PROSPECTUS & APPLICATION
INVESTMENT STRATEGY
INCOME
FRANKLIN
MONEY
FUND
NOVEMBER 1, 1998
Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how the fund invests and the
services available to shareholders.
To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated November 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus. For a free copy of the
SAI or a larger print version of this prospectus, contact your investment
representative or call 1-800/DIAL BEN.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE $1 SHARE PRICE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN MONEY FUND
Unlike most funds that invest directly in securities, the fund seeks to achieve
its investment goal by investing all of its assets in shares of The Money Market
Portfolio (the "Portfolio"). The Portfolio is a series of The Money Market
Portfolios ("Money Market"). Its investment goal is the same as the fund's.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
TABLE OF CONTENTS
FRANKLIN
MONEY
FUND
November 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN(R)
ABOUT THE FUND
Expense Summary ....................................................... 2
Financial Highlights .................................................. 3
How Does the Fund Invest Its Assets? .................................. 3
What Are the Risks of Investing in the Fund? .......................... 7
Who Administers the Fund? ............................................. 8
How Taxation Affects the Fund and Its Shareholders .................... 9
How Is the Fund Organized? ............................................ 10
ABOUT YOUR ACCOUNT
How Do I Buy Shares? .................................................. 11
May I Exchange Shares for Shares of Another Fund? ..................... 13
How Do I Sell Shares? ................................................. 16
What Distributions Might I Receive From the Fund? ..................... 18
Transaction Procedures and Special Requirements ....................... 19
Services to Help You Manage Your Account .............................. 23
What If I Have Questions About My Account? ............................ 26
GLOSSARY
Useful Terms and Definitions .......................................... 26
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
fund. It is based on the fund's historical expenses, including its proportionate
share of the Portfolio's expenses, for the fiscal year ended June 30, 1998. The
fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Exchange Fee (per transaction) None*
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management and Administration Fees 0.45%**
Other Expenses of the Fund and the Portfolio 0.24%
-----
Total Fund Operating Expenses 0.69%**
C. EXAMPLE
Assume the fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------
$7 $22 $38 $86
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES
OR RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE
SHOWN. The fund pays its operating expenses. The effects of these
expenses are reflected in its Net Asset Value or dividends and are not
directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*There is a $5.00 fee for exchanges by Market Timers.
**For the period shown, Advisers had agreed in advance to limit its
management fees. With this reduction, management fees of the Portfolio were
0.14% and administration fees of the fund were 0.30%. Total operating
expenses were 0.68%.
FINANCIAL HIGHLIGHTS
This table summarizes the fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the fund's independent auditor. The audit
report covering each of the most recent five years appears in the fund's Annual
Report to Shareholders for the fiscal year ended June 30, 1998. The Annual
Report to Shareholders also includes more information about the fund's
performance. For a free copy, please call Fund Information.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, YEAR ENDED NOVEMBER 30,
---------------------------------- ------------------------------------------------------
1998 1997 1996 1995* 1994 1993 1992 1991 1990 1989
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------------------
Income from investment
operations - net
investment income .050 .048 .049 .030 .032 .023 .031 .055 .074 .084
Less distributions from
net investment income (.050) (.048) (.049) (.030) (.032) (.023) (.031) (.055) (.074) (.084)
------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================
Total return** 5.10% 4.88% 4.99% 3.07% 3.28% 2.36% 3.12% 5.66% 7.64% 8.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1,722 $1,498 $1,173 $1,019 $1,124 $1,040 $1,102 $1,353 $1,579 $1,601
Ratio to average net assets:
Expenses1 .68% .73% .75% .80%*** .91% .80% .79% .74% .73% .74%
Expenses excluding
waiver and payments
by affiliate1 .69% .74% .76% .82%*** .93% - - - - -
Net investment income 4.99% 4.78% 4.86% 5.19%*** 3.23% 2.32% 3.08% 5.53% 7.42% 8.38%
</TABLE>
*For the period December 1, 1994 to June 30, 1995
**Total return is not annualized.
***Annualized
1Effective with fiscal year 1994, the expense ratio includes the fund's share of
the Portfolio's allocated expenses.
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to provide investors with as high a level of
current income as is consistent with the preservation of shareholders' capital
and liquidity. This goal is fundamental, which means that it may not be changed
without shareholder approval. The fund also tries to maintain a stable Net Asset
Value of $1 per share.
THE FUND'S INVESTMENT IN THE PORTFOLIO
The fund seeks to achieve its investment goal by investing all of its assets in
the Portfolio. The Portfolio has the same investment goal as the fund and, it
too, is fundamental. The fund's investment policies are also substantially
similar to the Portfolio's except the fund may pursue its policies by investing
in an open-end management investment company with the same investment goal and
substantially similar policies and restrictions as the fund. The fund buys
shares of the Portfolio at Net Asset Value. An investment in the fund is an
indirect investment in the Portfolio.
It is possible that the fund may have to withdraw its investment in the
Portfolio and subsequently invest in another open-end management investment
company with the same investment goal and substantially similar policies. This
could happen if the Portfolio changes its investment goal or if the Board, at
any time, considers it in the fund's best interest.
The fund's structure, where it invests all of its assets in the Portfolio, is
sometimes called a "Master/Feeder" structure. You will find more detailed
information about this structure and the potential risks associated with it in
the SAI.
WHAT KINDS OF SECURITIES DOES THE PORTFOLIO BUY?
The Portfolio seeks to achieve its investment goal by investing in high-quality,
short-term money market securities of domestic and foreign issuers, including
U.S. government securities and repurchase agreements. Because the Portfolio
limits its investments to high-quality securities, it will generally earn lower
yields than a portfolio with lower quality securities that are subject to
greater risk. Accordingly, the yield to shareholders in the Portfolio, and thus
the fund, will likely be relatively lower.
QUALITY, MATURITY AND DIVERSIFICATION STANDARDS. The Portfolio, like all money
funds, follows SEC guidelines on the quality, maturity and diversification of
its investments. These guidelines are designed to help reduce a money fund's
risks so that it is more likely to keep its share price at $1.
o The Portfolio only buys securities that Advisers determines present minimal
credit risks and that are rated in one of the top two short-term rating
categories or that are comparable unrated securities in Advisers' opinion.
o The Portfolio only buys securities with remaining maturities of 397
calendar days or less and maintains a dollar-weighted average portfolio
maturity of 90 days or less.
o Generally, the Portfolio may not invest more than 5% of its total assets in
the securities of a single issuer, other than in U.S. government
securities.
More information about the Portfolio's diversification policies, and details of
the credit quality ratings are included in the SAI.
U.S. GOVERNMENT SECURITIES include marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government or its agencies, or by
various instrumentalities that have been established or sponsored by the U.S.
government. Some of these securities, including U.S. Treasury bills, notes and
bonds and securities of the Government National Mortgage Association and the
Federal Housing Administration, are issued or guaranteed by the U.S. government
or carry a guarantee that is 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 considered direct
obligations of the U.S. government. Instead, they involve sponsorship or
guarantees by government agencies or enterprises. For example, some securities
are supported by the right of the issuer to borrow from the U.S. Treasury, such
as obligations of the Federal Home Loan Bank. Others, such as obligations of the
Federal National Mortgage Association, are supported only by the credit of the
instrumentality.
BANK OBLIGATIONS, or instruments secured by bank obligations, include fixed,
floating or variable rate CDs, letters of credit, time deposits, bank notes and
bankers' acceptances. The Portfolio will invest in these obligations or
instruments issued by banks and savings institutions with assets of at least $1
billion. Time deposits are non-negotiable deposits that are held in a banking
institution for a specified time at a stated interest rate. The Portfolio may
not invest more than 10% of its assets in time deposits with more than seven
days to maturity.
The Portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
or foreign banks, and U.S. branches of foreign banks that have a federal or
state charter to do business in the U.S. and are subject to U.S. regulatory
authorities. The Portfolio may invest in an obligation issued by a branch of a
bank only if the parent bank has assets of at least $5 billion, and may invest
only up to 25% of its assets in obligations of foreign branches of U.S. or
foreign banks. The Portfolio may, however, invest more than 25% of its assets in
certain domestic bank obligations, including U.S. branches of foreign banks.
