conversion and availability. In the event the Fund is able to make
investments immediately (within one business day), it may accept a purchase
order with payment other than in federal funds; in such event, shares of the
Fund will be purchased at the net asset value next determined after receipt of
the order and payments.
Shares may be purchased in any of the following ways:
BY MAIL
(1) For an initial investment, include the completed Shareholder Application
contained in this Prospectus. For subsequent investments, the deposit slips
which are included with the shareholder's monthly statement or checkbook (if
one has been requested) may be used, or the shareholder should reference the
account number on the check.
(2) Make the check, Federal Reserve draft or negotiable bank draft payable to
Franklin Money Fund. Instruments drawn on other investment companies may not
be accepted.
(3) Send the check, Federal Reserve draft or negotiable bank draft to Franklin
Money Fund, 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777.
BY WIRE
(1) Call Franklin's Shareholder Services Department at 1-800/632-2301. If that
line is busy, call 415/312-2000 collect, to advise that funds will be wired
for investment. The Fund will supply a wire control number for the
investment. It is necessary to obtain a new wire control number every time
money is wired into an account in the Fund. Wire control numbers are
effective for one transaction only and may not be used more than once.
Shareholders should contact Franklin's Shareholder Services Department at
the above telephone number to obtain a wire control number each time funds
are to be wired for investment to the Fund. Wired money which is not
properly identified with a currently effective wire control number will be
returned to the bank from which it was wired and will not be credited to the
shareholder's account.
(2) Wire funds to Bank of America, ABA routing number 121000358, for credit to
Franklin Money Fund, A/C 1493-3-04779. The wire control number and
shareholder's name must be included. Wired funds received by the Bank and
reported by the Bank to the Fund by 3:00 p.m. Pacific time are normally
credited on that day. Later wires are credited the following business day.
(3) If the purchase is not to an existing account, a completed Shareholder
Application must be sent to Franklin Money Fund at 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, California 94403-7777, to assure proper
credit for the wire.
THROUGH SECURITIES DEALERS
Investors may, if they wish, invest in the Fund by purchasing shares through a
securities dealer as noted above. Securities dealers which process orders on
behalf of their customers may charge a reasonable fee for their services.
Investments made directly, without the assistance of a securities dealer, are
without charge. In certain states, shares of the Fund may be purchased only
through registered securities dealers.
14
<PAGE>
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program.
GENERAL
The Fund and Distributors reserve the right to reject any order for the purchase
of shares of the Fund. In addition, the offering of shares of the Fund may be
suspended by the Fund at any time and resumed at any time thereafter.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
If the purchase or sale of Fund shares with the assistance of certain banks were
deemed to be an impermissible activity for such bank under the Glass-Steagall
Act, or other federal laws, such activities would likely be discontinued by such
bank. Investors utilizing such bank assistance would then be able to seek other
avenues to invest in Fund shares, such as securities dealers registered with the
SEC or from the Fund directly.
HOW TO REDEEM SHARES OF THE FUND
- -------------------------------------------------------------------------------
All or any part of a shareholder's investment may be converted into cash,
without penalty or charge, by redeeming shares in any one or more of the methods
discussed below on any day the New York Stock Exchange (the "Exchange") is open
for trading. Regardless of the method of redemption, payment for the
shareholder's redeemed shares will be sent within seven days after receipt of
the redemption request in proper form, except that the Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally reduce this
delay, shares purchased with such instruments will also be held pending
clearance. Shares purchased by federal funds wire are available for immediate
redemption. Shareholders are requested to provide a telephone number(s) where
they may be reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when necessary will
speed the processing of the redemption.
Retirement account liquidations require the completion of certain additional
forms to ensure compliance with Internal Revenue Service ("IRS") regulations. To
liquidate a retirement account, a shareholder or the shareholder's securities
dealer may call Franklin's Retirement Plans Department to obtain the necessary
forms.