COMMERCIAL PAPER typically refers to short-term obligations of banks,
corporations and other borrowers with maturities of up to 270 days. The
Portfolio may invest in commercial paper of domestic or foreign issuers.
ASSET-BACKED SECURITIES are typically commercial paper backed by the loans or
accounts receivable of an entity, such as a bank or credit card company. The
issuer intends to repay using the assets backing the securities (once
collected). Therefore, repayment depends largely on the cash-flows generated by
the assets backing the securities. Sometimes the credit support for these
securities is limited to the underlying assets. In other cases it may be
provided by a third party through a letter of credit or insurance guarantee.
CORPORATE OBLIGATIONS may include fixed, floating and variable rate bonds,
debentures or notes.
STRIPPED SECURITIES are the separate income and principal components of a debt
security. Once the securities have been stripped they are referred to as zero
coupon securities. Their risks are similar to those of other money market
securities although they may be more volatile. Stripped securities do not make
periodic payments of interest prior to maturity and the stripping of the
interest coupons causes them to be offered at a discount from their face amount.
This results in the securities being subject to greater fluctuations in response
to changing interest rates than interest-paying securities of similar
maturities.
The Portfolio only intends to buy stripped securities that are issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
government.
WHAT ARE SOME OF THE PORTFOLIO'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS are those where payment and
delivery for the security take place at a future date. Since the market price of
the security may fluctuate during the time before payment and delivery, the
Portfolio assumes the risk that the value of the security at delivery may be
more or less than the purchase price.
REPURCHASE AGREEMENTS. The Portfolio will generally have a portion of its assets
in cash or cash equivalents. To earn income on this portion of its assets, the
Portfolio may enter into repurchase agreements with certain banks and
broker-dealers. Under a repurchase agreement, the Portfolio agrees to buy a U.S.
government security from one of these issuers and then to sell the security back
to the issuer after a short period of time (generally, less than seven days) at
a higher price. The bank or broker-dealer must transfer to the Portfolio's
custodian securities with an initial value of at least 102% of the dollar amount
invested by the Portfolio in each repurchase agreement.
PORTFOLIO TRADING. The Portfolio may actively trade securities in its portfolio,
without any limits, if Advisers believes that yields can be increased by doing
so. Advisers considers current market conditions, cash requirements and its
revised evaluations of a security when determining whether or not to hold
securities until maturity. The yield on some securities held by the Portfolio
may decline if the securities are sold before maturity.
OTHER POLICIES AND RESTRICTIONS. The fund and the Portfolio have a number of
additional investment policies and restrictions that govern their activities.
Those that are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board or the Board of Trustees of
Money Market alone. For a list of these restrictions and more information about
the fund's and the Portfolio's investment policies, including those described
above, please see "How Does the Fund Invest Its Assets?" and "Investment
Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in the
SAI apply when the fund or the Portfolio makes an investment. In most cases, the
fund and the Portfolio are not required to sell a security because circumstances
change and the security no longer meets one or more of the fund's or the
Portfolio's policies or restrictions.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
Like all investments, an investment in the fund involves risk. The risks of the
fund are basically the same as those of other investments in money market
securities. The short duration and high credit quality of the securities in
which the Portfolio, and thus the fund, invests may help reduce the risks
detailed below.
There is no assurance that the fund or the Portfolio will meet its investment
goal. Although the fund tries to maintain a stable share price of $1, there is
no assurance that it will be able to do so.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. Generally when interest rates rise, the value of a security
falls. The opposite is also true: security prices rise when interest rates fall.
INCOME RISK is the risk that the Portfolio's, and thus the fund's, income will
decrease due to falling interest rates. Since the fund can only distribute what
it earns, the fund's distributions to its shareholders may decline when interest
rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value.
MARKET RISK is the risk that a security's value will be reduced by market
activity or the results of supply and demand. This a basic risk associated with
all securities. When there are more sellers than buyers, prices tend to fall.
Likewise, when there are more buyers, prices tend to rise.
FOREIGN SECURITIES. Investments in securities of foreign issuers, including
obligations of foreign branches of U.S. and foreign banks and obligations of
U.S. branches of foreign banks, involve special risks. These risks include
future unfavorable political and economic developments, possible withholding
taxes, seizure of foreign deposits, currency controls, interest limitations, or
other governmental restrictions that may affect the payment of principal or
interest on securities held by the Portfolio. In addition, there may be less
publicly available information about foreign issuers.
WHO ADMINISTERS THE FUND?
THE BOARD. The Board oversees the management of the fund and elects its
officers. The officers are responsible for the fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the fund and Money Market having substantially the same
boards. These procedures call for an annual review of the fund's relationship
with the Portfolio. If a conflict exists, the boards may take action, which may
include the establishment of a new board. The Board has determined that there
are no conflicts of interest at the present time. For more information, please
see "Summary of Procedures to Monitor Conflicts of Interest" and "Officers and
Directors" in the SAI.
INVESTMENT MANAGER AND ADMINISTRATOR. Advisers manages the Portfolio's assets
and makes its investment decisions. Advisers also performs similar services for
other funds. It is wholly owned by Resources, a publicly owned company engaged
in the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together, Advisers and its affiliates manage over $207 billion in assets.
Advisers is also the administrator of the fund. Please see "Investment
Management and Other Services" and "Miscellaneous Information" in the SAI for
information on securities transactions and a summary of the fund's Code of
Ethics.
MANAGEMENT FEES. You will bear a portion of the Portfolio's operating expenses,
including its management fees, to the extent that the fund, as a shareholder of
the Portfolio, bears these expenses. The portion of the Portfolio's expenses
borne by the fund depends on the fund's proportionate share of the Portfolio's
net assets.
During the fiscal year ended June 30, 1998, the fund's proportionate share of
the Portfolio's management fees, before any advance waiver, totaled 0.15% of the
average daily net assets of the fund. The fund's administration fees totaled
0.30%. Total operating expenses, including fees paid to Advisers before any
advance waiver, were 0.69%. Under an agreement by Advisers to limit its fees,
the fund paid a proportionate share of the Portfolio's management fees totaling
0.14%. The fund paid administration fees totaling 0.30%. Total expenses of the
fund were 0.68%. Advisers may end this arrangement at any time upon notice to
the Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Does the Portfolio
Buy Securities for Its Portfolio?" in the SAI for more information.
YEAR 2000 ISSUE. Like other mutual funds, the fund could be adversely affected
if the computer systems used by Advisers and other service providers do not
properly process date-related information on or after January 1, 2000 ("Year
2000 Issue"). The Year 2000 Issue, and in particular foreign service providers'
responsiveness to the issue, could affect portfolio and operational areas
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions,
and others. While there can be no assurance that the fund will not be adversely
affected, Advisers and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Year 2000 Issue, including
seeking reasonable assurances from the fund's other major service providers.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
TAXATION OF THE FUND. As a regulated investment company, the fund generally pays
no federal income tax on the income and gains that it distributes to you.
DISTRIBUTIONS. Distributions from the fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The fund will send
you a statement in January of each year that reflects the amount of ordinary
dividends you received from the fund in the prior year. This statement will
include distributions declared in December and paid to you in January of the
following year, but which are taxable as if paid on December 31 of the prior
year. The IRS requires you to report these amounts on your income tax return for
the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you. Special rules apply to payouts from Roth and Education
IRAs.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the fund's
distributions will qualify for the corporate dividends-received deduction.
REDEMPTIONS AND EXCHANGES. Because the fund expects to maintain a $1.00 Net
Asset Value per share, you should not have any gain or loss on the redemption or
exchange of fund shares.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends. Fund shares
held by the estate of a non-U.S. investor may be subject to U.S. estate tax. You
may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in the fund.
STATE TAXES. Ordinary dividends that you receive from the fund will generally be
subject to state and local income tax. It is anticipated that no portion of the
fund's distributions will qualify for exemption from state and local income tax
as dividends paid from interest earned on direct obligations of the U.S.
government. The holding of fund shares may also be subject to state and local
intangibles taxes. You may wish to contact your tax advisor to determine the
state and local tax consequences of your investment in the fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the fund is
required to withhold 31% of all taxable distributions (including ordinary
dividends and capital gain distributions), and redemption proceeds paid to you.
The fund is also required to begin backup withholding on your account if the IRS
instructs the fund to do so. The fund reserves the right not to open your
account, or, alternatively, to redeem your shares at the current Net Asset
Value, less any taxes withheld, if you fail to provide a correct TIN, fail to
provide the proper tax certifications, or the IRS instructs the fund to begin
backup withholding on your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. YOU MAY
REQUEST A FREE FRANKLIN TEMPLETON TAX INFORMATION HANDBOOK BY CONTACTING FUND
INFORMATION.
HOW IS THE FUND ORGANIZED?
The fund is a no-load, diversified, open-end management investment company,
commonly called a mutual fund. It was organized as a California corporation on
November 7, 1975, and is registered with the SEC. Each share of the fund has one
vote. All shares have equal voting, participation and liquidation rights. Shares
of the fund are considered Class I shares for redemption, exchange and other
purposes.
The fund has cumulative voting rights. This gives each shareholder a number of
votes equal to the number of shares owned times the number of Board members to
be elected. You may cast all of your votes for one candidate or distribute your
votes between two or more candidates.
The fund does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may also be called by the Board in its discretion or by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a Board
member.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
You may buy shares of the fund without a sales charge and write redemption
drafts against your account. Redemption drafts are similar to checks and are
referred to as checks in this prospectus. When you buy shares, it does not
create a checking or other bank account relationship with the fund or any bank.
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum investments
are:
o To open a regular, non-retirement account .................. $1,000
o To open an IRA, IRA Rollover, Roth IRA,
or Education IRA ........................................... $ 250*
o To open a custodial account for a minor
(an UGMA/UTMA account) ..................................... $ 100
o To open an account with an automatic
investment plan ............................................ $ 50**
o To add to an account ........................................ $ 50***
*For all other retirement accounts, there is no minimum investment requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs, or
Education IRAs, there is no minimum to add to an account.
For purchases by broker-dealers, registered investment advisors or
certified financial planners who have entered into an agreement with
Distributors for clients participating in comprehensive fee programs, the
minimum initial investment is $250. The minimum initial investment is $100
for officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies.
We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed shareholder application, including
the optional shareholder privileges section. By applying for privileges
now, you can avoid the delay and inconvenience of having to send an
additional application to add privileges later. It is important that we
receive a signed application since we will not be able to process any
redemptions from your account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your
check, Federal Reserve draft or negotiable bank
draft made payable to the fund. Instruments
drawn on other investment companies may not be
accepted.
For additional investments:
1. Send a check or use the deposit slips included
with your monthly statement or checkbook (if
you have requested one).
2. If you send a check, please include your
account number on the check.
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number. You need a new wire
control number every time you wire money into
your account. If you do not have a currently
effective wire control number, we will return
the money to the bank, and we will not credit
the purchase to your account.
2. Wire the funds to Bank of America, ABA routing
number 121000358, for credit to Franklin Money
Fund, A/C 1493-3-04779. Your name and wire
control number must be included.
3. For an initial investment you must also return
your signed shareholder application to the
fund.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
If the fund receives your order in proper form before 3:00 p.m. Pacific time, we
will credit the purchase to your account that day. Orders received after 3:00
p.m. will be credited the following business day.
Many of the fund's investments, through the Portfolio, must be paid for in
federal funds, which are monies held by the fund's custodian bank on deposit at
the Federal Reserve Bank of San Francisco and elsewhere. The fund generally
cannot invest money received from you until it is converted into and is
available to the fund in federal funds. Therefore, your purchase order may not
be considered in proper form until the money received from you is available in
federal funds, which may take up to two days. If the fund is able to make
investments immediately (within one business day), it may accept your order with
payment in other than federal funds.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the fund on arbitrage rebate calculations.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal and
policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for
the shares you want to exchange
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by
phone to apply to your account, please let us
know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered. You may, however, exchange
shares from a fund account requiring two or more signatures into another
identically registered money fund account requiring only one signature for
all transactions. PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS
OPTION TO BE AVAILABLE ON YOUR ACCOUNT. Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact Retirement Plan Services for information on exchanges within
these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described in
this paragraph, you will be considered a Market Timer. Each exchange by a
Market Timer, if accepted, will be charged $5.00. Some of our funds do not
allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the fund
at Net Asset Value.
If retirement plan assets are only temporarily invested in the fund pending
final allocation or investment instructions involving Class II shares, fund
shares may be exchanged for Class II shares of another Franklin Templeton Fund.
The time the shares are held in the fund will not count, however, towards the
Contingency Period for purposes of the Contingent Deferred Sales Charge on Class
II shares. This privilege is not available to retirement plan assets that were
previously subject to a sales charge in another Franklin Templeton Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY CHECK 1. You may request redemption drafts (checks) free of
(Only available charge on the shareholder application or by calling
if there are no TeleFACTS(R).
outstanding
share certifi- 2. You may make checks payable to any person and in any
cates for your amount of $100 or more. You will continue to earn
account) daily income dividends until the check has cleared.
Please see "More Information About Selling Your
Shares By Check" below.
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, complete the "Wire Redemption Privilege"
section of the shareholder application and send it
to us or include the following information in your
instructions:
o The name, address and telephone number of the bank
where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit union,
the name of the corresponding bank and the account
number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under court
jurisdiction may have other requirements.
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other than
an escrow account, you must first sign up for the wire
feature. To sign up, complete the "Wire Redemption
Privilege" section of the shareholder application and
send it to us or send us written instructions, with a
signature guarantee. To avoid any delay in processing,
the instructions should include the items listed in "By
Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a separate
agreement. Call Institutional Services to receive a
copy.
o If there are no share certificates issued for the
shares you want to sell or you have already returned
them to the fund
o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed by
phone within the last 15 days
- If you do not want the ability to redeem by phone to
apply to your account, please let us know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 3:00 p.m. Pacific time, your wire payment will be
sent the next business day. For requests received in proper form after 3:00 p.m.
Pacific time, the payment will be sent the second business day. You may have
redemption proceeds wired to an escrow account the same day, if we receive your
request in proper form before 9:00 a.m. Pacific time. By offering this service
to you, the fund is not bound to meet any redemption request in less than the
seven day period prescribed by law. Neither the fund nor its agents shall be
liable to you or any other person if, for any reason, a redemption request by
wire is not processed as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may take
seven business days or more. A certified or cashier's check may clear in less
time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
MORE INFORMATION ABOUT SELLING YOUR SHARES BY CHECK
If you want the convenience of check access to your fund account, order your
checks from the fund, free of charge, as described above. For security reasons
and reasons related to check processing systems that require checks to be a
certain size and printed with specific encoding formats, the fund can only
accept checks ordered from the fund. The fund cannot be responsible for any
check not ordered from the fund that is returned unpaid to a payee.
The checks are drawn through Bank of America NT & SA (the "Bank"). The Bank may
terminate this service at any time upon notice to you.
When a check is presented for payment, we will redeem an equivalent number of
shares in your account to cover the amount of the check. Your shares will be
redeemed at the Net Asset Value next determined after we receive a check that
does not exceed the collected balance in your account. If a check is presented
for payment that exceeds the collected balance in your account, the Bank may
return the check unpaid. Since you will not know the exact amount in your
account on the day a check clears, you should not use a check to close your
account.
You will generally not be able to convert a check drawn on your fund account
into a certified or cashier's check by presenting it at the Bank. Because the
fund is not a bank, we cannot assure that a stop payment order written by you
will be effective. We will use our best efforts, however, to see that these
orders are carried out.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call Retirement Plan Services.