Shares may be redeemed in any of the following ways:
1. BY CHECK
The Fund will supply redemption drafts (which are similar to checks and are
referred to as checks throughout this Prospectus) to shareholders who have
requested them on the Shareholder Application. THE ELECTION OF THE CHECK
REDEMPTION PROCEDURE DOES NOT CREATE A CHECKING ACCOUNT OR OTHER BANK ACCOUNT
RELATIONSHIP BETWEEN A SHAREHOLDER AND THE FUND OR ANY BANK. THESE CHECKS ARE
DRAWN THROUGH THE FUND'S CUSTODIAN,
15
<PAGE>
BANK OF AMERICA NT & SA (THE "CUSTODIAN" OR "BANK"). Shareholders will generally
not be able to convert a check drawn on the Fund account into a certified or
cashier's check by presentation at the Fund's Custodian. The shareholder may
make checks payable to the order of any person in any amount not less than $100.
There is no charge to the shareholder for this check redemption procedure.
When such a check is presented for payment, the Fund will redeem a sufficient
number of full and fractional shares in the shareholder's account to cover the
amount of the check. This enables the shareholder to continue earning daily
income dividends until the check has cleared. Shares will be redeemed at their
net asset value next determined after receipt of a check which does not exceed
the collected balance of the account. Only shareholders having accounts in which
no share certificates have been issued will be permitted to redeem shares by
check.
Because the Fund is not a bank, no assurance can be given that stop payment
orders on checks written by shareholders will be effective. The Fund, however,
will use its best efforts to see that such orders are carried out.
Shareholders will be subject to the right of the Bank to return unpaid checks in
amounts exceeding the collected balance of their account at the time the check
is presented for payment. Checks should not be used to close a Fund account
because, when the check is written, the shareholder will not know the exact
total value of the account on the day the check clears.
The Bank reserves the right to terminate this service at any time upon notice to
shareholders.
2. BY TELEPHONE
A shareholder may redeem shares by telephoning the Fund at 1-800/632-2301.
Payment of redemption requests of $1,000 or less (once per business day) will be
sent by mail to the shareholder's address as reflected on the Fund's records.
For payments over $1,000, the shareholder must complete the "Wire Redemptions
Privilege" section of the Shareholder Application. Proceeds will then be wired
directly to the commercial bank or brokerage firm designated by the shareholder.
Wires will not be sent for redemption requests of $1,000 or less. Shareholders
may have redemption proceeds in excess of $1,000, up to $50,000 per day per Fund
account, sent directly to their address of record by filing a completed
Telephone Redemption Authorization Agreement (the "Agreement"). The Agreement
may be obtained by writing to the Fund or Investor Services at the address shown
on the cover or by calling 1-800/632-2301. The Fund and Investor Services will
employ reasonable procedures to confirm that instructions given by telephone are
genuine. Shareholders, however, bear the risk of loss in certain cases as
described under "Telephone Transactions - Verification Procedures."
Telephone redemption requests received before 3:00 p.m. Pacific time on any
business day will be processed that same day. The redemption check will be sent
within seven days, made payable to all the registered owners on the account, and
will be sent only to the address of record. Wire payments will be transmitted
the next business day following receipt prior to 3:00 p.m. Pacific time of a
request for redemption in proper form. Shareholders may wish to allow for longer
processing time if they want to assure that redemption proceeds will be
available at a specific time for a specific transaction. Shareholders may be
able to have redemption proceeds wired to an escrow account the same day,
provided that the request is received prior to 9:00 a.m. Pacific time.
16
<PAGE>
Redemption instructions must include the shareholder's name and account number
and be called to the Fund. No shares for which share certificates have been
issued may be redeemed by telephone instructions. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts which wish to
execute redemptions in excess of $50,000 must complete an Institutional
Telephone Privileges Agreement which is available from Franklin's Institutional
Services Department by telephoning 1-800/321-8563.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
Prospectus. The telephone redemption privilege may be modified or discontinued
by the Fund at any time upon 60 days' notice to shareholders.
3. BY MAIL
A shareholder may redeem all or a portion of the shares in an account by sending
a letter to Investor Services, at the address shown on the back cover of this
Prospectus, requesting redemption and surrendering share certificates if any
have been issued.
IMPORTANT THINGS TO REMEMBER WHEN REDEEMING SHARES
Written requests for redemption must be signed by all registered owners.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced below. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a dispute
or give inconsistent instructions to the Fund, (c) the Fund has been
notified of an adverse claim, (d) the instructions received by the Fund are
given by an agent, not the actual registered owner, (e) the Fund determines
that joint owners who are married to each other are separated or may be the
subject of divorce proceedings, or (f) the authority of a representative of
a corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15
17
<PAGE>
under the Securities Exchange Act of 1934. Generally, eligible guarantor
institutions include (1) national or state banks, savings associations, savings
and loan associations, trust companies, savings banks, industrial loan companies
and credit unions; (2) national securities exchanges, registered securities
associations and clearing agencies; (3) securities dealers which are members of
a national securities exchange or a clearing agency or which have minimum net
capital of $100,000; or (4) institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program. A notarized signature will not be sufficient for
the request to be in proper form.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
Written requests for redemption, all share certificates, and all certificate
assignment forms should be sent to the Fund or Investor Services at the address
shown on the back cover of this Prospectus.
Payment for written requests for redemption will be sent within seven days after
receipt of the request in proper form. Redemptions will be made in cash at the
net asset value per share next determined after receipt by the Fund of a
redemption request in proper form, including all share certificates,
assignments, signature guarantees and other documentation as may be required by
Investor Services. The amount received upon redemption may be more or less than
the shareholder's original investment. Redemptions may be suspended under
certain limited circumstances pursuant to rules adopted by the SEC.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agents shall be
liable to any shareholder or other person for a redemption payment by wire which
for any reason may not be processed as described in this section.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- -------------------------------------------------------------------------------
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE
18
<PAGE>
SHARES ARE HELD, OF RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME"
ACCOUNT, OR NETWORKED ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING
CORPORATION ("NSCC") (SEE THE SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS
PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and any capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the shareholder's securities
dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder monthly to reflect the
daily dividends reinvested, as well as after each transaction which affects the
shareholder's account, except a redemption effected by check. This statement
will also show the total number of Fund shares owned by the shareholder,
including the number of shares in "plan balance" for the account of the
shareholder.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the shareholder's account, provided that the net asset
value of the shares held by the shareholder is at least $5,000. There are no
service charges for establishing or maintaining a Systematic Withdrawal Plan.
The minimum amount which the shareholder may withdraw is $100 per withdrawal
transaction, although this is merely the minimum amount allowed under the plan
and should not be mistaken for a recommended amount. The plan may be established
on a monthly, quarterly, semiannual or annual basis.
Sufficient shares of the Fund will be liquidated (generally on the first
business day of the month in which the distribution is scheduled) at net asset
value to meet the specified withdrawals. Payments are generally received three
to five days after the date of liquidation. By completing the "Special Payment
Instructions for Dividends" section of the Shareholder Application included with
this Prospectus, a shareholder may direct the selected withdrawals to another
fund in the Franklin Group of Funds or the Templeton Group, to another person,
or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing.
Withdrawals which may be paid in the interim will be sent to the address of
record. Liquidation of shares may deplete the investment, and withdrawal
payments cannot be considered as actual yield or income since part of such
payments may be a return of capital. If the withdrawal amount exceeds the total
plan balance, the account will be closed and the remaining balance will be sent
to the shareholder. A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Fund, and it will terminate automatically if
all shares are liquidated or withdrawn from the account, or upon the Fund's
receipt of notification of the death or incapacity of the shareholder.
Share-
19
<PAGE>
holders may change the amount (but not below the specified minimum) and
schedule of withdrawal payments or suspend one such payment by giving written
notice to Investor Services at least seven business days prior to the end of the
month preceding a scheduled payment. Share certificates may not be issued while
a Systematic Withdrawal Plan is in effect.
MULTIPLE ACCOUNTS FOR FIDUCIARIES
Special procedures have been designed for banks and other institutions wishing
to open multiple accounts in the Fund. Further information is included in the
Fund's SAI.
RIGHTS OF ACCUMULATION
The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds and in the Templeton Group of Funds which are sold with a sales charge.