CONTINGENT DEFERRED SALES CHARGE
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if you sell shares that were exchanged into
the fund from another Franklin Templeton Fund and those shares would have been
assessed a Contingent Deferred Sales Charge in the other fund. The charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The fund typically pays income dividends each day that its Net Asset Value is
calculated. Your account may begin to receive dividends on the day after we
receive your investment and will continue to receive dividends through the day
we receive a request to sell your shares.
The amount of these dividends will vary, depending on changes in the fund's net
investment income, and there is no guarantee the fund will pay dividends. THE
FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON
AN INVESTMENT IN ITS SHARES.
DIVIDEND OPTIONS
You may reinvest your dividends in the fund or in the same share class of
another Franklin Templeton Fund, without any sales charges. You can also have
your dividends deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer. Please see "Electronic
Fund Transfers" under "Services to Help You Manage Your Account."
Please indicate on your application the dividend option you have chosen,
otherwise we will automatically reinvest your dividends in the fund. If you
choose not to reinvest your dividends in the fund, the fund will distribute
dividends paid during the month as directed on the last business day of each
month.
To change your dividend option, please notify us by mail or phone and allow at
least seven days for the new option to be processed. To send your dividends to
another person or to a bank account, please send written instructions with a
signature guarantee. For Trust Company retirement plans, special forms are
required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the fund.
HOW AND WHEN SHARES ARE PRICED
The fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share at 3:00 p.m. Pacific time. To calculate Net Asset Value
per share, the fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of shares
outstanding. The fund's assets are valued as described under "How Are Fund
Shares Valued?" in the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The fund's name,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless all
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement
that identify the general partners, or
2. A certification for a partnership
agreement
- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50 for
employee accounts and custodial accounts for minors. We will only do this if the
value of your account fell below this amount because you voluntarily sold your
shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $1,000,
or $100 for employee accounts and custodial accounts for minors. These minimums
do not apply to IRAs and other retirement accounts or to accounts managed by the
Franklin Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the fund.
Under the plan, you can have money transferred automatically from your checking
or savings account to the fund each month to buy additional shares. If you are
interested in this program, please refer to the automatic investment plan
application included with this prospectus or contact your investment
representative. You may discontinue the program at any time by calling
Shareholder Services.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the fund to buy additional
shares. Your investments will continue automatically until you instruct the fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
CUMULATIVE QUANTITY DISCOUNTS
You may include the cost or current value (whichever is higher) of your fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, call Shareholder
Services. You may choose to direct your payments to buy the same class of shares
of another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking or savings account. If you choose to have the
money sent to a checking or savings account, please see "Electronic Fund
Transfers" below.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? -
Systematic Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions or payments under a systematic withdrawal
plan sent directly to a checking or savings account. If the account is with a
bank that is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If you choose this option, please
allow at least fifteen days for initial processing. We will send any payments
made during that time to the address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class I and Class II accounts; and
o request duplicate statements, money fund checks, and deposit slips for
Franklin Templeton accounts.
You will need the fund's code number to use TeleFACTS(R). The fund's code number
is 111.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the fund will be sent every six months. To reduce fund
expenses, we attempt to identify related shareholders within a household
and send only one copy of a report. Call Fund Information if you would like
an additional free copy of the fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
Special procedures have been designed for banks and other institutions that
would like to open multiple accounts in the fund. Please see the SAI for more
information.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
ADVISERS - Franklin Advisers, Inc., the Portfolio's investment manager and the
fund's administrator
BOARD - The Board of Directors of the fund
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer
multiple classes of shares. The different classes have proportionate interests
in the same portfolio of investment securities. They differ, however, primarily
in their sales charge structures and Rule 12b-1 plans. Shares of the fund are
considered Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. The holding period begins on the day you buy your shares.
For example, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
FRANKLIN
MONEY
FUND
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1998
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN(R)
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TABLE OF CONTENTS
How Does the Fund Invest Its Assets?.............................. 2
Investment Restrictions........................................... 4
Officers and Directors............................................ 5
Investment Management
and Other Services............................................... 9
How Does the Portfolio Buy
Securities for Its Portfolio?.................................... 10
How Do I Buy, Sell and
Exchange Shares?................................................. 11
How Are Fund Shares Valued?....................................... 13
Additional Information on
Distributions and Taxes.......................................... 13
The Fund's Underwriter............................................ 15
How Does the Fund
Measure Performance?............................................. 16
Miscellaneous Information......................................... 17
Financial Statements.............................................. 18
Useful Terms and Definitions...................................... 18
Appendices
Summary of Procedures
to Monitor Conflicts of Interest................................. 18
Description of Ratings........................................... 19
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
- --------------------------------------------------------------------------------
The fund is a no-load, diversified open-end management investment company. The
Prospectus, dated November 1, 1998, which we may amend from time to time,
contains the basic information you should know before investing in the fund. For
a free copy, call 1-800/DIAL BEN.
This SAI is not a prospectus. It contains information in addition to and in more
detail than set forth in the Prospectus. This SAI is intended to provide you
with additional information regarding the activities and operations of the fund,
and should be read in conjunction with the Prospectus.
- --------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
111 SAI 11/98
HOW DOES THE FUND INVEST ITS ASSETS?
- --------------------------------------------------------------------------------
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to provide investors with as high a level of
current income as is consistent with the preservation of shareholders' capital
and liquidity. This goal is fundamental, which means that it may not be changed
without shareholder approval. The fund also tries to maintain a stable Net Asset
Value of $1 per share. The fund seeks to achieve its investment goal by
investing all of its assets in shares of The Money Market Portfolio (the
"Portfolio"). The Portfolio is a series of The Money Market Portfolios ("Money
Market"). Its investment goal is the same as the fund's.
The following gives more detailed information about the Portfolio's investment
policies and the types of securities that it may buy. Please read this
information together with the section "How Does the Fund Invest Its Assets?" in
the Prospectus.
MORE INFORMATION ABOUT THE KINDS
OF SECURITIES THE PORTFOLIO BUYS
BANK OBLIGATIONS. The Portfolio may invest in certain bank obligations or
instruments secured by bank obligations. These obligations may include deposits
that are fully insured by the U.S. government, its agencies or
instrumentalities, such as deposits in banking and savings institutions up to
the current limit of the insurance on principal provided by the Federal Deposit
Insurance Corporation. Deposits are frequently combined in larger units by an
intermediate bank or other institution.
VARIABLE MASTER DEMAND NOTES are a type of commercial paper. They are direct
arrangements between a lender and a borrower that allow daily changes to the
amount borrowed and to the interest rate. The Portfolio, as lender, may increase
or decrease the amount provided by the note agreement, and the borrower may
repay up to the full amount of the note without penalty. Typically, the borrower
may also set the interest rate daily, usually at a rate that is the same or
similar to the interest rate on other commercial paper issued by the borrower.
The Portfolio does not have any limit on the amount of its assets that may be
invested in variable master demand notes and may invest only in variable master
demand notes of U.S. issuers.
Because variable master demand notes are direct lending arrangements between the
lender and the borrower, they generally are not traded and do not have a
secondary market. They are, however, redeemable at face value plus accrued
interest at any time, although the Portfolio's ability to redeem a note is
dependent on the ability of the borrower to pay the principal and interest on
demand. When determining whether to invest in a variable master demand note,
Advisers considers, among other things, the earnings power, cash flow and other
liquidity ratios of the issuer.
ASSET-BACKED SECURITIES. Repayment of these securities is intended to be
obtained from an identified pool of diversified assets, typically receivables
related to a particular industry, such as asset-backed securities related to
credit card receivables, automobile receivables, trade receivables or
diversified financial assets. The credit quality of most asset-backed commercial
paper depends primarily on the credit quality of the assets underlying the
securities, how well the entity issuing the security is insulated from the
credit risk of the originator (or any other affiliated entities) and the amount
and quality of any credit support provided to the securities.
Asset-backed commercial paper is often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on these underlying assets to make payment, the securities
may contain elements of credit support. The credit support falls into two
categories: liquidity protection and protection against ultimate default on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that
scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. This protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction or through a combination of these
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with the payments. Delinquency or loss that exceeds the anticipated
amount could adversely impact the return on an investment in an asset-backed
security.