Included for these purposes are (a) the open-end investment companies in the
Franklin Group (except Franklin Valuemark Funds and Franklin Government
Securities Trust) (the "Franklin Group of Funds"), (b) other investment products
in the Franklin Group underwritten by Distributors or its affiliates (although
certain investments may not have the same schedule of sales charges and/or may
not be subject to reduction) (the products in subparagraphs (a) and (b) are
referred to as the "Franklin Group"), and (c) the open-end U.S. registered
investment companies in the Templeton Group of Funds except Templeton American
Trust, Inc., Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund (the "Templeton
Group").
Purchases of Fund shares will also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Group of Funds and
the Templeton Group which are sold with a sales charge.
To assist shareholders in obtaining additional information regarding these
programs, a list of telephone numbers is included in "How to Get Information
Regarding an Investment in the Fund."
RETIREMENT PLANS - TAX DEFERRED INVESTMENTS
Shares of the Fund may be used for retirement programs providing for
tax-deferred investments for both individuals and businesses. The Fund may be
used as an investment vehicle for an existing retirement plan, or Franklin Trust
Company may provide the plan documents and trustee or custodian services. A plan
document must be adopted in order for a plan to be in existence.
Franklin Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for various types of retirement plans. Brochures for each of the plans
sponsored by Franklin contain important information regarding eligibility,
contribution limits and IRS requirements. Please note that the separate
applications other than the one contained in this prospectus must be used to
establish a Franklin Trust Company retirement account. To obtain a retirement
plan brochure or application, call toll free 1-800/DIAL BEN (1-800/342-5236).
The Franklin IRA is an individual retirement account in which the contributions,
annually limited to the lesser of $2,000 or 100% of an individual's earned
compensation, accumulate on a tax-deferred basis until withdrawn. Under the
current tax law, individuals who (or whose spouses) are covered by a company
retirement plan (termed "active participants") may be restricted in the amount
they may claim as an IRA deduction on
20
<PAGE>
their returns. The IRA deduction is gradually reduced to the extent that a
taxpayer's adjusted gross incomes exceed certain specified limits.
Two IRAs, with a combined limit of $2,250 or 100% of earned compensation, may be
established by a married couple in which only one spouse is a wage earner. The
$2,250 may be split between the two IRAs, so long as no more than $2,000 is
contributed to either one for a given tax year.
A Franklin Rollover IRA account is designed to maintain the tax-deferred status
of a qualifying distribution from an employer-sponsored retirement plan, such as
a 401(k) plan or qualified pension plan. Additionally, if the eligible
distribution is directly transferred to a rollover IRA account, the distribution
will be exempt from 20% mandatory federal withholding, a new withholding law
enacted in 1993.
The Franklin Simplified Employee Pension Plan (SEP-IRA) and Salary Reduction
Simplified Employee Pension Plan (SAR-SEP) are for use by small businesses
(generally 25 or fewer employees) to provide a retirement plan for their
employees and, at the same time, provide for a tax-deduction to the employer.
SEP-IRA contributions are made to an employee's IRA, at the discretion of the
employer, up to the lesser of $30,000 or 15% of compensation* per employee. The
SAR-SEP allows employees to contribute a portion of their salary to an IRA on a
pre-tax basis through salary deferrals. The maximum annual salary deferral limit
for a SAR-SEP is the lesser of 15% of compensation (adjusted for deferrals) or
$9,240 (1994 limit; indexed for inflation).
The Franklin 403(b) Retirement Plan is a salary deferral plan for employees of
certain non-profit and educational institutions [ss.501(c)(3) organizations and
public schools]. The 403(b) Plan allows participants to determine the annual
amount of salary they wish to defer. The maximum annual salary deferral amount
is generally the lesser of 25% of compensation (adjusted for deferrals) or
$9,500.
The Franklin Business Retirement Plans provide employers with additional
retirement plan options and may be used individually, in combination, or with
custom designed features. The Profit Sharing Plan allows an employer to make
contributions, at its discretion, of up to the lesser of $30,000 or 15% of
compensation* per employee each year. The Money Purchase Pension Plan allows the
employer to contribute up to the lesser of $30,000 or 25% of compensation* per
employee; however, contributions are required annually at the rate (percentage)
elected by the employer at the outset of the plan. In order to achieve a
combined contribution rate of 25% while maintaining a certain degree of
flexibility, employers may establish both a Profit Sharing Plan and a Money
Purchase Pension Plan (with a fixed contribution rate of 10%).
Franklin Trust Company can add optional provisions to the Profit Sharing and
Money Purchase Pension Plans described above and provide a Defined Benefit,
Target Benefit, and 401(k) Plans on a custom designed basis. Business Retirement
Plans, whether standard or custom designed, may require an annual report (Form
5500) to be filed with the IRS.
Redemptions from any Franklin retirement plan accounts require the completion of
specific distribution forms to comply with IRS regulations. Please see "How to
Redeem Shares of the Fund."
Individuals and employers should consult with a competent tax or financial
advisor before choosing a retirement plan.
*The limit on compensation for determining SEP and qualified plan contributions
is reduced from $235,840 in 1993 to $150,000 in 1994. The new $150,000 limit
will be adjusted for inflation, but only in $10,000 increments.
21
<PAGE>
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
Franklin's Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives and policies. The shares
of most of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for shares of other mutual
funds in the Franklin Group of Funds or the Templeton Group (as defined under
"How to Buy Shares of the Fund") which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
funds in the Franklin Group of Funds or the Templeton Group. The Telephone
Exchange Privilege is available only for uncertificated shares or those which
have previously been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases of the Fund's shares, Investor Services will
accept exchange orders by telephone or by other means of electronic transmission
from securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a dealer-ordered
exchange will be effective only for uncertificated shares on deposit in the
shareholder's account or for which certificates have previously been deposited.
A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Shares of the Fund acquired other than pursuant to the Exchange Privilege or the
reinvestment of dividends with respect to such shares, may be ex-
22
<PAGE>
changed at the offering price of one of the other funds in the Franklin Group of
Funds or the Templeton Group. Such offering price includes the applicable sales
charge of the fund into which the shares are being exchanged. Exchanges will be
effected at the respective net asset values or offering prices of the funds
involved at the close of business on the day on which the request is received in
proper form.
There are differences among the funds in the Franklin Group of Funds and the
Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of such company from Distributors or from the
shareholder's securities dealer.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT ACCOUNTS
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Franklin Group of Funds and the Templeton Group can be accomplished
through a trustee- to-trustee transfer and requires the completion of additional
documentation before it can be effected. Franklin/Templeton IRA and 403(b)
retirement accounts may accomplish exchanges directly after August 30, 1994.
Certain restrictions may apply to other types of retirement plans. See
"Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
Effective September 1, 1994, the Fund will amend its policy in regard to Timing
Accounts, to reflect the following:
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in Advisers' judgment, the Fund would
be unable to invest effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A shareholder's
purchase exchanges may be restricted or refused if the Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to the Fund and therefore may be refused.
23
<PAGE>
The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.
TELEPHONE TRANSACTIONS
- -------------------------------------------------------------------------------
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, and (iv)
exchange Fund shares as described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described under "How to
Redeem Shares of the Fund - By Telephone" will be able to redeem shares of the
Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that instructions received by telephone are
genuine, the requested transaction will not be executed, and neither the Fund
nor Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Trust Company ("FTC") or Templeton Funds Trust Company ("TFTC")
retirement accounts. To assure compliance with all applicable regulations,
special forms are required for any distribution, redemption, or dividend
payment. Currently, while the telephone exchange privilege is extended to these
retirement accounts, a Franklin/Templeton Transfer Authorization Form must be on
file in order to transfer retirement plan assets between a Franklin fund and a
Templeton fund within the same plan type. Effective September 1, 1994, however,
this authorization form will not be required for Franklin/Templeton IRA and
403(b) retirement accounts. Certain restrictions may apply to other types of
retirement plans. Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTC retirement account shareholders may call
1-800/527-2020 (toll free), and TFTC retirement account shareholders may call
1-800/354-9191 (press "2" when prompted to do so) (also toll free) to speak to a
Retirement Plan Specialist.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transac-
24
<PAGE>
tion privileges will be difficult to execute because of heavy telephone volume.