MUNICIPAL SECURITIES. The Portfolio may invest up to 10% of its assets in
taxable municipal securities. Municipal securities are issued by or on behalf of
states, territories or possessions of the U.S., the District of Columbia, or
their political subdivisions, agencies or instrumentalities. They are generally
issued to raise money for various public purposes, such as constructing public
facilities and making loans to public institutions. Certain types of municipal
securities are issued to provide funding for privately operated facilities and
are generally taxable.
DIVERSIFICATION. The Portfolio is a diversified fund. As fundamental policies:
(a) the Portfolio may not buy a security if, with respect to 75% of its total
assets, more than 5% would be invested in the securities of any one issuer, and
(b) the Portfolio may not invest in a security if the Portfolio would own more
than 10% of the outstanding voting securities of any one issuer. These
limitations do not apply to obligations issued or guaranteed by the U.S.
government or its instrumentalities.
As a money market fund, however, the Portfolio must follow certain procedures
required by federal securities laws that may be more restrictive than some of
the Portfolio's other policies or investment restrictions. With respect to
diversification, these procedures require that the Portfolio not invest more
than 5% of its total assets in securities of a single issuer, other than U.S.
government securities, although it may invest up to 25% of its total assets in
securities of a single issuer that are rated in the highest rating category for
a period of up to three business days after purchase. The Portfolio also must
not invest more than (a) the greater of 1% of its total assets or $1 million in
securities issued by a single issuer that are rated in the second highest rating
category; and (b) 5% of its total assets in securities rated in the second
highest rating category. These procedures are fundamental policies of the
Portfolio.
MORE INFORMATION ABOUT SOME OF THE PORTFOLIO'S
OTHER INVESTMENT STRATEGIES AND PRACTICES
WHEN-ISSUED OR DELAYED-DELIVERY TRANSACTIONS. When the Portfolio is the buyer in
the transaction, it will maintain cash or liquid securities, with an aggregate
value equal to the amount of its purchase commitments, in a segregated account
with its custodian bank until payment is made. The Portfolio will not engage in
when-issued and delayed-delivery transactions for investment leverage purposes.
REPURCHASE AGREEMENTS. Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the repurchase agreement at not
less than the repurchase price. Advisers will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon the
Portfolio's ability to dispose of the underlying securities. The Portfolio will
enter into repurchase agreements only with parties who meet creditworthiness
standards approved by Money Market's Board of Trustees, i.e., banks or
broker-dealers that have been determined by Advisers to present no serious risk
of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase transaction.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Trustees of Money Market and subject to the following conditions, the
Portfolio may lend its portfolio securities to qualified securities dealers or
other institutional investors, if such loans do not exceed 25% of the value of
the Portfolio's total assets at the time of the most recent loan. The Portfolio,
however, currently intends to limit its lending of securities to no more than 5%
of it total assets. The borrower must deposit with the Portfolio's custodian
bank collateral with an initial market value of at least 102% of the market
value of the securities loaned, including any accrued interest, with the value
of the collateral and loaned securities marked-to-market daily to maintain
collateral coverage of at least 100%. This collateral shall consist of cash. The
lending of securities is a common practice in the securities industry. The
Portfolio may engage in security loan arrangements with the primary objective of
increasing the Portfolio's income either through investing cash collateral in
short-term interest- bearing obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, the 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.
BORROWING. The Portfolio may borrow up to 5% of its total assets from banks for
temporary or emergency purposes. The Portfolio will not make any new investments
while any outstanding loans exceed 5% of its total assets.
ILLIQUID INVESTMENTS. The Portfolio's policy is not to invest more than 10% of
its net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the Portfolio has valued them.
OTHER LIMITATIONS. The Portfolio may not invest more than 5% of its total assets
in securities of companies, including predecessors, that have been in continuous
operation for less than three years. The Portfolio also may not invest more than
25% of its total assets in any particular industry, although it may invest more
than 25% of its assets in certain domestic bank obligations. These limitations
do not apply to U.S. government securities, federal agency obligations, or
repurchase agreements fully collateralized by U.S. government securities. There
are, however, certain tax diversification requirements that may apply to
investments in repurchase agreements and other securities that are not treated
as U.S. government securities under the Code.
THE FUND'S MASTER/FEEDER STRUCTURE
The fund's structure, where it invests all of its assets in the Portfolio, is
sometimes known as a "Master/Feeder" structure. By investing all of its assets
in shares of the Portfolio, the fund, other mutual funds and institutional
investors can pool their assets. This may result in asset growth and lower
expenses, although there is no guarantee that this will happen.
If the fund, as a shareholder of the Portfolio, has to vote on a matter relating
to the Portfolio, it will hold a meeting of fund shareholders and will cast its
votes in the same proportion as the fund's shareholders voted.
There are some risks associated with the fund's Master/Feeder structure. If
other shareholders in the Portfolio sell their shares, the fund's expenses may
increase. Additionally, any economies of scale the fund has 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 also have effective voting control.
If the Portfolio changes its investment goal or any of its fundamental policies
and fund shareholders do not approve the same change for the fund, the fund may
need to withdraw its investment from the Portfolio. Likewise, if the Board
considers it to be in the fund's best interest, it may withdraw the fund's
investment from the Portfolio at any time. If either situation occurs, the Board
will decide what action to take. Possible solutions might include investing all
of the fund's assets in another pooled investment entity with the same
investment goal and substantially similar policies as the fund, or hiring an
investment advisor to manage the fund's investments. Either circumstance could
increase the fund's expenses.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the fund or (ii) 67%
or more of the shares of the fund present at a shareholder meeting if more than
50% of the outstanding shares of the fund are represented at the meeting in
person or by proxy, whichever is less. The fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefore) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objective and policies of the Portfolio, (b) to the extent
the entry into a repurchase agreement is deemed to be a loan, or (c) by the loan
of its portfolio securities in accordance with the policies described in the
Prospectus.
3. Acquire, lease or hold real estate, provided that this limitation shall not
prohibit the purchase of municipal and other debt securities secured by real
estate or interests therein.
4. Buy any securities "on margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance
of transactions.
5. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads, or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" or write covered call options in
accordance with its stated investment policies.
6. Purchase securities in private placements or in other transactions, for
which there are legal or contractual restrictions on resale and which are not
readily marketable, or enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 10% of the total assets of the fund
would be invested in such securities or repurchase agreements, except that, to
the extent this restriction is applicable, the fund may purchase, in private
placements, shares of another registered investment company having the same
investment objectives and policies as the fund.
7. Act as underwriter of securities issued by other persons except insofar as
the fund may technically be deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities, except that all
or substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objectives and policies
as the fund.
8. Purchase the securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization; provided that all
or substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objective and policies
as the fund.
9. Invest in any issuer for purposes of exercising control or management,
except that, to the extent this restriction is applicable, all or substantially
all of the assets of the fund may be invested in another registered investment
company having the same investment objectives and policies as the fund.
10. Purchase securities from or sell to the fund's officers and directors, or
any firm of which any officer or director is a member, as principal, or retain
securities of any issuer if, to the knowledge of the fund, one or more of the
fund's officers, directors, or investment advisor own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and directors
together own beneficially more than 5% of such securities.
11. Invest more than 25% of its assets in securities of any industry, although
for purposes of this limitation, U.S. government obligations are not considered
to be part of any industry. This prohibition does not apply where the fund's
policies, as described in the Prospectus, state otherwise, and further does not
apply to the extent that the fund invests all of its assets in another
registered investment company having the same investment objective and policies.
The investment restrictions of the Portfolio are substantially similar to the
investment restrictions of the fund, except as necessary to reflect the policy
of the fund to invest all of its assets in the shares of the Portfolio.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
The Board has the responsibility for the overall management of the fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the fund who are responsible for
administering the fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS WITH THE TRUST THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, Director, MotherLode Gold Mines
Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Director
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and formerly,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
Robert F. Carlson (70)
2120 Lambeth Way
Carmichael, CA 95608
Director
Member and past President, Board of Administration, California Public Employees
Retirement Systems (CALPERS); director or trustee, as the case may be, of nine
of the investment companies in the Franklin Templeton Group of Funds; and
formerly, member and Chairman of the Board, Sutter Community Hospitals,
Sacramento, CA, member, Corporate Board, Blue Shield of California, and Chief
Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee, as
the case may be, of 51 of the investment companies in the Franklin Templeton
Group of Funds; and formerly, Director, General Host Corporation (nursery and
craft centers).
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of
the Board
and Director
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc. and Franklin Templeton Services, Inc.; officer and/or director or trustee,
as the case may be, of most of the other subsidiaries of Franklin Resources,
Inc. and of 50 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, Director, General Host Corporation (nursery and craft
centers).
*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
President
and Director
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/ Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Director
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission Systems,
Inc. (wireless communications); director or trustee, as the case may be, of 27
of the investment companies in the Franklin Templeton Group of Funds; and
formerly, Director, Fischer Imaging Corporation (medical imaging systems) and
General Partner, Peregrine Associates, which was the General Partner of
Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Director
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of 49
of the investment companies in the Franklin Templeton Group of Funds; and
formerly, Chairman, White River Corporation (financial services) and Hambrecht
and Quist Group (investment banking), and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin Templeton
Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor Services, Inc.; officer and/or director of some of
the other subsidiaries of Franklin Resources, Inc.; and officer and/or director
or trustee, as the case may be, of 53 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal Officer
and Chief Operating Officer, Franklin Investment Advisory Services, Inc.; and
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404 Accounting
Treasurer and
Principal Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32 of
the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Thomas J. Runkel (40)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
Richard C. Stoker (61)
11615 Spring Ridge Rd.
Potomac, MD 20854
Vice President
Senior Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Management, Inc.; and officer of five of the investment companies in
the Franklin Templeton Group of Funds.
R. Martin Wiskemann (71)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President and Director,
ILA Financial Services, Inc.; and officer and/or director or trustee, as the
case may be, of 15 of the investment companies in the Franklin Templeton Group
of Funds.
The officers and Board members of the fund are also officers and trustees of
Money Market, except as follows: Richard C. Stoker and Thomas J. Runkel, Vice
Presidents of the fund are not officers or trustees of Money Market. Rupert H.
Johnson, Jr., President and Director of the fund, is Vice President and Trustee
of Money Market. The following trustee of Money Market is not an officer or
director of the fund:
POSITIONS AND OFFICES PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS WITH THE MONEY MARKET THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and
Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 34 of the investment companies in
the Franklin Templeton Group of Funds.
Charles E. Johnson is considered an "interested person" of Money Market under
the 1940 Act.
The tables above show the officers, Board members and the trustees of Money
Market who are affiliated with Distributors and Advisers. As of June 1, 1998,
nonaffiliated members of the Board are paid $800 per month plus $575 per meeting
attended. Also as of June 1, 1998, nonaffiliated trustees of Money Market are no
longer paid any fees. As shown above, the nonaffiliated Board members and
trustees of Money Market also serve as directors or trustees of other investment
companies in the Franklin Templeton Group of Funds. They may receive fees from
these funds for their services. The fees payable to nonaffiliated Board members
by the fund are subject to reductions resulting from fee caps limiting the
amount of fees payable to Board members who serve on other boards within the
Franklin Templeton Group of Funds. The following table provides the total fees
paid to nonaffiliated Board members and trustees of Money Market by the fund, by
Money Market, and by other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER
OF BOARDS
TOTAL FEES TOTAL FEES TOTAL FEES IN THE FRANKLIN
RECEIVED RECEIVED RECEIVED FROM THE TEMPLETON GROUP
FROM THE FROM MONEY FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME FUND*** MARKET*** GROUP OF FUNDS**** EACH SERVES*****
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank H. Abbott, III ... $13,374 $1,100 $165,937 27
Harris J. Ashton ....... 12,856 1,050 344,642 49
Robert Carlson* ........ 6,415 450 17,680 9
S. Joseph Fortunato .... 12,785 1,050 361,562 51
David W. Garbellano** .. 2,240 200 91,317 N/A
Frank W.T. LaHaye ...... 13,374 1,100 141,433 27
Gordon S. Macklin ...... 12,856 1,050 337,292 49
</TABLE>
*Elected January 15, 1998.
**Deceased, September 27, 1997.
***For the fiscal year ended June 30, 1998. During the period from July 1, 1997,
through May 31, 1998, fees at the rate of $560 per month plus $560 per meeting
attended were in effect for the fund, and fees at the rate of $50 per month plus
$50 per meeting attended were in effect for Money Market.
****For the calendar year ended December 31, 1997.
*****We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not include
the total number of series or funds within each investment company for which the
Board members and trustees of Money Market are responsible. The Franklin
Templeton Group of Funds currently includes 54 registered investment companies,
with approximately 168 U.S. based funds or series.
Nonaffiliated members of the Board and trustees of Money Market are reimbursed
for expenses incurred in connection with attending board meetings, paid pro rata
by each fund in the Franklin Templeton Group of Funds for which they serve as
director or trustee. No officer or Board member or trustee of Money Market
received any other compensation, including pension or retirement benefits,
directly or indirectly from the fund, Money Market or other funds in the
Franklin Templeton Group of Funds. Certain officers or Board members and
trustees of Money Market who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries.
As of August 4, 1998, the officers and Board members, as a group, owned of
record and beneficially approximately 1,921,906 shares, or less than 1% of the
fund's total outstanding shares. Many of the Board members also own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
INVESTMENT MANAGEMENT
AND OTHER SERVICES
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INVESTMENT MANAGER AND ADMINISTRATOR AND SERVICES PROVIDED. Advisers is the
investment manager of the Portfolio and is also the administrator of the fund.
Advisers provides investment research and portfolio management services,
including the selection of securities for the Portfolio to buy, hold or sell and
the selection of brokers through whom the Portfolio's portfolio transactions are
executed. Advisers' activities are subject to the review and supervision of the
Board of Trustees of Money Market to whom Advisers renders periodic reports of
the Portfolio's investment activities. Advisers and its officers, directors and
employees are covered by fidelity insurance for the protection of the fund and
the Portfolio.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action with
respect to any of the other funds it manages, or for its own account, that may
differ from action taken by Advisers on behalf of the Portfolio. Similarly, with
respect to the Portfolio, Advisers is not obligated to recommend, buy or sell,
or to refrain from recommending, buying or selling any security that Advisers
and access persons, as defined by the 1940 Act, may buy or sell for its or their
own account or for the accounts of any other fund. Advisers is not obligated to
refrain from investing in securities held by the Portfolio or other funds that
it manages. Of course, any transactions for the accounts of Advisers and other
access persons will be made in compliance with the Portfolio's Code of Ethics.
Please see "Miscellaneous Information - Summary of Code of Ethics."
MANAGEMENT AND ADMINISTRATION FEES. Under its management agreement, the
Portfolio pays Advisers a management fee equal to an annual rate of 0.15 of 1%
of the value of the Portfolio's average daily net assets. The fee is computed at
the close of business on the last business day of each month.
Advisers provides various administrative, statistical, and other services to the
fund. Under its administration agreement, the fund pays Advisers an
administration fee equal to an annual rate of 91/200 of 1% for the first $100
million of its average daily net assets; 33/100 of 1% of its average daily net
assets over $100 million up to and including $250 million; and 7/25 of 1% of its
average daily net assets in excess of $250 million. The fee is computed at the
close of business on the last business day of each month.