In such situations, shareholders may wish to contact their registered investment
representative for assistance, or to send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
- -------------------------------------------------------------------------------
The net asset value of the shares of the Fund is determined by the Fund at 3:00
p.m. Pacific time each day that the Exchange is open for business. The net asset
value per share is calculated by adding the value of all of the Fund's portfolio
holdings (i.e., shares of the Portfolio) and other assets, deducting the Fund's
liabilities, and dividing the result by the number of Fund shares outstanding.
The valuation of the portfolio securities held by the Portfolio is based upon
their amortized cost value, which does not take into account unrealized capital
gain or loss. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Portfolio's use of amortized cost, which facilitates the
maintenance of the Portfolio's per share net asset value of $1.00, is permitted
by Rule 2a-7. Further information is included under "Determination of Net Asset
Value" in the Statement of Additional Information.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- -------------------------------------------------------------------------------
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Yield information about the Fund may be accessed by entering
Fund Code 11 followed by the # sign, when requested to do so by the automated
operator.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
<TABLE>
<CAPTION>
Hours of Operation (Pacific time)
Department Name Telephone No. (Monday through Friday)
-----------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
All Franklin departments may also be reached at 1-800/632-2350
25
<PAGE>
PERFORMANCE
- -------------------------------------------------------------------------------
Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including quotations of its current
and effective yield.
Current yield as prescribed by the SEC is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from the Fund during a seven-day period. It is computed by determining
the net change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding (that is, the effect of
reinvesting dividends paid on both the original share and those acquired from
the reinvestment of such dividends).
In each case, performance figures are based upon past performance and will
reflect all recurring charges against Fund income. Such quotations will reflect
the value of any additional shares purchased with dividends from the original
share and any dividends declared on both the original share and such additional
shares. The investment results of the Fund, like all other investment companies,
will fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Fund's
performance may be in any future period.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
The Fund's authorized capital stock consists of five billion shares of common
stock with $0.10 per share par value. All shares are of one class, have one vote
and, when issued, are fully paid and nonassessable. All shares have equal
voting, participation and liquidation rights, but have no subscription,
preemptive or conversion rights. Shares of the Fund have cumulative voting
rights, which means that in all elections of directors, each shareholder has the
right to cast a number of votes equal to the number of shares of common stock
owned multiplied by the number of directors to be elected at such election and
each shareholder may cast the whole number of votes for one candidate or
distribute such votes among two or more candidates.
The Fund is not required nor does it intend to hold routine annual meetings of
shareholders. The Fund may, however, hold a meeting for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by a majority of the Board of
Directors or by shareholders holding at least ten percent of the shares entitled
to vote at the meeting. Shareholders may receive assistance in communicating
with other shareholders in connection with the election or removal of directors,
such as that provided in Section 16(c) of the 1940 Act. Whenever the Fund is
requested to vote on a matter relating to the Portfolio, the Fund will hold a
meeting of Fund shareholders and will cast its vote in the same proportion as
the Fund's shareholders have voted.
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $250 and has been inactive
26
<PAGE>
(except for the reinvestment of distributions) for a period of at least six
months, provided advance notice is given to the shareholder. More information is
included in the SAI.
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed, and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).
Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
ACCOUNT REGISTRATIONS
- -------------------------------------------------------------------------------
An account registration should reflect the investor's intentions as to
ownership.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer or
similar agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the
27
<PAGE>
name of or by the owner, the nominee, or both. If a securities dealer or other
representative is of record on an investor's account, the investor will be
deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and the Shareholder Services Agent and to have authorized
them to execute the instructions without further inquiry. At the present time,
such services which are available, or which are anticipated to be made available
in the near future, include the NSCC's "Networking," "Fund/SERV," and "ACATS"
systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- -------------------------------------------------------------------------------
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend or other reportable payment and withhold
31% of any such payments made to individuals and other non-exempt shareholders
who have not provided a correct taxpayer identification number ("TIN") and made
certain required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the TIN furnished by the shareholder is incorrect
or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
28
<PAGE>