For the fiscal years ended June 30, 1998, 1997 and 1996, management fees of the
Portfolio, before any advance waiver, totaled $2,963,304, $2,547,891, and
$2,162,519, respectively. Under an agreement by Advisers to limit its fees, the
Portfolio paid management fees totaling $2,830,858, $2,429,509, and $2,034,014
and the fund paid administration fees totaling $4,789,789, $3,977,302, and
$3,351,257 for the same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1999. It may continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board of Trustees of Money Market or by a vote of the holders of a majority of
the Portfolio's outstanding voting securities, and in either event by a majority
vote of the trustees of Money Market who are not parties to the management
agreement or interested persons of any such party (other than as members of the
Board of Trustees of Money Market), cast in person at a meeting called for that
purpose. The management agreement may be terminated without penalty at any time
by the Board of Trustees of Money Market or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities on 30 days' written
notice to Advisers, or by Advisers on 60 days' written notice to the Portfolio,
and will automatically terminate in the event of its assignment, as defined in
the 1940 Act.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the fund's shareholder servicing agent and acts as the fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the fund. The amount of reimbursements for these services
per benefit plan participant fund account per year may not exceed the per
account fee payable by the fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. Investor Services, in its capacity as the transfer agent for the
Portfolio, effectively acts as the fund's custodian and holds the fund's shares
of the Portfolio on its books. Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York 10286, acts as custodian of the fund's
cash, pending investment in shares of the Portfolio. Bank of New York also acts
as custodian of the securities and other assets of the Portfolio. The custodian
does not participate in decisions relating to the purchase and sale of portfolio
securities.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the fund's independent auditor. During the fiscal year
ended June 30, 1998, the auditor's services consisted of rendering an opinion on
the financial statements of the fund included in the fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1998.
HOW DOES THE PORTFOLIO BUY
SECURITIES FOR ITS PORTFOLIO?
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The fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the Portfolio.
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or buying principal or market maker without incurring charges
for the services of a broker on its behalf, unless it is determined that a
better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. The Portfolio seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the special executions or on the
research services Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the fund's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Portfolio's transactions.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by Advisers, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Portfolio is concerned. In other cases it is possible that the ability to
participate in volume transactions may improve execution and reduce transaction
costs to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may not
buy securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Portfolio may, however,
sell securities before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1998, 1997 and 1996, the Portfolio paid
no brokerage commissions.
As of June 30, 1998, the Portfolio owned securities issued by Morgan Stanley
Dean Witter & Co. valued in the aggregate at $80 million, J.P. Morgan & Co.
valued in the aggregate at $49 million, and Swiss Bank Corp., valued in the
aggregate at $25 million. Morgan Stanley Dean Witter & Co, J.P. Morgan & Co. and
Swiss Bank Corp. are regular broker-dealers of the Portfolio. Except as noted,
neither the fund nor the Portfolio owned securities issued by its regular
broker-dealers as of the end of the fiscal year.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ON BUYING SHARES
The fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Banks and financial institutions that sell shares
of the fund may be required by state law to register as Securities Dealers.
All purchases of fund shares will be credited to you, in full and fractional
shares of the fund (rounded to the nearest 1/100 of a share), in an account
maintained for you by the fund's transfer agent. No share certificates will be
issued for fractional shares at any time. No certificates will be issued to you
if you have elected to redeem shares by check or by preauthorized bank or
brokerage firm account methods. The offering of shares of the fund may be
suspended at any time and resumed at any time thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the fund under the exchange privilege, the fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
Net Asset Value at the close of business on the day the request for exchange is
received in proper form. Please see "May I Exchange Shares for Shares of Another
Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the 25th day of the month in which a payment is scheduled. If the 25th falls
on a weekend or holiday, we will process the redemption on the next business
day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the fund.
If a withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
The fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the fund receives notification of the
shareholder's death or incapacity.
REDEMPTIONS IN KIND. The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
fund's net assets and you may incur brokerage fees in converting the securities
to cash.
GENERAL INFORMATION
If dividend checks are returned to the fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the fund may reimburse Investor
Services an amount not to exceed the per account fee that the fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
processing a large number of checks each month. Fees for special services will
not increase the expenses borne by the fund.
Special procedures have been designed for banks and other institutions wishing
to open multiple accounts. An institution may open a single master account by
filing one application form with the fund, signed by personnel authorized to act
for the institution. Individual sub-accounts may be opened at the time the
master account is filed by listing them, or instructions may be provided to the
fund at a later date. These sub-accounts may be established by the institution
with registration either by name or number. The investment minimums applicable
to the fund are applicable to each sub-account. The fund will provide each
institution with a written confirmation for each transaction in a sub-account
and arrangements may be made at no additional charge for the transmittal of
duplicate confirmations to the beneficial owner of the sub-account.
The fund will provide to each institution, on a quarterly basis or more
frequently if requested, a statement setting forth each sub-account's share
balance, income earned for the period, income earned for the year to date, and
total current market value.
HOW ARE FUND SHARES VALUED?
- --------------------------------------------------------------------------------
We calculate the Net Asset Value per share as of 3:00 p.m. Pacific time, each
day that the NYSE is open for trading. As of the date of this SAI, the fund is
informed that the NYSE observes the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The valuation of the Portfolio's portfolio securities, including any securities
held in a separate account maintained for when-issued securities, is based on
the amortized cost of the securities, which does not take into account
unrealized capital gains or losses. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
calculation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument. During periods of declining interest rates, the daily
yield on shares of the Portfolio computed as described above may tend to be
higher than a like computation made by a fund with identical investments but
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by the Portfolio resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Portfolio would be able to obtain a somewhat
higher yield than would result from an investment in a fund utilizing only
market values, and existing investors in the Portfolio would receive less
investment income. The opposite would be true in a period of rising interest
rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
Net Asset Value per share of $1, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less
and only buy instruments having remaining maturities of 397 calendar days or
less. The Portfolio must also invest only in those U.S. dollar-denominated
securities that the Board of Trustees of Money Market determines present minimal
credit risks and that are rated in one of the two highest short-term rating
categories by nationally recognized rating services, or if unrated are deemed
comparable in quality, or are instruments issued by an issuer that, with respect
to an outstanding issue of short-term debt that is comparable in priority and
protection, has received a rating within the two highest rating categories.
Securities subject to floating or variable interest rates with demand features
that comply with applicable SEC rules may have stated maturities in excess of
one year.
The Board of Trustees of Money Market has established procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share at
$1, as computed for the purpose of sales and redemptions. These procedures
include a review of the Portfolio's holdings by the Board of Trustees of Money
Market, at such intervals as it may deem appropriate, to determine if the
Portfolio's Net Asset Value calculated by using available market quotations
deviates from $1 per share based on amortized cost. The extent of any deviation
will be examined by the Board of Trustees of Money Market. If a deviation
exceeds 1/2 of 1%, the trustees will promptly consider what action, if any, will
be initiated. If the Board of Trustees of Money Market determines that a
deviation exists that may result in material dilution or other unfair results to
investors or existing shareholders, it will take corrective action that it
regards as necessary and appropriate, which may include selling portfolio
instruments before maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, redeeming shares in kind, or
establishing a Net Asset Value per share by using available market quotations.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The fund declares dividends for each day
that the fund's Net Asset Value is calculated. These dividends will equal all of
the fund's daily net income payable to shareholders of record as of the close of
business the preceding day. The fund's daily net income includes its pro rata
share of the Portfolio's income plus or minus any gain or loss on the sale of
Portfolio shares and changes in unrealized appreciation or depreciation in
Portfolio shares (to the extent required to maintain a constant Net Asset Value
per share), less the estimated expenses of the fund. The Portfolio's income
consists of accrued interest and any original issue or acquisition discount,
plus or minus any gain or loss on the sale of securities held by the Portfolio
and changes in unrealized appreciation or depreciation in securities held by the
Portfolio, less the estimated expenses of the Portfolio.
The fund earns income and gains on its investment in the Portfolio. The
Portfolio, in turn, earns income generally in the form of interest, original
issue, market and acquisition discount, and other income derived from its
investments. This income, together with the excess of any net short-term capital
gain over net long-term capital loss realized by the Portfolio, less expenses
incurred in the operation of the Portfolio, is paid to the fund as ordinary
dividend income. The ordinary dividend income received from the Portfolio, less
expenses incurred in the operation of the fund, constitutes the fund's net
investment income from which dividends may be paid to you. Any distributions by
the fund from such income will be taxable to you as ordinary income, whether you
take them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. The fund may receive capital gain distributions
from the Portfolio, consisting of the excess of any net long-term capital gain
over net short-term capital loss realized by the Portfolio on the sale or
disposition of its underlying portfolio securities. The fund may also derive
capital gains and losses in connection with the sale of Portfolio shares.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Distributions
derived from the excess of net long-term capital gain over net short-term
capital loss, including capital gain distributions received from the Portfolio,
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares in the fund. Any net short-term or long-term capital gains
realized by the fund (net of any capital loss carryovers) generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on the
fund. Because the fund is a money market fund, it does not anticipate realizing
any long-term capital gains, however.
CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following year
will be treated for tax purposes as if they had been received by you on December
31 of the year in which they were declared. The fund will report this income to
you on your Form 1099-DIV for the year in which these distributions were
declared.
MAINTENANCE OF $1.00 NET ASSET VALUE. Gains and losses on the sale of portfolio
securities and unrealized appreciation or depreciation in the value of these
securities may require the fund to distribute income or make distribution
adjustments in order to maintain a $1.00 Net Asset Value. These procedures may
result in under- or over-distributions of net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The fund will inform you of
the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The fund has elected to
be treated as a regulated investment company under Subchapter M of the Code, has
qualified as such for its most recent fiscal year, and intends so to qualify
during the current fiscal year. The Board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to its shareholders. In such case, the
fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of the fund's available earnings and profits.
In order to qualify as a regulated investment company for tax purposes, the fund
must meet certain specific requirements, including:
o The fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the fund's total assets,
and, with respect to 50% of the fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of the fund's total
assets or 10% of the outstanding voting securities of the issuer;
o The fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and
o The fund must distribute to its shareholders at least 90% of its investment
company taxable income (i.e., net investment income plus net short-term
capital gains) and net tax-exempt income for each of its fiscal years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the fund to distribute
at least 98% of its taxable ordinary income earned during the calendar year and
98% of its capital gain net income earned during the twelve month period ending
October 31 (in addition to undistributed amounts from the prior year) to you by
December 31 of each year in order to avoid federal excise taxes. The fund
intends to declare and pay sufficient dividends in December (or in January of
the following year that are treated by you as received in December of the prior
year) but does not guarantee and can give no assurances that its distributions
will be sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. The tax law requires
that you recognize a gain or loss in an amount equal to the difference between
your tax basis and the amount you received in exchange for your shares, subject
to the rules described below. If you hold your shares as a capital asset, the
gain or loss that you realize will be capital gain or loss, and will be
long-term for federal income tax purposes if you have held your shares for more
than one year at the time of redemption or exchange. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you purchase other shares in the
fund (through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be added
to your tax basis in the new shares you purchase. Because the fund seeks to
maintain a constant $1.00 per share Net Asset Value, you should not expect to
realize a gain or loss upon redemption of your fund shares, however.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by U.S. government securities do
not generally qualify for tax-free treatment. It is anticipated, however, that
no portion of the fund's distributions will qualify for exemption from state and
local income tax as dividends paid from interest earned on direct obligations of
the U.S. government. At the end of each calendar year, the fund will provide you
with the percentage of any dividends paid that may qualify for tax-free
treatment on your personal income tax return. You should consult with your own
tax advisor to determine the application of your state and local laws to these
distributions. Because the rules on exclusion of this income are different for
corporations, corporate shareholders should consult with their corporate tax
advisors about whether any of their distributions may be exempt from corporate
income or franchise taxes.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the fund's income is
derived primarily from interest rather than dividends, no portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the fund for the
most recent fiscal year qualified for such deduction, and it is anticipated that
none of the current year's dividends will so qualify.
THE FUND'S UNDERWRITER
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Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
For the fiscal years ended June 30, 1998, 1997 and 1996, Distributors received
$0, $0 and $23,898, respectively, in connection with redemptions or repurchases
of shares of the fund.
HOW DOES THE FUND
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MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The fund's current yield for the seven day period ended June 30, 1998,
was 4.99%.
EFFECTIVE YIELD. The fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The fund's effective yield for the
seven day period ended June 30, 1998, was 5.11%.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/7]-1
OTHER PERFORMANCE QUOTATIONS
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the fund may satisfy your
investment goal, advertisements and other materials about the fund may discuss
certain measures of fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC Money Fund Report(R) - industry averages for seven-day annualized and
compounded yields of taxable, tax-free and government money funds.
b) Bank Rate Monitor - a weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - a weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long term government bonds, Treasury bills, and inflation.
g) Financial publications: THE WALL STREET JOURNAL, AND BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY MAGAZINES - provide
performance statistics over specified time periods.
h) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk-adjusted performance of a fund over specified
time periods relative to other funds within its category.
Advertisements or information may also compare the fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. CDs are
frequently insured by an agency of the U.S. government. An investment in the
fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
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The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 50 years and
now services more than 3 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $207 billion in assets under
management for more than 6 million U.S. based mutual fund shareholder and other
accounts. The Franklin Templeton Group of Funds offers 117 U.S. based open-end
investment companies to the public. The fund may identify itself by its NASDAQ
symbol or CUSIP number.
From time to time, the number of fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the fund, no other person holds beneficially or of record more
than 5% of the fund's outstanding shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a Notice of Levy.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations and statements must be sent
to a compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.
FINANCIAL STATEMENTS
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The audited financial statements contained in the Annual Report to Shareholders
of the fund, for the fiscal year ended June 30, 1998, including the auditor's
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
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1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Portfolio's investment manager and the
fund's administrator
BOARD - The Board of Directors of the fund
CD - Certificate of deposit
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter
FITCH - Fitch Investors Service, Inc.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the fund dated November 1, 1998, which we may
amend from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
APPENDICES
SUMMARY OF PROCEDURES TO
MONITOR CONFLICTS OF INTEREST
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The Board of Trustees of Money Market, on behalf of its series ("master funds"),
and the Board of the fund ("feeder fund"), (both of which, except in the case of
one trustee, are composed of the same individuals) recognize that there is the
potential for certain conflicts of interest to arise between the master fund and
the feeder fund in this format. These potential conflicts of interest could
include, among others: the creation of additional feeder funds with different
fee structures; the creation of additional feeder funds that could have
controlling voting interests in any pass-through voting which could affect
investment and other policies; a proposal to increase fees at the master fund
level; and any consideration of changes in fundamental policies at the master
fund level that may or may not be acceptable to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Board
of Trustees of Money Market and the Board of the fund have adopted certain
procedures under which i) management of the master fund and the feeder fund
will, on a yearly basis, report to each board, including the independent members
of each board, on the operation of the master/feeder fund structure; ii) the
independent members of each board will have ongoing responsibility for reviewing
all proposals at the master fund level to determine whether any proposal
presents a potential for a conflict of interest and to the extent any other
potential conflicts arise before the normal annual review, they will act
promptly to review the potential conflict; iii) if the independent members of
each board determine that a situation or proposal presents a potential conflict,
they will request a written analysis from the master fund management describing
whether the apparent potential conflict of interest will impede the operation of
the constituent feeder fund and the interests of the feeder fund's shareholders;
and iv) upon receipt of the analysis, the independent members of each board
shall review the analysis and present their conclusion to the full boards.
If no actual conflict is deemed to exist, the independent board members will
recommend that no further action be taken. If the analysis is inconclusive, they
may submit the matter to and be guided by the opinion of independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following actions: i) suggest a course of action
designed to eliminate the potential conflict of interest; ii) if appropriate,
request that the full boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected feeder fund no
longer invest in its designated master fund and propose either a search for a
new master fund in which to invest the feeder fund's assets or the hiring of an
investment manager to manage the feeder fund's assets in accordance with its
investment goals and policies; iv) recommend to the full boards that a new board
be recommended to shareholders for approval; or v) recommend such other action
as may be considered appropriate.
DESCRIPTION OF RATINGS
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SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings, which are also applicable to municipal paper investments permitted to
be made by the fund, are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of nine
months.
Moody's employs the following designations, judged to be investment grade, used
for both short-term debt and commercial paper to indicate the relative repayment
ability of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days - including commercial
paper. Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Issues within the "A" category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, CDs, medium-term notes, and municipal and investment notes. The
short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
